Attached files
file | filename |
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EX-31.1 - EX-31.1 - MELINTA THERAPEUTICS, INC. /NEW/ | d506773dex311.htm |
EX-31.2 - EX-31.2 - MELINTA THERAPEUTICS, INC. /NEW/ | d506773dex312.htm |
EXCEL - IDEA: XBRL DOCUMENT - MELINTA THERAPEUTICS, INC. /NEW/ | Financial_Report.xls |
EX-32.2 - EX-32.2 - MELINTA THERAPEUTICS, INC. /NEW/ | d506773dex322.htm |
EX-32.1 - EX-32.1 - MELINTA THERAPEUTICS, INC. /NEW/ | d506773dex321.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, 2013
¨ | 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) 313-6601
(Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
Title of Each Class |
Name of Exchange on which Registered | |
Common Stock, $0.001 Par Value | Nasdaq Global Market |
Securities Registered Pursuant to Section 12(g) of the Act: None
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
As of April 18, 2013 there were 24,903,774 shares of the registrants common stock, $0.001 par value, outstanding.
Table of Contents
CEMPRA, INC.
Page | ||||||
1 | ||||||
Item 1. |
1 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operation |
17 | ||||
Item 3. |
24 | |||||
Item 4. |
24 | |||||
24 | ||||||
Item 6. |
24 |
i
Table of Contents
PART I - FINANCIAL INFORMATION
CEMPRA, INC.
(A Development Stage Company)
Consolidated Balance Sheets
December 31, 2012 |
March 31, 2013 |
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(Unaudited) | ||||||||
Assets |
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Current assets |
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Cash and equivalents |
$ | 70,108,754 | $ | 60,151,961 | ||||
Prepaid expenses |
264,981 | 643,930 | ||||||
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Total current assets |
70,373,735 | 60,795,891 | ||||||
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Furniture, fixtures and equipment, net |
43,217 | 56,091 | ||||||
Deposits |
321,394 | 321,394 | ||||||
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Total assets |
$ | 70,738,346 | $ | 61,173,376 | ||||
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Liabilities |
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Current liabilities |
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Accounts payable |
$ | 2,171,633 | $ | 1,608,057 | ||||
Accrued expenses |
341,918 | 998,874 | ||||||
Accrued payroll and benefits |
604,548 | 211,988 | ||||||
Current portion of long-term debt |
2,226,610 | 3,008,649 | ||||||
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Total current liabilities |
5,344,709 | 5,827,568 | ||||||
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Long-term debt |
7,623,285 | 6,929,782 | ||||||
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Total liabilities |
12,967,994 | 12,757,350 | ||||||
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Commitments and contingencies |
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Shareholders Equity |
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Common stock; $.001par value; 80,000,000 shares authorized; 24,903,774 issued and outstanding at December 31, 2012 and March 31, 2013 |
24,904 | 24,904 | ||||||
Additional paid-in capital |
178,970,975 | 179,961,559 | ||||||
Deficit accumulated during the development stage |
(121,225,527 | ) | (131,570,437 | ) | ||||
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Total shareholders equity |
57,770,352 | 48,416,026 | ||||||
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Total liabilities and shareholders equity |
$ | 70,738,346 | $ | 61,173,376 | ||||
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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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2012 | 2013 | 2013 | ||||||||||
Revenues |
$ | | $ | | $ | | ||||||
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Operating expenses |
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Research and development |
1,876,218 | 7,370,960 | 91,098,520 | |||||||||
General and administrative |
972,101 | 2,647,253 | 24,209,713 | |||||||||
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Total operating expenses |
2,848,319 | 10,018,213 | 115,308,233 | |||||||||
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Loss from operations |
(2,848,319 | ) | (10,018,213 | ) | (115,308,233 | ) | ||||||
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Other income (expense) |
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Interest income |
105,207 | 589 | 1,473,699 | |||||||||
Interest expense |
(406,598 | ) | (327,286 | ) | (5,966,608 | ) | ||||||
Other income |
| | 488,958 | |||||||||
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Other income (expense), net |
(301,391 | ) | (326,697 | ) | (4,003,951 | ) | ||||||
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Net loss and comprehensive loss |
(3,149,710 | ) | (10,344,910 | ) | (119,312,184 | ) | ||||||
Accretion of redeemable convertible preferred shares |
(313,588 | ) | | (14,002,842 | ) | |||||||
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Net loss attributable to common shareholders |
$ | (3,463,298 | ) | $ | (10,344,910 | ) | $ | (133,315,026 | ) | |||
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Basic and diluted net loss attributable to common shareholders per share |
$ | (.26 | ) | $ | (.42 | ) | ||||||
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Basic and diluted weighted average shares outstanding |
13,250,511 | 24,903,774 | ||||||||||
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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)
Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Preferred Shares |
Series B Preferred Shares |
Series C Preferred Shares |
Common Shares |
Common Stock | Additional Paid-In |
During the Development |
Shareholders Equity |
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Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stage | (Deficit) | ||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (8,075,240 | ) | (8,075,240 | ) | |||||||||||||||||||||||||||||||||||||
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3
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
Consolidated Statements of Redeemable Preferred Shares and Shareholders Equity (Deficit)
Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Preferred Shares |
Series B Preferred Shares |
Series C Preferred Shares |
Common Shares |
Common Stock | Additional Paid-In |
During the Development |
Shareholders Equity |
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Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stage | (Deficit) | ||||||||||||||||||||||||||||||||||||||||
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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4
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
Consolidated Statements of Redeemable Preferred Shares and Shareholders Equity (Deficit)
Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Preferred Shares |
Series B Preferred Shares |
Series C Preferred Shares |
Common Shares | Common Stock | Additional Paid-In |
During the Development |
Shareholders Equity |
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Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stage | (Deficit) | ||||||||||||||||||||||||||||||||||||||||
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 | ) | |||||||||||||||||||||||||||||||||||||
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 exercise of options |
| | | | | | | | 10,351 | 10 | 34,498 | | 34,508 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon initial public offering, net of issuance costs of $4.7 million |
| | | | | | | | 9,660,000 | 9,660 | 53,184,681 | | 53,194,341 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon private placement, net of issuance costs of $1.7 million |
| | | | | | | | 3,864,461 | 3,865 | 23,508,098 | | 23,511,963 | |||||||||||||||||||||||||||||||||||||||
Conversion of common shares to common stock |
| | | | | | (533,839 | ) | | 533,839 | 534 | (534 | ) | | | |||||||||||||||||||||||||||||||||||||
Accretion of redeemable convertible preferred shares |
| 2,038 | | 533 | | 311,017 | | | | | | (313,588 | ) | (313,588 | ) | |||||||||||||||||||||||||||||||||||||
Conversion of redeemable convertible preferred shares to common stock upon initial public offering |
(2,291,966 | ) | (25,811,735 | ) | (809,717 | ) | (11,282,045 | ) | (4,489,375 | ) | (57,733,844 | ) | | | 9,958,502 | 9,959 | 94,817,665 | | 94,827,624 | |||||||||||||||||||||||||||||||||
Conversion of convertible notes payable to common stock upon initial public offering |
| | | | | | | | 876,621 | 876 | 4,723,658 | | 4,724,534 | |||||||||||||||||||||||||||||||||||||||
Reclassification of warrant liability to additional paid-in capital |
| | | | | | | | | | 1,033,647 | | 1,033,647 | |||||||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | | | | | 1,669,262 | | 1,669,262 | |||||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | | | (24,226,789 | ) | (24,226,789 | ) | |||||||||||||||||||||||||||||||||||||
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5
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
Consolidated Statements of Redeemable Preferred Shares and Shareholders Equity (Deficit)
Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Preferred Shares |
Series
B Preferred Shares |
Series C Preferred Shares |
Common Shares | Common Stock | Additional Paid-In |
During the Development |
Shareholders Equity |
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Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stage | (Deficit) | ||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2012 |
| $ | | | $ | | | $ | | | $ | | 24,903,774 | $ | 24,904 | $ | 178,970,975 | $ | (121,225,527 | ) | $ | 57,770,352 | ||||||||||||||||||||||||||||||
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Share-based compensation (Unaudited) |
| | | | | | | | | | 990,584 | | 990,584 | |||||||||||||||||||||||||||||||||||||||
Net loss (Unaudited) |
| | | | | | | | | | | (10,344,910 | ) | (10,344,910 | ) | |||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||
Balance as of March 31, 2013 (Unaudited) |
| $ | | | $ | | | $ | | | $ | | 24,903,774 | $ | 24,904 | $ | 179,961,559 | $ | (131,570,437 | ) | $ | 48,416,026 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
6
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 |
|||||||||||
2012 | 2013 | March 31, 2013 | ||||||||||
Operating activities |
||||||||||||
Net loss |
$ | (3,149,710 | ) | $ | (10,344,910 | ) | $ | (119,312,184 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities |
||||||||||||
Depreciation |
18,046 | 5,929 | 247,772 | |||||||||
Issuance of common shares for service |
| | 14,583 | |||||||||
Issuance of common shares for license agreement |
| | 190,418 | |||||||||
Share-based compensation |
164,487 | 990,584 | 3,683,154 | |||||||||
Change in fair value of warrant liabilities |
(87,204 | ) | | 3,330,801 | ||||||||
Amortization of debt issuance costs |
94,957 | 88,536 | 838,499 | |||||||||
Changes in operating assets and liabilities |
||||||||||||
Prepaid expenses |
(671,129 | ) | (378,949 | ) | (643,930 | ) | ||||||
Deposits |
| | (321,394 | ) | ||||||||
Accounts payable |
(330,464 | ) | (563,576 | ) | 1,608,055 | |||||||
Accrued expenses |
433,445 | 656,956 | 1,255,819 | |||||||||
Accrued payroll and benefits |
(234,229 | ) | (392,560 | ) | 211,987 | |||||||
|
|
|
|
|
|
|||||||
Net cash used in operating activities |
(3,761,801 | ) | (9,937,990 | ) | (108,896,420 | ) | ||||||
|
|
|
|
|
|
|||||||
Investing activities |
||||||||||||
Purchases of furniture, fixtures and equipment |
(4,903 | ) | (18,803 | ) | (303,862 | ) | ||||||
Purchase of investments |
| | (14,306,177 | ) | ||||||||
Proceeds from sale of investments |
| | 14,306,177 | |||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(4,903 | ) | (18,803 | ) | (303,862 | ) | ||||||
|
|
|
|
|
|
|||||||
Financing activities |
||||||||||||
Proceeds from borrowing on convertible promissory notes |
| | 8,100,000 | |||||||||
Proceeds from borrowing on long-term debt |
| | 10,000,000 | |||||||||
Proceeds from exercise of stock options |
| | 131,223 | |||||||||
Proceeds from issuance of common stock upon initial public offering, net of underwriting discounts |
54,777,800 | | 54,777,800 | |||||||||
Proceeds from issuance of common stock upon private placement, net of underwriting discounts |
| | 23,511,962 | |||||||||
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 redeemable convertible preferred shares |
| | 75,197,313 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
54,075,084 | | 169,352,243 | |||||||||
|
|
|
|
|
|
|||||||
Net change in cash and equivalents |
50,308,380 | (9,956,793 | ) | 60,151,961 | ||||||||
Cash and equivalents at beginning of the period |
15,602,264 | 70,108,754 | | |||||||||
|
|
|
|
|
|
|||||||
Cash and equivalents at end of the period |
$ | 65,910,644 | $ | 60,151,961 | $ | 60,151,961 | ||||||
|
|
|
|
|
|
|||||||
Supplemental cash flow information |
||||||||||||
Cash paid for interest |
$ | 206,000 | $ | 238,750 | $ | 1,159,264 | ||||||
Non-cash investing and financing activities |
||||||||||||
Accretion of redeemable convertible preferred shares |
$ | 313,588 | $ | | $ | 14,002,845 | ||||||
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
7
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2013
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 pharmaceutical 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, 2013, the Company has incurred losses since inception of $119.3 million. The Company expects to continue to incur losses and require additional financial resources to advance its products to either the 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.
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 by 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, 2012 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, 2013 and the results of operations and cash flows for the three months ended March 31,
8
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2013
Notes to Consolidated Financial Statements
2012 and 2013. The December 31, 2012 consolidated balance sheet included herein was derived from audited consolidated financial statements, but does not include all disclosures including notes required by 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.
3. Fair Value of Financial Instruments
The carrying values of cash equivalents, prepaid expenses, and accounts payable at March 31, 2013 approximated their fair values due to the short-term nature of these items.
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.
At December 31, 2012 and March 31, 2013, 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, 2012 |
|||||||||||||
Assets: |
||||||||||||||||
Money Market Funds |
$ | 67,783,021 | $ | | $ | | 67,783,021 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value: |
$ | 67,783,021 | $ | | $ | | $ | 67,783,021 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
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, 2013 |
|||||||||||||
Assets: |
||||||||||||||||
Money Market Funds |
$ | 57,283,535 | $ | | $ | | 57,283,535 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets at fair value: |
$ | 57,283,535 | $ | | $ | | $ | 57,283,535 | ||||||||
|
|
|
|
|
|
|
|
9
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2013
Notes to Consolidated Financial Statements
The December 2011 Note, which is classified as a level 2 liability (see Note 7) has a variable interest rate and accordingly, its carrying value approximates its fair value. At December 31, 2012 and March 31, 2013, the carrying value was $9.8 million and $9.9 million, respectively.
4. Research and Development and License Agreement
Optimer Pharmaceuticals, Inc.
In March 2006, the Company, through its wholly owned subsidiary, Cempra Pharmaceuticals, Inc., 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 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 125,646 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 solithromycin Phase 1 program. In July 2012, the Company paid a $1,000,000 milestone after the successful completion of its first solithromycin Phase 2 program. Both milestones were expensed as incurred in research and development expense. 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 (including payments made to date) 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.
The Scripps Research Institute
In June 2012, the Company entered into a license agreement with The Scripps Research Institute (TSRI), whereby TSRI licensed to the Company rights, with rights of sublicense, to make, use, sell, and import products for human or animal therapeutic use that use or incorporate one or more macrolides as an active pharmaceutical ingredient and is covered by certain patent rights owned by TSRI claiming technology related to copper-catalysed ligation of azides and acetylenes. The rights licensed to the Company are exclusive as to the Peoples Republic of China (excluding Hong Kong), South Korea and Australia, and are non-exclusive in all other countries worldwide, except the member-nations of the Association of Southeast Asian Nations, which are not included in the territory of the license. Under the terms of the agreement with TSRI, the Company paid a one-time only, non-refundable license issue fee in the amount of $350,000 which was charged to research and development expense in the second quarter of 2012.
The Company is also obligated to pay annual maintenance fees to TSRI in the amount of (i) $50,000 each year for the first three years (beginning on the first anniversary of the agreement), and (ii) $85,000 each year thereafter (beginning on the fourth anniversary of the agreement). Each calendar years annual maintenance fees will be credited against sales royalties due under the agreement for such calendar year. Under the terms of the agreement, the Company must pay TSRI low single-digit percentage royalties on the net sales of the products covered by the TSRI patents for the life of the TSRI patents, a low single-digit percentage of non-royalty sublicensing revenue received with respect to countries in the nonexclusive territory and a mid-single-digit percentage of sublicensing revenue received with respect to countries in the exclusive territory, with the sublicensing revenue royalty in the exclusive territory and the sales royalties subject to certain reductions under certain circumstances. TSRI is eligible to receive milestone payments of up to $1.1 million with respect to regulatory approval in the exclusive territory and first commercial sale, in each of the exclusive territory and nonexclusive territory, of the first licensed product to achieve those milestones that is based upon each macrolide covered
10
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2013
Notes to Consolidated Financial Statements
by the licensed patents. Each milestone is payable once per each macrolide. Each milestone payment made to TSRI with respect to a particular milestone will be creditable against any payment due to TSRI with respect to any sublicense revenues received in connection with the achievement of such milestone. Pursuant to the terms of the Optimer Agreement, any payments made to TSRI under this license for territories subject to the Optimer Agreement can be deducted from any sales-based royalty payments due under the Optimer Agreement up to a certain percentage reduction of the royalties due to Optimer.
Under the terms of the agreement, the Company is also required to pay additional fees on royalties, sublicensing and milestone payments if the Company, an affiliate with TSRI, or a sublicensee challenges the validity or enforceability of any of the patents licensed under the agreement. Such increased payments would be required until all patent claims subject to challenge are invalidated in the particular country where such challenge was mounted.
5. Furniture, Fixtures and Equipment
Furniture, fixtures and equipment consist of the following as of:
Useful Life (years) |
December 31, 2012 |
March 31, 2013 |
||||||||||
(Unaudited) | ||||||||||||
Computer equipment |
2 | $ | 191,889 | $ | 197,091 | |||||||
Software |
2 | 46,594 | 34,952 | |||||||||
Furniture |
5 | 38,792 | 38,792 | |||||||||
Leasehold improvements |
3 | 4,809 | 4,809 | |||||||||
|
|
|
|
|||||||||
Total furniture, fixtures and equipment |
282,084 | 275,644 | ||||||||||
Less accumulated depreciation |
238,867 | 219,553 | ||||||||||
|
|
|
|
|||||||||
Furniture, fixtures and equipment, net |
$ | 43,217 | $ | 56,091 | ||||||||
|
|
|
|
Depreciation expense for the three months ended March 31, 2012 and the three months ended March 31, 2013 was $18,046 and $5,929, respectively. Depreciation expense for the cumulative period from inception through March 31, 2013 was $247,772.
11
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2013
Notes to Consolidated Financial Statements
6. Accrued Expenses
Accrued expenses are comprised of the following as of:
December 31, 2012 |
March 31, 2013 |
|||||||
(Unaudited) | ||||||||
Accrued professional fees |
$ | 207,362 | $ | 504,260 | ||||
Other accrued fees |
30,817 | 149,460 | ||||||
Franchise tax |
| 243,260 | ||||||
Accrued interest |
82,236 | 82,236 | ||||||
Deferred rent |
21,503 | 19,658 | ||||||
|
|
|
|
|||||
Total accrued expenses |
$ | 341,918 | $ | 998,874 | ||||
|
|
|
|
7. 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 $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 provided that the Company could, at any time prior to October 1, 2012, request another borrowing in the aggregate amount of $10,000,000. The Company elected not to request the additional borrowing and let the option expire on September 30, 2012. The Company was required to make interest only payments through March 31, 2013. Principal and interest payments will start after March 31, 2013. 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.
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 39,038 shares of the Companys common stock. The exercise price 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 Hercules 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 December 2011 Note 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 warrant liability was reclassified to additional paid-in capital.
12
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2013
Notes to Consolidated Financial Statements
8. Shareholders Equity (Deficit)
Initial Public Offering
During February 2012, the Company completed its initial public offering (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 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 and related accrued interest converted into 876,621 shares of common stock.
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. As of March 31, 2013, there were options for an aggregate of 702,185 shares issued and outstanding under the 2006 Plan.
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. During January 2013, the authorized shares under the 2011 Plan automatically increased by 105,263 shares. During March 2013, the Companys board of directors approved an increase of 1,500,000 shares reserved under the 2011 Plan, which increase is subject to stockholder approval. As of March 31, 2013, there were 589,689 option shares available under the 2011 Plan, without giving effect to the contingent increase of 1,500,000 shares.
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 effectiveness of the 2011 Plan, 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.
13
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2013
Notes to Consolidated Financial Statements
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, 2012 |
1,162,602 | $ | 4.18 | |||||||||||||
|
|
|||||||||||||||
Granted |
578,973 | 6.62 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited |
| | ||||||||||||||
Expired |
| | ||||||||||||||
|
|
|||||||||||||||
Outstanding - March 31, 2013 |
1,741,575 | 5.00 | 8.24 | $ | 3,377,536 | |||||||||||
|
|
|
|
|||||||||||||
Exercisable - March 31, 2013 |
1,053,035 | 4.47 | 7.54 | $ | 2,687,908 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Vested and expected to vest at March 31, 2013 (2) |
1,673,786 | $ | 4.95 | 8.19 | $ | 3,313,332 | ||||||||||
|
|
|
|
|
|
|
|
(1) | Intrinsic value is the excess of the fair value of the underlying common shares as of March 31, 2013 over the weighted-average exercise price. |
(2) | The number of stock options expected to vest takes into account an estimate of expected forfeitures. |
The following table summarizes certain information about all options outstanding as of March 31, 2013:
14
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2013
Notes to Consolidated Financial Statements
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 | 33,686 | 3.17 | 33,686 | 3.17 | |||||||||||||
$ | 1.43 | 24,737 | 3.36 | 24,737 | 3.36 | |||||||||||||
$ | 1.62 | 39,265 | 3.72 | 39,265 | 3.72 | |||||||||||||
$ | 2.09 | 450,128 | 7.08 | 339,936 | 6.98 | |||||||||||||
$ | 2.28 | 59,064 | 7.92 | 30,952 | 7.92 | |||||||||||||
$ | 2.47 | 95,305 | 5.09 | 95,305 | 5.09 | |||||||||||||
$ | 6.63 | 305,973 | 9.80 | 76,494 | 9.80 | |||||||||||||
$ | 6.64 | 180,000 | 9.93 | 31,250 | 9.93 | |||||||||||||
$ | 6.72 | 66,500 | 9.14 | 6,625 | 9.14 | |||||||||||||
$ | 6.79 | 93,000 | 9.85 | 23,250 | 9.85 | |||||||||||||
$ | 7.47 | 119,000 | 9.02 | 107,750 | 8.99 | |||||||||||||
$ | 7.55 | 25,000 | 9.00 | 25,000 | 9.00 | |||||||||||||
$ | 7.62 | 249,917 | 9.04 | 218,785 | 8.97 | |||||||||||||
|
|
|
|
|||||||||||||||
1,741,575 | 1,053,035 | |||||||||||||||||
|
|
|
|
During the three month period ended March 31, 2012 and 2013, the Company recorded $164,487 and $990,584 in share-based compensation expense, respectively. Since inception, the Company has recognized $3,683,154 in share-based compensation expense. As of March 31, 2013, approximately $2,419,000 of total unrecognized compensation cost related to unvested share options is expected to be recognized over a weighted-average period of 1.4 years.
10. Income Taxes
The Company estimates an annual effective tax rate of 0% for the year ended December 31, 2013 as the Company incurred losses for the three month period ended March 31, 2013 and is forecasting additional losses through the 4th quarter, resulting in an estimated net loss for both financial statement and tax purposes for the year ended December 31, 2013. 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 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
15
Table of Contents
CEMPRA, INC.
(A Development Stage Company)
March 31, 2013
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, | March 31, | |||||||
2012 | 2013 | |||||||
(Unaudited) | ||||||||
Net loss attributable to common shareholders |
$ | (3,463,298 | ) | $ | (10,344,910 | ) | ||
Weighted average common share outstanding, basic and diluted |
13,250,511 | 24,903,774 | ||||||
|
|
|
|
|||||
Net loss per share attributable to common shareholders, basic and diluted |
$ | (.26 | ) | $ | (.42 | ) | ||
|
|
|
|
The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:
March 31, | March 31, | |||||||
2012 | 2013 | |||||||
(Unaudited) | ||||||||
Redeemable convertible preferred shares |
2,781,694 | | ||||||
Convertible debt |
179,711 | | ||||||
Warrants outstanding |
213,791 | 247,370 | ||||||
Stock options outstanding |
755,453 | 1,512,213 | ||||||
|
|
|
|
|||||
3,930,649 | 1,759,583 | |||||||
|
|
|
|
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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, 2012, 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, 2012. 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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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, 2012, 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 staphylococcal infections. Our lead program, solithromycin, 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 initiated a pivotal Phase 3 clinical trial of the oral formulation for the treatment of CABP in a global multi-center double-blinded study. We have also released data from a Phase 2 study of solithromycin in uncomplicated gonorrhea. Our second program is Taksta, which we are developing in the U.S. as an oral treatment for prosthetic joint infections caused by S. aureus, including MRSA. In December 2012, we initiated 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 solithromycin, from Optimer Pharmaceuticals, Inc. in March 2006. We entered into a long-term supply arrangement with Ercros, S.A. 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, 2013, we raised a total of $176.4 million from the issuance of debt, sale of convertible notes, convertible preferred shares, common shares and common stock, including $58.0 million from the sale of common stock in our IPO in February 2012 and $25.1 million from the sale of common stock in a private placement in October 2012.
We have incurred losses in each year since our inception in November 2005. Our net losses were approximately $3.2 million and $10.3 million for the three months ended March 31, 2012 and March 31, 2013. As of March 31, 2013, we had an accumulated deficit of approximately $133.3 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 solithromycin and Taksta and our other product candidates; |
| 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; |
| 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; |
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| 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 solithromycin 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 solithromycin 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, 2013, we have incurred $91.1 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 solithromycin for CABP and Taksta for prosthetic joint infections 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 solithromycin and Taksta in parallel primarily for the treatment of CABP and prosthetic joint infections, 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 solithromycin 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 payroll 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, | ||||||||
2012 | 2013 | |||||||
(Unaudited, in thousands) | ||||||||
Direct research and development expense by program: |
||||||||
Solithromycin |
$ | 1,214 | $ | 5,746 | ||||
Taksta |
30 | 416 | ||||||
Macrolide research |
3 | 12 | ||||||
Research and development personnel cost |
605 | 1,078 | ||||||
|
|
|
|
|||||
Total direct research and development expense |
1,852 | 7,252 | ||||||
Indirect research and development expense |
24 | 119 | ||||||
|
|
|
|
|||||
Total research and development expense |
$ | 1,876 | $ | 7,371 | ||||
|
|
|
|
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 have begun our pivotal trial program for solithromycin, which we believe will require two Phase 3 trials, including one trial with oral solithromycin and one trial with IV solithromycin stepping down to oral solithromycin. Both 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. Using feedback received from the FDA, we began the Phase 3 trial with oral solithromycin in
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December 2012. We plan to have an end-of Phase 2 meeting with the FDA in the first half of 2013 and initiate the IV to oral Phase 3 study in the second half of 2013, depending on funds being available.
In 2010, we successfully completed a Phase 2 clinical trial with Taksta in ABSSSI patients. In this trial, the Taksta loading dose regimen demonstrated efficacy, safety and tolerability that was comparable to linezolid. Like ABSSSI, prosthetic joint infections are often caused by S. aureus, including MRSA. At this time, however, we do not intend to pursue Taksta as a treatment for ABSSSI. In December 2012, we initiated a Phase 2 trial of Taksta in patients with prosthetic joint infections.
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.
We expect that our general and administrative expenses will increase with the continued development and potential commercialization of our product candidates. We believe that these increases will likely include increased costs related to the hiring of additional personnel and increased fees for outside consultants, lawyers and accountants. We also expect to incur significant costs to comply with corporate governance, internal controls and similar requirements applicable to public companies.
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 decrease during 2013 as we incur costs in our operations.
Interest expense consists of interest incurred on the August 2011 Notes issued to various investors and that converted to common stock at the close of our initial public offering (IPO) in February 2012 and the December 2011 Note issued to Hercules Technology Growth Capital, Inc. as well as changes in fair value of warrants issued in connection with the notes. We expect interest expense to decrease during 2013 as we continue to make principle payments on 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
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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, 2012 filed with the SEC on March 7, 2013. There have been no material changes in any of our accounting policies since December 31, 2012.
Results of Operations
Comparison of Three Months Ended March 31, 2012 and Three Months Ended March 31, 2013
The following table summarizes the results of our operations for each of three-month periods ended March 31, 2012 and 2013, together with the changes in those items in dollars:
Three Months Ended March 31, | ||||||||||||
2012 | 2013 | Increase/ (Decrease) |
||||||||||
(Unaudited, in thousands) | ||||||||||||
Revenue |
$ | | $ | | $ | | ||||||
Research and development expense (1) |
1,876 | 7,371 | 5,495 | |||||||||
General and administrative expense (1) |
972 | 2,647 | 1,675 | |||||||||
Other income (expense), net |
(301 | ) | (327 | ) | (26 | ) | ||||||
(1) Includes the following stock-based compensation expenses: |
||||||||||||
Research and development expense |
$ | 65 | $ | 291 | $ | 226 | ||||||
General and administrative expense |
99 | 700 | 601 |
Revenue
We did not recognize any revenue for the three months ended March 31, 2012 and 2013.
Research and Development Expense
Research and development expense increased $5.5 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 as a result of a $4.5 million increase in expenses incurred for solithromycin, primarily related to our phase 3 clinical trial that initiated in December 2012, a $0.4 million increase in expenses incurred for Taksta primarily related to our phase 2 PJI trial that initiated in December 2012 and a $0.6 million increase in employee and travel expenses.
General and Administrative Expense
General and administrative expense increased by $1.7 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012 as a result of increased employee expense of $0.8 million, primarily stock compensation expense, franchise tax of $0.4 million and professional service fees of $0.5 million.
Other Income (Expense), Net
Other income (expense) remained consistent during the three months ended March 31, 2013 compared to the three months ended March 31, 2012.
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Liquidity and Capital Resources
Sources of Liquidity
Since our inception in November 2005 through March 31, 2013, we have funded our operations primarily with $176.4 million from a combination of debt, and the sale of convertible notes, convertible preferred shares, common shares and common stock.
The gross proceeds we have received from the issuance and sale of our convertible notes and preferred and common shares are as follows (dollars in thousands):
Issue |
Number of Shares |
Gross Proceeds |
||||||||||
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 | |||||||||
Common Stock / Initial Public Offering |
2012 | 9,660,000 | 57,960 | |||||||||
Common Stock / Private Placement |
2012 | 3,864,461 | 25,119 |
(1) | Includes $3,197 of converted notes payable and accrued interest. |
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 |
||||||||
2012 | 2013 | |||||||
(Unaudited, in thousands) | ||||||||
Net cash provided by (used in): |
||||||||
Operating activities |
$ | (3,762 | ) | $ | (9,938 | ) | ||
Investing activities |
(5 | ) | (19 | ) | ||||
Financing activities |
54,075 | | ||||||
|
|
|
|
|||||
Net increase (decrease) in cash and equivalents |
$ | 50,308 | $ | (9,957 | ) | |||
|
|
|
|
Operating Activities. 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. Cash used in operating activities of $9.9 million for the three months ended March 31, 2013 was primarily a result of our $10.0 million net loss and cash used by changes in operating assets and liabilities of $0.9 million partially offset by non-cash items of $1.0 million.
Investing Activities. Net cash used in investing activities was $5,000 for the three months ended March 31, 2012 and $19,000 for the three months ended March 31, 2013. Cash used in investing activities during each of these periods reflected our purchases of equipment.
Financing Activities. 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.
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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 and until we obtain marketing approval of and commercialize solithromycin 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, solithromycin and Taksta and our other product candidates. 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, will enable us to fund our operating expenses and capital expenditure requirements into 2015. This projection does not include funds to initiate the solithromycin Phase 3 IV-to-oral clinical trial. We will need to obtain additional financing for the continued development of solithromycin, 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 ongoing oral solithromycin Phase 3 trial, the results of our planned end-of-Phase 2 meeting with the FDA for the planned Phase 3 IV-to-oral trial for solithromycin, our ongoing Taksta Phase 2 trial and any future trials for solithromycin and Taksta; |
| 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; |
| 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. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders ownership interests will be diluted, and the terms of any securities may include liquidation or other preferences that adversely affect our stockholders 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, such as currently imposed under the loan from Hercules. 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.
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We plan to seek partners or other sources of third-party funding, including government grants, for the continued development of solithromycin and Taksta and our other product candidates. If we are unable to raise additional funds when needed, whether on favorable terms or not, 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
During the three months ended March 31, 2013, there have been no material changes to our contractual obligations and commitments outside the ordinary course of business from those specified in our 2012 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 therfore 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.
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, 2013. For additional information regarding market risk, refer to Item 7A. Quantitative and Qualitative Disclosure About Market Risk of our 2012 Annual Report on Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended) 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.
Exhibit Number |
Description of Document |
Registrants Form |
Dated |
Exhibit Number |
Filed Herewith |
|||||||
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes- | X |
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Oxley Act of 2002. | ||||||||||||
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.
CEMPRA, INC. | ||||||
Dated: April 25, 2013 | By: | /s/ Prabhavathi Fernandes, Ph.D. | ||||
Prabhavathi Fernandes, Ph.D. | ||||||
President and Chief Executive Officer | ||||||
Dated: April 25, 2013 | By: | /s/ Mark W. Hahn | ||||
Mark W. Hahn Chief Financial Officer |