Pfenex+2019+Annual+Report.Pdf

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2019 ANNUAL REPORT We are a development and licensing biotechnology company focused on leveraging our proprietary protein production platform, Pfenex Expression Technology®, to develop next generation and novel protein therapeutics to meaningfully improve existing therapies and create novel therapies for some of the biological targets linked to critical diseases still waiting to successfully be addressed. We have extensive experience in protein therapeutic development and our proven platform enables deliberate and rapid candidate selection, fast drug development, and potentially higher success rates for a wide range of complex modalities. We aim to leverage existing drug development successes into a broad pipeline that is diversified across multiple assets, including U.S. Food and Drug Administration approved, next generation and novel biopharmaceutical products. Evert B. Schimmelpennink Chief Executive Officer

Dear Stockholders,

Reflecting on the past year, it is clear that 2019 was one of the most exciting years in Pfenex’s history, which I believe could help drive long-term value. I continue to be proud of the Pfenex team and our proven ability to execute against our focused strategy. I believe that we are in a strong position to build on recent successes and leverage our proprietary protein production platform, the Pfenex Expression Technology, to expand our development pipeline. The initial focus of our strategy was to execute on three key pipeline opportunities: development of PF708 for the treatment of osteoporosis, our partnership with Jazz Pharmaceuticals in hematologic oncology, and our CRM197 carrier protein partnerships with Merck & Co., Inc. (Merck) and Serum Institute of India Private Ltd. (SIIPL). The advancement we made on these three programs allowed us to begin our work on the selective expansion of our portfolio by leveraging our platform to develop novel biopharmaceuticals. Over the past twelve months, we have announced several key pipeline milestones that just a couple of years ago, each one, on its own, would have stood out as a notable success for the Company. During 2019, our lead programs advanced significantly. We earned approximately $31 million in milestone payments, and we achieved our first FDA approval with PF708. I believe these achievements speak to the focused execution of the Pfenex team and to the ability of our protein platform to successfully produce a broad range of therapeutic candidates, from peptides to large, complex proteins. As a result, I believe our platform offers multiple opportunities to generate near- and long-term shareholder value as we enter our next phase of growth. PF708 Approval by FDA and Commercialization Strategy At the forefront of our progress in 2019 was our lead product candidate, PF708. In October of 2019, we celebrated the FDA’s approval of our new drug application (NDA) for PF708 under the 505(b)(2) regulatory pathway, with Forteo® (teriparatide) as the reference drug. We consider this to be a transformative milestone for Pfenex. We believe achieving FDA approval for a product developed by the Pfenex team validates our internal product development capabilities. Like Forteo, which generated over $1.4 billion in global product sales in 2019, the FDA-approved PF708 product is indicated for the treatment of osteoporosis in certain patients at high risk for fracture. We have been continuing our efforts to obtain an “A” therapeutic equivalence designation for PF708 relative to its reference drug, Forteo. If achieved, an A rating may permit the FDA-approved PF708 product to be automatically substituted for Forteo, depending on applicable laws and policies within each of the 50 states in the U.S. An A rating for a product like PF708 is primarily based on the FDA evaluating three requirements: pharmaceutical equivalence, bioequivalence, and human factor (HF) comparability. Information and data supporting both pharmaceutical equivalence and bioequivalence to Forteo were part of our NDA, and we believe approval of our NDA suggests the first two elements may be satisfied. To further enable the FDA to assess the third element of human factors comparability, in 2019, we executed a fifth human factors study that compared the PF708 injection device head-to-head with Forteo’s device, the results of which we shared publicly and submitted to the FDA in October. We believe this submission completes the information package required by the FDA to evaluate the therapeutic equivalence of our PF708 product. As we await the FDA’s decision on the therapeutic equivalence rating, we have been working diligently with our partner, Alvogen, on commercial manufacturing and sales planning activities as part of the launch preparedness plan for PF708 in the U.S. Alvogen, to whom we have transferred the NDA, intends to launch the FDA-approved PF708 product in the U.S. upon an FDA decision on the therapeutic equivalence evaluation of the product. If we receive an A rating from the FDA, we will be eligible to receive from Alvogen under the terms of our agreement up to an additional $20 million in support and regulatory milestone payments (or up to an additional $15 million if more than six months after FDA approval) and 50% of gross profits from U.S. sales of PF708. The global strategy for PF708 also includes a development and licensing agreement with Alvogen pursuant to which Alvogen has the exclusive rights to commercialize and manufacture PF708 in the EU, certain countries in the Middle East and North Africa (MENA), and the Rest of World (ROW) territories (the latter defined as all countries outside of the EU, U.S. and MENA, excluding Mainland China, Hong Kong, Singapore, Malaysia and Thailand). We believe our collaboration with Alvogen aligns the interests and strengths of both companies to secure regulatory approvals and commercialize PF708, including Alvogen’s established international expertise in regulatory, intellectual property (IP), and supply chain activities, as well as its established network of specialty marketing and pharmaceutical sales organizations in these regions. Alvogen has already established several agreements with their partners across several countries and regions and has begun to engage the regulatory agencies in these other countries. For example, marketing authorization applications for PF708 have been accepted by both the European Medicines Agency and the Kingdom of Saudi Arabia’s Saudi FDA. We also have an exclusive license agreement with NT Pharma to commercialize PF708 in Mainland China, Hong Kong, Singapore, Malaysia and Thailand and a non-exclusive license to conduct development activities in such territories with respect to PF708. Advancement of Products in Collaboration with Jazz Pharmaceuticals Our collaboration with Jazz Pharmaceuticals Ireland Limited (Jazz) underscores the uniquely enabling nature of our platform as we facilitate the development of PF743 (JZP-458) to meet patient demand. Through this agreement we are developing two products: PF743 (or JZP-458, as it is named in the Jazz portfolio), a recombinant Erwinia asparaginase, and PF745 (JZP-341), a half-life extended Erwinia asparaginase. In December 2019, Jazz enrolled the first patient in a pivotal Phase 2/3 clinical study for PF743, for which the FDA has granted fast track designation for the treatment of acute lymphoblastic leukemia. Through December 31, 2019, we have received approximately $62 million under the Jazz agreement. Under our agreement with Jazz, we are eligible to receive an aggregate total of up to $224.5 million in development and sales milestone fees, of which $162.5 million is still eligible to be received. This includes up to $3.5 million in development milestones, $34.0 million in regulatory milestones and $125.0 million in sales milestones. We may also be eligible to receive tiered mid-single-digit royalties based on worldwide sales of any products resulting from the collaboration. CRM197 – SIIPL Pneumosil® Achieves WHO Prequalification, Merck’s V114 in Fifteen Phase 3 Studies CRM197 is a well-characterized protein that functions as a carrier for polysaccharides and haptens, making them immunogenic. We have license agreements with both Merck and SIIPL, as well as supply agreements with several partners. Merck’s V114 is an investigational 15-valent pneumococcal conjugate vaccine for the prevention of pneumococcal disease. V114 is currently being evaluated in fifteen Phase 3 studies. If licensed, V114 is expected to be positioned as a key product in the pneumococcal vaccine market. Pfenex is eligible to receive tiered royalty payments based on net sales for all products we develop that use our CRM197 production strains licensed to Merck and produced via the Pfenex Expression Technology platform. During the fourth quarter of 2019, we also saw the World Health Organization (WHO) prequalification of a vaccine from SIIPL. SIIPL has developed a 10-valent pneumococcal conjugate vaccine, Pneumosil®, which utilizes CRM197 from a Pfenex-based production strain, and initiated the process of WHO prequalification for Pneumosil in the first quarter of 2019. The commercial market for Pneumosil is expected to include India, Asia, Africa and other low- and middle-income countries under the Gavi Advanced Market Commitment (AMC). A second product being developed by SIIPL, which also utilizes CRM197 and is subject to the Pfenex Expression Technology license, is a thermostable pentavalent meningococcal conjugate vaccine that has entered a Phase 3 study. This product is also targeting markets in developing countries. This is another potential revenue source for us, as Pfenex is eligible to receive annual fees, milestone payments, and a tiered royalty payment based on net sales for all products developed by SIIPL that use the CRM197 carrier protein produced via the Pfenex Expression Technology. Also, we have additional partnerships in various stages and continue to sell non-GMP and cGMP grade CRM197 to vaccine development- focused pharma partners. Expanding the Development Pipeline As these three key programs and collaborations advance, we continue to explore new collaborations through our business and corporate development efforts. Most recently, we announced a development, evaluation, and license agreement with Arcellx, which provides ac- cess to the Pfenex Expression Technology platform to advance Arcellx’s proprietary sparX proteins that activate, silence and reprogram Antigen-Receptor Complex T cell-based therapies. Our team recently completed the development of both sparX 1 (PF753) and sparX 2 (PF754), and Arcellx has opted in to the commercial license for both production strains. In a further effort to build out our pipeline, we are looking to develop additional novel biopharmaceutical products. With more than a decade of experience in expressing natural and engineered proteins, and a historical success rate of over 80%, we have a proven track record in the development of novel peptide and protein-based therapeutics. Following extensive research, we have identified a set of high value, validated biological targets that we intend to pursue. The targets of interest are in disease areas of unmet medical need with moderately sized patient populations, which would allow Pfenex to develop the products through Phase 3 clinical studies. We look forward to keeping you abreast of these new programs as they progress. We believe Pfenex is at a transformational point in its history with its first FDA approved product nearing commercialization, and several programs in late-stage studies and regulatory review. We believe there are many possible opportunities to drive near and long-term growth for our business. I look forward to continuing to lead the team and helping to build long-term value for our stockholders.

Evert B. Schimmelpennink Chief Executive Officer

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This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created thereunder and which involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward- looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited to, statements about: x the sufficiency of our cash and cash equivalents and cash generated from operations to meet our working capital and capital expenditure needs for the next 12 months; x the performance of our collaboration partner Alvogen, upon which we are dependent on to commercialize the FDA-approved PF708 product; x our reliance on Jazz, Alvogen, NT Pharma, Merck, SIIPL and any future collaboration partner’s performance over which we do not have control; x our and any potential future collaboration partner’s ability to enroll patients in our clinical studies at the pace that we project; x our expectation to expand our product pipeline; x our expectations regarding the initiation, timing, progress and the success of the design, primary and secondary end points, and duration of the clinical trials and planned clinical trials and studies for our current product candidates and reporting results from same; x whether we are able to obtain an “A” therapeutic equivalence designation for the FDA-approved PF708 product relative to the reference drug Forteo; x our and our collaboration partners’ ability to maintain regulatory approval of the FDA-approved PF708 product or seek and obtain regulatory approval for PF708 and our other product candidates, and if approved, maintain regulatory approval and the timing of such potential regulatory approvals; x our expectations with respect to the commercialization of the FDA-approved PF708 product by Alvogen; x our reliance on third-parties to conduct clinical studies; x our reliance on third-party contract manufacturers and Alvogen to manufacture and supply the FDA-approved PF708 product, PF708 and our other product candidates for us; x the benefits of the use of the FDA-approved PF708 product, PF708, or any of our other product candidates; x the rate and degree of market acceptance of the FDA-approved PF708 product, PF708 or any of our other product candidates, if approved for sale; x regulatory developments in the United States and foreign countries; x our expectations regarding government and third-party payor coverage and reimbursement; x our and our collaboration partners’ ability to manufacture the FDA-approved PF708 product, PF708 and our other product candidates in conformity with regulatory requirements and to scale up manufacturing of the FDA- approved PF708 product, PF708 and our other product candidates to commercial scale; x our ability to successfully build a specialty sales force, or collaborate with third-parties including our existing collaboration partners, Alvogen and NT Pharma, to commercialize the FDA-approved PF708 product, PF708 and our other product candidates; x our and our collaboration partners’ ability to compete with companies currently producing the reference products, including Forteo; x our ability to compete with companies that may also seek and obtain approval for therapeutically equivalent versions of Forteo; x our ability to retain and recruit key personnel, including development of a sales and marketing function; x our ability to obtain and maintain intellectual property protection for the FDA-approved PF708 product, PF708, our PfƝnex Expression Technology® or any other product candidates;

x our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for or ability to obtain additional financing; x our expectations regarding the market size, size of patient populations, and growth potential for the FDA- approved PF708 product, PF708 and our product candidates, if approved for commercial use; x our estimates of the expected patent expiration timelines for Forteo and other branded reference drugs and biologics; x our ability to develop new products and product candidates; x our ability to successfully establish and successfully maintain appropriate collaborations and derive significant revenue from those collaborations; x our financial performance; and x developments and projections relating to our competitors and our industry.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward- looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Annual Report on Form 10-K are based on information available to us on the date of this Annual Report on Form 10-K. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough 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.

We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

This Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources.

Pfenex™, Pfenex Biopharmaceuticals™ the Pfenex Biopharmaceuticals logo, and PfƝnex Expression Technology® are trademarks of Pfenex Inc. This Annual Report on Form 10-K contains these trademarks and some of our other trademarks, trade names and service marks. Each trademark, trade name or service mark of any other company appearing in this Annual Report on Form 10-K belongs to its respective holder.

As used in this Annual Report on Form 10-K, the terms “the Company,” “we,” “us” and “our” refer to Pfenex Inc. and its subsidiaries, unless the context indicates otherwise.

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Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, before making an investment decision. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, financial condition, operating results, cash flows and prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.

5LVNV5HODWLQJWRRXU)LQDQFLDO&RQGLWLRQDQG1HHGIRU$GGLWLRQDO&DSLWDO We have a limited operating history and expect to generate significant losses for the foreseeable future. If we or our collaboration partners are not successful in completing the development of our product candidates or in commercializing the FDA-approved PF708 product, PF708 or our other product candidates and generating significant revenue, we will not be profitable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¶VSDUWQHU6$-$VXEPLWWHGD0DUNHWLQJ$XWKRUL]DWLRQ$SSOLFDWLRQ 0$$ IRU3)WRWKH.LQJGRPRI6DXGL $UDELD V6DXGL)RRGDQG'UXJ$XWKRULW\ 6)'$

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Use of the FDA-approved PF708 product, PF708 or our other product candidates could be associated with side effects or adverse events. 8VHRIWKH)'$DSSURYHG3)SURGXFW3)RURXURWKHUSURGXFWFDQGLGDWHVFRXOGEHDVVRFLDWHGZLWKVLGHHIIHFWV RUDGYHUVHHYHQWVZKLFKFDQYDU\LQVHYHULW\ IURPPLQRUUHDFWLRQVWRGHDWK DQGIUHTXHQF\ LQIUHTXHQWRUSUHYDOHQW 6LGH HIIHFWVRUDGYHUVHHYHQWVDVVRFLDWHGZLWKWKHXVHRIWKH)'$DSSURYHG3)SURGXFW3)RURXURWKHUSURGXFWFDQGLGDWHV PD\EHREVHUYHGDWDQ\WLPHLQFOXGLQJLQFOLQLFDOWULDOVRUZKHQDSURGXFWLVFRPPHUFLDOL]HGDQGDQ\VXFKVLGHHIIHFWVRU DGYHUVHHYHQWVPD\QHJDWLYHO\DIIHFWRXUDQGRXUFROODERUDWLRQSDUWQHUV¶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With the FDA approval of the PF708 product, we are substantially dependent on the commercial success of the FDA- approved PF708 product to be marketed by Alvogen in the U.S. In addition, we currently rely on a limited number of third parties for a substantial portion of our revenue. The loss of or a change in Alvogen or any of these third parties, including its creditworthiness, could materially reduce our revenue and adversely impact our financial position. $OYRJHQ¶VDELOLW\WRVXFFHVVIXOO\FRPPHUFLDOL]HWKH)'$DSSURYHG3)SURGXFWWKHILUVW)'$DSSURYHGSURGXFW WKDWZHGHYHORSHGLVFULWLFDOWRWKHH[HFXWLRQRIRXUEXVLQHVVVWUDWHJ\)RUDGLVFXVVLRQRIULVNVUHODWLQJWRWKHGHJUHHRI PDUNHWDFFHSWDQFHDQGFRPPHUFLDOVXFFHVVRIWKH3)SURGXFWSOHDVHVHHWKHULVNIDFWRUVHQWLWOHG“The FDA-approved PF708 product, PF708 and our other product candidates, if approved, face significant competition from the reference products and from therapeutic equivalent products of the reference products, and from other products. Our or our collaboration partners’ failure to effectively compete may prevent us from achieving significant market penetration and expansion;” “Although the FDA-approved PF708 product has obtained regulatory approval from the FDA, PF708 may not be approved by other regulatory authorities and even if PF708 or our other product candidates obtain additional regulatory approvals, they may never achieve market acceptance or commercial success.;” DQG“If the FDA-approved PF708 product does not receive an “A” therapeutic equivalence designation from the FDA, our business may suffer.”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7KHORVVRIDQ\NH\FROODERUDWLRQSDUWQHUHVSHFLDOO\$OYRJHQDQGRU-D]]RUDQ\VLJQLILFDQWDGYHUVHFKDQJHLQWKHVL]H RUWHUPVRIDFRQWUDFWZLWKDNH\WKLUGSDUW\FRXOGVLJQLILFDQWO\UHGXFHRXUUHYHQXHRYHUWKHVKRUWWHUP0RUHRYHUKDYLQJRXU UHYHQXHFRQFHQWUDWHGDPRQJDOLPLWHGQXPEHURIHQWLWLHVFUHDWHVDFRQFHQWUDWLRQRIILQDQFLDOULVNIRUXVDQGLQWKHHYHQWWKDW DQ\VLJQLILFDQWWKLUGSDUW\LVXQDEOHWRIXOILOOLWVSD\PHQWREOLJDWLRQVWRXVRXURSHUDWLQJUHVXOWVDQGFDVKSRVLWLRQZRXOG VXIIHU6HH “Risks Relating to our Reliance on Third Parties—We are substantially dependent on the expertise of Alvogen, Jazz, and NT Pharma to develop and commercialize the FDA-approved PF708 product, and PF708 and certain other product candidates, if approved. If we fail to maintain our current strategic relationship with Alvogen, Jazz, NT Pharma, or with any future collaboration partner, our business, commercialization prospects and financial condition may be materially adversely affected.´

We may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable product candidates. :HFRQWLQXHWRHYDOXDWHRXUEXVLQHVVVWUDWHJ\DQGDVDUHVXOWPD\PRGLI\RXUVWUDWHJ\LQWKHIXWXUH,QWKLVUHJDUGZH PD\IURPWLPHWRWLPHIRFXVRXUSURGXFWGHYHORSPHQWHIIRUWVRQGLIIHUHQWSURGXFWFDQGLGDWHVRUPD\GHOD\VXVSHQGRU WHUPLQDWHWKHIXWXUHGHYHORSPHQWRIDSURGXFWFDQGLGDWHDWDQ\WLPHIRUVWUDWHJLFEXVLQHVVILQDQFLDORURWKHUUHDVRQV)RU H[DPSOHLQZHGHFLGHGWRSDXVHGHYHORSPHQWDFWLYLWLHVRQ3)DQG3)DQGIRFXVGHYHORSPHQWHIIRUWVHOVHZKHUH ZLWKLQWKHSURGXFWSRUWIROLRZKLOHZHFRQWLQXHWRHQJDJHSRWHQWLDOVWUDWHJLFSDUWQHUVIRU3)DQG3)WRDGYDQFHWKH SURJUDPVDQGPD[LPL]HYDOXH$VDUHVXOWRIFKDQJHVLQRXUVWUDWHJ\ZHKDYHDQGPD\LQWKHIXWXUHFKDQJHRUUHIRFXVRXU H[LVWLQJSURGXFWGHYHORSPHQWFRPPHUFLDOL]DWLRQDQGPDQXIDFWXULQJVWUDWHJLHV7KLVFRXOGUHTXLUHFKDQJHVLQRXUIDFLOLWLHV DQGRXUSHUVRQQHO$Q\SURGXFWGHYHORSPHQWFKDQJHVWKDWZHLPSOHPHQWPD\QRWEHVXFFHVVIXO,QSDUWLFXODUZHPD\IDLOWR VHOHFWRUFDSLWDOL]HRQWKHPRVWVFLHQWLILFDOO\FOLQLFDOO\RUFRPPHUFLDOO\SURPLVLQJRUSURILWDEOHSURGXFWFDQGLGDWHV2XU GHFLVLRQVWRDOORFDWHRXUUHVHDUFKDQGGHYHORSPHQWPDQDJHPHQWDQGILQDQFLDOUHVRXUFHVWRZDUGSDUWLFXODUSURGXFWFDQGLGDWHV PD\QRWOHDGWRWKHGHYHORSPHQWRIYLDEOHFRPPHUFLDOSURGXFWVDQGPD\GLYHUWUHVRXUFHVIURPEHWWHURSSRUWXQLWLHV 6LPLODUO\RXUGHFLVLRQVWRGHOD\RUWHUPLQDWHSURGXFWGHYHORSPHQWSURJUDPVPD\DOVRSURYHWREHLQFRUUHFWDQGFRXOGFDXVH XVWRPLVVYDOXDEOHRSSRUWXQLWLHV

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We may not have the right to prohibit the U.S. government from using certain technologies developed by us, and we may not be able to prohibit third-party companies, including our competitors, from using those technologies in providing products and services to the U.S. government. The U.S. government generally takes the position that it has the right to royalty-free use of technologies that are developed under U.S. government contracts. 0RVW86JRYHUQPHQWFRQWUDFWVJUDQWWKH86JRYHUQPHQWWKHULJKWWRXVHRQDUR\DOW\IUHHEDVLVIRURURQEHKDOIRI WKH86JRYHUQPHQWDQ\WHFKQRORJLHVGHYHORSHGDQGGDWDILUVWSURGXFHGE\WKHFRQWUDFWRUXQGHUWKHJRYHUQPHQWFRQWUDFW,I ZHZHUHWRGHYHORSWHFKQRORJ\XQGHUDFRQWUDFWZLWKVXFKDSURYLVLRQZHPLJKWQRWEHDEOHWRSURKLELWWKLUGSDUWLHV LQFOXGLQJRXUFRPSHWLWRUVIURPXVLQJWKDWWHFKQRORJ\LQSURYLGLQJSURGXFWVDQGVHUYLFHVWRWKH86JRYHUQPHQW

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5LVNV5HODWLQJWRRXU5HOLDQFHRQ7KLUG3DUWLHV We are substantially dependent on the expertise of Alvogen, Jazz, and NT Pharma to develop and commercialize the FDA- approved PF708 product, and PF708 and certain other product candidates, if approved. If we fail to maintain our current strategic relationship with Alvogen, Jazz, NT Pharma, or with any future collaboration partner, our business, commercialization prospects and financial condition may be materially adversely affected. %HFDXVHZHKDYHOLPLWHGRUQRFDSDELOLWLHVIRUFRPPHUFLDOPDQXIDFWXULQJVDOHVPDUNHWLQJDQGGLVWULEXWLRQZHKDYH HQWHUHGLQWRDOOLDQFHVDQGPD\QHHGWRHQWHULQWRDGGLWLRQDODOOLDQFHVZLWKRWKHUFRPSDQLHVWRGHYHORSDQGFRPPHUFLDOL]HRXU SURGXFWVWKDWZHKDYHGHYHORSHGDQGRXUSURGXFWFDQGLGDWHV)RUH[DPSOHWRFRPPHUFLDOL]HWKH)'$DSSURYHG3) SURGXFWDQG3)LIDSSURYHGLQRWKHUWHUULWRULHVZHKDYHHQWHUHGLQWRFROODERUDWLRQDJUHHPHQWVZLWK$OYRJHQDQG17 3KDUPDDQGWKHSURVSHFWVIRUWKH)'$DSSURYHG3)SURGXFWDQG3)LIDSSURYHGRXWVLGHWKH86GHSHQGVLQSDUWRQ WKHH[SHUWLVHFRPPHUFLDOVNLOOVDQGILQDQFLDOVWUHQJWKRI$OYRJHQDQG173KDUPD8QGHUWKH$OYRJHQDJUHHPHQW$OYRJHQ KDVWKHH[FOXVLYHULJKWWRFRPPHUFLDOL]HDQGPDQXIDFWXUHWKH)'$DSSURYHG3)SURGXFWLQWKH8QLWHG6WDWHVDQG3) LQWKH(XURSHDQ8QLRQ0LGGOH(DVW1RUWK$IULFDDQGWKHUHVWRIWKHZRUOGQRWFRYHUHGE\WKH173KDUPDDJUHHPHQW:H PD\EHXQDEOHWRHVWDEOLVKRUPDLQWDLQWKLVUHODWLRQVKLSZLWK$OYRJHQRQDFRPPHUFLDOO\UHDVRQDEOHEDVLVLIDWDOO,Q DGGLWLRQ$OYRJHQPD\KDYHVLPLODURUPRUHHVWDEOLVKHGUHODWLRQVKLSVZLWKRXUFRPSHWLWRUV0RUHRYHUWKHORVVIRUDQ\UHDVRQ RI$OYRJHQDVDNH\SDUWQHUFRXOGKDYHDVLJQLILFDQWDQGDGYHUVHLPSDFWRQRXUEXVLQHVV,IZHDUHXQDEOHWRUHWDLQ$OYRJHQ DVDSDUWQHURQFRPPHUFLDOO\DFFHSWDEOHWHUPVWKHFRPPHUFLDOL]DWLRQRI3)PD\QRWRFFXUDVSODQQHGDQGWKHUHFRXOGEH GHOD\VLQRUVXVSHQVLRQRIWKHFRPPHUFLDOODXQFKRIWKH)'$DSSURYHG3)SURGXFWLQWKH868QGHUWKH173KDUPD DJUHHPHQWZHJUDQWHGDQH[FOXVLYHOLFHQVHWR173KDUPDWRFRPPHUFLDOL]H3)LQFHUWDLQ$VLDQFRXQWULHVLIDSSURYHG DQGDQRQH[FOXVLYHOLFHQVHWRFRQGXFWGHYHORSPHQWDFWLYLWLHVLQVXFKWHUULWRULHVZLWKUHVSHFWWR3),QDGGLWLRQZH HQWHUHGLQWRDQDJUHHPHQWZLWK-D]]SXUVXDQWWRZKLFKZHKDYHWUDQVIHUUHGWKHGHYHORSPHQWPDQXIDFWXULQJDQG FRPPHUFLDOL]DWLRQRIFHUWDLQSURGXFWFDQGLGDWHV

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We are dependent on Alvogen for the commercial manufacture and supply of the FDA-approved PF708 product. The manufacture of the FDA-approved PF708 product is complex and Alvogen may encounter difficulties in production, particularly with respect to scaling up Alvogen’s manufacturing capabilities of the FDA-approved PF708 product. 7KHSURFHVVRIPDQXIDFWXULQJWKH)'$DSSURYHG3)SURGXFWLVFRPSOH[KLJKO\UHJXODWHGDQGVXEMHFWWRPXOWLSOH ULVNV7KHPDQXIDFWXUHRIWKH)'$DSSURYHG3)SURGXFW3)DQGRXUSURGXFWFDQGLGDWHVLQYROYHVFRPSOH[SURFHVVHV DQGLVVXEMHFWWRWKHULVNVPRUHIXOO\GHVFULEHGLQWKHULVNIDFWRUHQWLWOHG “We rely on our collaboration partners, and other third parties, and in some cases a single third party, to manufacture commercial, nonclinical and clinical supplies of our product candidates, supply key materials to manufacture our other product candidates, and to store critical components of our other product candidates for us. Our business could be harmed if those third parties fail to provide us with sufficient quantities of our other product candidates or fail to do so at acceptable quality levels or prices.”

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We have entered into collaborations with third parties in connection with the development of PF708 and certain of our other product candidates. Even if we believe that the development of our technology, PF708 and other product candidates is promising, our partners may choose not to proceed with such development. 2XUH[LVWLQJDJUHHPHQWVZLWKRXUFROODERUDWLRQSDUWQHUV$OYRJHQ-D]]DQG173KDUPDDQGDQ\IXWXUHFROODERUDWLRQ DJUHHPHQWVZHPD\HQWHULQWRDUHJHQHUDOO\VXEMHFWWRWHUPLQDWLRQE\WKHFRXQWHUSDUW\RQVKRUWQRWLFHXSRQWKHRFFXUUHQFHRI FHUWDLQFLUFXPVWDQFHV$FFRUGLQJO\HYHQLIZHEHOLHYHWKDWWKHGHYHORSPHQWRISURGXFWFDQGLGDWHVLVZRUWKSXUVXLQJRXU SDUWQHUVPD\FKRRVHQRWWRFRQWLQXHZLWKVXFKGHYHORSPHQW,IDQ\RIRXUFROODERUDWLRQVDUHWHUPLQDWHGVXFKDVWKH WHUPLQDWLRQRIRXUFROODERUDWLRQZLWK3IL]HULQ$XJXVWZHPD\EHUHTXLUHGWRGHYRWHDGGLWLRQDOUHVRXUFHVWRWKH GHYHORSPHQWRIRXUSURGXFWFDQGLGDWHVRUVHHNDQHZFROODERUDWLRQSDUWQHURQVKRUWQRWLFHDQGWKHWHUPVRIDQ\DGGLWLRQDO FROODERUDWLRQRURWKHUDUUDQJHPHQWVWKDWZHHVWDEOLVKPD\QRWEHIDYRUDEOHWRXV

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Foreign governments tend to impose strict price controls, which may adversely affect our revenue, if any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

If in the future we and our collaboration partners are not able to demonstrate biosimilarity of our biosimilar product candidates to the satisfaction of regulatory authorities, those partners will not obtain regulatory approval for commercial sale of our biosimilar product candidates and our future results of operations would be adversely affected. 2XUIXWXUHUHVXOWVRIRSHUDWLRQVGHSHQGRQRXUIXWXUHFROODERUDWLRQSDUWQHUV¶DELOLW\WRREWDLQUHJXODWRU\DSSURYDOIRU DQGFRPPHUFLDOL]HRXUSURSRVHGELRVLPLODUSURGXFWV7RREWDLQUHJXODWRU\DSSURYDOIRUWKHFRPPHUFLDOVDOHRIWKHVHSURGXFW FDQGLGDWHVWKRVHSDUWQHUVZLOOEHUHTXLUHGWRGHPRQVWUDWHWRWKHVDWLVIDFWLRQRIUHJXODWRU\DXWKRULWLHVWKDWDPRQJRWKHU WKLQJVRXUSURSRVHGELRVLPLODUSURGXFWVDUHKLJKO\VLPLODUWRELRORJLFDOSURGXFWVDOUHDG\OLFHQVHGE\WKH)'$SXUVXDQWWR %/$VQRWZLWKVWDQGLQJPLQRUGLIIHUHQFHVLQFOLQLFDOO\LQDFWLYHFRPSRQHQWVDQGWKDWWKH\KDYHQRFOLQLFDOO\PHDQLQJIXO GLIIHUHQFHVDVFRPSDUHGWRWKHPDUNHWHGELRORJLFDOSURGXFWVLQWHUPVRIWKHVDIHW\SXULW\DQGSRWHQF\RIWKHSURGXFWV,QWKH (($WKHVLPLODUQDWXUHRIDELRVLPLODUDQGDUHIHUHQFHSURGXFWLVGHPRQVWUDWHGE\FRPSUHKHQVLYHFRPSDUDELOLW\VWXGLHV FRYHULQJTXDOLW\ELRORJLFDODFWLYLW\VDIHW\DQGHIILFDF\

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We and our collaboration partners intend to market our products outside of the United States, and we will be subject to the risks of doing business outside of the United States. %HFDXVHZHDQGRXUFROODERUDWLRQSDUWQHUVLQWHQGWRPDUNHW3)DQGRXUSURGXFWFDQGLGDWHVLIDSSURYHGRXWVLGHRI WKH8QLWHG6WDWHVRXUEXVLQHVVLVVXEMHFWWRULVNVDVVRFLDWHGZLWKGRLQJEXVLQHVVRXWVLGHRIWKH8QLWHG6WDWHV$FFRUGLQJO\ RXUEXVLQHVVDQGILQDQFLDOUHVXOWVLQWKHIXWXUHFRXOGEHDGYHUVHO\DIIHFWHGGXHWRDYDULHW\RIIDFWRUVLQFOXGLQJ x FKDQJHVLQDVSHFLILFFRXQWU\¶VRUUHJLRQ¶VSROLWLFDODQGFXOWXUDOFOLPDWHRUHFRQRPLFFRQGLWLRQ x XQH[SHFWHGFKDQJHVLQIRUHLJQODZVDQGUHJXODWRU\UHTXLUHPHQWV x GLIILFXOW\RIHIIHFWLYHHQIRUFHPHQWRIFRQWUDFWXDOSURYLVLRQVLQORFDOMXULVGLFWLRQV x LQDGHTXDWHLQWHOOHFWXDOSURSHUW\SURWHFWLRQLQIRUHLJQFRXQWULHV x WUDGHSURWHFWLRQPHDVXUHVLPSRUWRUH[SRUWOLFHQVLQJUHTXLUHPHQWVVXFKDV([SRUW$GPLQLVWUDWLRQ5HJXODWLRQV SURPXOJDWHGE\WKH86'HSDUWPHQWRI&RPPHUFHDQGILQHVSHQDOWLHVRUVXVSHQVLRQRUUHYRFDWLRQRIH[SRUW SULYLOHJHV x HIIRUWVWRGHYHORSDQLQWHUQDWLRQDOVDOHVPDUNHWLQJDQGGLVWULEXWLRQRUJDQL]DWLRQPD\LQFUHDVHRXUH[SHQVHV GLYHUWRXUPDQDJHPHQW¶VDWWHQWLRQIURPWKHDFTXLVLWLRQRUGHYHORSPHQWRISURGXFWFDQGLGDWHVRUFDXVHXVWR IRUJRSURILWDEOHOLFHQVLQJRSSRUWXQLWLHVLQWKHVHJHRJUDSKLHV x WKHHIIHFWVRIDSSOLFDEOHIRUHLJQWD[VWUXFWXUHVDQGSRWHQWLDOO\DGYHUVHWD[FRQVHTXHQFHVDQG x VLJQLILFDQWDGYHUVHFKDQJHVLQIRUHLJQFXUUHQF\H[FKDQJHUDWHV

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5LVNV5HODWLQJWR2ZQLQJ2XU&RPPRQ6WRFN The market price of our stock may fluctuate significantly, and investors may have difficulty selling their shares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³5LVN )DFWRUV´VHFWLRQDQGHOVHZKHUHLQWKLVDQQXDOUHSRUWRQ)RUP.IDFWRUVWKDWPD\FDXVHYRODWLOLW\LQRXUVKDUHSULFH LQFOXGH x DFWXDORUDQWLFLSDWHGTXDUWHUO\YDULDWLRQLQRXUUHVXOWVRIRSHUDWLRQVRUWKHUHVXOWVRIRXUFRPSHWLWRUV x DQQRXQFHPHQWVE\XVRURXUFRPSHWLWRUVRIQHZFRPPHUFLDOSURGXFWVVLJQLILFDQWFRQWUDFWVFRPPHUFLDO UHODWLRQVKLSVRUFDSLWDOFRPPLWPHQWV x LVVXDQFHRIQHZRUFKDQJHGVHFXULWLHVDQDO\VWV¶UHSRUWVRUUHFRPPHQGDWLRQVIRURXUVWRFN x GHYHORSPHQWVRUGLVSXWHVFRQFHUQLQJRXULQWHOOHFWXDOSURSHUW\RURWKHUSURSULHWDU\ULJKWV x FKDQJHVWRRXURUJDQL]DWLRQDQGPDQDJHPHQW x FRPPHQFHPHQWRIRURXULQYROYHPHQWLQOLWLJDWLRQ

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We may be subject to securities litigation, which is expensive and could divert management attention. 7KHPDUNHWSULFHRIRXUFRPPRQVWRFNKDVEHHQDQGZLOOOLNHO\FRQWLQXHWREHYRODWLOHDQGLQWKHSDVWFRPSDQLHVWKDW KDYHH[SHULHQFHGYRODWLOLW\LQWKHPDUNHWSULFHRIWKHLUVWRFNKDYHEHHQVXEMHFWWRVHFXULWLHVFODVVDFWLRQOLWLJDWLRQ:HPD\EH WKHWDUJHWRIWKLVW\SHRIOLWLJDWLRQLQWKHIXWXUH6HFXULWLHVOLWLJDWLRQDJDLQVWXVFRXOGUHVXOWLQVXEVWDQWLDOFRVWVDQGGLYHUWRXU PDQDJHPHQW¶VDWWHQWLRQIURPRWKHUEXVLQHVVFRQFHUQVZKLFKFRXOGVHULRXVO\KDUPRXUEXVLQHVV

If securities or industry analysts publish unfavorable research about our business or cease to cover our business, our stock price and/or trading volume could decline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

If we sell shares of our common stock in future financings, stockholders may experience immediate dilution and, as a result, the market price of our common stock may decline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

Sales of substantial amounts of our common stock in the public markets, or the perception that such sales might occur, could reduce the price that our common stock might otherwise attain and may dilute your voting power and your ownership interest in us. 6DOHVRIDVXEVWDQWLDOQXPEHURIVKDUHVRIRXUFRPPRQVWRFNLQWKHSXEOLFPDUNHWRUWKHSHUFHSWLRQWKDWWKHVHVDOHV PLJKWRFFXUFRXOGGHSUHVVWKHPDUNHWSULFHRIRXUFRPPRQVWRFNDQGFRXOGLPSDLURXUDELOLW\WRUDLVHFDSLWDOWKURXJKWKH VDOHRIDGGLWLRQDOHTXLW\VHFXULWLHV:HDUHXQDEOHWRSUHGLFWWKHHIIHFWWKDWVDOHVPD\KDYHRQWKHSUHYDLOLQJPDUNHWSULFHRI RXUFRPPRQVWRFN:HDOVRUHJLVWHUWKHRIIHUDQGVDOHRIDOOVKDUHVRIFRPPRQVWRFNWKDWZHPD\LVVXHXQGHURXUHTXLW\ FRPSHQVDWLRQSODQV

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Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management and limit the market price of our common stock. 3URYLVLRQVLQRXUFHUWLILFDWHRILQFRUSRUDWLRQDQGE\ODZVPD\KDYHWKHHIIHFWRIGHOD\LQJRUSUHYHQWLQJDFKDQJHRI FRQWURORUFKDQJHVLQRXUPDQDJHPHQW2XUDPHQGHGDQGUHVWDWHGFHUWLILFDWHRILQFRUSRUDWLRQDQGDPHQGHGDQGUHVWDWHG E\ODZVLQFOXGHSURYLVLRQVWKDW x DXWKRUL]HRXUERDUGRIGLUHFWRUVWRLVVXHZLWKRXWIXUWKHUDFWLRQE\WKHVWRFNKROGHUVXSWRVKDUHVRI XQGHVLJQDWHGSUHIHUUHGVWRFN x UHTXLUHWKDWDQ\DFWLRQWREHWDNHQE\RXUVWRFNKROGHUVEHHIIHFWHGDWDGXO\FDOOHGDQQXDORUVSHFLDOPHHWLQJDQG QRWE\ZULWWHQFRQVHQW x VSHFLI\WKDWVSHFLDOPHHWLQJVRIRXUVWRFNKROGHUVFDQEHFDOOHGRQO\E\RXUERDUGRIGLUHFWRUVWKHFKDLUPDQRIWKH ERDUGRIGLUHFWRUVRUWKHFKLHIH[HFXWLYHRIILFHU x HVWDEOLVKDQDGYDQFHQRWLFHSURFHGXUHIRUVWRFNKROGHUDSSURYDOVWREHEURXJKWEHIRUHDQDQQXDOPHHWLQJRIRXU VWRFNKROGHUVLQFOXGLQJSURSRVHGQRPLQDWLRQVRISHUVRQVIRUHOHFWLRQWRRXUERDUGRIGLUHFWRUV x HVWDEOLVKWKDWRXUERDUGRIGLUHFWRUVLVGLYLGHGLQWRWKUHHFODVVHV&ODVV,&ODVV,,DQG&ODVV,,,ZLWKHDFKFODVV VHUYLQJVWDJJHUHGWKUHH\HDUWHUPV x SURYLGHWKDWRXUGLUHFWRUVPD\EHUHPRYHGRQO\IRUFDXVH x SURYLGHWKDWYDFDQFLHVRQRXUERDUGRIGLUHFWRUVPD\EHILOOHGRQO\E\DPDMRULW\RIGLUHFWRUVWKHQLQRIILFHHYHQ WKRXJKOHVVWKDQDTXRUXP x VSHFLI\WKDWQRVWRFNKROGHULVSHUPLWWHGWRFXPXODWHYRWHVDWDQ\HOHFWLRQRIGLUHFWRUVDQG x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[THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] CORPORATE OFFICERS COMMON STOCK SPECIAL NOTE REGARDING LISTING FORWARD-LOOKING STATEMENTS Evert B. Schimmelpennink NYSE American Chief Executive Officer, This Annual Report contains President, Secretary and Ticker Symbol: PFNX forward-looking statements that are acting Principal Financial and Principal Accounting Officer REGISTRAR AND based on management’s beliefs and TRANSFER AGENT assumptions and on information Patrick K. Lucy For questions regarding currently available to our management. Senior Vice President and your account, changes Forward-looking statements include Chief Business Officer of address or the information concerning Pfenex’s plans Shawn A. Scranton, PharmD consolidation to advance and commercialize its Senior Vice President and of accounts, please product candidates; expectations with Chief Operating Officer contact the Company’s respect to “A” therapeutic equivalence Martin B. Brenner, DVM, Ph.D. transfer agent: for PF708; and Pfenex’s expectations Senior Vice President and with regard to future milestones, Chief Scientific Officer American Stock Transfer royalties, and reimbursements & Trust Company, LLC BOARD OF DIRECTORS from collaborations. If underlying 6201 15th Avenue assumptions prove inaccurate or risks Jason Grenfell-Gardner Brooklyn, NY 11219 Chairman or uncertainties materialize, actual Attn: Former President, results may differ materially from Shareholder Services Chief Executive Officer those set forth in the forward-looking T: (800) 937-5449 and Director of Teligent, Inc. statements. Actual results may differ www.amstock.com Evert B. Schimmelpennink materially from those indicated by Chief Executive Officer, LEGAL COUNSEL these forward-looking statements as President, Secretary and Wilson Sonsini Goodrich a result of the uncertainties inherent acting Principal Financial & Rosati, in the clinical drug development and Principal Accounting Professional Corporation process, including the regulatory Officer of Pfenex Inc. San Diego, California approval process and other matters Robin D. Campbell, Ph.D. that could affect the availability or Former President and INDEPENDENT commercial potential of product Chief Executive Officer AUDITORS candidates; challenges related to of Naryx Pharma, Inc. KPMG LLP commencement, enrollment, San Diego, California Magda Marquet, Ph.D. completion, and analysis of clinical Co-Chief Executive Officer of INVESTOR trials; Pfenex’s dependence on ALMA Life Sciences LLC RELATIONS third parties; and litigation and/or Lorianne Masuoka, M.D. Pfenex Inc. regulatory actions. Additional Former Chief Medical Officer Investor Relations factors that could cause results to of Marinus Pharmaceuticals, InVivo Therapeutics and 10790 Roselle St. differ materially from those described Cubist Pharmaceuticals San Diego, CA 92121 in the forward-looking statements T: (858) 352-4400 can be found in this Annual Report on Phillip M. Schneider [email protected] Form 10-K and Pfenex’s other filings Former Senior Vice President and Chief Financial Officer of with the Securities and Exchange IDEC Pharmaceuticals Commission. Except as required by Corporation law, Pfenex undertakes no obligation to update or revise any forward- John M. Taylor President and Principal of looking statements. Compliance and Regulatory Affairs of Greenleaf Health LLC 10790 ROSELLE STREET SAN DIEGO, CA 92121 (858) 352-4400