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EX-31.2 - CERTIFICATION BY CARSTEN BOESS AS CHIEF FINANCIAL OFFICER. - SYNAGEVA BIOPHARMA CORPd262321dex312.htm
EX-31.1 - CERTIFICATION BY SANJ K. PATEL AS CHIEF EXECUTIVE OFFICER. - SYNAGEVA BIOPHARMA CORPd262321dex311.htm
EX-32.1 - CERTIFICATION BY SANJ K. PATEL AS CEO AND CARSTEN BOESS AS CFO - SYNAGEVA BIOPHARMA CORPd262321dex321.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-K/A

(Amendment No. 1)

 

 

 

(Mark One)

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

 

For the fiscal year ended December 31, 2011

 

or

 

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

 

 

 

SYNAGEVA BIOPHARMA CORP.

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware   0-23155   56-1808663

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

 

128 Spring Street, Suite 520,

Lexington, Massachusetts 02421

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code: (781) 357-9900

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $0.001 par value   Nasdaq Global Stock Market

 

Securities registered pursuant to Section 12(g) of the Act:

None.

 

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  þ

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

 

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

 

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  þ
      (Do not check if a smaller reporting company)   

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

 

The aggregate market value of the voting stock held by non-affiliates of the registrant (based on the last sale price of such stock as reported by The NASDAQ Stock Market, LLC, on its NASDAQ Global Market on June 30, 2011) was $30.1 million. The number of shares of the registrant’s common stock outstanding as of March 15, 2012 was 21,167,403.

 

Documents Incorporated by Reference

 

Portions of the registrant’s definitive proxy statement to be used in connection with its 2012 annual meeting of stockholders are incorporated by reference into Part III.

 

 


EXPLANATORY NOTE TO AMENDMENT NO. 1

 

The sole purpose of this amendment to the Annual Report on Form 10-K of Synageva BioPharma Corp. (the “Company”), which was filed with the Securities and Exchange Commission on March 22, 2012, is to add the city and state to the Report of Independent Registered Public Accounting Firm (the “Report”) included in Item 8 of the Form 10-K. The city and state was inadvertently left out of the Report, which is otherwise unchanged. The Company has not made any other changes to the filing herewith in any way.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Our consolidated financial statements and supplementary data required in this Item 8 are set forth beginning on page F-2 of this report.

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

SYNAGEVA BIOPHARMA CORP.

By:   

/s/  Sanj K. Patel

 

Sanj K. Patel

President, Chief Executive Officer and Director

 

Dated: April 24, 2012

 

2


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Synageva BioPharma Corp.:

 

In our opinion, the accompanying consolidated balance sheets and the related statements of operations, of changes in convertible preferred stock and stockholders’ equity (deficit) and comprehensive loss and of cash flows present fairly, in all material respects, the financial position of Synageva BioPharma Corp. at December 31, 2011 and December 31, 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

/s/  PRICEWATERHOUSECOOPERS LLP

 

Boston, Massachusetts

March 22, 2012

 

F-1


Synageva BioPharma Corp.

 

Balance Sheets

December 31, 2011 and 2010

 

     2011     2010  
Assets    Consolidated        

Current assets:

    

Cash and cash equivalents

   $ 60,231,712      $ 14,714,571   

Accounts receivable

     2,211,481        798,691   

Taxes receivable

     1,239,530          

Prepaid expenses and other current assets

     968,636        337,482   
  

 

 

   

 

 

 

Total current assets

     64,651,359        15,850,744   

Property and equipment, net

     1,256,490        1,068,986   

Developed technology, net

     8,795,601          

Goodwill

     8,534,728          

Other assets

     59,890        61,971   
  

 

 

   

 

 

 

Total assets

   $ 83,298,068      $ 16,981,701   
  

 

 

   

 

 

 

Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

    

Current liabilities:

    

Accounts payable

   $ 1,506,564      $ 427,256   

Accrued expenses

     5,002,995        1,138,880   

Deferred revenue, short term

     1,749,076          
  

 

 

   

 

 

 

Total current liabilities

     8,258,635        1,566,136   

Deferred revenue, long term

     991,102          

Other noncurrent liabilities

            12,278   
  

 

 

   

 

 

 

Total liabilities

   $ 9,249,737      $ 1,578,414   
  

 

 

   

 

 

 

Commitments and contingencies (Note 13)

    

Convertible preferred stock (Note 8)

            95,581,069   

Stockholders’ equity (deficit):

    

Common stock, par value $0.001; 60,000,000 and 51,000,000 shares authorized at December 31, 2011 and 2010, respectively; 17,581,690 and 60,955 shares issued and outstanding at December 31, 2011 and 2010, respectively

     17,582        61   

Additional paid-in capital

     189,874,055        10,356,049   

Accumulated other comprehensive loss

     (3,532       

Accumulated deficit

     (115,839,774     (90,533,892
  

 

 

   

 

 

 

Total stockholders’ equity (deficit)

   $ 74,048,331      $ (80,177,782
  

 

 

   

 

 

 

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

   $ 83,298,068      $ 16,981,701   
  

 

 

   

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

F-2


Synageva BioPharma Corp.

 

Statements of Operations

Years Ended December 31, 2011, 2010 and 2009

 

 

     2011     2010     2009  
     Consolidated              

Royalty revenue

   $ 1,082,648      $ —        $ —     

Collaboration and license revenue

     639,762        280,000        80,000   

Other revenue

     376,370        315,421        81,830   
  

 

 

   

 

 

   

 

 

 

Total revenue

     2,098,780        595,421        161,830   

Operating expenses

      

Research and development

     17,849,557        9,865,809        6,583,032   

General and administrative

     9,267,765        3,852,607        3,843,185   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     27,117,322        13,718,416        10,426,217   
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (25,018,542     (13,122,995     (10,264,387

Other (expense) income, net

     (258,538     2,295,252        82,486   

Interest income

     4,669        4,087        22,165   

Interest expense

     (33,471     —          (1,260,318
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (25,305,882   $ (10,823,656   $ (11,420,054
  

 

 

   

 

 

   

 

 

 

Basic and diluted net loss per share

   $ (8.58   $ (343.10   $ (516.14
  

 

 

   

 

 

   

 

 

 

Weighted average shares used in basic and diluted per share computations

     2,950,242        31,547        22,126   
  

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

F-3


Synageva BioPharma Corp.

 

Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) and Comprehensive Loss

Years Ended December 31, 2011, 2010 and 2009

 

    Series A-1
Convertible
Preferred Stock
    Series B-1
Convertible
Preferred Stock
    Series C-1
Convertible
Preferred Stock
    Series D-1
Convertible
Preferred Stock
    Series E-1
Convertible
Preferred Stock
    Series A-2
Convertible
Preferred Stock
    Series B-2
Convertible
Preferred Stock
 
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount  

Balances December 31, 2008

    104,486      $ 2,998,232        434,504      $ 12,424,444        4,750,222      $ 8,586,765        9,122,551      $ 16,951,894        5,650,547      $ 18,078,543             $             $   

Accretion to redemption value of redeemable preferred stock

           36,148               150,296               106,395               216,443               267,509                               

Series A-1 and B-1 Conversion to A-2; Series C-1 and D-1 Conversion to B-2 and Series E-1 Conversion to C-2

    (104,486     (3,034,380     (434,504     (12,574,740     (4,750,222     (8,693,160     (9,122,551     (17,168,337     (5,650,547     (18,346,052     245,637        12,429,920        4,168,674        21,094,741   

Issuance of Series D-2 preferred stock, net of issuance costs of $170,775

                                                                                                 

Issuance of Series D-2 preferred stock upon conversion of notes payable

                                                                                                 

Exercise of stock options

                                                                                                 

Stock-based compensation expense

                                                                                                 

Net loss

                                                                                                 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances December 31, 2009

                                                                          245,637        12,429,920        4,168,674        21,094,741   

Accretion to redemption value of redeemable preferred stock

                                                                                                 

Issuance of Series D-2 preferred stock, net of issuance costs of $207,498

                                                                                                 

Exercise of stock options

                                                                                                 

Stock-based compensation expense

                                                                                                 

Net loss

                                                                                                 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances December 31, 2010

                                                                          245,637        12,429,920        4,168,674        21,094,741   

Conversion of notes payable to preferred stock

                                                                                                 

Exchange of preferred stock for common stock in connection with the Reverse Merger

                                                                          (245,637     (12,429,920     (4,168,674     (21,094,741

Acquisition of Trimeris

                                                                                                 

Issuance of common stock to underwriter

                                                                                                 

Conversion of preferred stock warrants to common stock warrants

                                                                                                 

Exercise of common stock warrants

                                                                                                 

Exercise of stock options

                                                                                                 

Stock-based compensation expense

                                                                                                 

Cumulative translation adjustment

                                                                                                 

Net loss

                                                                                                 

Balances December 31, 2011

         $             $             $             $             $             $             $   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these financial statements. See Note 6 for information on the Reverse

Merger and the applicable conversion ratio applied to historical common stock amounts.

 

F-4


Synageva BioPharma Corp.

 

Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) and Comprehensive Loss

Years Ended December 31, 2011, 2010 and 2009

 

                                                      
    Series C-2     Series D-2     Total                            Total
Stockholder’s
Equity
(Deficit)
       
    Convertible     Convertible     Convertible                Additional
Paid-In
Capital
            Total
Comprehensive
Loss
 
    Preferred Stock     Preferred Stock     Preferred Stock          Common Stock       Accumulated
Deficit
     
    Shares     Amount     Shares     Amount     Shares     Amount          Shares     Amount          

Balances December 31, 2008

         $             $        20,062,310      $ 59,039,878            19,084      $ 19      $ 1,705,135      $ (68,290,182   $ (66,585,028  

Accretion to redemption value of redeemable preferred stock

                         25,036               801,827                          (801,827       (801,827  

Series A-1 and B-1 Conversion to A-2; Series C-1 and D-1 Conversion to B-2 and Series E-1 Conversion to C-2

    3,583,040        17,176,735                      (12,064,959     (9,115,273                       9,115,273               9,115,273     

Issuance of Series D-2 preferred stock, net of issuance costs of $170,775

                  15,276,453        38,046,197        15,276,453        38,046,197                                            

Issuance of Series D-2 preferred stock upon conversion of notes payable

                  2,723,547        6,783,028        2,723,547        6,783,028                                            

Exercise of stock options

                                                  4,117        4        5,238               5,242     

Stock-based compensation expense

                                                                154,190               154,190     

Net loss

                                                                       (11,420,054     (11,420,054     (11,420,054
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances December 31, 2009

    3,583,040        17,176,735        18,000,000        44,854,261        25,997,351        95,555,657            23,201        23        10,178,009        (79,710,236     (69,532,204   $ (11,420,054
                           

 

 

 

Accretion to redemption value of redeemable preferred stock

           16,293               45,843               62,136                          (62,136            (62,136  

Issuance of Series D-2 preferred stock, net of issuance costs of $207,498

                         (36,724            (36,724                                         

Exercise of stock options

                                                  37,754        38        36,394               36,432     

Stock-based compensation expense

                                                                203,782               203,782     

Net loss

                                                                       (10,823,656     (10,823,656     (10,823,656
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances December 31, 2010

    3,583,040        17,193,028        18,000,000        44,863,380        25,997,351        95,581,069            60,955        61        10,356,049        (90,533,892     (80,177,782     (10,823,656
                           

 

 

 

Conversion of notes payable to preferred stock

                  4,999,987        12,500,000        4,999,987        12,500,000                                            

Exchange of preferred stock for common stock in connection with the Reverse Merger

    (3,583,040     (17,193,028     (22,999,987     (57,363,380     (30,997,338     (108,081,069         12,788,722        12,789        108,068,280               108,081,069     

Acquisition of Trimeris

                                                  4,479,929        4,480        69,860,266               69,864,746     

Issuance of common stock to underwriter

                                                  33,113        33        499,967               500,000     

Conversion of preferred stock warrants to common stock warrants

                                                                270,814               270,814     

Exercise of common stock warrants

                                                  10,115        10        (10                

Exercise of stock options

                                                  209,055        209        185,969               186,178     

Stock-based compensation expense

                                                                632,720               632,720     

Cumulative translation adjustment

                                                                              (3,532     (3,532

Net loss

                                                                       (25,305,882     (25,305,882     (25,305,882
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances December 31, 2011

         $             $             $            17,581,889      $ 17,582      $ 189,874,055      $ (115,839,774   $ 74,048,331      $ (25,309,414
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these financial statements. See Note 6 for information on the Reverse

Merger and the applicable conversion ratio applied to historical common stock amounts.

 

F-5


Synageva BioPharma Corp.

 

Statements of Cash Flows

Years Ended December 31, 2011, 2010 and 2009

 

     2011     2010     2009  
     Consolidated              

Cash flows from operating activities

      

Net Loss

   $ (25,305,882   $ (10,823,656   $ (11,420,054

Adjustments:

      

Depreciation and amortization

     999,816        384,118        339,777   

Interest expense paid through preferred stock issuance

                   163,582   

Amortization of debt discount and issuance costs

     33,471               250,772   

Stock compensation expense

     632,720        203,782        154,190   

Revaluation of preferred stock warrants

     258,537        (17,236     (82,486

Changes in assets and liabilities, net of acquisition:

      

Accounts receivable

     1,586,184        (799,756     20,197   

Prepaid expenses and other current assets

     (466,396     (88,824     (139,183

Other assets

     2,081        (9,174     10,269   

Accounts payable

     1,079,375        230,343        (1,635,656

Accrued expenses and other liabilities

     1,850,485        369,884        (1,246,015

Deferred revenue

     2,740,178                 
  

 

 

   

 

 

   

 

 

 

Net cash used in operating activities

     (16,589,431 )      (10,550,519 )      (13,584,607 ) 
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

      

Cash received from merger

     50,107,364                 

Capital expenditures

     (682,921     (585,329     (162,909
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     49,424,443        (585,329 )      (162,909 ) 
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

      

Proceeds from issuance of convertible preferred stock, net of issuance costs

            (36,724     38,046,197   

Proceeds from issuance of convertible notes

     12,500,000               6,619,446   

Proceeds from exercise of stock options

     186,178        36,432        5,242   

Principal payments on debt and capital leases

                   (7,766,041
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     12,686,178        (292 )      36,904,844   
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate on cash

     (4,049              

Net increase (decrease) in cash and equivalents

     45,517,141        (11,136,140     23,157,328   

Cash and equivalents at the beginning of period

     14,714,571        25,850,711        2,693,383   
  

 

 

   

 

 

   

 

 

 

Cash and equivalents at the end of period

   $ 60,231,712      $ 14,714,571      $ 25,850,711   
  

 

 

   

 

 

   

 

 

 

Supplemental disclosure of cash flow information

      

Cash paid for interest

   $      $      $ 662,101   

Supplemental schedule of noncash investing and financing activities

      

Conversion of convertible note into preferred stock

     12,500,000                 

Conversion of preferred stock into common stock

     108,081,069                 

Payments made in common stock to underwriter

     500,000                 

Conversion of preferred stock warrants to common stock warrants

     270,814                 

Conversion of convertible notes and interest into preferred stock

                   6,783,028   

Accretion to redemption value of redeemable convertible preferred stock

            62,136        801,827   

Fair value of assets acquired in Merger

   $ 72,379,057      $      $   

Fair value of liabilities assumed in Merger

     (2,510,362              
  

 

 

   

 

 

   

 

 

 

Fair value of net assets acquired in Merger

   $ 69,868,695      $      $   
  

 

 

   

 

 

   

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

F-6


Synageva BioPharma Corp.

 

Notes to Consolidated Financial Statements

 

1. Nature of the Business

 

Synageva is a clinical stage biopharmaceutical company focused on the discovery, development, and commercialization of therapeutic products for patients with life-threatening rare diseases and unmet medical need. Synageva has several protein therapeutics in development, including two enzyme replacement therapies for lysosomal storage disorders and two programs for life-threatening genetic conditions for which there are currently no approved treatments. Its lead program, SBC-102, is a recombinant human LAL currently under clinical investigation in the U.S. and EU for the treatment of patients with LAL Deficiency, which is a rare, devastating disease that causes significant morbidity and mortality. SBC-102 has been granted Orphan Drug Designations by FDA and the EMA and a Fast Track Designation by the FDA. Synageva has not yet received approval to market this product and is not currently commercializing any other products.

 

The Company is subject to risks common to companies in the biopharmaceutical industry including, but not limited to, the successful development of products, clinical trial uncertainty, regulatory approval, fluctuations in operating results and financial risks, potential need for additional funding, protection of proprietary technology and patent risks, compliance with government regulations, dependence on key personnel and collaboration partners, competition, technological and medical risks and management of growth.

 

The Company has incurred losses since inception and at December 31, 2011, had an accumulated deficit of $115.8 million. The Company expects to incur losses over the next several years as it continues to expand its drug discovery and development efforts. As a result of continuing losses, the Company may seek additional funding through a combination of public or private financing, collaborative relationships or other arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into new license agreements. Through December 31, 2011, the Company had funded its operations primarily from proceeds of the sale of preferred stock, issuance of convertible notes and notes payable and proceeds from government grants and collaboration agreements. On November 2, 2011, the Company completed a reverse merger with Trimeris, Inc. (“Trimeris”) through which it assumed certain assets and liabilities of the acquired entity, including $50.1 million in cash and cash equivalents and a royalty stream (Note 6) which will serve as further funding for the Company’s operations going forward. During the year ended December 31, 2009, the Company issued 18,000,000 shares of Series D-2 preferred stock (Note 8) for gross proceeds of approximately $45 million, including amounts from the conversion of convertible notes. In March 2011, the Company issued $12.5 million of convertible notes payable which upon the effective date of the Trimeris transaction subsequently converted to preferred stock prior to the conversion of all Synageva shares outstanding into shares of the combined entity (see Note 8). Additionally, as further detailed in Note 15, in January 2012 the Company closed a secondary public offering, which provided net proceeds of approximately $84.6 million. The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

F-7


Principles of Consolidation

 

Synageva’s consolidated financial statements include the accounts of Synageva and its wholly owned subsidiaries, Abbey BioPharma Corp., a Delaware corporation, and Synageva BioPharma Limited, an entity incorporated in the UK, which commenced operations in 1993 and May 2011, respectively. All intercompany accounts and transactions have been eliminated in consolidation.

 

Reverse Merger

 

On November 2, 2012, Trimeris closed a merger transaction (the “Reverse Merger”) with Synageva BioPharma Corp., a privately held Delaware corporation (“Private Synageva”), pursuant to an Agreement and Plan of Merger and Reorganization, dated as of June 13, 2011 (the “Merger Agreement”), by and among Trimeris, Private Synageva and Tesla Merger Sub, Inc., a wholly owned subsidiary of Trimeris (“Merger Sub”). Pursuant to the Merger Agreement, Private Synageva became a wholly owned subsidiary of Trimeris through a merger of Merger Sub with and into Private Synageva, and the former stockholders of Private Synageva received shares of Trimeris that constituted a majority of the outstanding shares of Trimeris. In connection with the Reverse Merger, Trimeris changed its name to Synageva BioPharma Corp.

 

The Reverse Merger has been accounted for as a reverse acquisition under which Private Synageva was considered the acquirer of Trimeris. As such, the financial statements of Private Synageva are treated as the historical financial statements of the combined company, with the results of Trimeris being included from November 2, 2011.

 

As a result of the Reverse Merger with Trimeris, historical common stock amounts and additional paid in capital have been retroactively adjusted. See Note 6 for additional discussion of the Reverse Merger and the conversion ratio.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with a remaining maturity at the date of purchase of less than three months to be cash equivalents. At December 31, 2011 and 2010, substantially all cash and cash equivalents were held in money market accounts at commercial banks.

 

Fair Value of Financial Instruments

 

Under current accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

 

The current accounting guidance also establishes a hierarchy to categorize how fair value is measured and which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

 

Level 1

 

Quoted prices in active markets for identical assets or liabilities.

Level 2

 

Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3

 

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

F-8


The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2011:

 

     December 31,
2011
     Quoted Price
in  Active

Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Assets

           

Cash equivalents—money market fund

   $ 59,859,675       $ 59,859,675       $       $   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2010:

 

     December 31,
2010
     Quoted Price
in  Active

Markets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Assets

           

Cash equivalents—money market fund

   $ 14,510,308       $ 14,510,308       $       $   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Preferred stock warrants

   $ 12,278       $       $       $ 12,278   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

The change in the valuation of preferred stock warrants for the years ended December 31, 2011 and 2010, respectively, are summarized below.

 

     Years ended December 31,  
     2011     2010  

Fair value, beginning of year

   $ 12,278      $ 29,514   

Change in fair value

     258,536        (17,236

Conversion of preferred stock warrants to common stock warrants

     (270,814       
  

 

 

   

 

 

 

Fair value, end of year

   $      $ 12,278   
  

 

 

   

 

 

 

 

The Company accounted for the warrants outstanding to purchase 30,981 shares of Series C-2 convertible preferred stock according to accounting standards regarding freestanding financial instruments with the characteristics of both liabilities and equities. Due to the redemption feature of the Series C-2 convertible preferred stock, these warrants were classified as liabilities. The warrants were revalued at each balance sheet date and any change in fair value was recorded as a component of other income or other expense. In connection with the Reverse Merger, the Series C-2 convertible preferred stock warrants were converted to common stock warrants, and a final mark to market calculation was performed. The common stock warrants were subsequently exercised in a net settlement transaction, resulting in the issuance of 10,115 shares of common stock.

 

Property and Equipment

 

Property and equipment are recorded at cost and are depreciated and amortized using the straight-line method over the assets’ expected useful lives. Property and equipment held under capital leases and leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income. Repairs and maintenance costs are expensed as incurred.

 

Asset Classification    Estimated
Useful Life

Software

   3 years

Vehicles

   5 years

Furniture and fixtures

   7 years

Lab and facility equipment

   5-7 years

Leasehold improvements

   shorter of estimated
useful life or lease term

 

F-9


Impairment of Other Long-Lived Tangible and Intangible Assets

 

The Company continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of long-lived assets and intangible assets may warrant revision or if events or circumstances indicate that the carrying value of these assets may be impaired. To assess whether assets have been impaired, the estimated undiscounted future cash flows for the estimated remaining useful life of the assets are compared to the carrying value. To the extent that the future cash flows are less than the carrying value, the assets are written down to the estimated fair value, based on the discounted cash flows of the asset.

 

Amortization of Developed Technology

 

The Company provides for amortization of developed technology, computed using an accelerated method according to the undiscounted expected cash flows to be received from the underlying assets, over a useful life of 10 years.

 

Goodwill

 

The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business combination is allocated to goodwill. Goodwill is not amortized; however, it is required to be tested for impairment annually. Furthermore, testing for impairment is required on an interim basis if an event or circumstance indicates that it is more likely than not an impairment loss has been incurred. An impairment loss would be recognized to the extent that the carrying amount of goodwill exceeds its implied fair value. Absent an event that indicates a specific impairment may exist, the Company has selected December 31 as the date for performing the annual goodwill impairment test. Goodwill impairment charges were not required for the year ended December 31, 2011. See Note 7, “Goodwill and Intangible Assets, Net,” for additional information.

 

Revenue Recognition

 

The Company’s business strategy includes entering into collaborative agreements with biotechnology and pharmaceutical companies. Revenue under collaborations may include the receipt of non-refundable license fees, payments based on achievement of development objectives, reimbursement of research and development costs and royalties on product sales.

 

The Company recognizes revenue when all of the following criteria are met: persuasive evidence of an arrangement exists, services are performed or products are delivered, the fee is fixed and determinable, and collection is reasonably assured. Determination of whether persuasive evidence exists and whether delivery has occurred or services have been rendered are based on management’s judgment regarding the fixed nature of the fee charged for deliverables and the collectability of those fees. Should changes in conditions cause management to determine these criteria are not met for future transactions, revenue recognized could be adversely affected.

 

Collaboration and License Revenue

 

The Company recognizes revenue related to collaboration and license agreements in accordance with the provisions of ASC Topics 605-25 “Revenue Recognition—Multiple Element Arrangements” (“ASC Topic 605-25”). In January 2011, the Company adopted Accounting Standards Update (“ASU”) No. 2009-13, “Multiple Deliverable Revenue Arrangements” for contracts entered into or materially modified after that date. ASU 2009-13 updates the previous multiple-element revenue arrangements guidance. The revised guidance primarily provides three significant changes: 1) it eliminates the need for objective and reliable evidence of the fair value of the undelivered element in order for a delivered item to be treated as a separate unit of accounting; 2) it eliminates the residual method to allocate the arrangement consideration; and 3) it modifies the fair value requirements of EITF Issue 00-21 by providing best estimate of selling price, or BESP, in addition to vendor specific objective evidence and vendor objective evidence, or VSOE, for determining the selling price of a deliverable. In addition, the guidance also expands the disclosure requirements for revenue recognition. The Company determines the selling price of a deliverable using the hierarchy as prescribed in ASC Topic 605-25 based on VSOE, third party evidence “TPE,” or BESP. VSOE is based on the price charged when the element sold separately and is the price

 

F-10


actually charged for that deliverable. TPE is determined based on third party evidence for a similar deliverable when sold separately and BESP is the price which the Company would transact a sale if the elements of the collaboration and license agreements were sold on a stand-alone basis. The Company evaluates the above noted hierarchy when determining the fair value of a deliverable. The process for determining VSOE, TPE, or BESP involves significant judgment on the part of the Company and can include considerations of multiple factors such as estimated direct expenses and other costs and available data. ASC 605-25 is effective prospectively for new arrangements or upon material modification of existing arrangements. The adoption of ASU 2009-13 did not have an impact on the Company’s financial position, results of operations or cash flows in 2011.

 

The Company evaluates all deliverables within an arrangement to determine whether or not they provided value on a stand-alone basis. Based on this evaluation, the deliverables are separated into units of accounting. The arrangement consideration that is fixed and determinable at the inception of the arrangement is allocated to the separate units of accounting based on the estimated selling price. The Company may exercise significant judgment in determining whether a deliverable is a separate unit of accounting as well as in estimating the selling prices of such units of accounting.

 

For multiple element arrangements, including collaboration and license agreements, entered into prior to January 1, 2011, guidance required that the fair value of the undelivered item be the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. This was difficult to determine when the service or product was not individually sold because of its unique features. Under this guidance, if the fair value of all of the undelivered elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was determined.

 

Whenever the Company determines that an arrangement should be accounted for as a single unit of accounting, it must determine the period over which the performance obligations will be performed and revenue will be recognized. Revenue will be recognized using either a proportional performance or straight-line method. The Company recognizes revenue using the proportional performance method provided that the Company can reasonably estimate the level of effort required to complete its performance obligations under an arrangement and such performance obligations are provided on a best-efforts basis. Direct labor hours or full-time equivalents are typically used as the measure of performance. Revenue recognized under the relative performance method would be determined by multiplying the total payments under the contract, excluding royalties and payments contingent upon achievement of substantive milestones, by the ratio of level of effort incurred to date to estimated total level of effort required to complete the Company’s performance obligations under the arrangement. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the relative performance method, as of each reporting period.

 

Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations under an arrangement

 

Effective January 1, 2011, the Company adopted ASU No. 2010-17, “Milestone Method of Revenue Recognition”, which provides guidance on revenue recognition using the milestone method. Under the milestone method, a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is an event (i) that can be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due. The determination that a milestone is substantive is subject to considerable judgment and is made at the inception of the arrangement. Milestones are considered substantive when the consideration earned from the achievement of the milestone is (i) commensurate with either the Company’s performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome resulting from our performance to achieve the milestone, (ii) relates solely to past performance and (iii) is reasonable relative to all deliverables and payment terms in the arrangement. The adoption of this standard did not impact our financial position or our results of operations in 2011.

 

Collaboration and license revenue totaled approximately $0.6 million, $0.3 million and $0.1 million for the years ended December 31, 2011, 2010 and 2009, respectively.

 

F-11


Royalty Revenue

 

Royalty revenues are recognized in the period earned, based on contract terms when reported sales are reliably measurable and collectability is reasonably assured. Following the merger with Trimeris, we received royalties due to the Development and License Agreement with Roche (the “Roche License Agreement”). As part of the Roche License Agreement, Roche has an exclusive license to manufacture and sell FUZEON worldwide and the Company receives royalty payments equal to 16% of worldwide net sales of FUZEON occurring from and after January 1, 2011. Under the Roche License Agreement, Roche may deduct from its royalty payments to us 50% of any royalties paid to third parties which are reasonably required to allow Roche to sell FUZEON in a given country, including royalties paid to Novartis Vaccines and Diagnostics, Inc. (“Novartis”).” To calculate the royalty revenue paid to Synageva, a 5.5% distribution charge is deducted from Roche’s reported net sales, and Synageva receives a 16% royalty on the adjusted net sales amount. Revenue from royalties totaled $1.1 million for the period ended December 31, 2011. These royalties represent the royalty payment earned from Roche based on total worldwide net sales of FUZEON since the closing of the Reverse Merger in November 2011.

 

Reimbursement of Costs

 

Reimbursement of research and development costs by third party collaborators is recognized as revenue provided the Company has determined that it is acting primarily as a principal in the transaction according to the provisions outlined in FASB Codification Topic 605-45, Revenue Recognition, Principal Agent Considerations, the amounts are determinable and collection of the related receivable is reasonably assured.

 

Grant Revenue

 

The Company recognizes revenues from grants in the period in which the Company has incurred the expenditures in compliance with the specific restrictions of the grant.

 

Revenue from grants was recognized in the period in which the related expenditures were incurred and totaled approximately $0.4 million, $0.3 million and $0.1 million for the years ended December 31, 2011, 2010 and 2009, respectively, and are reflected as other revenue in the statements of operations.

 

Deferred Revenue

 

Amounts received prior to satisfying the above revenue recognition criteria would be recorded as deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized within twelve months from the balance sheet date would be classified as long-term deferred revenue.

 

Research and Development

 

Research and development costs are charged to operations when incurred and include personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs, outside consulting services and other external costs.

 

Clinical development and manufacturing costs are a significant component of the Company’s research and development expenses. The Company contracts with third parties that perform various clinical trial activities and outsourced manufacturing activities on its behalf in the ongoing development of its product candidates. The financial terms of these contracts are subject to negotiations and may vary from contract to contract and may result in uneven payment flow. The Company accrues and expenses costs for clinical trial and manufacturing activities performed by third parties based upon estimates of the work completed. Estimates are most affected by the Company’s understanding of the project’s status, timing and billing of services provided. Any costs associated with generating revenue are included in research and development expense.

 

Segment Reporting

 

The Company is managed and operated as one business, focused on the discovery, development, and commercialization of therapeutic products for patients with life-threatening rare diseases and unmet medical need.

 

F-12


The entire business is managed by a single management team with reporting to the chief executive officer. We do not operate separate lines of business or separate business entities with respect to our products or product candidates. Accordingly, the Company does not prepare discrete financial information with respect to separate product areas or by location and only has one reportable segment.

 

Legal, Intellectual Property (“IP”) and Patent Costs

 

The Company accrues estimated liabilities for loss contingencies when it is probable that a liability has been incurred and the amount of the claim assessment or damages can be reasonably estimated. Synageva expenses legal fees, IP-related and patent costs as they are incurred.

 

Income Taxes

 

Deferred income taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and operating loss carryforwards and credits. Valuation allowances are recorded to reduce the net deferred tax assets to amounts the Company believes are more-likely-than-not to be realized.

 

Stock-Based Compensation

 

The Company’s share-based compensation awards to employees, including grants of employee stock options, are valued at fair value on the date of grant, and are expensed over the requisite service period. The requisite service period is the period during which an employee is required to provide service in exchange for an award, which generally is the vesting period.

 

Concentration of Credit Risk and Other Risks and Uncertainties

 

Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents. The Company places its cash and cash equivalents in bank deposits and money market funds, which are maintained at one financial institution. Deposits in these institutions may exceed the amount of insurance provided on such deposits. Management believes it has established guidelines relative to credit quality, diversification and maturities that maintain security and liquidity.

 

The Company is subject to risks and uncertainties common to the biotechnology industry. Such risks and uncertainties include, but are not limited to: (a) results from current and planned clinical trials, (b) scientific data collected on the Company’s technologies currently in preclinical research and development, (c) decisions made by the FDA or other regulatory bodies with respect to the initiation of human clinical trials, (d) decisions made by the FDA or other regulatory bodies with respect to approval and commercial sale of any of the Company’s proposed products, (e) the commercial acceptance of any products approved for sale and the ability of the Company to manufacture, distribute and sell for a profit any products approved for sale, (f) the Company’s ability to obtain the necessary patents and proprietary rights to effectively protect its technologies, (g) the outcome of any collaborations or alliances entered into by the Company in the future with pharmaceutical or other biotechnology companies, (h) dependence on key personnel, (i) competition with better capitalized companies and (j) ability to raise additional funds.

 

Comprehensive Loss

 

The Company accounts for comprehensive loss as prescribed by ASU 220, “Comprehensive Income”. Comprehensive income (loss) is the total net income (loss), plus all changes in equity during the period, except those changes resulting from investment by and distribution to owners. The components of comprehensive loss for 2011 and 2010 were as follows:

 

     Years Ended December 31,  
     2011     2010  

Net loss

   $ (25,305,882   $ (10,823,656

Foreign currency translation adjustments

     (3,532       
  

 

 

   

 

 

 

Total comprehensive loss

     (25,309,414   $ (10,823,656
  

 

 

   

 

 

 

 

F-13


Basic and Diluted Net Loss per Common Share

 

Basic net loss per common share has been computed by dividing net loss by the weighted average number of shares outstanding during the period. Diluted net income per share, if applicable, has been computed by dividing diluted net income by the diluted number of shares outstanding during the period. Except where the result would be antidilutive to loss from continuing operations, diluted net loss per share has been computed assuming the conversion of convertible obligations and the elimination of the related interest expense, the exercise of stock options and warrants, as well as their related income tax effects.

 

The following table sets forth the computation of basic and diluted net loss per common share:

 

      Years Ended December 31,  
     2011     2010     2009  

Numerator:

      

Net loss

   $ (25,305,882   $ (10,823,656   $ (11,420,054

Denominator

      

Weighted average common shares(1)

      

Denominator for basic calculation

     2,950,242        31,547        22,126   

Denominator for diluted calculation

     2,950,242        31,547        22,126   

Net loss per share:(1)

      

Basic

   $ (8.58   $ (343.10   $ (516.14

Diluted

   $ (8.58   $ (343.10   $ (516.14

 

  (1) Per share computations for fiscal 2011 are based on (i) Private Synageva’s historic common stock balances (excluding preferred stock) up to the Merger date and (ii) post-Merger common stock from the Merger date to year end. For fiscal 2010 and 2009, per share computations are based on Private Synageva’s historic common stock balances, which exclude preferred stock

 

The Company’s potential dilutive securities which include convertible debt, convertible preferred stock, stock options, and warrants have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average common stock outstanding used to calculate both basic and diluted net loss per share are the same. The following shares of potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as the effect of including such securities would be antidilutive:

 

     As of December 31,  
     2011      2010      2009  

Options to purchase common stock

     2,370,642         1,244,200         1,395,392   

Convertible preferred stock

             25,997,351         25,997,351   

Convertible preferred stock warrants

             30,981           
  

 

 

    

 

 

    

 

 

 
     2,370,642         27,272,532         27,392,743   
  

 

 

    

 

 

    

 

 

 

 

Recently Issued and Proposed Accounting Pronouncements

 

In October 2009, the FASB issued an amendment to the accounting for multiple-deliverable revenue arrangements. This amendment provides guidance on whether multiple deliverables exist, how the arrangements should be separated, and how the consideration paid should be allocated. As a result of this amendment, entities may be able to separate multiple-deliverable arrangements in more circumstances than under existing accounting guidance. This guidance amends the requirement to establish the fair value of undelivered products and services based on objective evidence and instead provides for separate revenue recognition based upon management’s best estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. The existing guidance previously required that the fair value of the undelivered item reflect the price of the item either sold in a separate transaction between unrelated third parties or the price charged for each item when the item is sold separately by the vendor. If the fair value of all of the elements in the arrangement was not determinable, then revenue was deferred until all of the items were delivered or fair value was

 

F-14


determined. This amendment will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company adopted the provisions of this guidance on a prospective basis on January 1, 2011 and applied the guidance to the terms of any new or materially modified arrangements subsequent to adoption.

 

In April 2010, the FASB issued ASU 2010-17, Revenue Recognition—Milestone Method (Topic 605): Milestone Method of Revenue Recognition (“ASU 2010-17”). ASU 2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Consideration that is contingent on achievement of a milestone in its entirety may be recognized as revenue in the period in which the milestone is achieved only if the milestone is judged to meet certain criteria to be considered substantive. The new rule was adopted by the Company on January 1, 2011. Adoption of this new standard did not materially affect the Company’s financial statements.

 

In June 2011, the FASB issued an amendment to the accounting guidance for presentation of comprehensive income. Under the amended guidance, a company may present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In either case, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. Regardless of choice in presentation, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. For public entities, the amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and shall be applied retrospectively. Early adoption is permitted. Other than a change in presentation, the adoption of this update is not expected to have a material impact on the Company’s financial statements.

 

In September 2011, the FASB issued ASU 2011-08, Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which simplifies goodwill impairment tests. The revised standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing companies with the option of performing a qualitative assessment to determine whether future impairment testing is necessary. The revised standard is effective for the Company on January 1, 2012 and will be applied prospectively.

 

3. Property and Equipment

 

     December 31,  
     2011     2010  

Laboratory equipment

   $ 2,438,496      $ 2,044,987   

Leasehold improvements

     414,763        355,100   

Computer, software and office equipment

     699,415        479,888   

Vehicles

     93,890        93,890   
  

 

 

   

 

 

 
     3,646,564        2,973,865   
  

 

 

   

 

 

 

Less: Accumulated depreciation and amortization

     (2,390,074     (1,904,879
  

 

 

   

 

 

 
   $ 1,256,490      $ 1,068,986   
  

 

 

   

 

 

 

 

Depreciation and amortization expense was $0.5 million and $0.4 million for fiscal year 2011 and 2010, respectively.

 

F-15


4. Accrued Expenses

 

Accrued expenses consist of the following:

 

     December 31,  
     2011      2010  

Accrued compensation and benefits

   $ 3,112,739       $ 459,376   

Clinical, manufacturing and scientific costs

     818,787         288,691   

Professional fees

     619,425         159,573   

Other

     452,044         231,240   
  

 

 

    

 

 

 
   $ 5,002,995       $ 1,138,880   
  

 

 

    

 

 

 

 

5. Loan and Security Agreement

 

On March 31, 2008, the Company entered into an $8.0 million term loan agreement consisting of a $5.0 million term loan with Oxford Finance Corp. and a $3.0 million term loan with Silicon Valley Bank. Pursuant to the Loan and Security Agreement (the “Loan Agreement”), the Company received $4.0 million on March 31, 2008 and $4.0 million on July 31, 2008. The principal balance of each advance under the Loan Agreement bore interest of 11.0%. The Loan Agreement allowed for interest-only payments on a monthly basis for six months for each tranche followed by 30 months of interest and principal payments and allowed the Company to prepay the outstanding principal amount and all accrued but unpaid interest and fees, subject to a payment of a prepayment premium equal to (i) 6.0% of the principal prepaid if paid during the first 12 months of the term, (ii) 4.0% of the principal prepaid if prepaid during the second 12 months of the term, and (iii) 3.0% of the principal prepaid if prepaid thereafter. The Company’s obligations under the Loan Agreement were secured by substantially all of its assets other than its intellectual property. The Loan Agreement contained customary covenants that, among other things, restricted the Company’s ability to incur indebtedness and pay cash dividends on its capital stock. The Loan Agreement also provided for customary events of default, following which the lenders may have, at its option, accelerated the amounts outstanding under the Loan Agreement. Events of default included, but were not limited to, an event that has a material adverse change, as described in the Loan Agreement. In connection with the Loan Agreement, the Company issued Oxford Finance Corp. and Silicon Valley Bank fully exercisable, ten-year warrants to purchase 19,365 and 11,618 shares, respectively, of its Series C-2 Convertible Preferred Stock, at an exercise price of $11.62 per share, respectively (see Note 2).

 

In connection with the Loan Agreement, the Company also incurred $0.2 million of financing fees and legal costs.

 

In October 2009, the Company repaid the outstanding loan amounts of $5.6 million in addition to an early payment penalty of $0.2 million. The early payment penalty was recorded as interest expense for the year ended December 31, 2009.

 

6. Merger

 

The Reverse Merger has been accounted for as a reverse acquisition under the acquisition method of accounting with Private Synageva treated as the accounting acquiror and Trimeris treated as the “acquired” company for financial reporting purposes because, after the Merger, former stockholders of Private Synageva held a majority of the voting interest of the combined company. In addition, the former board of directors of Private Synageva possess majority control of the board of directors of the combined company. Members of the management of Private Synageva are responsible for the management of the combined company and the majority of the combined company’s activities are related to Synageva’s current business. As such, the financial statements of Private Synageva are treated as the historical financial statements of the combined company, with the results of Trimeris being included from November 2, 2011.

 

Reverse Stock Split

 

On November 2, 2011, as contemplated by the Merger Agreement and as approved by Trimeris’ stockholders, Trimeris filed a Certificate of Amendment to its Fifth Amended and Restated Certificate of Incorporation with the

 

F-16


Secretary of State of the State of Delaware to effect a reverse stock split of Trimeris common stock at a ratio of 1:5 (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each five shares of Trimeris common stock issued and outstanding immediately prior to the Reverse Stock Split were automatically combined into and became one share of Trimeris common stock. No fractional shares of Trimeris common stock were issued as a result of the Reverse Stock Split and any Trimeris stockholder who otherwise would have been entitled to receive fractional shares received cash in an amount, without interest, determined by multiplying such fraction of a share by $15.35, the closing price of a share of Trimeris common stock on the Nasdaq Global Market on November 2, 2011, after giving effect to the Reverse Stock Split. Also, as a result of the Reverse Stock Split, the per share exercise price of, and the number of shares of common stock underlying, Company stock options, warrants and other derivative securities outstanding immediately prior to the Reverse Stock Split were automatically proportionally adjusted based on the one-for-five split ratio in accordance with the terms of such options, warrants or other derivative securities, as the case may be. The Reverse Stock Split did not alter the par value of the Trimeris common stock or modify any voting rights or other terms of the common stock. Following the Reverse Stock Split, but prior to the Reverse Merger, there were 4.5 million shares of Trimeris stock outstanding.

 

Exchange Ratio

 

Based on the outstanding shares of Private Synageva’s capital stock on November 2, 2011, each share of Private Synageva’s preferred stock and common stock was exchanged for approximately 0.413 shares of Trimeris common stock (the “Exchange Ratio”). As part of the Reverse Merger, Private Synageva’s convertible notes payable were converted into D-2 Preferred Stock, prior to the conversion of all of Private Synageva’s preferred stock and common stock into shares of the combined company. The conversion of Private Synageva’s preferred stock and common stock resulted in 13.0 million shares in the combined company.

 

In addition, (i) all outstanding options to purchase shares of Private Synageva common stock were assumed by Trimeris and converted into options to purchase shares of Trimeris common stock, in each case appropriately adjusted based on the Exchange Ratio; and (ii) all outstanding warrants to purchase shares of the capital stock of Private Synageva were assumed by Trimeris and converted into warrants to purchase shares of Trimeris common stock, in each case appropriately adjusted based on the Exchange Ratio. Immediately after the Reverse Merger, former stockholders of Private Synageva held approximately 75% of the combined company, calculated on a fully-diluted basis, and former stockholders of Trimeris held approximately 25% of the combined company, calculated on a fully-diluted basis, in each case excluding those shares of Trimeris held by the former Private Synageva stockholders immediately prior to the time of the Reverse Merger. After giving effect to the Reverse Stock Split and the Reverse Merger, the combined company had approximately 17.5 million shares of common stock outstanding.

 

Merger Purchase Price

 

The consolidated financial statements reflect the merger of Synageva with Trimeris as a reverse merger wherein Synageva is deemed to be the acquiring entity from an accounting perspective. Under the acquisition method of accounting, Trimeris’ 4.5 million of outstanding shares of common stock (following the stock split but prior to the Merger) were valued using the closing price on the Nasdaq Global Market of $15.35 per share on November 2, 2011. Further, as a result of the merger, options to purchase an aggregate of 0.4 million shares of Trimeris common stock that were held by officers and directors of Trimeris immediately vested (see Note 9). The fair values of the Trimeris outstanding stock options were determined using the Black-Scholes option pricing model with the following assumptions: stock price of $15.35; volatility of 51%; risk-free interest rate of 1.02%; and a weighted average expected life of 2.8 years. In addition, Synageva incurred approximately $1.1 million of transaction costs related to the Merger. These costs were expensed as incurred, and classified as general and administrative expense.

 

The purchase price, based on the stock price as of the Reverse Merger date, is as follows (in thousands):

 

Fair value of Trimeris shares outstanding

   $ 68,767   

Fair value of vested Trimeris stock options

     1,102   

Purchase price

   $ 69,869   

 

F-17


Reverse Merger Purchase Price Allocation

 

The fair value of acquired assets and liabilities is as follows (in thousands):

 

Cash and cash equivalents

   $ 50,107   

Accounts receivable, taxes refundable and other current assets

     4,437   

Developed technology—FUZEON

     9,300   

Goodwill(1)

     8,535   

Assumed liabilities

     (2,510

Total

   $ 69,869   

 

  (1) The goodwill resulting from the Reverse Merger is not deductible for tax purposes.

 

Pro Forma Financial Information

 

The following table presents selected unaudited financial information, as if the Reverse Merger with Trimeris had occurred on January 1, 2010 (in thousands, except per share data).

 

     Year Ended  
     2011     2010  
  

 

 

   

 

 

 
     (Unaudited)  

Pro forma net revenue(1)

   $ 10,035      $ 27,312   

Pro forma net (loss) income

     (19,105     9,130   

Pro forma net (loss) income per common share—basic

   $ (4.12   $ 2.03   

Pro forma net (loss) income per common share—diluted

   $ (4.12   $ 2.03   

 

  (1) Fiscal 2010 revenue includes $18.7 million of revenue resulting from entering into the Deferred Marketing Expenses Agreement with Roche, which relieved the obligation to repay certain deferred marketing expenses.

 

Fiscal 2011 pro forma net loss was adjusted to exclude certain fiscal 2011 expenses, including $5.2 million of acquisition-related costs and $0.5 million of amortization expense related to acquired developed technology. There were no proforma adjustments for fiscal 2010.

 

7. Goodwill and Intangible Assets, net

 

The following table represents to changes in goodwill for the year ended December 31, 2011 (in thousands):

 

Balance at December 31,2010

   $   

Goodwill related to the Trimeris reverse acquisition

     8,535   
  

 

 

 

Balance at December 31.2011

   $ 8,535   
  

 

 

 

 

As of December 31, 2011 the Company has not recorded any goodwill impairment losses.

 

Intangible assets, net of accumulated amortization is as follows (in thousands):

 

            As of December 31, 2011  
     Estimated Life      Cost      Accumulated
Amortization
    Net  

Developed Technology

     10 years         9,300         (504     8,796   

 

The developed technology asset represents the present value of the estimated future FUZEON royalty stream (Note 12). Amortization expense totaled $0.5 million for fiscal 2011. The developed technology asset acquired in the Reverse Merger with Trimeris is being amortized over the estimated life of the royalty stream, in proportion to the related royalty revenue. As a result, the estimated level of amortization expense is weighted toward the earlier

 

F-18


years. Assuming no change to our estimates of the Roche royalty stream, the Company expects amortization expense for the next five fiscal years to approximate the following:

 

Fiscal

Year

   Amortization
(in thousands)
 

2012

   $ 2,909   

2013

     2,036   

2014

     1,426   

2015

     935   

2016

     608   

 

8. Convertible Notes and Convertible Preferred Stock

 

The following summarizes our convertible notes and preferred stock balances at December 31, 2011 and 2010:

 

     December 31,  
     2011      2010  
   Consolidated         

Convertible preferred stock:

     

Series D-2 convertible preferred stock, par value $0,001;

     

Zero and 18,000,000 shares authorized at December 31, 2011 and 2010, respectively;

     

Zero and 18,000,000 shares outstanding at December 31, 2011 and 2010, respectively;

     

(liquidation preference of $45,000,000 at December 31, 2010)

   $       $ 44,863,380   

Series C-2 convertible preferred stock, par value $0.001;

     

Zero and 3,658,500 shares authorized at December 31, 2011 and 2010, respectively;

     

Zero and 3,583,040 shares issued and outstanding at December 31, 2011 and 2010; respectively;

     

(liquidation preference of $17,176,735 at December 31, 2010)

             17,193,028   

Series B-2 convertible preferred stock, par value $0.001;

     

Zero and 4,168,700 shares authorized at December 31, 2011 and 2010, respectively;

     

Zero and 4,168,674 shares issued and outstanding at December 31, 2011 and 2010 respectively;

     

(at liquidation preference)

             21,094,741   

Series A-2 convertible preferred stock, par value $0.001;

     

Zero and 245,650 shares authorized at December 31, 2011 and 2010, respectively;

     

Zero and 245,637 issued and outstanding at December 31, 2011 and 2010, respectively;

     

(at liquidation preference)

             12,429,920   
  

 

 

    

 

 

 

Total convertible preferred stock

   $       $ 95,581,069   
  

 

 

    

 

 

 

 

2009 Convertible Notes

 

In January 2009, the Company entered into a convertible notes payable (“2009 Convertible Notes”) with 20 existing investors for proceeds of $6.6 million. The terms of the 2009 Convertible Notes included interest at 11.0%. In April 2009, the $6.6 million plus $164,000 in accrued interest converted into Series D-2 preferred stock as part of the Series D-2 preferred stock financing.

 

Series D-2 Preferred Stock Purchase Agreement

 

On April 1, 2009, the Company entered into an agreement (the “Series D-2 Preferred Stock Purchase Agreement”) to issue and sell 18,000,000 shares of Series D-2 redeemable convertible preferred stock (“Series D-2 preferred

 

F-19


stock”) at a price of $2.50 per share, for total proceeds of approximately $45 million. The issuance and the proceeds included the 2009 Convertible Notes, which were converted into Series D-2 preferred stock at principal plus accrued interest. The Company received the proceeds in four separate closings during the year ended December 31, 2009.

 

Convertible Preferred Stock

 

As of December 31, 2010, of the 28,000,000 authorized shares of preferred stock, 245,650 shares were designated as Series A-2 convertible preferred stock (“Series A-2 preferred stock”), 4,168,700 shares were designated as Series B-2 convertible preferred stock (“Series B-2 preferred stock”), 3,658,500 shares were designated as Series C-2 convertible preferred stock (“Series C-2 preferred stock”), and 18,000,000 shares were designated as Series D-2 preferred stock. These shares converted to common stock of the combined company as part of the merger on November 2, 2011 at a ratio of approximately .413 for every share of previously issued stock.

 

2011 Convertible Notes

 

In March 2011, the Company issued Convertible Notes (the “2011 Convertible Notes”) for proceeds of $12.5 million as the first tranche of a potential $25 million convertible note offering. The 2011 Convertible Notes were convertible into shares of Series D-2 preferred stock at the conversion price then applicable to the Series D-2 preferred stock or into a future series of Preferred Stock at its then applicable conversion price issued in conjunction with the next Qualified Offering (as defined in the 2011 Notes purchase agreement), at the election of the holders. The 2011 Convertible Notes had no stated interest rate. On November 2, 2011 as part of the completion of the merger with Trimeris, the 2011 Convertible Notes were converted into D-2 Preferred Stock, prior to the conversion of all Private Synageva preferred and common shares outstanding into shares of the combined entity.

 

9. Share Based Payments

 

The Company’s Board of Directors adopted in November 1996 the 1996 Stock Option Plan (“1996 Plan”) under which options designated as either incentive or non-qualified stock options may be issued to employees, officers, directors, consultants and independent contractors of the Company or any parent, subsidiary or affiliate of the Company. Options granted under the 1996 Plan are at prices not less than the fair market value at the time of grant and may be exercised for a period of ten years from the grant date. Options granted under the 1996 Plan have vesting periods ranging from immediate to four years. The 1996 Plan includes a provision for options to accelerate and become immediately and fully exercisable upon a 50% or more change in control as defined in the 1996 Plan. In November 2006, the 1996 Plan was terminated in accordance with its ten-year expiration provision.

 

On June 7, 2005, a new stock plan (the “2005 Stock Plan”) was adopted by the Company’s Board of Directors and approved by the Company’s shareholders. Any employee, officer, consultant, independent contractor or director is eligible to participate in the 2005 Stock Plan. The 2005 Stock Plan permits the granting of incentive and non-qualified stock options and stock purchase rights for restricted stock. Options granted under the 2005 Stock Plan are at prices not less than the fair market value at the time of grant and may be exercised for a period of ten years from the grant date. Options granted under the 2005 Stock Plan have vesting periods ranging from immediate to four years. The 2005 Stock Plan includes a provision for options to accelerate and become immediately and fully exercisable upon a 50% or more change in control as defined in the incentive and non-qualified stock option agreements. Under the 2005 Stock Plan, the Board of Directors has the authority to determine to whom options will be granted, the number of shares, the term, and the exercise price. If an individual owns stock representing more than 10% of the outstanding shares at the time of grant, the exercise price of each share shall be at least 110% of fair market value, as determined by the Company’s Board of Directors.

 

As part of the Merger, options outstanding under Trimeris’s previous option plans were adjusted by the conversion ratio, and remained in existence as options in the combined entity. The following summarizes Trimeris’s stock option plans:

 

   

In 1993, the Company adopted a stock option plan, which allowed for the issuance of non-qualified and incentive stock options (the “1993 Plan”). During 1996, the Trimeris, Inc. Amended and Restated Stock

 

F-20


 

Incentive Plan (the “Employee Stock Option Plan”) was implemented and replaced the 1993 Plan. Under the Employee Stock Option Plan, the Company was able to grant non-qualified or incentive stock options for up to 6,252,941 shares of common stock.

 

   

During October 2007, the 1996 Employee Stock Option Plan expired and the Trimeris, Inc. 2007 Stock Incentive Plan (the “2007 Stock Incentive Plan”) was implemented. Under the 2007 Stock Incentive Plan, the Company may grant non-qualified or incentive stock options for up to 1,000,000 shares of common stock. The exercise price of each incentive stock option shall not be less than the fair market value of the Company’s common stock on the date of grant and an option’s maximum term is ten years.

 

The Company uses the Black-Scholes option pricing model to measure the fair value of its option awards. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The expected life assumption is based on the limited exercise historical experience at the Company, management’s expectations based on the length of time that an employee will stay at the Company, the vesting period of four years and the contractual term of ten years. Volatility has been determined based on an analysis of reported data for a peer group of companies that granted options with substantially similar terms. The risk-free interest rate is based on the rate of U.S. Treasury zero coupon rate with a remaining term approximating the expected term used as the input to the Black-Scholes option pricing model.

 

The weighted average assumptions used in the option pricing model for stock option grants were as follows:

 

     Year Ended
December 31,
 
     2011     2010     2009  

Expected dividend yield

     None        None        None   

Expected volatility in stock price

     51     52     62

Weighted average risk-free interest rate

     1.51     1.71     2.50

Expected life of stock awards-years

     6 years        5 years        5 years   

 

A summary of stock option activity under all equity plans for the year ended December 31, 2011 is as follows:

 

     Number of
Shares
    Weighted
Average
Exercise Price
 

Outstanding at December 31, 2008

     363,209      $ 2.18   

Options granted

     1,064,187        0.95   

Options exercised

     (4,023     1.31   

Options canceled or expired

     (27,981     3.22   
  

 

 

   

Outstanding at December 31, 2009

     1,395,392      $ 1.21   
  

 

 

   

Options granted

     34,444        1.09   

Options exercised

     (37,751     0.97   

Options canceled or expired

     (147,885     1.16   
  

 

 

   

Outstanding at December 31, 2010

     1,244,200      $ 1.27   
  

 

 

   

Options granted(1)

     1,028,979        13.39   

Options assumed through merger with Trimeris

     372,849        57.23   

Options exercised

     (209,055     0.89   

Options canceled or expired

     (66,331     1.41   
  

 

 

   

Outstanding at December 31, 2011

     2,370,642      $ 15.34   
  

 

 

   

Exercisable at December 31, 2011

     946,955      $ 23.47   

Exercisable and expected to vest at December 31, 2011

     2,178,662      $ 15.82   

 

  (1) Includes options to purchase 378,900 shares of common stock approved by the Board of Directors on December 20, 2011 subject to shareholder approval of sufficient additional shares authorized under the 2005 Stock Plan.

 

F-21


Options outstanding and currently exercisable at December 31, 2011, under all equity plans, are as follows:

 

     Options Outstanding      Options Exercisable  

Range of Exercise Prices

   Number
Outstanding
     Weighted
Average
Remaining
Contractual
Life (yrs)
     Weighted
Average
Exercise
Price
     Number
Exercisable
     Weighted
Average
Exercise
Price
 

$0.61-$0.95

     805,491         7.6       $ 0.94         453,972       $ 0.94   

$1.10-$1.70

     421,466         9.4         1.65         9,244         1.10   

$3.52-$8.73

     242,187         8.0         5.82         108,368         3.52   

$10.10-$20.60

     116,231         7.9         13.62         116,231         13.62   

$23.00-$45.50

     646,032         9.2         23.85         119,905         27.57   

$47.35 and above

     139,235         2.2         118.6         139,235         118.6   
  

 

 

          

 

 

    
     2,370,642         8.1       $ 15.34         946,955       $ 23.47   
  

 

 

          

 

 

    

 

As of December 31, 2011, the unamortized compensation expense related to outstanding unvested options approximated $7.3 million and is expected to be recognized over a weighted average period of 3.65 years.

 

The aggregate intrinsic value of shares outstanding and shares exercisable at December 31, 2011 is approximately $39.8 million and $16.0 million, respectively, which represents the total intrinsic value (the excess of the fair value of the Company’s stock on December 31, 2011 over the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2011.

 

The Company recognized stock-based compensation expense on all stock option awards for the years ended December 31, 2011, 2010 and 2009 in the following categories:

 

     2011      2010      2009  

Research and development

   $ 231,334       $ 44,541       $ 25,938   

General and administrative

     401,386         159,241         128,252   
  

 

 

    

 

 

    

 

 

 
   $ 632,720       $ 203,782       $ 154,190   
  

 

 

    

 

 

    

 

 

 

 

10. Defined Contribution Plan

 

The Company has a defined contribution plan that is intended to qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”). All employees, except part-time employees, are eligible to participate in the plan. Participants may contribute through payroll deductions, amounts not to exceed Internal Revenue Code limitations. During the years ended December 31, 2011, 2010 and 2009, the Company recognized expense for 401(k) matching contributions of $0.2 million, $0.1 million and $0.1 million, respectively.

 

F-22


11. Income Taxes

 

The Company has not recorded a benefit for income taxes related to its operating losses for the years ended December 31, 2011 and 2010. The Company’s effective tax rate differs from that based on the federal statutory rate due to the following:

 

     Years Ended December 31,  
     2011     2010  

Federal tax at statutory rate

     (8,571,360)        $(3,680,043)   

State income taxes

     (1,278,488     (515,749

State rate changes

     (1,443,044       

Federal and state R&D credits

     (639,818     (308,798

Return to provision adjustments

     245,307        536,090   

48D grant income adjustment

            (778,226

Expiration of state NOLs

     28,755          

Stock-based compensation

     (26,438     69,286   

Valuation allowance

     11,692,788        4,675,927   

Other

     (7,702     1,513   
  

 

 

   

 

 

 

Benefit from income taxes

   $      $   
  

 

 

   

 

 

 

 

Significant components of the Company’s net deferred tax asset as December 31, 2011 and 2010 are as follows:

 

     2011     2010  

Deferred tax assets:

    

Net operating losses

   $ 45,824,773      $ 29,745,051   

Capitalized research and development

     10,428,454        4,650,902   

Tax credit carryforwards

     5,267,068        3,656,132   

Deferred revenue

     1,073,241          

Accrued expenses

     706,234        64,762   

Depreciation and amortization

     109,252        20,325   

Other

     16,339        7,488   
  

 

 

   

 

 

 
     63,425,361        38,144,660   

Deferred tax liabilities:

    

Acquired intangibles

     ($3,444,891       
  

 

 

   

 

 

 

Valuation allowance

     (59,980,470     (38,144,660
  

 

 

   

 

 

 

Net deferred tax asset

   $      $   
  

 

 

   

 

 

 

 

The 2011 deferred tax assets in the table above include acquired net operating loss carryforwards of $9.2 million and federal R&D credits of $1.0 million, for which a full valuation allowance was established at the time of the Reverse Merger. At December 31, 2011, the Company had federal and state net operating loss carry forwards of $91.6 million and $337.5 million, respectively, which begin to expire in 2012. Approximately $241.0 million of the state net operating loss carry forwards were acquired in the Reverse Merger and are not limited as a result of ownership change limitations. These net operating losses are in the state of North Carolina and are not expected to be utilized by the Company. Approximately $0.7 million of the federal and state net operating loss carryforwards relate to deductions from stock option compensation, which are tracked separately and not included in the Company’s deferred tax asset in accordance with ASC 718. The future benefit from these deductions will be recorded as a credit to additional paid in capital when realized. The Company also has federal and state research and development tax credit carryforwards of $4.4 million and $1.3 million, respectively, available to reduce future tax liabilities, which begin to expire in 2012 and 2023, respectively.

 

Utilization of the net operating loss (“NOL”) and research and development (“R&D”) credit carry forwards may be subject to a substantial annual limitation under Section 382 of the Code due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and R&D credit carry forwards that can be utilized annually to offset future taxable income and tax,

 

F-23


respectively. As part of the Reverse Merger, the Company acquired federal tax attributes that are significantly limited under Section 382 of the Code. There also could be additional ownership changes in the future which may result in additional limitations on the utilization of NOL carryforwards and credits.

 

Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, and has determined that it is more-likely-than-not that the Company will not recognize the benefits of its deferred tax asset. Accordingly, a valuation allowance of $60.0 million and $38.1 million has been established at December 31, 2011 and 2010, respectively.

 

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations.

 

Below is a table of the earliest tax years that remain subject to examination by jurisdictions:

 

     Earliest Tax
Year Subject to
Examination
 

Jurisdiction

  

U.S Federal

     2008   

State of Georgia

     2008   

State of North Carolina

     2008   

Commonwealth of Massachusetts

     2008   

 

All years including and subsequent to the above years remain open to examination by the taxing authorities. The resolution of tax matters is not expected to have a material effect on the Company’s financial statements. The Company’s policy is to record interest and penalties related to income taxes as part of the tax provision. There were no interest and penalties pertaining to uncertain tax positions in 2011 and 2010.

 

The Company adopted the authoritative guidance on accounting for and disclosure of uncertainty in tax positions on January 1, 2009, which required the Company to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals of litigation processes, based on the technical merits of the position. The adoption of this authoritative guidance did not have a material effect on the financial statements. The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2011 and 2010.

 

A provision included in the health care reform bill created a temporary tax credit for businesses with less than 250 employees who engage in qualifying therapeutic discovery projects for the tax years 2009 and 2010. The program permitted applicants to elect to receive a cash grant in lieu of the tax credit. The amount of the tax credit or grant was equal to 50% of the qualified investment for the taxable year for any qualifying therapeutic discovery project. The total amount awarded by the U.S. Treasury Department to the Company was $2.3 million. The Company elected to receive the award as a cash grant and has recorded the award as other income within the accompanying statement of operations for the year ended December 31, 2010. Amounts received in cash in 2010 totaled $1.5 million and in 2011 totaled $0.8 million, respectively.

 

12. License Agreements and Collaborations

 

Collaborations

 

In March 2009 and March 2010, the Company entered into collaboration agreements with a third-party to develop antibodies using the Synageva proprietary expression platform. The collaboration agreements included up-front payments of $0.2 million, potential future milestone payments to the Company totaling $0.4 million and potential option payments payable to the Company.

 

Revenue recognized under these collaboration agreements was $0.2 million, $0.3 million and $0.1 million for the years ended December 31, 2011, 2010 and 2009, respectively. Revenue was recognized using the proportional performance method.

 

F-24


In August 2011, the Company entered into a collaboration agreement with Mitsubishi Tanabe Pharma Corporation (“Mitsubishi Tanabe”) whereby the Company is utilizing its proprietary expression technology for the development of a certain targeted compound. The agreement includes an upfront license payment to the Company of $3.0 million, on-going reimbursement or funding of development costs, estimated during the initial development period to be approximately $1.5 million, and the potential for an additional payment due upon the successful completion of the initial development. Mitsubishi Tanabe also has an option to obtain an exclusive royalty-bearing license, with the right to grant sublicenses, to further develop and commercialize the licensed compound (the “Option”). Additionally, upon exercise of the Option, the parties intend to negotiate a follow-on collaboration and license agreement that may include potential future development and commercial sales based milestone payments, and potential royalty payments. The Company determined that the Option is substantive as the decision to exercise is in the control of Mitsubishi Tanabe and is not essential to the functionality of the other deliverables. Therefore, the Option was not considered to be a deliverable at the inception of the collaboration agreement. The Option terminates sixty days from date the Joint Steering Committee (“JSC”) determines whether the initial development was successful.

 

The Company evaluated the collaboration agreement in accordance ASC 605-25 and ASU 2009-13 in order to determine whether the deliverables at the inception of the agreement: (i) the license , (ii) research services during the development period, and (iii) JSC participation should be accounted for as a single unit or multiple units of accounting. The Company concluded that the license does not have standalone value to Mitsubishi Tanabe because (i) Mitsubishi Tanabe does not have the ability to transfer or sublicense and (ii) the activities to be conducted during the development period are highly dependent on the Company’s unique knowledge and understanding of its proprietary technology which is critical to optimizing the compound. The Company determined that the JSC is a deliverable through the development period. The Company concluded that the license, the research services performed during the development term and the JSC obligation represent a single unit of account.

 

Revenue recognized under this arrangement for the year ended December 31, 2011 totaled approximately $0.5 million. Revenue was recognized using the proportional performance method.

 

Roche Collaboration

 

The Roche License Agreement

 

On May 25, 2011, Trimeris entered into the Roche License Agreement with Roche, pursuant to which Roche has an exclusive license to manufacture and sell FUZEON worldwide and the Company receives royalty payments equal to 16% of worldwide net sales of FUZEON occurring from and after January 1, 2011. The Roche License Agreement superseded and replaced the Prior Roche Agreements. Under the Roche License Agreement, Roche may deduct from its royalty payments to us 50% of any royalties paid to third parties which are reasonably required to allow Roche to sell FUZEON in a given country, including royalties paid to Novartis Vaccines and Diagnostics, Inc. (“Novartis”).” To calculate the royalty revenue paid to Synageva, a 5.5% distribution charge is deducted from Roche’s reported net sales, and Synageva receives a 16% royalty on the adjusted net sales amount.

 

Roche may terminate the Roche License Agreement as a whole or for a particular country or countries in its sole discretion with advance notice. The Roche License Agreement will effectively terminate upon expiration of the last relevant patent covering FUZEON, which is expected to occur in 2021.

 

FUZEON is manufactured and distributed by Roche through Roche’s sales and distribution network throughout the world in countries where regulatory approval has been received. Roche has control over all aspects of the commercialization of FUZEON, including, but not limited to, pricing, sales force activities and promotional activities.

 

F-25


13. Commitments and Contingencies

 

Occupancy Arrangements

 

The Company leases office, laboratory and facility space under operating lease agreements expiring through 2014. Minimum future rentals under non-cancelable operating leases are as follows:

 

Year Ending December 31,       

2012

   $ 472,869   

2013

     251,736   

2014

     16,200   

 

Rental expense for the years ended December 31, 2011, 2010 and 2009 approximated $0.7 million, $0.5 million and $0.4 million, respectively.

 

UGARF License Agreement

 

On April 5, 2007, the Company amended and restated its technology license agreement with the University of Georgia Research Foundation (“UGARF”). In consideration for exclusive worldwide rights to the same patents, know-how and related technology under the original agreement, the Company provided 9,024 shares of its common stock to UGARF in addition to sublicense royalties, if applicable, and product royalties to be payable upon future commercialization and sale of any products subject to the license. No payments have been made in fiscal 2011 and 2010.

 

Other Licensing Agreements

 

The Company has licensing and sponsored research agreements with certain scientific and research institutions. The Company incurred expenses under these agreements of less than $0.1 million for the years ended December 31, 2011, 2010 and 2009. At December 31, 2011, the Company had approximately $0.1 million of potential milestone payments or other commitments payable over the next four years under agreements that are cancelable by either party under certain circumstances. These agreements also specify the payment of certain percentage royalties based on net sales of developed technologies.

 

14. Quarterly Financial Data (Unaudited)

 

The following tables present quarterly consolidated statement of operations data for fiscal 2011 and 2010. The below data is unaudited but, in our opinion, reflects all adjustments necessary for a fair presentation of this data in accordance with GAAP.

 

     Three Months Ended  
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
 
     (unaudited)  

Revenue

     62,133        238,399        184,380        1,613,868   

Loss from operations

     (5,412,317     (5,387,455     (6,818,538     (7,400,232

Net loss

     (5,445,370     (5,559,553     (6,822,791     (7,478,168

Loss per share, basic and diluted

   $ (95.77   $ (75.24   $ (92.33   $ (0.65

Weighted average shares outstanding, basic and diluted

     56,856        73,895        73,895        11,587,370   

 

F-26


     Three Months Ended  
     March 31,
2010
    June 30,
2010
    September 30,
2010
    December 31,
2010
 
     (unaudited)  

Revenue

     80,000        194,563        131,067        189,791   

Loss from operations

     (2,343,099     (2,509,337     (3,742,027     (4,528,532

Net loss

     (2,333,557     (2,499,651     (3,740,637     (2,249,811

Loss per share, basic and diluted

   $ (100.52   $ (107.46   $ (159.94   $ (40.53

Weighted average shares outstanding, basic and diluted

     23,215        23,262        23,388        55,505   

 

15. Subsequent Events

 

Secondary Public Offering

 

The Company closed a secondary public offering of its common stock on January 2011, issuing approximately 3.6 million shares of common stock at a per share price of $25.18, for gross proceeds of $90 million or approximate net proceeds of $84.6 million.

 

F-27


EXHIBIT LIST

 

Exhibit

Number

    

Description

  31.1       Rule 13a-14(a) Certification by Sanj K. Patel as Chief Executive Officer.
  31.2       Rule 13a-14(a) Certification by Carsten Boess as Chief Financial Officer.
  32.1       Section 1350 Certification by Sanj K. Patel as Chief Executive Officer and Carsten Boess as Chief Financial Officer.