Attached files
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EXCEL - IDEA: XBRL DOCUMENT - MELINTA THERAPEUTICS, INC. /NEW/ | Financial_Report.xls |
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - MELINTA THERAPEUTICS, INC. /NEW/ | d339357dex311.htm |
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - MELINTA THERAPEUTICS, INC. /NEW/ | d339357dex322.htm |
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - MELINTA THERAPEUTICS, INC. /NEW/ | d339357dex312.htm |
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - MELINTA THERAPEUTICS, INC. /NEW/ | d339357dex321.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2012
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File Number: 001-35405
CEMPRA, INC.
(Exact name of registrant specified in its charter)
Delaware | 2834 | 45-4440364 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
6340 Quadrangle Drive, Suite 100
Chapel Hill, NC 27517
(Address of Principal Executive Offices)
(919) 316-6601
(Telephone Number, Including Area Code)
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 x 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See 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 | x (Do not check if a smaller reporting company) | 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 x
EXPLANATORY NOTE: Under the Jumpstart our Business Startups Act, the Company qualifies as an emerging growth company. We therefore incorporate the scaled disclosures required of an emerging growth company in this Quarterly Report on Form 10-Q.
As of May 8, 2012 there were 21,028,962 shares of the registrants common stock, $0.001 par value, outstanding.
Table of Contents
TABLE OF CONTENTS
Page | ||||||
1 | ||||||
Item 1. |
1 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operation |
17 | ||||
Item 3. |
25 | |||||
Item 4. |
25 | |||||
25 | ||||||
Item 6. |
25 |
i
Table of Contents
PART I - FINANCIAL INFORMATION
CEMPRA, INC.
(A Development Stage Company)
Consolidated Balance Sheets
December 31, 2011 |
March 31, 2012 |
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(Unaudited) | ||||||||
Assets |
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Current assets |
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Cash and equivalents |
$ | 15,602,264 | $ | 65,910,644 | ||||
Prepaid expenses |
284,040 | 955,169 | ||||||
Deferred offering expenses |
880,742 | | ||||||
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Total current assets |
16,767,046 | 66,865,813 | ||||||
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Furniture, fixtures and equipment, net |
81,920 | 68,777 | ||||||
Deposits |
9,870 | 9,870 | ||||||
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Total assets |
$ | 16,858,836 | $ | 66,944,460 | ||||
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Liabilities |
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Current liabilities |
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Accounts payable |
$ | 2,980,878 | $ | 2,650,414 | ||||
Accrued expenses |
545,300 | 721,799 | ||||||
Accrued payroll and benefits |
421,101 | 186,872 | ||||||
Warrant liability |
1,120,849 | | ||||||
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Total current liabilities |
5,068,128 | 3,559,085 | ||||||
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Convertible notes payable |
4,457,927 | | ||||||
Long-term debt |
9,503,895 | 9,589,189 | ||||||
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Total liabilities |
19,029,950 | 13,148,274 | ||||||
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Commitments and contingencies |
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Redeemable Convertible Preferred Shares |
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Class A redeemable convertible preferred shares; 21,773,669 shares designated, 2,291,966 shares issued and outstanding (liquidation preference of $2,721,167) at December 31, 2011 and no shares designated, issued and outstanding at March 31, 2012 (liquidation preference of $0) |
25,809,697 | | ||||||
Class B redeemable convertible preferred shares; 7,692,308 shares designated, 809,717 shares issued and outstanding (liquidation preference of $1,178,480) at December 31, 2011 and no shares designated, issued and outstanding at March 31, 2012 (liquidation preference of $0) |
11,281,512 | | ||||||
Class C redeemable convertible preferred shares; 42,649,063 shares designated, 4,489,375 shares issued and outstanding at December 31, 2011 (liquidation preference of $5,697,455) and no shares designated, issued and outstanding at March 31, 2012 (liquidation preference of $0) |
57,422,827 | | ||||||
Shareholders Equity (Deficit) |
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Common shares; 100,000,000 shares authorized, no par value; 533,839 shares issued and outstanding at December 31, 2011and none issued and outstanding at March 31, 2012 |
| | ||||||
Common stock; $.001par value; none issued and outstanding at December 31, 2011 and 80,000,000 shares authorized; 21,028,962 shares issued and outstanding at March 31, 2012 |
| 21,029 | ||||||
Additional paid-in capital |
| 153,923,605 | ||||||
Deficit accumulated during the development stage |
(96,685,150 | ) | (100,148,448 | ) | ||||
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Total shareholders equity (deficit) |
(96,685,150 | ) | 53,796,186 | |||||
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Total liabilities, redeemable convertible preferred shares and shareholders equity (deficit) |
$ | 16,858,836 | $ | 66,944,460 | ||||
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The accompanying notes are an integral part of these consolidated financial statements
1
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31 | Period from November 18, 2005 (Inception) to March 31, |
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2011 | 2012 | 2012 | ||||||||||
Revenues |
$ | | $ | | $ | | ||||||
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Operating expenses |
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Research and development |
4,392,127 | 1,876,218 | 68,734,700 | |||||||||
General and administrative |
879,510 | 972,101 | 16,466,104 | |||||||||
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Total operating expenses |
5,271,637 | 2,848,319 | 85,200,804 | |||||||||
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Loss from operations |
(5,271,637 | ) | (2,848,319 | ) | (85,200,804 | ) | ||||||
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Other income (expense) |
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Interest income |
594 | 105,207 | 1,470,753 | |||||||||
Interest expense |
| (406,598 | ) | (4,649,102 | ) | |||||||
Other income |
| | 488,958 | |||||||||
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Other income (expense), net |
594 | (301,391 | ) | (2,689,391 | ) | |||||||
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Net loss and comprehensive loss |
(5,271,043 | ) | (3,149,710 | ) | (87,890,195 | ) | ||||||
Accretion of redeemable convertible preferred shares |
(940,766 | ) | (313,588 | ) | (14,002,842 | ) | ||||||
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Net loss attributable to common shareholders |
$ | (6,211,809 | ) | $ | (3,463,298 | ) | $ | (101,893,037 | ) | |||
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Basic and diluted net loss attributable to common shareholders per share |
$ | (12.16 | ) | $ | (.26 | ) | ||||||
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Basic and diluted weighted average shares outstanding |
510,669 | 13,250,511 | ||||||||||
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The accompanying notes are an integral part of these consolidated financial statements
2
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
Consolidated Statements of Redeemable Preferred Shares and Shareholders Equity (Deficit)
Series A Preferred Shares |
Series B Preferred Shares |
Series C Preferred Shares |
Common Shares | Common Stock | Additional Paid-In Capital |
Deficit During the Development Stage |
Total Shareholders Equity (Deficit) |
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Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
Balance as of November 18, 2005 (inception date) |
| $ | | | $ | | | $ | | | $ | | | $ | | $ | | $ | | $ | | |||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (26,463 | ) | (26,463 | ) | |||||||||||||||||||||||||||||||||||||
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Balance as of December 31, 2005 |
| | | | | | | | | | | (26,463 | ) | (26,463 | ) | |||||||||||||||||||||||||||||||||||||
Issuance of common shares to founders |
| | | | | | 179,825 | | | | 171 | | 171 | |||||||||||||||||||||||||||||||||||||||
Issuance of common shares for service |
| | | | | | 30,702 | | | | 14,583 | | 14,583 | |||||||||||||||||||||||||||||||||||||||
Issuance of common shares for license agreement |
| | | | | | 64,311 | | | | 91,362 | | 91,362 | |||||||||||||||||||||||||||||||||||||||
Issuance of Series A preferred share, net of share issuance costs of $150,570 |
789,191 | 7,346,745 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Accretion of redeemable convertible preferred shares |
| 232,782 | | | | | | | | | (122,443 | ) | (110,339 | ) | (232,782 | ) | ||||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | | | | | 16,327 | | 16,327 | |||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (2,228,948 | ) | (2,228,948 | ) | |||||||||||||||||||||||||||||||||||||
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Balance as of December 31, 2006 |
789,191 | 7,579,527 | | | | | 274,838 | | | | | (2,365,750 | ) | (2,365,750 | ) | |||||||||||||||||||||||||||||||||||||
Issuance of common shares upon exercise of options |
| | | | | | 8,947 | | | | 5,250 | | 5,250 | |||||||||||||||||||||||||||||||||||||||
Issuance of Series A preferred shares, net of issuance costs of $20,435 |
1,557,895 | 14,779,563 | | | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Conversion of Series A preferred shares to common shares upon financing participation default |
(55,120 | ) | (523,644 | ) | | | | | 55,120 | | | | 523,644 | | 523,644 | |||||||||||||||||||||||||||||||||||||
Issuance of common shares to CEO |
| | | | | | 77,368 | | | | 124,950 | | 124,950 | |||||||||||||||||||||||||||||||||||||||
Issuance of common shares for license agreement |
| | | | | | 61,335 | | | | 99,055 | | 99,055 | |||||||||||||||||||||||||||||||||||||||
Issuance of Series B preferred shares, net of issuance costs of $43,682 |
| | 809,717 | 9,956,318 | | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Accretion of redeemable convertible preferred shares |
| 1,526,057 | | 100,000 | | | | | | | (808,919 | ) | (817,138 | ) | (1,626,057 | ) | ||||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | | | | | 56,020 | | 56,020 |
3
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
Consolidated Statements of Redeemable Preferred Shares and Shareholders Equity (Deficit)
Series A Preferred Shares |
Series B Preferred Shares |
Series C Preferred Shares |
Common Shares | Common Stock | Additional Paid-In Capital |
Deficit During the Development Stage |
Total Shareholders Equity (Deficit) |
|||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (8,075,240 | ) | (8,075,240 | ) | |||||||||||||||||||||||||||||||||||||
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Balance as of December 31, 2007 |
2,291,966 | 23,361,503 | 809,717 | 10,056,318 | | | 477,608 | | | | | (11,258,128 | ) | (11,258,128 | ) | |||||||||||||||||||||||||||||||||||||
Issuance of common shares upon exercise of options |
| | | | | | 13,469 | | | | 13,113 | | 13,113 | |||||||||||||||||||||||||||||||||||||||
Accretion of redeemable convertible preferred shares |
| 1,731,269 | | 806,390 | | | | | | | (106,124 | ) | (2,431,536 | ) | (2,537,660 | ) | ||||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | | | | | 93,011 | | 93,011 | |||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (14,902,317 | ) | (14,902,317 | ) | |||||||||||||||||||||||||||||||||||||
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Balance as of December 31, 2008 |
2,291,966 | 25,092,772 | 809,717 | 10,862,708 | | | 491,077 | | | | | (28,591,981 | ) | (28,591,981 | ) | |||||||||||||||||||||||||||||||||||||
Issuance of Series C preferred shares, net of issuance cost of $251,733 |
| | | | 2,488,675 | 25,248,268 | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Series C Warrant |
| | | | | (5,174,381 | ) | | | | | | | | ||||||||||||||||||||||||||||||||||||||
Accretion of redeemable convertible preferred shares |
| 667,997 | | 301,946 | | 1,321,490 | | | | | (123,404 | ) | (2,168,029 | ) | (2,291,433 | ) | ||||||||||||||||||||||||||||||||||||
Beneficial conversion costs of Series B preferred shares |
| | | 73,995 | | | | | | | | (73,995 | ) | (73,995 | ) | |||||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | | | | | 123,404 | | 123,404 | |||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (18,611,814 | ) | (18,611,814 | ) | |||||||||||||||||||||||||||||||||||||
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Balance as of December 31, 2009 |
2,291,966 | 25,760,769 | 809,717 | 11,238,649 | 2,488,675 | 21,395,377 | 491,077 | | | | | (49,445,819 | ) | (49,445,819 | ) | |||||||||||||||||||||||||||||||||||||
Issuance of common shares upon exercise of options |
| | | | | | 3,947 | | | | 8,250 | | 8,250 | |||||||||||||||||||||||||||||||||||||||
Issuance of Series C preferred shares, net of issuance cost of $9,279 |
| | | | 2,000,700 | 20,490,721 | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Series C Warrant |
| | | | | 8,597,116 | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Accretion of redeemable convertible preferred shares |
| 24,464 | | 6,390 | | 3,207,407 | | | | | (174,061 | ) | (3,064,202 | ) | (3,238,263 | ) | ||||||||||||||||||||||||||||||||||||
Beneficial conversion costs of Series B preferred shares |
| | | 30,082 | | | | | | | | (30,082 | ) | (30,082 | ) | |||||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | | | | | 165,811 | | 165,811 | |||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (19,674,924 | ) | (19,674,924 | ) | |||||||||||||||||||||||||||||||||||||
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Balance as of December 31, 2010 |
2,291,966 | 25,785,233 | 809,717 | 11,275,121 | 4,489,375 | 53,690,621 | 495,024 | | | | | (72,215,027 | ) | (72,215,027 | ) |
4
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
Consolidated Statements of Redeemable Preferred Shares and Shareholders Equity (Deficit)
Series A Preferred Shares |
Series B Preferred Shares |
Series C Preferred Shares |
Common Shares | Common Stock | Additional Paid-In Capital |
Deficit During the Development Stage |
Total Shareholders Equity (Deficit) |
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Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
Issuance of common shares upon exercise of options |
| | | | | | 38,815 | | | | 69,932 | | 69,932 | |||||||||||||||||||||||||||||||||||||||
Accretion of redeemable convertible preferred shares |
| 24,464 | | 6,391 | | 3,732,206 | | | | | (513,717 | ) | (3,249,344 | ) | (3,763,061 | ) | ||||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | | | | | 443,785 | | 443,785 | |||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (21,220,779 | ) | (21,220,779 | ) | |||||||||||||||||||||||||||||||||||||
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Balance as of December 31, 2011 |
2,291,966 | 25,809,697 | 809,717 | 11,281,512 | 4,489,375 | 57,422,827 | 533,839 | | | | | (96,685,150 | ) | (96,685,150 | ) | |||||||||||||||||||||||||||||||||||||
Issuance of common stock upon initial public offering, net of issuance costs of $4.7 million (unaudited) |
| | | | | | | | 9,660,000 | 9,660 | 53,184,681 | | 53,194,341 | |||||||||||||||||||||||||||||||||||||||
Conversion of common shares to common stock (unaudited) |
| | | | | | (533,839 | ) | | 533,839 | 534 | (534 | ) | | | |||||||||||||||||||||||||||||||||||||
Accretion of redeemable convertible preferred shares (unaudited) |
| 2,038 | | 533 | | 311,017 | | | | | | (313,588 | ) | (313,588 | ) | |||||||||||||||||||||||||||||||||||||
Conversion of redeemable convertible preferred shares to common stock upon initial public offering (unaudited) |
(2,291,966 | ) | (25,811,735 | ) | (809,717 | ) | (11,282,045 | ) | (4,489,375 | ) | (57,733,844 | ) | | | 9,958,502 | 9,959 | 94,817,666 | | 94,827,624 | |||||||||||||||||||||||||||||||||
Conversion of convertible notes payable to common stock upon initial public offering (unaudited) |
| | | | | | | | 876,621 | 877 | 4,723,658 | | 4,724,535 | |||||||||||||||||||||||||||||||||||||||
Reclassification of warrant liability to additional paid-in capital (unaudited) |
| | | | | | | | | | 1,033,647 | | 1,033,647 | |||||||||||||||||||||||||||||||||||||||
Share-based compensation (unaudited) |
| | | | | | | | | | 164,487 | | 164,487 | |||||||||||||||||||||||||||||||||||||||
Net loss (unaudited) |
| | | | | | | | | | | (3,149,710 | ) | (3,149,710 | ) | |||||||||||||||||||||||||||||||||||||
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Balance as of March 31, 2012 (Unaudited) |
| $ | | | $ | | | $ | | | $ | | 21,028,962 | $ | 21,029 | $ | 153,923,605 | $ | (100,148,448 | ) | $ | 53,796,186 | ||||||||||||||||||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements
5
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
Three Months ended March 31, | Period from November 18, 2005 (Inception) to March 31, |
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2011 | 2012 | 2012 | ||||||||||
Operating activities |
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Net loss |
$ | (5,271,043 | ) | $ | (3,149,710 | ) | $ | (87,890,195 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities |
||||||||||||
Depreciation |
19,640 | 18,046 | 212,749 | |||||||||
Issuance of common shares for service |
| | 14,583 | |||||||||
Issuance of common shares for license agreement |
| | 190,418 | |||||||||
Share-based compensation |
98,369 | 164,487 | 1,187,795 | |||||||||
Change in fair value of warrant liability |
| (87,204 | ) | 3,330,801 | ||||||||
Amortization of debt discount |
| 94,957 | 489,257 | |||||||||
Changes in operating assets and liabilities |
||||||||||||
Prepaid expenses |
92,582 | (671,129 | ) | (955,169 | ) | |||||||
Deposits |
32,222 | | (9,870 | ) | ||||||||
Accounts payable |
(364,762 | ) | (330,464 | ) | 2,650,412 | |||||||
Accrued expenses |
52,679 | 433,445 | 978,744 | |||||||||
Accrued payroll and benefits |
(178,367 | ) | (234,229 | ) | 186,871 | |||||||
|
|
|
|
|
|
|||||||
Net cash used in operating activities |
(5,518,680 | ) | (3,761,801 | ) | (79,613,604 | ) | ||||||
|
|
|
|
|
|
|||||||
Investing activities |
||||||||||||
Purchases of furniture, fixtures and equipment |
(7,582 | ) | (4,903 | ) | (281,525 | ) | ||||||
Purchase of investments |
| | (14,306,177 | ) | ||||||||
Proceeds from sale of investments |
| | 14,306,177 | |||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(7,582 | ) | (4,903 | ) | (281,525 | ) | ||||||
|
|
|
|
|
|
|||||||
Financing activities |
||||||||||||
Proceeds from borrowing on convertible promissory notes |
| | 8,100,000 | |||||||||
Proceeds from borrowing on long-term debt |
| | 10,000,000 | |||||||||
Proceeds from issuance of common shares |
49,048 | | 96,715 | |||||||||
Proceeds from issuance of common stock, net of underwriting discounts |
| 54,777,800 | 54,777,800 | |||||||||
Payment of share issuance costs |
| | (475,699 | ) | ||||||||
Payment of debt issuance costs |
| | (306,898 | ) | ||||||||
Payment of offering costs |
| (702,716 | ) | (1,583,458 | ) | |||||||
Proceeds from issuance of Series A redeemable convertible preferred shares |
| | 19,099,998 | |||||||||
Accrued interest converted into Series A redeemable convertible preferred shares |
| | 97,315 | |||||||||
Proceeds from issuance of Series B redeemable convertible preferred shares |
| | 10,000,000 | |||||||||
Proceeds from issuance of Series C redeemable convertible preferred shares |
| | 46,000,000 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
49,048 | 54,075,084 | 145,805,773 | |||||||||
|
|
|
|
|
|
|||||||
Net change in cash and equivalents |
(5,477,214 | ) | 50,308,380 | 65,910,644 | ||||||||
Cash and equivalents as of beginning of the period |
20,047,997 | 15,602,264 | | |||||||||
|
|
|
|
|
|
|||||||
Cash and equivalents as of end of the period |
$ | 14,570,783 | $ | 65,910,644 | $ | 65,910,644 | ||||||
|
|
|
|
|
|
|||||||
Supplemental cash flow information |
||||||||||||
Cash paid for interest |
$ | | $ | 206,000 | $ | 206,000 | ||||||
Supplemental disclosure of non-cash investing and financing activities |
||||||||||||
Accretion of Series A redeemable convertible preferred shares |
$ | 6,116 | $ | 2,038 | $ | 4,209,072 | ||||||
Accretion of Series B redeemable convertible preferred shares |
$ | 1,598 | $ | 533 | $ | 1,221,650 | ||||||
Accretion of Series C redeemable convertible preferred shares |
$ | 933,052 | $ | 311,017 | $ | 8,572,124 | ||||||
Beneficial conversion costs of Series B preferred shares |
$ | | $ | | $ | 104,077 | ||||||
Notes payable converted into Series A redeemable convertible preferred shares |
$ | | $ | | $ | 3,100,000 | ||||||
Allocation of the Class C proceeds to the Class C Purchase Option |
$ | | $ | | $ | 5,174,381 | ||||||
Conversion of the Class C Purchase Option |
$ | | $ | | $ | (8,597,116 | ) | |||||
Allocation of the convertible note proceeds to warrant |
$ | | $ | | $ | 852,485 | ||||||
Allocation of the long-term debt proceeds to warrant |
$ | | $ | | $ | 273,094 | ||||||
Conversion of convertible notes payable and accrued interest into common stock |
$ | | $ | 4,724,535 | $ | 4,724,534 | ||||||
Conversion of redeemable convertible preferred shares into common stock |
$ | | $ | 94,827,624 | $ | 94,827,625 | ||||||
Reclassification of warrant liability to additional paid-in capital |
$ | | $ | 1,033,647 | $ | 1,033,647 |
The accompanying notes are an integral part of these consolidated financial statements
6
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2012
Notes to Consolidated Financial Statements
1. Description of Business
Cempra, Inc. (the Company or Cempra, previously known as Cempra Holdings, LLC) is the successor entity of Cempra Pharmaceuticals, Inc. which was incorporated on November 18, 2005 and commenced operations in January 2006. Cempra is located in Chapel Hill, North Carolina, and is a biopharmaceutical company developing medicines to treat drug-resistant bacterial infections in the community and hospital.
On February 2, 2012, Cempra Holdings, LLC converted from a Delaware limited liability company to a Delaware corporation and was renamed Cempra, Inc. As a result of the corporate conversion, the holders of both common and preferred shares of Cempra Holdings, LLC became holders of shares of common stock of Cempra, Inc. Holders of options to purchase common shares of Cempra Holdings, LLC became holders of options to purchase shares of common stock of Cempra, Inc. Holders of notes convertible into preferred shares of Cempra Holdings, LLC and associated warrants exercisable for preferred shares of Cempra Holdings, LLC became holders of shares of common stock and warrants to purchase shares of common stock of Cempra, Inc.
The Company is in its development stage as defined by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 915, Development Stage Entities. The Companys activities since inception have consisted principally of acquiring product and technology rights, raising capital and performing research and development activities. Since inception, the Company has incurred significant losses from operations and expects losses to continue for the foreseeable future. The Companys success depends primarily on the successful development and regulatory approval of its product candidates and its ability to obtain adequate financing as discussed below.
As of March 31, 2012, the Company has incurred losses since inception of $87.9 million. The Company expects to continue to incur losses and require additional financial resources to advance its products to either commercial stage or liquidity events.
There can be no assurance that the Company will be able to obtain additional debt or equity financing or generate revenues from collaborative partners, on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Companys business, results of operations and financial condition.
Reverse Stock Split
The Companys Board of Directors approved a 1-for-9.5 reverse stock split of the Companys common and preferred shares on January 12, 2012, which became effective on January 29, 2012. All references to common and preferred stock, shares outstanding, average number of shares outstanding and per share amounts in these consolidated financial statements and notes to consolidated financial statements have been restated to reflect the 1-for-9.5 reverse stock split on a retroactive basis.
2. Basis of Presentation
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts and results of operations of Cempra, Inc. and its wholly owned subsidiaries. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). All intercompany balances and transactions have been eliminated in consolidation.
Unaudited Interim Financial Data
The accompanying interim consolidated financial statements are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and footnotes required
7
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2012
Notes to Consolidated Financial Statements
by U.S. GAAP for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2011 contained in the Companys Annual Report on Form 10-K. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the Companys financial position as of March 31, 2012 and the results of operations for the three months ended March 31, 2011 and 2012 and cash flows for the three months ended March 31, 2011 and 2012. The December 31, 2011 consolidated balance sheet included herein was derived from audited consolidated financial statements, but does not include all disclosures including notes required by U.S. GAAP for complete financial statements.
Use of Estimates
The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of 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.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
New Accounting Pronouncements
On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act (JOBS Act), which establishes a new category of issuer called an emerging growth company (EGC). Under the JOBS Act, an EGC is defined as an issuer with total annual gross revenues less than $1 billion during its most recently completed fiscal year. An issuer continues to be eligible for EGC status until the earliest of (1) the last day of the fiscal year during which it had total annual gross revenues of $1 billion or more (indexed for inflation), (2) the last day of the fiscal year of the issuer following the fifth anniversary of the date of its initial public offering (IPO), (3) the date on which it issued more than $1 billion in non-convertible debt in the previous three-year period, or (4) the date on which it became a large accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934.
Among other requirements, the JOBS Act permits an EGC to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. The Company has elected to opt out of this provision and, as a result, will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
In May 2011, the FASB issued amended guidance on fair value measurements. This newly issued accounting standard clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This accounting standard is effective on a prospective basis for interim and annual reporting periods beginning on or after December 15, 2011. As this accounting standard only requires enhanced disclosure, the adoption of this standard did not impact the Companys financial position or results of operations.
In June 2011, the authoritative guidance for presentation of comprehensive income was amended to eliminate the option to present other comprehensive income and its components in the statement of changes in shareholders deficit. Companies can elect to present items of net income and other comprehensive income in one continuous statement or in two separate but consecutive statements. The Company adopted this new guidance on January 1, 2012, as required and it did not have an impact on the Companys financial position or results of operations.
In December 2011, the FASB issued new guidance impacting the presentation of certain items on the balance sheet. The new guidance requires an entity to disclose both gross and net information about both instruments and transactions that are eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This guidance is effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. The adoption of this guidance is not expected to impact the Companys consolidated financial position, results of operations or cash flows, but may result in certain additional disclosures.
3. Fair Value of Financial Instruments
The carrying values of cash equivalents, prepaid expenses, and accounts payable at March 31, 2012 approximated their fair values due to the short-term nature of these items. At December 31, 2011, 2012, the Company held warrant liabilities that were required to be measured at fair value on a recurring basis. The warrant liability was reclassified to additional paid-in capital upon completion of the initial public offering (the IPO).
The Companys valuation of financial instruments is based on a three-tiered approach, which requires that fair value measurements be classified and disclosed in one of three tiers. These tiers are: Level 1, defined as quoted prices in active markets for identical assets or liabilities; Level 2, defined as valuations based on observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable input data; and Level 3, defined as valuations based on unobservable inputs reflecting the Companys own assumptions, consistent with reasonably available assumptions made by other market participants.
8
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2012
Notes to Consolidated Financial Statements
At December 31, 2011 and March 31, 2012, these financial instruments and respective fair values have been classified as follows:
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Balance at December 31, 2011 |
|||||||||||||
Assets: |
||||||||||||||||
Money Market Funds |
$ | 12,634,219 | $ | | $ | | 12,634,219 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value: |
$ | 12,634,219 | $ | | $ | | $ | 12,634,219 | ||||||||
Liabilities: |
||||||||||||||||
Warrant liabilities |
$ | | $ | | $ | 1,120,849 | $ | 1,120,849 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Liabilities at Fair Value: |
$ | | $ | | $ | 1,120,849 | $ | 1,120,849 | ||||||||
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Balance at March 31, 2012 |
|||||||||||||
(Unaudited) | ||||||||||||||||
Assets: |
||||||||||||||||
Money Market Funds |
$ | 62,412,385 | $ | | $ | | 62,412,385 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value: |
$ | 62,412,385 | $ | | $ | | $ | 62,412,385 | ||||||||
|
|
|
|
|
|
|
|
The change in the fair value measurement using significant unobservable inputs (Level 3) is summarized below:
Balance at December 31, 2011 |
$ | 1,120,849 | ||
|
|
|||
Change in fair value recorded as interest expense (unaudited) |
17,461 | |||
Change in fair value recorded as interest income (unaudited) |
(104,663 | ) | ||
Reclassification of August 2011 Warrant to additional paid-in capital (unaudited) |
(865,216 | ) | ||
Reclassification of Hercules Warrant to additional paid-in capital (unaudited) |
(168,431 | ) | ||
|
|
|||
Balance at March 31, 2012 (unaudited) |
$ | | ||
|
|
The warrant liability represents the Companys allocation of a portion of the proceeds from the August 2011 Notes and the December 2011 Note (both as defined in Note 7). The allocation of the proceeds from the August 2011 Note and the December 2011 Note was based on the fair value of the warrant liability on the dates of grant. The Company accounted for the warrant liability in accordance with ASC Topic 480, Distinguishing Liabilities from Equity, which requires that a purchase option to acquire redeemable equity (either puttable or mandatorily redeemable) be reported as liabilities. The Company measured the fair value of the warrant liability based upon contemporaneous valuations. The August 2011 Warrants (as defined in Note 7) utilized the Black-Scholes pricing model while the Hercules Warrant (as defined in Note 7) utilized the Binomial model at each balance sheet date prior to the IPO when the warrants to purchase preferred stock were converted into warrants to purchase common stock and the warrants were no longer reported as liabilities. The Company recorded changes in the fair value of the warrant liability as interest expense or income.
9
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2012
Notes to Consolidated Financial Statements
The Company used significant assumptions in estimating the fair value of the warrant liability including the estimated volatility, risk free interest rate, estimated fair value of the preferred shares, and the estimated life of the warrant. These assumptions were used to establish an expected set of cash flows which were probability-weighted and discounted to present value to determine a fair value.
The August 2011 and Hercules Warrant liability was reclassified to additional paid-in capital upon the conversion of warrants to purchase preferred stock into warrants to purchase common stock.
4. Research and Development and License Agreement
In March 2006, the Company entered into a Collaborative Research and Development and License Agreement (Optimer Agreement) with Optimer Pharmaceuticals, Inc. (Optimer). Under the terms of the Optimer Agreement, the Company has acquired exclusive rights to further develop and commercialize certain Optimer technology worldwide, excluding member nations of the Association of Southeast Asian Nations.
In exchange for this license, during 2006 and 2007, the Company issued an aggregate of 1,193,638 common shares with a total fair value of $190,418 to Optimer. These issuances to Optimer were expensed as incurred in research and development expense.
In July 2010, the Company paid a $500,000 milestone payment to Optimer after the successful completion of its first CEM-101 Phase 1 program, which was expensed as incurred in research and development expense. The next milestone payment payable to Optimer is in the amount of $1,000,000 and will become due and payable upon the completion of the Companys discussions with the FDA for the protocol for its planned pivotal Phase 3 trial for oral CEM-101 if the FDA indicates that the data is reasonably sufficient to support that planned Phase 3 trial. As of March 31, 2012, no accrual has been recorded for the contingent liability as the Company determined the payment was not probable. Under the terms of the Optimer Agreement, the Company will owe Optimer additional payments, contingent upon the achievement of various development, regulatory and commercialization milestone events. The aggregate amount of such milestone payments the Company may need to pay is based in part on the number of products developed under the agreement and would total $27,500,000 if four products are developed through FDA approval. The Company will also pay tiered mid-single-digit royalties based on the amount of annual net sales of its approved products.
10
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2012
Notes to Consolidated Financial Statements
5. Furniture, Fixtures and Equipment
Furniture, fixtures and equipment consist of the following as of:
Useful Life (years) |
December 31, | March 31, | ||||||||||
2011 | 2012 | |||||||||||
(Unaudited) | ||||||||||||
Computer equipment |
2 | $ | 191,332 | $ | 188,354 | |||||||
Software |
2 | 46,594 | 46,594 | |||||||||
Furniture |
5 | 33,890 | 38,792 | |||||||||
Leasehold improvements |
3 | 4,808 | 4,808 | |||||||||
|
|
|
|
|||||||||
Total furniture, fixtures and equipment |
276,624 | 278,548 | ||||||||||
Less accumulated depreciation |
194,704 | 209,771 | ||||||||||
|
|
|
|
|||||||||
Furniture, fixtures and equipment, net |
$ | 81,920 | $ | 68,777 | ||||||||
|
|
|
|
Depreciation expense for the three months ended March 31, 2011 and the three months ended March 31, 2012 was $19,640 and $18,046, respectively. Depreciation expense for the cumulative period from inception through March 31, 2012 was $212,749.
6. Accrued Expenses
Accrued expenses are comprised of the following as of:
December 31, 2011 |
March 31, 2012 |
|||||||
(Unaudited) | ||||||||
Accrued professional fees |
$ | 281,907 | $ | 628,121 | ||||
Accrued interest |
236,000 | 67,236 | ||||||
Deferred rent |
27,393 | 26,442 | ||||||
|
|
|
|
|||||
Total accrued expenses |
$ | 545,300 | $ | 721,799 | ||||
|
|
|
|
11
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2012
Notes to Consolidated Financial Statements
7. Unsecured Convertible Promissory Note & Debt
Notes payable and debt consist of:
December 31, 2011 |
March 31, 2012 |
|||||||
(Unaudited) | ||||||||
10.0% Convertible Notes due 2016, net of unamortized discount of |
$ | 4,457,927 | $ | | ||||
9.55% Long-term Debt due 2015, net of unamortized discount of |
9,503,895 | 9,589,189 | ||||||
|
|
|
|
|||||
Total notes payable and long-term debt |
13,961,822 | 9,589,189 | ||||||
Less: |
||||||||
Current maturities |
| | ||||||
|
|
|
|
|||||
Total |
$ | 13,961,822 | $ | 9,589,189 | ||||
|
|
|
|
* | The fair value of the warrants embedded within the 10.0% Convertible Notes ($847,755) and the 9.55% Long-term Debt ($273,094) is separately classified as a warrant liability at December 31, 2011 in the consolidated balance sheets. Upon the completion of the IPO in February 2012, the fair value of the warrant liability was reclassified to additional paid-in capital. |
10% Unsecured Convertible Promissory Note
In August 2011, the Company issued 10.0% unsecured convertible notes (the August 2011 Notes) in the original aggregate principal amount of $5,000,000. Upon the completion of the IPO, the August 2011 Notes and accrued interest of $5.3 million converted into 876,621 shares of common stock.
In connection with the issuance of the August 2011 Notes, the Company issued warrants (the August 2011 Warrants) that have a term of seven years. The August 2011 Warrants give holders the right to purchase a certain number of Company shares or securities at a specified exercise price respect to the first to occur of several scenarios. Upon completion of the IPO, the warrants became exercisable for 208,332 shares of the Companys common stock at an exercise price of $6.00 per share and the related warrant liability was reclassified to additional paid-in capital.
9.55% Long-term Debt
In December 2011, the Company entered into a $20,000,000 loan and security agreement (the December 2011 Note) with Hercules Technology Growth Capital, Inc. (Hercules) and borrowed $10,000,000 upon closing. The principal amount outstanding under the initial $10,000,000 borrowing bears interest at the greater of (i) 9.55%, or (ii) the sum of 9.55% plus the prime lending rate, as published by the Wall Street Journal, minus 3.25% per annum. The terms of the December 2011 Note agreement states that if after the closing of the initial $10,000,000 borrowing, the Company receives at least $40,000,000 of proceeds from (i) an initial public offering of its securities, (ii) the sale or issuance of its equity interests on a fully funded plan and on terms reasonably acceptable to Hercules, or (iii) the closing of a fully funded strategic deal on terms reasonably acceptable to Hercules, the Company may, at any time prior to October 1, 2012, request another borrowing in the aggregate amount of $10,000,000. In February 2012, the Company raised $58.0 million of gross proceeds in connection with its initial public offering and therefore now has access to the remaining $10.0 million available under the loan agreement. The Company will be required to make interest only payments through March 31, 2013, which can be extended to June 2013 upon satisfaction of certain conditions. Principal and interest payments will start after December 2012 or any later extended date. The principal balance outstanding on the loan agreement and all accrued but unpaid interest thereunder will be due and payable on December 1, 2015. In addition, on the earliest to occur of (i) the loan maturity date, (ii) the date that the Company prepays all of the outstanding advances and accrued interest, or (iii) the date that all of the advances and interest become due and payable, the Company must pay Hercules a fee of $400,000. The Company granted Hercules a security interest in all of its assets, except intellectual property. The Companys obligations to Hercules include restrictions on borrowing, asset transfers, placing liens or security interests on the Companys assets including its intellectual property, mergers and acquisitions and distributions to stockholders.
12
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2012
Notes to Consolidated Financial Statements
In connection with the loan agreement, the Company entered into a warrant agreement with Hercules (the Hercules Warrant), under which Hercules has the right to purchase up to the aggregate number of shares of Class C preferred shares (or such stock into or for which the Class C preferred shares may convert) equal to (a) that number of shares determined by dividing 4.0% of the first $10,000,000 borrowed under the loan agreement by the applicable exercise price, and (b) that number of shares determined by dividing 4.0% of the advances made under the second $10,000,000 in advance, if any, by the applicable exercise price. The exercise price per share is equal to $10.25 per share subject to adjustment in the event of a merger, reclassification, subdivision or combination of shares or stock dividend and subject also to antidilution protection. The warrant expires on December 20, 2021. Proceeds equal to the fair value of the Hercules warrant were recorded as a liability at the date of issuance and the borrowings under the Hercules loan will be increased to equal the face amount of the borrowings plus interest through interest expense over the term of the loan using the effective interest method.
Upon completion of the IPO, the Hercules Warrant became exercisable for 39,038 shares of the Companys common stock at an exercise price of $6.00 per share and the related warrant liability was reclassified to additional paid-in capital.
Scheduled Maturities:
Scheduled maturities of Long-term Debt are as follows:
Year Ending December 31: |
||||
2012 |
$ | | ||
2013 |
2,226,610 | |||
2014 |
3,235,386 | |||
2015(1) |
4,938,004 | |||
|
|
|||
Total |
$ | 10,400,000 | ||
Less: Unamortized discount |
(810,811 | ) | ||
|
|
|||
Net |
$ | 9,589,189 | ||
|
|
(1) | On the date that all of the principal and interest of the December 2011 Note become due and payable, the Company must pay Hercules an end of term fee of $400,000, which is represented in year 2015 of the table above. |
8. Shareholders Equity (Deficit)
Initial Public Offering
During February 2012, the Company completed its IPO, issuing 9,660,000 shares of common stock at a price of $6.00 per share, resulting in net proceeds to the Company of approximately $53.2 million after deducting underwriting discounts of $3.2 million and offering costs of $1.6 million.
In connection with the IPO, all of the Companys outstanding preferred shares, including accrued yield of $13.7 million, automatically converted into a total of 9,958,502 shares of its common stock and the preferred stock warrant liability of $1.0 million was reclassified to additional paid-in capital upon the conversion of warrants to purchase preferred stock into warrants to purchase common stock. In addition, the Companys August 2011 Notes totaling $5.0 million and related accrued interest of $0.3 million converted into 876,621 shares of common stock.
13
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2012
Notes to Consolidated Financial Statements
9. Share Option Plans
The Company adopted the 2006 Stock Plan in January 2006 (the 2006 Plan). The 2006 Plan provided for the granting of incentive share options, nonqualified share options and restricted shares to Company employees, representatives and consultants.
The Companys board of directors adopted the 2011 Equity Incentive Plan in October 2011 (the 2011 Plan) and authorized the issuance of up to 1,526,316 shares for future issuances under the 2011 Plan. As of March 31, 2012, there were 1,157,399 option shares available under the 2011 Plan.
The 2011 Plan became effective upon the conversion of Cempra Holdings, LLC from a limited liability company to a corporation on February 2, 2012 and was adopted by the Companys shareholders immediately thereafter. Upon conversion on February 2, 2012, the Company eliminated the authorization for any unissued shares previously reserved under the Companys 2006 Plan. The stock awards previously issued under the 2006 Plan remain in effect in accordance with the terms of the 2006 Plan.
The following table summarizes the Companys 2006 and 2011 Plan activity:
Number of Options |
Weighted Average Exercise Price |
Weighted Average Contractual Term (in years) |
Aggregate Intrinsic Value (1) |
|||||||||||||
Outstanding - December 31, 2011 |
715,811 | 2.00 | ||||||||||||||
|
|
|||||||||||||||
Granted |
368,917 | 7.58 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
(5,778 | ) | 2.02 | |||||||||||||
Expired |
| | ||||||||||||||
|
|
|||||||||||||||
Outstanding - March 31, 2012 |
1,078,950 | 3.93 | 8.26 | 3,920,197 | ||||||||||||
|
|
|||||||||||||||
Exercisable - 3/31/2012 |
435,711 | 1.97 | 6.79 | $ | 2,431,334 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Vested and expected to vest at March 31, 2012 (2) |
1,017,331 | 3.84 | 8.20 | $ | 3,792,811 | |||||||||||
|
|
|
|
|
|
|
|
(1) | Intrinsic value is the excess of the fair value of the underlying common shares as of March 31, 2012 over the weighted-average exercise price. |
(2) | The number of stock options expected to vest takes into account an estimate of expected forfeitures. |
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CEMPRA, INC.
(A Development Stage Company)
March 31, 2012
Notes to Consolidated Financial Statements
The following table summarizes certain information about all options outstanding as of March 31, 2012:
Options Outstanding | Options Exercisable | |||||||||||||||
Exercise Price |
Number of Options |
Weighted Average Remaining Contractual Term (in years) |
Number of Options |
Weighted Average Remaining Contractual Term (in years) |
||||||||||||
$0.48 |
33,684 | 4.17 | 33,684 | 4.17 | ||||||||||||
$1.43 |
24,737 | 4.36 | 24,737 | 4.36 | ||||||||||||
$1.62 |
39,264 | 4.72 | 39,264 | 4.72 | ||||||||||||
$1.90 |
3,555 | 7.04 | 3,555 | 7.04 | ||||||||||||
$2.09 |
454,423 | 8.08 | 226,833 | 7.93 | ||||||||||||
$2.28 |
59,064 | 8.92 | 16,186 | 8.92 | ||||||||||||
$2.47 |
95,306 | 6.09 | 91,452 | 6.08 | ||||||||||||
$7.47 |
104,000 | 9.97 | | | ||||||||||||
$7.62 |
264,917 | 9.97 | | | ||||||||||||
|
|
|
|
|||||||||||||
1,078,950 | 435,711 |
During the three month period ended March 31, 2011 and 2012, the Company recorded $98,369 and $164,487 in share-based compensation expense, respectively. Since inception, the Company has recognized $1,187,795 in share-based compensation expense. As of March 31, 2012, approximately $2,327,000 of total unrecognized compensation cost related to unvested share options is expected to be recognized over a weighted-average period of 1.7 years.
10. Income Taxes
The Company estimates an annual effective tax rate of 0% for the year ended December 31, 2012 as the Company incurred losses for the three month period ended March 31, 2012 and is forecasting additional losses through the fourth quarter, resulting in an estimated net loss for both financial statement and tax purposes for the year ended December 31, 2012. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes have been accounted for using the liability method in accordance with FASB ASC 740.
Due to the Companys history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a full valuation allowance, since it has been determined that it is more likely than not that all of the deferred tax assets will not be realized.
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CEMPRA, INC.
(A Development Stage Company)
March 31, 2012
Notes to Consolidated Financial Statements
11. Net Loss Per Share
Basic and diluted net loss per common share was determined by dividing net loss attributable to common shareholders by the weighted average common shares outstanding during the period. The Companys potentially dilutive shares, which include redeemable convertible preferred shares, convertible debt, warrants and common share options, have not been included in the computation of diluted net loss per share for all periods as the result would be antidilutive.
The following table presents the computation of basic and diluted net loss per common share:
March 31, 2011 |
March 31, 2012 |
|||||||
(Unaudited) | ||||||||
As Reported: |
||||||||
Net loss attributable to Cempra Holdings, LLC |
$ | (5,271,043 | ) | $ | (3,149,710 | ) | ||
Accretion of redeemable convertible preferred shares |
(940,766 | ) | (313,588 | ) | ||||
|
|
|
|
|||||
Net loss attributable to common shareholders |
$ | (6,211,809 | ) | $ | (3,463,298 | ) | ||
Weighted average common share outstanding, basic and diluted |
510,669 | 13,250,511 | ||||||
|
|
|
|
|||||
Net loss per share attributable to common shareholders, basic and diluted |
$ | (12.16 | ) | $ | (.26 | ) | ||
|
|
|
|
The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:
March 31, 2011 |
March 31, 2012 |
|||||||
(Unaudited) | ||||||||
Redeemable convertible preferred shares |
7,670,733 | 2,781,694 | ||||||
Convertible debt |
| 179,711 | ||||||
Warrants outstanding |
| 213,791 | ||||||
Share options outstanding |
766,346 | 755,453 | ||||||
|
|
|
|
|||||
8,437,079 | 3,930,649 | |||||||
|
|
|
|
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
The interim financial statements and this Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2011, and the related Managements Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2011. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to risks and uncertainties, including those set forth under Part I. Item 1. Business - Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2011, and elsewhere in this report, that could cause actual results to differ materially from historical results or anticipated results.
Overview
We are a clinical-stage pharmaceutical company focused on developing antibiotics to meet critical medical needs in the treatment of bacterial infectious diseases, particularly respiratory tract infections and chronic and acute stapylococcal infections. Our lead program, CEM-101, which we are developing in both oral and IV formulations initially for the treatment of CABP, one of the most serious infections of the respiratory tract, recently completed a successful Phase 2 clinical trial of the oral formulation for the treatment of CABP demonstrating comparable efficacy to the current standard of care, levofloxacin, with a favorable safety and tolerability profile. Our second program is Taksta, which we are developing in the U.S. as an oral treatment for bacterial infections caused by S. aureus, including MRSA, such as prosthetic joint infections and ABSSSI. We have successfully completed a Phase 2 ABSSSI clinical trial in patients with S. aureus infections, including MRSA, in which Taksta showed a favorable safety and tolerability profile and comparable efficacy to linezolid, the only FDA-approved oral antibiotic for treatment of MRSA. We expect to initiate in 2012 a pivotal Phase 3 trial for oral CEM-101 in patients with CABP and a Phase 2 trial for Taksta in patients with prosthetic joint infections.
We acquired worldwide rights (exclusive of ASEAN countries) to a library of over 500 macrolide compounds, including CEM-101, from Optimer in March 2006. We entered into a long-term supply arrangement with Ercros in March 2011, pursuant to which we have the exclusive right to acquire fusidic acid for the production of Taksta. We believe Ercros is one of only two currently known manufacturers that can produce fusidic acid compliant with the purity required for human use.
We have devoted substantially all of our resources to our drug development efforts, including conducting clinical trials of our product candidates, protecting our intellectual property and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue from any source. From inception in November 2005 through March 31, 2012, we raised a total of $151.3 million from the issuance of debt, sale of convertible notes, convertible preferred shares and common shares, including $58.0 million from the sale of common stock in our initial public offering in February 2012.
We have incurred losses in each year since our inception in November 2005. Our net losses were approximately $5.3 million and $3.2 million for the three months ended March 31, 2011 and March 31, 2012. As of March 31, 2012, we had an accumulated deficit of approximately $100.1 million. Substantially all of our operating losses resulted from costs incurred in connection with our development programs and from general and administrative costs associated with our operations.
We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We anticipate that our expenses will increase substantially as we:
| initiate or continue our clinical trials of CEM-101 and Taksta and our other product candidates; |
| operate as a public company; |
| seek regulatory approvals for our product candidates that successfully complete clinical trials; |
| build appropriate manufacturing facilities for the manufacture of, or outsource the manufacture of, any products for which we may obtain regulatory approval; |
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| establish our own sales force, or contract with third parties, for the sales, marketing and distribution of any products for which we obtain regulatory approval; |
| maintain, expand and protect our intellectual property portfolio; |
| continue our other research and development efforts; |
| hire additional clinical, quality control, scientific and management personnel; and |
| add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts. |
We do not expect to generate product revenue unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raise additional capital prior to the commercialization of CEM-101 and Taksta or any of our other product candidates. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operating activities through a combination of equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds when needed on favorable terms or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates.
Our Board of Directors approved a 1-for-9.5 reverse stock split of our common and preferred shares on January 12, 2012, which became effective on January 29, 2012. All references to common stock, common shares outstanding, average number of common shares outstanding and per share amounts in our consolidated financial statements and notes to consolidated financial statements have been restated to reflect the 1-for-9.5 reverse stock split on a retroactive basis.
Financial Overview
Revenue
To date, we have not generated revenue from the sale of any products or from any other source. In the future, we anticipate generating revenue from a combination of sales of our products, if approved, whether through our own or a third-party sales force, and license fees, milestone payments and royalties in connection with strategic collaborations regarding any of our product candidates. We expect that any revenue we generate will fluctuate from quarter to quarter. If we or our strategic partners fail to complete the development of CEM-101 or Taksta in a timely manner or obtain regulatory approval for them, or if we fail to develop our own sales force or find one or more strategic partners for the commercialization of approved products, our ability to generate future revenue, and our financial condition and results of operations would be materially adversely affected.
Research and Development Expenses
Since our inception, we have focused our resources on our research and development activities, including conducting pre-clinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates. We recognize our research and development expenses as they are incurred. Our research and development expenses consist primarily of:
| employee-related expenses, which include salaries, benefits and share compensation expense, for personnel in research and development functions; |
| fees paid to consultants and clinical research organizations, or CROs, in connection with our clinical trials, and other related clinical trial costs, such as for investigator grants, patient screening, laboratory work and statistical compilation and analysis; |
| costs related to acquiring and manufacturing clinical trial materials; |
| costs related to compliance with regulatory requirements; |
| consulting fees paid to third parties related to non-clinical research and development; |
| research supplies; and |
| license fees and milestone payments related to in-licensed technologies. |
From inception through March 31, 2012, we have incurred $68.7 million in research and development expenses. We plan to increase our research and development expenses for the foreseeable future as we seek to complete development of CEM-101 for CABP and Taksta for ABSSSI and to further advance our other product candidates.
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Our direct research and development expenses consist principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials, and related clinical trial fees. Our internal resources, employees and infrastructure are not directly tied to any individual research project and are typically deployed across multiple projects. Through our clinical development programs, we are advancing CEM-101 and Taksta in parallel primarily for the treatment of CABP and ABSSSI, respectively, as well as for other indications. Through our pre-clinical development programs, we are seeking to develop macrolide product candidates for non-antibacterial indications.
The following table sets forth costs incurred on a program-specific basis for CEM-101 and Taksta, excluding personnel-related costs. Macrolide research includes costs for discovery programs. All employee-related expenses for those employees working in research and development functions are included in Research and development personnel cost in the table, including salary, bonus, employee benefits and share-based compensation. We do not allocate insurance or other indirect costs related to our research and development function to specific product candidates. Those expenses are included in Indirect research and development expense in the table.
Three Months Ended March 31, | ||||||||
2011 | 2012 | |||||||
(Unaudited, in thousands) | ||||||||
Direct research and development expense by program: |
||||||||
CEM-101 |
$ | 3,615 | $ | 1,214 | ||||
Taksta |
89 | 30 | ||||||
Macrolide research |
79 | 3 | ||||||
Research and development personnel cost |
523 | 605 | ||||||
|
|
|
|
|||||
Total direct research and development expense |
4,306 | 1,852 | ||||||
Indirect research and development expense |
94 | 24 | ||||||
|
|
|
|
|||||
Total research and development expense |
$ | 4,400 | $ | 1,876 | ||||
|
|
|
|
The successful development of our clinical and pre-clinical product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or pre-clinical product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
| the scope, rate of progress and expense of our ongoing, as well as any additional, clinical trials and other research and development activities; |
| future clinical trial results; and |
| the timing of regulatory approvals. |
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.
We are currently planning our pivotal trial program for CEM-101, which we believe will require three Phase 3 trials, including one trial with oral CEM-101 and two trials with IV CEM-101 stepping down to oral CEM-101. All of these trials will be randomized, double-blinded studies conducted against a comparator drug agreed upon with the FDA, for which we will have to show non-inferiority from an efficacy perspective and acceptable safety and tolerability. We are planning to discuss our proposed pivotal trial program with the FDA at our end of Phase 2 meeting for oral CEM-101, which we expect will occur in the second quarter of 2012. We expect to begin the Phase 3 trial with oral CEM-101 in the second half of 2012. Following completion of our ongoing Phase 1 trial with IV CEM-101, we plan to commence our IV-to-oral Phase 3 trials.
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We have successfully completed a Phase 2 clinical trial with Taksta in ABSSSI patients. In this trial, the Taksta loading dose regimen demonstrated a favorable safety and tolerability profile and efficacy that was comparable to linezolid. We have completed a successful end of Phase 2 meeting with the FDA in which we presented our plan to conduct two Phase 3 clinical trials for Taksta as a treatment for ABSSSI; however at this time, we do not intend to commence Phase 3 trials in ABSSSI without a collaborative partner. We plan to initiate a Phase 2 trial with Taksta in patients with prosthetic joint infections in 2012.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including share-based compensation, for employees in executive, operational, finance and human resources functions. Other significant general and administrative expenses include professional fees for accounting, legal, and information technology services, facilities costs, and expenses associated with obtaining and maintaining patents.
Other Income (Expense), Net
Interest income consists of interest earned on our cash and equivalents as well as changes in fair value of warrants issued in connection with the December 2011 Note. We expect our interest income to increase during 2012 as we invested the net proceeds from the IPO pending their use in our operations.
Interest expense consists of interest incurred on the August 2011 Notes and December 2011 Note as well as changes in fair value of warrants issued in connection with the notes. We expect interest expense to increase during 2012 due to the outstanding December 2011 Note.
Accretion of Redeemable Preferred Shares
Our redeemable convertible preferred shares were initially recorded on our balance sheet at their cost, less associated issuance costs. The amount reflected on the balance sheet for our convertible preferred shares is increased by periodic accretion so that the amount reflected on the balance sheet will equal the aggregate redemption price at the redemption date.
Yield is cumulative and payable to the holders of preferred shares in advance of any distributions on common shares but only when, if and as declared by our board of directors. The holders of Class C preferred shares have been earning an annual yield at a rate of 8.0% of the original purchase price since May 13, 2009. Through May 13, 2009, the holders of Class A preferred shares and Class B preferred shares earned an annual yield at a rate of 8.0% of the original purchase price. Yield is recorded through periodic accretions which increase the carrying value of the preferred shares and is charged against additional paid-in capital to the extent available or shareholders equity (deficit).
Upon completion of our IPO, all of our outstanding preferred shares, including $13.7 million of accrued yield, converted into a total of 9,958,502 shares of common stock.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in our financial statements. We evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation, on an ongoing basis. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
For a description of our critical accounting policies and estimates, please refer to the Critical Accounting Policies and Estimates section of the Managements Discussion and Analysis of Financial Condition and Results of Operations section in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on March 30, 2012. There have been no material changes in any of our accounting policies since December 31, 2011.
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Results of Operations
Comparison of Three Months Ended March 31, 2011 and Three Months Ended March 31, 2012
The following table summarizes the results of our operations for each of three-month periods ended March 31, 2011 and 2012, together with the changes in those items in dollars and as a percentage:
Three Months Ended March 31, |
||||||||||||||||
2011 | 2012 | Increase/ (Decrease) |
% | |||||||||||||
(Unaudited, in thousands) | ||||||||||||||||
Revenue |
$ | | $ | | $ | | | |||||||||
Research and development expense |
4,392 | 1,876 | (2,516 | ) | (57.3 | )% | ||||||||||
General and administrative expense |
880 | 972 | 92 | 10.5 | % | |||||||||||
Other income (expense), net |
1 | (301 | ) | (302 | ) | 100.0 | % |
Revenue
We did not recognize any revenue for the three months ended March 31, 2011 and 2012.
Research and Development Expense
Research and development expense decreased by $2.5 million, or 57.3%, for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 as a result of a $2.4 million decrease in direct expenses incurred for CEM-101 and a $0.1 million decrease in direct expenses incurred for Taksta. The completion of the oral Phase 2 trials of CEM-101 during 2011 was the primary cause of the decrease in direct research and development expenses of $2.4 million during the three months ended March 31, 2012 compared to the three months ended March 31, 2011. Indirect research and development expenses decreased by $0.1 million, during the three months ended March 31, 2012 compared to the three months ended March 31, 2011 as a result of decreased travel expense and professional service fees.
Included in direct research and development payroll expense were share-based compensation charges of $32,000 and $65,000 for the three months ended March 31, 2011 and 2012, respectively.
General and Administrative Expense
General and administrative expense increased $0.1 million, or 10.0%, for the three months ended March 31, 2012 compared to the three months ended March 31, 2011 as a result of increased stock based compensation expense and professional service fees.
Included in general and administrative expense were share-based compensation charges of $66,000 and $99,000 for the three months ended March 31, 2011 and 2012, respectively.
Other Income (Expense), Net
Other income (expense), net decreased by $0.3 million, or 100.0%, in the three months ended March 31, 2012 compared to the three months ended March 31, 2011 as a result of a $0.1 million increase in fair value adjustments recorded as interest income and a $0.4 million increase in interest expese related to the August and December 2011 Notes.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception in November 2005 through March 31, 2012, we have funded our operations primarily with $151.3 million from debt, the sale of convertible notes, convertible preferred shares and common shares.
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The gross proceeds we have received from the issuance and sale of our convertible notes, preferred shares and common stock are as follows:
Issue | Year | Number of Shares |
Gross Proceeds |
|||||||||
(in thousands) | ||||||||||||
Class A |
2006 | 789,191 | $ | 7,497 | (1) | |||||||
Class A |
2007 | 1,557,895 | 14,800 | |||||||||
Class B |
2007 | 809,717 | 10,000 | |||||||||
Class C |
2009 | 2,488,686 | 25,500 | |||||||||
Class C |
2010 | 2,000,700 | 20,500 | |||||||||
August 2011 Notes |
2011 | | 5,000 | |||||||||
December 2011 Note |
2011 | | 10,000 | |||||||||
Initial Public Offering |
2012 | 9,660,000 | 57,960 |
(1) | Includes $3,197 of converted notes payable and accrued interest. |
As of March 31, 2012, we had cash and equivalents of approximately $65.9 million.
In December 2011, we entered into a $20.0 million loan and security agreement with Hercules pursuant to which we borrowed $10.0 million upon closing. The principal amount outstanding under the initial $10.0 million advance bears interest at the greater of (i) 9.55%, or (ii) the sum of 9.55% plus the prime lending rate, as published by the Wall Street Journal, minus 3.25% per annum. We may, at any time prior to October 1, 2012, request an additional advance in the amount of $10.0 million. The principal amount outstanding under the second $10.0 million advance will bear interest at the greater of (i) 8.75%, or (ii) the sum of 8.75% plus the prime lending rate, as published by the Wall Street Journal, minus 3.25% per annum. We will be required to make interest only payments through March 2013, which can be extended to June 2013 upon satisfaction of certain conditions. Principal and interest payments will start after December 2012 or any later extended date. The principal balance outstanding on the loan agreement and all accrued but unpaid interest thereunder will be due and payable on December 1, 2015. In addition, on the earliest to occur of (i) the loan maturity date, (ii) the date that we prepay all of the outstanding advances and accrued interest, or (iii) the date that all of the advances and interest become due and payable, we must pay Hercules a fee of $400,000. We granted Hercules a security interest in all of our assets, except for our intellectual property. Our obligations to Hercules include restrictions on borrowing, asset transfers, placing liens or security interests on our assets, including our intellectual property, mergers and acquisitions and distributions to stockholders.
In connection with the loan agreement, we entered into a warrant agreement with Hercules, under which Hercules has the right to purchase up to the aggregate number of shares of common stock equal to (a) $400,000 divided by the applicable exercise price, and (b) if we draw the remaining $10.0 million, that number of shares determined by dividing $400,000 by the applicable exercise price. The exercise price per share is equal to $10.25 per share subject to adjustment in the event of a merger, reclassification, subdivision or combination of shares or stock dividend and subject also to antidilution protection. The warrant expires on December 20, 2021.
During February 2012, we completed our IPO issuing 9,660,000 shares of common stock, at a price of $6.00 per share, resulting in net proceeds of approximately $53.2 million after deducting underwriting discounts of $3.2 million and offering costs of $1.6 million.
Upon the completion of the IPO, all of our outstanding preferred shares, including accrued yield of $13.7 million, automatically converted into a total of 9,958,502 shares of common stock and the preferred stock warrant liability of $1.0 million was reclassified to additional paid-in capital upon the conversion of warrants to purchase preferred stock into warrants to purchase common stock. In addition, our August 2011 Notes totaling $5.0 million and related accrued interest of $0.3 million converted into 876,621 shares of common stock.
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Cash Flows
The following table sets forth the major sources and uses of cash for the periods set forth below:
Three Months Ended March 31 |
||||||||
2011 | 2012 | |||||||
(Unaudited, in thousands) | ||||||||
Net cash provided by (used in): |
||||||||
Operating activities |
$ | (5,519 | ) | $ | (3,762 | ) | ||
Investing activities |
(8 | ) | (5 | ) | ||||
Financing activities |
49 | 54,075 | ||||||
|
|
|
|
|||||
Net increase (decrease) in cash and equivalents |
$ | 5,477 | $ | 50,308 | ||||
|
|
|
|
Operating Activities. Cash used in operating activities of $5.5 million during the three months ended March 31, 2011 was primarily a result of our $5.3 million net loss, coupled with changes in operating assets and liabilities of $0.3 million, partially offset by non-cash items of $0.1 million. Cash used in operating activities of $3.8 million for the three months ended March 31, 2012 was primarily a result of our $3.2 million net loss and cash used by changes in operating assets and liabilities of $0.8 million partially offset by non-cash items of $0.2 million.
Investing Activities. Net cash used in investing activities was $8,000 for the three months ended March 31, 2011 and $5,000 for the three months ended March 31, 2012. Cash used in investing activities during all of these periods reflected our purchases of equipment.
Financing Activities. Net cash provided by financing activities was $49,000 for the three months ended March 31, 2011 from the exercise of stock options. Net cash provided by financing activities was $54.1 million for the three months ended March 31, 2012. The cash provided by financing activities in 2012 consisted of gross proceeds of $58.0 million from the IPO offset by $3.2 million of underwriting discounts and $0.7 million of offering costs.
Funding Requirements
To date, we have not generated any product revenue from our development stage product candidates or from any other source. We do not know when, or if, we will generate any product revenue. We do not expect to generate product revenue unless or until we obtain marketing approval of, and commercialize, CEM-101 and/or Taksta or any of our other product candidates. At the same time, we expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, CEM-101 and Taksta and our other product candidates. Furthermore, upon the closing of our IPO, we expect to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We will need substantial additional funding in connection with our continuing operations.
We expect that our existing cash and equivalents, including interest thereon, and the expected draw of the $10.0 million available under the December 2011 Note will enable us to fund our operating expenses and capital expenditure requirements at least into 2014. We will need to obtain additional financing for the continued development of CEM-101, Taksta and our other product candidates and prior to the commercialization of any of these product candidates. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Due to the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of our product candidates.
Our future capital requirements will depend on many factors, including:
| the progress, costs and results of our planned CEM-101 Phase 3 trials and our planned Taksta Phase 2 and Phase 3 trials; |
| the scope, progress costs, and results of pre-clinical development, laboratory testing and clinical trials for our other product candidates; |
| the costs, timing and outcome of regulatory review of our product candidates; |
| the costs of commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive regulatory approval; |
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| our ability to establish collaborations on favorable terms; |
| the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims; |
| revenue if any, received from sales of our product candidates, if approved by the FDA; |
| the extent to which we acquire or invest in businesses, products and technologies; and |
| our ability to obtain government or other third-party funding. |
Until we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Other than the remaining $10.0 million available under the Herucules loan agreement, we do not have any other committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
We plan to seek partners or other sources of third-party funding, including government grants, for the continued development of CEM-101 and Taksta and our other product candidates. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our development of our product candidates, or our commercialization efforts, or to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
We have an operating lease agreement for our current office space in Chapel Hill, North Carolina. The lease term is 42 months with an expiration date of November 30, 2014. Aggregate lease payments over the term will be $0.4 million.
During the three months ended March 31, 2012, there have been no material changes to our contractual obligations and commitments outside the ordinary course of business from those specified in our 2011 Annual Report on Form 10-K.
We enter into contracts in the normal course of business with clinical research organizations for clinical trials and clinical supply manufacturing and with vendors for pre-clinical research studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice and therefore we believe that our non-cancelable obligations under these agreements are not material.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules.
Recent Accounting Pronouncements
On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act (JOBS Act), which establishes a new category of issuer called an emerging growth company (EGC). Under the JOBS Act, an EGC is defined as an issuer with total annual gross revenues less than $1 billion during its most recently completed fiscal year. An issuer continues to be eligible for EGC status until the earliest of (1) the last day of the fiscal year during which it had total annual gross revenues of $1 billion or more (indexed for inflation), (2) the last day of the fiscal year of the issuer following the fifth anniversary of the date of its IPO, (3) the date on which it issued more than $1 billion in non-convertible debt in the previous three-year period, or (4) the date on which it became a large accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934.
The JOBS Act exempts an EGC from the following requirements during the period of eligibility:
| Having an independent auditor assess its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act. However, an EGC would still have to comply with the Section 404(a) requirement that management assess its internal control over financial reporting, generally beginning with its second annual report on Form 10-K. |
| Adopting new or revised accounting standards that are effective for public companies. Instead, the extended effective dates of such accounting standards for private companies would apply. |
| Complying with say-on-pay vote requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act. An EGC would satisfy executive compensation disclosures in a manner consistent with a smaller reporting company. |
| Complying with future changes to PCAOB auditing standards related to mandatory audit firm rotation and an Auditors Discussion & Analysis statement (if adopted). Other new standards would not apply to audits of EGCs unless the SEC decides that they should after considering the protection of investors and whether the action will promote efficiency, competition and capital formation. |
With the exception of the treatment for accounting standards, each of these exemptions is voluntary and an EGC may choose to operate as an EGC as it deems appropriate. The JOBS Act permits an EGC to opt out of the exemption to adopt new or revised accounting standards when they are effective for private companies and instead apply such standards on the same basis as a public company. Such decision to opt-out is irrevocable, and the EGC must continue to comply with such standards to the same extent that a public company is required for as long as the company remains an EGC.
We are electing to opt out of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted.
For information on recent accounting pronouncements, see Note 2 to the consolidated financial statements appearing in Part I, Item 1 in this Quarterly Report on Form 10-Q.
In December 2011, the FASB issued new guidance impacting the presentation of certain items on the balance sheet. The new guidance requires an entity to disclose both gross and net information about both instruments and transactions that are eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This guidance is effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. The adoption of this guidance is not expected to impact our consolidated financial position, results of operations or cash flows, but may result in certain additional disclosures.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have not been any material changes to our exposure to market risk during the quarter ended March 31, 2012. For additional information regarding market risk, refer to Item 7A. Quantitative and Qualitative Disclosure About Market Risk of our 2011 Annual Report on Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are designed only to provide reasonable assurance that information to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial and accounting officer), of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide the reasonable assurance discussed above.
Changes in Internal Control over Financial Reporting
No change to our internal control over financial reporting occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 1A. RISK FACTORS
The primary risk factors affecting our business have not changed materially from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011, except as set forth below.
We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors or otherwise negatively impact the price of our stock.
The Jumpstart Our Business Startups Act of 2012, or JOBS Act, contains provisions that, among other things, reduce reporting requirements for qualifying public companies. As an emerging growth company, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act.
Subject to certain conditions set forth in the JOBS Act, if, as an emerging growth company, we choose to rely on these exemptions, we may not be required to, among other things, (i) provide an auditors attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the CEOs compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our initial public offering in February 2012 or until we are no longer an emerging growth company, whichever is earlier. If we rely on the exemptions permitted under the JOBS Act, we cannot be certain if our scaled disclosure will make our stock less attractive to investors or negatively affect the price of our stock.
If we fail to establish and maintain proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
We are not currently required to comply with SEC rules that implement Sections 302 and 404 of the Sarbanes-Oxley Act, and are therefore not required to make a formal assessment of the effectiveness of our internal controls over financial reporting for that purpose. Additionally, if we opt to rely on the exemptions provided in the JOBS Act, we will not be required to provide our independent auditors assessment of our internal controls over financial reporting until such time we cease to be an emerging growth company.
When we are required to evaluate our internal controls over financial reporting, if we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations because there is presently no precedent available by which to measure compliance adequacy. As a consequence, we may not be able to complete our remediation process in time to meet our deadline for compliance with Section 404 of the Sarbanes-Oxley Act. Also, there can be no assurance that we will not identify one or more material weaknesses in our internal controls in connection with evaluating our compliance with Section 404 of the Sarbanes-Oxley Act. The presence of material weaknesses could result in financial statement errors which, in turn, could require us to restate our operating results.
If we are unable to conclude that we have effective internal control over financial reporting or if our independent auditors are unwilling or unable to provide us with an attestation report on the effectiveness of internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act, investors may lose confidence in our operating results, our stock price could decline and we may be subject to litigation or regulatory enforcement actions. In addition, if we are unable to meet the requirements of Section 404 of the Sarbanes-Oxley Act, we may not be able to remain listed on the NASDAQ Global Market.
Exhibit |
Description of Document |
Registrants |
Dated |
Exhibit |
Filed Herewith | |||||
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||||||
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | X | ||||||||
32.1 | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | ||||||||
32.2 | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | X | ||||||||
101 | Financials in XBRL format. | X |
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SIGNATURES
Pursuant to the requirements 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.
Date: May 10, 2012 | CEMPRA, INC. | |||
By: | /s/ Prabhavathi Fernandes, Ph.D. | |||
Prabhavathi Fernandes, Ph.D. | ||||
President and Chief Executive Officer |