Registration Statement on Form S-4
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Index to Financial Statements

As filed with the U.S. Securities and Exchange Commission on August 3, 2018

Registration No. 333-        

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Versartis, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2836   26-4106690

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

1020 Marsh Rd.

Menlo Park, California 94025

(650) 963-8580

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Jay P. Shepard

President and Chief Executive Officer

Versartis, Inc.

1020 Marsh Rd.

Menlo Park, California 94025

(650) 963-8580

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Kenneth Guernsey

Peter Chess

Gaël Y. Hagan

Cooley LLP

101 California St., Fifth Floor

San Francisco, California 94111

(212) 698-3616

 

Raymond Tabibiazar, M.D.

Executive Chairman

Aravive Biologics, Inc.

LyondellBasell Tower

1221 McKinney Street, Suite 3200

Houston, Texas 77010

(936) 355-1910

 

Leslie Marlow

Gracin & Marlow, LLP

The Chrysler Building

405 Lexington Avenue, 26th Floor

New York, New York 10174

(212) 907-6457

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement and the satisfaction or waiver of all other conditions under the Merger Agreement described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  ☐


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

 

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☒

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of securities to be registered   Amount to be
registered(1)(2)
  Proposed maximum
offering price
per share
  Proposed maximum
aggregate offering
price(3)
  Amount of
registration fee(4)

Common stock, par value $0.0001 per share

 

38,125,254

  N/A  

$554.88

  $124.50

 

 

(1)

Represents the maximum number of shares of common stock of Versartis, Inc., or Versartis, issuable to securityholders of Aravive Biologics, Inc., or Aravive, in the proposed merger described in the proxy statement/prospectus/information statement included herein. The amount of Versartis common stock to be registered is based on the estimated number of shares of Versartis common stock that are expected to be issued pursuant to the merger, prior to giving effect to the proposed reverse stock split, assuming a pre-split exchange ratio of 2.29 shares of Versartis common stock for each outstanding share of Aravive common stock. The estimated exchange ratio calculation contained herein is based upon Versartis’ and Aravive’s capitalization immediately prior to the date of this proxy statement/prospectus/information statement, and the number of shares of Versartis common stock issuable in the proposed merger will be adjusted to account for changes in Versartis’ fully diluted common stock prior to the closing of the merger and, under certain circumstances, the amount of cash retained by Versartis prior to the merger.

(2)

Pursuant to Rule 416 under the Securities Act of 1933, as amended, or Securities Act, there are also being registered such additional shares of Versartis common stock that may be issued because of events such as recapitalizations, stock dividends, stock splits and reverse stock splits, and similar transactions.

(3)

Estimated solely for purposes of calculation of the registration fee in accordance with Rule 457(f) of the Securities Act. Aravive is a private company and no market exists for its equity securities. Aravive has accumulated a capital deficit; therefore, pursuant to Rule 457(f)(2) under the Securities Act, the proposed maximum offering price is one-third of the aggregate par value of Aravive’s capital stock being acquired in the proposed merger, which is calculated by taking one-third of the product of the par value of $0.0001 and the maximum number of shares of Aravive capital stock that may be exchanged in the merger, or 16,646,401 shares of Aravive capital stock (computed as of August 1, 2018, the latest practicable date prior to the date of filing this registration statement, and inclusive of all shares of Aravive capital stock issuable upon conversion of any securities convertible into or exercisable for shares of Aravive capital stock).

(4)

Determined in accordance with Section 6(b) of the Securities Act at a rate equal to $124.50 per $1,000,000 of the proposed maximum aggregate offering price.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this proxy statement/prospectus/information statement is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus/information statement is not an offer to sell and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED AUGUST 3, 2018

 

LOGO    LOGO

PROPOSED MERGER

YOUR VOTE IS VERY IMPORTANT

To the Stockholders of Versartis, Inc. and Aravive Biologics, Inc.:

Versartis, Inc., a Delaware corporation, or Versartis, Velo Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Versartis, or Merger Sub, and Aravive Biologics, Inc., a Delaware corporation, or Aravive, have entered into an Agreement and Plan of Merger and Reorganization, or Merger Agreement, pursuant to which Merger Sub will merge with and into Aravive, with Aravive surviving the merger as a wholly-owned subsidiary of the combined company. These transactions are referred to herein collectively as the “merger.” Following the merger, Versartis will be renamed “Aravive, Inc.” and is sometimes referred to herein as the “combined company.” The merger will result in a clinical-stage pharmaceutical company focused on developing Aravive’s therapeutics that target solid tumors and hematologic malignancies. Aravive’s primary therapeutic focus is the GAS6-AXL pathway, where AXL receptor signaling plays an important role in multiple types of malignancies by promoting metastasis, cancer cell survival, resistance to treatments, and immune suppression. Aravive’s technology originated in the laboratories of Dr. Amato Giaccia and his colleagues at Stanford University.

The Exchange Ratio (as defined below) was negotiated so that the pre-closing securityholders of each of Versartis and Aravive would beneficially own approximately 50% of the fully diluted shares of Versartis following the closing of the merger, subject to (a) Versartis’ cash at closing of the merger being within a projected range, and (b) not counting for purposes of the computation any outstanding options for Versartis common stock having an exercise price greater than $2.53 per share. Accordingly, at the closing of the merger, (i) each outstanding share of capital stock of Aravive will be converted into the right to receive approximately 2.29, or the Exchange Ratio, shares of Versartis common stock, subject to adjustment for any reverse stock split, (ii) each outstanding in-the-money Aravive stock option, whether vested or unvested, that has not been exercised prior to the effective time of merger will be converted into a stock option to purchase approximately 2.29 shares of Versartis common stock for each share of Aravive common stock covered by such option and (iii) all other outstanding Aravive stock options will be cancelled for no consideration. The Exchange Ratio provided in the preceding sentence is an estimate only and assumes that the Exchange Ratio is not adjusted for cash balances as described below in the section titled “The Merger Agreement.” The final Exchange Ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement. For a more complete description of the Exchange Ratio, see the section titled “The Merger Agreement—Exchange Ratio” in this proxy statement/prospectus/information statement.

Shares of Versartis common stock are currently listed on the Nasdaq Global Select Market under the symbol “VSAR.” Prior to the closing of the merger, Versartis intends to file with The Nasdaq Stock Market, LLC, or Nasdaq, a notification form for the listing of additional shares with respect to the shares of Versartis common stock to be issued to the holders of Aravive capital stock in the merger so that these shares will be listed on the Nasdaq Global Select Market (or such other Nasdaq market on which the shares of Versartis common stock may then be listed) following the merger; provided, however, that in the event Versartis is so required pursuant to Nasdaq’s “reverse merger” rules, Versartis will file an initial listing application for the combined company’s common stock on Nasdaq. After the closing of the merger, the combined company is expected to trade on Nasdaq under the symbol “ARAV.” On                 , 2018, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of Versartis common stock was $        per share.

Versartis is holding a special meeting of stockholders in order to obtain the stockholder approvals necessary to complete the merger and other matters. At the Versartis special meeting, which will be held on                 , 2018 at                 , local time, at                 , unless postponed or adjourned to a later date, Versartis will ask its stockholders, among other things, to approve the issuance of shares of Versartis common stock as consideration in the merger and to approve an amendment to Versartis’ certificate of incorporation effecting a reverse stock split of Versartis common stock at a ratio in the range from 2-for-1 to 15-for-1, with such specific ratio to be mutually agreed upon by the respective Versartis and Aravive boards of directors or, if the Stock Issuance Proposal is not approved by Versartis stockholders, determined solely by the Versartis board of directors following the special meeting, each as described in this proxy statement/prospectus/information statement.

As described in this proxy statement/prospectus/information statement, certain Aravive stockholders who in the aggregate beneficially own approximately 78.6% of the outstanding shares of Aravive capital stock (on an as-converted to common stock basis), and certain Versartis stockholders who in the aggregate beneficially own approximately 15.3% of the outstanding shares of Versartis common stock, are parties to support agreements with Versartis and Aravive, respectively, pursuant to which such stockholders have agreed to vote such shares in favor of approving certain of the transactions contemplated by the Merger Agreement, including the merger and the issuance of shares of Versartis common stock pursuant to the Merger Agreement, respectively, subject to the terms of the support agreements. No meeting of Aravive stockholders to adopt the Merger Agreement and approve the merger and related transactions will be held. Instead, all Aravive stockholders will have the opportunity to vote to adopt the Merger Agreement and approve the merger and related transactions by signing and returning to Aravive a written consent following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the Securities and Exchange Commission. The holders of a sufficient number of shares of Aravive capital stock required to adopt the Merger Agreement and approve the merger and related transactions have agreed to adopt the Merger Agreement and approve the merger and related transactions via written consent. Aravive stockholders, including those who are parties to support agreements, are requested to execute written consents providing such approvals.

After careful consideration, the respective Versartis and Aravive boards of directors have unanimously approved the Merger Agreement and the transactions contemplated thereby, including the proposals referred to above. The Versartis board of directors unanimously recommends that its stockholders vote “FOR” each of the Stock Issuance Proposal, the Reverse Stock Split Proposal and the Adjournment Proposal, each as is described in this proxy statement/prospectus/information statement, and the Aravive board of directors unanimously recommends that its stockholders sign and return to Aravive the written consent indicating their adoption of the Merger Agreement and approval of the merger and related transactions.

More information about Versartis, Aravive and the proposed transactions are contained in this proxy statement/prospectus/information statement. Versartis and Aravive urge you to read this proxy statement/prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 30.

Versartis and Aravive are excited about the opportunities the merger brings to both Versartis and Aravive stockholders, and thank you for your consideration and continued support.

 

 

 

Jay P. Shepard    Raymond Tabibiazar, M.D.
President and Chief Executive Officer    Executive Chairman
Versartis, Inc.    Aravive Biologics, 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 this proxy statement/prospectus/information statement. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus/information statement is dated                 , 2018, and is first being mailed to Versartis and Aravive stockholders on or about                 , 2018.


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LOGO

VERSARTIS, INC.

1020 Marsh Rd

Menlo Park, California 94025

(650) 963-8580

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On                 , 2018

Dear Stockholders of Versartis:

On behalf of the board of directors of Versartis, Inc., a Delaware corporation, or Versartis, Versartis is pleased to deliver this proxy statement/prospectus/information statement for the proposed merger between Versartis and Aravive Biologics, Inc., a Delaware corporation, or Aravive, pursuant to which Velo Merger Sub, Inc., a wholly-owned subsidiary of Versartis, or Merger Sub, will merge with and into Aravive, with Aravive surviving the merger as a wholly-owned subsidiary of the combined company. The special meeting of Versartis stockholders (which will also serve as Versartis’ 2018 annual meeting of stockholders) will be held on                 , 2018 at ,                 local time, at                 , for the following purposes:

 

1.

To consider and vote upon a proposal to approve the issuance of shares of Versartis common stock pursuant to the Agreement and Plan of Merger and Reorganization, dated as of June 3, 2018, by and among Versartis, Merger Sub, and Aravive, a copy of which is attached as Annex A to this proxy statement/prospectus/information statement, or the Stock Issuance Proposal;

 

2.

To consider and vote upon an amendment to the certificate of incorporation of Versartis to effect a reverse stock split of Versartis common stock, at a ratio in the range from 2-for-1 to 15-for-1, with such specific ratio to be mutually agreed upon by Versartis and Aravive or, if the Stock Issuance Proposal is not approved by Versartis stockholders, determined solely by the Versartis board of directors following the special meeting, the form of which is attached as Annex B to this proxy statement/prospectus/information statement, or the Reverse Stock Split Proposal;

 

3.

To consider and vote upon the election of the two nominees for Class I directors named in this proxy statement/prospectus/information statement to the Versartis board of directors for a term of three years (provided, however, that if the merger is completed, the Versartis board of directors will be reconstituted as provided in the Merger Agreement), or the Election of Directors Proposal;

 

4.

To consider and vote upon the ratification of the appointment of PricewaterhouseCoopers LLP as Versartis’ independent registered public accounting firm for the fiscal year ending December 31, 2018, or the Accounting Firm Proposal; and

 

5.

To consider and vote upon an adjournment of the Versartis special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Stock Issuance Proposal and/or the Reverse Stock Split Proposal, or the Adjournment Proposal.

The Versartis board of directors has fixed                 , 2018 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Versartis special meeting and any adjournment or postponement thereof. Only holders of record of shares of Versartis common stock at the close of business on the record date are entitled to notice of, and to vote at, the Versartis special meeting. At the close of business on the record date, Versartis had                  shares of common stock outstanding and entitled to vote.

Your vote is important. The affirmative vote of the holders of a majority of the shares of Versartis common stock properly cast at the Versartis special meeting, presuming a quorum is present, is required


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Index to Financial Statements

for approval of the Stock Issuance Proposal, the Accounting Firm Proposal and the Adjournment Proposal. The affirmative vote of the holders of a majority of the Versartis common stock outstanding on the record date for the Versartis special meeting is required for the approval of the Reverse Stock Split Proposal. With respect to the Election of Directors Proposal, directors are elected by a plurality of the affirmative votes cast in person or by proxy at the Versartis special meeting, and the nominees for director receiving the highest number of affirmative votes will be elected. No Versartis Proposal is conditioned upon any other Versartis Proposal.

Even if you plan to attend the Versartis special meeting in person, Versartis requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Versartis special meeting if you are unable to attend.

By Order of the Versartis Board of Directors,

Jay P. Shepard

President and Chief Executive Officer

Menlo Park, California 94025

                    , 2018

THE VERSARTIS BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, VERSARTIS AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE VERSARTIS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT VERSARTIS STOCKHOLDERS VOTE “FOR” EACH OF THE STOCK ISSUANCE PROPOSAL, THE REVERSE STOCK SPLIT PROPOSAL, EACH OF THE NOMINEES NAMED IN THE ELECTION OF DIRECTORS PROPOSAL, THE ACCOUNTING FIRM PROPOSAL AND THE ADJOURNMENT PROPOSAL.


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Index to Financial Statements

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus/information statement incorporates by reference important business and financial information about Versartis from documents previously filed by Versartis with the Securities and Exchange Commission, or the SEC, that are not included in or delivered with this proxy statement/prospectus/information statement. In addition, Versartis files annual, quarterly and current reports, proxy statements and other business and financial information with the SEC. This information is available without charge to you upon written or oral request.

This registration statement to which this proxy statement/prospectus/information statement relates and the exhibits thereto, the information incorporated by reference herein and the other information filed by Versartis with the SEC is available for you to read and copy, without charge, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room.

You may also obtain this information without charge through the SEC website (www.sec.gov) or upon your written or oral request by contacting the President and Chief Executive Officer of Versartis, Inc., 1020 Marsh Rd., Menlo Park, California 94025 or by calling (650) 963-8580.

To ensure timely delivery of these documents, any request should be made no later than                     , 2018 to receive them before the special meeting.

For additional details about where you can find information about Versartis, please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.


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ABOUT THIS PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT

This proxy statement/prospectus/information statement, which forms part of a registration statement on Form S-4 filed with the SEC by Versartis (File No. 333-                ), constitutes a prospectus of Versartis under Section 5 of the Securities Act of 1933, as amended, or the Securities Act, with respect to the shares of Versartis common stock, par value $0.0001, of Versartis, Inc. to be issued pursuant to the Merger Agreement. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, with respect to the Versartis special meeting, at which Versartis stockholders will be asked to consider and vote on, among other matters, a proposal to adopt the Merger Agreement. This document also serves as an information statement of Aravive for use in soliciting the written consent of its stockholders for the adoption of the Merger Agreement and the approval of the merger and related transactions.

No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus/information statement. This proxy statement/prospectus/information statement is dated                     , 2018. The information contained in this proxy statement/prospectus/information statement is accurate only as of that date or, in the case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies.

This proxy statement/prospectus/information statement does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

The information concerning Versartis contained in this proxy statement/prospectus/information statement or incorporated by reference has been provided by Versartis, and the information concerning Aravive contained in this proxy statement/prospectus/information statement has been provided by Aravive.


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Index to Financial Statements

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER

     1  

PROSPECTUS SUMMARY

     10  

The Parties

     10  

The Merger

     11  

Reasons for the Merger

     11  

Opinion of the Financial Advisor to the Versartis Board of Directors

     12  

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

     13  

The Versartis Special Meeting

     18  

Aravive Solicitation of Written Consents

     19  

Interests of Directors and Executive Officers of Versartis and Aravive

     20  

Considerations with Respect to U.S. Federal Income Tax Consequences of the Merger

     20  

Risk Factors

     21  

Regulatory Approvals

     22  

Nasdaq Stock Market Listing

     22  

Anticipated Accounting Treatment

     22  

Appraisal Rights and Dissenters’ Rights

     23  

Comparison of Stockholder Rights

     23  

SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION AND DATA

     24  

Selected Historical Consolidated Financial Data of Versartis

     24  

Selected Historical Financial Data of Aravive Biologics, Inc.

     24  

Selected Unaudited Pro Forma Condensed Combined Financial Data of Versartis and Aravive

     25  

Comparative Historical and Unaudited Pro Forma per Share Data

     26  

MARKET PRICE AND DIVIDEND INFORMATION

     28  

Versartis Common Stock

     28  

Dividend Policy

     28  

RISK FACTORS

     30  

Risks Related to the Merger

     30  

Risks Related to Versartis

     33  

Versartis Risks Related to the Merger

     34  

Risks Related to Aravive

     36  

Risks Related to the Combined Company

     66  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     70  

THE SPECIAL MEETING OF VERSARTIS STOCKHOLDERS

     72  

Date, Time and Place

     72  

Purposes of the Versartis Special Meeting

     72  

Recommendation of the Versartis Board of Directors

     72  

Record Date and Voting Power

     73  

Voting and Revocation of Proxies

     73  

Required Vote

     75  

Solicitation of Proxies

     76  

Other Matters

     76  

THE MERGER

     77  

Background of the Merger

     77  

Versartis Reasons for the Merger

     84  

 

i


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Aravive Reasons for the Merger

     87  

Opinion of the Financial Advisor to the Versartis Board of Directors

     88  

Interests of the Versartis Directors and Executive Officers in the Merger

     96  

Interests of the Aravive Directors and Executive Officers in the Merger

     97  

Limitations of Liability and Indemnification

     98  

Form of the Merger

     99  

Merger Consideration

     99  

Regulatory Approvals

     100  

Tax Treatment of the Merger

     100  

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

     100  

Tax Consequences if the Merger Failed to Qualify as a Reorganization

     102  

Nasdaq Stock Market Listing

     103  

Anticipated Accounting Treatment

     103  

Appraisal Rights and Dissenters’ Rights

     104  

THE MERGER AGREEMENT

     107  

General

     107  

Merger Consideration

     107  

Exchange Ratio

     108  

Treatment of Aravive Stock Options

     109  

Directors and Executive Officers of the Combined Company Following the Merger

     109  

Conditions to the Closing of the Merger

     110  

Representations and Warranties

     112  

Non-Solicitation

     114  

Stockholder Approvals

     115  

Covenants; Conduct of Business Pending the Merger

     115  

Other Agreements

     118  

Termination of the Merger Agreement

     120  

Termination Fees

     121  

Amendment

     122  

AGREEMENTS RELATED TO THE MERGER

     123  

Support Agreements and Written Consent

     123  

Lock-up Agreements

     124  

VERSARTIS DIRECTORS, OFFICERS AND CORPORATE GOVERNANCE

     125  

Executive Officers and Directors of Versartis

     125  

Term and Number of Directors

     128  

Independence of the Versartis Board of Directors

     128  

Board Leadership Structure

     129  

Role of the Versartis Board of Directors in Risk Oversight

     129  

Meetings of the Versartis Board of Directors

     129  

Information Regarding Committees of the Versartis Board of Directors

     129  

Stockholder Communication with the Versartis Board of Directors

     134  

Code of Ethics

     134  

Corporate Governance Guidelines

     135  

Section 16(a) Beneficial Ownership Reporting Compliance

     135  

Director Compensation

     135  

Versartis Non-Employee Director Compensation Policy

     136  

 

ii


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VERSARTIS EXECUTIVE COMPENSATION

     138  

Summary Compensation Table

     138  

Narrative to Summary Compensation Table

     138  

Outstanding Awards at Fiscal Year End

     145  

Potential Payments Upon Termination or Change in Control

     146  

ARAVIVE EXECUTIVE COMPENSATION

     150  

2017 Summary Compensation Table

     150  

Outstanding Equity Awards at December 31, 2017

     151  

Pension Benefits

     152  

Nonqualified Deferred Compensation

     152  

Aravive’s Employment Arrangements

     152  

Employment Benefits Plans

     153  

MATTERS BEING SUBMITTED TO A VOTE OF VERSARTIS STOCKHOLDERS

     156  

Versartis Proposal No.  1 (the Stock Issuance Proposal): Approval of the Issuance of Common Stock in the Merger

     156  

Versartis Proposal No.  2 (the Reverse Stock Split Proposal): Approval of the Amendment to the Certificate of Incorporation of Versartis Effecting the Reverse Stock Split at a Ratio in the Range from 2-for-1 to 15-for 1

     156  

Versartis Proposal No.  3 (Election of Directors Proposal): Election of Edmon R. Jennings and R. Scott Greer to serve on the Versartis board of directors as Class I directors for a three-year term

     163  

Versartis Proposal No.  4 (Accounting Firm Proposal): Ratification of Appointment of Independent Registered Public Accounting Firm

     164  

Versartis Proposal No.  5 (Adjournment Proposal): Approval of Possible Adjournment of the Versartis Special Meeting

     165  

VERSARTIS AND MERGER SUB BUSINESS

     167  

ARAVIVE BUSINESS

     168  

Overview

     168  

GAS6-AXL Pathway

     168  

Aravive-S6 (AVB-S6)

     169  

Manufacturing

     173  

Research and Development

     174  

Competition

     174  

License Agreement

     174  

CPRIT Grant

     175  

Intellectual Property

     176  

Trade Secrets

  

Government Regulation and Product Approval

     177  

U.S. Product Development Process

     178  

Employees

     185  

Advisors

     185  

Facilities

     186  

Legal Proceedings

     186  

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

     187  

Overview

     187  

Critical Accounting Policies, Significant Judgments and Use of Estimates

     188  

Recently Issued Accounting Pronouncements

     188  

 

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Segment Information

     189  

Results of Operations

     189  

Liquidity and Capital Resources

     191  

Cash Flows

     192  

Off-Balance Sheet Arrangements

     193  

Contractual Obligations and Commitments

     194  

MANAGEMENT FOLLOWING THE MERGER

     195  

Executive Officers and Directors of the Combined Company Following the Merger

     195  

Family Relationships

     197  

Board Composition

     197  

Director Independence

     197  

Board Committees

     197  

Code of Business Conduct and Ethics

     200  

Compensation Committee Interlocks and Insider Participation

     200  

Non-Employee Director Compensation

     200  

CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS

     201  

Versartis

     201  

Aravive

     201  

Combined Company Related Party Transaction Policy

     203  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     204  

COMPARISON OF RIGHTS OF HOLDERS OF VERSARTIS STOCK AND ARAVIVE STOCK

     213  

PRINCIPAL STOCKHOLDERS OF VERSARTIS

     223  

PRINCIPAL STOCKHOLDERS OF ARAVIVE

     225  

PRINCIPAL STOCKHOLDERS OF THE COMBINED COMPANY

     227  

LEGAL MATTERS

     229  

EXPERTS

     229  

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

     229  

WHERE YOU CAN FIND MORE INFORMATION

     230  

OTHER MATTERS

     231  

Householding of Proxy Statement/Prospectus/Information Statement

     231  

Annex A Agreement and Plan of Merger and Reorganization

     A-1  

Annex B Certificate of Amendment to Amended and Restated Certificate of Incorporation

     B-1  

Annex C Opinion of Cowen and Company

     C-1  

Annex D SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW

     D-1  

PART II INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT

     II-1  

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

The following are brief answers to some questions that you may have regarding the merger and the Versartis special meeting. The questions and answers in this section may not address all questions that might be important to you as a stockholder. For more detailed information, and for a description of the legal terms governing the merger, Versartis urges you to read carefully and in its entirety this proxy statement/prospectus/information statement, including the Annexes hereto, and the documents incorporated by reference herein, as well as the registration statement to which this proxy statement/prospectus/information statement relates, including the exhibits to the registration statement. For more information, please see the sections titled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information.”

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement does not give effect to the proposed reverse stock split of Versartis common stock described in the Reverse Stock Split Proposal in this proxy statement/prospectus/information statement.

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:

Versartis, Inc., or Versartis, and Aravive Biologics, Inc., or Aravive, have entered into an Agreement and Plan of Merger and Reorganization, dated June 3, 2018, or the Merger Agreement. The Merger Agreement contains the terms and conditions of the proposed business combination of Versartis and Aravive. Under the Merger Agreement, Velo Merger Sub, Inc., a wholly-owned subsidiary of Versartis, will merge with and into Aravive, with Aravive surviving the merger as a wholly-owned subsidiary of the combined company. Following the merger, Versartis will be renamed “Aravive, Inc.” and is referred to herein as the combined company.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the merger, or the Effective Time, (a) each outstanding share of capital stock of Aravive (other than any shares held as treasury stock that will be cancelled), will be converted into the right to receive the number of shares of Versartis common stock equal to the Exchange Ratio described below and (b) each outstanding in-the-money Aravive stock option, whether vested or unvested, will be assumed by Versartis and converted into an option to purchase shares of Versartis common stock as described in the section titled “Treatment of Aravive Stock Options” below. All other outstanding Aravive stock options will be cancelled for no consideration. It is anticipated that all Aravive stock options will be in-the-money at the time of the merger.

The exchange ratio formula in the Merger Agreement was negotiated so that the pre-closing securityholders of each of Versartis and Aravive would beneficially own approximately 50% of the aggregate fully diluted number of equity securities of the combined company immediately following the Effective Time, or the Post-Closing Shares, subject to (i) Versartis’ cash at closing of the merger being within a projected range, and (ii) not counting for purposes of the computation any outstanding options for Versartis common stock having an exercise price greater than $2.53 per share. Accordingly, based on the number of securities of each company outstanding at June 30, 2018, it is estimated that the exchange ratio will be approximately 2.29, or the Exchange Ratio, so that each outstanding share of Aravive capital stock will be converted into the right to receive approximately 2.29 shares of Versartis common stock and each outstanding option to purchase Aravive common stock will be converted into an option to purchase approximately 2.29 shares of Versartis common stock.

On June 30, 2018, Versartis had outstanding 36,240,673 shares of common stock, 1,504,857 restricted stock units, or RSUs, 379,452 options to purchase Versartis common stock with an exercise price of $2.53 per share or less, and 2,506,333 options to purchase Versartis common stock with an exercise price of greater

 

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than $2.53 per share (the latter of which are excluded from the Exchange Ratio formula). On June 30, 2018, Aravive had outstanding 8,389,040 shares of Aravive common stock, 5,141,771 shares of Aravive preferred stock (each of which is convertible into one share of Aravive common stock), and options to purchase 3,115,591 shares of Aravive common stock. Accordingly, by way of example only and assuming that there is no adjustment required based on the cash position at closing of Versartis, if the closing had occurred on June 30, 2018, Versartis would have issued 30,989,614 shares of Versartis common stock to former Aravive stockholders and the holders of options to purchase Aravive common stock collectively would have exchanged such options for options to purchase a total of 7,135,638 shares of Versartis common stock. As a result, following the closing of the merger, Versartis would have had outstanding a total of 67,230,287 shares of Versartis common stock, 1,504,857 RSUs, and options to purchase 10,021,423 shares of Versartis common stock.

The actual Exchange Ratio will be fixed prior to closing to reflect Versartis’ and Aravive’s capitalization and Versartis’ cash position immediately prior to such time. For a more detailed discussion of the Exchange Ratio, please see the section titled “The Merger Agreement—Exchange Ratio.”

 

Q:

What will happen to Versartis if, for any reason, the merger does not close?

 

A:

If, for any reason, the merger does not close, the Versartis board of directors may elect to, among other things, attempt to complete another strategic transaction like the merger, attempt to sell or otherwise dispose of the various assets of Versartis or continue to operate the business of Versartis. Versartis may be unable to identify and complete an alternative strategic transaction or continue to operate the business due to limited cash availability, and it may be required to dissolve and liquidate its assets. In such case, Versartis would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash left to distribute to stockholders after paying the debts and other obligations of Versartis and setting aside funds for reserves.

 

Q:

Why are the companies proposing to merge?

 

A:

Versartis and Aravive believe that the combined company will have several potential advantages, including: (i) a product candidate that has demonstrated its mechanism of action in its Phase 1 clinical trial, (ii) an efficient expected path to potential commercialization, (iii) operational synergies and (iv) an experienced management team.

Following the merger, the combined company will focus on developing Aravive’s innovative therapeutics that target solid tumors and hematologic malignancies. Aravive’s lead program is focused on inhibition of the GAS6-AXL signaling axis, which is a known target associated with the growth and proliferation of multiple tumor types. In preclinical studies, GAS6-AXL inhibition has shown activity, whether achieved by a single agent or in combination with a variety of anticancer therapies including radiation therapy, immuno-oncology agents, and drugs that affect DNA replication and repair. Clinically, elevated GAS6 levels have been associated with poor prognosis in cancer. In Aravive’s recently completed Phase 1 study of its first-in-class drug candidate, AVB-S6-500, Aravive demonstrated clinical proof-of-mechanism for AVB-S6-500 in neutralizing GAS6, based on analysis of the single ascending dose portion of the study which demonstrated a dose-dependent decrease in measurable, circulating free GAS6 in serum. Aravive plans to initiate an expanded clinical development program combining it with standard of care therapies in patients with a number of tumor types, initially in ovarian cancers in the second half of 2018.

For a more complete discussion of Versartis and Aravive reasons for the merger, please see the section titled “The Merger—Versartis Reasons for the Merger” and “The Merger—Aravive Reasons for the Merger.”

 

Q:

Why am I receiving this proxy statement/prospectus/information statement?

 

A:

You are receiving this proxy statement/prospectus/information statement because you have been identified as a stockholder of Versartis or Aravive as of the applicable record date, and you are entitled, as applicable, to vote at the Versartis stockholder meeting to approve among other things the issuance of shares of Versartis common stock pursuant to the Merger Agreement and reverse stock split, or sign and return the

 

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  Aravive written consent to adopt the Merger Agreement and approve the transactions contemplated thereby. This document serves as:

 

   

a proxy statement of Versartis used to solicit proxies for its special meeting of stockholders;

 

   

a prospectus of Versartis used to issue shares of Versartis common stock in exchange for shares of Aravive common stock in the merger; and

 

   

an information statement of Aravive used to solicit the written consent of its stockholders for the adoption of the Merger Agreement and the approval of the merger and related transactions.

 

Q:

What is required to consummate the merger?

 

A:

To consummate the merger, Versartis stockholders must approve the issuance of shares of Versartis common stock pursuant to the Merger Agreement. In addition, Aravive stockholders must adopt the Merger Agreement and approve the merger and the transactions contemplated thereby.

The approval of the issuance of Versartis common stock pursuant to the Merger Agreement by the stockholders of Versartis requires the affirmative vote of the holders of a majority of the shares of Versartis common stock properly cast at the Versartis special meeting, presuming a quorum is present at the meeting. The approval of the reverse stock split is not a condition to the closing of the merger.

The adoption of the Merger Agreement and the approval of the merger and related transactions by the stockholders of Aravive requires the affirmative vote of:

 

   

the holders of a majority of the outstanding shares of Aravive common stock and preferred stock, voting together as a single class;

 

   

the holders of at least a majority of the outstanding shares of Aravive preferred stock voting together as a separate class; and

 

   

the holders of at least a majority of the outstanding shares of Aravive common stock voting together as a separate class.

In addition to the requirement of obtaining such stockholder approval and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

Certain Aravive stockholders including certain directors and executive officers who in the aggregate beneficially own approximately 78.6% of the outstanding shares of Aravive capital stock (on an as converted to common stock basis), and certain Versartis stockholders, including all of the directors and executive officers of Versartis, who in the aggregate beneficially own 15.3% of the outstanding shares of Versartis common stock, are parties to support agreements with Versartis and Aravive, respectively, pursuant to which such stockholders have agreed to vote for the adoption of the Merger Agreement and the merger and for the issuance of Versartis common stock in the merger pursuant to the Merger Agreement, respectively, pursuant to the terms of the support agreements. In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the SEC and pursuant to the conditions of the Merger Agreement, Aravive stockholders who are party to the support agreements will each execute written consents approving the merger and related transactions. The holders of a sufficient number of shares of Aravive capital stock required to adopt the Merger Agreement have agreed to adopt the Merger Agreement via written consent. Aravive stockholders, including those who are parties to support agreements, are requested to execute written consents providing such approvals. For a more detailed discussion of the support agreements see the section titled “Agreements Related to the Merger—Support Agreements and Written Consent.”

For a more complete description of the closing conditions under the Merger Agreement, please see the section titled “The Merger Agreement—Conditions to the Closing of the Merger.”

 

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Q:

What will Aravive securityholders receive in the merger?

 

A:

As a result of the merger and in accordance with the Exchange Ratio, Aravive securityholders will become entitled to receive shares of Versartis common stock and options to purchase Versartis common stock, as applicable, equal to approximately 48% of the aggregate number of Post-Closing Shares. The exchange ratio formula in the Merger Agreement was negotiated so that the pre-closing securityholders of each of Versartis and Aravive would beneficially own approximately 50% of the aggregate fully diluted number of equity securities of the combined company immediately following the Effective Time, or the Post-Closing Shares, subject to (i) Versartis’ cash at closing of the merger being within a projected range, and (ii) not counting for purposes of the computation any outstanding options for Versartis common stock having an exercise price greater than $2.53 per share. Accordingly, any outstanding options of Versartis common stock having an exercise price greater than $2.53 per share were not reflected in the computation of the Exchange Ratio but are reflected in the computation of the expected ownership of 48% of the Post-Closing Shares by the Aravive securityholders.

For a more complete description of what Aravive securityholders will receive in the merger, please see the sections titled “Market Price and Dividend Information” and “The Merger Agreement—Merger Consideration.”

 

Q:

What will Versartis securityholders receive in the merger?

 

A:

Versartis securityholders will not receive any new securities in the merger, but will instead retain ownership of their shares of Versartis common stock and options to purchase shares of Versartis common stock equal to approximately 52% of the aggregate number of Post-Closing Shares.

 

Q:

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

 

A:

Upon the closing of the merger, the combined company’s board of directors is expected to be composed of seven directors. Three of the directors will be designated by Versartis, three of the directors will be designated by Aravive and one will be designated mutually by the parties:

The table below provides the names and principal affiliation of the individuals currently identified to serve as directors of the combined company following the consummation of the merger.

 

Name

  

Current Principal Affiliation

Jay P. Shepard(1)    President and Chief Executive Officer, Versartis
Srinivas Akkaraju, M.D., Ph.D.(1)    Managing General Partner, Samsara BioCapital
Shahzad Malik, M.D.(1)    General Partner, Advent Life Sciences
Raymond Tabibiazar, M.D.(2)    Executive Chairman, Aravive

 

  (1)

Versartis designee

  (2)

Aravive designee

 

Q:

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

 

A:

Upon the closing of the merger, the executive management team of the combined company is expected to be composed of the following persons:

 

Name

  

Combined Company Position(s)

    

Current Position(s)

Jay P. Shepard    Chief Executive Officer      President and Chief Executive Officer of Versartis
Vinay Shah    Chief Financial Officer      Chief Financial Officer of Aravive

 

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Q:

What are the intended U.S. federal income tax consequences of the merger to Aravive’s United States stockholders?

 

A:

Each of Versartis and Aravive intends that the merger qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code. In general, the material tax consequences to U.S. Holders (as defined herein) of Aravive common stock are expected to be as follows:

 

   

Each Aravive stockholder should not generally recognize gain or loss upon the exchange of Aravive common stock for Versartis common stock pursuant to the merger, except to the extent of cash received in lieu of a fractional share of Versartis common stock as described below; and

 

   

Each Aravive stockholder should recognize gain or loss to the extent any cash received in lieu of a fractional share of Versartis common stock exceeds or is less than the basis of such fractional share.

However, there are many requirements that must be satisfied in order for the merger to be treated as a reorganization under Section 368(a) of the Code, some of which are based upon factual determinations, and the reorganization treatment could be affected by actions taken after the merger. If the merger failed to qualify as a reorganization under Section 368(a) of the Code, Aravive stockholders generally would recognize the full amount of gains and losses realized on the exchange of their Aravive common stock for Versartis common stock in the merger.

Tax matters are very complicated, and the tax consequences of the merger to a particular Aravive stockholder will depend on such stockholder’s circumstances. Accordingly, you should consult your tax advisor for a full understanding of the tax consequences of the merger to you, including the applicability and effect of federal, state, local and foreign income and other tax laws. For more information, please see the section titled “The Merger—Certain Material U.S. Federal Income Tax Consequences of the Merger.”

 

Q:

Do persons involved in the merger have interests that may conflict with mine as a Versartis stockholder?

 

A:

Yes. In considering the recommendation of the Versartis board of directors with respect to issuing shares of Versartis common stock pursuant to the Merger Agreement and the other matters to be acted upon by Versartis stockholders at the Versartis special meeting, Versartis stockholders should be aware that certain members of the Versartis board of directors and executive officers of Versartis have interests in the merger that may be different from, or in addition to, interests they have as Versartis stockholders.

As of June 30, 2018, Versartis’ directors and executive officers beneficially owned approximately 15.1% of the shares of Versartis common stock. Jay P. Shepard, currently Versartis’s President and Chief Executive Officer, will continue as the Chief Executive officer of the combined company at the effective time of the merger. Additionally, Jay P. Shepard, Srinivas Akkaraju and Shahzad Malik, currently members of the Versartis board of directors, are expected to continue as directors of the combined company at the effective time of the merger, with Dr. Akkaraju serving as the chairman of the board of the combined company.

Additionally, as of June 30, 2018, Srinivas Akkaraju, a member of the Versartis board of directors and a former member of the Aravive board of directors, owns 72,250 shares of Aravive common stock.

Versartis’ directors and executive officers have entered into support agreements in connection with the merger. For more information, please see the sections titled “The Merger—Interests of the Versartis Directors and Executive Officers in the Merger” and “Agreements Related to the Merger-Support Agreements and Written Consent.

 

Q:

Do persons involved in the merger have interests that may conflict with mine as an Aravive stockholder?

 

A:

Yes. In considering the recommendation of the Aravive board of directors with respect to approving the merger and related transactions by written consent, Aravive stockholders should be aware that certain

 

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Index to Financial Statements
  members of the Aravive board of directors and executive officers of Aravive have interests in the merger that may be different from, or in addition to, interests they have as Aravive stockholders.

All of Aravive’s executive officers have Aravive common stock and options to purchase shares of Aravive common stock which will convert into options to purchase a number of shares of Versartis common stock determined by the Exchange Ratio, rounding any resulting fractional shares down to the nearest whole share, certain of Aravive’s directors and certain of its executive officers are expected to become directors and executive officers of Versartis upon the closing of the merger and all of Aravive’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement. Additionally, all outstanding options held by Aravive directors and officers will accelerate fully and vest in connection with the closing of the merger. Aravive’s directors and executive officers have entered into support agreements in connection with the merger.

For more information, please see the sections titled “The Merger—Interests of the Aravive Directors and Executive Officers in the Merger” and “Agreements Related to the Merger-Support Agreements and Written Consent.

 

Q:

As a Versartis stockholder, how does the Versartis board of directors recommend that I vote?

 

A:

After careful consideration, the Versartis board of directors unanimously recommends that Versartis stockholders vote:

 

   

FOR” the Stock Issuance Proposal to consider and vote upon the issuance of shares of Versartis common stock pursuant to the Merger Agreement;

 

   

FOR” the Reverse Stock Split Proposal to consider and vote upon the amendment to the certificate of incorporation of Versartis to effect a reverse stock split of Versartis common stock, at a ratio in the range from 2-for-1 to 15-for-1, with such specific ratio to be mutually agreed upon by Versartis and Aravive or, if the Stock Issuance Proposal is not approved by Versartis stockholders, determined solely by the Versartis board of directors following the special meeting;

 

   

FOR” the election of each of the two director nominees named in the Election of Directors Proposal in this proxy statement/prospectus/information statement to serve on the Versartis board of directors as Class I directors for a three-year term;

 

   

FOR” the Accounting Firm Proposal to ratify the appointment of PricewaterhouseCoopers LLP as Versartis’ independent registered public accounting firm for the fiscal year ending December 31, 2018; and

 

   

FOR” the Adjournment Proposal to adjourn the special meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of the Stock Issuance Proposal and/or Reverse Stock Split Proposal.

If on the date of the Versartis special meeting, or a date preceding the date on which the Versartis special meeting is scheduled, Versartis reasonably believes that (i) it will not receive proxies sufficient to obtain the required vote to approve the Versartis Proposals, whether or not a quorum would be present or (ii) it will not have sufficient shares of Versartis common stock represented (whether in person or by proxy) to constitute a quorum necessary to conduct the business of the Versartis special meeting, Versartis may postpone or adjourn, or make one or more successive postponements or adjournments of, the Versartis special meeting as long as the date of the Versartis special meeting is not postponed or adjourned more than an aggregate of 30 calendar days in connection with any postponements or adjournments.

No Versartis Proposal is contingent upon any other Versartis Proposal. Therefore, assuming all other closing conditions have been either satisfied or waived, the merger will be consummated even if the Reverse Stock Split Proposal is not approved by Versartis’ stockholders.

 

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Index to Financial Statements
Q:

As an Aravive stockholder, how does the Aravive board of directors recommend that I vote?

 

A:

After careful consideration, the Aravive board of directors recommends that Aravive stockholders execute the written consent indicating their votes in favor of the adoption of the Merger Agreement and the approval of the merger and the transactions contemplated thereby.

 

Q:

What risks should I consider in deciding whether to vote in favor of the issuance of shares of Versartis common stock pursuant to the Merger Agreement or to execute and return the written consent approving the Merger Agreement and the transactions contemplated thereby, as applicable?

 

A:

You should carefully review this proxy statement/prospectus/information statement, including the section titled “Risk Factors,” which sets 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 Versartis and Aravive, as an independent company, is subject. You also should read and carefully consider the risk factors relating to Versartis contained in the documents that are incorporated by reference into this proxy statement/prospectus/information statement.

 

Q:

When do you expect the merger to be consummated?

 

A:

The merger is anticipated to close as soon as possible after the Versartis special meeting is held on                     , 2018, but Versartis cannot predict the exact timing. For more information, please see the section titled “The Merger Agreement—Conditions to the Closing of the Merger.”

 

Q:

What do I need to do now?

 

A:

Versartis and Aravive urge you to read this proxy statement/prospectus/information statement carefully, including its annexes, and to consider how the merger affects you.

If you are a Versartis stockholder, you may provide your proxy instructions in one of two different ways. First, you can mail your signed proxy card in the enclosed return envelope. Second, you may also provide your proxy instructions via the Internet by following the instructions on your proxy card or voting 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 special meeting of Versartis stockholders.

If you are an Aravive stockholder, you may execute and return your written consent to Aravive in accordance with the instructions provided.

 

Q:

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

 

A:

If you are a stockholder of record and you return a signed proxy card without marking any selections, your shares will be voted “FOR” each of the Stock Issuance Proposal, the Reverse Stock Split Proposal, the Election of Directors Proposal, the Accounting Firm Proposal and the Adjournment Proposal.

If you are a beneficial owner of shares of Versartis common stock and do not instruct your broker, bank, or other agent how to vote your shares, the question of whether your broker or nominee will still be able to vote your shares depends on whether the New York Stock Exchange, or the NYSE, deems the particular proposal to be a “routine” matter and how your broker or nominee exercises any discretion they may have in the voting of the shares that you beneficially own. Brokers and nominees can use their discretion to vote “uninstructed” shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. Under the rules and interpretations of the NYSE, “non-routine” matters are matters that may substantially affect the rights or privileges of stockholder, such as mergers, stockholder proposals, elections of directors (even if not contested), executive compensation (including any advisory stockholder votes on executive compensation and on the frequency of stockholder votes on executive compensation), and certain corporate governance proposals, even if management-supported.

 

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For any Versartis Proposal that is considered a “routine” matter, your broker or nominee may vote your shares in its discretion either for or against the proposal even in the absence of your instruction. For any Versartis Proposal that is considered a “non-routine” matter for which you do not give your broker instructions, the Versartis shares will be treated as broker non-votes. Broker non-votes occur when a beneficial owner of shares held in street name does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed “non-routine.” Broker non-votes will not be considered to be shares “entitled to vote” at the meeting and will not be counted as having been voted on the applicable proposal.

Versartis believes that only the Reverse Stock Split Proposal and the Accounting Firm Proposal will be considered “routine” matters by the NYSE and all of the other Versartis Proposals will be considered “non-routine” matters. This belief may be incorrect or change before the special meeting. Therefore, if you are a beneficial owner and want to ensure that shares you beneficially own are voted in favor or against any or all of the Versartis Proposals, the only way you can do so is to give your broker or nominee specific instructions as to how the shares are to be voted.

 

Q:

May I vote in person at the special meeting of stockholders of Versartis?

 

A:

If your shares of Versartis common stock are registered directly in your name with the Versartis transfer agent, you are considered to be the stockholder of record with respect to those shares, and the proxy materials and proxy card are being sent directly to you by Versartis. If you are a Versartis stockholder of record, you may attend the special meeting of Versartis stockholders and vote your shares in person. Even if you plan to attend the Versartis special meeting in person, Versartis requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Versartis special meeting if you are unable to attend. If your shares of Versartis common stock are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you by your broker or other nominee together with a voting instruction card. As the beneficial owner, you are also invited to attend the special meeting of Versartis stockholders. Because a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Versartis special meeting unless you obtain a proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting.

 

Q:

When and where is the special meeting of Versartis stockholders being held?

 

A:

The special meeting of Versartis stockholders will be held at                 , at local time, on                     , 2018. Subject to space availability, all Versartis stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis.

 

Q:

If my Versartis 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 “routine” matters, your broker will not be able to vote your shares of Versartis common stock on matters requiring discretionary authority without instructions from you.

Versartis believes that brokers will not have discretionary authority to vote for the Stock Issuance Proposal, the Election of Directors Proposal or the Adjournment Proposal, as Versartis believes such matters to be “non-routine” under the applicable rules of the NYSE. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

Versartis believes that brokers will have discretionary authority to vote for the Reverse Stock Split Proposal and the Accounting Firm Proposal as Versartis believes such matters to be “routine” under the applicable rules of the NYSE.

 

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Q:

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

 

A:

Versartis stockholders of record, other than those Versartis stockholders who are parties to support agreements, may change their vote at any time before their proxy is voted at the Versartis special meeting in one of three ways. First, a Versartis stockholder of record can send a written notice to the Secretary of Versartis stating that it would like to revoke its proxy. Second, a Versartis stockholder of record can submit new proxy instructions either on a new proxy card or via the Internet. Third, a Versartis stockholder of record can attend the Versartis special meeting and vote in person. Attendance alone will not revoke a proxy. If a Versartis stockholder of record or a stockholder who owns Versartis shares in “street name” has instructed a broker to vote its shares of Versartis common stock, the stockholder must follow directions received from its broker to change those instructions.

 

Q:

Who is paying for this proxy solicitation?

 

A:

Versartis will bear the costs of printing and filing this proxy statement/prospectus/information statement and proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Versartis common stock for the forwarding of solicitation materials to the beneficial owners of Versartis common stock. Versartis 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. Versartis has engaged D.F. King & Co., Inc. to assist in the solicitation of proxies and provide related advice and informational support, for a service fee, plus customary disbursements, which are not expected to exceed $10,000 in total, which shall be paid by Versartis.

 

Q:

Who can help answer my questions?

 

A:

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

D.F. King & Co., Inc.

(800) 848-3374 (toll free)

(212) 269-5550 (collect)

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

Aravive Biologics, Inc.

LyondellBasell Tower

1221 McKinney Street, Suite 3200

Houston, Texas 77010

Attention: Executive Chairman

 

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PROSPECTUS SUMMARY

This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all of the information that is important to you. To better understand the merger, the proposals being considered at the Versartis special meeting and the Aravive stockholder actions that are the subject of the written consent, you should read this entire proxy statement/prospectus/information statement carefully, including the Merger Agreement and the other annexes to which you are referred to herein. For more information, please see the section titled “Where You Can Find More Information.”

The Parties

Versartis, Inc.

1020 Marsh Rd.

Menlo Park, California

94025 (650) 963-8580

Versartis, Inc., or Versartis, is a biopharmaceutical company that had been developing a novel long-acting form of recombinant human growth hormone, somavaratan (VRS-317), for growth hormone deficiency, or GHD, an orphan disease. In September 2017, Versartis announced that the VELOCITY Phase 3 clinical trial of somavaratan in pediatric growth hormone deficiency failed to meet its primary endpoint of non-inferiority. All ongoing clinical trials of somavaratan have concluded and currently Versartis does not intend to further develop somavaratan.

Versartis is a Delaware corporation headquartered in Menlo Park, California. Versartis’ common stock is traded on the Nasdaq Global Select Market under the symbol “VSAR.”

For additional information regarding Versartis, please refer to its Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2017, as filed with the SEC and incorporated by reference into this proxy statement/prospectus/information statement, as well as Versartis’ other filings with the Securities and Exchange Commission. For more information, please see the section titled “Where You Can Find More Information.”

Aravive Biologics, Inc.

LyondellBasell Tower

1221 McKinney Street, Suite 3200

Houston, Texas 77010

(936) 355-1910

Aravive Biologics, Inc., is a clinical-stage pharmaceutical company focused on developing Aravive’s therapeutics that target solid tumors and hematologic malignancies. Aravive’s primary therapeutic focus is the GAS6-AXL pathway, where AXL receptor signaling plays a critical role in multiple types of malignancies by promoting metastasis and cancer cell survival. Aravive’s technology originated in the laboratories of Dr. Amato Giaccia and his colleagues at Stanford University.

Velo Merger Sub, Inc.

1020 Marsh Rd.

Menlo Park, California 94025

(650) 963-8580



 

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Velo Merger Sub, Inc., or Merger Sub, is a wholly-owned subsidiary of Versartis and was formed solely for the purposes of carrying out the merger.

The Merger

If the merger is consummated, Merger Sub will merge with and into Aravive, with Aravive surviving the merger as a wholly-owned subsidiary of the combined company.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the merger, or the Effective Time, (a) each outstanding share of capital stock of Aravive will be converted into the right to receive approximately 2.29, or the Exchange Ratio, shares of Versartis common stock, subject to adjustment for any Versartis reverse stock split, and (b) each outstanding in-the-money Aravive stock option, whether vested or unvested, that has not been exercised prior to the Effective Time will be converted into a stock option to purchase approximately 2.29 shares of Versartis common stock for each share of Aravive common stock covered by such option. The Exchange Ratio is an estimate only and the final Exchange Ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.

Under the Exchange Ratio formula in the Merger Agreement, as of immediately after the merger and assuming no adjustments for cash balances as provided for in the Merger Agreement, the former Aravive securityholders are expected to own approximately 48% of the Post-Closing Shares, and the securityholders of Versartis as of immediately prior to the merger are expected to own approximately 52% of the aggregate number of Post-Closing Shares. The exchange ratio formula in the Merger Agreement was negotiated so that the pre-closing securityholders of each of Versartis and Aravive would beneficially own approximately 50% of the aggregate fully diluted number of equity securities of the combined company immediately following the Effective Time, or the Post-Closing Shares, subject to (i) Versartis’ cash at closing of the merger being within a projected range and (ii) not counting for purposes of the computation any outstanding options for Versartis common stock having an exercise price greater than $2.53 per share. Accordingly, any outstanding options of Versartis common stock having an exercise price greater than $2.53 per share were not reflected in the computation of the Exchange Ratio but are reflected in the computation of the expected ownership of 48% of the Post-Closing Shares by the Aravive securityholders. The Exchange Ratio will be fixed prior to closing to reflect Versartis’ and Aravive’s capitalization as of immediately prior to such time. These percentages assume that the Exchange Ratio is not adjusted, as described in the section titled “The Merger Agreement—Merger Consideration” below. For a more complete description of the Exchange Ratio, see the section titled “The Merger Agreement—Exchange Ratio” in this proxy statement/prospectus/information statement.

The closing of the merger will occur no later than the second business day after the last of the conditions to the merger has been satisfied or waived, or at another time as Versartis and Aravive agree. Versartis and Aravive anticipate that the closing of the merger will occur promptly after the Versartis special meeting. However, because the merger is subject to a number of conditions, neither Versartis nor Aravive can predict exactly when the closing will occur or if it will occur at all. After the closing of the merger, the name of the combined company will be changed from “Versartis, Inc.” to “Aravive, Inc.”

Reasons for the Merger

On September 21, 2017, Versartis issued a press release announcing that the VELOCITY Phase 3 clinical trial of somavaratan in GHD did not meet its primary endpoint of non-inferiority. Following this press release, Versartis initiated a process to identify and evaluate potential strategic alternatives available to Versartis and retained Cowen and Company LLC, or Cowen, to serve as its financial advisor and assist in its exploration of potential strategic alternatives. After a comprehensive review of strategic alternatives, on June 3, 2018, Versartis announced the signing of a definitive merger agreement with Aravive.



 

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In reaching its unanimous decision to approve the Merger Agreement and the transactions contemplated thereby, the Versartis board of directors considered a number of factors, including, among others, the following:

 

   

the fact that the VELOCITY Phase 3 clinical trial of somavaratan in GHD did not meet its primary endpoint of non-inferiority;

 

   

the historical and current information concerning Versartis’ business, financial performance, financial condition, including Versartis’ cash position, operations, management and competitive position, the prospects of Versartis and its product candidates, and the nature of the biotechnology industry generally, including financial projections of Versartis under various scenarios and its short-and long-term strategic objectives;

 

   

that Aravive’s proprietary technology as well as its clinical stage candidate addresses sizeable market opportunities, and may provide new medical benefits for patients and returns for investors;

 

   

that the merger would provide existing Versartis stockholders a significant opportunity to participate in the potential growth of the combined company following the merger; and

 

   

the terms of the Merger Agreement and associated transactions, including the relative percentage ownership of Versartis securityholders and Aravive securityholders immediately following the closing of the merger, the reasonableness of the fees and expenses related to the merger and the likelihood that the merger will be completed.

For more information on the Aravive board of directors’ reasons for the transaction, see the section titled “The Merger—Aravive Reasons for the Merger.”

Opinion of the Financial Advisor to the Versartis Board of Directors

The Versartis board of directors engaged Cowen to provide financial advisory and investment banking services in connection with the Versartis board of directors’ consideration and evaluation of certain potential strategic alternatives. On June 2, 2018, Cowen delivered its oral opinion to the Versartis board of directors, which opinion was confirmed in writing on the same date, that, as of the date of such opinion, and based upon and subject to the assumptions made, procedures followed, matters considered, limitations of the review undertaken, qualifications contained and other matters set forth in its written opinion, as of June 2, 2018, the exchange ratio to be paid by Versartis in the merger pursuant to the Merger Agreement was fair, from a financial point of view, to Versartis.

The full text of Cowen’s written opinion, which sets forth the assumptions made, procedures followed, matters considered, limitations of the review undertaken, qualifications contained and other matters set forth therein, is attached as Annex C to this proxy statement/prospectus/information statement and is incorporated herein by reference. Versartis urges you to carefully read the Cowen opinion, together with the description of such opinion included elsewhere in this proxy statement/prospectus/information statement, in its entirety, under the heading “The Merger—Opinion of the Financial Advisor to the Versartis Board of Directors” starting on page 88 of this proxy statement/prospectus/information statement. Cowen provided its opinion to the Versartis board of directors (in their capacity as such) for its information and assistance in connection with its consideration of the financial terms of the merger and it may not be used for any other purpose. Cowen’s opinion addressed solely the fairness, from a financial point of view, of the exchange ratio to be paid by Versartis in the merger pursuant to the Merger Agreement, to Versartis. Cowen’s opinion does not compare the relative merits of the merger with any other alternative transactions or business strategies which may have been available to Versatis and does not address the underlying business decision of the Versartis board of directors or Versartis to proceed with or effect the merger. Cowen’s opinion does not constitute a recommendation to the Versartis board of directors as to how the Versartis board of directors should vote on the merger or to any stockholder of Versartis or Aravive as to how any such stockholder should vote at any stockholders’ meeting at which the merger is considered, or whether or not any stockholder of Versartis or Aravive should enter into a voting, shareholders’, or affiliates’ agreement with respect to the merger or exercise any dissenter’s or appraisal rights that may be applicable to such stockholder, or take



 

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any other actions in connection with the merger or otherwise. For a more complete discussion of Cowen’s opinion, see the section titled “The MergerOpinion of the Financial Advisor to the Versartis Board of Directors.”

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

Merger Consideration

At the closing of the merger:

 

   

each outstanding share of capital stock of Aravive will be converted into the right to receive approximately 2.29 shares of Versartis common stock, subject to adjustment for any reverse stock split;

 

   

each outstanding in-the-money Aravive stock option, whether vested or unvested, that has not been exercised prior to the Effective Time will be converted into a stock option to purchase approximately 2.29 shares of Versartis common stock for each share of Aravive common stock covered by such option; and

 

   

all other outstanding Aravive stock options will be cancelled for no consideration.

Immediately after the merger, based on the Exchange Ratio, Aravive securityholders will own approximately 48% of the Post-Closing Shares, and Versartis securityholders will own approximately 52% of the Post-Closing Shares. The exchange ratio formula in the Merger Agreement was negotiated so that the pre-closing securityholders of each of Versartis and Aravive would beneficially own approximately 50% of the aggregate fully diluted number of equity securities of the combined company immediately following the Effective Time, or the Post-Closing Shares, subject to (i) Versartis’ cash at closing of the merger being within a projected range and (ii) not counting for purposes of the computation any outstanding options for Versartis common stock having an exercise price greater than $2.53 per share. Accordingly, any outstanding options of Versartis common stock having an exercise price greater than $2.53 per share were not reflected in the computation of the Exchange Ratio but are reflected in the computation of the expected ownership of 48% of the Post-Closing Shares by the Aravive securityholders. The Exchange Ratio is an estimate only and the final Exchange Ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement. Adjustments to the Exchange Ratio are described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.

The Merger Agreement does not include a price-based termination right, and there will be no adjustment to the total number of shares of Versartis common stock that Aravive securityholders will be entitled to receive for changes in the market price of Versartis common stock. The Exchange Ratio may be adjusted to reflect cash balances for Versartis, as provided for in the Merger Agreement.

Accordingly, the market value of the shares of Versartis common stock issued pursuant to the Merger Agreement will depend on the market value of the shares of Versartis common stock at the time the Merger closes and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement. On                     , 2018, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of Versartis common stock was $        per share.

Treatment of Versartis Stock Options

All options to purchase shares of Versartis common stock will remain outstanding immediately after the Effective Time in accordance with their terms. The number of shares of Versartis common stock underlying such options and the exercise prices for such options will be appropriately adjusted to reflect Versartis’ proposed reverse stock split, if consummated. The terms governing options to purchase shares of Versartis common stock will remain in full force and effect following the closing of the merger.



 

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Treatment of Aravive Stock Options

At the Effective Time, each in-the-money option to purchase capital stock issued by Aravive that is outstanding and unexercised immediately prior to the Effective Time under Aravive’s 2010 and 2017 Equity Incentive Plans, or the Aravive Benefit Plans, whether or not vested, shall be assumed by Versartis and converted into an option to purchase shares of Versartis common stock. Versartis will assume the Plan and each such option in accordance with the terms of the Plan and the terms of the stock option agreement by which such option is evidenced. From and after the Effective Time, each Aravive option assumed by Versartis may be exercised for such number of shares of Versartis common stock as is determined by multiplying the number of shares of Aravive common stock that were subject to the Aravive option by the Exchange Ratio, and rounding the resulting number down to the nearest whole number of shares of Versartis common stock. The per share exercise price of the converted option will be determined by dividing the existing per share exercise price of the Aravive option by the Exchange Ratio, and rounding to the resulting exercise price up to the nearest whole cent. Any restrictions on the exercise of any Aravive option assumed by Versartis will continue following the conversion, and the term, exercisability, vesting schedule and other provisions of the Aravive option will generally remain unchanged; provided, that any Aravive options assumed by Versartis may be subject to adjustment to reflect changes in Versartis’ capitalization after the Effective Time and that the Versartis board of directors or a committee thereof will succeed to the authority and responsibility of the Aravive board of directors or a committee thereof with respect to each assumed Aravive option.

Conditions to the Closing of the Merger

To consummate the merger, a majority of shares of Versartis common stock present in person or represented by proxy at a stockholder meeting at which a quorum is present must approve the issuance of shares of Versartis common stock pursuant to the Merger Agreement.

The Aravive stockholders holding the securities set forth below must approve and adopt the Merger Agreement and the transactions contemplated thereby, including the merger:

 

   

the majority of shares of common stock and preferred stock (voting as a single class);

 

   

the majority of the shares of Aravive’s common stock (voting as a separate class); and

 

   

the majority of the shares of Aravive’s preferred stock (voting as a separate class).

In addition to obtaining such stockholder approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

Non-Solicitation

Each of Versartis and Aravive have agreed that, subject to certain exceptions, neither they nor any of their respective subsidiaries will authorize or permit any of their or their subsidiaries’ directors, officers, employees, agents, attorneys, accountants, investment bankers, advisors and representatives to, directly or indirectly:

 

   

solicit, initiate or knowingly encourage, induce, discuss, negotiate or facilitate the communication, making, submission or announcement of, any “acquisition proposal” or “acquisition inquiry” (each as defined in the Merger Agreement and as defined in the section titled “The Merger Agreement—Non-Solicitation” below) or take any action that could reasonably be expected to lead to an acquisition proposal or announcement;

 

   

furnish any non-public information with respect to it to any person in connection with or in response to an acquisition proposal or an acquisition inquiry;



 

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Index to Financial Statements
   

engage in discussions or negotiations with any person with respect to any acquisition proposal or acquisition inquiry;

 

   

subject to certain exceptions, approve, endorse or recommend an acquisition proposal;

 

   

execute or enter into any letter of intent or any contract contemplating or otherwise relating to any “acquisition transaction,” as defined in the Merger Agreement and as defined in the section titled “The Merger Agreement—Non-Solicitation” below; or

 

   

publicly propose to do any of the above.

However, before obtaining the Versartis stockholder approval or Aravive stockholder approval, respectively, required to consummate the merger, each of Versartis and Aravive may furnish nonpublic information regarding such party to, and may enter into discussions or negotiations with, any person in response to a bona fide written acquisition proposal, which the Versartis board of directors or the Aravive board of directors, respectively, determines in good faith, after consultation with their respective financial advisors and outside legal counsel, constitutes or is reasonably likely to result in a “superior offer,” as defined in the Merger Agreement and as defined in the section titled “The Merger Agreement—Non-Solicitation” below, and is not withdrawn, if:

 

   

neither party nor any of its directors, officers, employees, agents, attorneys, accountants, investment bankers, advisors and representatives has breached the non-solicitation provisions of the Merger Agreement described above;

 

   

the Versartis board of directors or Aravive board of directors, respectively, concludes in good faith based on the advice of outside legal counsel, that the failure to take such action is reasonably likely to be inconsistent with the fiduciary duties of the Versartis or Aravive board of directors, respectively, under applicable law;

 

   

Versartis or Aravive, respectively receives from the third-party an executed confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions and no hire provisions) at least as favorable to such party as those contained in the confidentiality agreement between Versartis and Aravive; and

 

   

substantially contemporaneously with furnishing of nonpublic information to a third-party, Versartis or Aravive furnishes the same information to the other party to the extent not previously furnished.

If either Versartis or Aravive receives an acquisition proposal or acquisition inquiry at any time during the period between June 3, 2017 and earlier to occur of (a) the Effective Time and (b) termination of the Merger Agreement, then such party must promptly, and in no event later than one business day after becoming aware of such acquisition proposal or acquisition inquiry, advise the other party orally and in writing of such acquisition proposal or acquisition inquiry, including the identity of the person making or submitting the acquisition proposal or acquisition inquiry and the material terms thereof. Each of Versartis and Aravive must keep the other reasonably informed with respect to the status and material terms of any such acquisition proposal or acquisition inquiry and any material modification or proposed material modification thereto.

Termination of the Merger Agreement

Either Versartis or Aravive can terminate the Merger Agreement under certain circumstances, which would prevent the merger from being consummated.

Termination Fees

If the Merger Agreement is terminated under certain circumstances and certain other events occur, either Versartis or Aravive will be required to pay the other party a termination fee of $2.5 million. Moreover, if either



 

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Versartis or Aravive fails to pay any termination fee when due, then it will be required to pay interest on and reasonable fees and expenses incurred in connection with the collection of such overdue amount in addition to the $2.5 million termination fee.

Support Agreements and Written Consent

Aravive

Certain Aravive stockholders and their affiliates are party to a support agreement with Versartis pursuant to which, among other things, each such stockholder and affiliates agreed, solely in his, her or its capacity as an Aravive stockholder or affiliates thereof, to vote all of his, her or its shares of Aravive capital stock in favor of the adoption and approval of the Merger Agreement and the transactions contemplated thereby and to provide Versartis with an irrevocable proxy to vote all of his, her or its shares of Aravive capital stock in favor of the adoption and approval of the Merger Agreement and the transactions contemplated thereby and against any acquisition proposal. In addition, these Aravive stockholders and their affiliates agreed not to, directly or indirectly, knowingly take any action that Aravive is not permitted to take under the non-solicitation provisions of the Merger Agreement. The parties to these support agreements with Versartis are:

 

   

Raymond Tabibiazar

 

   

Amato Giaccia

 

   

Vinay Shah

 

   

Karen Liu

 

   

Eric Zhang

 

   

BC Axis Limited

 

   

Elite Vantage Global Limited

The stockholders of Aravive that are party to a support agreement with Versartis consist of:

 

   

the holders of a majority of the shares of Aravive common stock and preferred stock outstanding on the record date and entitled to vote thereon (voting as a single class);

 

   

the holders of a majority of the shares of Aravive preferred stock outstanding on the record date and entitled to vote thereon (voting as a separate class); and

 

   

the holders of a majority of the shares of Aravive common stock outstanding on the record date and entitled to vote thereon (voting as a separate class).

Therefore, holders of the number of shares of Aravive capital stock required to approve and adopt the Merger Agreement and approve the merger and related transactions are contractually obligated to approve and adopt the Merger Agreement. Following the effectiveness of the registration statement of which this proxy statement/prospectus/information statement is a part and pursuant to the Merger Agreement, stockholders of Aravive holding a sufficient number of shares to approve and adopt the Merger Agreement and thereby approve the merger and related transactions will execute written consents providing for such adoption and approval.

Versartis

Certain Versartis stockholders are party to a support agreement with Aravive pursuant to which, among other things, each of such stockholders agreed, solely in his or her capacity as a stockholder, to vote all of his or her shares of Versartis common stock in favor of the approval of the issuance of shares of Versartis common stock



 

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pursuant to the Merger Agreement and the reverse stock split of Versartis common stock and to provide Aravive with an irrevocable proxy to vote all of his, her or its shares of Versartis capital stock in favor of the adoption and approval of the Merger Agreement and the transactions contemplated thereby and against any acquisition proposal. In addition, these Versartis stockholders agreed not to, directly or indirectly, knowingly take any action that Versartis is not permitted to take under the non-solicitation provisions of the Merger Agreement. The parties to these support agreements with Aravive are:

 

   

Jay P. Shepard

 

   

Kevin Haas

 

   

Paul Westberg

 

   

Tracy Woody

 

   

Srinivas Akkaraju

 

   

Eric Dobmeier

 

   

Scott Greer

 

   

Edmon Jennings

 

   

Shahzad Malik

 

   

Anthony Sun

 

   

John Varian

 

   

Samsara BioCapital, LP

 

   

Advent Venture Partners LLP

The stockholders of Versartis that are party to a support agreement with Aravive consist of the holders of an aggregate of 5,719,885 shares of Versartis common stock beneficially owned by such holders, representing 15.3% of the outstanding shares of Versartis common stock as of June 30, 2018. These stockholders comprise all of the executive officers and directors of Versartis, as well as certain of their affiliates.

Lock-up Agreements

Aravive

As a condition to the closing of the merger, Aravive’s directors, executive officers and principal stockholders, who will beneficially hold 37.4% of the combined company’s capital stock immediately following the closing of the merger, 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 or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Aravive capital stock prior to the closing of the merger, and the combined company’s common stock thereafter, for 180 days following the Effective Time.

Versartis

As a condition to the closing of the merger, Versartis’ directors, executive officers and principal stockholders, who will beneficially hold 7.4% of the combined company’s capital stock immediately following the closing of the merger, 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 or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Versartis capital stock prior to the closing of the merger, and the combined company’s common stock thereafter, for 180 days following the Effective Time.



 

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Management Following the Merger

Effective as of the closing of the merger, the combined company’s executive officers are expected to be composed of the following members of the current Aravive and Versartis management teams:

 

Name

  

Combined Company Position(s)

    

Current Position(s)

Jay P. Shepard    Chief Executive Officer      President and Chief Executive Officer of Versartis
Vinay Shah    Chief Financial Officer      Chief Financial Officer of Aravive

The Versartis Special Meeting

The special meeting of stockholders of Versartis will be held on                     , 2018 at                 , local time, at                 , for the following purposes:

 

   

to consider and vote upon a proposal to approve the issuance of shares of Versartis common stock in connection with merger, or the Stock Issuance Proposal;

 

   

to consider and vote upon the amendment to the certificate of incorporation of Versartis to effect a reverse stock split of Versartis common stock, at a ratio in the range from 2-for-1 to 15-for-1, with such specific ratio to be mutually agreed upon by Versartis and Aravive or, if the Stock Issuance Proposal is not approved by Versartis stockholders, determined solely by the Versartis board of directors following the special meeting, or the Reverse Stock Split Proposal;

 

   

to consider and vote upon the election of the two nominees for Class I directors named in this proxy statement/prospectus/information statement to the Versartis board of directors for a term of three years (provided, however, that if the merger is completed, the Versartis board of directors will be reconstituted as provided in the Merger Agreement), or the Election of Directors Proposal;

 

   

to consider and vote upon the ratification of the appointment of PricewaterhouseCoopers LLP as Versartis’ independent registered public accounting firm for the fiscal year ending December 31, 2018, or the Accounting Firm Proposal;

 

   

to consider and vote upon an adjournment of the Versartis special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Stock Issuance Proposal and/or the Reverse Stock Split Proposal, or the Adjournment Proposal; and

 

   

to transact such other business as may properly come before the Versartis special meeting or any adjournment or postponement thereof.

Collectively the proposals above are referred to as the Versartis Proposals. On each matter to be voted upon, stockholders have one vote for each share of Versartis common stock owned as of                     , 2018. Votes will be counted by the inspector of election. The following table summarizes vote requirements and the effect of abstentions and broker non-votes.

 

Proposal
Number

  

Proposal Description

  

Vote Required for Approval

  

Effect of
Abstentions

  

Effect of
Broker
Non-Votes

1    Stock Issuance Proposal    FOR votes from the holders of a majority of shares properly cast at a meeting at which a quorum is present    Against    None
2    Reverse Stock Split Proposal    FOR votes from the holders of a majority of outstanding shares    Against    Against
3    Election of Directors Proposal    Two nominees receiving the most FOR votes from the holders of shares present and entitled to vote    Withheld votes will have no effect    None


 

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Proposal
Number

  

Proposal Description

  

Vote Required for Approval

  

Effect of
Abstentions

  

Effect of
Broker
Non-Votes

4    Accounting Firm Proposal    FOR votes from the holders of a majority of shares properly cast at a meeting at which a quorum is present    Against    None
5    Adjournment    FOR votes from the holders of a majority of shares properly cast at a meeting at which a quorum is present    Against    None

The information in the preceding table with respect to the effect of broker non-votes may be incorrect or change before the special meeting. Therefore, if you are a beneficial owner and want to ensure that shares you beneficially own are voted in favor or against any or all of the Versartis Proposals, the only way you can do so is to give your broker or nominee specific instructions as to how the shares are to be voted.

If on the date of the Versartis special meeting, or a date preceding the date on which the Versartis special meeting is scheduled, Versartis reasonably believes that (i) it will not receive proxies sufficient to obtain the required vote to approve the Versartis Proposals, whether or not a quorum would be present or (ii) it will not have sufficient shares of Versartis common stock represented (whether in person or by proxy) to constitute a quorum necessary to conduct the business of the Versartis special meeting, Versartis may postpone or adjourn, or make one or more successive postponements or adjournments of, the Versartis special meeting as long as the date of the Versartis special meeting is not postponed or adjourned more than an aggregate of 30 calendar days in connection with any postponements or adjournments.

No Versartis Proposal is contingent upon any other Versartis Proposal. Therefore, assuming all other closing conditions have been either satisfied or waived, the merger will be consummated even if the Reverse Stock Split Proposal is not approved by Versartis’ stockholders.

Aravive Solicitation of Written Consents

The adoption of the Merger Agreement and the approval of the merger and related transactions by Aravive stockholders requires the affirmative votes of:

 

   

the holders of a majority of the shares of Aravive common stock and Aravive preferred stock (voting as a single class);

 

   

the holders of a majority of the outstanding Aravive preferred stock (voting as a separate class); and

 

   

the holders of a majority of the outstanding Aravive common stock (voting as a separate class).

Following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the SEC and pursuant to the conditions of the Merger Agreement, Aravive stockholders who are party to the support agreements have agreed to execute an action by written consent adopting the Merger Agreement, thereby approving the merger and related transactions. These stockholders own a sufficient number of shares of Aravive capital stock to adopt the Merger Agreement. No meeting of Aravive stockholders to adopt the Merger Agreement and approve the merger and related transactions will be held; however, all Aravive stockholders will have the opportunity to elect to adopt the Merger Agreement, thereby approving the merger and related transactions, by signing and returning to Aravive a written consent.

In addition to the requirement of obtaining such stockholder approval and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.



 

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Interests of Directors and Executive Officers of Versartis and Aravive

Interests of the Versartis Directors and Executive Officers in the Merger

In considering the recommendation of the Versartis board of directors with respect to issuing shares of Versartis common stock pursuant to the Merger Agreement and the other matters to be acted upon by Versartis stockholders at the Versartis special meeting, Versartis stockholders should be aware that certain members of the Versartis board of directors and executive officers of Versartis have interests in the merger that may be different from, or in addition to, interests they have as Versartis stockholders.

As of June 30, 2018, Versartis’ directors and executive officers beneficially owned approximately 15.1% of the shares of Versartis common stock. Jay P. Shepard, currently Versartis’ President and Chief Executive Officer, will continue as the Chief Executive officer of the combined company at the effective time of the merger. Additionally, Jay P. Shepard, Srinivas Akkaraju and Shahzad Malik, currently members of Versartis’ board of directors, are expected to continue as directors of the combined company at the effective time of the merger, with Dr. Akkaraju serving as the chairman of the board of the combined company. Versartis’ directors and executive officers have also entered into support agreements in connection with the merger.

As of June 30, 2018, Srinivas Akkaraju, a member of the Versartis board of directors and a former member of the Aravive board of directors, owns 72,250 shares of Aravive common stock.

The Versartis board of directors was aware of these interests and considered them, among other matters, in its decision to approve the Merger Agreement. For more information, please see the sections titled “The Merger—Interests of the Versartis Directors and Executive Officers in the Merger” and “Agreements Related to the Merger-Support Agreements and Written Consent.

Interests of the Aravive Directors and Executive Officers in the Merger

In considering the recommendation of the Aravive board of directors with respect to approving the merger and related transactions by written consent, Aravive stockholders should be aware that certain members of the board of directors and executive officers of Aravive have interests in the merger that may be different from, or in addition to, interests they have as Aravive stockholders. For example, Raymond Tabibiazar is a director and executive officer of Aravive, and he will be designated to serve on the combined company’s board of directors following the closing of the merger.

Certain Aravive executive officers, directors and their affiliates currently hold shares of Aravive common stock, preferred stock and stock options to purchase shares of Aravive common stock. As of June 30, 2018, all directors and executive officers of Aravive, together with their affiliates, owned 74.7% of the outstanding shares of Aravive common stock (on an as-converted to common stock basis) and such persons held stock options to purchase an aggregate of 2,502,418 shares of Aravive common stock with a weighted average exercise price of $0.14 per share. Aravive’s directors and executive officers have also entered into support agreements in connection with the merger.

The Aravive board of directors was aware of these interests and considered them, among other matters, in its decision to approve the Merger Agreement. For more information, please see the sections titled “The Merger—Interests of the Aravive Directors and Executive Officers in the Merger,” “Agreements Related to the Merger-Support Agreements and Written Consent,” and “Certain Relationships and Related-Party Transactions—Aravive.”

Considerations with Respect to U.S. Federal Income Tax Consequences of the Merger

Each of Versartis and Aravive intends that the merger 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



 

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titled “The Merger—Certain Material U.S. Federal Income Tax Consequences of the Merger,” the material tax consequences to U.S. Holders (as defined herein) of Aravive common stock are expected to be as follows:

 

   

an Aravive stockholder should not recognize gain or loss upon the exchange of Aravive common stock for Versartis common stock pursuant to the merger, except to the extent of cash received in lieu of a fractional share of Versartis common stock as described below;

 

   

an Aravive stockholder who receives cash in lieu of a fractional share of Versartis common stock in the merger should recognize capital gain or loss in an amount equal to the difference between the amount of cash received instead of a fractional share and the stockholder’s tax basis allocable to such fractional share;

 

   

an Aravive stockholder’s aggregate tax basis for the shares of Versartis common stock actually received in the merger should equal the stockholder’s aggregate tax basis in the shares of Aravive common stock surrendered upon the closing of the merger, decreased by the amount of any tax basis allocable to a fractional share for which cash is received; and

 

   

the holding period of the shares of Versartis common stock received by an Aravive stockholder in the merger should include the holding period of the shares of Aravive common stock surrendered in exchange therefor provided the surrendered Aravive common stock is held as a capital asset (generally, property held for investment) at the time of the merger.

Tax matters are very complicated, and the tax consequences of the merger to a particular Aravive stockholder will depend on such stockholder’s circumstances. Accordingly, you should consult your tax advisor for a full understanding of the tax consequences of the merger to you, including the applicability and effect of federal, state, local and foreign income and other tax laws. For more information, please see the section titled “The Merger—Certain Material U.S. Federal Income Tax Consequences of the Merger.”

Risk Factors

Both Versartis and Aravive 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 stockholders, including the following risks:

 

   

the Exchange Ratio is not adjustable based on the market price of Versartis 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 Versartis or Aravive paying a termination fee or expenses to the other party and could harm the common stock price of Versartis and future business and operations of each company;

 

   

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

 

   

the combined company may need to raise additional capital by issuing securities or debt or through licensing arrangements, which may cause significant dilution to the combined company’s stockholders or restrict the combined company’s operations or proprietary rights;

 

   

certain Versartis and Aravive 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 may decline as a result of the merger;



 

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Versartis and Aravive stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger;

 

   

during the pendency of the merger, Versartis and Aravive may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses;

 

   

certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement;

 

   

the lack of a public market for Aravive shares makes it difficult to determine the fair market value of the Aravive shares, and the stockholders of Aravive may receive consideration in the merger that is less than the fair market value of the Aravive shares and/or Versartis may pay more than the fair market value of the Aravive shares; and

 

   

if the conditions of the merger are not met, the merger will not occur.

These risks and other risks are discussed in greater detail under the section titled “Risk Factors” and in the documents incorporated by reference in this proxy statement/prospectus/information statement. Versartis and Aravive both encourage you to read and consider all of these risks carefully.

Regulatory Approvals

In the United States, Versartis must comply with applicable federal and state securities laws and the rules and regulations of The Nasdaq Stock Market LLC, or Nasdaq, in connection with the issuance of shares of Versartis common stock pursuant to the Merger Agreement and the filing of this proxy statement/prospectus/information statement with the SEC.

Nasdaq Stock Market Listing

Versartis has agreed to use commercially reasonable efforts to (a) prepare and submit to the Nasdaq Global Select Market (or such other Nasdaq market on which the shares of Versartis common stock may then be listed) a notification form for the listing of additional shares with respect to the shares of Versartis common stock to be issued in connection with the merger and to cause such shares to be approved for listing or (b) to the extent required by Nasdaq pursuant to its “reverse merger” rules, file an initial listing application for the Versartis common stock on Nasdaq and to cause such application to be conditionally approved prior to the effective time of the merger. Aravive has agreed to cooperate with Versartis as reasonably requested by Versartis with respect to such application and to promptly furnish to Versartis all information concerning Aravive and its stockholders that may be required or reasonably requested in connection with the application.

In addition, each of Versartis’ and Aravive’s obligation to complete the merger is subject to the condition that the shares of Versartis common stock to be issued in the merger be approved for listing (subject to official notice of issuance) on Nasdaq as of the closing of the merger. If Versartis’ notification form or initial listing application, as applicable, is accepted and such approval is obtained, Versartis anticipates that the combined company’s common stock will be listed on Nasdaq under the trading symbol “ARAV” following the closing of the merger.

Anticipated Accounting Treatment

The merger will be accounted for as an asset acquisition by Versartis. To determine the accounting for this transaction under U.S. GAAP, a company must assess whether an integrated set of assets and activities should be accounted for as an acquisition of a business or an asset acquisition. The guidance requires an initial screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single asset or



 

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group of similar assets. If that screen is met, the set is not a business. In connection with the acquisition of Aravive, substantially all the fair value is included in in-process research and development of AVB-S6-500 and, as such, the acquisition will be treated as an asset acquisition.

Appraisal Rights and Dissenters’ Rights

Holders of shares of Versartis capital stock are not entitled to appraisal rights in connection with the merger. Aravive stockholders are entitled to appraisal rights in connection with the merger under Delaware law. For more information about such rights, see the provisions of Section 262 of the Delaware General Corporation Law, or the DGCL, attached hereto as Annex D, and the section titled “The Merger—Appraisal Rights and Dissenters’ Rights.”

Comparison of Stockholder Rights

Both Versartis and Aravive 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, Aravive stockholders will become stockholders of Versartis, and their rights will be governed by the DGCL, the bylaws of Versartis and, the certificate of incorporation of Versartis. The rights of Versartis stockholders contained in the certificate of incorporation and bylaws of Versartis differ from the rights of Aravive stockholders under the certificate of incorporation and bylaws of Aravive, as more fully described under the section titled “Comparison of Rights of Holders of Versartis Stock and Aravive Stock.”



 

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SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION AND DATA

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

Selected Historical Consolidated Financial Data of Versartis

The selected consolidated statements of operations data for the fiscal years ended December 31, 2017 and 2016 are derived from Versartis’ audited consolidated financial statements that are incorporated by reference into this proxy statement/prospectus/information statement from Versartis’ Annual Report on Form 10-K for the year ended December 31, 2017. The selected consolidated financial statements as of March 31, 2018 and for the three months ended March 31, 2018 and 2017 are derived from Versartis’ unaudited consolidated financial statements and related notes contained in Versartis’ Quarterly Report on Form 10-Q for the quarterly period ended March, 31, 2018, which is incorporated by reference into this proxy statement/prospectus/information statement.

The selected historical consolidated financial data below should be read in conjunction with Versartis’ consolidated financial statements and related notes contained in its annual and quarterly reports and the other information that Versartis has previously filed with the SEC and which is incorporated by reference into this proxy statement/prospectus/information statement. Versartis’ historical results are not necessarily indicative of the results that may be expected in any future period. For more information, please see the sections titled “Incorporation By Reference” and “Where You Can Find More Information.”

 

     Three Months Ended
March 31,
    Years Ended
December 31,
 
     2018     2017     2017     2016  

Selected Consolidated Statements of Operations Data (in thousands, except per share amounts):

        

Revenue(i)

   $ —       $ —       $ 40,000     $ —    

Total operating expenses

   $ 8,517     $ 29,660     $ 124,482     $ 96,320  

Net loss

   $ (8,981   $ (29,722   $ (84,979   $ (95,817

Net loss per share-basic and diluted

   $ (0.25   $ (0.85   $ (2.41   $ (3.11

Weighted-average common shares used to compute basic and diluted net loss per share

     36,019       35,004       35,228       30,784  

 

(i)

Represents upfront payment from Teijin Limited that was recognized upon termination of the license agreement as obligations under the agreement were substantively complete as of December 31, 2017.

 

     As of March 31,      As of December 31,  
     2018      2017      2016  

Selected Consolidated Balance Sheet Data (in thousands):

        

Cash and cash equivalents

   $ 74,686      $ 81,146      $ 201,153  

Total assets

   $ 87,109      $ 93,777      $ 205,570  

Total liabilities

   $ 10,479      $ 11,021      $ 54,503  

Total stockholders’ equity

   $ 76,630      $ 82,756      $ 151,067  

Selected Historical Financial Data of Aravive Biologics, Inc.

The selected financial data as of December 31, 2017 and 2016 and for the years ended December 31, 2017 and 2016 are derived from Aravive’s financial statements prepared using accounting principles generally accepted in the United States, which have been audited by an independent auditor, and are included in this proxy statement/



 

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prospectus/information statement. The statement of operations data for the three months ended March 31, 2018 and 2017, as well as the balance sheet data as of March 31, 2018, are derived from Aravive’s unaudited condensed consolidated financial statements included elsewhere in this proxy statement/prospectus/information statement.

The selected historical financial data should be read in conjunction with Aravive’s financial statements, related notes, other financial information, “Aravive Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Aravive’s condensed financial statements and related notes appearing elsewhere in this proxy statement/prospectus/information statement. Aravive’s historical results are not necessarily indicative of results to be expected in any future period.

 

     Three Months Ended
March 31,
    Years Ended
December 31,
 
         2018             2017         2017     2016  

Selected Statements of Operations Data (in thousands, except per share amounts):

        

Grant revenue

   $ 1,019     $ 2,188     $ 9,373     $ 1,226  

Operating expenses

        

Research and development

     1,237       2,968       12,751       1,344  

General and administrative

     639       372       1,692       824  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

   $ 1,876     $ 3,340     $ 14,443     $ 2,168  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (852   $ (1,148   $ (5,040   $ (934

Basic and diluted loss per common share (unaudited)

   $ (0.10   $ (0.14   $ (0.62   $ (0.12

Shares used in calculation of net loss per share, basic and diluted (unaudited)

     8,359       8,014       8,157       7,904  

 

     As of March 31,     As of December 31,  
     2018     2017     2016  

Selected Consolidated Balance Sheet Data (in thousands):

      

Cash and cash equivalents

   $ 9,516     $ 9,723     $ 4,776  

Total assets

   $ 9,573     $ 9,881     $ 4,815  

Contingent payables

   $ 664     $ 664     $ 664  

Total liabilities

   $ 5,842     $ 9,258     $ 5,657  

Redeemable convertible preferred stock

   $ 11,272     $ 7,322     $ 969  

Total stockholders’ (deficit)

   $ (7,540   $ (6,699   $ (1,810

Selected Unaudited Pro Forma Condensed Combined Financial Data of Versartis and Aravive

The following information does not give effect to the proposed reverse stock split of Versartis common stock described in the Reverse Stock Split Proposal.

The following unaudited pro forma condensed combined financial information gives effect to the transaction between Versartis and Aravive to be accounted for as an asset acquisition.

The unaudited pro forma condensed combined balance sheet as of March 31, 2018 assumes that the transaction took place on March 31, 2018 and combines the historical balance sheets of Versartis and Aravive as of such date. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2018 and the year ended December 31, 2017 assume that the transaction took place as of January 1, 2017, and combine the historical results of Versartis and Aravive for each period. The historical financial statements of Versartis and Aravive have been adjusted to give pro forma effect to events that are (i) directly attributable to the transaction, (ii) factually supportable, and (iii) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results.



 

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The unaudited pro forma condensed combined financial information, including the notes thereto, should be read in conjunction with the separate Versartis and Aravive historical financial statements, and their respective management’s discussion and analysis of financial condition and results of operations. Aravive’s historical audited financial statements for the years ended December 31, 2017 and 2016 and unaudited financial statements for the three months ended March 31, 2018 and 2017 are included elsewhere in this proxy statement/prospectus/information statement. Versartis’ historical audited consolidated financial statements for the years ended December 31, 2017 and December 31, 2016 and unaudited consolidated financial statements for the three months ended March 31, 2018 and 2017 have been derived from Versartis’ Annual Report on Form 10-K for the year ended December 31, 2017 and Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018, which are incorporated by reference into this proxy statement/prospectus/information statement.

 

     Three Months
Ended March 31,
2018
    Year Ended
December 31,
2017
 

Unaudited Pro Forma Condensed Combined Statements of Operations (in thousands, except per share amounts):

    

Revenue

   $ 1,019     $ 49,373  

Total operating expenses

   $ 10,457     $ 139,180  

Net loss

   $ (9,897   $ (90,274

Basic and diluted net loss per common share

   $ (0.15   $ (1.36

 

     As of March 31, 2018  

Unaudited Pro Forma Condensed Combined Balance Sheet (in thousands):

  

Cash and cash equivalents

   $ 78,239  

Total assets

   $ 91,483  

Total liabilities

   $ 16,320  

Stockholders’ equity

   $ 75,163  

Comparative Historical and Unaudited Pro Forma per Share Data

The information below reflects the historical net loss and book value per share of Versartis common stock and the historical net loss and book value per share of Aravive common stock in comparison with the unaudited pro forma net loss and book value per share after giving effect to the proposed merger of Versartis with Aravive on a pro forma basis. The unaudited pro forma net loss and book value per share does not give effect to the proposed reverse stock split of Versartis common stock described in the Reverse Stock Split Proposal.



 

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You should read the tables below in conjunction with the audited consolidated financial statements of Versartis for the years ended December 31, 2017 and 2016 and unaudited consolidated financial statements of Versartis for the three months ended March 31, 2018 and 2017, which are incorporated by reference in this proxy statement/prospectus/information statement; the audited financial statements of Aravive for the years ended December 31, 2017 and 2016 and unaudited financial statements of Aravive for the three months ended March 31, 2018 and 2017, which are included elsewhere in this proxy statement/prospectus/information statement; and the unaudited pro forma condensed combined financial information and notes related to such financial information which are included elsewhere in this proxy statement/prospectus/information statement.

 

    Versartis
Historical
    Aravive
Unaudited
Historical
    Versartis Unaudited
Pro Forma 

Combined Data
    Aravive Unaudited
Pro Forma
Equivalent Data(i)
 

Net Income (loss) per share:

       

For the year ended December 31, 2017

       

Basic and diluted

  $ (2.41   $ (0.62   $ (1.36   $ (3.12

For the three months ended March 31, 2018

       

Basic and diluted

  $ (0.25   $ (0.10   $ (0.15   $ (0.34

Book value per share:

       

As of December 31, 2017

  $ 2.30     $ (0.80   $ 1.25     $ 2.86  

As of March 31, 2018

  $ 2.12     $ (0.90   $ 1.12     $ 2.57  

 

(i)

The Aravive unaudited pro forma equivalent data was calculated by multiplying the pro forma condensed combined results by the exchange ratio of 2.29.



 

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MARKET PRICE AND DIVIDEND INFORMATION

Versartis common stock is listed on the Nasdaq Global Select Market under the symbol “VSAR.” The following table presents, for the periods indicated, the range of high and low per share sales prices for Versartis common stock as reported on the Nasdaq Global Select Market for each of the periods set forth below. Aravive is a private company and its common stock and preferred stock are not publicly traded. These per share sales prices do not give effect to the proposed reverse stock split of Versartis common stock to be implemented, if approved by Versartis stockholders, prior to the closing of the merger.

Versartis Common Stock

 

     High      Low  

Year Ending December 31, 2018

     

First Quarter

   $ 2.30      $ 1.55  

Second Quarter

   $ 2.45      $ 1.38  

Third Quarter (through August 2, 2018)

   $ 2.25      $ 1.70  

Year Ended December 31, 2017

     

First quarter

   $ 24.00      $ 12.17  

Second quarter

   $ 21.75      $ 14.75  

Third quarter

   $ 22.10      $ 2.35  

Fourth quarter

   $ 3.05      $ 1.60  

Year Ended December 31, 2016

     

First quarter

   $ 14.54      $ 6.17  

Second quarter

   $ 12.30      $ 7.05  

Third quarter

   $ 14.69      $ 9.76  

Fourth quarter

   $ 16.30      $ 9.05  

On                     , 2018, the last reported sale price of Versartis common stock on the Nasdaq Global Select Market was $        per share.

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

Following the closing of the merger, Versartis expects the combined company’s common stock will be listed on Nasdaq and will trade under Versartis’ new name, “Aravive, Inc.”, and trading symbol “ARAV.”

As of                     , 2018, there were approximately                stockholders of record and there were approximately beneficial stockholders of Versartis common stock.

Dividend Policy

Versartis has never paid or declared, and does not anticipate declaring, or paying in the foreseeable future, any cash dividends on its common stock. Future determination as to the declaration and payment of dividends, if any, will be at the discretion of the Versartis board of directors and will depend on then existing conditions, including its operating results, financial conditions, contractual restrictions, capital requirements, business prospects and other factors its board of directors may deem relevant.



 

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Aravive has never paid or declared any cash dividends on its common stock or preferred stock. If the merger does not occur, Aravive does not anticipate paying any cash dividends on its common stock in the foreseeable future, and Aravive intends to retain all available funds and any future earnings to fund the development and expansion of its business. Any future determination to pay dividends will be at the discretion of the Aravive board of directors and will depend upon a number of factors, including its results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the Aravive 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 in this proxy statement/prospectus/information statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with the business of Versartis because these risks may also affect the combined company. These risks can be found in Versartis’ Annual Report on Form 10-K, as updated by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC. You should also read and consider the other information in this proxy statement/prospectus/information statement and the other documents incorporated by reference into this proxy statement/prospectus/information statement. Realization of any of the risks described below, any of the uncertainties described under “Cautionary Statement Regarding Forward-Looking Statements” or any of the risks or uncertainties described in the documents incorporated by reference in this proxy statement/prospectus/information statement could have a material adverse effect on Versartis’, Aravive’s or the combined company’s businesses, financial condition, cash flows and results of operations. For more information, please see the section titled “Where You Can Find More Information.”

Risks Related to the Merger

The Exchange Ratio is not adjustable based on the market price of Versartis 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.

The Merger Agreement has set the Exchange Ratio for the Aravive common stock, and the Exchange Ratio is only adjustable upward or downward based on increases or decreases in the number of shares of Aravive’s issued and outstanding capital stock and the number of shares of Aravive capital stock issuable upon the exercise of all issued and outstanding equity awards, increases or decreases the number of Versartis’ issued and outstanding common stock, if the cash balances at closing of either Versartis or Aravive fall outside a pre-determined range, and the proposed reverse stock split, prior to the closing of the merger as described in the section titled “The Merger—Merger Consideration.” The pre-reverse stock split Exchange Ratio is currently estimated to be 2.29, and the post-split Exchange Ratio will depend on the exact reverse stock split ratio that is ultimately mutually determined by Versartis and Aravive and certain changes in the capitalization of the two companies. Any changes in the market price of Versartis common stock before the closing of the merger will not affect the number of shares Aravive securityholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the closing of the merger the market price of Versartis common stock declines from the market price on the date of the Merger Agreement, then Aravive stockholders could receive merger consideration with substantially lower value. Similarly, if before the closing of the merger the market price of Versartis common stock increases from the market price on the date of the Merger Agreement, then Aravive stockholders could receive merger consideration with substantially more value for their shares of Aravive capital stock than the parties had negotiated for in the establishment of the Exchange Ratio. Because the Exchange Ratio does not adjust as a result of changes in the value of Versartis common stock, for each one percentage point that the market value of Versartis common stock rises or declines, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration issued to Aravive stockholders.

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

If the merger is not completed, Versartis and Aravive are subject to the following risks:

 

   

if the Merger Agreement is terminated under certain circumstances and certain events occur, Versartis or Aravive will be required to pay the other party a termination fee of $2.5 million;

 

   

the price of Versartis stock may decline and remain volatile; and

 

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costs related to the merger, such as legal, accounting and investment banking fees which (1) Versartis estimates will total approximately $3.8 million, of which $2.3 million must be paid even if the merger is not completed, and (2) Aravive estimates will total $2.2 million, respectively.

In addition, if the Merger Agreement is terminated and the Versartis or Aravive board of directors determines to seek another business combination, there can be no assurance that Versartis or Aravive will be able to find a partner willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the merger.

If the conditions to the merger are not met, the merger may not occur.

Even if the proposals referred to herein are approved by the stockholders of Versartis and Aravive, specified other 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 Closing of the Merger.” Versartis and Aravive cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the merger may not occur or will be delayed, and Versartis and Aravive each may lose some or all of the intended benefits of the merger.

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

In general, either Versartis or Aravive can refuse to complete the merger if there is a material adverse change affecting the other party between June 3, 2018, the date of the Merger Agreement, and the closing. However, certain types of changes do not permit either party to refuse to complete the merger, even if such change could be said to have a material adverse effect on Versartis or Aravive, including:

 

   

general business or economic conditions affecting the industries in which Aravive or Versartis operate;

 

   

acts of war, armed hostilities or terrorism;

 

   

changes in financial, banking or securities markets;

 

   

the taking of any action required to be taken by the Merger Agreement;

 

   

with respect to Versartis, the announcement or pendency of the Merger Agreement or any related transactions; or

 

   

with respect to Versartis, any change in the stock price or trading volume of Versartis common stock.

If adverse changes occur and Versartis and Aravive still complete the merger, the combined company stock price may suffer. This in turn may reduce the value of the merger to the stockholders of Versartis and Aravive.

The combined company will need to raise additional capital by issuing securities or debt or through licensing arrangements, which may cause dilution to the combined company’s stockholders or restrict the combined company’s operations or proprietary rights.

The combined company may be required to raise additional funds sooner than currently planned. Additional financing may not be available to the combined company when it needs it or may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such an issuance may cause significant dilution to the combined company’s stockholders’ ownership and 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 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.

 

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Certain Versartis and Aravive 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.

Certain officers and directors of Versartis and Aravive participate in arrangements that provide them with interests in the merger that are different from yours, including, among others, the continued service as directors, in the case of Versartis, or directors and officers, in the case of Aravive, of the combined company, severance and retention benefits, the acceleration of stock options and continued indemnification.

For example, Jay P. Shepard, Versartis’ President and Chief Executive Officer, is expected to become a director and the Chief Executive Officer of the combined company upon the closing of the merger.

For more information, please see the section titled “The Merger—Interests of the Versartis Directors and Executive Officers in the Merger.”

Additionally, certain of Aravive’s directors are expected to become directors of the combined company upon the closing of the merger. Specifically, Raymond Tabibiazar, who is currently the Executive Chairman of Aravive, is expected to become a member of the combined company’s board of directors upon the closing of the merger.

In addition, all of Aravive’s executive officers and its employee directors have options, subject to vesting, to purchase shares of Aravive common stock which, if in-the-money, shall be converted into and become options to purchase shares of Versartis common stock. For more information, please see the section titled “The Merger—Interests of the Aravive Directors and Executive Officers in the Merger.

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

The market price of the combined company’s common stock may decline as a result of the merger for a number of reasons including if:

 

   

investors react negatively to the prospects of the combined company’s business and prospects from the merger;

 

   

the effect of the merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or

 

   

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

Versartis and Aravive stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.

If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the merger, Versartis and Aravive securityholders will have experienced substantial dilution of their ownership interests in their respective companies 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.

During the pendency of the merger, Versartis and Aravive may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.

Covenants in the Merger Agreement impede the ability of Versartis and Aravive to make acquisitions, subject to certain exceptions relating to fiduciary duties, or complete other transactions that are not in the ordinary course of

 

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business pending the closing of the merger. 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, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination outside the ordinary course of business, with any third-party, subject to certain exceptions. Any such transactions could be favorable to such party’s stockholders.

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

The terms of the Merger Agreement prohibit each of Versartis and Aravive from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in certain circumstances where the Versartis or Aravive board of directors, as applicable, determines in good faith, after consultation with its financial advisor and outside legal counsel, that an unsolicited alternative takeover proposal constitutes or is reasonably likely to result in a superior takeover proposal. In addition, if Versartis or Aravive terminate the Merger Agreement under certain circumstances, including terminating because of a decision of the Versartis or Aravive board of directors, as applicable, to recommend an alternative proposal, Versartis or Aravive, as applicable, would be required to pay a termination fee of $2.5 million to the other party. These termination fees and reimbursement obligations described above may discourage third parties from submitting alternative takeover proposals to Versartis and its stockholders and Aravive and its stockholders, and may cause the Versartis board of directors or the Aravive board of directors to be less inclined to recommend an alternative proposal.

The lack of a public market for Aravive shares makes it difficult to determine the fair market value of the Aravive shares, and Aravive stockholders may receive consideration in the merger that is less than the fair market value of the Aravive shares and/or Versartis may pay more than the fair market value of the Aravive shares.

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

Risks Related to Versartis

Investing in Versartis common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this proxy statement/prospectus/information statement and in the other periodic and current reports and other documents it files with the SEC, before deciding to invest in its common stock. If any of the following risks materialize, Versartis’ business, financial condition, results of operation and future prospects will likely be materially and adversely affected. In that event, the market price of its common stock could decline and you could lose all or part of your investment.

Versartis is, and will continue to be, subject to the risks described in Part I, Item 1A in Versartis’ Annual Report on Form 10-K for the year ended December 31, 2017 and in Part II, Item 1A in Versartis’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, each as filed with the SEC and incorporated by reference into this Proxy Statement/Prospectus. For more information, please see the section titled “Where You Can Find More Information.

 

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Versartis Risks Related to the Merger

If the merger is not completed, Versartis may be unsuccessful in completing an alternative transaction on terms that are as favorable as the terms of the proposed transaction with Aravive, or at all, and Versartis may be unable to reestablish an operating business. The Versartis board of directors may decide to pursue a dissolution and liquidation of Versartis. In such an event, the amount of cash available for distribution to Versartis’ stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

To date, Versartis’ current assets consist primarily of cash, cash equivalents and marketable securities, Versartis’ listing on the Nasdaq Global Select Market and the Merger Agreement with Aravive. While Versartis has entered into the Merger Agreement with Aravive, the closing of the merger with Aravive may be delayed or may not occur at all and there can be no assurance that the merger will deliver the anticipated benefits Versartis expects or enhance shareholder value. If Versartis is unable to consummate the merger with Aravive, the Versartis board of directors may elect to pursue an alternative strategy, one of which may be a strategic transaction similar to the proposed merger with Aravive. Attempting to complete an alternative transaction will be costly and time consuming, and Versartis can make no assurances that such an alternative transaction would occur at all. Alternatively, the Versartis board of directors may elect to continue operations or decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to Versartis’ stockholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as Versartis continues to fund its operations. In addition, if the Versartis board of directors was to approve and recommend, and Versartis’ stockholders were to approve, a dissolution and liquidation of the company, Versartis would be required under Delaware corporate law to pay its outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to Versartis’ stockholders. Versartis’ commitments and contingent liabilities may include severance obligations and fees and expenses related to the merger. As a result of this requirement, a portion of Versartis’ assets may need to be reserved pending the resolution of such obligations. In addition, Versartis may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, the Versartis board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of Versartis common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up of the company.

Failure to obtain stockholder approval for the proposed reverse stock split may result in the combined company being unable to obtain compliance with minimum bid price requirements for an initial listing on Nasdaq, if required, and may result in Versartis common stock being delisted from Nasdaq.

If Versartis is required pursuant to Nasdaq’s “reverse merger” rules to file an initial listing application for the combined company’s common stock and if the Reverse Stock Split Proposal is not approved by Versartis’ stockholders, the combined company will likely not be able to obtain compliance with the minimum bid price requirement for an initial listing on Nasdaq and, as a consequence, Nasdaq will immediately provide the combined company with written notification that the combined company’s common stock will be delisted.

Upon receipt of such delisting letter, the combined company will appeal the determination to the Nasdaq hearings panel, or the Hearing Panel. In addition, the board of directors of the combined company will immediately call for a second special meeting of the stockholders following the closing of the merger and request the stockholders of the combined company to approve a reverse stock split that will allow the combined company to remain in compliance with Nasdaq listing requirements. If the second special meeting has not been held before the occurrence of a hearing before the Hearing Panel, the combined company will be required to provide a plan to attain compliance. If the combined company has not regained compliance with Nasdaq listing requirements prior to such hearing, and the Hearing Panel decides to continue with delisting of the combined company, the Hearing Panel’s decision may be appealed to the Nasdaq Listing and Hearing Review Council but such appeal would not stay the delisting process.

 

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The issuance of shares of Versartis common stock to Aravive stockholders in the merger will dilute substantially the voting power of Versartis’ current stockholders.

If the merger is completed, each outstanding share of Aravive common stock will be converted into the right to receive a number of shares of Versartis common stock equal to the Exchange Ratio determined pursuant to the Merger Agreement. Immediately following the merger, Versartis securityholders are expected to own approximately 52% of the outstanding equity securities of the combined company on a fully diluted basis, and Aravive securityholders are expected to own approximately 48% of the outstanding equity securities of the combined company on a fully diluted basis. Accordingly, the issuance of shares of Versartis common stock to Aravive stockholders in the merger will reduce significantly the relative voting power of each share of Versartis common stock held by Versartis’ current securityholders. Consequently, Versartis securityholders as a group will have significantly less influence over the management and policies of the combined company after the merger than prior to the merger.

If the combined company after the merger is unable to realize the strategic and financial benefits currently anticipated from the merger, Versartis stockholders and Aravive stockholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving the expected commensurate benefit, or receiving only part of the commensurate benefit to the extent the combined company is able to realize only part of the expected strategic and financial benefits currently anticipated from the merger.

The pendency of the merger could have an adverse effect on the trading price of Versartis common stock and Versartis’ business, financial condition, results of operations or business prospects.

While there have been no significant adverse effects to date, the pendency of the merger could disrupt Versartis’ businesses in the following ways, including:

 

   

the attention of Versartis’ management may be directed toward the closing of the merger and related matters and may be diverted from the day-to-day business operations; and

 

   

third parties may seek to terminate or renegotiate their relationships with Versartis as a result of the merger, whether pursuant to the terms of their existing agreements with Versartis or otherwise.

Should they occur, any of these matters could adversely affect the trading price of Versartis common stock or harm Versartis’ financial condition, results of operations or business prospects.

Versartis is substantially dependent on Versartis’ remaining employees to facilitate the consummation of a strategic transaction.

In May 2018, Versartis reduced its workforce by thirteen employees, which represented approximately 48% of its workforce as of May 3, 2018. Versartis’ ability to successfully complete a strategic transaction depends in large part on Versartis’ ability to retain certain of its remaining personnel. Despite Versartis’ efforts to retain these employees, one or more may terminate their employment with Versartis on short notice. The loss of the services of any of these employees could potentially harm Versartis’ ability to consummate the merger, to run Versartis’ day-to-day operations, as well as fulfill Versartis’ reporting obligations as a public company.

There is no assurance that the proposed merger will be completed in a timely manner or at all. If the merger is not consummated, Versartis’ business could suffer materially and its stock price could decline.

The closing of the proposed merger is subject to a number of closing conditions, including the approval by Versartis’ stockholders of the issuance of shares of Versartis common stock pursuant to the Merger Agreement and other customary closing conditions. If the conditions are not satisfied or waived, the merger will not occur or will be delayed.

 

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If the proposed merger is not consummated, Versartis may be subject to a number of material risks, and Versartis’ business and stock price could be adversely affected, as follows:

 

   

Versartis has incurred and expects to continue to incur significant expenses related to the proposed merger even if the merger is not consummated;

 

   

Versartis could be obligated to pay Aravive a termination fee of $2.5 million under certain circumstances pursuant to the Merger Agreement;

 

   

the market price of Versartis common stock may decline to the extent that the current market price reflects a market assumption that the proposed merger will be completed; and

 

   

Versartis may not be able to pursue an alternate merger transaction if the proposed merger with Aravive is not completed.

Risks Related to Aravive

Risks Related to Aravive’s Financial Position and Capital Requirements

Aravive has a limited operating history and has never generated any product revenue.

Aravive is a clinical-stage biopharmaceutical company with a limited operating history and has never generated any product revenue. Aravive was founded in April 2007 and its operations to date have been primarily limited to organizing and staffing its company, and developing its clinical product candidate, AVB-S6-500. Aravive has not yet successfully completed any clinical trials in the target patient population, obtained marketing approval, manufactured AVB-S6-500 product at commercial scale, or conducted sales and marketing activities that will be necessary to successfully commercialize AVB-S6-500. Consequently, predictions about Aravive’s future success or viability may not be as accurate as they could be if it had a longer operating history or a history of successfully developing and commercializing product candidates.

Even if Aravive receives regulatory approval for the sale of any of its clinical product candidate, it does not know when it will begin to generate revenue, if at all. Aravive’s ability to generate revenue depends on a number of factors, including its ability to:

 

   

set an acceptable price for its clinical product candidate and obtain coverage and adequate reimbursement from third-party payors;

 

   

establish sales, marketing, manufacturing and distribution systems;

 

   

add operational, financial and management information systems and personnel, including personnel to support its clinical, manufacturing and planned future clinical development and commercialization efforts and operations as a public company;

 

   

develop manufacturing capabilities for bulk materials and manufacture commercial quantities of its clinical product candidate at acceptable cost levels;

 

   

achieve broad market acceptance of its clinical product candidate in the medical community and with third-party payors and consumers;

 

   

attract and retain an experienced management and advisory team;

 

   

launch commercial sales of Aravive’s clinical product candidate, whether alone or in collaboration with others; and

 

   

maintain, expand and protect Aravive’s intellectual property portfolio.

Because of the numerous risks and uncertainties associated with development and manufacturing, Aravive is unable to predict if it will generate revenue. If Aravive cannot successfully execute on any of the factors listed above, Aravive’s business may not succeed, it may never generate revenue and your investment will be adversely affected.

 

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Aravive has incurred significant losses since its inception and expects to continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability.

Aravive has never generated any product revenues and it expects to continue to incur substantial and increasing losses as it continues to develop its clinical product candidate. To become and remain profitable, Aravive or its partners must succeed in developing its clinical product candidate, obtaining regulatory approval for it, and manufacturing, marketing and selling those products for which it or its partners may obtain regulatory approval. Aravive or its partners may not succeed in these activities, and Aravive may never generate revenue from product sales that is significant enough to achieve profitability. Aravive’s clinical product candidate has not been approved for marketing in the United States or any foreign jurisdiction and may never receive such approval. As a result, Aravive is uncertain when or if it will achieve profitability and, if so, whether it will be able to sustain it. Aravive’s ability to generate revenue and achieve profitability is dependent on its ability to complete development, obtain necessary regulatory approvals, manufacture and successfully market its clinical product candidate. Aravive cannot assure you that it will be profitable even if it successfully commercializes its clinical product candidate. If Aravive does successfully obtain regulatory approval to market its clinical product candidate, its revenues will be dependent, in part, upon, the size of the markets in the territories for which regulatory approval is received, the number of competitors in such markets, the price at which Aravive can offer its clinical product candidate and whether Aravive owns the commercial rights for that territory. If the indication approved by regulatory authorities is narrower than Aravive expects, or the treatment population is narrowed by competition, physician choice or treatment guidelines, Aravive may not generate significant revenue from sales of its clinical product candidate in order to achieve profitability, even if approved. Even if Aravive does achieve profitability, Aravive may not be able to sustain or increase profitability on a quarterly or annual basis. If Aravive fails to become and remain profitable the market price of its common stock and Aravive’s ability to raise capital and continue operations will be adversely affected.

To date, Aravive’s only clinical trial has been its recently completed Phase 1 clinical trial with 42 dosed subjects. Aravive expects research and development expenses to increase significantly for its products as they advance in the clinical trial and as Aravive conducts larger clinical trials. Because of numerous risks and uncertainties involved in its business, the timing or amount of increased development expenses cannot be accurately predicted and, Aravive’s expenses could increase beyond expectations if it is required by the U.S. Food and Drug Administration, or the FDA, or comparable non-U.S. regulatory authorities, to perform studies or clinical trials in addition to those it currently anticipates. Even if Aravive’s clinical product candidate is approved for commercial sale, it anticipates incurring significant costs associated with the commercial launch of and the related commercial-scale manufacturing requirements for its clinical product candidate. As a result, Aravive expects to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future. Because of the numerous risks and uncertainties associated with biopharmaceutical product development and commercialization, Aravive is unable to accurately predict the timing or amount of future expenses or when, or if, it will be able to achieve or maintain profitability. These losses have had and will continue to have an adverse effect on its financial position and working capital. As of December 31, 2017, Aravive had an accumulated deficit of $12.0 million and as of March 31, 2018, Aravive had an accumulated deficit of $12.9 million.

Aravive will require additional capital to fund its operations, and if Aravive fails to obtain necessary financing, it may not be able to complete the development and commercialization of its clinical product candidate.

Aravive expects to spend substantial amounts to complete the development of, seek regulatory approvals for and commercialize Aravive’s clinical product candidate. Even with the expected cash reserves of the combined company, Aravive will require substantial additional capital to complete the development and potential commercialization of its clinical product candidate and the development of other product candidates, if any. If Aravive is unable to raise capital or find appropriate partnering or licensing collaborations, when needed or on acceptable terms, it could be forced to delay, reduce or eliminate one or more of its development programs or any future commercialization efforts. In addition, attempting to secure additional financing may divert the time and attention of its management from day-to-day activities and harm its development efforts.

 

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Based upon its current operating plan, Aravive believes that the expected cash reserves of the combined company will enable it to fund its currently planned Phase 1b/2 clinical trial for ovarian cancer and potentially one or two additional clinical trials in different indications. Aravive’s estimate as to what it will be able to accomplish is based on assumptions that may prove to be inaccurate, and it could exhaust its available capital resources sooner than is currently expected. Because the length of time and activities associated with successful development of its clinical product candidate is highly uncertain, Aravive is unable to estimate the actual funds it will require for development and any approved marketing and commercialization activities. Aravive’s future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

 

   

the initiation, progress, timing, costs and results of Aravive’s planned clinical trials;

 

   

the number of product candidates it pursues;

 

   

the outcome, timing and cost of meeting regulatory requirements established by the FDA, the European Medicines Agency, or EMA, and other comparable foreign regulatory authorities;

 

   

the cost of filing, prosecuting, defending and enforcing its patent claims and other intellectual property rights;

 

   

the cost of defending potential intellectual property disputes, including any patent infringement actions brought by third parties against Aravive now or in the future;

 

   

the effect of competing technological and market developments;

 

   

the cost of establishing sales, marketing and distribution capabilities in regions where Aravive chooses to commercialize its clinical product candidate on its own; and

 

   

the initiation, progress, timing and results of the commercialization of its clinical product candidate, if approved, for commercial sale.

Additional funding may not be available on acceptable terms, or at all. If Aravive is unable to raise additional capital in sufficient amounts or on terms acceptable to it, Aravive may have to significantly delay, scale back or discontinue the development or commercialization of its clinical product candidate or potentially discontinue operations. Aravive may also seek collaborators for one or more of its current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Any of these events could significantly harm its business, financial condition and prospects.

Raising additional funds by issuing securities may cause dilution to existing stockholders, and raising funds through lending and licensing arrangements may restrict Aravive’s operations or require it to relinquish proprietary rights.

Aravive expects that significant additional capital will be needed in the future to continue its planned operations and commercialize its clinical product candidate. Until such time, if ever, as Aravive can generate substantial product revenues, Aravive expects to finance its cash needs through a combination of equity offerings, debt financings, strategic alliances and license and development agreements in connection with any collaborations. Neither Aravive nor Versartis currently have any committed external source of funds. To the extent that Versartis raises additional capital by issuing equity securities, existing stockholders’ ownership may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting Aravive’s or Versartis’ ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends, creating liens, redeeming its stock or making investments.

 

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If Aravive or Versartis raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, it may have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to Aravive. If either Aravive or Versartis is unable to raise additional funds through equity or debt financings when needed, or through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties on acceptable terms, Aravive may be required to delay, limit, reduce or terminate its product development or future commercialization efforts or grant rights to develop and market product candidates that it would otherwise develop and market.

Risks Related To Aravive’s Business

Reliance on government funding for Aravive’s programs may impose requirements that limit Aravive’s ability to take certain actions, and subject it to potential financial penalties, which could materially and adversely affect its business, financial condition and results of operations.

A significant portion of Aravive’s funding has been through a grant it received from the Cancer Prevention and Research Institute of Texas, or CPRIT. The CPRIT Grant (as defined below) includes provisions that reflect the government’s substantial rights and remedies, many of which are not typically found in commercial contracts, including powers of the government to potentially require repayment of all or a portion of the grant proceeds, in certain cases with interest, in the event Aravive violates certain covenants pertaining to various matters that include any potential relocation outside of the State of Texas. The CPRIT Grant contract terminates on May 31, 2019.

Aravive’s award from CPRIT requires it to pay CPRIT a portion of its revenues from sales of certain products by it, or received from its licensees or sublicensees, at a percentage of revenue in the low single digits until the aggregate amount of such payments equals a specified multiple of the grant amount, and thereafter at a rate of less than one percent for as long as Aravive maintains government exclusivity, subject to Aravive’s right, under certain circumstances, to make a one-time payment in a specified amount to CPRIT to terminate such payment obligations. In addition, the grant contract also contains a provision that provides for repayment to CPRIT of some amount not to exceed the full amount of the grant proceeds under certain specified circumstances involving relocation of Aravive’s principal place of business outside Texas.

The CPRIT Grant requires Aravive, as a Texas based company, to meet certain criteria, including among other things, that Aravive maintain its headquarters in Texas and use certain vendors, consultants and employees that are located in Texas. As Aravive expands its operations, it will need to hire additional qualified personnel with expertise in preclinical testing, clinical research and testing, government regulation, formulation and manufacturing, sales and marketing and accounting and financing located in Texas. Aravive will compete for qualified individuals with numerous biopharmaceutical companies, universities and other research institutions. Competition for such individuals is intense, and there can be no assurance that the search for such personnel will be successful, especially in light of the territorial restrictions imposed by CPRIT. Attracting and retaining qualified personnel will be critical to Aravive’s access to the CPRIT Grant.

If Aravive fails to maintain compliance with any such requirements that may apply to it now or in the future, it may be subject to potential liability and to termination of its contracts, including potentially the CPRIT Grant.

Aravive relies on licenses to use various technologies that are material to its business and if the agreements underlying the licenses were to be terminated or if other rights that may be necessary for commercializing its intended products cannot be obtained, it would halt Aravive’s ability to market its products and technology, as well as have an immediate material adverse effect on Aravive’s business, operating results and financial condition.

Aravive’s prospects are significantly dependent upon its license with Stanford University, or the Stanford License. The Stanford License grants Aravive exclusive, worldwide rights to certain existing patents and related

 

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intellectual property that cover Aravive-S6-500, the lead development candidate selected from the AVB-S6 family of proteins. If Aravive breaches the terms of the Stanford License, including any failure to make minimum royalty payments required thereunder or failure to reach certain developmental milestones and by certain deadlines or other factors, including but not limited to, the failure to comply with material terms of the Stanford License, the licensor has the right to terminate the license. If Aravive were to lose or otherwise be unable to maintain the license on acceptable terms, or find that it is necessary or appropriate to secure new licenses from other third parties, Aravive would not be able to market Aravive’s products and technology, which would likely require it to cease its current operations which would have an immediate material adverse effect on its business, operating results and financial condition.

Aravive currently only has one clinical product candidate in clinical development and is dependent on the success of this product candidate, which requires significant additional clinical testing before seeking regulatory approval. If its clinical product candidate does not receive regulatory approval or is not successfully commercialized, Aravive’s business may be harmed.

Aravive currently is developing one clinical product candidate, AVB-S6-500, as a potential treatment for several types of cancer and fibrosis. AVB-S6-500 is currently being tested in clinical trials and to date, Aravive has not had any product candidate that has been in late-stage clinical development or approved for commercial sale. It is possible that Aravive may never be able to develop a marketable product candidate. Aravive’s main focus and the investment of a significant portion of its efforts and financial resources has been in the development of AVB-S6-500, for which it has recently completed a Phase 1 clinical trial. Aravive expects that a substantial portion of its efforts and expenditures over the next few years will be devoted to AVB-S6-500, which is initially being developed for the treatment of ovarian cancer. Accordingly, Aravive’s business currently depends heavily on the successful development, regulatory approval and commercialization of AVB-S6-500. Aravive’s clinical product candidate may not receive regulatory approval or be successfully commercialized even if regulatory approval is received. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of product candidates are and will remain subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries that each have differing regulations. Aravive is not permitted to market its product in the United States until it receives approval of a biologics license application, or BLA, from the FDA, or in any foreign countries until it receives the requisite approval from such countries. Aravive has never submitted a BLA to the FDA or comparable applications to other regulatory authorities and does not expect to be in a position to do so for the foreseeable future. Obtaining approval of a BLA is an extensive, lengthy, expensive and inherently uncertain process, and the FDA may delay, limit or deny approval of its product for many reasons.

Aravive’s success depends largely upon its ability to advance its clinical product candidate, which is in early stages of development, through the various stages of drug development. If Aravive is unable to successfully advance or develop its clinical product candidate, its business will be materially harmed.

Aravive’s clinical product candidate is in early stages of clinical development and its commercial viability remains subject to the successful outcome of future preclinical studies, clinical trials, manufacturing processes, regulatory approvals and the risks generally inherent in the development of pharmaceutical product candidates. Failure to advance the development of Aravive’s clinical product candidate may have a material adverse effect on Aravive’s business. The long-term success of Aravive’s business ultimately depends upon Aravive’s ability to advance the development of its clinical product candidate through clinical trials, appropriately formulate and consistently manufacture them in accordance with strict specifications and regulations, obtain approval of Aravive’s clinical product candidate for sale by the FDA or similar regulatory authorities in other countries, and ultimately have its clinical product candidate successfully commercialized by Aravive or a strategic partner or licensee. Aravive cannot assure you that the results of its ongoing or future research, preclinical studies or clinical trials will support or justify the continued development of Aravive’s clinical product candidate, or that Aravive will ultimately receive approval from the FDA, or similar regulatory authorities in other countries, to advance the development of its clinical product candidate.

 

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Aravive’s clinical product candidate must satisfy rigorous regulatory standards of safety, efficacy and manufacturing before Aravive can advance or complete their development and before they can be approved for sale by the FDA or similar regulatory authorities in other countries. To satisfy these standards, Aravive must engage in expensive and lengthy studies and clinical trials, develop acceptable and cost effective manufacturing processes, and obtain regulatory approval of Aravive’s clinical product candidate. Despite these efforts, Aravive’s clinical product candidate may not:

 

   

demonstrate clinically meaningful therapeutic or other medical benefits as compared to a patient receiving no treatment or over existing drugs or other product candidates in development to treat the same patient population;

 

   

be shown to be safe and effective in future preclinical studies or clinical trials;

 

   

have the desired therapeutic or medical effects;

 

   

be tolerable or free from undesirable or unexpected side effects;

 

   

meet applicable regulatory standards;

 

   

be capable of being appropriately formulated and manufactured in commercially suitable quantities or scale and at an acceptable cost; or

 

   

be successfully commercialized by Aravive or by its licensees or collaborators.

Even if Aravive demonstrates favorable results in preclinical studies and early-stage clinical trials, it cannot assure you that the results of late-stage clinical trials will be sufficient to support the continued development of Aravive’s clinical product candidate. Many, if not most, companies in the pharmaceutical and biopharmaceutical industries have experienced significant delays, setbacks and failures in all stages of development, including late-stage clinical trials, even after achieving promising results in preclinical testing or early-stage clinical trials. Accordingly, results from completed preclinical studies and early-stage clinical trials of Aravive’s clinical product candidate may not be predictive of the results Aravive may obtain in future late-stage trials. Furthermore, even if the data collected from preclinical studies and clinical trials involving any of Aravive’s clinical product candidate demonstrate a satisfactory safety, tolerability and efficacy profile, such results may not be sufficient to obtain regulatory approval from the FDA in the United States, or other similar regulatory agencies in other jurisdictions, which is required to market and sell the product.

Clinical trials are risky, lengthy and expensive. Aravive incurs substantial expense for, and devotes significant time and resources to, preclinical testing and clinical trials, yet cannot be certain that these tests and trials will demonstrate that a product candidate is effective and well-tolerated, or will ever support its approval and commercial sale. For example, clinical trials require adequate supplies of clinical trial material and sufficient patient enrollment to power the study. Delays in patient enrollment can result in increased costs and longer development times. Even if Aravive, or a licensee or collaborator, if applicable, successfully complete clinical trials for Aravive’s clinical product candidate, Aravive or they might not file the required regulatory submissions in a timely manner and may not receive marketing approval for the clinical product candidate. Aravive cannot assure you that its clinical product candidate will successfully progress further through the drug development process, or ultimately will result in an approved and commercially viable product.

Aravive has limited experience as a company conducting clinical trials.

Aravive is an early stage clinical stage company and its success is dependent upon its ability to obtain regulatory approval for and commercialization of its clinical product candidate, and it has not demonstrated an ability to perform the functions necessary for the approval or successful commercialization of any product candidate. The successful commercialization of any product candidate may require Aravive to perform a variety of functions, including:

 

   

continuing to undertake preclinical development and successfully enroll subjects in clinical trials;

 

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participating in regulatory approval processes;

 

   

formulating and manufacturing products; and

 

   

conducting sales and marketing activities.

Aravive has limited experience conducting and enrolling subjects in clinical trials. While certain members of Aravive’s management and staff have significant experience in conducting clinical trials, to date, Aravive has not successfully completed any clinical trials as a company. Until recently, Aravive’s operations have been limited primarily to organizing and staffing its company, acquiring, developing and securing its proprietary technology and preparing for clinical trials of Aravive’s clinical product candidate. These operations provide a limited basis to assess Aravive’s ability to develop and commercialize its clinical product candidate.

Although Aravive has recruited a team that has significant experience with managing clinical trials, it has limited experience as a company in conducting its own clinical trials. In part because of this lack of experience, Aravive cannot guarantee that planned clinical trials will be completed on time, if at all. Large-scale trials require significant additional financial and management resources, monitoring and oversight, and reliance on third-party clinical investigators, consultants or contract research organizations, or CROs. Relying on third-party clinical investigators, CROs and manufacturers, which are all also subject to governmental oversight and regulations, may also cause Aravive to encounter delays that are outside of its control.

If Aravive fails to continue to develop and refine the dosage of its clinical product candidate, it may not obtain regulatory approvals, and even if approved, the commercial acceptance of its clinical product candidate would likely be limited.

In Aravive’s Phase 1 trial, it used doses ranging from 1 mg per kg per week to 10 mg per kg per week. Aravive believes that in order for its clinical product candidate to be commercially successful it may need to continue to refine its dosage. Increasing the dosage of the clinical product candidate may affect the safety profile of the clinical product candidate and manufacturing needs.

If the actual or perceived therapeutic benefits, or the safety or tolerability profile of Aravive’s clinical product candidate is not equal to or superior to other competing treatments approved for sale or in clinical development, Aravive may terminate the development of its clinical product candidate at any time, and Aravive’s business prospects and potential profitability could be harmed.

Aravive is aware of a number of companies marketing or developing product candidates for the treatment of patients with cancer that are either approved for sale or further advanced in clinical development than Aravive’s, such that their time to approval and commercialization may be shorter than that for Aravive’s clinical product candidate.

Currently, there are no approved biological drugs related to GAS6/AXL inhibition. However, if ever approved, Aravive’s clinical product candidate would indirectly compete with drugs approved to treat various types of cancer, such as those that regulate T-cell proliferation, including nivolumab, pembrolizumab, atezolizumab and other small molecule chemically manufactured drugs that target this pathway or other classes of drugs that are used for the clinical indications that Aravive is currently pursuing in clinic.

If at any time Aravive believes that its clinical product candidate may not provide meaningful or differentiated therapeutic benefits, perceived or real, equal to or better than its competitor’s products or product candidates, or Aravive believes that its clinical product candidate may not have as favorable a safety or tolerability profile as potentially competitive compounds, Aravive may delay or terminate the future development of its clinical product candidate. Aravive cannot provide any assurance that the future development of its clinical product candidate will demonstrate any meaningful therapeutic benefits over potentially competitive compounds currently approved for sale or in development, or an acceptable safety or tolerability profile sufficient to justify its continued development.

 

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For its planned Phase 1b/2 clinical trial testing AVB-S6-500 in patients with ovarian cancer, Aravive intends to administer its clinical product candidate in combination with other approved standard of care drugs. Any problems obtaining the standard of care drugs could result in a delay or interruption in its clinical trials.

For its planned Phase 1b/2 clinical trial of AVB-S6-500 for the treatment of patients with ovarian cancer, Aravive intends to administer its clinical product candidate in combination with already approved standard of care drugs. Therefore, Aravive’s success will be dependent upon the continued use of these other standard of care drugs. Aravive expects that in any other clinical trials it conducts for additional indications, its clinical product candidate will also be administered in combination with drugs owned by third parties. If any of the standard of care drugs that are used in Aravive’s clinical trials are unavailable while the trials are continuing, the timeliness and commercialization costs could be impacted. In addition, if any of these other drugs are determined to have safety of efficacy problems, Aravive’s clinical trials and commercialization efforts would be adversely affected.

Aravive’s clinical product candidate may exhibit undesirable side effects when used alone or in combination with other approved pharmaceutical products, which may delay or preclude its development or regulatory approval, or limit its use if ever approved.

Throughout the drug development process, Aravive must continually demonstrate the activity, safety and tolerability of its clinical product candidate in order to obtain regulatory approval to further advance its clinical development, or to eventually market it. Even if Aravive’s clinical product candidate demonstrates adequate biologic activity and clear clinical benefit, any unacceptable side effects or adverse events, when administered alone or in the presence of other pharmaceutical products, may outweigh these potential benefits. Aravive may observe adverse or serious adverse events or drug-drug interactions in preclinical studies or clinical trials of Aravive’s clinical product candidate, which could result in the delay or termination of its development, prevent regulatory approval, or limit its market acceptance if it is ultimately approved.

For its clinical product candidate, Aravive relies upon one third party to manufacture its drug substance. Any problems experienced by either its third-party manufacturer or its vendors could result in a delay or interruption in the supply of its clinical product candidate to Aravive until the third-party manufacturer or its vendor cures the problem or until Aravive locates and qualifies an alternative source of manufacturing and supply.

For its clinical product candidate, Aravive currently relies on one third-party manufacturer located in China to manufacture its clinical product candidate for its clinical studies and that manufacturer purchases from its third-party vendors and transports the materials necessary to produce its clinical product candidate, such as the required reagents and containers. If the third-party manufacturer were to experience any prolonged disruption for Aravive’s manufacturing, Aravive could be forced to seek additional third-party manufacturing contracts, thereby increasing its development costs and negatively impacting its timelines and any commercialization costs.

If Aravive’s manufacturer is not able to manufacture sufficient quantities of its clinical product candidate, Aravive’s development activities would be impaired. In addition, the manufacturing facility where Aravive’s clinical product candidate is manufactured is subject to ongoing, periodic inspection by the FDA or other comparable regulatory agencies to ensure compliance with current Good Manufacturing Practice, or cGMP. Any failure to follow and document the manufacturer’s adherence to such cGMP regulations or other regulatory requirements may lead to significant delays in the availability of clinical bulk drug substance and finished product for clinical trials, which may result in the termination of or a hold on a clinical trial, or may delay or prevent filing or approval of marketing applications for Aravive’s clinical product candidate. Aravive also may encounter problems with the following:

 

   

achieving adequate or clinical-grade materials that meet FDA or other comparable regulatory agency standards or specifications with consistent and acceptable production yield and costs;

 

   

Aravive’s contract manufacturers failing to develop an acceptable formulation to support late-stage clinical trials for, or the commercialization of, Aravive’s clinical product candidate;

 

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Aravive’s contract manufacturer being unable to increase the scale of or the capacity for, or reformulate the form of Aravive’s clinical product candidate, which may cause Aravive to experience a shortage in supply, or cause the cost to manufacture Aravive’s clinical product candidate to increase. Aravive cannot assure you that Aravive’s contract manufacturers will be able to manufacture Aravive’s clinical product candidate at a suitable commercial scale, or that Aravive will be able to find alternative manufacturers acceptable to Aravive that can do so;

 

   

Aravive’s contract manufacturer placing a priority on the manufacture of other customers’ or its own products, rather than Aravive’s products;

 

   

Aravive’s contract manufacturer or its vendors failing to perform as agreed, including failing to properly package, transport or store Aravive’s clinical product candidate or its reagents, or exiting from the contract manufacturing business;

 

   

Aravive’s contract manufacturers’ plants being closed as a result of regulatory sanctions or a natural disaster;

 

   

shortages of qualified personnel, raw materials or key contractors;

 

   

Aravive’s contract manufacturers failing to obtain FDA approval for commercial scale manufacturing; and

 

   

ongoing compliance with cGMP regulations and other requirements of the FDA or other comparable regulatory agencies.

If Aravive encounters any of these problems or is otherwise delayed, or if the cost of manufacturing in the China facility is not economically feasible or Aravive cannot find another third-party manufacturer, Aravive may not be able to produce its clinical product candidate in a sufficient quantity to meet future demand.

In addition, since Aravive relies on a third-party manufacturer located in China, its business is subject to risks associated with doing business in China, including:

 

   

adverse political and economic conditions, particularly those potentially negatively affecting the trade relationship between the United States and China;

 

   

trade protection measures, such as tariff increases, and import and export licensing and control requirements;

 

   

potentially negative consequences from changes in tax laws;

 

   

difficulties associated with the Chinese legal system, including increased costs and uncertainties associated with enforcing contractual obligations in China;

 

   

historically lower protection of intellectual property rights;

 

   

changes and volatility in currency exchange rates;

 

   

unexpected or unfavorable changes in regulatory requirements;

 

   

possible patient or physician preferences for more established pharmaceutical products and medical devices manufactured in the United States; and

 

   

difficulties in managing foreign relationships and operations generally.

These risks are likely to be exacerbated by Aravive’s limited experience with its current products and manufacturing processes. If demand for Aravive products materializes, it may have to invest additional resources to purchase materials, hire and train employees, and enhance its manufacturing processes. It may not be possible for Aravive to manufacture its clinical product candidate at a cost or in quantities sufficient to make its clinical product candidate commercially viable. Any of these factors may affect Aravive’s ability to manufacture its products and could reduce gross margins and profitability.

 

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Reliance on third-party manufacturers and suppliers entails risks to which Aravive would not be subject if Aravive manufactured its clinical product candidate itself, including:

 

   

reliance on the third parties for regulatory compliance and quality assurance;

 

   

the possible breach of the manufacturing agreements by the third parties because of factors beyond Aravive’s control or the insolvency of any of these third parties or other financial difficulties, labor unrest, natural disasters or other factors adversely affecting their ability to conduct their business; and

 

   

possibility of termination or non-renewal of the agreements by the third parties, at a time that is costly or inconvenient for us, because of Aravive’s breach of the manufacturing agreement or based on their own business priorities.

If Aravive’s contract manufacturer or its suppliers fail to deliver the required commercial quantities of Aravive’s clinical product candidate required for Aravive’s clinical trials and, if approved, for commercial sale, on a timely basis and at commercially reasonable prices, and Aravive is unable to find one or more replacement manufacturers or suppliers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality, and on a timely basis, Aravive would likely be unable to meet demand for Aravive’s products and would have to delay or terminate Aravive’s pre-clinical or clinical trials, and Aravive would lose potential revenue. It may also take a significant period of time to establish an alternative source of supply for Aravive’s clinical product candidate and to have any such new source approved by the FDA or any applicable foreign regulatory authorities. Furthermore, any of the above factors could cause the delay or suspension of initiation or completion of clinical trials, regulatory submissions or required approvals of Aravive’s clinical product candidate, cause it to incur higher costs and could prevent us from commercializing Aravive’s clinical product candidate successfully.

Aravive may not be able to manufacture its clinical product candidate in sufficient quantities to commercialize Aravive’s clinical product candidate.

In order to receive FDA approval of its clinical product candidate, Aravive will need to manufacture such clinical product candidate in larger quantities. Aravive’s third party manufacturer may not be willing or able to increase successfully the manufacturing capacity for its clinical product candidate in a timely or economic manner, or at all. In the event FDA approval is received, Aravive will need to increase production of its clinical product candidate. Significant scale-up of manufacturing may require additional validation studies, which the FDA must review and approve. If Aravive is unable to successfully increase the manufacturing capacity for its clinical product candidate, the clinical trials as well as the regulatory approval or commercial launch of Aravive’s clinical product candidate may be delayed or there may be a shortage in supply. Aravive’s clinical product candidate requires precise, high quality manufacturing. Failure to achieve and maintain high quality manufacturing, including the incidence of manufacturing errors, could result in patient injury or death, delays or failures in testing or delivery, cost overruns or other problems that could harm Aravive’s business, financial condition and results of operations.

In the event that Aravive needs to change its third-party contract manufacturer, its preclinical studies or its clinical trials, the commercialization of its clinical product candidate could be delayed, adversely affected or terminated, or such a change may result in the need for Aravive to incur significantly higher costs, which could materially harm Aravive’s business.

Due to various regulatory restrictions in the United States and many other countries, as well as potential capacity constraints on manufacturing that occur from time-to-time in Aravive’s industry, various steps in the manufacture of Aravive’s clinical product candidate is solely-sourced from certain contract manufacturers. In accordance with cGMPs, changing manufacturers may require the re-validation of manufacturing processes and procedures, and may require further preclinical studies or clinical trials to show comparability between the materials produced by different manufacturers. Changing Aravive’s current or future contract manufacturers may

 

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be difficult, if not impossible for Aravive, and could be extremely costly if Aravive does make such a change, which could result in Aravive’s inability to manufacture its clinical product candidate for an extended period of time and a delay in the development of its clinical product candidate. Further, in order to maintain its development timelines in the event of a change in a third-party contract manufacturer, Aravive may incur significantly higher costs to manufacture its clinical product candidate.

If third-party vendors, upon whom Aravive relies to conduct its preclinical studies or clinical trials, do not perform or fail to comply with strict regulations, these studies or trials may be delayed, terminated, or fail, or Aravive could incur significant additional expenses, which could materially harm its business.

Aravive has limited resources dedicated to designing, conducting and managing Aravive’s preclinical studies and clinical trials. Aravive has historically relied on, and intends to continue to rely on, third parties, including clinical research organizations, or CROs, consultants and principal investigators, to assist it in designing, managing, conducting, monitoring and analyzing the data from its preclinical studies and clinical trials. Aravive relies on these vendors and individuals to perform many facets of the clinical development process on its behalf, including conducting preclinical studies, the recruitment of sites and subjects for participation in Aravive’s clinical trials, maintenance of good relations with the clinical sites, and ensuring that these sites are conducting Aravive’s trials in compliance with the trial protocol and applicable regulations. If these third parties fail to perform satisfactorily, or do not adequately fulfill their obligations under the terms of Aravive’s agreements with them, Aravive may not be able to enter into alternative arrangements without undue delay or additional expenditures, and therefore the preclinical studies and clinical trials of Aravive’s clinical product candidate may be delayed or prove unsuccessful.

Further, the FDA, the EMA, or similar regulatory authorities in other countries, may inspect some of the clinical sites participating in Aravive’s clinical trials or Aravive’s third-party vendors’ sites to determine if Aravive’s clinical trials are being conducted according to good clinical practices, or GCPs, or similar regulations. If Aravive or a regulatory authority determine that Aravive’s third-party vendors are not in compliance with, or have not conducted Aravive’s clinical trials according to applicable regulations, Aravive may be forced to exclude certain data from the results of the trial, or delay, repeat or terminate such clinical trials.

Aravive relies on third parties to conduct, supervise and monitor Aravive’s clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm Aravive’s business.

Aravive relies on CROs and clinical trial sites to ensure the proper and timely conduct of its clinical trials, and Aravive expects to have limited influence over their actual performance.

Aravive also relies upon CROs to monitor and manage data for its clinical programs, as well as the execution of future nonclinical studies. Aravive expects to control only certain aspects of its CROs’ activities. Nevertheless, Aravive will be responsible for ensuring that each of its studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and Aravive’s reliance on the CROs does not relieve Aravive of its regulatory responsibilities.

Aravive and its CROs will be required to comply with the Good Laboratory Practices and GCPs, which are regulations and guidelines enforced by the FDA and are also required by the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities in the form of International Conference on Harmonization of Technical Requirements for Pharmaceuticals for Human Use guidelines for any of Aravive’s product candidates that are in preclinical and clinical development. The Regulatory authorities enforce GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If Aravive or its CROs fail to comply with GCPs, the clinical data generated in its clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require Aravive to perform additional clinical trials before approving Aravive’s marketing applications. Accordingly, if Aravive’s CROs fail to comply with these regulations or fail to recruit a sufficient number of subjects, Aravive may be required to repeat clinical trials, which would delay the regulatory approval process.

 

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Aravive’s CROs will not be its employees, and Aravive will not control whether or not they devote sufficient time and resources to its future clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including Aravive’s competitors, for whom they may also be conducting clinical trials, or other drug development activities which could harm its competitive position. Aravive faces the risk of potential unauthorized disclosure or misappropriation of its intellectual property by CROs, which may reduce Aravive’s trade secret protection and allow its potential competitors to access and exploit its proprietary technology. If its CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to Aravive’s clinical protocols or regulatory requirements or for any other reasons, its clinical trials may be extended, delayed or terminated, and it may not be able to obtain regulatory approval for, or successfully commercialize any product candidate that it develops. As a result, Aravive’s financial results and the commercial prospects for any product candidate that it develops would be harmed, its costs could increase, and its ability to generate revenues could be delayed.

If Aravive’s relationship with these CROs terminate, it may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. Switching or adding additional CROs involves substantial cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact Aravive’s ability to meet its desired clinical development timelines. Though Aravive intends to carefully manage its relationships with Aravive’s CROs, there can be no assurance that it will not encounter challenges or delays in the future or that these delays or challenges will not have an adverse impact on its business, financial condition and prospects.

Aravive may seek to selectively establish collaborations, and, if it is unable to establish them on commercially reasonable terms, it may have to alter its development and commercialization plans.

Aravive’s product development programs and the potential commercialization of its clinical product candidate will require substantial additional cash to fund expenses. For some of its product candidates Aravive may decide to collaborate with governmental entities or additional pharmaceutical and biotechnology companies for the development and potential commercialization of its product candidates.

Aravive faces significant competition in seeking appropriate collaborators. Whether Aravive reaches a definitive agreement for a collaboration will depend, among other things, upon its assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to Aravive’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 for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with Aravive for its product candidate.

Aravive’s future success depends on its ability to retain executive officers and attract, retain and motivate qualified personnel.

Aravive is highly dependent on its executive officers and the other principal members of the executive and scientific teams. The employment of Aravive’s executive officers are at-will and Aravive’s executive officers may terminate their employment at any time. The loss of the services of any of Aravive’s senior executive officers could impede the achievement of Aravive’s research, development and commercialization objectives. Aravive does not maintain “key person” insurance for any executive officer or employee.

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel is also critical to Aravive’s success. Aravive may not be able to attract and retain these personnel on acceptable terms

 

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given the competition among numerous pharmaceutical and biotechnology companies for similar personnel especially in light of the CPRIT Grant requirements, including the requirement that Aravive maintain its headquarters in Texas and use certain vendors, consultants and employees that are located in Texas. Aravive also experiences competition for the hiring of scientific and clinical personnel from universities and research institutions. Aravive’s industry has experienced an increasing rate of turnover of management and scientific personnel in recent years. In addition, Aravive relies on consultants and advisors, including scientific and clinical advisors, to assist it in devising Aravive’s research and development and commercialization strategy. Aravive’s consultants and advisors may be employed by third parties and have commitments under consulting or advisory contracts with other entities that may limit their availability to advance Aravive’s strategic objectives. If any of these advisors or consultants can no longer dedicate a sufficient amount of time to the company, Aravive’s business may be harmed.

Many of the other pharmaceutical companies that Aravive competes against for qualified personnel and consultants have greater financial and other resources, different risk profiles and a longer history in the industry than Aravive. 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 and consultants than what it has to offer. If Aravive is unable to continue to attract and retain high-quality personnel and consultants, the rate and success at which it can select and develop its clinical product candidate and its business will be limited.

Aravive will need to expand its organization, and may experience difficulties in managing this growth, which could disrupt operations.

Aravive’s future financial performance, its ability to commercialize its clinical product candidate, and its ability to compete effectively will depend, in part, on Aravive’s ability to effectively manage any future growth. As of August 1, 2018, Aravive had five full time employees. Aravive expects to hire additional employees for Aravive’s managerial, clinical, scientific and engineering, operational, manufacturing, sales and marketing teams. Aravive may have operational difficulties in connection with identifying, hiring and integrating new personnel, especially in light of the CPRIT Grant requirements, including the requirement that Aravive maintain its headquarters in Texas and use certain vendors, consultants and employees that are located in Texas. Future growth would impose significant additional responsibilities on its management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, Aravive’s management may need to divert a disproportionate amount of its attention away from Aravive’s day-to-day activities and devote a substantial amount of time to managing these growth activities. Aravive may not be able to effectively manage the expansion of its operations, which may result in weaknesses in its infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Aravive’s expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of its clinical product candidate. If Aravive is unable to effectively manage its growth, its expenses may increase more than expected, its ability to generate and/or grow revenues could be reduced, and Aravive may not be able to implement its business strategy.

Risks Related to Clinical Development, Regulatory Approval and Commercialization

If the results from preclinical studies or clinical trials of Aravive’s clinical product candidate are unfavorable, Aravive could be delayed or precluded from the further development or commercialization of its clinical product candidate, which could materially harm Aravive’s business.

In order to further advance the development of, and ultimately receive marketing approval to sell Aravive’s clinical product candidate, Aravive must conduct extensive preclinical studies and clinical trials to demonstrate its safety and efficacy to the satisfaction of the FDA or similar regulatory authorities in other countries, as the case may be. Preclinical studies and clinical trials are expensive, complex, can take many years to complete, and have highly uncertain outcomes. Delays, setbacks, or failures can and do occur at any time, and in any phase of preclinical or clinical testing, and can result from concerns about safety, tolerability, toxicity, a lack of

 

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demonstrated biologic activity or improved efficacy over similar products that have been approved for sale or are in more advanced stages of development, poor study or trial design, and issues related to the formulation or manufacturing process of the materials used to conduct the trials. The results of prior preclinical studies or early-stage clinical trials are not predictive of the results Aravive may observe in late-stage clinical trials. In many cases, product candidates in clinical development may fail to show the desired tolerability, safety and efficacy characteristics, despite having favorably demonstrated such characteristics in preclinical studies or early-stage clinical trials.

In addition, Aravive may experience numerous unforeseen events during, or as a result of, preclinical studies and the clinical trial process, which could delay or impede Aravive’s ability to advance the development of, receive marketing approval for, or commercialize its clinical product candidate, including, but not limited to:

 

   

communications with the FDA, or similar regulatory authorities in different countries, regarding the scope or design of a trial or trials, or placing the development of a product candidate on clinical hold or delaying the next phase of development until questions or issues are satisfactorily resolved, including performing additional studies to answer their queries;

 

   

regulatory authorities or institutional review boards, or IRBs, not authorizing Aravive to commence or conduct a clinical trial at a prospective trial site;

 

   

enrollment in Aravive’s clinical trials being delayed, or proceeding at a slower pace than Aravive expected, because Aravive has difficulty recruiting participants or participants drop out of Aravive’s clinical trials at a higher rate than Aravive anticipated;

 

   

Aravive’s third-party contractors, upon whom Aravive relies to conduct preclinical studies, clinical trials and the manufacturing of Aravive’s clinical trial materials, failing to comply with regulatory requirements or meet their contractual obligations to Aravive in a timely manner;

 

   

having to suspend or ultimately terminate a clinical trial if participants are being exposed to unacceptable health or safety risks;

 

   

regulatory authorities or IRBs requiring that Aravive hold, suspend or terminate its preclinical studies and clinical trials for various reasons, including non-compliance with regulatory requirements; and

 

   

the supply or quality of material necessary to conduct Aravive’s preclinical studies or clinical trials being insufficient, inadequate or unavailable.

Even if the data collected from preclinical studies or clinical trials involving Aravive’s clinical product candidate demonstrate a satisfactory tolerability, safety and efficacy profile, such results may not be sufficient to support the submission of an NDA to obtain regulatory approval from the FDA in the United States, or other similar regulatory authorities in other foreign jurisdictions, which is required for Aravive to market and sell its clinical product candidate.

Clinical trials are very expensive, time-consuming, difficult to design and implement and involve an uncertain outcome, and if they fail to demonstrate safety and efficacy to the satisfaction of the FDA, or similar regulatory authorities, Aravive will be unable to commercialize its clinical product candidate.

Aravive’s clinical product candidate is still in early-stage clinical development and will require extensive additional clinical testing before Aravive is prepared to submit a Biologics License Application, or BLA, for regulatory approval for any indication or for any other treatment regime. Aravive cannot predict with any certainty if or when it might submit a BLA for regulatory approval for its clinical product candidate, which has recently completed a Phase 1 clinical trial, or whether any such BLA will be approved by the FDA. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. For instance, the FDA may not agree with Aravive’s proposed endpoints for any clinical trial it proposes, which may delay the commencement of its clinical trials. The clinical trial process

 

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is also time-consuming. Furthermore, failure can occur at any stage of the trials, and it could encounter problems that cause it to abandon or repeat clinical trials. A product candidate in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials, and the results of its Phase 1 clinical trial of the clinical product candidate as well as the pre-clinical results may not be predictive of the results of its planned Phase 2 trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials.

Moreover, preclinical and clinical data are often susceptible to multiple interpretations and analyses. Many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. Success in preclinical testing and early clinical trials does not ensure that later clinical trials, which involve many more subjects and the results of later clinical trials may not replicate the results of prior clinical trials and preclinical testing.

Aravive may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent its ability to receive marketing approval or commercialize its clinical product candidate, including that:

 

   

regulators or institutional review boards may not authorize Aravive or its investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

 

   

it may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

 

   

clinical trials of Aravive’s clinical product candidate may produce negative or inconclusive results, and Aravive may decide, or regulators may require it, to conduct additional clinical trials or abandon product development programs;

 

   

the number of subjects required for clinical trials of its clinical product candidate may be larger than Aravive anticipates; enrollment in these clinical trials may be slower than Aravive anticipates, or participants may drop out of these clinical trials at a higher rate than Aravive anticipates;

 

   

Aravive third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to it in a timely manner, or at all;

 

   

regulators or institutional review boards may require that Aravive or Aravive’s investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

 

   

the cost of clinical trials of its clinical product candidate may be greater than it anticipates; and

 

   

the supply or quality of its clinical product candidate or other materials necessary to conduct clinical trials of Aravive’s clinical product candidate may be insufficient or inadequate.

If Aravive is required to conduct additional clinical trials or other testing of its clinical product candidate beyond those that it currently contemplates, if it is unable to successfully complete clinical trials of its clinical product candidate or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, Aravive may:

 

   

be delayed in obtaining marketing approval for its clinical product candidate require additional funding not budgeted for;

 

   

not obtain marketing approval at all;

 

   

obtain approval for indications or patient populations that are not as broad as intended or desired;

 

   

obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

 

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be subject to additional post-marketing testing requirements; or

 

   

have the product removed from the market after obtaining marketing approval.

Product development costs will also increase if Aravive experiences delays in testing or in receiving marketing approvals. Aravive does not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which Aravive may have the exclusive right to commercialize Aravive’s clinical product candidate, could allow its competitors to bring products to market before it does, and could impair its ability to successfully commercialize its clinical product candidate, any of which may harm its business and results of operations.

Enrollment and retention of subjects in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside Aravive’s control.

Aravive may encounter delays in enrolling, or be unable to enroll, a sufficient number of participants to complete any of its clinical trials. Once enrolled, Aravive may be unable to retain a sufficient number of participants to complete any of its trials. Late-stage clinical trials of its clinical product candidate may require the enrollment and retention of large numbers of subjects. Subject enrollment and retention in clinical trials depends on many factors, including the size of the subject population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the study drug, the number and nature of competing treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of subjects to clinical sites and the eligibility criteria for the study.

Furthermore, any negative results Aravive may report in clinical trials of Aravive’s clinical product candidate may make it difficult or impossible to recruit and retain participants in other clinical trials of that same clinical product candidate. Delays or failures in planned subject enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on its ability to develop its clinical product candidate, or could render further development impossible. In addition, Aravive expects to rely on CROs and clinical trial sites to ensure proper and timely conduct of its future clinical trials and, while Aravive intends to enter into agreements governing their services, it will be limited in its ability to compel their actual performance in compliance with applicable regulations. Enforcement actions brought against these third parties may cause further delays and expenses related to its clinical development programs.

Aravive faces significant competition from other biotechnology and pharmaceutical companies, and its operating results will suffer if it fails to compete effectively.

Development of cancer treatments is highly competitive and subject to rapid and significant technological advancements. In particular, Aravive faces competition from various sources, including larger and better funded pharmaceutical, specialty pharmaceutical and biotechnology companies, as well as academic institutions, governmental agencies and public and private research institutions. These competitors are focused on delivering therapeutics for the treatment of various cancers with products that are available and have gained market acceptance as the standard treatment protocol. Further, it is likely that additional drugs or other treatments will become available in the future for the treatment of certain cancers.

Many of Aravive’s existing or potential competitors have substantially greater financial, technical and human resources than it does and significantly greater experience in the discovery and development of products for the treatment of cancer, as well as in obtaining regulatory approvals of those products in the United States and in foreign countries. Aravive’s current and potential future competitors also have significantly more experience commercializing drugs that have been approved for marketing. Mergers and acquisitions in the pharmaceutical and biotechnology industries could result in even more resources being concentrated among a small number of its competitors.

Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Aravive’s competitors may succeed in

 

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developing, acquiring or licensing, on an exclusive basis, drugs that are more effective or less costly than any product candidate that it may develop.

Aravive will face competition from other drugs currently approved or that will be approved in the future for the treatment of the other infectious diseases it is currently targeting. Therefore, its ability to compete successfully will depend largely on its ability to:

 

   

develop and commercialize product candidates that are superior to other products in the market;

 

   

demonstrate through its clinical trials that its clinical product candidate is differentiated from existing and future therapies;

 

   

attract qualified scientific and commercial personnel;

 

   

obtain patent or other proprietary protection for its clinical product candidate;

 

   

obtain required regulatory approvals;

 

   

obtain coverage and adequate reimbursement from, and negotiate competitive pricing with, third-party payors; and

 

   

successfully develop and commercialize, independently or with collaborators, new product candidates.

The availability of Aravive’s competitors’ products could limit the demand, and the price it is able to charge, for any product candidate it develops. The inability to compete with existing or subsequently introduced therapies would have an adverse impact on Aravive’s business, financial condition and prospects.

Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make its product candidate less competitive. In addition, any new products that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, Aravive’s competitors may succeed in obtaining patent protection, discovering, developing, receiving the FDA’s approval for or commercializing medicines before Aravive does, which would have an adverse impact on its business and results of operations.

Aravive’s clinical product candidate may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.

Adverse events caused by Aravive’s clinical product candidate could cause reviewing entities, clinical trial sites or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval. If an unacceptable frequency or severity of adverse events are reported in its clinical trials for its clinical product candidate, its ability to obtain regulatory approval for such clinical product candidate may be negatively impacted.

Furthermore, if any of its products are approved and then cause serious or unexpected side effects, a number of potentially significant negative consequences could result, including:

 

   

regulatory authorities may withdraw their approval of the product candidate or impose restrictions on its distribution or other risk management measures;

 

   

regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;

 

   

Aravive may be required to conduct additional clinical trials;

 

   

Aravive could be sued and held liable for injuries sustained by patients;

 

   

Aravive could elect to discontinue the sale of its product candidate; and

 

   

Aravive’s reputation may suffer.

 

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Any of these events could prevent Aravive from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercialization.

Aravive’s employees, independent contractors, principal investigators, consultants, commercial collaborators, service providers and other vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse effect on Aravive’s results of operations.

Aravive is exposed to the risk that its employees and contractors, including principal investigators, consultants, commercial collaborators, service providers and other vendors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA and other similar regulatory bodies, including those laws that require the reporting of true, complete and accurate information to such regulatory bodies, manufacturing standards, federal and state healthcare fraud and abuse and health regulatory laws and other similar foreign fraudulent misconduct laws, or laws that require the true, complete and accurate reporting of financial information or data. Misconduct by these parties may also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to Aravive’s reputation. It is not always possible to identify and deter third-party misconduct, and the precautions Aravive takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against Aravive, and it is not successful in defending Aravive or asserting its rights, those actions could have a significant impact on Aravive’s business and financial results, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, reputational harm, diminished profits and future earnings, and curtailment of its operations, any of which could adversely affect Aravive’s ability to operate its business and Aravive’s results of operations.

Aravive’s business and operations would suffer in the event of system failures.

Aravive’s computer systems and those of its service providers, including its CROs, are vulnerable to damage from computer viruses, unauthorized access, natural disasters (including hurricanes), terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in Aravive’s or their operations, it could result in a material disruption of its development programs. For example, the loss of preclinical or clinical trial data from completed, ongoing or planned trials could result in delays in its regulatory approval efforts and significantly increase Aravive’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 data or applications, or inappropriate disclosure of personal, confidential or proprietary information, Aravive could incur liability and the further development of its clinical product candidate could be delayed.

If Aravive is not able to obtain, or if there are delays in obtaining, required regulatory approvals, it will not be able to commercialize, or will be delayed in commercializing, its clinical product candidate, and its ability to generate revenue will be impaired.

Aravive’s clinical product candidate and the activities associated with its development and commercialization, including its design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a clinical product candidate will prevent Aravive from commercializing the clinical product candidate. Aravive has not received approval to market its clinical product candidate from regulatory authorities in any jurisdiction. Aravive has only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on CROs to assist it in this process. Securing regulatory

 

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approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the clinical product candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Aravive’s clinical product candidate 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 it obtaining marketing approval or prevent or limit commercial use.

The process of obtaining marketing approvals, both in the United States and elsewhere, is expensive, may take many years and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidate involved. Aravive cannot assure you that it will ever obtain any marketing approvals in any jurisdiction. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that Aravive’s data is insufficient for approval and require additional preclinical or other studies, and clinical trials. In addition, varying interpretations of the data obtained from preclinical testing and clinical trials could delay, limit or prevent marketing approval of a product candidate. Additionally, any marketing approval Aravive ultimately obtains may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

Even if Aravive obtains FDA approval in the United States, it may never obtain approval for or commercialize its clinical product candidate in any other jurisdiction, which would limit its ability to realize each product’s full market potential.

In order to market Aravive’s clinical product candidate in a particular jurisdiction, Aravive must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA in the United States does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product candidate testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for Aravive and require additional preclinical studies or clinical trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of its clinical product candidate in those countries. Aravive does not have any product candidates approved for sale in any jurisdiction, including in international markets, and it does not have experience in obtaining regulatory approval in international markets. If Aravive fails to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, Aravive’s target market will be reduced and Aravive’s ability to realize the full market potential of any product candidate Aravive develops will be unrealized.

Even if Aravive obtains regulatory approval, it will still face extensive ongoing regulatory requirements and its clinical product candidate may face future development and regulatory difficulties.

Any product candidate for which Aravive obtains marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising and promotional activities for such product candidate, among other things, will be subject to extensive and ongoing requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety, efficacy and other post-marketing information and reports, establishment registration and drug listing requirements, continued compliance with current Good Manufacturing Practice, or cGMP, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and

 

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recordkeeping and current GCP requirements for any clinical trials that Aravive conducts post-approval. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product candidate may be marketed or to the conditions of approval. If its clinical product candidate receives marketing approval, the accompanying label may limit the approved use of Aravive’s product, which could limit sales.

The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety and/or efficacy of its clinical product candidate. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if Aravive does not market Aravive’s clinical product candidate for its approved indications, Aravive may be subject to enforcement action for off-label marketing. Violations of the Federal Food, Drug, and Cosmetic Act relating to the promotion of prescription drugs may lead to FDA enforcement actions and investigations alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.

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

 

   

restrictions on manufacturing such clinical product candidate;

 

   

restrictions on the labeling or marketing of such clinical product candidate;

 

   

restrictions on product distribution or use;

 

   

requirements to conduct post-marketing studies or clinical trials;

 

   

warning letters;

 

   

withdrawal of the clinical product candidate from the market;

 

   

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

 

   

recall of such clinical product candidate;

 

   

fines, restitution or disgorgement of profits or revenues;

 

   

suspension or withdrawal of marketing approvals;

 

   

refusal to permit the import or export of such clinical product candidate;

 

   

clinical product candidate seizure; or

 

   

injunctions or the imposition of civil or criminal penalties.

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of its clinical product candidate. If Aravive is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if Aravive is not able to maintain regulatory compliance, it may lose any marketing approval that it may have obtained.

Even if Aravive’s clinical product candidate receives marketing approval, it may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success.

If Aravive’s clinical product candidate receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If it does not achieve an adequate level of acceptance, Aravive may not generate significant revenues and become profitable.

 

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The degree of market acceptance, if approved for commercial sale, will depend on a number of factors, including but not limited to:

 

   

the efficacy and potential advantages compared to alternative treatments;

 

   

effectiveness of sales and marketing efforts;

 

   

the cost of treatment in relation to alternative treatments;

 

   

Aravive’s ability to offer its clinical product candidate for sale at competitive prices;

 

   

the convenience and ease of administration compared to alternative treatments;

 

   

the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

 

   

the willingness of the medical community to offer customers its product candidate option in addition to or in the place of Aravive’s clinical product candidate;

 

   

the strength of marketing and distribution support;

 

   

the availability of third-party coverage and adequate reimbursement;

 

   

the prevalence and severity of any side effects; and

 

   

any restrictions on the use of its product together with other medications.

Because Aravive expects sales of its clinical product candidate to be based on the same mechanism of action, the failure of its first product candidate to achieve market acceptance would harm its business and could require it to seek additional financing sooner than it otherwise plans.

If Aravive fails to obtain or maintain adequate coverage and reimbursement for its clinical product candidate, its ability to generate revenue could be limited.

The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments. Sales of Aravive’s clinical product candidate that receive marketing approval will depend substantially, both in the United States and internationally, on the extent to which the costs of its clinical product candidate will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only on a limited basis, Aravive may not be able to successfully commercialize Aravive’s clinical product candidate. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow Aravive to establish or maintain adequate pricing that will allow it to realize a sufficient return on Aravive’s investment.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and Aravive believes the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries may cause Aravive to price Aravive’s clinical product candidate on less favorable terms that it currently anticipates. In many countries, particularly the countries of the European Union, 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, Aravive may be required to conduct a clinical trial that compares the cost-effectiveness of its clinical 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 it is able to charge for its clinical product candidate. Accordingly, in markets outside the United States, the reimbursement for its products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.

 

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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 newly approved products and, as a result, they may not cover or provide adequate payment for its clinical product candidate. Aravive expects to experience pricing pressures in connection with the sale of its clinical product candidate due to the trend toward managed healthcare, the increasing influence of 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 for new products entering the marketplace.

If Aravive fails to comply with state and federal healthcare regulatory laws, it could face substantial penalties, damages, fines, disgorgement, exclusion from participation in governmental healthcare programs, and the curtailment of its operations, any of which could harm its business.

Although Aravive does not provide healthcare services or submit claims for third-party reimbursement, it is subject to healthcare fraud and abuse regulation and enforcement by federal and state governments which could significantly impact its business. The laws that may affect its ability to operate include, but are not limited to:

 

   

the federal anti-kickback statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it;

 

   

the civil False Claims Act, or FCA, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; knowingly making using, or causing to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government; or knowingly making, using, or causing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

   

the criminal FCA, which imposes criminal fines or imprisonment against individuals or entities who make or present a claim to the government knowing such claim to be false, fictitious or fraudulent;

 

   

HIPAA, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

 

   

the federal civil monetary penalties statute, which prohibits, among other things, the offering or giving of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of items or services reimbursable by a Federal or state governmental program;

 

   

the federal physician sunshine requirements under the Affordable Care Act, which require certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members; and

 

   

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and state laws that require device 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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Further, the Affordable Care Act, among other things, amended the intent requirements of the federal anti-kickback statute and certain criminal statutes governing healthcare fraud. A person or entity can now be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti- Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. Moreover, while it does not submit claims and its customers make the ultimate decision on how to submit claims, from time to time, Aravive may provide reimbursement guidance to its customers. If a government authority were to conclude that Aravive provided improper advice to its customers or encouraged the submission of false claims for reimbursement, it could face action against it by government authorities. Any violations of these laws, or any action against Aravive for violation of these laws, even if Aravive successfully defends against it, could result in a material adverse effect on its reputation, business, results of operations and financial condition.

Aravive has entered into consulting and scientific advisory board arrangements with physicians and other healthcare providers. Compensation for some of these arrangements includes the provision of stock options. While Aravive has worked to structure Aravive’s arrangements to comply with applicable laws, because of the complex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which it could be subject to other significant penalties. Aravive could be adversely affected if regulatory agencies interpret Aravive’s financial relationships with providers who influence the ordering of and use Aravive’s products to be in violation of applicable laws.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry.

Responding to investigations can be time- and resource-consuming and can divert management’s attention from the business. Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase Aravive’s costs or otherwise have an adverse effect on its business.

Product liability lawsuits against Aravive could cause it to incur substantial liabilities and could limit the commercialization of any product candidates it may develop.

Aravive faces an inherent risk of product liability exposure related to the testing of its clinical product candidate in human clinical trials and will face an even greater risk if it commercially sells any products that it may develop after approval. For instance, since Aravive’s Phase 1 clinical trial was conducted in healthy human volunteers, any adverse reactions will be deemed to be related to its clinical product candidate and could result in claims from these injuries and Aravive could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

   

decreased demand for any product candidates that it may develop;

 

   

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

 

   

withdrawal of clinical trial participants;

 

   

significant costs to defend any related litigation;

 

   

substantial monetary awards to trial subjects or patients;

 

   

loss of revenue; and

 

   

the inability to commercialize any products it may develop.

 

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Although Aravive maintains product liability insurance coverage in the amount of up to $10 million per claim and in the aggregate, it may not be adequate to cover all liabilities that it may incur. Aravive anticipates that it will need to increase its insurance coverage as it continues clinical trials and if it successfully commercializes any products. Insurance coverage is increasingly expensive. Aravive may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

If Aravive is unable to establish sales, marketing and distribution capabilities either on its own or in collaboration with third parties, it may not be successful in commercializing Aravive’s clinical product candidate, if approved.

Aravive does not have any infrastructure for the sales, marketing or distribution of its clinical product candidate, and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market any product candidate that may be approved, it must build Aravive’s sales, distribution, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. To achieve commercial success for any product candidate for which it has obtained marketing approval, it will need a sales and marketing organization. Aravive expects to build a focused sales, distribution and marketing infrastructure to market any other product candidates in the United States, if approved. There are significant expenses and risks involved with establishing its own sales, marketing and distribution capabilities, including its ability to hire, retain and appropriately incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of its internal sales, marketing and distribution capabilities could delay any product candidate launch, which would adversely impact commercialization.

Factors that may inhibit Aravive’s efforts to commercialize Aravive’s clinical product candidate on its own include:

 

   

Aravive’s inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;

 

   

the inability of sales personnel to obtain access to physicians or attain adequate numbers of physicians to administer its products; and

 

   

unforeseen costs and expenses associated with creating an independent sales and marketing organization.

Aravive intends to pursue collaborative arrangements regarding the sale and marketing of its clinical product candidate, if approved, for certain international markets; however, it may not be able to establish or maintain such collaborative arrangements, if able to do so, that its collaborators may not have effective sales. To the extent that Aravive depends on third parties for marketing and distribution, any revenues it receives will depend upon the efforts of such third parties, and there can be no assurance that such efforts will be successful.

If Aravive is unable to build its own sales force in the United States or negotiate a collaborative relationship for the commercialization of its clinical product candidate outside the United States it may be forced to delay the potential commercialization or reduce the scope of its sales or marketing activities. Aravive could have to enter into arrangements with third parties or otherwise at an earlier stage than it would otherwise choose and it may be required to relinquish rights to its intellectual property or otherwise agree to terms unfavorable to it, any of which may have an adverse effect on its business, operating results and prospects.

Aravive may 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, it may be unable to compete successfully against these more established companies.

 

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If Aravive obtains approval to commercialize its clinical product candidate outside of the United States, a variety of risks associated with international operations could harm its business.

If its clinical product candidate is approved for commercialization, Aravive intends to enter into agreements with third parties to market them in certain jurisdictions outside the United States. Aravive expects that it will be subject to additional risks related to international operations or entering into international business relationships, including:

 

   

different regulatory requirements for drug approvals and rules governing drug commercialization in foreign countries;

 

   

reduced protection for intellectual property rights;

 

   

unexpected changes in tariffs, trade barriers and regulatory requirements;

 

   

economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

   

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

   

foreign reimbursement, pricing and insurance regimes;

 

   

foreign taxes;

 

   

foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

 

   

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

   

potential noncompliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act 2010 and similar anti-bribery and anticorruption laws in other jurisdictions;

 

   

product shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

   

business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

Aravive has no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by both the European Union and many of the individual countries in Europe with which it will need to comply.

Recently enacted and future legislation may increase the difficulty and cost for Aravive to obtain marketing approval of and commercialize Aravive’s clinical product candidate and affect the prices Aravive may obtain.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of Aravive’s clinical product candidate, restrict or regulate post-approval activities and affect Aravive’s ability to profitably sell any product candidate for which it obtains marketing approval.

For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, collectively the Affordable Care Act, 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. Although the full effect of the Affordable Care Act may not yet be fully understood, the law has continued the downward pressure on pharmaceutical pricing, especially under the Medicare program, and increased the industry’s regulatory burdens and operating costs.

 

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Moreover, the Drug Supply Chain Security Act imposes obligations on manufacturers of prescription drugs in finished dosage forms. Aravive has not yet adopted the significant measures that will be required to comply with this law. Aravive is not sure whether additional legislative changes will be enacted, or whether the current regulations, guidance or interpretations will be changed, or what the impact of such changes on Aravive’s business, if any, may be.

Aravive expects that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products, which could result in reduced demand for its clinical product candidate or additional pricing pressures.

Risks Related to Aravive’s Intellectual Property

If Aravive is unable to obtain and maintain patent protection for its clinical product candidate or if the scope of the patent protection obtained is not sufficiently broad, it may not be able to compete effectively in its markets.

Aravive relies upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to its drug development programs and clinical product candidate. Aravive’s success depends in large part on its ability to obtain and maintain patent protection in the United States and other countries. Aravive seeks to protect its proprietary position by filing patent applications in the United States and abroad related to its development programs and clinical product candidate. The patent prosecution process is expensive and time-consuming, and Aravive may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.

It is also possible that Aravive will fail to identify patentable aspects of its research and development output before it is too late to obtain patent protection. The patent applications that Aravive owns or in-licenses may fail to result in issued patents with claims that cover its product candidates in the United States or in other countries. There is no assurance that the entire potentially relevant prior art relating to its patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated, or held unenforceable. Any successful challenge to these patents or any other patents owned by or licensed to Aravive could deprive it of rights necessary for the successful commercialization of its product candidates or companion diagnostic that it may develop. Further, if Aravive encounters delays in regulatory approvals, the period of time during which Aravive could market a product candidate and companion diagnostic under patent protection could be reduced.

If the patent applications Aravive holds with respect to its platform technology and clinical product candidate fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for its clinical product candidate, it could dissuade companies from collaborating with Aravive to develop future product candidates, and threaten Aravive’s ability to commercialize future drugs. Any such outcome could harm its business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect its rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, Aravive cannot know with certainty whether it was the first to make the inventions claimed in its owned or licensed patents or pending patent applications, or that it was the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and

 

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commercial value of its patent rights are highly uncertain. Aravive’s pending and future patent applications may not result in patents being issued which protect its technology or product candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of Aravive’s patents or narrow the scope of its patent protection.

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

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

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and its owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit its ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of its technology and product candidates. Moreover, patents have a limited lifespan. In the United States and other countries, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Without patent protection for its current or future product candidates, Aravive may be open to competition from generic versions of such product candidates. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, Aravive’s owned and licensed patent portfolio may not provide it with sufficient rights to exclude others from commercializing product candidates similar or identical to Aravive’s.

Aravive may be involved in lawsuits to protect or enforce its patents, the patents of its licensors or its other intellectual property rights, which could be expensive, time consuming and unsuccessful.

Competitors and other third parties may infringe or otherwise violate Aravive’s patents, the patents of its licensors or its other intellectual property rights. To counter infringement or unauthorized use, Aravive may be required to file legal claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of Aravive’s or its licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that such patents do not cover the

 

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technology in question. An adverse result in any litigation or defense proceedings could put one or more of Aravive’s patents at risk of being invalidated or interpreted narrowly and could put Aravive’s patent applications at risk of not issuing. The initiation of a claim against a third-party may also cause the third-party to bring counter claims against Aravive such as claims asserting that its patents are invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non- enablement or lack of statutory subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information from the USPTO, or made a materially misleading statement, during prosecution. Third parties may also raise similar validity claims before the USPTO in post-grant proceedings such as inter partes review, or post-grant review, or oppositions or similar proceedings outside the United States, in parallel with litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. Aravive cannot be certain that there is no invalidating prior art, of which it and the patent examiner were unaware during prosecution. For the patents and patent applications that Aravive has licensed, it may have limited or no right to participate in the defense of any licensed patents against challenge by a third-party. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, Aravive would lose at least part, and perhaps all, of any future patent protection on its current or future product candidates. Such a loss of patent protection could harm its business.

Aravive may not be able to prevent, alone or with its licensors, misappropriation of its intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Aravive’s business could be harmed if in litigation the prevailing party does not offer it a license on commercially reasonable terms. Any litigation or other proceedings to enforce its intellectual property rights may fail, and even if successful, may result in substantial costs and distract its management and other employees.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Aravive’s confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of its common stock.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing Aravive’s ability to protect Aravive’s clinical product candidate.

The United States has recently enacted and implemented wide-ranging patent reform legislation. The United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to Aravive’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 actions 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 Aravive’s ability to obtain new patents or to enforce patents that it has licensed or that it might obtain in the future.

If a third-party claims Aravive is infringing on its intellectual property rights, Aravive could incur significant expenses, or be prevented from further developing or commercializing its clinical product candidate, which could materially harm Aravive’s business.

Aravive’s success will also depend on Aravive’s ability to operate without infringing the patents and other proprietary intellectual property rights of third parties. This is generally referred to as having the “freedom to operate.” Aravive has only conducted routine searches related to third party patent filings and publications and has not conducted an in depth freedom to operate search which is extremely time consuming and costly. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other

 

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intellectual property rights. The defense and prosecution of intellectual property claims, interference proceedings and related legal and administrative proceedings, both in the United States and internationally, involve complex legal and factual questions. As a result, such proceedings are lengthy, costly and time-consuming, and their outcome is highly uncertain. Aravive may become involved in protracted and expensive litigation in order to determine the enforceability, scope and validity of the proprietary rights of others, or to determine whether Aravive has the freedom to operate with respect to the intellectual property rights of others.

Patent applications in the United States are, in most cases, maintained in secrecy until approximately 18 months after the patent application is filed. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Therefore, patent applications relating to product candidates similar to Aravive’s may have already been filed by others without Aravive’s knowledge. In the event that a third-party has also filed a patent application covering Aravive’s clinical product candidate or other claims, Aravive may have to participate in an adversarial proceeding, known as an interference proceeding, in the U.S. Patent and Trademark Office, or USPTO, or similar proceedings in other countries, to determine the priority of invention. In the event an infringement claim is brought against Aravive, Aravive may be required to pay substantial legal fees and other expenses to defend such a claim and, if Aravive is unsuccessful in defending the claim, Aravive may be prevented from pursuing the development and commercialization of a product candidate and may be subject to injunctions and/or damage awards.

In the future, the USPTO or a foreign patent office may grant patent rights to Aravive’s clinical product candidate or other claims to third parties. Subject to the issuance of these future patents, the claims of which will be unknown until issued, Aravive may need to obtain a license or sublicense to these rights in order to have the appropriate freedom to further develop or commercialize them. Any required licenses may not be available to Aravive on acceptable terms, if at all. If Aravive needs to obtain such licenses or sublicenses, but is unable to do so, Aravive could encounter delays in the development of Aravive’s clinical product candidate, or be prevented from developing, manufacturing and commercializing Aravive’s clinical product candidate at all. If it is determined that Aravive has infringed an issued patent and does not have the freedom to operate, Aravive could be subject to injunctions, and/or compelled to pay significant damages, including punitive damages. In cases where Aravive has in-licensed intellectual property, Aravive’s failure to comply with the terms and conditions of such agreements could harm Aravive’s business.

It is becoming common for third parties to challenge patent claims on any successfully developed product candidate or approved drug. If Aravive or its licensees or collaborators become involved in any patent litigation, interference or other legal proceedings, Aravive could incur substantial expense, and the efforts and attention of Aravive’s technical and management personnel could be significantly diverted. A negative outcome of such litigation or proceedings may expose Aravive to the loss of Aravive’s proprietary position or to significant liabilities, or require Aravive to seek licenses that may not be available from third parties on commercially acceptable terms, if at all. Aravive may be restricted or prevented from developing, manufacturing and selling Aravive’s clinical product candidate in the event of an adverse determination in a judicial or administrative proceeding, or if Aravive fails to obtain necessary licenses.

Aravive may not be able to protect its intellectual property rights throughout the world, which could impair its business.

Filing, prosecuting and defending patents covering Aravive’s clinical product candidate throughout the world would be prohibitively expensive. Competitors may use its technologies in jurisdictions where it has not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where Aravive may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These other products may compete with Aravive’s clinical product candidate in jurisdictions where Aravive does not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

 

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Aravive’s reliance on third parties requires it to share its trade secrets, which increases the possibility that a competitor will discover them or that its trade secrets will be misappropriated or disclosed.

Aravive seeks to protect its proprietary technology in part by entering into confidentiality agreements with third parties and, if applicable, material transfer agreements, consulting agreements or other similar agreements with its advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose Aravive’s confidential information, including its trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by its competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that Aravive’s proprietary position is based, in part, on its know-how and trade secrets, a competitor’s discovery of Aravive’s trade secrets or other unauthorized use or disclosure would impair its competitive position and may have an adverse effect on its business and results of operations.

In addition, these agreements typically restrict the ability of its advisors, employees, third-party contractors and consultants to publish data potentially relating to its trade secrets, although Aravive’s agreements may contain certain limited publication rights. Despite its efforts to protect its trade secrets, its competitors may discover its trade secrets, either through breach of Aravive’s agreements with third parties, independent development or publication of information by any of its third-party collaborators. A competitor’s discovery of Aravive’s trade secrets would impair its competitive position and have an adverse impact on Aravive’s business.

Obtaining and maintaining Aravive’s patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and Aravive’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 governmental patent agencies require compliance with a number of procedural, documentary fee payments and other similar provisions during the patent application process. 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 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. Non-compliance 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. If Aravive and its licensors fail to maintain the patents and patent applications covering Aravive’s clinical product candidate, Aravive’s competitive position would be adversely affected.

Aravive may be subject to claims that Aravive’s employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Many of Aravive’s employees, including its senior management, were previously employed at other biotechnology or pharmaceutical companies. These employees typically executed proprietary rights, non-disclosure and non-competition agreements in connection with their previous employment. Although Aravive tries to ensure that Aravive’s employees do not use the proprietary information or know-how of others in their work for Aravive, Aravive may be subject to claims that it or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Aravive is not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against such claims. If Aravive fails in defending any such claims, in addition to paying monetary damages, Aravive may lose valuable intellectual property rights or personnel. Even if Aravive is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

 

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Risks Related to the Combined Company

In determining whether you should approve the issuance of shares of Versartis common stock and other matters related to the merger, as the case may be, you should carefully read the following risk factors in addition to the risks described above, which will also apply to the combined company.

The combined company’s stock price is expected to be volatile, and the market price of its 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 following the merger. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of the combined company’s common stock to fluctuate include:

 

   

the ability of the combined company or its partners to develop product candidates and conduct clinical trials that demonstrate such product candidates are safe and effective;

 

   

the ability of the combined company or its partners to obtain regulatory approvals for product candidates, and delays or failures to obtain such approvals;

 

   

failure of any of the combined company’s product candidates to demonstrate safety and efficacy, receive regulatory approval and achieve commercial success;

 

   

failure to maintain its existing third-party license, manufacturing and supply agreements;

 

   

failure by the combined company or its licensors to prosecute, maintain, or enforce its intellectual property rights;

 

   

changes in laws or regulations applicable to the combined company’s current or future product candidates;

 

   

any inability to obtain adequate supply of product candidates or the inability to do so at acceptable prices;

 

   

adverse regulatory authority decisions;

 

   

introduction of new or competing products by its competitors;

 

   

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

 

   

the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;

 

   

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

 

   

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

 

   

additions or departures of key personnel;

 

   

significant lawsuits, including intellectual property or stockholder litigation;

 

   

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

 

   

changes in the market valuations of similar companies;

 

   

general market or macroeconomic conditions;

 

   

sales of its common stock by the combined company or its stockholders in the future;

 

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trading volume of the combined company’s common stock;

 

   

adverse publicity relating to the combined company’s markets generally, including with respect to other products and potential products in such markets;

 

   

changes in the structure of health care payment systems; 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 the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm the combined company’s profitability and reputation.

Versartis and Aravive 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 development and growth of the combined company’s business. 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.

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

If existing stockholders of Versartis and Aravive 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/information statement lapse, the trading price of the common stock of the combined company could decline. Based on shares outstanding as of June 30, 2018 and shares expected to be issued upon the closing of the merger, the combined company is expected to have outstanding a total of approximately 67,230,287 shares of common stock (prior to giving effect to the proposed reverse stock split) immediately following the closing of the merger. Approximately 39,601,828 of such shares of common stock (prior to giving effect to the proposed reverse stock split) will be freely tradable, without restriction, in the public market. Approximately 27,628,459 of such shares of common stock (prior to giving effect to the proposed reverse stock split) will be held by directors, executive officers of the combined company and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.

If the ownership of the combined company common stock is highly concentrated, it may prevent you and other stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause the combined company stock price to decline.

Executive officers and directors of the combined company and their affiliates are expected to beneficially own or control approximately 41% of the outstanding shares of the combined company common stock following the closing of the merger. Accordingly, these executive officers, directors and their affiliates, acting as a group, will have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of the combined company assets or any other significant corporate transactions. These stockholders may also delay or prevent a change of control of the combined company, even if such a change of control would benefit the other stockholders of the combined company. The significant concentration of stock ownership may adversely affect the trading price of the combined company’s common stock due to investors’ perception that conflicts of interest may exist or arise.

 

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Because the merger will result in an ownership change under Section 382 of the Code for Versartis, pre-merger U.S. net operating loss carryforwards and certain other tax attributes will be subject to limitations.

As of December 31, 2017, Versartis had accumulated federal and state net operating loss carry forwards, or NOLs, of $285.0 million and $320.3 million inclusive of excess tax benefits. The federal and state net operating loss carry forwards will begin to expire in 2029. In general, under Section 382 of the United States Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. An analysis was conducted through December 31, 2017 to determine whether an ownership change had occurred since inception. The analysis indicated that because an ownership change occurred in a prior year, federal and state net operating losses were limited pursuant to IRC 382. This limitation has been accounted for in calculating the available net operating loss carryforwards. If Versartis undergoes an ownership change in connection with this offering, its ability to utilize NOLs could be limited by Section 382 of the Code. Future changes in the combined company’s stock ownership, some of which are outside of Versartis’ control, could result in an ownership change under Section 382 of the Code. Furthermore, Versartis’ ability to utilize NOLs of companies that it has acquired or may acquire in the future may be subject to limitations. For these reasons, the combined company may not be able to utilize a material portion of the NOLs, even if it were to achieve profitability.

The Tax Cuts and Jobs Act, or TCJA, was enacted on December 22, 2017 and significantly reforms the Code. The TCJA, among other things, includes changes to U.S. federal tax rates and the rules governing net operating loss carryforwards. For NOLs arising in tax years beginning after December 31, 2017, the TCJA limits a taxpayer’s ability to utilize NOL carryforwards to 80% of taxable income. In addition, NOLs arising in tax years ending after December 31, 2017 can be carried forward indefinitely, but carryback is generally prohibited. NOLs generated in tax years beginning before January 1, 2018 will not be subject to the taxable income limitation, and NOLs generated in tax years ending before January 1, 2018 will continue to have a two-year carryback and twenty-year carryforward period. Deferred tax assets for NOLs will need to be measured at the applicable tax rate in effect when the NOL is expected to be utilized. The changes in the carryforward/carryback periods as well as the new limitation on use of NOLs may significantly impact the combined company’s valuation allowance assessments for NOLs generated after December 31, 2017.

The recently passed comprehensive tax reform bill could adversely affect the combined company’s business and financial condition.

On December 22, 2017, President Trump signed into law new legislation that significantly revises the Internal Revenue Code of 1986, as amended. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and the combined company’s business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law. The impact of this tax reform on holders of common stock of the combined company is also uncertain and could be adverse. Stockholders of the combined company should consult with their legal and tax advisors with respect to this legislation and its potential tax consequences under their particular circumstances.

 

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Anti-takeover provisions under Delaware law could make an acquisition of the combined company more difficult and may prevent attempts by the combined company stockholders to replace or remove the combined company management.

Because the combined company will be incorporated in Delaware, it is governed by the provisions of Section 203 of the Delaware General Corporation Law, or the DGCL, which prohibits stockholders owning in excess of 15% of the outstanding combined company voting stock from merging or combining with the combined company. Although Versartis and Aravive believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirors to negotiate with the combined company’s board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by the combined company’s stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of management.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus/information statement and the documents incorporated by reference into this proxy statement/prospectus/information statement contain forward-looking statements. 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 neither Versartis nor Aravive can 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 “anticipates,” “believes,” “continue,” “could,” “design,” “estimates,” “expects,” “intends,” “may,” “plans,” “potentially,” “predict,” “pro forma” “seeks,” “should,” “will” 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 of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings; any statements concerning proposed new products or developments; any 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 of the plans, strategies and objectives of management with respect to the approval and the closing of the merger, Versartis’ ability to solicit a sufficient number of proxies to approve the merger and other matters related to the closing of the merger.

For a discussion of the factors that may cause Versartis, Aravive 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 Versartis and Aravive to complete the merger and the effect of the merger on the business of Versartis, Aravive and the combined company, see the section titled “Risk Factors.”

These forward-looking statements include, but are not limited to, statements concerning the following:

 

   

the expected benefits of, and potential value created by, the merger for the stockholders of Versartis and Aravive;

 

   

likelihood of the satisfaction of certain conditions to the completion of the merger and whether and when the merger will be consummated;

 

   

Versartis’ ability to control and correctly estimate its operating expenses and its expenses associated with the merger;

 

   

any statements of the plans, strategies and objectives of management for future operations, including the execution of integration plans and the anticipated timing of filings;

 

   

any statements of plans to develop and commercialize additional products;

 

   

any statements concerning the attraction and retention of highly qualified personnel;

 

   

any statements concerning the ability to protect and enhance the combined company’s products and intellectual property;

 

   

any statements concerning developments and projections relating to the combined company’s competitors or industry;

 

   

any statements concerning the combined company’s financial performance;

 

   

any statements regarding expectations concerning Versartis’ or Aravive’s relationships and actions with third parties; and

 

   

future regulatory, judicial and legislative changes in Versartis or Aravive’s industry.

 

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You should not rely upon forward-looking statements as predictions of future events. Neither Versartis nor Aravive can assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur.

In addition, statements that “Versartis believes” and similar statements reflect the beliefs and opinions on the relevant subject of Versartis, Aravive or the combined company, as applicable. These statements are based upon information available as of the date of this proxy statement/prospectus/information statement, and while Versartis, Aravive or the combined company, as applicable, believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that Versartis, Aravive or the combined company has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, the results of Versartis, Aravive or the combined company could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus/information statement are current only as of the date on which the statements were made, or in the case of a document incorporated by reference, as of the date of that document. Except as required by law, neither Versartis nor Aravive undertakes any obligation to update publicly any forward-looking statements for any reason after the date of this proxy statement/prospectus/information statement or to conform these statements to actual results or to changes in expectations.

 

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THE SPECIAL MEETING OF VERSARTIS STOCKHOLDERS

Date, Time and Place

The special meeting of Versartis stockholders (which will also serve as Versartis’ 2018 annual meeting of stockholders) will be held on                 , 2018, at                commencing at                 local time. Versartis is sending this proxy statement/prospectus/information statement to its stockholders in connection with the solicitation of proxies by the Versartis board of directors for use at the Versartis special meeting and any adjournments or postponements of the special meeting. This proxy statement/prospectus/information statement is first being furnished to stockholders of Versartis on or about                 , 2018.

Purposes of the Versartis Special Meeting

The purposes of the Versartis special meeting are:

 

  1.

To consider and vote upon a proposal to approve the issuance of shares of Versartis common stock pursuant to the Agreement and Plan of Merger and Reorganization, dated as of June 3, 2018, by and among Versartis, Velo Merger Sub, Inc. and Aravive, a copy of which is attached as Annex A to this proxy statement/prospectus/information statement, or the Merger Agreement, or the Stock Issuance Proposal;

 

  2.

To consider and vote upon the amendment to the certificate of incorporation of Versartis to effect a reverse stock split of Versartis common stock, at a ratio in the range from 2-for-1 to 15-for-1, with such specific ratio to be mutually agreed upon by Versartis and Aravive or, if the Stock Issuance Proposal is not approved, solely by the Versartis board of directors following the special meeting, the form of which is attached as Annex B to this proxy statement/prospectus/information statement, or the Reverse Stock Split Proposal;

 

  3.

To consider and vote upon the election of the two nominees for Class I directors named in this proxy statement/prospectus/information statement to the Versartis board of directors for a term of three years (provided, however, that if the merger is completed, the Versartis board of directors will be reconstituted as provided in the merger agreement), or the Election of Directors Proposal;

 

  4.

To consider and vote upon the ratification of the appointment of PricewaterhouseCoopers LLP as Versartis’ independent registered public accounting firm for the fiscal year ending December 31, 2018, or the Accounting Firm Proposal; and

 

  5.

To consider and vote upon an adjournment of the Versartis special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Stock Issuance Proposal and/or the Reverse Stock Split Proposal, or the Adjournment Proposal.

Recommendation of the Versartis Board of Directors

 

   

The Versartis board of directors has determined and believes that the issuance of shares of Versartis common stock pursuant to the Merger Agreement is in the best interests of Versartis and its stockholders and has approved such proposal. The Versartis board of directors unanimously recommends that Versartis stockholders vote “FOR” the Stock Issuance Proposal as described in this proxy statement/prospectus/information statement.

 

   

The Versartis board of directors has determined and believes that it is advisable to, and in the best interests of, Versartis and its stockholders to approve the amendment to the certificate of incorporation of Versartis effecting a reverse stock split at a ratio in the range from 2-for-1 to 15-for-1, with such specific ratio to be mutually agreed upon by Versartis and Aravive or, if the Stock Issuance Proposal is not approved by Versartis stockholders, determined solely by the Versartis board of directors following the special meeting as described in this proxy statement/prospectus/information statement. The Versartis board of directors unanimously recommends that Versartis stockholders vote “FOR” the Reverse Stock Split Proposal as described in this proxy statement/prospectus/information statement.

 

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The Versartis board of directors has determined and believes that it is advisable to, and in the best interests of, Versartis and its stockholders to elect each of Edmon R. Jennings and R. Scott Greer to serve on the Versartis board of directors as Class I directors for a three-year term. The Versartis board of directors unanimously recommends that Versartis stockholders vote “FOR” each of the director nominees named in the Election of Directors Proposal as described in this proxy statement/prospectus/information statement.

 

   

The Versartis board of directors has determined and believes that it is advisable to, and in the best interests of, Versartis and its stockholders to ratify the appointment of PricewaterhouseCoopers LLP as Versartis’ independent registered public accounting firm for the fiscal year ending December 31, 2018. The Versartis board of directors unanimously recommends that Versartis stockholders vote “FOR” the Accounting Firm Proposal as described in this proxy statement/prospectus/information statement.

 

   

The Versartis board of directors has determined and believes that adjourning the Versartis special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Stock Issuance Proposal and/or the Reverse Stock Split Proposal is advisable to, and in the best interests of, Versartis and its stockholders and has approved and adopted the proposal. The Versartis board of directors unanimously recommends that Versartis stockholders vote “FOR” the Adjournment Proposal to adjourn the Versartis special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Stock Issuance Proposal and/or the Reverse Stock Split Proposal.

Record Date and Voting Power

Only holders of record of Versartis common stock at the close of business on the record date,                 , 2018, are entitled to notice of, and to vote at, the Versartis special meeting. At the close of business on the record date,                  shares of Versartis common stock were issued and outstanding. Each share of Versartis common stock entitles the holder thereof to one vote on each matter submitted for stockholder approval. See the section titled “Principal Stockholders of Versartis” for information regarding persons known to the management of Versartis to be the beneficial owners of more than 5% of the outstanding shares of Versartis common stock.

Voting and Revocation of Proxies

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

If you are a stockholder of record of Versartis as of the record date referred to above, you may vote in person at the Versartis special meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the Versartis special meeting, Versartis urges you to vote by proxy to ensure your vote is counted. You may still attend the Versartis special meeting and vote in person if you have already voted by proxy. As a stockholder of record you are entitled:

 

   

to vote in person, come to the Versartis special meeting and Versartis will give you a ballot when you arrive;

 

   

to vote using the proxy card, simply mark, sign and date your proxy card and return it promptly in the postage-paid envelope provided. If you return your signed proxy card to Versartis before the Versartis special meeting, Versartis will vote your shares as you direct; or

 

   

to vote on the Internet, go to the website on the proxy card or voting instruction form to complete an electronic proxy card. You will be asked to provide the company number and control number from the enclosed proxy card. Your vote must be received by                Eastern Time on                 , 2018 to be counted.

If your Versartis shares are held by your broker as your nominee, that is, in “street name,” the enclosed voting instruction card is sent by the institution that holds your shares. Please follow the instructions included on that proxy card regarding how to instruct your broker to vote your Versartis shares.

 

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If you do not give instructions to your broker, the question of whether your broker or nominee will still be able to vote your shares depends on whether the NYSE deems the particular proposal to be a “routine” matter and how your broker or nominee exercises any discretion they may have in the voting of the shares that you beneficially own. Brokers and nominees can use their discretion to vote “uninstructed” shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. Under the rules and interpretations of the NYSE, “non-routine” matters are matters that may substantially affect the rights or privileges of stockholder, such as mergers, stockholder proposals, elections of directors (even if not contested), executive compensation (including any advisory stockholder votes on executive compensation and on the frequency of stockholder votes on executive compensation), and certain corporate governance proposals, even if management-supported.

For any Versartis Proposal that is considered a “routine” matter, your broker or nominee may vote your shares in its discretion either for or against the proposal even in the absence of your instruction. For any Versartis Proposal that is considered a “non-routine” matter for which you do not give your broker instructions, the Versartis shares will be treated as broker non-votes. Broker non-votes occur when a beneficial owner of shares held in street name does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed “non-routine.” Broker non-votes will not be considered to be shares “entitled to vote” at the meeting and will not be counted as having been voted on the applicable proposal.

Versartis believes that only the Reverse Stock Split Proposal and the Accounting Firm Proposal will be considered “routine” matters by the NYSE and all of the other Versartis Proposals will be considered “non-routine” matters. This belief may be incorrect or change before the special meeting. Therefore, if you are a beneficial owner and want to ensure that shares you beneficially own are voted in favor or against any or all of the Versartis Proposals, the only way you can do so is to give your broker or nominee specific instructions as to how the shares are to be voted.

All properly executed proxies that are not revoked will be voted at the Versartis special meeting and at any adjournments or postponements of the Versartis special meeting in accordance with the instructions contained in the proxy. If a holder of Versartis common stock executes and returns a proxy and does not specify otherwise, the shares represented by that proxy will be voted:

 

   

FOR” the Stock Issuance Approval to approve the issuance of shares of Versartis common stock pursuant to the Merger Agreement;

 

   

FOR” the Reverse Stock Split Proposal to approve the amendment to the certificate of incorporation of Versartis effecting a reverse stock split at a ratio in the range from 2-for-1 to 15-for-1 with such specific ratio to be mutually agreed upon by Versartis and Aravive or, if the Stock Issuance Proposal is not approved by Versartis stockholders, determined solely by the Versartis board of directors following the special meeting;

 

   

FOR” the election of each of the two director nominees named in the Election of Directors Proposal in this proxy statement/prospectus/information statement to serve on the Versartis board of directors as Class I directors for a three-year term;

 

   

FOR” the Accounting Firm Proposal to ratify the appointment of PricewaterhouseCoopers LLP as Versartis’ independent registered public accounting firm for the fiscal year ending December 31, 2018; and

 

   

FOR” the Adjournment Proposal to adjourn the Versartis special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Stock Issuance Proposal and/or the Reverse Stock Split Proposal in accordance with the recommendation of the Versartis board of directors.

Versartis stockholders of record, other than those Versartis stockholders who have executed support agreements, may change their vote at any time before their proxy is voted at the Versartis special meeting in one of three ways. First, a

 

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stockholder of record of Versartis can send a written notice to the Secretary of Versartis stating that the stockholder would like to revoke its proxy. Second, a stockholder of record of Versartis can submit new proxy instructions either on a new proxy card or via the Internet. Third, a stockholder of record of Versartis can attend the Versartis special meeting and vote in person. Attendance alone will not revoke a proxy. If a Versartis stockholder of record or a stockholder who owns Versartis shares in “street name” has instructed a broker to vote its shares of Versartis common stock, the stockholder must follow directions received from its broker to change those instructions.

Required Vote

The presence, in person or represented by proxy, at the Versartis special meeting of the holders of a majority of the shares of Versartis common stock outstanding and entitled to vote at the Versartis special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum.

 

Proposal
Number

  

Proposal Description

  

Vote Required for Approval

   Effect of
Abstentions
   Effect of
Broker
Non-Votes
1    Stock Issuance Proposal    FOR votes from the holders of a majority of shares properly cast at a meeting at which a quorum is present    Against    None
2    Reverse Stock Split Proposal    FOR votes from the holders of a majority of outstanding shares    Against    Against
3    Election of Directors Proposal    Two nominees receiving the most FOR votes from the holders of shares present and entitled to vote    Withheld
votes
will have
no effect
   None
4    Accounting Firm Proposal    FOR votes from the holders of a majority of shares properly cast at a meeting at which a quorum is present    Against    None
5    Adjournment    FOR votes from the holders of a majority of shares properly cast at a meeting at which a quorum is present    Against    None

The information in the preceding table with respect to the effect of broker non-votes may be incorrect or change before the special meeting. Therefore, if you are a beneficial owner and want to ensure that shares you beneficially own are voted in favor or against any or all of the Versartis Proposals, the only way you can do so is to give your broker or nominee specific instructions as to how the shares are to be voted.

If on the date of the Versartis special meeting, or a date preceding the date on which the Versartis special meeting is scheduled, Versartis reasonably believes that (i) it will not receive proxies sufficient to obtain the required vote to approve the Versartis Proposals, whether or not a quorum would be present or (ii) it will not have sufficient shares of Versartis common stock represented (whether in person or by proxy) to constitute a quorum necessary to conduct the business of the Versartis special meeting, Versartis may postpone or adjourn, or make one or more successive postponements or adjournments of, the Versartis special meeting as long as the date of the Versartis special meeting is not postponed or adjourned more than an aggregate of 30 calendar days in connection with any postponements or adjournments.

No Versartis Proposal is contingent upon any other Versartis Proposal. Therefore, assuming all other closing conditions have been either satisfied or waived, the merger will be consummated even if the Reverse Stock Split Proposal is not approved by Versartis’ stockholders.

As of                 , 2018, the directors and executive officers of Versartis owned         % of the outstanding shares of Versartis common stock entitled to vote at the Versartis special meeting. The directors and executive officers of Versartis owning these shares are subject to support agreement to vote all shares of Versartis common stock

 

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owned by them as of the record date in favor of the issuance of shares of Versartis common stock in the merger pursuant to the Merger Agreement and the reverse stock split. As of                 , 2018, Versartis is not aware of any affiliate of Aravive owning any shares of Versartis common stock entitled to vote at the Versartis special meeting.

Solicitation of Proxies

In addition to solicitation by mail, the directors, officers, employees and agents of Versartis may solicit proxies from Versartis stockholders by personal interview, telephone, telegram, email or otherwise. Versartis will bear the costs of printing and filing this proxy statement/prospectus/information statement and proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Versartis common stock for the forwarding of solicitation materials to the beneficial owners of Versartis common stock. Versartis 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. Versartis has engaged D.F. King & Co., Inc. to assist in the solicitation of proxies and provide related advice and informational support, for a service fee, plus customary disbursements, which are not expected to exceed $10,000 in total, which amount shall be borne by Versartis.

Other Matters

As of the date of this proxy statement/prospectus/information statement, the Versartis board of directors does not know of any business to be presented at the Versartis special meeting other than as set forth in the notice accompanying this proxy statement/prospectus/information statement. If any other matters should properly come before the Versartis 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” in this proxy statement/prospectus/information statement describe the material aspects of the merger, including the Merger Agreement. While Versartis and Aravive 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/information statement for a more complete understanding of the merger and the Merger Agreement, including the Merger Agreement attached as Annex A, the opinion of Cowen and Company, LLC attached as Annex C, and the other documents to which you are referred herein and the documents incorporated by reference herein. See the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

Background of the Merger

Versartis is a biopharmaceutical company that had been developing a novel long-acting form of recombinant human growth hormone, somavaratan (VRS-317), for growth hormone deficiency, or GHD, an orphan disease. The Versartis board of directors and management have regularly reviewed Versartis’ operating and strategic plans in an effort to enhance stockholder value. This review has involved, among other things, discussions of opportunities and risks associated with Versartis’ product candidate, development program, financial condition and market, as well as consideration of potential strategic alternatives available to Versartis.

On September 21, 2017, Versartis issued a press release announcing that the VELOCITY Phase 3 clinical trial of somavaratan in GHD did not meet its primary endpoint of non-inferiority. In connection with this development, Versartis determined that all ongoing clinical trials of somavaratan would conclude by the end of 2017, and that analysis of the trial result would continue in order to assess the viability of further development of somavaratan. After considerable clinical, regulatory and commercial analysis by internal and external consultants, the Versartis board of directors concluded further clinical development was not a viable path forward at this time.

Following the September 21, 2017 press release and through October 2017, the Versartis board of directors, in light of the VELOCITY trial result, initiated a process to identify and evaluate potential strategic alternatives available to Versartis. The Versartis board of directors and Versartis management discussed options available to Versartis, including the possibility of liquidating the company and the pursuit of potential strategic transactions. Also in October 2017, the Versartis board of directors approved a restructuring plan, including a reduction in force, to reduce costs.

On October 23, 2017, the Versartis board of directors, acting by unanimous written consent, established a committee of the board of directors, or transaction committee, for the purpose of identifying, considering, evaluating, negotiating and making recommendations to the Versartis board of directors regarding potential strategic alternatives available to Versartis. The transaction committee was authorized to review and assist in the evaluation and negotiation of any potential strategic alternatives and provide recommendations to the board of directors, and to retain advisors, including investment banks, to assist in the consideration of any potential strategic alternatives. The Versartis board of directors retained authority to approve any transaction. The Versartis board of directors appointed Srinivas Akkaraju, Eric Dobmeier, Shahzad Malik and Jay Shepard to the transaction committee. Drs. Akkaraju and Malik and Messrs. Dobmeier and Shepard were selected based primarily on their extensive experience evaluating biopharmaceutical companies and assets and their availability to devote the necessary time and attention to the transaction committee’s work.

On October 25, 2017, the transaction committee met with representatives of Versartis management and Cooley LLP, outside legal counsel to Versartis, or Cooley, in attendance. Mr. Shepard reviewed recent developments at Versartis and provided an overview of the views of Versartis management with respect to the consideration of a potential strategic transaction in light of the recent clinical trial results. The members of the transaction committee and Versartis management discussed the desirability of engaging a financial advisor to assist Versartis

 

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in its evaluation of strategic alternatives and, after considering potential advisors, determined that Cowen was the best candidate for the engagement in light of its significant experience with similar engagements and familiarity with Versartis and its business from its prior work for Versartis on completed and prospective financing transactions. Representatives of Versartis management outlined the process for identification and evaluation of potential counterparties for a potential strategic transaction and discussed the initial list of potential counterparties that had been identified by representatives of Cowen. The members of the transaction committee discussed the proposed terms for an engagement of Cowen and then authorized Versartis to engage Cowen to assist Versartis with respect to its exploration of potential strategic transactions. After further discussion, the members of the transaction committee approved the issuance of a press release announcing the engagement of Cowen and authorized Versartis management and Cowen to proceed with the process outlined with respect to identifying and evaluating potential counterparties.

Later on October 25, 2017, Versartis entered into an engagement letter with Cowen.

On October 26, 2017, Versartis issued a press release announcing the engagement of Cowen as its financial advisor to assist Versartis in evaluating potential strategic transactions. Also on October 26, 2017, Versartis issued a press release announcing its third quarter 2017 financial results and providing an update on the analysis of the Phase 3 trial results and the completion of a reduction in force and other cost-cutting measures.

On November 6, 2017, the transaction committee met, with representatives of Versartis management, Cowen and Cooley in attendance. The members of the transaction committee discussed with representatives of Versartis management and Cowen the initial outreach activities with potential counterparties, including counterparties that had been identified and those with which preliminary discussions had been held. The members of the transaction committee directed Versartis management and Cowen to proceed with the process as previously discussed, including producing a tiered list of potential counterparties.

On November 17, 2017, the transaction committee met, with representatives of Versartis management and Cowen in attendance. The members of the transaction committee discussed with the representatives of Cowen the tiered list of potential counterparties. In addition, the members of the transaction committee discussed a proposed process letter to be distributed to potential counterparties, and following such discussion, provided feedback to Cowen on the proposed process letter.

On November 21, 2017, Mr. Shepard, Dr. Akkaraju and members of Versartis management met with the chief executive officer, chairman of the board of directors and other members of management of a company, which is referred to as Party A, to discuss a potential strategic transaction.

On November 28, 2017, the Versartis board of directors met, with representatives of Versartis management, Cowen and Cooley in attendance. The members of the Versartis board of directors discussed with the representatives of Cowen and Versartis management the tiered list of potential counterparties. Following such discussion, the Versartis board of directors authorized Versartis management and Cowen to proceed with distribution of the process letter to the top tier of potential counterparties identified by the Versartis board of directors.

Beginning in November 2017, the transaction committee and members of Versartis management, with assistance from Cowen, identified and evaluated 55 potential counterparties during the course of the process. By late November, 15 were identified as top tier candidates by the Versartis board of directors with Cowen’s assistance, 13 of which entered into a confidentiality agreement with Versartis and received the initial process letter. The initial process letter directed potential counterparties to provide Versartis with initial indications of interest by the end of December 2017.

From December 8 to December 18, 2017, 12 potential counterparties made presentations to representatives of Versartis management and Cowen, including 11 of the potential counterparties that received the initial process

 

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letter and one which entered the process by submitting an indication of interest. Two of the 13 potential counterparties that received the initial process letter did not make presentations and did not move forward with the process.

On December 19, 2017, the transaction committee met, with representatives of Versartis management, Cowen and Cooley in attendance. Mr. Shepard provided an update to the other members of the transaction committee on the process of evaluating potential counterparties. The representatives of Cowen then provided an update on the process to date, including summaries of each of the counterparties that had made presentations to Versartis. The transaction committee then directed Versartis management and Cowen to contact each of the potential counterparties to reiterate the request from the process letter concerning the delivery of initial indications of interest.

By the end of December 2017, Versartis had received eight initial indications of interest. Three potential counterparties informed Versartis that they did not wish to proceed further, and one potential counterparty informed Versartis that it was not ready to submit an indication of interest at that time.

On January 4, 2018, the transaction committee met, with representatives of Versartis management, Cowen and Cooley in attendance. The members of the transaction committee discussed with the representatives of Versartis management and Cowen the completion of the first step of the process, which resulted in the submission of eight initial indications of interest. The representatives of Cowen presented a comparison of the material terms of the eight initial indications of interest and then discussed with the members of the transaction committee the strengths and weaknesses of the respective potential counterparties. Following such discussion, and in light of the significant workload to date associated with identifying and evaluating the potential counterparties and the risk of attrition inherent with preceding with all of the remaining potential counterparties, the transaction committee authorized Versartis management and Cowen to continue to engage with the four most promising candidates, which consisted of Party A and three other companies, which are referred to as Party B, Party C and Party D, respectively. The transaction committee then authorized Versartis management and Cowen to draft and distribute a second process letter detailing the due diligence phase of the process to each of Party A, Party B, Party C and Party D, which letter also would include details for submission of final proposals.

On January 5, 2018, representatives of Cowen distributed the second process letter to Party A, Party B, Party C and Party D.

Between January 5, 2018 and March 3, 2018, representatives of Versartis management, with assistance from Cowen and Cooley, pursued extensive discussions and mutual due diligence investigations with Party A, Party B, Party C and Party D and their respective financial advisors and legal counsel. During this period, among other things, Versartis distributed a due diligence request list to each of Party A, Party B, Party C and Party D, provided a draft merger agreement to each of Party B, Party C and Party D (and determined to provide Party A with a draft merger agreement pending further discussions), received and provided extensive due diligence information with respect to these four potential counterparties, and received feedback on the draft merger agreement from Party B and Party D. The transaction committee or the Versartis board of directors, with representatives of Versartis management, Cowen and Cooley in attendance, met during this period on January 22, 2018, January 30, 2018, February 16, 2018, and March 4, 2018 to review, among other things, the status of due diligence and other considerations with respect to each of Party A, Party B, Party C and Party D.

On January 24, 2018, Dr. Akkaraju and Raymond Tabibiazar, executive chairman of Aravive, spoke regarding a potential strategic transaction.

On February 27, 2018, and following several short conversations between Dr. Akkaraju and Dr. Tabibiazar after the initial January 24, 2018 conversation and an introduction by Dr. Akkaraju, Mr. Shepard and Dr. Tabibiazar spoke regarding a potential strategic transaction.

 

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On February 28, 2018, members of Versartis management held a discussion with members of Aravive management. Also on February 28, 2018, Versartis entered into a confidentiality agreement with Aravive.

On March 1, 2018, Versartis issued a press release announcing its fourth quarter and annual 2017 financial results and providing an update on the strategic process.

On March 2, 2018, representatives of Versartis management spoke to representatives of Aravive management regarding initial matters with respect to mutual due diligence review.

On March 4, 2018, the transaction committee met, with representatives of Versartis management, Cowen and Cooley in attendance. The members of the transaction committee discussed with the representatives of Cowen the fact that business due diligence with each of Party A, Party B, Party C and Party D was nearly complete, and that Versartis would need to provide feedback to the indications of interest that had previously been submitted. The members of the transaction committee also discussed the recent conversations with Aravive.

On March 5, 2018, representatives of Aravive management made a presentation to representatives of Versartis management, and additional meetings were held between representatives of Versartis management and Aravive management regarding due diligence matters on March 13, 2018 and March 14, 2018.

On March 6, 2018, Versartis provided a counterproposal to Party B. Also on March 6, 2018, Party D informed Cowen that it was no longer considering a potential strategic transaction.

On March 16, 2018, representatives of Versartis management made a presentation to the board of directors of Party A. Also on March 16, 2018, Party C informed Versartis that it was no longer considering a potential strategic transaction, and Party B informed Versartis that its revised proposal would be delayed.

In addition, on March 16, 2018, Mr. Shepard and Dr. Tabibiazar discussed the terms of a potential strategic transaction.

On March 18, 2018, the transaction committee met, with representatives of Versartis management, Cowen and Cooley in attendance. Mr. Shepard and representatives of Versartis management and Cowen informed the members of the transaction committee that Party C and Party D had withdrawn from the process. Mr. Shepard and the representatives of Versartis management and Cowen then discussed the counterproposal that had been presented to Party B and the next steps with respect to Party A. Lastly, the members of the transaction committee discussed the recent interest expressed by Aravive and terms for a potential transaction, and then instructed Mr. Shepard to gauge the level of interest from Aravive by requesting a written indication of interest.

On March 19, 2018, counsel for Party B provided a revised draft of the merger agreement to Cooley.

On March 20, 2018, the board of directors of Aravive met. After discussion, the members of the board of directors of Aravive determined not to proceed with a potential transaction at that time.

On March 21, 2018, Mr. Shepard met with the board of directors of Party B to discuss the terms of the potential strategic transaction.

On March 22, 2018, Dr. Tabibiazar informed Versartis that, given the differences in various terms as outlined during discussions between the two parties, Aravive would not be moving forward with the consideration of a potential transaction. Also on March 22, 2018, Party B delivered a revised proposal to Versartis which addressed the post-closing ownership split, composition of the board of directors and management of the proposed combined company, and the amount of the termination fees and related triggers.

On March 23, 2018, the transaction committee met, with representatives of Versartis management, Cowen and Cooley in attendance. The members of the transaction committee discussed the recent discussions with Party A

 

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and the proposal received from Party B and determined that Party A’s objectives was not compatible with Versartis’ objectives and that Versartis should continue to proceed with Party B. The members of the transaction committee also noted that Aravive was not moving forward with further discussions at that time.

On March 29, 2018, the transaction committee met, with representatives of Versartis management, Cowen and Cooley in attendance. The members of the transaction committee discussed the continuing negotiations with Party B and authorized Versartis management, Cooley and Cowen to continue such negotiations in accordance with tactical and negotiating guidance provided by the transaction committee.

Later on March 29, 2018, Cooley provided Party B with a revised merger agreement and drafts of support and lock up agreements. From March 29, 2018 to April 17, 2018, Cooley, on behalf of Versartis, and counsel for Party B negotiated and finalized the merger agreement, the respective disclosure schedules and the support and lock up agreements. Such negotiations addressed, among other matters, the size of the respective termination fees, the triggers upon which such termination fees would be payable, the composition of the board of directors and management of the combined company, and matters related to the ownership split of the combined company post-closing. During such period, representatives of management of Versartis and Party B held multiple meetings and discussions to negotiate outstanding terms in the merger agreement.

On April 17, 2018, the Versartis board of directors met, with representatives of Versartis management, Cowen and Cooley in attendance. Mr. Shepard provided an update with respect to the recent negotiations with Party B. The representatives of Cowen reviewed with the members of the Versartis board of directors an analysis of certain financial aspects of the proposed transaction with Party B. The representatives of Cooley discussed the material terms of the proposed merger agreement with Party B and the support and lock up agreements, and certain stockholder approval requirements. The Versartis board of directors then engaged in further discussion with the representatives of Cooley and Cowen on the proposed transaction with Party B.

Later on April 17, 2018, Party B informed Versartis that the terms of the merger agreement and the proposed transaction were no longer acceptable to a major stockholder of Party B and, as a result, it would not be in a position to enter into the merger agreement in its current form.

On April 20, 2018, Mr. Shepard and representatives of Versartis management discussed the terms of the proposed transaction with the major stockholder of Party B. Also on April 20, 2018, Cooley provided counsel to Party B with a revised draft of the merger agreement. Cooley, on behalf of Versartis, and counsel for Party B continued to negotiate the merger agreement and the respective disclosure schedules from April 20, 2018 to May 20, 2018.

On April 23, 2018, Aravive engaged Wedbush Securities, or Wedbush, to act as its financial advisor in respect of a potential financing or acquisition.

On April 25, 2018, the Versartis board of directors met, with representatives of Versartis management, Cooley and Cowen in attendance. The Versartis board of directors discussed the recent developments with respect to Party B, the likelihood of reengaging with potential counterparties that had previously indicated interest in a potential transaction and the prospect of identifying new potential counterparties to evaluate.

On April 27, 2018, Party B and the major stockholder of Party B provided Versartis with a proposal detailing a revised transaction structure.

On April 28, 2018, Dr. Tabibiazar directed Wedbush to follow up with Versartis on the status of its process.

Also on April 28, 2018, Wedbush contacted Dr. Akkaraju regarding renewing discussions with respect to a potential transaction.

On May 3, 2018, Versartis effected another reduction in force in accordance with its previous restructuring plan.

 

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On May 4, 2018 and May 9, 2018, representatives of Versartis management, Cowen and Cooley discussed with representatives of Party B management and legal counsel to Party B the viability of the revised transaction structure proposed by Party B.

On May 9, 2018, Versartis contacted Party C regarding renewing discussions for a potential transaction. On May 11, 2018, Party C informed Versartis that it did not wish to renew such discussions.

On May 14, 2018, after consultation with members of the transaction committee and representatives of Cowen, representatives of Versartis management determined to reengage with Aravive regarding a potential transaction and to continue reviewing and evaluating other potential counterparties.

On May 16, 2018, the transaction committee met, with representatives of Versartis management, Cowen and Cooley in attendance. The members of the transaction committee discussed the continuing discussions with Party B concerning the proposed changes to the transaction structure. The members of the transaction committee then discussed the evaluation to date of Aravive and, after further discussion with representatives of Versartis management and Cowen, authorized Versartis management to move forward with negotiating a potential transaction with Aravive. Later that day, Cooley provided Gracin & Marlow LLP, or GM, outside legal counsel to Aravive, with a draft merger agreement.

On May 17, 2018, the Aravive board of directors met, with representatives of Aravive management, GM and Wedbush in attendance, to discuss a potential transaction.

Later on May 17, 2018, the Aravive board of directors met again, with representatives of Aravive management and GM in attendance, to discuss the potential merits of engaging in a transaction with Versartis.

On May 18, 2018, Aravive and Versartis resumed mutual due diligence review. The parties continued such review until its completion at the end of May 2018. Also during May 2018, Mr. Shepard and Dr. Akkaraju held various separate discussions with Karen Liu, Eric Zhang, Amato Giaccia and Dr. Tabibiazar, each members of the Aravive board of directors, regarding the potential strategic transaction.

On May 22, 2018, GM, on behalf of Aravive and after consultation with Wedbush, and Cooley, on behalf of Versartis, engaged in negotiations regarding various terms of the merger agreement. Later that evening, GM provided Cooley with a revised draft of the merger agreement.

On May 24, 2018, Cooley, on behalf of Versartis, provided GM with a revised draft of the merger agreement and drafts of the support and lock up agreements. Aravive management, GM, Lowenstein Sandler LLP or Lowenstein, outside legal counsel to Aravive, and Wedbush met several times over the next three days to discuss the revised merger agreement. From May 24, 2018 to June 2, 2018, Cooley, on behalf of Versartis, and GM and Lowenstein, on behalf of Aravive, negotiated and finalized the merger agreement and the support and lock up agreements. Such negotiations addressed, among other things, the amount of the termination fees, the composition of the board of directors and management post-closing of the proposed combined company, and the consideration to be received by the holders of capital stock of Aravive. In addition, during this period, Cooley and GM, on behalf of Versartis and Aravive, respectively, exchanged drafts of and negotiated and finalized the respective disclosure schedules.

On May 25, 2018, the transaction committee met, with representatives of Versartis management, Cowen and Cooley in attendance. Mr. Shepard provided an update on developments with respect to the potential transactions with Party B and Aravive. Representatives of Versartis management detailed the due diligence review of each of Party B and Aravive. Dr. Akkaraju disclosed to the transaction committee that he had previously served as a director of Aravive for approximately one year beginning in February 2016 and that, in connection with this service, he had been granted a stock option in February 2016, which he had exercised in 2017 for Aravive common stock representing less than 1% of Aravive’s total fully diluted shares. Representatives of Cowen then

 

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reviewed with the members of the transaction committee a number of financial characteristics and other considerations with respect to Party B and Aravive. Following such discussion, the members of the transaction committee engaged in discussion of the matters presented and the two potential counterparties. The members of the transaction committee directed Versartis management to continue pursuing a potential transaction with Aravive with the goal of bringing a potential transaction to the Versartis board of directors for approval as expeditiously as possible and to continue discussions with Party B for purposes of preserving Versartis’ ability to enter into a transaction with Party B on the terms most recently discussed, or terms more favorable to Versartis, on the same timeline as the potential transaction with Aravive.

On May 28, 2018, the Aravive board of directors met, with representatives of Aravive management, GM and Lowenstein in attendance. The members of the Aravive board of directors reviewed discussions to date with Versartis.

On May 30, 2018, the Versartis board of directors met, with representatives of Versartis management, Cowen and Cooley in attendance. The representatives of Cooley discussed with the members of the Versartis board of directors their fiduciary duties in the context of a potential transaction and the previous disclosure from Dr. Akkaraju regarding his previous service on the Aravive board of directors and his Aravive common stock holdings, which the Versartis board of directors concluded was not material. The representatives of Cooley then discussed the material terms of the merger agreement with Aravive, including the no shop restrictions and termination fee amounts and payment triggers, and noted that the negotiations with GM were ongoing but that agreement had been reached on substantially all of the material terms. Representatives of Versartis management updated the Versartis board of directors on due diligence review. Representatives of Cowen provided a summary of key developments in the strategic review process since April 17, 2018 and then discussed key financial considerations with respect to the potential transactions. Lastly, the Versartis board of directors engaged in a discussion of various issues, including the requirements associated with Aravive’s grant from CPRIT and the plan for maintaining compliance with such grant following a potential transaction.

Later on May 30, 2018, Mr. Shepard was contacted by the major stockholder of Party B and he and a representative of Versartis management engaged in a discussion with such stockholder of certain changes in Party B’s proposal with respect to the transaction structure.

On May 31, 2018, the Aravive board of directors met, with representatives of Aravive management, Wedbush, GM and Lowenstein in attendance. During this meeting, GM and Lowenstein reviewed the proposed terms of the merger and the merger agreement with the Aravive board of directors, including the economic terms and key provisions, such as closing conditions and termination rights, and discussed the fiduciary duties of the board to its shareholders. A representative of Wedbush also reviewed in detail with the Aravive board of directors the financial terms of the merger agreement.

On June 1, 2018, the Versartis board of directors met, with representatives of Versartis management, Cowen and Cooley in attendance. Mr. Shepard provided an update on the strategic process to date, including his conversation the previous day with the major stockholder of Party B. Representatives of Cowen presented certain financial terms of a potential transaction with Party B and Aravive, respectively. The Versartis board of directors then discussed with representatives of Versartis management, Cooley and Cowen the potential transactions with Party B and Aravive, respectively, and the necessity of deciding which transaction to pursue. Following such discussion, the members of the Versartis board of directors unanimously expressed their preference for a transaction with Aravive, citing, among other things, that they perceived the scientific and clinical potential of Aravive’s programs to be greater than that of Party B, and that a combination with Aravive generally represented a better opportunity to enhance the value of Versartis for the benefit of its stockholders. In the course of this discussion, the members of the transaction committee expressed the unanimous recommendation of the transaction committee that the Versartis board of directors consider and approve a transaction with Aravive at the appropriate time. The Versartis board of directors instructed Versartis management to finalize negotiations with Aravive.

 

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On June 2, 2018, the Versartis board of directors met, with representatives of Versartis management, Cowen and Cooley in attendance. The members of the Versartis board of directors reviewed the strategic process to date and the current proposal for a strategic transaction with Aravive. Representatives of Cooley reviewed the material terms of the Merger Agreement to be entered into with Aravive. The Versartis board of directors discussed potential reasons for, and risks inherent in, entering into the Merger Agreement with Aravive. The representatives of Cowen reviewed with the members of the Versartis board of directors the financial analysis of the exchange ratio to be paid by Versartis in the proposed merger. The representatives of Cowen then rendered Cowen’s oral opinion to the Versartis board of directors, subsequently confirmed by delivery of a written opinion dated as of June 2, 2018, that, as of June 2, 2018, and subject to the various assumptions made, procedures followed, matters considered, limitations of the review undertaken, qualifications contained and other matters set forth therein, the exchange ratio to be paid by Versartis in the proposed merger was fair, from a financial point of view, to Versartis. After further discussion, the Versartis board of directors (1) determined that the proposed merger with Aravive was fair to, advisable and in the best interests of Versartis and its stockholders, (2) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the issuance of shares of Versartis common stock to the securityholders of Aravive pursuant to the terms of the Merger Agreement, and (3) determined to recommend that the stockholders of Versartis vote to approve the Merger Agreement and the transactions contemplated thereby, including the issuance of shares of Versartis common stock to the securityholders of Aravive pursuant to the terms of the Merger Agreement.

On June 3, 2018, the Aravive board of directors met, with representatives of Aravive management, Wedbush, GM, Lowenstein and Griffin Securities, Inc., or Griffin, financial advisor to Aravive for purposes of rendering a fairness opinion to holders of Aravive capital stock, in attendance. During the meeting, legal counsel reviewed with the Aravive board of directors the proposed terms of the Merger Agreement. Representatives of Griffin reviewed with the Aravive board of directors Griffin’s opinion which had been delivered the day before, that, as of such date, and based upon and subject to the various limitations, matters, qualifications and assumptions set forth in its written opinion, the merger consideration to be paid by Versartis to Aravive stockholders in the merger pursuant to the merger agreement was fair to Aravive from a financial point of view. Griffin then responded to questions from the members of the Aravive board of directors regarding its fairness opinion. Wedbush reviewed the results of its financial analysis with respect to the exchange ratio and then responded to questions from the members of the Aravive board of directors regarding its financial analysis. After the presentations and discussions, the Aravive board of directors unanimously: (1) determined that the transaction, the issuance of shares of Versartis common stock pursuant to the transaction and the other transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of Aravive and its stockholders, (2) approved the Merger Agreement and the other transactions contemplated thereby, and (3) resolved to recommend that Aravive stockholders vote to approve the Merger Agreement.

Later on June 3, 2018, the Merger Agreement was signed.

On June 4, 2018, Versartis and Aravive issued a joint press release announcing their entry into the Merger Agreement.

Versartis Reasons for the Merger

As noted above, the Versartis board of directors and management have regularly reviewed and discussed Versartis’s operating and strategic plans, both near-term and long-term, as well as potential partnerships and strategic transactions, in an effort to enhance stockholder value. These reviews and discussions have focused, among other things, on the opportunities and risks associated with Versartis’s business and financial condition and strategic relationships and other strategic options. In particular, the VELOCITY Phase 3 clinical trial results have prompted the Versartis board of directors to focus on alternative means for providing returns to stockholders.

In the course of its evaluation of the merger and the Merger Agreement, the Versartis board of directors held numerous meetings, consulted with Versartis management, Cooley and Cowen, and reviewed and assessed a

 

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significant amount of information and, in reaching its unanimous decision to approve the merger, the issuance of shares of Versartis common stock pursuant to the Merger Agreement and the other transactions contemplated by the Merger Agreement, the Versartis board of directors considered a number of factors, including, among others, the following:

 

   

The Versartis board of directors considered the historical and current information concerning Versartis’ business, financial performance, financial condition, including Versartis’ cash position, operations, management and competitive position, the prospects of Versartis and its product candidates, the nature of the biotechnology industry generally, including financial projections of Versartis under various scenarios and its short-and long-term strategic objectives and the related risks and the belief that the combination of Versartis’ and Aravive’s businesses would create more value for Versartis stockholders in the long-term than Versartis could create as an independent, stand-alone company.

 

   

The Versartis board of directors’ belief, based in part on the judgment, advice and analysis of Versartis management with respect to the potential strategic, financial and operational benefits of the merger (which judgment, advice and analysis was informed in part by the business, technical, financial, accounting and legal due diligence investigation performed by Versartis and its advisors with respect to Aravive), that Aravive’s proprietary technology as well as its clinical stage candidate that addresses sizeable market opportunities, and may provide new medical benefits for patients and returns for investors.

 

   

The Versartis board of directors also reviewed with the management of Versartis the current development plans of Aravive to confirm the likelihood that the combined company would possess sufficient resources, or have access to sufficient resources, to allow the management team to focus on its plans for the continued development of Aravive’s product candidate. The Versartis 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 Versartis public company structure with the Aravive business to raise additional funds in the future.

 

   

The Versartis board of directors also considered the valuation and business prospects of all the potential strategic transaction candidates. In particular, their collective view was that Aravive was the most attractive candidate because of the promising preliminary results of its then-ongoing Phase 1 clinical trial with AVB-S6-500 and its preclinical studies with AVB-S6-500, the possibility for expedited regulatory review of certain of its products in the United States and the large market opportunities that Aravive’s products address. The Versartis board of directors also took into account its belief that the mechanism of action of AVB-S6-500 represents a novel approach to inhibiting tumor growth and metastasis, and the fact that Aravive has a favorable competitive position relative to its competitors that are developing product candidates targeted at the GAS6-AXL signaling axis. After considering the comprehensive diligence review that Versartis management had completed of other prospective transaction partners, the board concluded that the merger with Aravive would create a publicly traded company focused on advancing its product candidate, which includes clinical stage candidates that address sizeable market opportunities, and that would create more value for Versartis’ stockholders than any of the other alternatives the Versartis board of directors had considered.

 

   

The Versartis board of directors concluded that the merger would provide existing Versartis stockholders a significant opportunity to participate in the potential growth of the combined company following the merger.

 

   

The Versartis board of directors also considered that the combined company will be led by an experienced senior management team from Versartis and Aravive and a board of directors with representation from each of the current boards of directors of Versartis and Aravive.

 

   

The Versartis board of directors considered the financial analyses of Cowen, which Versartis had engaged to act as its financial advisor in connection with the merger, including in connection with the Versartis board of directors’ consideration and evaluation of certain potential strategic alternatives, and

 

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the opinion of Cowen that, as of the date of such opinion, and based upon and subject to the various limitations, matters, qualifications and assumptions set forth in its written opinion, the exchange ratio to be paid by Versartis in the merger pursuant to the Merger Agreement, was fair to Versartis, from a financial point of view, as more fully described in the section titled “The Merger—Opinion of the Financial Advisor to the Versartis Board of Directors.”

The Versartis board of directors also reviewed the recent results of operations and financial condition of Versartis, including:

 

   

the failure of somavaratan to meet the primary endpoint in its Phase 3 pediatric growth hormone deficiency trial;

 

   

the clinical development risks associated with continuing to develop somavaratan, including additional clinical studies that would be required and the potential market value of somavaratan;

 

   

the loss of the certain operational capabilities of Versartis, and the risks associated with continuing to operate Versartis on a stand-alone basis, including the resources needed to continue to develop somavaratan;

 

   

the results of substantial efforts made over a significant period of time by Versartis’ management and Cowen to solicit strategic alternatives for Versartis to the merger, including the discussions that Versartis management, Versartis’ representatives and the Versartis board of directors had in late 2017 and early 2018 with other potential strategic transaction candidates;

 

   

current financial market conditions and historical market prices, volatility and trading information with respect to Versartis common stock; and

 

   

the risks, costs and timing and limited amount, if any, that would be distributable to Versartis stockholders associated with a potential liquidation of the company.

The Versartis board of directors also reviewed the terms of the Merger Agreement and associated transactions, including:

 

   

the relative percentage ownership of Versartis securityholders and Aravive securityholders immediately following the closing of the merger;

 

   

the number and nature of the conditions to Aravive’s 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 rights of, and limitations on, Versartis under the Merger Agreement to consider certain unsolicited acquisition proposals under certain circumstances, should Versartis receive a “superior offer” (as defined below);

 

   

the reasonableness of the potential termination fee of $2.5 million, which could become payable by Versartis if the Merger Agreement is terminated in certain circumstances and certain events occur;

 

   

the agreement by the stockholders of Aravive holding the requisite number of shares of Aravive capital stock to vote such shares in favor of approving the transactions contemplated by the Merger Agreement and against actions that could adversely affect the closing of the merger; 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.

 

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In the course of its deliberations, the Versartis board of directors also considered a variety of risks and other countervailing factors related to the merger, including:

 

   

the $2.5 million termination fee payable by Versartis upon the occurrence of certain events and the potential effect of such termination fee in deterring other potential acquirors from proposing an alternative transaction that may be more advantageous to Versartis 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 Versartis common stock resulting from the announcement of the merger;

 

   

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 Versartis;

 

   

the risk to the business of Versartis, operations and financial results in the event that the merger is not consummated;

 

   

the strategic direction of the continuing entity following the closing of the merger, which will be determined by a combination of individuals from Versartis’ and Aravive’s management teams and a board of directors initially comprised of a combination of the Versartis and the Aravive boards of directors; and

 

   

various other risks associated with the combined company and the merger, including those described in the sections titled “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements.”

The foregoing information and factors considered by the Versartis board of directors are not intended to be exhaustive but are believed to include all of the material factors considered by the Versartis 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, the Versartis 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 the Versartis board of directors may have given different weight to different factors. The Versartis board of directors conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, the Versartis management team and the legal and financial advisors of Versartis, and considered the factors overall to be favorable to, and to support, its determination.

Aravive Reasons for the Merger

In the course of reaching its decision to approve the merger, the Aravive board of directors consulted with its senior management, financial advisor and legal counsel, reviewed a significant amount of information and considered a number of factors, including, among others:

 

   

the potential increased access to sources of capital at a lower cost and a broader range of investors to support Aravive’s development program than it could otherwise obtain if it continued to operate as a stand-alone, privately-held company;

 

   

the potential to provide its current stockholders with greater liquidity by owning stock in a public company;

 

   

the development and commercial planning expertise and operational proficiency of the Versartis management team;

 

   

the Aravive board of directors’ belief that no alternatives to the merger were reasonably likely to create greater value for Aravive stockholders after reviewing the various strategic options to enhance stockholder value that were considered by the Aravive board of directors;

 

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the cash resources of the company expected to be available at the closing of the merger;

 

   

the availability of appraisal rights under the DGCL to holders of Aravive common 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 Aravive common stock as determined by the Delaware Court of Chancery;

 

   

the expectation that the merger with Versartis would be a more time- and cost-effective means to access capital than other options considered;

 

   

the terms and conditions of the Merger Agreement, including, without limitation, the following:

 

   

the determination that the expected relative percentage ownership of Versartis securityholders and Aravive securityholders in the combined company was appropriate, in the judgment of the Aravive board of directors, based on the Aravive board of directors’ assessment of the approximate valuations of Versartis and Aravive and the comparative costs and risks associated with alternatives to the merger.

 

   

the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes, with the result that Aravive stockholders will generally not recognize taxable gain or loss for U.S. federal income tax purposes upon the exchange of Aravive common stock for Versartis common stock pursuant to the merger.

 

   

the limited number and nature of the conditions of the obligation of Versartis to consummate the merger.

 

   

the conclusion of the Aravive board of directors that the potential termination fee of $2.5 million payable by Versartis to Aravive and the circumstances when such fee may be payable, were reasonable.

 

   

the fact that shares of Versartis common stock issued to Aravive stockholders will be registered on a Form S-4 registration statement by Versartis and will generally become freely tradable for non-affiliates; and

 

   

the likelihood that the merger will be consummated on a timely basis.

The Aravive 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 Aravive and the ability of Aravive to obtain financing in the future in the event the merger is not completed;

 

   

the reasonableness of the termination fee of $2.5 million, which could become payable by Aravive if the Merger Agreement is terminated in certain circumstances and certain events occur;

 

   

the risk that the merger might not be consummated in a timely manner or at all;

 

   

the expenses to be incurred in connection with the merger and related administrative challenges associated with combining the companies;

 

   

the additional public company expenses and obligations that Aravive’s business will be subject to following the merger that it has not previously been subject to; and

 

   

various other risks associated with the combined company and the merger, including the risks described in the section titled “Risk Factors” in this proxy statement/prospectus/information statement.

Opinion of the Financial Advisor to the Versartis Board of Directors

Pursuant to an engagement letter with Versartis, or the Engagement Letter, dated as of October 25, 2017, Versartis retained Cowen to serve as its exclusive financial advisor in connection with the merger, and to render

 

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an opinion, as investment bankers, to the Versartis board of directors as to the fairness, from a financial point of view, to Versartis, of the exchange ratio to be paid by Versartis in the merger pursuant to the terms of the Merger Agreement.

On June 2, 2018, Cowen delivered to the Versartis board of directors its oral opinion, subsequently confirmed in writing, or the Opinion, that, as of the date of the Opinion, and subject to the various assumptions made, procedures followed, matters considered, limitations of the review undertaken, qualifications contained and other matters set forth therein, the exchange ratio to be paid by Versartis in the merger pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Versartis.

The full text of the Opinion is attached as Annex C hereto and is incorporated herein by reference. Holders of shares of Versartis common stock are urged to read the Opinion in its entirety for the assumptions made, procedures followed, matters considered, limitations of the review undertaken, qualifications contained and other matters set forth therein. The summary of the Opinion set forth herein is qualified in its entirety by reference to the full text of the Opinion. The Opinion was prepared for and addressed to the Versartis board of directors (in its capacity as such) and was directed only to the fairness, from a financial point of view, of the exchange ratio to be paid by Versartis in the merger pursuant to the terms of the Merger Agreement, and does not constitute an opinion as to the merits of the merger or a recommendation to the Versartis board of directors as to how it should vote on the merger or to any stockholder of Versartis or Aravive as to how any such stockholder should vote at any stockholders’ meeting at which the merger is considered, or whether or not any stockholder of Versartis or Aravive should enter into a voting, shareholders’ or affiliates’ agreement with respect to the merger or exercise any dissenter’s or appraisal rights that may be applicable to such stockholder, or to take any other action in connection with the merger or otherwise. The exchange ratio to be paid by Versartis was determined through negotiations between Versartis and Aravive and not pursuant to recommendations of Cowen.

In connection with the Opinion, Cowen reviewed and considered such financial and other matters as it deemed relevant, including, among other things:

 

   

a draft of the Merger Agreement, dated June 1, 2018, such draft being the last draft of the Merger Agreement made available to Cowen;

 

   

certain publicly available financial and other information for Versartis and certain other relevant financial and operating data furnished to Cowen by management of Versartis;

 

   

certain other publicly available information concerning Aravive and Versartis;

 

   

certain non-publicly available information concerning Aravive and Versartis, respectively, including certain cash requirements for Aravive prepared by its management, and certain cash requirements for Versartis prepared by its management, in each case, as approved for Cowen’s use by Versartis, or the Cash Forecasts;

 

   

discussions Cowen had with the managements of Aravive and Versartis, as applicable, regarding the respective historical and current business operations, financial conditions and prospects of Versartis and Aravive, and such other matters Cowen deemed relevant;

 

   

the reported prices and trading history of shares of Versartis common stock;

 

   

certain publicly available financial and other information of certain publicly traded companies that Cowen deemed relevant;

 

   

the financial terms of certain selected initial public offerings Cowen deemed relevant;

 

   

certain discussions and negotiations between representatives of Aravive and Versartis in which Cowen participated; and

 

   

such other information, financial studies, analyses and investigations, and considered such other factors, as Cowen deemed relevant for purposes of the Opinion.

 

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In conducting its review and arriving at the Opinion, Cowen, with Versartis’ consent, relied upon and assumed, without independent verification, the accuracy and completeness of all of the financial and other information that was made available, supplied or otherwise communicated to Cowen by or on behalf of Aravive or Versartis, or that was otherwise reviewed by Cowen, including, without limitation, publicly available information. Cowen did not undertake any responsibility for the accuracy, completeness or reasonableness of, or independent verification of, such information. In addition, Cowen did not evaluate the solvency or fair value of Aravive, Versartis or Merger Sub under any state or federal laws relating to bankruptcy, insolvency or similar matters. Cowen relied on such information being complete and correct in all material respects and further relied upon the assurances of the managements of Aravive and Versartis, as applicable, that, to their knowledge, such information does not contain any material omissions or misstatements of material fact. With respect to the Cash Forecasts supplied to Cowen by Aravive and Versartis, Cowen assumed, at the direction of Versartis, that they were reasonably prepared on the basis reflecting the best currently available estimates and good faith judgments of the management of Aravive and the management of Versartis, respectively. The Cash Forecasts were not prepared with the expectation of public disclosure and they are based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in the Cash Forecasts. Cowen expresses no opinion as to the Cash Forecasts or the assumptions on which they were made. Cowen did not receive any internal financial analyses, financial forecasts, reports or other information concerning Aravive or Versartis prepared by either the management of Aravive or Versartis of a nature that would have enabled Cowen to perform a discounted cash flow analysis of the future cash flows of Aravive or Versartis. Cowen relied upon, without independent verification, the assessment of the management of Versartis as to the existing products and services of Aravive and the viability of, and risks associated with, the future products and services of Aravive. Cowen expressly disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting the Opinion of which it becomes aware after the date of the Opinion.

Cowen also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of Aravive or Versartis since the date of the last financial information of Aravive or Versartis, respectively, made available to, or reviewed by, Cowen. Cowen did not make or obtain any independent evaluation, appraisal or physical inspection of Aravive’s or Versartis’ assets or liabilities, respectively, nor was Cowen furnished with any such evaluation or appraisal. The Opinion does not in any way address the solvency or financial condition of Aravive, Versartis or any other participant in the merger. In addition, the Opinion does not address any legal, tax, accounting or regulatory matters related to the Merger Agreement or the merger, as to which Cowen assumed that Versartis and the Versartis board of directors would have received such advice from legal, tax, accounting and regulatory advisors (other than Cowen) as each determined appropriate. The Opinion is necessarily based on economic, market, financial and other conditions as they existed as of the date of the Opinion, and on the information made available to Cowen by or on behalf of Aravive, Versartis or their respective advisors, or information otherwise reviewed by Cowen, as of the date of the Opinion. Subsequent developments may affect the conclusion reached in the Opinion and that Cowen does not have any obligation to update, revise or reaffirm the Opinion. Cowen did not consider any potential legislative or regulatory changes currently being considered or recently enacted by the United States or any foreign government, or any domestic or foreign regulatory body, or any changes in accounting methods or generally accepted accounting principles that may be adopted by the SEC, the Financial Accounting Standards Board, or any similar foreign regulatory body or board.

For purposes of rendering the Opinion, Cowen assumed, with Versartis’ consent, that there were no factors that would delay or subject to any adverse conditions any necessary regulatory or governmental approval and that all conditions to the merger would be satisfied without any material waiver, amendment or delay. In addition, Cowen assumed that the definitive merger agreement would not differ materially from the draft it reviewed. Cowen also assumed that the merger would be consummated substantially on the terms and conditions described in the Merger Agreement, without any adjustment to the exchange ratio, or waiver of material terms or conditions by any party thereto, and that obtaining any necessary regulatory approvals or satisfying any other conditions for consummation of the merger would not have an adverse effect on Aravive, Versartis, Merger Sub

 

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or the merger. Cowen assumed that the merger would be consummated in a manner that complies with the applicable provisions of the Securities Act, the Exchange Act, and all other applicable federal and state statutes, rules and regulations.

The Opinion is for the information of, and directed to, the Versartis board of directors (in its capacity as such) for its information and assistance in connection with its consideration of the merger and may not be used for any other purpose. The Opinion does not constitute a recommendation to the Versartis board of directors as to how it should vote on the merger or to any stockholder of Versartis or Aravive as to how any such stockholder should vote at any stockholders’ meeting at which the merger is considered, or whether or not any stockholder of Versartis or Aravive should enter into a voting, shareholders’, or affiliates’ agreement with respect to the merger or exercise any dissenter’s or appraisal rights that may be applicable to such stockholder, or take any other actions in connection with the merger or otherwise. In addition, the Opinion does not compare the relative merits of the merger with any other alternative transactions or business strategies which may have been available to Versartis and does not address the underlying business decision of the Versartis board of directors or Versartis to proceed with or effect the merger.

The Opinion is limited to whether the exchange ratio to be paid by Versartis pursuant to the Merger Agreement was fair to Versartis, from a financial point of view, and does not address any other terms, aspects or implications of the transactions contemplated by the Merger Agreement, including, without limitation, the form or structure of the merger, any consequences of the merger on Aravive, Versartis or their respective stockholders, creditors or otherwise, or any terms, aspects or implications of any voting, support, stockholder or other agreements, arrangements or understandings contemplated or entered into in connection with the transactions contemplated by the Merger Agreement or otherwise. Cowen did not express and is not expressing any opinion as to what the value, price or trading range of the shares of the Versartis common stock would be or will be, as applicable, following public announcement or consummation of the merger. Cowen was not requested to opine as to, and the Opinion does not in any manner address or include: (i) the legal, tax or accounting consequences of the merger on Aravive, Versartis or their respective securityholders; (ii) the fairness of the amount or nature of any compensation to any of Aravive’s or Versartis’ officers, directors or employees, or class of such persons; (iii) the fairness of the merger to holders of any class of securities, creditors or other constituencies of Versartis, or any class of securities, creditors or other constituencies of any other party to any transaction contemplated by the Merger Agreement (including Aravive); (iv) any advice or opinions provided by any other advisor to Aravive or Versartis; (v) the treatment of, or effect of the merger on, any securities of Aravive or Versartis (including, without limitation, any Aravive stock options, Versartis stock options or Versartis RSUs) or the holders of any such securities; (vi) any other strategic alternatives currently (or which have been or may be) contemplated by the Versartis board of directors or Versartis; or (vii) whether Versartis has sufficient cash, available lines of credit or other sources of funds to enable it to consummate the merger.

The Opinion may not be disseminated, quoted, reproduced, summarized, described or referred to or disclosed to any other person, nor shall any public reference to Cowen be made, without its prior written consent; provided that Versartis may, without Cowen’s prior written consent, include the full text of the Opinion in any proxy statement or registration statement filed by Versartis with the SEC in connection with the merger.

The following is a brief summary of the principal financial analyses performed by Cowen to arrive at the Opinion. Some of the summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data set forth in the tables without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses. Cowen reviewed with the management of Versartis the assumptions on which such analyses were based and other factors. No limitations were imposed by the Versartis board of directors with respect to the assumptions made, procedures followed, limitations of the review undertaken, qualifications contained and other matters considered by Cowen in rendering the Opinion.

 

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Based on the definition of the exchange ratio and other terms set forth in the Merger Agreement, Cowen calculated an implied exchange ratio of 2.2923, based on the assumption in accordance with the Merger Agreement that (x) the aggregate number of shares of Versartis common stock (i) issued to holders of the shares of Aravive capital stock outstanding immediately prior to the Effective Time, (ii) issuable to holders of Aravive stock options outstanding as of immediately prior to the Effective Time (after giving effect to Section 5.5 of the Merger Agreement), and (iii) issuable to holders of all other options and other rights to receive shares of Aravive capital stock (with the number of shares of Versartis common stock issuable upon exercise, conversion or exchange of any of the securities described in (ii) and (iii) being determined in accordance with the terms of the Merger Agreement) will be equal to (y) the aggregate number of shares of Versartis common stock outstanding immediately prior to the Effective Time and the number of shares of Versartis common stock issuable upon the exercise of all Versartis stock options with an exercise price less than or equal to $2.53 and all Versartis RSUs, subject to certain adjustments set forth in Section 5.22 of the Merger Agreement. Cowen’s calculation of this implied exchange ratio utilized (1) the aggregate number of shares of Versartis common stock outstanding and the number of shares of Versartis common stock issuable upon the exercise of all Versartis stock options with an exercise price less than or equal to $2.53 and all Versartis RSUs, in each case, as of May 22, 2018, as provided by Versartis’ management, and (2) the aggregate number of shares of Aravive capital stock and the number of shares of Aravive capital stock issuable to holders of Aravive stock options outstanding and all other options, warrants and other rights to receive shares of Aravive capital stock, in each case as of May 30, 2018, as provided by Aravive’s management and approved by Versartis for Cowen’s use. For purposes of the Opinion, Cowen was advised and has assumed, at Versartis’ direction, that there would be no adjustment required under Section 5.22 of the Merger Agreement.

Historical Stock Price Analysis. Cowen reviewed the historical trading prices for shares of Versartis common stock on certain dates and the volume weighted average trading prices, or VWAP, for certain periods, in order to put the current stock price in perspective with historical averages. The following table presents the results of this analysis as of June 1, 2018:

 

Stock Price (Rounded to the Nearest Hundredth)

  

Trading Price as of June 1, 2018

   $ 1.45  

5-Day VWAP

   $ 1.42  

30-Day VWAP

   $ 1.49  

90-Day VWAP

   $ 1.70  

Lowest Trading Price in Last 52 Weeks

   $ 1.35  

Highest Trading Price in Last 52 Weeks

   $ 22.10  

Analysis of Selected Publicly Traded Companies. Cowen reviewed financial data of certain development-stage biotechnology companies with a lead indication in oncology, or the Selected Companies, whose securities are publicly traded. These companies were:

 

   

Aduro BioTech, Inc.

 

   

Aeglea BioTherapeutics, Inc.

 

   

Affimed N.V.

 

   

Agenus Inc.

 

   

BerGenBio ASA

 

   

Corvus Pharmaceuticals, Inc.

 

   

Five Prime Therapeutics, Inc.

 

   

Genocea Biosciences, Inc.

 

   

Merus N.V.

 

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Jounce Therapeutics, Inc.

 

   

Trillium Therapeutics Inc.

 

   

Syndax Pharmaceuticals, Inc.

Cowen calculated the implied enterprise value as the fully diluted market capitalization of common stock plus total debt less cash and cash equivalents, or EV, for each of the Selected Companies as of June 1, 2018, as shown in the following table:

 

     Implied EV (in millions)  

Aduro BioTech, Inc.

     $377.7  

Aeglea BioTherapeutics, Inc.

     $187.3  

Affimed N.V.

     $  72.5  

Agenus Inc.

     $315.0  

BerGenBio ASA

     $319.2  

Corvus Pharmaceuticals, Inc.

     $252.6  

Five Prime Therapeutics, Inc.

     $270.9  

Genocea Biosciences, Inc.

     $  44.6  

Merus N.V.

     $204.9  

Jounce Therapeutics, Inc.

     $135.1  

Trillium Therapeutics Inc.

     $345.2  

Syndax Pharmaceuticals, Inc.

     $106.5  
     Minimum      1st
quartile
     Median      3rd
Quartile
     Maximum  

Selected Companies

   $ 44.6      $ 127.9      $ 228.8      $ 316.1      $ 377.7  

Based on these implied EVs and Aravive’s estimated cash amount of $5.3 million and estimated contingent payables of approximately $0.7 million at the assumed closing date September 30, 2018, as provided by Aravive’s management and approved by Versartis for Cowen’s use, Cowen calculated a range of implied equity values as shown in the following table:

 

     Implied Equity Value (in millions)  
     Minimum      1st quartile      Median      3rd Quartile      Maximum  

Selected Companies

   $ 49.2      $ 132.6      $ 233.4      $ 320.7      $ 382.4  

Cowen noted that, based upon the number of shares of Versartis common stock to be issued pursuant to the Merger Agreement, the implied equity value of Aravive in the merger was approximately $54.3 million.

Cowen divided the range of implied equity values above by Aravive’s fully diluted shares outstanding as of June 1, 2018, as provided by Aravive’s management and approved by Versartis for Cowen’s use, and further divided by the five-day VWAP of Versartis common stock of $1.4228 as of June 1, 2018, to calculate the following range of implied exchange ratios. In comparison, Cowen noted the implied exchange ratio of 2.2923 in the merger.

 

     Implied Exchange Ratio  
     Minimum      1st quartile      Median      3rd Quartile      Maximum  

Selected Companies

     2.0789        5.5991        9.8565        13.5426        16.1441  

Analysis of Selected Initial Public Offerings. Cowen reviewed the financial terms, to the extent publicly available, of 10 initial public offerings which were announced or completed since September 1, 2015 by

 

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development-stage biotechnology companies with a lead indication in oncology, or Selected IPOs. Such companies included:

 

   

Aeglea BioTherapeutics, Inc.

 

   

Aileron Therapeutics, Inc.

 

   

Corvus Pharmaceuticals, Inc.

 

   

CytomX Therapeutics, Inc.

 

   

G1 Therapeutics, Inc.

 

   

Jounce Therapeutics, Inc.

 

   

Mersana Therapeutics, Inc.

 

   

Merus N.V.

 

   

Syndax Pharmaceuticals, Inc.

 

   

Zymeworks Inc.

Cowen calculated the implied EV for each of the companies in the Selected IPOs as the fully diluted market capitalization of common stock plus total debt less cash and cash equivalents as of the date of pricing of each such Selected IPO, as shown in the table below:

 

     Implied EV at IPO (in millions)  

Aeglea BioTherapeutics, Inc.

     $  50.1  

Aileron Therapeutics, Inc.

     $162.4  

Corvus Pharmaceuticals, Inc.

     $149.8  

CytomX Therapeutics, Inc.

     $259.2  

G1 Therapeutics, Inc.

     $316.9  

Jounce Therapeutics, Inc.

     $177.1  

Mersana Therapeutics, Inc.

     $216.2  

Merus N.V.

     $  66.6  

Syndax Pharmaceuticals, Inc.

     $  84.5  

Zymeworks Inc.

     $225.5  
     Minimum      1st quartile      Median      3rd Quartile      Maximum  

Selected Companies

   $ 50.1      $ 100.8      $ 169.7      $ 223.2      $ 316.9  

Based on these implied EVs and Aravive’s estimated cash amount of $5.3 million and estimated contingent payables of $0.7 million at the assumed closing date September 30, 2018, as provided by Aravive’s management and approved by Versartis for Cowen’s use, Cowen calculated a range of implied equity values as shown in the following table:

 

     Implied Equity Value (in millions)  
     Minimum      1st quartile      Median      3rd Quartile      Maximum  

Companies in Selected IPOs

   $ 54.7      $ 105.5      $ 174.4      $ 227.8      $ 321.6  

Cowen noted that, based upon the number of shares of Versartis common stock to be issued pursuant to the Merger Agreement, the implied equity value of Aravive in the merger was approximately $54.3 million.

Cowen divided the range of implied equity values above by Aravive’s fully diluted shares outstanding as of June 1, 2018, as provided by Aravive’s management and approved by Versartis for Cowen’s use, and further

 

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divided by the five-day VWAP of Versartis common stock of $1.4228 as of June 1, 2018, to calculate the following range of implied exchange ratios, as compared to the implied exchange ratio of 2.2923 in the merger.

 

     Implied Exchange Ratio  
     Minimum      1st quartile      Median      3rd Quartile      Maximum  

Companies in Selected IPOs

     2.3108        4.4544        7.3645        9.6201        13.5776  

Cowen chose the Selected Companies and the Selected IPOs based on its experience and professional judgement. No company used in any analysis as a comparison is identical to Versartis or Aravive, and they all differ in material ways. An analysis of the results of the foregoing is not mathematical; rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of these companies and other factors that could affect the public trading values of the Selected Companies and the companies involved in the Selected IPOs. In evaluating these companies, Cowen made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions, and other matters, many of which are beyond Versartis’ or Aravive’s control, such as the impact of competition, industry growth, and the absence of any adverse material change in the financial condition of Aravive or the Selected Companies and the companies involved in the Selected IPOs or the industry or in the financial markets in general, which could affect the public trading values of these companies. Mathematical analysis (such as determining the mean or median) is not in itself a meaningful method of using peer group data.

The summary set forth above does not purport to be a complete description of all the analyses performed by Cowen. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to partial analysis or summary description. Cowen did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, notwithstanding the separate factors summarized above, Cowen believes, and has advised the Versartis board of directors, that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, could create an incomplete view of the process underlying the Opinion. Each of these analyses yielded a range of implied equity values and exchange ratios, and therefore, such implied ranges developed from these analyses were viewed by Cowen collectively and not individually.

Except as otherwise noted, the information utilized by Cowen in its analyses, to the extent that it was based on market data, is based on market data as it existed on or before June 1, 2018 and is not necessarily indicative of current market conditions. These analyses performed by Cowen are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of the Selected Companies and the companies in the Selected IPOs do not purport to be appraisals or to reflect the prices at which these companies or their securities may actually be sold. Accordingly, such analyses and estimates are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors. None of Versartis, Aravive, Merger Sub, Cowen or any other person assumes responsibility if future results are materially different from those projected. The analyses supplied by Cowen and the Opinion were among several factors taken into consideration by the Versartis board of directors in making its decision to enter into the Merger Agreement and should not be considered as determinative of such decision.

Cowen was selected by the Versartis board of directors to render the Opinion to the Versartis board of directors because Cowen is a nationally recognized investment banking firm and because, Cowen as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In addition, in the ordinary course of its business, Cowen and its affiliates may actively trade the securities of Versartis for their own account and for the

 

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accounts of their customers, and, accordingly, may at any time hold a long or short position in such securities. The issuance of the Opinion was approved by Cowen’s fairness opinion review committee.

Cowen is acting as exclusive financial advisor to the Versartis board of directors in connection with the merger and will receive from Versartis a fee, or the Transaction Fee, of $2,000,000 contingent upon the consummation of the merger. Cowen received a fee of $750,000 for providing the Opinion without regard to whether the merger is ultimately consummated, $500,000 of which is creditable against the Transaction Fee. In addition, Versartis agreed to reimburse certain of Cowen’s expenses and to indemnify Cowen for certain liabilities that may arise out of Cowen’s engagement. In the two years preceding the date of the Opinion, Cowen (i) entered into a Sales Agreement with Versartis in August 2017 pursuant to which Cowen agreed to serve as Versartis’ sales agent in connection with Versartis’ issuance of Versartis common stock in an at-the-market offering having an aggregate offering price of up to $150,000,000, and (ii) acted as a managing underwriter in connection with Versartis’ follow-on offering of Versartis common stock having an aggregate offering price of $60,000,500 in September 2016. Except as stated in the immediately preceding sentence, in the two years preceding the date of the Opinion, Cowen did not have a material relationship with Versartis, Aravive or any other party to the merger and there were no material relationships mutually understood to be contemplated in which any compensation was received or was intended to be received as a result of the relationship between Cowen and any party to the merger. Cowen and its affiliates may in the future provide commercial and investment banking services to Versartis, Aravive or their respective affiliates and may receive fees for the rendering of such services.

The terms of the fee arrangement with Cowen, which are customary in transactions of this nature, were negotiated at arm’s length between Versartis and Cowen, and the Versartis board of directors was aware of the arrangement, including the fact that the Transaction Fee is contingent upon the completion of the merger.

Interests of the Versartis Directors and Executive Officers in the Merger

In considering the recommendation of the Versartis board of directors with respect to issuing shares of Versartis common stock as contemplated by the Merger Agreement and the other matters to be acted upon by Versartis stockholders at the Versartis special meeting, Versartis stockholders should be aware that certain members of the board of directors and executive officers of Versartis have interests in the merger that may be different from, or in addition to, the interests of Versartis stockholders. These interests relate to or arise from the matters described below. The board of directors of each of Versartis and Aravive was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the Merger Agreement and the transactions contemplated thereby, and to recommend, as applicable, that Versartis stockholders approve the Versartis proposals to be presented to Versartis stockholders for consideration at the Versartis special meeting as contemplated by this proxy statement/prospectus/information statement, and that Aravive stockholders sign and return the written consent as contemplated by this proxy statement/prospectus/information statement.

Continued Service

As described elsewhere in this proxy statement/prospectus/information statement, including in the section titled “Management Following the Merger,” certain of Versartis’ existing directors are expected to remain directors of the combined company. Jay P. Shepard, Srinivas Akkaraju and Shahzad Malik are expected to continue as directors of the combined company, with Dr. Akkaraju serving as chairman. Additionally, Mr. Shepard, currently Versartis’s President and Chief Executive Officer, will continue as the Chief Executive officer of the combined company at the effective time of the merger.

Stock Ownership and Support Agreements

As of June 30, 2018, Versartis directors and executive officers beneficially owned approximately 15.1% shares of Versartis common stock. Versartis directors and executive officers have entered into support agreements in

 

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connection with the merger. For a more detailed discussion of the support agreements see the section titled “Agreements Related to the Merger—Support Agreements and Written Consent.”

As of June 30, 2018, Srinivas Akkaraju, a member of the Versartis board of directors and a former member of the Aravive board of directors, owns 72,250 shares of Aravive common stock.

Golden Parachute Disclosure

In accordance with Item 402(t) of Regulation S-K of the Securities Act, which requires disclosure of information about compensation for Versartis’ named executive officers that is based on or otherwise related to the merger, none of Versartis’ named executive officers will receive any compensation in connection with the merger.

Indemnification and Insurance

As described in this proxy statement/prospectus/information statement, including in “The Merger—Limitations of Liability and Indemnification,” certain of Versartis’ directors and officers will be entitled to certain ongoing rights of indemnification and coverage under directors’ and officers’ liability insurance policies.

The Versartis board of directors was aware of these interests and considered them, among other matters, in its decision to approve the Merger Agreement.

Interests of the Aravive Directors and Executive Officers in the Merger

In considering the recommendation of the Aravive board of directors with respect to approving the merger and related transactions by written consent, Aravive stockholders should be aware that certain members of the board of directors and executive officers of Aravive have interests in the merger that may be different from, or in addition to, interests they have as Aravive stockholders. All of Aravive’s executive officers and its employee directors have options, subject to vesting, to purchase shares of Aravive common stock which, if in-the-money, shall be converted into and become options to purchase shares of Versartis common stock. Certain of Aravive’s directors and executive officers are expected to become directors and executive officers of the combined company upon the closing of the merger and all of Aravive’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement.

Combined Company Management

As described elsewhere in this proxy statement/prospectus/information statement, including in the section titled “Management Following the Merger,” Raymond Tabibiazar is expected to serve on the board of directors of the combined company at the effective time of the merger. Vinay Shah, currently Aravive’s Chief Financial Officer, will be appointed as the Chief Financial Officer of the combined company at the effective time of the merger.

Stock Ownership and Support Agreements

As of June 30, 2018, all directors and executive officers of Aravive, together with their affiliates, owned 78.6% of the outstanding shares of Aravive capital stock, on an as-converted to common stock basis. Following the closing of the merger, these same directors, executive officers, together with their affiliates are expected to own 37.4% of the outstanding shares of the combined company. Please see the sections titled “Principal Stockholders of Aravive” and “Principal Stockholders of the Combined Company” for further information. In addition, certain Aravive officers and directors, and their affiliates, have also entered into support agreements in connection with the merger. The support agreements are discussed in greater detail in the section titled “Agreements Related to the Merger—Support Agreements and Written Consent” in this proxy statement/prospectus/information statement.

 

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Indemnification and Insurance

In addition to the indemnification required by Aravive’s certificate of incorporation and bylaws, Aravive has entered into indemnification agreements with certain of its directors and officers. With certain exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. Aravive believes that these indemnification agreements are necessary to attract and retain qualified persons as directors and officers.

As described in this proxy statement/prospectus/information statement, including in “The Merger—Limitations of Liability and Indemnification,” certain of Aravive’s directors and officers will be entitled to certain ongoing rights of indemnification and coverage under directors’ and officers’ liability insurance policies.

The Aravive board of directors was aware of these interests and considered them, among other matters, in its decision to approve the Merger Agreement. For more information, please see the section titled “The MergerInterests of the Aravive Directors and Executive Officers in the Merger.”

Limitations of Liability and Indemnification

In addition to the indemnification required by Versartis’ certificate of incorporation and bylaws, Versartis has entered into indemnification agreements with each of its directors and officers. With certain exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. Versartis believes that these indemnification agreements are necessary to attract and retain qualified persons as directors and officers.

Additionally, under the Merger Agreement, from the Effective Time through the sixth anniversary thereof, Versartis and Aravive, as the surviving corporation in the merger, shall indemnify and hold harmless each person who is now, has been at any time prior to June 3, 2018, or who becomes prior to the Effective Time, a director, officer, fiduciary or agent of Versartis or Aravive, respectively, against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys’ fees and disbursements, incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that such person is or was a director, officer, fiduciary or agent of Versartis or Aravive, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent permitted under applicable law. In addition, each such person is entitled to advancement of expenses incurred in the defense of any such claim, action, suit, proceeding or investigation from each of Versartis and Aravive, as the surviving corporation in the merger, jointly and severally, upon receipt by either entity of a request therefor.

Under the Merger Agreement, the provisions of Versartis’ certificate of incorporation and bylaws with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers of Versartis shall not be amended, modified or repealed for a period of six years from the Effective Time in a manner that would adversely affect the rights thereunder of individuals who, at or prior to the Effective Time, were officers or directors of Versartis. The certificate of incorporation and bylaws of Aravive, as the surviving corporation in the merger, shall contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of former and present directors and officers that are presently set forth in the Versartis’ certificate of incorporation and bylaws.

The Merger Agreement also provides that Versartis shall maintain directors’ and officers’ liability insurance policies commencing on the closing time of the merger, on commercially available terms and conditions with coverage limits customary for U.S. public companies similarly situated to Versartis. In addition, Aravive shall purchase, prior to the Effective Time, a six-year prepaid “tail policy” for the non-cancellable extension of the

 

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directors’ and officers’ liability coverage of Versartis’ existing directors’ and officers’ insurance policies for a claims reporting or discovery period of at least six years from and after the Effective Time with respect to any claim related to any period of time at or prior to the Effective Time.

Form of the Merger

The Merger Agreement provides that at the Effective Time, Merger Sub will be merged with and into Aravive. Upon the closing of the merger, Aravive will continue as the surviving corporation and will be a wholly-owned subsidiary of the combined company.

After the closing of the merger, Versartis will be renamed “Aravive, Inc.” and, subject to satisfying Nasdaq’s listing standards, is expected to trade on Nasdaq under the symbol “ARAV.”

Merger Consideration

The Exchange Ratio was negotiated so that the pre-closing securityholders of each of Versartis and Aravive would beneficially own approximately 50% of the Post-Closing Shares, subject to (i) Versartis’ cash at closing of the merger being within a projected range, and (ii) not counting for purposes of the computation any outstanding options for Versartis common stock having an exercise price greater than $2.53 per share.

The Merger Agreement does not include a price-based termination right and there will be no adjustment to the total number of shares of Versartis common stock that Aravive stockholders will be entitled to receive for changes in the market price of Versartis common stock. Accordingly, the market value of the shares of Versartis common stock issued pursuant to the merger will depend on the market value of the shares of Versartis common stock at the time the merger closes, and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement.

No fractional shares of Versartis common stock will be issuable pursuant to the merger. Instead, each Aravive stockholder who would otherwise be entitled to receive a fraction of a share of Versartis common stock, after aggregating all fractional shares of Versartis common stock issuable to such stockholder, will be entitled to receive in cash the dollar amount, rounded to the nearest whole cent, without interest, determined by multiplying such fraction by the volume weighted average closing trading price of a share of Versartis common stock on the Nasdaq Global Select Market for the five consecutive trading days ending five trading days immediately prior to the date upon which the merger becomes effective.

The Merger Agreement provides that, at the Effective Time, Versartis will deposit with an exchange agent acceptable to Versartis and Aravive, stock certificates or book-entry shares representing the shares of Versartis common stock issuable to Aravive stockholders and a sufficient amount of cash to make payments in lieu of fractional shares.

The Merger Agreement provides that, promptly after the Effective Time, the exchange agent will mail to each record holder of Aravive capital stock immediately prior to the Effective Time a letter of transmittal and instructions for surrendering and exchanging the record holder’s Aravive stock certificates for shares of Versartis common stock. Upon surrender of an Aravive stock certificate for exchange to the exchange agent, together with a duly executed letter of transmittal and such other documents as the exchange agent or Versartis may reasonably require, the Aravive stock certificate surrendered will be cancelled and the holder of the Aravive stock certificate will be entitled to receive the following:

 

   

a certificate or certificates or book-entry shares representing the number of whole shares of Versartis common stock that such holder has the right to receive pursuant to the provisions of the Merger Agreement; and

 

   

cash in lieu of any fractional share of Versartis common stock.

 

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At the effective time of the merger, all holders of certificates representing shares of Aravive capital stock that were outstanding immediately prior to the effective time of the merger will cease to have any rights as stockholders of Aravive. In addition, no transfer of Aravive capital stock after the effective time of the merger will be registered on the stock transfer books of Aravive.

If any Aravive stock certificate has been lost, stolen or destroyed, Versartis may, in its discretion, and as a condition precedent to the delivery of any shares of Versartis common stock, require the owner of such lost, stolen or destroyed certificate to deliver an affidavit claiming such certificate has been lost, stolen or destroyed and post a bond indemnifying Versartis against any claim suffered by Versartis related to the lost, stolen or destroyed certificate or any Versartis common stock issued in exchange for such certificate as Versartis may reasonably request.

From and after the Effective Time, until it is surrendered, each certificate that previously evidenced Aravive capital stock will be deemed to represent only the right to receive shares of Versartis common stock and cash in lieu of any fractional share of Versartis common stock. Versartis will not pay dividends or other distributions on any shares of Versartis common stock to be issued in exchange for any unsurrendered Aravive stock certificate until the Aravive stock certificate is surrendered as provided in the Merger Agreement.

Effective Time of the Merger

The Merger Agreement requires the parties to consummate the merger as promptly as practicable (and in any event within two business days) after all of the conditions to the closing of the merger contained in the Merger Agreement are satisfied or waived, including the adoption of the Merger Agreement by Aravive stockholders and the approval by Versartis stockholders of the issuance of shares of Versartis common stock. The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware or at such later time as is agreed by Versartis and Aravive and specified in the certificate of merger. Neither Versartis nor Aravive can predict the exact timing of the closing of the merger.

Regulatory Approvals

In the United States, Versartis must comply with applicable federal and state securities laws and the rules and regulations of Nasdaq in connection with the issuance of shares of Versartis common stock and the filing of this proxy statement/prospectus/information statement with the SEC.

Tax Treatment of the Merger

Versartis and Aravive intend the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code. Each of Versartis and Aravive intend that the merger qualify as a reorganization within the meaning of Section 368(a) of the Code. The parties shall treat and shall not take any tax reporting position inconsistent with the treatment of the merger as a reorganization within the meaning of Section 368(a) of the Code for U.S. federal, state and other relevant tax purposes, unless otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code. For a description of certain of the considerations regarding U.S. federal tax consequences of the merger, see the section titled “The Merger—Certain Material U.S. Federal Income Tax Consequences of the Merger” below.

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

The following is a discussion of certain material U.S. federal income tax consequences of the Merger applicable to U.S. Holders (as defined below) who exchange their Aravive common stock for Versartis common stock in the Merger, but does not purport to be a complete analysis of all potential tax effects.

This discussion and the discussion of tax consequences elsewhere in this proxy statement/prospectus/information statement are limited to U.S. Holders who hold their Aravive common stock as a “capital asset” within the

 

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meaning of Section 1221 of the Code (generally, property held for investment). This summary does not address all aspects of U.S. federal income taxation that may be relevant to U.S. Holders in light of their particular circumstances or to U.S. Holders who may be subject to special tax treatment under the Code, including, without limitation, dealers in securities, commodities or foreign currency; banks, thrifts, insurance companies, and other financial institutions; traders that mark-to-market their securities; tax-exempt organizations or governmental organizations; small business investment companies; regulated investment companies; real estate investment trusts; tax-deferred or other retirement accounts; persons whose functional currency is not the U.S. dollar; persons who hold Aravive common stock as part of a “straddle,” “hedge,” “conversion transaction” or other risk reduction transaction; persons who hold or receive Aravive common stock pursuant to the exercise of compensatory stock options, the vesting of previously restricted shares of stock or otherwise as compensation; persons holding Aravive common stock who exercise dissenters’ rights; any entity or arrangement that is a partnership for U.S. federal income tax purposes; companies subject to the “stapled stock” rules; “expatriated entities”; certain former citizens or long-term residents of the United States.

This discussion is based on the Code, U.S. Treasury regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the Internal Revenue Service, or IRS, in effect as of the date of the merger, all of which are subject to change, possibly with retroactive effect, or differing interpretations. Neither Aravive nor Versartis have sought any ruling from the IRS with respect to the statements made and the conclusions reached in this discussion, and there can be no assurance that the IRS will agree with these statements and conclusions. The effects of other U.S. federal tax laws, such as estate and gift tax laws, the alternative minimum tax and the 3.8% tax on net investment income, and any applicable state, local, or foreign tax laws or the tax consequences occurring prior to, concurrently with or after the merger (whether or not such transactions are in connection with the merger) are not discussed.

Each U.S. Holder is urged to consult its own tax advisor with regard to the merger and the application of U.S. federal income tax laws, as well as the laws of any state, local or foreign taxing jurisdictions, to its particular situation.

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of Aravive common stock that, for U.S. federal income tax purposes, is or is treated as:

 

   

an individual who is a citizen or resident of the United States;

 

   

a corporation (or other entity taxable as a corporation for U.S. federal income purposes) created or organized under the laws of the United States, any state thereof, or the District of Columbia;

 

   

an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

 

   

a trust if either a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States persons (within the meaning of Section 7701(a)(30) of the Code) have the authority to control all substantial decisions of such trust, or the trust has a valid election in effect under applicable Treasury Regulations to be treated as a United States person for U.S. federal income tax purposes.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds Aravive common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding Aravive common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.

U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE MERGER ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.

 

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Subject to the qualifications and assumptions described in this proxy statement/prospectus/information statement, the merger is intended to be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. Accordingly, it is expected that the U.S. federal income tax consequences to U.S. Holders of Aravive common stock will be as follows:

 

   

a U.S. Holder will not recognize gain or loss upon the exchange of Aravive common stock for Versartis common stock pursuant to the merger, except to the extent of cash received in lieu of a fractional share of Versartis common stock as described below;

 

   

a U.S. Holder who receives cash in lieu of a fractional share of Versartis common stock in the merger will generally recognize capital gain or loss in an amount equal to the difference between the amount of cash received instead of a fractional share and the U.S. Holder’s tax basis allocable to such fractional share;

 

   

a U.S. Holder’s aggregate tax basis for the shares of Versartis common stock actually received in the merger will equal the U.S. Holder’s aggregate tax basis in the shares of Aravive common stock surrendered upon the closing of the merger, decreased by the amount of any tax basis allocable to a fractional share for which cash is received and

 

   

the holding period of the shares of Versartis common stock received by a U.S. Holder in the merger will include the holding period of the U.S. Holder’s shares of Aravive common stock surrendered in exchange therefor.

Capital gains or losses recognized in the merger as described above, if any, generally will constitute long-term capital gain or loss if the U.S. Holder’s holding period in the Aravive common stock surrendered in the merger is more than one year as of the effective date of the merger. The deductibility of capital losses is subject to limitations. In addition, for purposes of the above discussion of the bases and holding periods for shares of Aravive common stock and Versartis common stock, U.S. Holders who acquired different blocks of Aravive common stock at different times for different prices must calculate their gains and losses and holding periods separately for each identifiable block of such stock exchanged in the merger.

U.S. Holders who owned at least one percent (by vote or value) of the total outstanding stock of Aravive are required to attach a statement to their tax returns for the year in which the merger is consummated that contains the information listed in Treasury Regulation Section 1.368-3(b). Such statement must include the U.S. Holder’s tax basis in the U.S. Holder’s Aravive common stock and the fair market value of such stock.

Tax Consequences if the Merger Failed to Qualify as a Reorganization

If the merger fails to qualify as a reorganization within the meaning of Section 368(a) of the Code, then a U.S. Holder would recognize gain or loss upon the exchange of Aravive common stock for Versartis common stock equal to the difference between the fair market value, at the time of the merger, of the Versartis common stock received in the merger (including any cash received in lieu of a fractional share) and such U.S. Holder’s tax basis in the Aravive common stock surrendered in the merger. Such gain or loss would be long-term capital gain or loss if the Aravive common stock was held for more than one year at the time of the merger. In such event, the tax basis of Versartis common stock received in the merger would equal its fair market value at the time of the merger and the holding period of such Versartis common stock would commence the day after the merger.

Information Reporting and Backup Withholding

A U.S. Holder of shares of Aravive common stock may be subject to information reporting and backup withholding on cash paid in lieu of fractional shares, unless the U.S. Holder is an exempt recipient. Backup withholding may apply to such payments if the U.S. Holder fails to furnish a correct taxpayer identification number, a certification of exempt status or has been notified by the IRS that it is subject to backup withholding (and such notification has not been withdrawn). Each U.S. Holder of shares of Aravive common stock should

 

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properly complete and sign, and deliver, an IRS Form W-9 in order to provide the information and certification necessary to avoid backup withholding, or otherwise establish an applicable exemption in a manner acceptable to the paying agent. U.S. Holders of shares of Aravive common stock should consult their own tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption. Backup withholding is not an additional tax. Any amounts withheld will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided the required information is timely furnished to the IRS. U.S. Holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.

Nasdaq Stock Market Listing

Versartis common stock currently is listed on the Nasdaq Global Select Market under the symbol “VSAR.” Versartis has agreed to use commercially reasonable efforts to (a) prepare and submit to the Nasdaq Global Select Market (or such other Nasdaq market on which the shares of Versartis common stock may then be listed) a notification form for the listing of additional shares with respect to the shares of Versartis common stock to be issued in connection with the merger and to cause such shares to be approved for listing or (b) to the extent required by Nasdaq pursuant to its “reverse merger” rules, file an initial listing application for the Versartis common stock on Nasdaq and to cause such application to be conditionally approved prior to the effective time of the merger. Aravive has agreed to cooperate with Versartis as reasonably requested by Versartis with respect to such application and to promptly furnish to Versartis all information concerning Aravive and its stockholders that may be required or reasonably requested in connection with the application.

In addition, each of Versartis’ and Aravive’s obligation to complete the merger is subject to the condition that the shares of Versartis common stock to be issued in the merger be approved for listing (subject to official notice of issuance) on Nasdaq as of the closing of the merger. If Versartis’ notification form or initial listing application, as applicable, is accepted and such approval is obtained, Versartis anticipates that the combined company’s common stock will be listed on Nasdaq under the trading symbol “ARAV” following the closing of the merger.

Anticipated Accounting Treatment

The merger will be treated as an asset acquisition by Versartis. To determine the accounting for this transaction under U.S. GAAP, a company must assess whether an integrated set of assets and activities should be accounted for as an acquisition of a business or an asset acquisition. The guidance requires an initial screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets. If that screen is met, the set is not a business. In connection with the acquisition of Aravive, substantially all the fair value is included in in-process research and development of AVB-S6-500 and, as such, the acquisition will be treated as an asset acquisition. Management of Versartis and Aravive have made a preliminary estimate of the purchase price calculated as described in Note 2 to the unaudited pro forma condensed combined financial statements and of the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed as of March 31, 2018. The net tangible and intangible assets acquired and liabilities assumed in connection with the transaction will be recorded based on their relative fair values allocation at their estimated acquisition date and the value associated with in-process research and development will be expensed. A final determination of these estimated fair values, which cannot be made prior to the completion of the transaction, will be based on the actual net tangible and intangible assets of Versartis that exist as of the date of completion of the transaction. Adjustments to these preliminary estimates are expected to occur and these adjustments could have a material impact on the accompanying unaudited pro forma condensed combined financial information.

 

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Appraisal Rights and Dissenters’ Rights

Delaware Law

If the merger is completed, Aravive stockholders who do not deliver a written consent approving the merger are entitled to appraisal rights under Section 262 of the DGCL, or Section 262, provided that they comply with the conditions established by Section 262. Holders of Versartis common stock are not entitled to appraisal rights under Delaware law in connection with the merger.

The discussion below is not a complete summary regarding an Aravive stockholder’s appraisal rights under Delaware law and is qualified in its entirety by reference to the text of the relevant provisions of Delaware law, which are attached to this proxy statement/prospectus/information statement as Annex D. Stockholders intending to exercise appraisal rights should carefully review Annex D. Failure to follow precisely any of the statutory procedures set forth in Annex D may result in a termination or waiver of these rights. This summary does not constitute legal or other advice, nor does it constitute a recommendation that Aravive stockholders exercise their appraisal rights under Delaware law.

Under Section 262, where a merger is adopted by stockholders by written consent in lieu of a meeting of stockholders pursuant to Section 228 of the DGCL, either the constituent corporation before the effective date of the merger or the surviving corporation, within 10 days after the effective date of the merger, must notify each stockholder of the constituent corporation entitled to appraisal rights of the approval of the merger, the effective date of the merger and that appraisal rights are available.

If the merger is completed, within 10 days after the effective date of the merger Aravive will notify its stockholders that the merger has been approved, the effective date of the merger and that appraisal rights are available to any stockholder who has not approved the merger. Holders of shares of Aravive capital stock who desire to exercise their appraisal rights must deliver a written demand for appraisal to Aravive within 20 days after the date of mailing of that notice, and that stockholder must not have delivered a written consent approving the merger. A demand for appraisal must reasonably inform Aravive of the identity of the stockholder and that such stockholder intends thereby to demand appraisal of the shares of Aravive capital stock held by such stockholder. Failure to deliver a written consent approving the merger will not in and of itself constitute a written demand for appraisal satisfying the requirements of Section 262. All demands for appraisal should be addressed to Aravive, Inc., LyondellBasell Tower, 1221 McKinney Street, Suite 3200, Houston, Texas 77010, Attention: Secretary, and should be executed by, or on behalf of, the record holder of shares of Aravive capital stock. ALL DEMANDS MUST BE RECEIVED BY ARAVIVE WITHIN 20 DAYS AFTER THE DATE ARAVIVE MAILS A NOTICE TO ITS STOCKHOLDERS NOTIFYING THEM THAT THE MERGER HAS BEEN APPROVED, THE EFFECTIVE DATE OF THE MERGER AND THAT APPRAISAL RIGHTS ARE AVAILABLE TO ANY STOCKHOLDER WHO HAS NOT APPROVED THE MERGER.

If an Aravive stockholder fails to deliver a written demand for appraisal within the time period specified above, such stockholder will be entitled to receive the merger consideration for his, her or its shares of Aravive capital stock as provided for in the Merger Agreement, but such stockholder will have no appraisal rights with respect to his, her or its shares of Aravive capital stock.

To be effective, a demand for appraisal by a holder of shares of Aravive capital stock must be made by, or in the name of, the registered stockholder, fully and correctly, as the stockholder’s name appears on the stockholder’s stock certificate(s). Beneficial owners who do not also hold the shares of record may not directly make appraisal demands to Aravive. The beneficial owner must, in these cases, have the registered owner, such as a broker, bank or other custodian, submit the required demand in respect of those shares. If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of

 

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record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares as a custodian for others, may exercise the record owner’s right of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner. In addition, the stockholder must continuously hold the shares of record from the date of making the demand through the Effective Time.

If an Aravive stockholder holds his, her or its shares of Aravive capital stock in a brokerage account or in other custodian form and wishes to exercise appraisal rights, such stockholder should consult with such stockholder’s bank, broker or other custodian to determine the appropriate procedures for the making of a demand for appraisal by the custodian.

At any time within 60 days after the Effective Time, any stockholder who has demanded an appraisal, but has neither commenced an appraisal proceeding or joined an appraisal proceeding as a named party, has the right to withdraw such stockholder’s demand and accept the terms of the merger by delivering a written withdrawal to Aravive. If, following a demand for appraisal, such stockholder has withdrawn his, her or its demand for appraisal in accordance with Section 262, such stockholder will have the right to receive the merger consideration for such stockholder’s shares of Aravive capital stock.

Within 120 days after the effective date of the merger, any stockholder who has delivered a demand for appraisal in accordance with Section 262 will, upon written request to the surviving corporation, be entitled to receive a written statement setting forth the aggregate number of shares not voted in favor of the Merger Agreement and with respect to which demands for appraisal rights have been received and the aggregate number of holders of these shares. This written statement will be mailed to the requesting stockholder within 10 days after the stockholder’s written request is received by the surviving corporation or within ten days after expiration of the period for delivery of demands for appraisal, whichever is later. Within 120 days after the effective date of the merger, either the surviving corporation or any stockholder who has delivered a demand for appraisal in accordance with Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all such stockholders. Upon the filing of the petition by a stockholder, service of a copy of the petition must be made upon the surviving corporation. The surviving corporation has no obligation to file a petition in the Delaware Court of Chancery in the event there are dissenting stockholders, and Aravive, which is expected to be the surviving corporation, has no present intent to file a petition in the Delaware Court of Chancery. Accordingly, the failure of a stockholder to file a petition within the period specified could nullify the stockholder’s previously written demand for appraisal.

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within 20 days after receiving service of a copy of the petition, to provide the Delaware Court of Chancery with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached by the surviving corporation. After notice to dissenting stockholders who demanded appraisal of their shares, the Delaware Court of Chancery is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby. The Delaware Court of Chancery may require the stockholders who have demanded appraisal for their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.

After determination of the stockholders entitled to appraisal of their shares, the Delaware Court of Chancery will appraise the “fair value” of the shares owned by those stockholders. This value will be exclusive of any element of value arising from the accomplishment or expectation of the merger, but may include a fair rate of interest, if

 

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any, upon the amount determined to be the fair value. When the value is determined, the Delaware Court of Chancery will direct the payment of the value, with interest thereon accrued during the pendency of the proceeding, if the Delaware Court of Chancery so determines, to the stockholders entitled to receive the same, upon surrender by the holders of the certificates representing those shares.

In determining fair value, and, if applicable, a fair rate of interest, the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.”

Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that this exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 to mean that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

Aravive stockholders should be aware that the fair value of such stockholder’s shares as determined under Section 262 could be more than, the same as, or less than the value that such stockholder is entitled to receive under the terms of the Merger Agreement.

Costs of the appraisal proceeding may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery as the Court deems equitable in the circumstances. Upon the application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. In the absence of such a determination of assessment, each party bears its own expenses. Any stockholder who had demanded appraisal rights will not, after the Effective Time, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the Effective Time; however, if no petition for appraisal is filed within 120 days after the Effective Time, or if the stockholder delivers a written withdrawal of his or her demand for appraisal and an acceptance of the terms of the merger within 60 days after the Effective Time, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the merger consideration for shares of his or her Versartis capital stock pursuant to the Merger Agreement. Any withdrawal of a demand for appraisal made more than 60 days after the Effective Time may only be made with the written approval of the surviving corporation. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the court.

Failure to follow the steps required by Section 262 for perfecting appraisal rights may result in the loss of appraisal rights. In view of the complexity of Section 262, stockholders who may wish to dissent from the merger and pursue appraisal rights should consult their legal advisors.

 

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THE MERGER AGREEMENT

The following is a summary of the material terms of the Merger Agreement. A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus/information statement and is incorporated by reference into this proxy statement/prospectus/information statement. The Merger Agreement has been attached to this proxy statement/prospectus/information statement to provide you with information regarding its terms. It is not intended to provide any other factual information about Versartis, Aravive, or Merger Sub. The following description does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement. You should refer to the full text of the Merger Agreement for details of the merger and the terms and conditions of the Merger Agreement.

The Merger Agreement contains representations and warranties that Versartis and Merger Sub, on the one hand, and Aravive, on the other hand, have made to one another as of specific dates. These representations and warranties have been made for the benefit of the other parties to the Merger Agreement and may be intended not as statements of fact but rather as a way of allocating the risk to one of the parties if those statements prove to be incorrect. In addition, the assertions embodied in the representations and warranties are qualified by information in confidential disclosure schedules exchanged by the parties in connection with signing the Merger Agreement. While Versartis and Aravive do not believe that these disclosure schedules contain information required to be publicly disclosed under the applicable securities laws, other than information that has already been so disclosed, the disclosure schedules do contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the attached Merger Agreement. Accordingly, you should not rely on the representations and warranties as current characterizations of factual information about Versartis or Aravive, because they were made as of specific dates, may be intended merely as a risk allocation mechanism between Versartis and Merger Sub, and Aravive and are modified by the disclosure schedules.

General

Under the Merger Agreement, Merger Sub will merge with and into Aravive, with Aravive surviving as a wholly-owned subsidiary of the combined company.

Merger Consideration

At the closing of the merger:

 

   

each outstanding share of capital stock of Aravive will be converted into the right to receive approximately 2.29 shares of Versartis common stock, subject to adjustment for any reverse stock split;

 

   

each outstanding in-the-money Aravive stock option, whether vested or unvested, that has not been exercised will be converted into an option to purchase approximately 2.29 shares of Versartis common stock for each share of Aravive common stock covered by such option and assumed by Versartis; and

 

   

all other outstanding Aravive stock options will be cancelled for no consideration.

The Exchange Ratio is an estimate only and the final Exchange Ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.

By way of illustration, assuming that (i) the Effective Time occurred on June 30, 2018, (ii) immediately prior to the Effective Time, Versartis had 40,631,315 shares of fully diluted capital stock outstanding and Aravive had 16,646,401 shares of fully diluted capital stock outstanding, and (iii) no adjustments to the Exchange Ratio are required pursuant to the Merger Agreement as a result of the amount of Versartis’ net cash, then following the Effective Time, former Aravive securityholders would be entitled to receive approximately 2.29 shares of Versartis capital stock for every share of Aravive common stock owned or underlying options to acquire Aravive common stock. As a result, the former Aravive securityholders would collectively own or have rights to acquire

 

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approximately 38,125,252 shares of capital stock of the combined company and Versartis securityholders would continue to own 40,631,315 shares of capital stock of the combined company. The 16,646,401 shares of fully diluted capital stock of Aravive includes options to acquire 3,115,591 shares of Aravive common stock which, at the Effective Time, would, based on the foregoing assumptions, be converted into the right to acquire approximately 7,135,638 shares of Versartis common stock.

Exchange Ratio

The Exchange Ratio was determined using a formula intended to allocate to the existing Aravive stockholders (on a fully diluted basis, referred to below as Aravive fully-diluted outstanding shares) a percentage of the combined company based on the relative valuations of Versartis and Aravive.

The Exchange Ratio formula is the quotient obtained by dividing the Aravive merger shares (as described below) by the Aravive fully-diluted outstanding shares, where:

 

   

Aravive merger shares is the product determined by multiplying the post-closing Versartis shares (as described below) by the Aravive allocation percentage (as described below).

 

   

Post-closing Versartis shares is the sum of (a) the total number of shares of Versartis common stock outstanding immediately prior to the effective time of the merger, (b) the total number of shares of Versartis common stock that, immediately prior to the effective time of the merger, are issuable upon the exercise of outstanding options to purchase shares of Versartis common stock (whether or not vested or exerciseable) with an exercise price less than or equal to $2.53 per share of Versartis common stock) and (c) the total number of shares of Versartis common stock underlying Versartis RSUs outstanding immediately prior to the effective time of the merger.

 

   

Aravive allocation percentage is the quotient determined by dividing (a) the Aravive benchmark (as described below) by (b) the aggregate benchmark (as described below).

 

   

Versartis allocation percentage is the quotient determined by dividing the Versartis valuation by the aggregate value.

 

   

The Versartis benchmark is Versartis’ good faith estimate of the value of Versartis’ net cash as of May 31, 2018, as adjusted for any changes in the amount of Versartis’ net cash between May 31, 2018 and ten days before the anticipated closing date of the merger.

 

   

The Aravive benchmark is an amount equal to the Versartis benchmark, excluding any adjustment for Versartis’ net cash.

 

   

Aggregate benchmark is the sum of the Aravive benchmark and the Versartis benchmark.

The Merger Agreement does not include a price-based termination right and there will be no adjustment to the total number of shares of Versartis common stock that Aravive stockholders will be entitled to receive for changes in the market price of Versartis common stock. Accordingly, the market value of the shares of Versartis common stock issued pursuant to the merger will depend on the market value of the shares of Versartis common stock at the time the merger closes, and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement.

No fractional shares of Versartis common stock will be issuable pursuant to the merger. Instead, each Aravive stockholder who would otherwise be entitled to receive a fraction of a share of Versartis common stock, after aggregating all fractional shares of Versartis common stock issuable to such stockholder, will be entitled to receive in cash the dollar amount, rounded to the nearest whole cent, without interest, determined by multiplying such fraction by the volume weighted average closing trading price of a share of Versartis common stock on the Nasdaq Global Select Market for the five consecutive trading days ending five trading days immediately prior to the date upon which the merger becomes effective.

 

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The Merger Agreement provides that, at the Effective Time, Versartis will deposit with an exchange agent acceptable to Versartis and Aravive, stock certificates or book-entry shares representing the shares of Versartis common stock issuable to Aravive stockholders and a sufficient amount of cash to make payments in lieu of fractional shares.

The Merger Agreement provides that, promptly after the Effective Time, the exchange agent will mail to each record holder of Aravive capital stock immediately prior to the Effective Time a letter of transmittal and instructions for surrendering and exchanging the record holder’s Aravive stock certificates for shares of Versartis common stock. Upon surrender of an Aravive stock certificate for exchange to the exchange agent, together with a duly executed letter of transmittal and such other documents as the exchange agent or Versartis may reasonably require, the Aravive stock certificate surrendered will be cancelled and the holder of the Aravive stock certificate will be entitled to receive the following:

 

   

A certificate or certificates or book-entry shares representing the number of whole shares of Versartis common stock that such holder has the right to receive pursuant to the provisions of the Merger Agreement; and

 

   

cash in lieu of any fractional share of Versartis common stock.

At the effective time of the merger, all holders of certificates representing shares of Aravive capital stock that were outstanding immediately prior to the effective time of the merger will cease to have any rights as stockholders of Aravive. In addition, no transfer of Aravive capital stock after the effective time of the merger will be registered on the stock transfer books of Aravive.

If any Aravive stock certificate has been lost, stolen or destroyed, Versartis may, in its discretion, and as a condition precedent to the delivery of any shares of Versartis common stock, require the owner of such lost, stolen or destroyed certificate to deliver an affidavit claiming such certificate has been lost, stolen or destroyed and indemnify Versartis against any claim suffered by Versartis related to the lost, stolen or destroyed certificate or any Versartis common stock issued in exchange for such certificate as Versartis may reasonably request.

From and after the Effective Time, until it is surrendered, each certificate that previously evidenced Aravive capital stock will be deemed to represent only the right to receive shares of Versartis common stock and cash in lieu of any fractional share of Versartis common stock. Versartis will not pay dividends or other distributions on any shares of Versartis common stock to be issued in exchange for any unsurrendered Aravive stock certificate until the Aravive stock certificate is surrendered as provided in the Merger Agreement.

Treatment of Aravive Stock Options

At the Effective Time, each option to acquire shares of Aravive common stock that has not previously been exercised and that has a per share exercise price that is less than the cash value of the shares of Versartis common stock that is to be issued per share of Aravive capital stock in the merger will be assumed by Versartis and converted into an option to purchase, on the same terms and conditions, a number of shares of Versartis common stock equal to the