Attached files

file filename
EX-31.1 - EXHIBIT 31.1 - Adhera Therapeutics, Inc.t1501848_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - Adhera Therapeutics, Inc.t1501848_ex32-1.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarter Ended June 30, 2015

 

Commission File Number 000-13789

 

MARINA BIOTECH, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 11-2658569

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

   
P.O. Box 1559, Bothell, WA 98041
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (425) 892-4322

  

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-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 ¨ (Do not check if a smaller reporting company) Smaller reporting company þ

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Date   Class   Shares Outstanding
August 13, 2015   Common stock — $0.006 par value   26,451,237

 

 

 

 
 

  

MARINA BIOTECH, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION  
   
ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED) 3
Condensed Consolidated Balance Sheets as of December 31, 2014 and June 30, 2015 3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2015 4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2015 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17
ITEM 4 — CONTROLS AND PROCEDURES 17
   
PART II — OTHER INFORMATION  
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 18
ITEM 6 — EXHIBITS 18
SIGNATURES 19
EXHIBIT INDEX 20

 

Items 1, 1A, 3, 4 and 5 of PART II have not been included as they are not applicable.

 

2

  

PART I — FINANCIAL INFORMATION

 

ITEM 1 — FINANCIAL STATEMENTS

 

MARINA BIOTECH, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   December 31,   June 30, 
(In thousands, except share and per share data)  2014   2015 
         
ASSETS          
Current assets:          
Cash  $1,824   $726 
Accounts receivable   500    - 
Prepaid expenses and other current assets   192    83 
Total current assets   2,516    809 
Intangible assets   6,700    6,700 
Other Assets   -    45 
Total assets  $9,216   $7,554 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current liabilities:          
Accounts payable  $687   $502 
Accrued payroll and employee benefits   183    271 
Other accrued liabilities   1,072    1,349 
Total current liabilities   1,942    2,122 
Fair value liability for price adjustable warrants   9,225    5,582 
Fair value of stock to be issued to settle liabilities   75    - 
Deferred tax liabilities   2,345    2,345 
Total liabilities   13,587    10,049 
Commitments and contingencies          
Stockholders’ deficit:          
Series C convertible preferred stock, $.01 par value; 100,000 shares authorized, 1,200 and 1,110 shares issued and outstanding at December 31, 2014 and June 30, 2015, respectively (preference in liquidation of $5,550,000 at June 30, 2015)   -    - 
Common stock, $0.006 par value; 180,000,000 shares authorized, 25,523,216 and 26,451,237 shares  issued and outstanding at December 31, 2014 and June 30, 2015, respectively   153    159 
Additional paid-in capital   333,264    333,816 
Accumulated deficit   (337,788)   (336,470)
Total stockholders’ deficit   (4,371)   (2,495)
Total liabilities and stockholders’ deficit  $9,216   $7,554 

 

See accompanying notes to the condensed consolidated financial statements.

 

3

 

MARINA BIOTECH, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
(In thousands, except per share amounts)  2014   2015   2014   2015 
Revenue:                    
License and milestone  $-   $400   $-   $400 
                     
Operating expenses:                    
Research and development   49    230    95    484 
General and administrative   622    1,192    1,139    2,253 
Total operating expenses   671    1,422    1,234    2,737 
Loss from operations   (671)   (1,022)   (1,234)   (2,337)
Other income (expense):                    
Interest and other expense   -    -    (1,007)   - 
Change in fair value liability for price adjustable warrants   4,545    1,914    (769)   3,643 
Change in fair value of stock reserved for issuance to settle liabilities   -    -    (2,455)   - 
Gain on foreign exchange   2    -    2    - 
Gain on debt extinguishment   -    -    4    - 
Gain on settled liabilities   45    12    302    12 
Total other income (expense), net   4,592    1,926    (3,923)   3,655 
Net income (loss) applicable to common stockholders   3,921    904    (5,157)   1,318 
Deemed dividend related to discount on beneficial conversion feature in Series C convertible preferred shares   -    -    (6,000)   - 
Net income (loss) applicable to common stockholders  $3,921   $904   $(11,157)  $1,318 
                     
Net income (loss) per common share                    
Basic  $0.15   $0.03  $(0.47)  $0.05
Diluted  $0.11   $(0.03)  $(0.47)  $(0.08)
                     
Shares used in computing net income (loss) per share                    
Basic   25,633    26,036    23,563    26,036 
Diluted   34,801    30,293    23,563    30,293 

 

See accompanying notes to the condensed consolidated financial statements.

 

4

  

MARINA BIOTECH, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six months ended June 30, 
(In thousands)  2014   2015 
Operating activities:          
Net income (loss)  $(5,157)  $1,318 
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Non-cash (gain) on debt extinguishment   (4)   - 
Non-cash interest expense   1,007    - 
Non-cash license expense   -    120 
Non-cash gain on settlement of liabilities   (302)   (12)
Compensation related to stock options and warrants   107    296 
Gain on foreign exchange transactions   (2)   - 
Changes in fair market value of liabilities          
Stock reserved for issuance to settle liabilities   2,455    - 
Price adjustable warrants   769    (3,643)
Cash changes in assets and liabilities          
Accounts receivable   5    500 
Prepaid expenses and other assets   43    64 
Accounts payable   (561)   (173)
Accrued and other liabilities   (626)   431 
Net cash used in operating activities   (2,266)   (1,099)
           
Financing activities:          
Proceeds from sales of Series C preferred shares and warrants, net   5,929    - 
Cash payments of notes payable   (250)   - 
Insurance financing   (5)   - 
Proceeds from exercise of warrants for common stock   -    1 
Net cash provided by financing activities   5,674    1 
Net increase (decrease) in cash   3,408    (1,098)
Cash — Beginning of period   909    1,824 
Cash — End of period  $4,317   $726 
Supplemental disclosure of cash flow information and non-cash financing activities:          
Cash paid for interest  $83   $- 
Reclassification of fair value liability for price adjustable warrants exercised  $1,862   $- 
Issuance of common stock to settle liabilities  $3,474   $195 
Fair value of warrants issued to purchase common stock to settle liabilities  $-   $65 
Debt conversion to common stock  $1,479   $- 
Deemed dividend to Series C convertible preferred stockholders  $6,000   $- 
Par value of common stock issued upon conversion of Series C convertible preferred stock  $-   $4 

 

See accompanying notes to the condensed consolidated financial statements.

 

5

  

MARINA BIOTECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three and six months ended June 30, 2014 and 2015

(Unaudited)

 

Note 1 — Business, Liquidity and Summary of Significant Accounting Policies

 

Business

 

We are a biotechnology company focused on the discovery, development and commercialization of nucleic acid-based therapies to treat orphan diseases. Our pipeline includes CEQ508, a product in clinical development for the treatment of Familial Adenomatous Polyposis (“FAP”), for which we have received Orphan Drug Designation (“ODD”) from the U.S. Food and Drug Administration (“FDA”), and preclinical programs for the treatment of type 1 myotonic dystrophy (“DM1”) and Duchenne muscular dystrophy (“DMD”).

 

Since 2010, we have strategically acquired/in-licensed and further developed nucleic acid chemistry and delivery-related technologies in order to establish a novel and differentiated drug discovery platform. This platform allows us to distinguish ourselves from others in the nucleic acid therapeutics area in that we are the only company capable of creating a wide variety of therapeutics targeting coding and non-coding RNA via multiple mechanisms of action such as RNA interference (“RNAi”), messenger RNA translational inhibition, exon skipping, microRNA (“miRNA”) replacement, miRNA inhibition, and steric blocking in order to modulate gene expression either up or down depending on the specific mechanism of action. Our goal is to dramatically improve the lives of the patients and families affected by orphan diseases through either our own efforts or those of our collaborators and licensees.

 

Liquidity

 

The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At June 30, 2015, we had an accumulated deficit of approximately $336.5 million, $110.4 million of which has been accumulated since we focused on RNA therapeutics in June 2008. To the extent that sufficient funding is available, we will continue to incur losses as we continue our research and development (“R&D”) activities. In addition, we have had and will continue to have negative cash flows from operations. We have funded our losses primarily through the sale of common and preferred stock and warrants, revenue provided from our license agreements and, to a lesser extent, equipment financing facilities and secured loans. In 2014, we funded operations with a combination of the issuance of preferred stock and license-related revenues. At June 30, 2015, we had negative working capital of $1.27 million and $0.73 million in cash. Our resumed operating activities consume the majority of our cash resources.

 

We believe that our current cash resources will enable us to fund our intended operations through March 2016. Our ability to execute our operating plan beyond March 2016 depends on our ability to obtain additional funding. The volatility in our stock price, as well as market conditions in general, could make it difficult for us to raise capital on favorable terms, or at all. If we fail to obtain additional capital when required, we may have to modify, delay or abandon some or all of our planned activities, or terminate our operations. We are currently pursuing both non-dilutive means of obtaining additional capital, primarily from existing and potential future licenses and partnerships, and dilutive means of obtaining additional capital, primarily through the offering of our equity and debt securities. However, there can be no assurance that we will be successful in such endeavors. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

6

  

Basis of Preparation and Summary of Significant Accounting Policies

 

Basis of Preparation — The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. The accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements, including the notes thereto, as of and for the year ended December 31, 2014, included in our 2014 Annual Report on Form 10-K filed with the SEC. The information furnished in this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results for the year ending December 31, 2015 or for any future period.

 

Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Estimates having relatively higher significance include revenue recognition, stock-based compensation, valuation of warrants, valuation and estimated lives of identifiable intangible assets, impairment of long-lived assets, valuation of features embedded within note agreements and amendments, and income taxes. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments —We consider the fair value of cash, accounts receivable, accounts payable and accrued liabilities to not be materially different from their carrying value. These financial instruments have short-term maturities.

 

We follow authoritative guidance with respect to fair value reporting issued by the Financial Accounting Standards Board (“FASB”) for financial assets and liabilities, which defines fair value, provides guidance for measuring fair value and requires certain disclosures. The guidance does not apply to measurements related to share-based payments. The guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

 

Our cash is subject to fair value measurement and value is determined by Level 1 inputs. We measure the liability for committed stock issuances with a fixed share number using Level 1 inputs. We measure the liability for price adjustable warrants and certain features embedded in notes using the Black-Scholes option pricing model (“Black-Scholes Model”) under various probability weighted scenarios, using Level 3 inputs. The following tables summarize our liabilities measured at fair value on a recurring basis as of December 31, 2014 and June 30, 2015:

 

       Level 1       Level 3 
   Balance at   Quoted prices in   Level 2   Significant 
   December 31,   active markets for   Significant other   unobservable 
(In thousands)  2014   identical assets   observable inputs   inputs 
Liabilities:                    
Fair value liability for price adjustable warrants  $9,225   $-   $-   $9,225 
Fair value liability for shares to be issued   75    75    -    - 
Total liabilities at fair value  $9,300   $75   $-   $9,225 

 

7

  

       Level 1       Level 3 
       Quoted prices in   Level 2   Significant 
   Balance at    active markets for   Significant other   unobservable 
 (In thousands)  June 30, 2015   identical assets   observable inputs   inputs 
Liabilities:                    
Fair value liability for price adjustable warrants  $5,582   $-   $-   $5,582 
Total liabilities at fair value  $5,582   $-   $-   $5,582 

 

The following presents activity of the fair value liability of price adjustable warrants determined by Level 3 inputs for the six-month period ended June 30, 2015:

 

       Weighted average as of each measurement date 
   Fair value                     
   liability for price               Contractual     
   adjustable warrants   Exercise   Stock       life   Risk free 
   (in thousands)   Price   Price   Volatility   (in years)   rate 
                         
Balance at December 31, 2014  $9,225   $0.42   $0.95    121%   3.51    0.90%
Change in fair value included in Statement of Operations   (3,643)                         
Balance at June 30, 2015  $5,582   $0.42   $0.59    102%   2.09    0.70%

 

Net Income (Loss) per Common Share — Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share includes the effect of common stock equivalents (stock options, unvested restricted stock, warrants) when, under either the treasury or if-converted method, such inclusion in the computation would be dilutive. The following number of shares have been excluded from diluted net income (loss) since such inclusion would be anti-dilutive:

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2014   2015   2014   2015 
Stock options outstanding   284,505    1,316,106    284,505    1,316,106 
Warrants   7,031,058    1,323,291    21,310,695    1,323,291 
Convertible preferred stock   -    8,000,000    8,000,000    8,000,000 
Total   7,315,563    10,639,397    29,595,200    10,639,397 

 

The following is a reconciliation of basic and diluted net income (loss) per share:

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2014   2015   2014   2015 
Net income (loss) – numerator basic  $3,921   $904   $(11,157)  $1,318 
Change in fair value liability for price adjustable warrants   -   (1,914)   -    (3,643)
Net loss excluding change in fair value liability for price adjustable warrants  $3,921  $(1,010)  $(11,157)  $(2,325)
Weighted average common shares outstanding – denominator basic   25,633    26,036    23,563    26,036 
Assumed conversion of Series C   102    -    -    - 
Effect of price adjustable warrants   9,066    4,257    -    4,257 
Weighted average dilutive common shares outstanding   34,801    30,293    23,563    30,293 
Net income (loss) per common share – basic  $0.15   $0.03  $(0.47)  $0.05
Net income (loss) per common share – diluted  $0.11   $(0.03)  $(0.47)  $(0.08)

 

8

  

Note 2 — Stockholders’ Deficit

 

Preferred Stock — Our board of directors has the authority, without action by the stockholders, to designate and issue up to 100,000 shares of preferred stock in one or more series and to designate the rights, preferences and privileges of each series, any or all of which may be greater than the rights of our common stock. We have designated 1,000 shares as Series B Preferred Stock (“Series B Preferred”) and 90,000 shares as Series A Junior Participating Preferred Stock (“Series A Preferred”). No shares of Series B Preferred or Series A Preferred are outstanding. In March 2014, we designated 1,200 shares of Series C Convertible Preferred Stock (“Series C Preferred”).

 

In March 2014, we entered into a Securities Purchase Agreement with certain investors pursuant to which we sold 1,200 shares of Series C Preferred, and price adjustable warrants to purchase up to 6.0 million shares of our common stock at an exercise price of $0.75 per share, for an aggregate purchase price of $6.0 million. Each share of Series C Preferred has a stated value of $5,000 per share and is convertible into shares of common stock at a conversion price of $0.75 per share. The Series C Preferred is initially convertible into an aggregate of 8,000,000 shares of our common stock, subject to certain limitations and adjustments, has no stated dividend rate, is not redeemable and has voting rights on an as-converted basis.

 

To account for the issuance of the Series C Preferred and warrants, we first assessed the terms of the warrants and determined that, due to certain anti-dilution provisions, they should be recorded as derivative liabilities. We determined the fair value of the warrants on the issuance date and recorded a liability of $6.5 million. Since the fair value of the warrants exceed the total proceeds received of $6.0 million, we recorded a loss of $0.5 million upon issuance, which is included in the change in fair value of price adjustable warrants in the consolidated statements of operations. The discount of $6.0 million on the Series C Preferred resulting from the allocation of the entire proceeds to the warrant was accreted as a dividend on the Series C Preferred through the earliest conversion date, which was immediately. The Series C Preferred dividend of $6.0 million was recorded to additional paid-in capital and as a deemed dividend on the Series C Preferred in determining net loss applicable to common stock holders in the consolidated statements of operations. We incurred $0.07 million of stock issuance costs in conjunction with the Series C Preferred, which were netted against the proceeds.

 

Common Stock — Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the holders of our common stock. Subject to the rights of the holders of any class of our capital stock having any preference or priority over our common stock, the holders of our common stock are entitled to receive dividends that are declared by our board of directors out of legally available funds. In the event of our liquidation, dissolution or winding-up, the holders of common stock are entitled to share ratably in our net assets remaining after payment of liabilities, subject to prior rights of preferred stock, if any, then outstanding. Our common stock has no preemptive rights, conversion rights, redemption rights or sinking fund provisions, and there are no dividends in arrears or default. All shares of our common stock have equal distribution, liquidation and voting rights, and have no preferences or exchange rights. Our common stock currently trades on the OTC Pink tier of the OTC Markets.

 

In January 2015, we issued 0.12 million shares with a value of $0.075 million to Novosom as the equity component owed under our December 2014 license agreement with MiNA Therapeutics.

 

In May 2015, we issued 0.21 million shares with a value of $0.12 million to Novosom as the equity component owed as a result of an accelerated milestone payment under our December 2011 license agreement with Mirna Therapeutics.

 

9

  

In June 2015, an investor converted 90 shares of Series C Preferred into 0.6 million shares of common stock.

 

Warrants — In January 2015, an investor exercised 2,500 warrants at an exercise price of $0.28.

 

From January to June 2015, we issued warrants to purchase up to an aggregate of 0.102 million shares to a vendor providing scientific and development consulting services to our company. The fair value of these warrants at issuance was $0.065 million of which $0.05 million was accrued at December 31, 2014.

 

The following table summarizes warrant activity during the six months ended June 30, 2015:

 

   Warrant 
Shares
   Weighted 
Average

Exercise Price
 
Outstanding, December 31, 2014   21,212,813   $1.19 
Exercised warrants   (2,500)   0.28 
Warrants issued to vendor   104,315    0.68 
Outstanding, June 30, 2015   21,314,628   $1.19 
Expiring in 2015   285,345      
Expiring in 2016   6,000,000      
Expiring in 2017   7,235,622      
Expiring thereafter   7,793,661      

 

Note 3 — Stock Incentive Plans

  

Stock-based Compensation. Certain option and share awards provide for accelerated vesting if there is a change in control as defined in the applicable plan and certain employment agreements. The following table summarizes stock-based compensation expense:

 

   Three months ended June 30,   Six months ended June 30, 
(In thousands)  2014   2015   2014   2015 
Research and development  $10   $5   $20   $31 
General and administrative  10    112    20    265 
Total  $20   $117   $40   $296 

 

Stock Options — Stock option activity was as follows:

 

   Options Outstanding 
   Shares   Weighted Average
Exercise Price
 
Outstanding, December 31, 2014   1,084,106   $5.52 
Options Issued   232,000   $0.63 
Outstanding, June 30, 2015   1,316,106   $4.66 
Exercisable, June 30, 2015   293,856   $17.34 

 

10

  

The following table summarizes additional information on our stock options outstanding at June 30, 2015:

 

   Options Outstanding   Options Exercisable 
       Weighted-Average             
       Remaining           Weighted 
Range of Exercise  Number   Contractual Life   Weighted Average   Number   Average 
Prices  Outstanding   (Years)   Exercise Price   Exercisable   Exercise Price 
$0.63 - $0.82   252,000    4.50   $0.65    126,000   $0.65 
$0.83 - $1.07   1,019,000    8.00    1.07    124,000    1.07 
$1.08 - $2.20   2,500    6.19    2.20    1,250    2.20 
$2.21 - $50.00   10,500    2.95    47.60    10,500    47.60 
$50.01 - $100.00   10,500    2.95    87.60    10,500    87.60 
$100.01 - $200.00   16,000    2.95    141.35    16,000    141.35 
$200.01 - $526.40   5,606    2.92    213.63    5,606    213.63 
Totals   1,316,106    7.16   $4.66    293,856   $17.34 
Weighted-Average Exercisable Remaining Contractual Life (Years)       4.16 

 

In January 2015, we issued options to purchase of 0.15 million shares of our common stock to non-employee members of our board of directors at an exercise price of $0.635 per share as the annual grant to such directors for their service on our board of directors during 2015, and we issued options to purchase 0.08 million shares of our common stock to the members of our scientific advisory board at an exercise price of $0.63 per share as the annual grant to such persons for their service on our scientific advisory board during 2015.

 

At June 30, 2015, we had $0.64 million of total unrecognized compensation expense related to unvested stock options. We expect to recognize this cost over a weighted average period of 2.0 years.

 

At June 30, 2015, the intrinsic value of options outstanding or exercisable was zero as there were no options outstanding with an exercise price less than $0.48, the per share closing market price of our common stock at that date. No options were exercised during the six months ended June 30, 2015.

 

Note 4 — Intellectual Property and Collaborative Agreements

 

Novosom — In July 2010, we entered into an agreement pursuant to which we acquired intellectual property for Novosom’s SMARTICLES-based liposomal delivery system. In January 2015, we paid Novosom $0.08 million cash and issued 0.12 million shares of common stock valued at $0.075 million for amounts due related to the MiNA license signed in December 2014. In May 2015, we issued Novosom 0.21 million shares of common stock with a value of $0.12 million for amounts due related to an accelerated milestone payment under the Mirna license signed in December 2011.

 

11

  

Note 5 — Commitments and Contingencies

 

Contingencies — We are subject to various legal proceedings and claims that arise in the ordinary course of business. Our management currently believes that resolution of such legal matters will not have a material adverse impact on our consolidated financial position, results of operations or cash flows.

 

Note 6 — Subsequent Events

 

On August 5, 2015, we entered into a Securities Purchase Agreement with certain investors pursuant to which we sold 220 shares of Series D Preferred, and price adjustable warrants to purchase up to 3.44 million shares of our common stock at an exercise price of $0.40 per share, for an aggregate purchase price of $1.1 million. Each share of Series D Preferred has a stated value of $5,000 per share and is convertible into shares of common stock at a conversion price of $0.40 per share. The Series D Preferred is initially convertible into an aggregate of 2,750,000 shares of our common stock, subject to certain limitations and adjustments, has a 5% stated dividend rate, is not redeemable and has voting rights on an as-converted basis.

 

12

  

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

Statements contained herein that are not historical fact may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are subject to a variety of risks and uncertainties. There are a number of important factors that could cause actual results to differ materially from those projected or suggested in any forward-looking statement made by us. These factors include, but are not limited to: (i) the ability of our company to obtain additional and substantial funding in the future; (ii) the ability of our company to attract and/or maintain research, development, commercialization and manufacturing partners; (iii) the ability of our company and/or a partner to successfully complete product research and development, including pre-clinical and clinical studies and commercialization; (iv) the ability of our company and/or a partner to obtain required governmental approvals, including product and patent approvals; and (v) the ability of our company and/or a partner to develop and commercialize products that can compete favorably with those of competitors. In addition, significant fluctuations in quarterly results may occur as a result of the timing of milestone payments, the recognition of revenue from milestone payments and other sources, and the timing of costs and expenses related to our research and development programs. Additional factors that could cause actual results to differ materially from those projected or suggested in any forward-looking statements are contained in our filings with the Securities and Exchange Commission, including those factors discussed under the captions “Risk Factors” and “Forward-Looking Statements” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, as may be supplemented or amended from time to time, which we urge investors to consider. We undertake no obligation to publicly release revisions in such forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events or circumstances, except as otherwise required by securities and other applicable laws.

 

Business

 

We are a biotechnology company focused on the discovery, development and commercialization of nucleic acid-based therapies to treat orphan diseases. Our pipeline includes CEQ508, a product in clinical development for the treatment of Familial Adenomatous Polyposis (“FAP”), for which we have received Orphan Drug Designation (“ODD”) from the U.S. Food and Drug Administration (“FDA”), and preclinical programs for the treatment of type 1 myotonic dystrophy (“DM1”) and Duchenne muscular dystrophy (“DMD”).

 

Since 2010, we have strategically acquired/in-licensed and further developed nucleic acid chemistry and delivery-related technologies in order to establish a novel and differentiated drug discovery platform. This platform allows us to distinguish ourselves from others in the nucleic acid therapeutics area in that we are the only company capable of creating a wide variety of therapeutics targeting coding and non-coding RNA via multiple mechanisms of action such as RNA interference (“RNAi”), messenger RNA translational inhibition, exon skipping, microRNA (“miRNA”) replacement, miRNA inhibition, and steric blocking in order to modulate gene expression either up or down depending on the specific mechanism of action. Our goal is to dramatically improve the lives of the patients and families affected by orphan diseases through either our own efforts or those of our collaborators and licensees.

 

Liquidity

 

The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. At June 30, 2015, we had an accumulated deficit of approximately $336.5 million, $110.4 million of which has been accumulated since we focused on RNA therapeutics in June 2008. To the extent that sufficient funding is available, we will continue to incur losses as we continue our research and development (“R&D”) activities. In addition, we have had and will continue to have negative cash flows from operations. We have funded our losses primarily through the sale of common and preferred stock and warrants, revenue provided from our license agreements with other parties and, to a lesser extent, equipment financing facilities and secured loans. In 2014, we funded operations with a combination of issuances of preferred stock and license-related

 

13

  

revenues. At June 30, 2015, we had negative working capital of $1.27 million and $0.73 million in cash. Our resumed operating activities consume the majority of our cash resources.

 

We believe that our current cash resources will enable us to fund our intended operations through March 2016. Our ability to execute our operating plan beyond March 2016 depends on our ability to obtain additional funding. The volatility in our stock price, as well as market conditions in general, could make it difficult for us to raise capital on favorable terms, or at all. If we fail to obtain additional capital when required, we may have to modify, delay or abandon some or all of our planned activities, or terminate our operations. We are currently pursuing both non-dilutive means of obtaining additional capital, primarily from existing and potential future licenses and partnerships, and dilutive means of obtaining additional capital, primarily through the offering of our equity and debt securities. However, there can be no assurance that we will be successful in such endeavors. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Cash flows

 

Our operating activities used cash of $1.1 million in the six months ended June 30, 2015, compared to $2.3 million in the six months ended June 30, 2014. In the six months ended June 30, 2015, cash used in operating activities related primarily to funding our operating loss, adjusted for non-cash items. Adjustments for non-cash items, totaling $3.2 million, represented stock compensation, gain on settled liabilities and the change in fair value of price adjustable warrants. Changes in operating assets and liabilities provided $0.8 million from collecting $0.5 million due under a licensing agreement, and $0.3 million driven mainly by changes in accounts payable and accrued liabilities associated with costs incurred related to SEC filings in preparation for financing activities. During the six months ended June 30, 2014, cash used in operating activities related primarily to funding our net loss, adjusted for non-cash gains on the settlement of liabilities of $0.3 million. Adjustments for non-cash expenses, totaling $4.3 million, included interest expense related to beneficial conversion feature and debt extinguishment, stock-based compensation expense, and the changes in the fair values of stock-based liabilities. Changes in operating assets and liabilities used $1.1 million mostly from changes in accrued liabilities, predominantly related to payment of prior period accrued franchise taxes.

 

We undertook minimal financing activities in the six months ended June 30, 2015, compared to generating $5.7 million in the six months ended in June 30, 2014. In the six months ended June 30, 2014, changes in cash from financing activities were primarily due to the sale of our Series C preferred shares and warrants to purchase common stock, partially offset by a cash payment required under the terms of the notes before they were retired.

 

Consolidated Results of Operations

 

Comparison of Results of Operations for the three and six months ended June 30, 2015 to the three and six months ended June 30, 2014

 

Revenue. We recorded $0.4 million in revenue in the six months ended June 30, 2015, which consisted of an accelerated milestone payment from Mirna under our 2011 licensing agreement. The majority of our licensing deals provide for clinical and regulatory milestones, so significant revenues could result from the existing licenses, but are uncertain as to timing or probability. We will seek R&D collaborations as well as licensing transactions to fund business operations.

 

Research and Development. R&D expense consists primarily of consulting and other outside services. R&D expense increased from $0.05 million and $0.1 million for the three and six months ended June 30, 2014 to $0.2 million and $0.5 million for the three and six months ended June 30, 2015, due primarily to the resumption of FAP product development and increased stock compensation expense for members of the scientific advisory board.

 

We anticipate continued increased spending on FAP product development in 2015.

 

14

  

General and administrative. General and administrative (“G&A”) expense consists primarily of salaries and other personnel-related expenses to support our R&D activities, stock-based compensation for G&A personnel and non-employee members of our Board, professional fees, such as accounting and legal, and corporate insurance costs. G&A costs increased by 92% and 98% from $0.6 million and $1.1 million in the three and six months ended June 30, 2014 to $1.2 million and $2.3 million in the three and six months ended June 30, 2015 as a result of the following:

 

  · Personnel-related expenses (compensation, benefits, travel related) increased from $0.01 million and $0.2 million for the three and six months ended June 30, 2014 to $0.3 million and $0.6 million in the three and six months ended June 30, 2015, due primarily to revisions in compensation levels as stated within the 2014 revised employment agreement with our Chief Executive Officer and increased stock compensation expense for Directors.

 

  · Costs of legal and accounting fees, consulting, corporate insurance and other administrative costs increased $0.5 million and $0.8 million in the three and six months ended June 30, 2014 to $0.9 million and $1.6 million in the three and six months ended June 30, 2015 due to increased legal, accounting and filing fees, primarily due to costs related to SEC filings in preparations for financing activities.

 

In general, G&A costs increased due to efforts associated with our company regaining compliance with our reporting obligations under the Exchange Act during the subsequent quarters of 2014. We incurred nominal compliance costs in the six months ended June 30, 2014 because we were not compliant with our reporting obligations and had not resumed the expenses associated with full SEC public company compliance and reporting. In addition to these costs, expense was incurred related to SEC filings in preparation for financing activities.

 

Interest & other expense. We incurred no interest and other expense in the three and six months ended June 30, 2015 versus interest expense of $1.0 million in the six months ended June 30, 2014. This was mostly due to the 2014 non-cash interest expense related to the conversion of the notes payable into common stock.

 

Change in fair value liability for price adjustable securities. The fair value liability is revalued each balance sheet date utilizing Black-Scholes Model computations, with the decrease or increase in fair value being reported in the statement of operations as other income or expense, respectively. The stock price decreases resulted in a $4.5 million gain and stock price increases and the issuance terms of the Series C related warrants resulted in a $0.8 million loss during the three and six months ended June 30, 2014, respectively. Stock price decreases resulted in a $1.9 million and $3.6 million gain during the three and six months ended June 30, 2015, respectively. There were no additional price adjustable warrants issued between reporting periods, thus the change is all related to the stock price decline between valuation dates.

 

Change in fair value liability for stock to be issued. In the six months ended June 30, 2014, we recognized a $2.5 million loss associated with the change in the fair value of share-denominated obligations. As of January 1, 2015, we had issued all share denominated contractually obligated stock and had taken on no new such obligations. As a result, there was no change in fair value of such stock during the three and six months ended June 30, 2015.

  

Gain on settled liabilities. During the three and six months ended June 30, 2014, we recorded a $0.05 million and $0.3 million gain due to the negotiated settlement of liabilities accrued for our executive officers. During the three and six months ended June 30, 2015, we recorded $0.01 million gain related to credits on vendor payables.

 

Deemed dividend related to discount on beneficial conversion feature in Series C convertible preferred shares.

The Series C Preferred share terms include an immediate beneficial conversion feature of $6.0 million, as the conversion price is established to be no higher than $0.75 while the closing price of common shares on the closing date for the issuance of the Series C Preferred was significantly higher, and the shares were immediately convertible. The deemed dividend is included in net income (loss) applicable to common stockholders.

 

15

  

Off-Balance Sheet Arrangements

 

As of June 30, 2015, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

 

16

  

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4 — CONTROLS AND PROCEDURES

 

(a) Disclosure Controls and Procedures. As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our senior management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.

 

(b) Internal Control Over Financial Reporting. There have been no changes in our internal control over financial reporting during the fiscal quarter ended June 30, 2015, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

17

  

PART II — OTHER INFORMATION

  

ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

During the fiscal quarter ended June 30, 2015, we issued 0.21 million unregistered shares of common stock to Novosom as a result of the accelerated milestone payment that we received under our December 2011 license agreement with Mirna Therapeutics. Also during the fiscal quarter ended June 30, 2015, we issued warrants to purchase up to 0.102 million shares of common stock to a vendor providing scientific and development consulting services to our Company. These securities were issued in reliance on the exemption from registration afforded by Section 4(a)(2) of the Securities Act.

 

ITEM 6 — EXHIBITS

 

The exhibits required by this item are set forth in the Exhibit Index attached hereto.

 

18

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized, in New York, New York, on August 13, 2015.

 

  MARINA BIOTECH, INC.
     
  By: /s/ J. Michael French
    J. Michael French
    President and Chief Executive Officer
    (Principal Executive Officer and
    Principal Financial Officer)

 

19

  

EXHIBIT INDEX

 

Exhibit 
No. 
  Description
     
31.1   Certification of our Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended. (1)
     
32.1   Certification of our Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2)
     
101.INS   XBRL Instance Document (2)
     
101.SCH   XBRL Taxonomy Extension Schema Document (2)
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document (2)
     
101.DEF   XBRL Taxonomy Extension Definitions Linkbase Document (2)
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document (2)
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document (2)

 

  (1) Filed Herewith.
  (2) Furnished Herewith.

 

20