UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.DC 20549

Form 10-K/A

(Amendment No. 1)

FORM 10-K

☒

(

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

For the fiscal year ended December 31, 2017

2018

☐

☐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

MELINTA THERAPEUTICS, INC.

(Exact name of registrant specified in its charter)

Delaware

2834

45-4440364

(

Delaware283445-4440364
f(State or Other Jurisdiction of

Incorporation or Organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification No.)

300 George Street, Suite 301

New Haven, CT 06511

44 Whippany Road
Morristown, NJ 07963
(Address of Principal Executive Offices)

(312) 767-0291

(908) 617-1309
(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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ☐    No  ☒

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

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 ☒    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 ☒    No  ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 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

☐

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

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

The aggregate market value of the voting stock held by non-affiliates of the registrant, as of June 30, 2017,2018, was approximately $241.5 $180.3million. Such aggregate market value was computed by reference to the closing price of the common stock as reported on the Nasdaq Global Market on June 30, 2017.2018. For purposes of making this calculation only, the registrant has defined affiliates as including only directors and executive officers and shareholders holding greater than 10% of the voting stock of the registrant as of June 30, 2017.

2018.

As of April 27, 2018,February 28, 2019, there were 31,345,65411,229,897 shares of the registrant’s common stock, $0.001 par value, outstanding.

Tableoutstanding.

________________________
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Contents

the registrant’s definitive Proxy Statement for its 2018 Annual Meeting of Shareholders are incorporated herein by reference, as indicated in Part III.



MELINTA THERAPEUTICS, INC.
TABLE OF CONTENTS

EXPLANATORY NOTE

1

Page

PART I
2
Item 1.
Business
2
Item 1A.
Risk Factors
11
Item 1B.
Unresolved Staff Comments
38
Item 2.
Properties
38
Item 3.
Legal Proceedings
38
Item 4.
Mine Safety Disclosures
38
PART II
39
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
39
Item 6.
Selected Financial Data
41
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
41
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
57
Item 8.
Financial Statements and Supplementary Data
57
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
57
Item 9A.
Controls and Procedures
57
Item 9B.
Other Information
59
PART III

2

60

Item 10.

Directors, Executive Officers and Corporate Governance

2

60

Item 11.

Executive Compensation

7

63

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

33

64

Item 13.

Certain Relationships and Related Transactions, and Director Independence

35

65

Item 14.

Principal AccountantAccounting Fees and Services

41

65

PART IV

42

67

Item 15. Exhibits

Exhibits, Financial Statement Schedules

42

67

SIGNATURESFinancial Statements

48

F-1


i



As used in this Annual Report on Form 10-K, the terms “Melinta,” “Company,” “we,” “our” or “us” may, depending on the context, refer to Melinta Therapeutics, Inc., to one or more of its consolidated subsidiary companies, or to all of them taken as a whole.
Various statements contained in this Annual Report on Form 10-K (this “annual report” or “report”) that express a belief, expectation, or intention, or that are not statements of historical fact, are 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, or the Exchange Act and the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may include statements about our:
business strategy;
pending or future acquisitions and future capital expenditures;
ability to obtain permits and governmental approvals;
timing of product introductions, sales and marketing plans, and commercialization activities;
financial plans or ability to raise additional debt or equity;
future operating results; and
plans, objectives, expectations and intentions.
All of these types of statements, other than statements of historical fact included in this annual report, are forward-looking statements. These forward-looking statements may be found in the “Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other sections of this annual report. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “would,” “expect,” “plan,” “project,” “budget,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “seek,” “objective,” “continue,” “will be,” “will benefit,” or “will continue,” the negative of such terms or other comparable terminology.
The forward-looking statements contained in this Annual Report on Form 10-K are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors, which are difficult to predict and many of which are beyond our control. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, our management’s assumptions about future events may prove to be inaccurate. Our management cautions all readers that the forward-looking statements contained in this annual report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the many factors including those described in Item 1A. “Risk Factors” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this annual report. All forward-looking statements speak only as of the date of this annual report. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.



PART I
EXPLANAT
Item 1. Business
Summary
We are a commercial-stage pharmaceutical company focused on developing and commercializing differentiated anti-infectives for the hospital and select non-hospital, or community, settings that address the need for effective treatments for infections due to resistant gram-negative and gram-positive bacteria. We currently market four antibiotics to treat a variety of infections caused by these resistant bacteria.
Melinta was formed as a private company in October 2000, and operated using funds from licensing and collaboration agreements, private equity placements and debt until 2017. We received approval for our first drug, BaxdelaORY NOTE®

(delafloxacin), in June 2017. On March 16, 2018,November 3, 2017, we completed a reverse merger with Cempra, Inc., the result of which the registrant Cempra, Inc. was re-named Melinta Therapeutics, Inc. and we became a publicly-traded company. On January 5, 2018, we acquired the Infectious Disease Businesses (“IDB”) from The Medicines Company (“Medicines”), including the capital stock of certain subsidiaries of Medicines and certain assets related to its infectious disease business (the “Company”“IDB Transaction”), including the pharmaceutical products containing (i) meropenem and vaborbactam as the active pharmaceutical ingredient and distributed under the brand name Vabomere® (“Vabomere”), (ii) oritavancin as the active pharmaceutical ingredient and distributed under the brand name Orbactiv® (“Orbactiv”), and (iii) minocycline as the active pharmaceutical ingredient and distributed under the brand name Minocin® for injection and line extensions of such products (the “MDCO Products” and together with Baxdela, the "Products" or “Melinta”the “Product Portfolio”). See “Corporate History and information” below for further information.

We operate and manage our business as one operating segment and all of our operations are in North America. See Note 2 to the Consolidated Financial Statements for further information.
Market Opportunity
The relentless evolution of bacterial antibiotic resistance, coupled with the dearth of effective new antibiotics, has created an urgent public health threat. The integration of the acquired MDCO Products within our existing portfolio further strengthens our ability to serve the needs of providers treating patients with serious bacterial infections across the healthcare delivery continuum. We believe our combined Product Portfolio, resources and people has created a standalone entity with the ability to help address the significant need for antibiotics to treat serious infections across multiple healthcare channels, while exercising a firm commitment to antibiotic stewardship.
The combined Product Portfolio supports our multi-channel strategy of delivering antibiotics for serious gram-positive and gram-negative infections due to resistant bacteria within the hospital, emergency department, and community settings. We believe that each product has distinct value in the antibiotic marketplace, and that we are uniquely positioned to deliver this value.
Combined Antibiotic Portfolio
Melinta has a pipeline of commercial and clinical antibiotic assets across multiple approved and potential indications, and has a platform for long-term, durable growth and a strategy to expand the anti-infective portfolio over time, providing the opportunity for multiple layers of revenue growth.


pipelinechart2018a02.jpg
Baxdela
Baxdela is a monotherapy treatment of adult patients with acute bacterial skin or skin structure infections (“ABSSSI”) which is available in oral and intravenous (“IV”) formulations. Baxdela is a novel fluoroquinolone that exhibits activity against both gram-positive and gram-negative pathogens, is unique among quinolones in that it is effective against methicillin-resistant staphylococcus aureaus (“MRSA”), and is available to initiate therapy on either the IV or oral formulation. In clinical trials, Baxdela demonstrated a differentiated safety and tolerability profile as compared to vancomycin plus aztreonam. On June 19, 2017, the Food and Drug Administration (“FDA”) approved the use of Baxdela as a treatment of adult patients with ABSSSI. The commercial launch of Baxdela for the adult patient treatment of ABSSSI occurred in the first quarter of 2018.
The FDA also confirmed Baxdela’s status as a Qualified Infectious Disease Product (“QIDP”) under the provisions of the 2012 Generating Antibiotics Incentives Now Act (the “GAIN Act”), and extended by five years the five-year exclusivity granted to Baxdela as a new chemical entity (“NCE”), for a total of ten years in the United States. Consequently, and because we believe Baxdela has utility across many different infection types, we conducted a Phase 3 clinical trial for the treatment of patients with community acquired bacterial pneumonia (“CABP”). We believe Baxdela has the potential to address a variety of bacterial infections in the United States. In addition, we have partnered with leading multinational pharmaceutical firms for distribution of Baxdela in markets outside the United States, including with Menarini IFR SrL ("Menarini") for Europe and Asia-Pacific (excluding Japan) and with Eurofarma Laboratórios S.A. for Central and South America. We may obtain additional funds through the achievement of regulatory, commercial and sales-based milestones, as well as royalties on sales of Baxdela outside the United States.
In October 2018, we announced positive top-line results from the Phase III trial of Baxdela for the treatment of CABP. Baxdela was compared to moxifloxacin in this randomized global trial. Baxdela met all key primary and secondary endpoints in the trial, including the study’s primary FDA endpoint showing Early Clinical Response (ECR) with improvement at 96 hours (± 24 hours) after the first dose in at least two of the following symptoms: chest pain, frequency or severity of cough, amount of productive sputum, and difficulty breathing. In the intent-to-treat population (ITT), IV-to-oral Baxdela met the FDA primary endpoint of statistical non-inferiority (12.5% non-inferiority margin) for the Early Clinical Response at 96 hours (± 24 hours) after initiation of therapy (88.9% ECR in Baxdela patients) compared to IV/oral moxifloxacin (89.0%). The 95% confidence interval for the treatment difference had lower and upper bounds of -4.4% and 4.1%, respectively. Baxdela also met the FDA secondary endpoint of statistical non-inferiority (90.5%) compared to moxifloxacin (89.7%) based on the investigator’s assessment of Success at the Test of Cure visit (5-10 days after last dose) in the ITT population. Lower and upper bounds of the 95% confidence interval for the treatment difference were -3.3% and 4.8%, respectively. Data also showed that IV/oral Baxdela successfully eradicated key respiratory pathogens at rates comparable to moxifloxacin. Both intravenous (IV) and oral Baxdela were well tolerated in the study participants. Overall adverse event rates were similar between treatment arms. The most common treatment-emergent adverse events on Baxdela (≥ 2%) were diarrhea and transaminase increases, which were generally mild and did not lead routinely to treatment discontinuation. We anticipate filing a supplemental New


Drug Approval ("sNDA") with the FDA in the second quarter of 2019 and are developing our commercial plan to address this additional indication.
Vabomere
Vabomere is an IV antibiotic that is a combination of meropenem, the leading carbapenem used in treatment of gram-negative infections, and vaborbactam, a novel beta-lactamase inhibitor that inhibits certain types of resistance mechanisms used by bacteria. Vabomere received FDA approval on August 29, 2017, for the treatment of patients 18 years of age and older with complicated urinary tract infections (“cUTI”), including pyelonephritis, caused by designated susceptible Enterobacteriaceae, and became commercially available in the fourth quarter of 2017. Vabomere was specifically developed to address gram-negative bacteria that produce beta-lactamase enzymes, particularly the Klebsiellapneumoniaecarbapenemase (“KPC”) enzyme. KPC-producing bacteria are responsible for a large majority of carbapenem-resistant Enterobacteriaceae in the United States and are classified by the U.S. Centers for Disease Control (“CDC”) to be an urgent antimicrobial resistance threat. With its approval, the FDA also confirmed that Vabomere is eligible for the five-year GAIN Act extension of exclusivity under the provisions of the GAIN Act, though the question of whether Vabomere would be eligible for a five-year NCE exclusivity or three-year exclusivity was referred to the Exclusivity Board of the Center for Drug Evaluation and Research (“CDER”). And, in August 2018, we announced that the Centers for Medicare & Medicaid Services (CMS) granted a new technology add-on payment (NTAP) for Vabomere when administered in the hospital inpatient setting. The NTAP program provides hospitals with a payment, in addition to the standard-of-care Diagnostic Related Group (DRG) reimbursement, of up to 50% of the cost of Vabomere for a period of two to three years, effective in the 2019 fiscal year starting on October 1, 2018. CMS has assigned a maximum payment of $5,544.00 for a Medicare patient treated with Vabomere. Over 80% of Vabomere’s current and projected utilization among all patients is in the hospital inpatient setting.
On November 20, 2018, the European Commission (EC) approved Vabomere for use in adult patients with complicated intra-abdominal (cIAI) and urinary tract infections (cUTI), hospital-acquired pneumonia including ventilator associated pneumonia (HAP/VAP), bacteraemia that occurs in association with any of these infections, and infections due to aerobic gram-negative organisms where treatment options are limited. Marketing authorization was granted in all 28 European Union (EU) member states, as well as Norway, Iceland and Liechtenstein. We have partnered with Menarini to commercialize Vabomere in Europe and Asia-Pacific (excluding Japan).
We have continued the launch of Vabomere with a sales force that interacts primarily with infectious disease and critical care physicians, microbiologists, and hospital and infectious disease clinical pharmacists. We are leveraging our presence in the hospital setting to promote Vabomere, as well as our other products.
We believe Melinta is capable of distinguishing Vabomere’s economic value proposition through a pricing strategy that is in line with currently branded therapies used in the treatment of such serious gram-negative infections and designed to facilitate access within the hospital.
Orbactiv
Orbactiv is a long-acting IV antibiotic of the lipoglycopeptide class that allows for single infusion for the treatment of adult patients with ABSSSI caused or suspected to be caused by susceptible gram-positive bacteria, with no dose adjustment for mild/moderate renal or hepatic impairment or for age, weight, gender, or race. It provides an alternative solution to hospital admission or multiple days of therapy in the outpatient setting. In contrast to the current standard of care (6 to 10 days of IV therapy), single-dose ABSSSI therapy with Orbactiv alternative increases patient convenience, ensures patient adherence with a single dose, and allows for treatment in alternative, lower cost care settings. We are leveraging our hospital and community-based sales force infrastructure to maximize Orbactiv’s potential.
Minocin for injection
Minocin for injection is an IV antibiotic of the tetracycline class with broad-spectrum activity against gram-positive and gram-negative pathogens. A new formulation was launched in 2015, which improved tolerability and convenience in administration, owing to a smaller required infusion volume. Minocin for injection is one of the few agents approved for treatment of Acinetobacter spp. Acinetobacter infections are generally seen in the intensive care unit (“ICU”), particularly in mechanically ventilated and immunocompromised patients. We are leveraging our hospital-based sales force infrastructure to maximize Minocin for injection’s potential.
Key Business Strategies
We are focused on the commercialization of antibiotics that enable patients with serious, life-threatening bacterial infections to be successfully treated. We plan to carefully evaluate our capital allocation strategy to maximize shareholder value around the recent launches of Baxdela and Vabomere, and the marketing of Orbactiv and Minocin for injection. The critical components of our business strategy are:



1.Commercial Product Sales Growth
a.
Commercialize Baxdela in the United States. We launched Baxdela oral and IV in the first quarter of 2018 for the treatment of ABSSSI and continue our commercialization of the product with an efficient, targeted sales force consisting of approximately 60 sales territories, prioritizing high-value retail and hospital accounts. In addition, sales representatives target other market channels, such as the emergency department and select community settings, in an attempt to realize the full market potential of Baxdela. We are also pursuing an additional indication, CABP, for which we expect to file an sNDA in the first half of 2019.
b.
Commercialize Vabomere for cUTI in the United States. We market Vabomere in the United States with our combined sales force consisting of approximately 70 sales representatives, prioritizing high-value hospital accounts, focusing on infectious disease and critical care physicians and pharmacists.
c.
Optimize commercialization of Orbactiv and Minocin for injection within the United States. Sales representatives target emergency department and community market channels to realize the full market potential of Orbactiv in the treatment of ABSSSI. In addition, we are leveraging our sales force presence within the hospital to appropriately position Minocin for injection for the treatment of serious infections due to Acinetobacter.
2.
Stewardship of financial resources. We are focused on using the existing sources of cash for the Company, including cash on hand, revenue from product sales and licensing arrangements, and capital available under existing and permitted financing facilities, to achieve future profitability. In order to succeed with this strategy, we must successfully execute sales strategies and reduce operating spend from historical levels. We have an experienced management team and sales force to lead the Company's product sales effort. In addition, we have taken steps to reduce operating expenses, including (a) narrowing the scope of future research and development activities, which involved the natural reduction in costs for large clinical studies that are nearing completion and winding down our early-stage research programs, (b) rationalizing costs in the selling, general and administrative areas, many due to the integration of the legacy Cempra, IDB and Melinta businesses post-merger and acquisition, and (c) negotiation with various third-parties to reduce and/or extend payment for certain large commitments.

3.
Optimize partnerships to maximize the value of the Product Portfolio. We have a number of partnerships, including established partnerships for our Product Portfolio in Europe and Asia-Pacific (excluding Japan) with Menarini, and for Baxdela in Central and South America with Eurofarma Laboratórios S.A. We have a development partnership with a contract research organization (“CRO”) for our pipeline asset, radezolid, which is focused on the topical dermatology space. We plan to evaluate the potential of existing and new business development opportunities to further generate non-dilutive capital and enhance shareholder value.

These partnerships have already seen positive momentum. On November 20, 2018, the European Commission granted marketing authorization for Vabomere for use in adult patients with complicated intra-abdominal (cIAI) and urinary tract infections (cUTI), hospital-acquired pneumonia including ventilator associated pneumonia (HAP/VAP), bacteraemia that occurs in association with any of these infections, and infections due to aerobic gram-negative organisms where treatment options are limited. In South America, Eurofarma has received approval to market Baxdela in Argentina and is preparing applications to several other countries.
4.
Leverage the enterprise’s commercial organization to promote complementary internally or externally developed products upon achievement of FDA regulatory approval. With an experienced team and commercial infrastructure in place, we believe we are well positioned to add either internally or externally developed products to our portfolio while adding minimal new costs. We may selectively pursue the addition of externally developed products to our existing marketed products and pipeline, leveraging our commercial infrastructure.
Competition
Our industry is highly competitive and subject to rapid and significant technological change. Our potential competitors include large pharmaceutical and biotechnology companies, as well as specialty pharmaceutical and generic drug companies.
In many cases, however, we believe that competition often will be determined by antibiotic class and any limitations of that antibiotic class in general, and the antibiotic specifically, in treating a particular disease or population.  We believe that the key competitive factors that will affect the development and commercial success of product candidates that we develop or acquire are efficacy, safety and tolerability profile, convenience in dosing, price and reimbursement.
Intellectual Property
Due to the length of time and expense associated with bringing new products to market, biopharmaceutical companies have traditionally placed considerable importance on obtaining and maintaining patent protection for significant new


technologies, products and processes. The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, a patent’s term may be lengthened by Patent Term Adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office, or USPTO, in granting a patent, or may be shortened if a patent is terminally disclaimed over another patent. In the United States, and certain other countries, the patent’s term may also be lengthened by patent term extension or restoration, which compensates a patentee for administrative delays in granting a regulatory approval by the FDA, or similar agency in other countries.
While we pursue patent protection and enforcement of all our products and product candidates, and aspects of our technologies when appropriate, we also rely on trade secrets, know-how and continuing technological advancement to develop and maintain our competitive position. To protect this competitive position, we regularly enter into confidentiality and proprietary information agreements with third parties, including employees, independent contractors and consultants, suppliers and collaborators. Our employment policy requires each new employee to enter into an agreement containing provisions generally prohibiting the disclosure of confidential information to anyone outside of our company and providing that any invention conceived by an employee within the scope of his or her employment duties is our exclusive property. We have a similar policy with respect to independent contractors and consultants, generally requiring independent contractors to enter into agreements containing provisions generally prohibiting the disclosure of confidential information to anyone outside of our company and providing that any invention conceived by an independent contractor or consultant within the scope of his or her services is our exclusive property with the exception of contracts with universities and colleges that may be unable to make such assignments. Furthermore, our know-how that is accessed by third parties through collaborations and research and development contracts and through our relationships with scientific consultants is generally protected through confidentiality agreements with the appropriate parties.
Baxdela
We have a license, both exclusive and nonexclusive, from Wakunaga Pharmaceutical Company, Ltd. to certain patents and patent applications, and to certain patents and patent applications of AbbVie. We have also licensed technology from CyDex Pharmaceuticals, Inc. (now a wholly owned subsidiary of Ligand Pharmaceuticals Incorporated) for the use of Captisol, a sulfobutylether beta-cyclodextrin excipient, in connection with the manufacture of Baxdela vials. We have developed and patented additional technology independently.  The patent portfolio for Baxdela and delafloxacin meglumine, the active pharmaceutical ingredient in Baxdela, is related to compositions of matter, pharmaceutical compositions, manufacturing methods and methods of use. In addition to the licensed and owned issued U.S. patents, the portfolio includes pending U.S. patent applications and corresponding foreign national or regional counterpart patents or applications. We expect that the patents and the patent applications in the portfolio, if issued, will expire between 2025 and 2034.
Vabomere
As a result of our acquisition of IDB, we acquired a portfolio of patents and patent applications relating to Vabomere, including the vaborbactam compound, Vabomere composition, and methods of use. We are currently prosecuting related patent applications relating to Vabomere’s pharmaceutical composition and its use in the United States and in certain foreign countries.  In addition, patent applications are pending for synthesis intermediates, manufacturing flow processes and additional methods of use, which, if issued, would expire between 2035 and 2038.
Orbactiv
As a result of our acquisition of IDB, we obtained an exclusive license from Eli Lilly to patents relating to Orbactiv, its uses, formulations and methods of manufacture. The earliest-filed patent for Orbactiv that we acquired, which relates to the active pharmaceutical ingredient in Orbactiv, will expire in the United States in November 2020. The Medicines Company also developed and patented additional technology.  We acquired from Medicines U.S. patents relating to methods of treatment expiring in 2029 and 2030, as well as a patent co-owned with AbbVie relating to high purity oritavancin that expires in 2035. Numerous foreign counterparts have been filed, including in Europe and Eurasia, for these more recent methods of treatment and compositions. We are also prosecuting a number of patent applications relating compositions, including oritavancin and a cyclodextrin, and their uses in the United States and certain foreign jurisdictions, which, if issued, would expire in 2037.
Minocin for injection
As a result of our acquisition of IDB, we acquired a patent portfolio relating to certain minocycline formulations and certain methods of administering minocycline. We have patents relating to the Minocin for injection intravenous composition and certain methods of administering minocycline, each of which is set to expire in May 2031. We are also prosecuting other patent applications relating to minocycline formulations and methods of treatment in the United States and in certain foreign countries.
Collaborations and Commercial Agreements


See Notes 5 and 10 to the Consolidated Financial Statements for information on certain of our collaboration and commercial agreements.
Manufacturing
We do not own or operate manufacturing facilities for the production of any of the products in our product portfolio nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently depend on third-party contract manufacturers for all of our required raw materials, active pharmaceutical ingredients ("API") and finished products, and we employ internal resources and third-party consultants to manage our manufacturing contractors.
We do not have material long-term contracts for the commercial supply of the Products, except for certain contracts for the production of ingredients of vaborbactum.
Government Regulation and Product Approval
Government authorities in the United States—at the federal, state and local level—and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record keeping, promotion, advertising, distribution, and export and import of products such as those we are marketing or developing. All of our approved products are subject to extensive regulation, and our antibiotic product candidates that we develop must be approved by the FDA through the NDA process before they may be legally marketed in the United States.
Securing approval to market a new pharmaceutical product in the United States requires substantial effort and financial resources and takes several years to complete. The applicant must complete preclinical tests and submit protocols to the FDA before commencing clinical trials. Clinical trials are conducted to establish the safety and efficacy of the pharmaceutical product and typically are conducted in sequential phases, although the phases may overlap or be combined. If the required clinical testing is successful, the results are submitted to the FDA in the form of an NDA requesting approval to market the product for one or more indications. The FDA reviews an NDA to determine whether a product is safe and effective for its intended use and whether its manufacturing is compliant with current Good Manufacturing Practices (“cGMP”).
Even if an NDA receives approval, the applicant must comply with post-approval requirements. For example, holders of an approval must report adverse reactions, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional materials and activities. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval, and certain changes to the manufacturing procedures and finished product must be included in the NDA, and approved by the FDA. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural and record keeping requirements. In addition, as a condition of approval, the FDA may require post-marketing testing and surveillance to further assess and monitor the product's safety or efficacy after commercialization, which may require additional clinical trials or patient registries, or additional work on chemistry, manufacturing and controls. Any post-approval regulatory obligations, and the cost of complying with such obligations, could expand in the future.
The manufacture, sale, promotion and distribution of our products are subject to comprehensive government regulation. Government regulation by various national, regional, federal, state and local agencies, both in the United States and other countries, addresses (among other matters) inspection of, and controls over, research and laboratory procedures, clinical investigations, product approvals and manufacturing, labeling, packaging, marketing and promotion, pricing and reimbursement, sampling, distribution, quality control, post-marketing surveillance, record keeping, storage and disposal practices. In addition, we are subject to laws and regulations pertaining to health care fraud and abuse, including state and federal anti-kickback and false claims laws in the United States. We are also subject to taxes, as well as application, product, user, establishment and other fees.
Compliance with these laws and regulations is costly and materially affects our business. Among other effects, health care regulations substantially increase the time, difficulty and costs incurred in obtaining and maintaining approval to market newly developed and existing products. We expect compliance with these regulations to continue to require significant technical expertise and capital investment to ensure compliance. Failure to comply can delay the release of a new product or result in regulatory and enforcement actions, the seizure or recall of a product, the suspension or revocation of the authority necessary for a product's production and sale and other civil or criminal sanctions, including fines and penalties.
In addition to regulatory initiatives, our business can be affected by ongoing studies of the utilization, safety, efficacy and outcomes of health care products and their components that are regularly conducted by industry participants, government agencies and others. These studies can call into question the utilization, safety and efficacy of previously marketed products. These studies may result in the discontinuance of, or limitations on, marketing of such products domestically or worldwide, and may give rise to claims for damages from persons who believe they have been injured as a result of their use.
Access to human health care products continues to be a subject of investigation and action by governmental agencies, legislative bodies and private organizations in the United States and other countries. A major focus is cost containment. Efforts


to reduce health care costs are also being made in the private sector, notably by health care payors and providers, which have instituted various cost reduction and containment measures. We expect insurers and providers to continue attempts to reduce the cost of health care products. Budgetary pressures in the United States—and in other countries—may also heighten the scope and severity of pricing pressures on our products for the foreseeable future.
Specifically, U.S. federal laws require pharmaceutical manufacturers to pay certain statutorily-prescribed rebates to state Medicaid programs on prescription drugs reimbursed under state Medicaid plans, and the efforts by states to seek additional rebates affect our business. Similarly, the Veterans Health Care Act of 1992, as a prerequisite to participation in Medicaid and other federal health care programs, requires that manufacturers extend additional discounts on pharmaceutical products to various federal agencies, including the United States Department of Veterans Affairs, Department of Defense and Public Health Service entities and institutions. In addition, recent legislative changes would require similarly discounted prices to be offered to TRICARE program beneficiaries. The Veterans Health Care Act of 1992 also established the 340B drug discount program, which requires pharmaceutical manufacturers to provide products at reduced prices to various designated health care entities and facilities.
Most states also have generic substitution legislation requiring or permitting a dispensing pharmacist to substitute a different manufacturer's generic version of a pharmaceutical product for the one prescribed. In addition, the federal government follows a diagnosis-related group (“DRG”) payment system for certain institutional services provided under Medicare or Medicaid and has implemented a prospective payment system (“PPS”) for services delivered in hospital outpatient, nursing home and home health settings. DRG and PPS entitle a health care facility to a fixed reimbursement based on the diagnosis and/or procedure rather than actual costs incurred in patient treatment, thereby increasing the incentive for the facility to limit or control expenditures for many health care products. Medicare reimburses Part B drugs based on average sales price plus a certain percentage to account for physician administration costs, which have been reduced in the hospital outpatient setting. Medicare enters into contracts with private plans to negotiate prices for most patient-administered medicine delivered under Part D.
Under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (together, the “Affordable Care Act”), we pay a fee related to its pharmaceuticals sales to government programs. The Affordable Care Act also includes provisions known as the Physician Payments Sunshine Act, which require manufacturers of drugs and biologics covered under Medicare and Medicaid to record any transfers of value to physicians and teaching hospitals and to report this data to the Centers for Medicare and Medicaid Services for subsequent public disclosure. Similar reporting requirements have also been enacted on the state level in the United States. Failure to report appropriate data may result in civil or criminal fines and/or penalties.
Antibiotic Exclusivity
Under the GAIN Act, upon NDA approval, a drug product designated by FDA as a QIDP receives a five-year extension of any five-year NCE exclusivity, three-year exclusivity, or seven-year orphan drug exclusivity.  This exclusivity applies only with respect to drugs that are first approved on or after July 9, 2012.  An efficacy supplement to an approved NDA is not eligible for the five-year exclusivity extension if the application that is being supplemented has previously received the five-year GAIN exclusivity extension.  A QIDP is defined as an antibacterial or antifungal drug for human use intended to treat serious or life-threatening infections, including those caused by (1) an antibacterial or antifungal resistant pathogen, including novel or emerging infectious pathogens, or (2) qualifying pathogens, which are defined as those that have the potential to pose a serious threat to public health and that are included in a list established and maintained by FDA.
A drug sponsor may request that the FDA designate its product as a QIDP at any time prior to NDA submission. The FDA must make a QIDP determination within 60 days of receiving the designation request.  The first NDA for a specific drug product and indication for which QIDP designation was granted will automatically be granted priority review.  A subsequent application from the same sponsor for the same product and indication will receive priority review designation only if it otherwise meets the criteria for priority review.
Foreign Regulation
In addition to regulations in the United States, we are subject to a variety of foreign regulations governing clinical trials and commercial sales, manufacturing and distribution of our products to the extent we choose to sell any products outside of the United States. The approval process varies from country to country, and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement also vary greatly from country to country. Our primary strategy is to find partners that operate in foreign countries and collaborate with them to seek approval for, and market, our products, generating royalty and licensing revenue.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory


approval for commercial sale will depend considerably on the availability of reimbursement from third-party payors. Third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drugs for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain FDA approvals. Our products may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development.
In 2003, the U.S. government enacted legislation providing a prescription drug benefit for Medicare recipients, which became effective at the beginning of 2006. Government payment for some of the costs of prescription drugs may increase demand for any products for which we receive marketing approval. However, to obtain payments under this program, we would be required to sell products to Medicare recipients through prescription drug plans operating pursuant to this legislation. These plans will likely negotiate discounted prices for our products. In March 2010, the ACA, as amended, became law, which substantially changed the way healthcare is financed by both governmental and private insurers. We anticipate that this legislation will result in additional downward pressure on prescription drug coverage and may affect our ability to set the prices that we receive for any approved product, either directly if legislation mandates discounts or other reductions, or indirectly if limited coverage results in reduced demand. Federal, state and local governments in the United States continue to consider legislation to limit the growth of health care costs, including the cost of prescription drugs. Future legislation could limit payments for pharmaceuticals such as the drug candidates that we are developing.
Different pricing and reimbursement structures exist in other countries. In the European community, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of our particular drug products to currently available therapies. Other member states allow companies to set their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.
The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Corporate History and Information
On November 3, 2017, Cempra, Inc. merged with privately-held Melinta Therapeutics, Inc. in a reverse merger, wherein the former Melinta Therapeutics, Inc. became a subsidiary of Cempra, Inc. and was re-named Melinta Subsidiary Corp. Immediately after the merger, Cempra, Inc. was renamed Melinta Therapeutics, Inc. Our stock is traded on the Nasdaq Global Market under the symbol MLNT.
Cempra, Inc. was originally formed as Cempra Holdings, LLC, a limited liability company under the laws of the State of Delaware, on May 16, 2008. Cempra Holdings, LLC was formed in connection with a reorganization whereby the shareholders of Cempra Pharmaceuticals, Inc., a corporation formed under the laws of the State of Delaware on November 18, 2005, exchanged their shares of Cempra Pharmaceuticals, Inc. stock for shares of Cempra Holdings, LLC, pursuant to a merger of a subsidiary of Cempra Holdings, LLC with and into Cempra Pharmaceuticals, Inc., as a result of which Cempra Pharmaceuticals, Inc. became a wholly owned subsidiary of Cempra Holdings, LLC. On February 2, 2012, Cempra Holdings, LLC converted from a Delaware limited liability company to a Delaware corporation and was renamed Cempra, Inc.
Our primary executive offices are located at 44 Whippany Road, Morristown, NJ 07963, and our telephone number is (908) 617-1309. Our website address is www.melinta.com. The information contained in, or that can be accessed through, our website is not part of this report.
Available Information


We make available, free of charge through our website, http://www.melinta.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as is reasonably practicable after such material is electronically filed or furnished to the SEC.  Shareholders and other interested parties may also contact us and request these documents through the Investor Relations section of our website.  
Our website also contains corporate governance information including: audit, compensation and nominating and governance committee charters, and our business ethics and conduct policy.
Employees
As of February 28, 2019, we had approximately 290 employees. None of our employees are subject to a collective bargaining agreement. We consider our relationship with our employees to be good.


Item 1A. Risk Factors
This report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in this report. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this report and in any documents incorporated in this report by reference.
If any of the following risks, or other risks not presently known to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition, results of operations or prospects could be materially adversely affected. If that happens, the market price of our common stock could decline, and shareholders may lose all or part of their investment.
Risks Related to our Business
We have incurred significant operating losses since inception and anticipate that we will incur continued losses for the foreseeable future.
We are not currently generating revenue from operations that is sufficient to cover our operating expenses and do not anticipate generating revenue sufficient to offset operating costs in the near term. We have incurred losses from operations since our inception and had an accumulated deficit of 719.8 million as of December 31, 2018. These losses have had and will continue to have an adverse effect on shareholders’ equity and working capital.  
Our operations have consumed substantial amounts of cash since inception. If our operations do not produce the cash flow expected, our business, financial condition, cash flows and results of operations could be materially and adversely affected.
Our principal sources of liquidity are cash generated from sales of Baxdela, Vabomere, Orbactiv, and Minocin for injection; reimbursement of certain development costs by licensees of Baxdela, principally associated with our CABP Phase 3 clinical trial; fees and milestones earned under the license agreements we have entered into to distribute our products to companies in markets outside the United States, including our license agreement with Menarini; additional debt capital that may be available under our Deerfield Facility (including $50 million available until January 5, 2020 if we meet certain sales milestones by the end of 2019) and the Vatera Loan Agreement (up to $60 million available before July 10, 2019, after the initial draw of $75 million which occurred in February 2019); and the issuance of debt or equity financings, to the extent available. Our principal liquidity requirements are for working capital; our debt service requirements; operational expenses; commercialization and development activities for products and product candidates; potential non-operational payments related to the IDB acquisition and contractual obligations, including inventory and any royalty and milestone payments that will or may become due; and capital expenditures.
As of December 31, 2018, we had cash and cash equivalents of $81.8 million. For the year ended December 31, 2018, we had a net loss of approximately $157.2 million. Our net cash used in our operating activities was $171.5 million during the year ended December 31, 2018. Our ability to become profitable and/or to generate positive cash from operations depends upon, among other things, our ability to generate revenues from sales of our marketed products and prudently manage our expenses. If we do not generate sufficient product revenues, or prudently manage our expenses, our business, financial condition, cash flows and results of operations could be materially and adversely affected and we may be unable to continue as a going concern.
During 2018, we announced and/or implemented a number of cost savings initiatives designed to streamline our business, deliver profitability and extend our cash runway. These cost-savings initiatives are expected to result in between $50 and $70 million in operating expense savings in 2019, driven primarily by lower R&D and G&A expenses when compared to 2018. In addition, we are continuing to explore and evaluate other opportunities to enhance our liquidity, including further cost reductions, strategic licensing and partnership opportunities, potential capital raising activities and options to modify the terms of certain liabilities. There can be no assurances that these other initiatives will be available on reasonable terms, or at all. If we are not successful with respect to the initiatives described above, or if our future operations fail to meet current sales expectations, our projected future liquidity may be limited, which could materially and adversely affect our business, financial condition, cash flows, results of operations and ability to continue as a going concern.
We may need to obtain additional financing to fund our operations and comply with financial-related covenants under the Deerfield Facility, as amended, and the Vatera Loan Agreement, and our ability to obtain such additional financing is limited by the terms of the Deerfield Facility and the Vatera Loan Agreement.
We have substantial cash needs to support our current operating plan, including supporting the ongoing sale and promotion of Baxdela, Vabomere, Minocin for injection and Orbactiv, as well as the development and commercialization of our


product candidates and to support sales and marketing activities. Moreover, our fixed expenses such as rent, license payments, interest expense and other contractual commitments are substantial.
Our future cash flows are dependent on key variables such as the level of sales achievement of our four marketed products, our ability to access additional debt capital under the Vatera Loan Agreement and the Deerfield Facility and, potentially, our ability to finance the Company with the issuance of new debt or equity.
Our ability to obtain additional borrowings under the Vatera Loan Agreement (up to $25 million available in a single draw after March 31, 2019, but on or prior to June 30, 2019, and up to $35 million available in a single draw after June 30, 2019, but on or prior to July 10, 2019) is subject to our satisfaction of certain customary funding conditions, such as compliance with the covenants contained in that agreement, including the covenants described below. Our ability to obtain additional borrowings under the Deerfield Facility (including $50 million available until January 5,m 2020, if we meet certain sales milestones by the end of 2019) also is subject to satisfaction of certain customary funding conditions, such as compliance with the covenants contained in that agreement, including the covenants described below. The Deerfield Facility contains certain covenants, including requirements that we (i) deliver audited financial statements for each fiscal year, together with an audit opinion that does not contain a going concern qualification for any fiscal year ending on or after December 31, 2019, (ii) maintain a minimum cash balance of $40 million through March 31, 2020, and $25 million thereafter, and (iii) achieve net revenue from product sales of at least $63.75 million for the year ending December 31, 2019, and $85 million each year thereafter.
Our operating forecasts include assumptions about our projected levels of sales growth, planned operating expenses, and other cash outflows. Revenue projections are inherently uncertain but have a higher degree of uncertainty in an early-stage commercial launch, which we have in Baxdela and Vabomere. In addition, if we are required to pay potential non-operational payments relating to the IDB acquisition, and after giving effect to net cash outflows from our operations, our cash balances may not be sufficient under the minimum cash balance covenants contained in the Deerfield credit agreement and the Vatera credit agreement described above. As a result, we may not be able to borrow additional amounts under our existing credit agreements. In addition, failure to comply with the minimum cash balance covenant would constitute a default under the Deerfield Facility and the Vatera Loan Agreement and, if not cured or waived, would allow our lenders to accelerate the related debt and, in the case of the Deerfield Facility which is secured by substantially all of our assets, would allow the lenders under that agreement to proceed against the collateral granted to them to secure that debt. In particular, recent sales trends, combined with our current projections, are likely to limit our ability to draw the additional $50 million available for borrowing under the Deerfield Facility until at least the second half of 2019 (because such borrowing is subject to our meeting certain net revenue targets by the end of 2019) and if we fail to satisfy the required sales milestones under the Deerfield Facility before January 5, 2020, we will no longer be able to draw the $50 million in additional loans. As such, we may need to raise additional funds to support our ongoing operations and to reduce our risk of default under our credit agreements.
Our future funding requirements will depend on many factors, including, but not limited to:
the costs and timing of establishing sales, marketing, reimbursement capabilities, and the acceptance of our products by the marketplace;  
our ability to forecast demand for our products, thereby enabling our ability to manage working capital effectively;
potential non-operational payments relating to the IDB acquisition;
payments of milestones and royalties to third parties;
the initiation, progress, timing, scope and costs of our clinical trials, including the ability to timely enroll patients in our ongoing, planned and potential future clinical trials;  
the time and cost necessary to obtain regulatory approvals;  
the time and cost necessary to respond to technological and market developments;  
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and  
the terms of any collaborative, license and other commercial relationships that Melinta may establish.  
Moreover, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. Securing additional financing, however, will require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from our day-to-day activities, which may adversely affect our management’s ability to conduct our day-to-day operations. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all.
Further, the terms of the Deerfield Facility and the Vatera Loan Agreement limit our ability to obtain additional financing, and the existence of the convertible loans under those agreements, including the ability to convert the convertible loans under the Vatera Loan Agreement into shares of our preferred stock, which have rights on liquidation senior to the rights of our common stockholders, may further impede our ability to obtain additional financing.


We are subject to certain covenants under the Deerfield Facility and the Vatera Loan Agreement that restrict our ability to incur additional indebtedness, limiting access to additional debt capital to fund our operations. In addition, the Vatera Loan Agreement contains a clear market provision which restricts our ability to sell or otherwise transfer or dispose of, or file a registration statement relating to, any common stock or any securities convertible into common stock, subject to certain exceptions, without the prior written consent of the Required Lenders (as defined in the Vatera Loan Agreement). This provision is effective until 90 days after our final disbursement under the Vatera Loan Agreement, which 90-day period will expire between September 29, 2019, and October 8, 2019, assuming that the final disbursement occurs between July 1, 2019, and July 10, 2019 (unless the facility is terminated prior to such final disbursements, in which case 90 days after such termination). This clear market provision does not restrict or prohibit negotiations or discussions with respect to, or the entering into any agreement for, or the filing of a registration statement with respect to, a merger or consolidation or any other combination of the Company with, or the acquisition of the Company by, another person (including by tender or exchange offer), any sale or other transfer of all or substantially all of the consolidated assets of the Company or any other acquisition or similar transaction.
Accordingly, the ability of the Company to enter into additional forms of financing may be limited and additional funds may not be available when needed on terms that are acceptable, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of existing shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing shareholders.
If we are unable to obtain funding on a timely basis, we may be unable to fund our future operations, including the ongoing sales of our marketed products, as well as the development and commercialization of our product candidates and the support of sales and marketing activities.  As a result, our ability to generate revenues and achieve or sustain profitability may be substantially harmed, and we may be required to significantly curtail some or all of our activities. We also could be required to seek funds through arrangements with collaborative partners or otherwise that may require us to relinquish rights to our product candidates or some of our technologies or otherwise agree to terms unfavorable to us.
We have substantial indebtedness.
As of December 31, 2018, we had total indebtedness of $147.8 million and, on February 22, 2019, we incurred additional indebtedness of $80 million under the Vatera Loan Agreement. Subject to the terms and conditions set forth therein, we have the ability to borrow an additional $60 million of convertible loans. We also have the ability to borrow an additional $50 million of loans under the Deerfield Facility (available before January 5, 2020), provided that certain revenue targets are achieved and other funding conditions are satisfied before the end of 2019. Having a substantial amount of leverage may have important consequences, including:
requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on indebtedness, thereby reducing our ability to use cash flow from operations to fund operations, capital expenditures, and future business opportunities;
limiting our ability to obtain additional financing for working capital, capital expenditures, product and service development, debt service requirements, acquisitions, and general corporate or other purposes, which is vital to our business;
increasing the risks of adverse consequences resulting from a breach of any indebtedness agreement, including, for example, a failure to make required payments of principal or interest due to failure of our business to perform as expected;
increasing our vulnerability to general economic and industry conditions;
restricting our ability to make strategic acquisitions or requiring non-strategic divestitures;
subjecting our operations to restrictive covenants that may limit operating flexibility; and
placing our operations at a competitive disadvantage compared to competitors that are less highly leveraged.
The Vatera Loan Agreement and the Deerfield Facility contain restrictive covenants that may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions, as well as financial-related covenants.
The Vatera Loan Agreement and Deerfield Facility contain a number of restrictive covenants that impose significant operating and financial restrictions, subject in each case to customary exceptions, on us and may limit our ability to engage in acts that may be in our long term best interest, including restrictions on our ability to: incur additional debt; pay distributions or dividends, redeem subordinated debt, repurchase equity or make other restricted payments; make certain investments; grant or permit certain liens on our assets; enter into certain transactions with affiliates; merge, consolidate or transfer all or substantially all of our assets; and transfer, sell or acquire assets, including capital stock of our subsidiaries. As a result of these restrictions, we may be: limited in how we conduct our business; unable to raise additional debt or equity financing to operate during general economic or business downturns; or unable to compete effectively or take advantage of new business opportunities. These restrictions also may affect our ability to execute our business strategy, which could have a material adverse effect on our business, financial condition and results of operations.


In addition, the Deerfield Facility contains certain financial-related covenants, including requirements that we (i) deliver audited financial statements for each fiscal year, together with an audit opinion that does not contain a going concern qualification for any fiscal year ending on or after December 31, 2019, (ii) maintain a minimum cash balance of $40 million through March 31, 2020, and $25 million thereafter, and (iii) achieve net revenue from product sales of at least $63.75 million for the year ending December 31, 2019, and $85 million each year thereafter.
A breach of the covenants under either of our credit agreements could result in an event of default, may allow our lenders to accelerate the related debt, and may result in the acceleration of any other debt to which a cross acceleration or cross default provision applies. In addition, an event of default would permit the lenders under the applicable credit agreement to terminate all commitments to extend further credit under such agreement. Furthermore, if we were unable to repay the amounts due and payable under the Deerfield Facility, the lenders under that agreement could proceed against the collateral granted to them to secure that debt. In the event our lenders accelerate the repayment of our borrowings, we and our subsidiaries would not have sufficient assets to repay that debt.
Provisions in the Vatera Loan Agreement and the Deerfield Facility may deter or prevent a business combination that may be favorable to our stockholders.
Certain provisions in the Vatera Loan Agreement and the Deerfield Facility could have an adverse impact on the possibility of a potential acquisition of the Company.
If we enter into a transaction that constitutes a “fundamental change” under the Vatera Loan Agreement and a lender elects to convert its convertible loans in connection therewith, we may be required to increase the conversion rate depending on the then applicable stock price. The substantial number of shares that are issuable upon conversion of the convertible loans under the Vatera Loan Agreement may negatively impact the per share price that a third party may be willing to pay for the Company.
Furthermore, upon the occurrence of a change of control (as defined in the Vatera Loan Agreement), the lenders under the Vatera Loan Agreement have the right to either convert their convertible loans (including at the fundamental change conversion price if the Change of Control also constitutes a fundamental change) or require payment in full at par plus accrued and unpaid interest. If the lenders, other than the Vatera-related entities, fail to timely deliver notice to us electing to convert their convertible loans under the agreement, we will be required to pay in cash to such lenders the full outstanding amount of the convertible loans held by such lenders. The Vatera-related entities may elect to continue to hold their convertible loans under the agreement instead of converting the loans or requiring payment in cash for such convertible loans, except that we may elect to prepay the convertible loans under the Vatera Loan Agreement held by the Vatera-related entities in connection with a change of control or a fundamental change in which the consideration to be paid to the holders of outstanding common stock (other than shares held by the Vatera-related entities) consists solely of cash at a per share price in excess of the then current conversion price (determined based on the common stock conversion rate).
Upon a change of control (as defined in the Deerfield Facility), the lenders under the Deerfield Facility have the right to require payment in full of the outstanding loans under the agreement par plus accrued and unpaid interest.
These and other provisions in the Deerfield Facility and the Vatera Loan Agreement could deter or prevent a third party from acquiring the Company, or adversely impact the price that an acquirer is willing to pay, even when the acquisition may otherwise be favorable to our stockholders.
Our limited operating history exposes us to significant risks.
Prior to our commercial launch of Baxdela and our acquisition of Vabomere, Orbactiv and Minocin for injection from Medicines in the first quarter of 2018, our operations were limited to financing and staffing our company, conducting discovery and product research and development activities, and engaging in commercial launch preparation activities. Given that we have had less than one year of commercial sales through December 31, 2018, the ability to predict our future performance may not be as accurate as it could be if we had a history of successfully developing and commercializing pharmaceutical products. Given our limited operating history and relatively recent product launches, it is difficult for us to predict our future revenues and working capital needs and, to the extent we encounter lower-than-expected sales or unforeseen expenses, difficulties, complications, delays, and other known and unknown factors in achieving our business objectives, we may face difficulties in addressing these issues and our liquidity requirements. Further, given our limited operating history, we may incur significant costs in maintaining our salesforce, which costs may prove unnecessary or excessive if our product sales do not meet our expectations. Our likelihood of success must be evaluated in light of such challenges and variables and we may not be successful in our sales efforts or may incur greater costs than expected, both of which would materially and adversely affect our business, results of operations or financial condition.
If we are not successful with the commercial launches of our products, our business likely would be materially harmed.


In the first quarter of 2018, we launched Baxdela and acquired Vabomere, Orbactiv and Minocin for injection from Medicines. Medicines launched Orbactiv in the United States in the third quarter of 2014, launched the new formulation of Minocin for injection in the United States in 2015 and launched Vabomere in the United States in the fourth quarter of 2017. Commercial launches and continued commercial efforts for this number of products in such a short period of time has and will continue to require significant efforts from Melinta and the devotion of substantial resources as we continue to establish and maintain the infrastructure necessary to continue to commercialize these products, or any product line extensions, or products in development.
Our ability to successfully commercialize our Products will depend on our ability to:
train, deploy and manage a qualified sales force to market and sell our Products;
secure formulary approvals at our hospital customers;
have third parties manufacture and release the products in sufficient quantities;
implement and maintain agreements with wholesalers, distributors and group purchasing organizations;
receive adequate levels of coverage and reimbursement for these products from governments and third-party payors; and
develop and execute effective marketing and sales strategies and programs for the Products.
We expect that the revenues from these products will represent a significant portion of our revenues in the future. As a result, if we are unable to successfully commercialize these products and products in development, our business, results of operations and financial condition likely would be materially harmed.
We are continuing to build our own marketing and sales organization, but have limited experience as a company in marketing drug products. If we are unable to successfully continue to develop our own marketing and sales capabilities, we may not be able to generate product revenues.
In order to successfully commercialize our products, we must develop capabilities (or make arrangements with third parties) for the marketing, sales and distribution of our products.  We have and will need to incur significant additional expenses and commit significant additional resources to continue to grow our marketing and sales capabilities. We may not be able to successfully establish these capabilities despite these additional expenditures.  Further, whether we market and sell products on our own or rely on a third party to do so, our ability to generate revenue will be dependent in part on the effectiveness of the sales force.  We compete with other pharmaceutical and life sciences companies to recruit, hire, train and retain sales and marketing personnel. In the event we are unable to successfully market and sell our products, either through our own marketing and sales capabilities or through collaboration with a third-party, our ability to generate product revenues would be negatively impacted and our business may be harmed.
Recent changes in our executive leadership and any similar changes in the future may serve as a significant distraction for our management and employees.
On October 1, 2018, and October 22, 2018, respectively, our former Chief Financial Officer and our former Chief Executive Officer left Melinta, and Peter J. Milligan was appointed our new CFO and John H. Johnson was appointed as our interim CEO. On February 22, 2019, Mr. Johnson was appointed as our permanent CEO. Such changes, or any other future changes in our executive leadership, may disrupt our operations as we adjust to the reallocation of responsibilities and assimilate new leadership and, potentially, differing perspectives on our strategic direction. If the transition in executive leadership is not smooth, the resulting disruption could negatively affect our operations and impede our ability to execute our strategic plan.
The commercial success of our Products (including any line extension thereof) and any future product of Melinta will depend upon the degree of market acceptance of these products among physicians, patients, health care payors and the medical community.
It cannot be assured that our products (including any additional approved indications) or any of our product candidates that may be approved in the future will gain market acceptance among physicians, patients, health care payors and the medical community. Efforts to educate the medical community and third-party payors on the benefits of our products and product candidates may require significant resources and may not be successful. The degree of market acceptance for our products will depend on a number of factors, including:
the effectiveness of such products as compared to other products pertaining to their respective indications; 
the effectiveness of such products as compared to other products considered standard of care; 
prevalence and severity of adverse side effects;
acceptance by physicians and payors of each product as a safe and effective treatment;
limitations or warnings contained in a product’s FDA approved labeling;
the market price and patient out-of-pocket costs of the product relative to other treatment options, including any generics;  
relative convenience and ease of administration;  


willingness by clinicians to stop using current treatments and adopt a new treatment;  
restriction on healthcare provider prescribing of, and patient access to, products due to a risk evaluation mitigation strategy;  
our ability to recruit and retain a sales force, if necessary;
the effectiveness of our or any third-party partner’s sales force and marketing efforts;
our ability to forecast demand and maintain sufficient supplies of our drug products;
our ability to manufacture or obtain commercial quantities of our drug products;
the strength of our sales and marketing and distribution support;
the ability of our sales organization to reach the necessary prescribers and accounts on a timely basis;
the effectiveness of our marketing and advertising campaigns;
product availability and our ability to deliver our products on a timely basis;
the extent to which bacteria develop resistance to any antibiotic product candidate that we develop, thereby limiting its efficacy in treating or managing infections;
our ability to establish and maintain pricing sufficient to realize a meaningful return on our investment;
acceptance on hospital formularies (which may limit sales activities in those hospitals);
whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular infections;
the availability of adequate reimbursement by third parties, such as insurance companies and other health care payors, and/or by government health care programs, including Medicare and Medicaid;
adverse publicity about a product or favorable publicity about competitive products;
potential product recalls: and
potential product liability claims.
The successful commercialization of our Products will depend on the prices we receive for our products.
Our ability to successfully commercialize our products will be dependent on whether market conditions or government requirements affect our ability to receive adequate pricing for any particular product. Pricing may be substantially dependent on our ability to obtain reimbursement from third-party payors, both in the United States and in foreign countries. Outside the United States, certain countries, including a number of European Union (“E.U.”) members, set prices and reimbursement for pharmaceutical products, or medicinal products as they are commonly referred to in the E.U., with limited participation from those marketing the products. We cannot be sure that any prices and reimbursement will be acceptable to our strategic commercial partners. If the regulatory authorities in these foreign jurisdictions set prices or reimbursement that are not commercially attractive for our strategic commercial partners, our revenues from milestones and/or sales-based royalties paid by our partners, and the potential profitability of our product candidates, in those countries would be negatively affected. Further, through contractual or other arrangements, the price we may be able to obtain in foreign countries may be dependent on the price we can achieve in the United States.
If we fail to obtain and sustain an adequate level of reimbursement for our products or future approved products by third-party payors, sales would be adversely affected.
There will be no commercially viable market for our products or any future approved products without reimbursement from third-party payors. If payor coverage is restricted or the level of reimbursement is below our expectations, our revenue and gross margins will be adversely affected.
Third-party payors, such as government or private health care insurers, carefully review and increasingly question the coverage of, and challenge the prices charged for, drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. A current trend in the U.S. health care industry is toward cost containment. Large public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, are questioning the coverage of, and increasingly challenging the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved health care products. In particular, third-party payors may limit the covered indications. Cost-control initiatives that affect our commercial market could decrease the price we might establish for products, which would result in product revenues being lower than anticipated. If the prices for our products decrease or if governmental and other third-party payors do not provide adequate coverage and reimbursement levels, our revenue and prospects for profitability will suffer. Further, the availability of numerous generic antibiotics at lower prices than branded antibiotics may also substantially reduce the likelihood of reimbursement for such products.
Specifically, in both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our products profitably. In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, also called the Medicare Modernization Act (“MMA”), changed the way Medicare covers and pays for pharmaceutical products. The legislation


expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policies and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.  In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, “ACA”) became law in the United States The goal of ACA is to reduce the cost of health care and substantially change the way health care is financed by both governmental and private insurers. While we cannot predict what ultimate impact on federal reimbursement policies this legislation will have in general or on our business specifically, the ACA may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of future products. Members of the U.S. Congress and some state legislatures had sought to overturn at least portions of the legislation including those on the mandatory purchase of insurance. However, on June 28, 2012, the United States Supreme Court upheld the constitutionality of these provisions. Members of the U.S. Congress have since proposed a number of legislative initiatives, including repeal of all or portions of the ACA. Additionally, the Department of Health and Human Services is considering a number of proposals that, if adopted, could dramatically change the way the government, and eventually private payors, cover and reimburse prescription drugs. We cannot predict the outcome or impact of current proposals or whether new proposals will be made or adopted, when they may be adopted or what impact they may have on us if they are adopted.
Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. Reimbursement in the European Union must be negotiated on a country-by-country basis and in many countries the product cannot be commercially launched until reimbursement is approved. The negotiation process in some countries can exceed 12 months.
Our estimates of the market for, and the commercialization potential of, our Products, additional indications or uses for our Products, or for any product candidate, may be inaccurate or vary significantly from the market size ultimately realized.
The potential market opportunities for our Products, additional indications or uses for our Products, and any product candidates are difficult to estimate. Our estimates of the potential market opportunities are predicated on many assumptions, including industry knowledge and publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, and are inherently uncertain. If any of the assumptions proves to be inaccurate, the actual markets for our products and candidates could be smaller than our estimates of the potential market opportunities.
In addition, our estimates regarding the timing and amount of acceptance of any product (including any line extension) or product candidate, and the pricing we are able to receive for any product or product candidate may prove incorrect. Further, our plans for commercialization of any product candidate may not materialize in the time or manner we anticipate and may be adversely impacted by any required warnings in the product labeling, any perceived safety or efficacy concerns, competitive products entering or already in the market, or the actions of our competitors. Finally, we may underestimate the demand for a product, which could lead to lack of commercial quantities when needed and result in market backlash against the product. Any of these occurrences could have a material adverse effect on our plans for commercialization of and the generation of any revenue from any product or product candidate.
A failure to maintain optimal inventory levels for any of our Products or any future approved products could have a material adverse effect on our business.
Accurate product planning is necessary to ensure that we maintain optimal inventory levels for any of our products or any future approved products. Significant differences between our estimates and judgments and future actual demand for any of our products or any future approved products and the shelf life of inventory may result in the Company maintaining significant excess inventory. This risk is particularly heightened because our manufacturing lead team varies by product (and for some products this lead time can exceed two years) and we have limited historical sales performance for our products and as such, may not successfully predict our product revenues over the near or long term. See “Our limited operating history exposes us to significant risks.” If the Company maintains excess inventory, this will harm our liquidity and we may be required to recognize significant charges for excess inventories, which could have a material adverse effect on our financial condition and results of operations. Our ability to maintain optimal inventory levels also depends on the performance of third-party contract manufacturers. If our manufacturers are unsuccessful in either obtaining raw materials, if we are unable to release inventory on a timely and consistent basis, if we fail to maintain an adequate level of product inventory, if inventory is destroyed or damaged, or if our inventory reaches its expiration date, we could have a material adverse effect on our business, financial condition, results of operations and cash flows.


If our competitors are able to develop and market products that are preferred over our Products or any future approved products, our commercial opportunity for such products will be reduced.
We face competition from established pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions, which may in the future develop products to treat ABSSSI, CABP, cUTI or other diseases or conditions that our products and product candidates target. In many cases, however, we believe that competition often will be determined by antibiotic class and any limitations of that antibiotic class in general, and the antibiotic treating a particular disease or population.
In particular, there are a variety of available therapies marketed for the treatment of ABSSSI.  Some of these products are branded and subject to patent protection, and others are available on a generic basis. Many of these approved products are well established therapies and are widely accepted by physicians, patients and hospital decision-makers.  Vancomycin, for instance, which is sold in a relatively inexpensive generic form, has been widely used for over 50 years, is the most frequently used IV antibiotic, and we believe, based on our market research, is prescribed to approximately two-thirds of all hospitalized ABSSSI patients.  Insurers and other third-party payers may encourage the use of generic products. There are also a number of products in clinical development by third parties to treat ABSSSI.
If any of these product candidates or any other products developed by our competitors are more effective, safer, more convenient or less costly than our products, or would otherwise render our products obsolete or non-competitive, our anticipated revenues from our products could be adversely affected.
We expect that our ability to compete effectively will depend upon, among other things, our ability to:
successfully and rapidly complete clinical trials and obtain all required regulatory approvals in a timely and cost-effective manner;  
maintain patent protection for and otherwise prevent the introduction of generics;  
attract and retain key personnel;
build an adequate sales and marketing infrastructure; and
obtain adequate reimbursement from third-party payors.
Our dependence upon third parties for the manufacture and supply of our marketed products and any of our product candidates that may be approved in the future, may cause delays in, or prevent us from, successfully developing, commercializing and/or marketing our products.
We do not currently have nor do we plan to build the infrastructure or capability internally to manufacture our Products or product candidates. We rely upon and expect to continue to rely upon third-parties, almost all of which are single source, for the manufacture and supply of the active pharmaceutical ingredients (“API”) contained in our products and product candidates, as well as the preparation of finished products and their packaging.
Before any of our products manufactured by contract manufacturers can be distributed, an NDA containing appropriate chemistry, manufacturing, and controls information must be approved by the FDA. In addition, our contract manufacturers must maintain a compliance status that is acceptable to the FDA and foreign regulatory authorities.  In addition, pharmaceutical manufacturing facilities are continuously subject to inspection by the FDA and foreign regulatory authorities, before and after product approval. Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, any potential third-party manufacturer may be unable to continue to pass or initially pass federal, state or international regulatory inspections in a cost-effective manner or at all.
Although we do not control the day-to-day operations of our contract manufacturers, we are responsible for ensuring that our products are manufactured in accordance with applicable regulatory requirements, including cGMPs. If a third-party manufacturer with whom we contract is unable to comply with manufacturing regulations, our product candidates may not be approved or we may be subject to fines, unanticipated compliance expenses, recall or seizure of our products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution.  These possible sanctions would adversely affect our financial results and financial condition.
In addition, our reliance on foreign suppliers poses risks due to possible shipping delays, import restrictions and foreign regulatory regimes.
We also could experience manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our products or otherwise do not satisfactorily perform according to the terms of the agreement between us.  If any supplier of API or finished drug product for our products experiences any significant difficulties in its respective manufacturing processes, does not comply with the terms of the agreement between us or does not devote sufficient time, energy and care to providing our manufacturing needs, we could experience significant interruptions in the supply of API, which could prevent or delay our development, commercialization and/or sales activities. Finally, any manufacturing facility is at risk of natural or man-made disaster, which could significantly reduce our clinical and commercial supplies of drug product, particularly given the single-source nature of our manufacturing and supply model.


The timing of the milestone and royalty payments we are required to make to third parties is uncertain and could adversely affect our cash flows and results of operations.
We are party to various agreements pursuant to which we are obligated to make milestone payments or pay royalties in connection with the development and commercialization of our product candidates or sales of our marketed products. The timing of our achievement of these milestones and the corresponding milestone payments, or the amount of our royalty payments, is subject to factors which are difficult to predict and for which many are beyond our control. We may become obligated to make a milestone or other payment at a time when we do not have sufficient funds to make such payment, or at a time that would otherwise require us to use funds needed to continue to operate our business, which could delay our clinical trials, curtail our operations, necessitate a scaling back of our sales and marketing efforts or cause us to seek funds to meet these obligations on terms unfavorable to us. If we are unable to make any payment when due or if we fail to use commercially reasonable efforts to achieve certain development and commercialization milestones within the timeframes required by certain of these agreements, the other party may have the right to terminate the agreement and all of our rights to develop and commercialize product candidates using the applicable technology.
We may not realize the benefits of our 2018 acquisition of IDB from Medicines and may be required to take write-downs or write-offs, restructuring and impairment or other charges related to the acquisition that could have a significant negative effect on our financial condition, results of operations and stock price.
Integrating the acquired operations of the infectious disease business of Medicines successfully or otherwise realizing any of the anticipated benefits of the acquisition and the MDCO Products, including additional revenue opportunities, involves a number of challenges. In addition, although Melinta conducted due diligence on the MDCO Products. there is no assurance that this diligence revealed all material issues that may be present, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of Melinta’s control will not later arise. As a result, we may be forced to later write down or write off assets, restructure our operations, or incur impairment or other charges that could result in losses. For example, in the fourth quarter of 2018, we wrote off goodwill associated with the IDB transaction of approximately $25.1 million. Unexpected risks may arise and previously known risks may materialize in a manner not consistent with our original due diligence. Even though these risks may be non-cash items and may not have an immediate impact on our liquidity, the fact that Melinta reports charges of this nature could contribute to negative market perceptions about Melinta or its securities. In addition, charges of this nature may cause Melinta to be unable to obtain future financing on favorable terms or at all.
We may not be successful in establishing and maintaining development and commercialization collaborations, which could adversely affect our financial condition and operating results.
Developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities, marketing approved products, and adhering to post-marketing regulatory requirements and commitments is expensive. To aid in these efforts, we have established significant commercial relationships to market Baxdela outside the United States, including with Eurofarma and Menarini, and we have entered into a commercial agreement for Vabomere, Orbactiv and Minocin for injection in Europe with Menarini. We intend to continue to enter into sales and marketing arrangements with third parties for international sales, and to develop and maintain our own sales force in the United States. We may also establish additional collaborations, licensing agreements, or alternative arrangements for the commercialization of our Products, as well as for the development and commercialization of product candidates and research programs, including funding potentially other products and indications. If we are unable to maintain our existing arrangements or enter into any new such arrangements on acceptable terms, if at all, we may be unable to effectively market and sell our products in our target markets.
If we partner with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party. Our collaboration partner may not devote sufficient resources to the commercialization of our product candidates or may otherwise fail in commercialization. The terms of any collaboration or other arrangement that we establish may not be favorable to us. In addition, any collaboration that we enter into may be unsuccessful in the development and commercialization of our product candidates. In some cases, we may be responsible for continuing clinical development of a partnered product candidate or research program, and the payment we receive from our collaboration partner may be insufficient to cover the cost of this development.
Clinical trials are a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
Clinical testing is expensive, can take many years to complete and its outcome is highly uncertain. Failure can occur at any time during the clinical trial process due to inadequate performance of a drug or inadequate adherence by patients or investigators to clinical trial protocols. Pursuant to FDA guidelines, new antibiotic drugs generally must show non-inferiority or superiority to existing approved treatments in adequate and well-controlled clinical trials, if such approved treatments exist. 


We face these same risks for our pre-clinical and clinical product candidates, as well as for new indications and uses for our approved products.
In addition, the results of pre-clinical studies and early clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience than us, have suffered significant setbacks in Phase 2 and Phase 3 clinical trials despite achieving successful results in earlier stage trials. The failure to obtain positive results in any of our potential Phase 2 or Phase 3 clinical trials could seriously impair the development prospects, and even prevent regulatory approval of, any of our product candidates or additional indications for our marketed products. Even with positive clinical trial results, there is risk that regulators will not accept the clinical trial findings or will require additional trials or other data. For example, our NDAs for oral and intravenous solithromycin received complete response letters from the FDA, which stated that the FDA could not approve the NDAs in their present form and noted that additional clinical safety information and the satisfactory resolution of manufacturing facility inspection deficiencies were required before the NDAs may be considered for approval. Melinta did not acquire sufficient funding to perform the clinical safety study necessary to support approval of solithromycin in the United States, and therefore, decided not to execute the clinical safety study.
Further, regulatory approvals in foreign countries are subject to risks associated with different regulatory requirements, including clinical trial guidance and varying regulatory schemes.  As a result, clinical trial results and other regulatory processes undertaken by us within the United States may not be accepted in foreign countries, which would add to the cost and time to develop our product candidates in foreign countries.
Melinta cannot be certain that its product candidates will receive regulatory approval, or that its existing products will receive regulatory approval for additional uses, or that it will receive the requested exclusivity periods.
Melinta anticipates filing a sNDA with the FDA for Baxdela for the treatment of adult patients with CABP in the first half of 2019. Beyond the potential label expansion of Baxdela, Melinta may continue to pursue other development opportunities, either itself or through third-party collaborations or alternative arrangements.
Melinta’s business is dependent in part on its ability to complete the development of, obtain regulatory approval for, and successfully commercialize such current and future product line extensions and product candidates in a timely manner. The process to develop, obtain regulatory approval for product candidates and subsequently commercialize such products is long, complex, uncertain and costly.
The development of a product candidate and issues relating to its approval and sale are subject to extensive regulation by the FDA in the United States and regulatory authorities in other countries, with regulations differing from country to country. Melinta is not permitted to commercialize, market or sell Melinta’s product candidates or additional indications or uses for marketed products in the United States until it receives approval of an NDA (or sNDA) from the FDA. An NDA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product. Melinta is currently dependent on the work conducted by contract organizations for these activities. Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and ultimately may not be obtained. FDA approvals are never guaranteed. If Melinta submits an NDA or sNDA to the FDA, the FDA must decide whether to accept or reject the submission for filing. Melinta cannot be certain that any submissions will be accepted for filing and review by the FDA. Even if a product is approved, the FDA may limit the indications for which the product may be marketed, include extensive warnings on the product labeling or require expensive and time-consuming post-approval clinical trials or reporting as conditions of approval. Foreign regulatory authorities also have requirements for approval of drug candidates with which Melinta's partners must comply prior to marketing. Obtaining regulatory approval for marketing of a product candidate in one country does not ensure that Melinta or our partners will be able to obtain regulatory approval in other countries. In addition, delays in approvals or rejections of marketing applications in the United States or foreign countries may be based upon many factors, including:
Melinta’s inability to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for any indication;
the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;  
the FDA or comparable foreign regulatory authority may make requests for additional analyses, reports, data and studies;  
the FDA’s or comparable foreign regulatory authority’s disagreement regarding Melinta’s interpretation of data and results;  
inability to demonstrate that the clinical and other benefits of a product candidate outweigh its safety risks;  
the potential for changes in regulatory policy during the period of product development that may render Melinta’s clinical data insufficient for approval;


inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indication as Melinta’s product candidates; or  
the emergence of new information regarding Melinta’s product candidates or other products.  
Under the GAIN Act, the FDA may designate a product as a QIDP.  Upon approval of a drug designated by the FDA as a QIDP, five-year NCE exclusivity, three-year exclusivity, and seven-year orphan drug exclusivity are extended by an additional five years. For Baxdela, regulatory exclusivity based on NCE, plus its 5-year extension as a QIDP under the GAIN Act, extends to 2027; for Orbactiv, regulatory exclusivity under NCE, plus its extension under the GAIN Act, extends to 2024. In December 2013, the FDA designated Vabomere as a QIDP, and in a letter dated August 29, 2017, the FDA stated that the Vabomere application meets the criteria for the five-year GAIN exclusivity extension.  Currently, Vabomere’s application for five-year NCE exclusivity is pending before the CDER Exclusivity Board.  If the FDA does not grant Vabomere the requested NCE exclusivity and instead grants three-year exclusivity, we would still obtain our GAIN exclusivity, but our total exclusivity period would be eight years rather than ten years, which could adversely affect our business related to Vabomere.
Delays in clinical trials are common and have many causes, and any such delays could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product sales as currently contemplated.
We may experience delays in clinical trials of new uses, dosing, or formulations of our approved products, or potential product candidates. Our planned clinical trials might not begin on time, may be interrupted or delayed once commenced, might need to be redesigned, might not enroll a sufficient number of patients or might not be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including the following:
delays in obtaining regulatory approval to commence a trial;
imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;
delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
delays in obtaining required institutional review board, or IRB, approval at each site;
delays in identifying, recruiting and training suitable clinical investigators;
delays in recruiting suitable patients to participate in a trial;
delays in having patients complete participation in a trial or return for post-treatment follow-up;
clinical sites dropping out of a trial to the detriment of enrollment;
time required to add new sites;
delays in obtaining sufficient supplies of clinical trial materials, including suitable active pharmaceutical ingredient, or API, whether of our product candidates or comparator drugs; or
delays resulting from negative or equivocal findings of the data safety monitoring board, or DSMB, for a trial.
Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. In addition, the timing of our clinical trials may be dependent on specific disease seasonality. We could encounter delays in our ongoing and future clinical trials of products if participating physician investigators encounter unresolved ethical issues associated with enrolling patients in clinical trials of any product in lieu of prescribing approved antibiotics that have established safety and efficacy profiles. Any of these delays in completing our clinical trials could increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenues.
Our approved Products or product candidates may have undesirable side effects which may delay or prevent marketing approval, or if approval is received, require them to be taken off the market, require them to include safety warnings, become subject to FDA required risk evaluation and mitigation strategies or other remediation activities.
If Melinta or another party identifies undesirable or unacceptable side effects caused by our approved products:
regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;  
Melinta may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;
Melinta may be subject to limitations on how it may promote the product;
regulatory authorities may require Melinta to take its approved product off the market;
Melinta may be subject to litigation or product liability claims;
Melinta’s reputation may suffer;
relationships with Melinta’s licensing partners may be harmed; and
sales of the product may decrease significantly or fail to gain market acceptance.


We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be able to obtain, regulatory approval for or commercialize line extensions of our Products or any of our product candidates.
We have relied, and plan to continue to rely, on CROs to recruit patients, monitor and manage data for our on-going clinical programs. We control only certain aspects of our CROs’ activities; nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with the FDA’s cGCPs which are regulations and guidelines enforced by the FDA for all of our products in clinical development. The FDA enforces these cGCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable, and the FDA may require us to perform additional clinical trials before deciding whether to approve our product candidates. In addition, to evaluate the safety and effectiveness of any product candidate to a statistically significant degree CROs conducting our clinical trials abroad will require an adequately large number of test subjects. Accordingly, if our CROs fail to comply with these regulations or recruit a sufficient number of patients, we may have to repeat clinical trials, which would delay the regulatory approval process.
In addition, our CROs are not our employees and we cannot control whether or not they devote sufficient time and resources to our clinical programs. Our CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities, which could impede their ability to devote appropriate time to our clinical programs. If our CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize product candidates that we seek to develop. As a result, our financial results and the commercial prospects for these product candidates that we seek to develop would be harmed, our costs could increase and our ability to generate revenues could be delayed or ended.
Whether our current Products, potential line extensions or product candidates are successful or not, our future growth may depend in part on our ability to identify, develop, acquire or in-license products and if we do not successfully identify develop, acquire or in-license additional products or product candidates or integrate them into our operations, we may have limited growth opportunities.
An important part of our business strategy has been to develop, acquire or in-license products, businesses or technologies that we believe are a strategic fit with our focus developing anti-infectives to treat infectious diseases. However, these business activities may entail numerous operational and financial risks, including:
difficulty or inability to secure financing to fund development activities for such development, acquisition or in-licensed products or technologies;
incurrence of substantial debt or dilutive issuances of securities to pay for development, acquisition or in-licensing of new products;
disruption of our business and diversion of our management’s time and attention;
higher than expected development, acquisition or in-license and integration costs;
exposure to unknown liabilities; and
difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel and retaining key personnel.
We may need to grow our organization if we acquire or in-license products or develop and receive approval for additional indications or uses of our Products, and we may experience difficulties in managing this growth, which could disrupt our operations.
As of February 28, 2019, we had approximately 290 employees. As our development and commercialization plans and strategies progress and develop, we may need to expand our employee base for managerial, operational, financial and other resources, including sales and marketing resources. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our management may need to divert a disproportionate amount of its attention away from their day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Future growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If our management is unable to effectively manage any future growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced and we may not be able to implement our


business strategy. Our future financial performance and our ability to commercialize our product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth in our organization.
Comprehensive tax reform legislation could adversely affect our business and financial condition.
On December 22, 2017, the US government signed into law comprehensive tax legislation, referred to as the Tax Cuts and Jobs Act (the Tax Act). The Tax Act introduced significant changes to the US tax laws.
The Tax Act, among other things, contains significant changes to corporate taxation, including (i) reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%; (ii) limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses); (iii)  limitation of the deduction for net operating losses to 80% of current year taxable income in respect of losses arising in taxable years beginning after 2017; (iv) elimination of net operating loss carrybacks; (v) one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated; (vi) immediate deductions for certain new investments instead of deductions for depreciation expense over time; and (vii) modifying or repealing many business deductions and credits (including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”). Our federal net operating loss carryovers for taxable years beginning after 2017 will be carried forward indefinitely pursuant to the Tax Act.
The Tax Act did not have a material impact on our financial statements because our deferred temporary differences are fully offset by a valuation allowance and we do not have any significant offshore earnings from which to record the mandatory transition tax. However, given the significant complexity of the Tax Act, anticipated guidance from the US Treasury about implementing the Tax Act, and the potential for additional guidance from the SEC or the FASB related to the Tax Act, these estimates may be adjusted during the measurement period. We continue to examine the impact the Tax Act may have on our business. Notwithstanding the reduction in the federal corporate income tax rate, the overall impact of the Tax Act is uncertain and our business and financial condition could be adversely affected.
Risks Related to Our Industry
Bacteria might develop resistance to our Products or product candidates, which would decrease the efficacy and commercial viability of that product.
Bacteria develop resistance to antibiotics over time due to the genetic mutation of the bacteria. Many current and previous antibiotics have suffered reduced efficacy over time due to the development of resistance to such drugs. It is probable that, over time, bacteria will also develop resistance to our products and our drug candidates. If resistance were to develop rapidly to our products or our drug candidates, this would reduce the commercial potential for our business.
We are subject to existing and potential additional regulation and government inquiry, which can impose burdens on our operations and narrow the markets for our products.
We are subject, both directly and indirectly, to the adverse impact of existing and potential future government regulation of our operations and markets. Our Products are, and any future approved product candidates will be, subject to regulation by the FDA and equivalent foreign regulatory authorities. These regulations govern a wide variety of product related activities, from quality management, design and development to labeling, manufacturing, promotion, sales and distribution. If we or any of our suppliers or distributors fail to comply with the FDA and other applicable regulatory requirements, or are perceived to potentially have failed to comply, we may face, among other things, warning letters; adverse publicity affecting both us and our customers; investigations or notices of non-compliance, fines, injunctions, and civil penalties; import or export restrictions; partial suspensions or total shutdown of production facilities or the imposition of operating restrictions; increased difficulty in obtaining required FDA clearances or approvals or foreign equivalents; seizures or recalls of its products or those of its customers; or the inability to sell such products. Any such regulatory actions could disrupt our business and operations, lead to significant remedial costs and have a material adverse impact on our financial position and results of operations.
We face extensive regulatory requirements and our products may face future development and regulatory challenges.
The FDA may impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. In addition, the FDA and other U.S. and foreign regulatory agencies regulate our products and impose ongoing requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, record keeping and reporting of safety and other post-market information. The holder of an approved NDA is subject to obligations to monitor and report adverse events and instances of the failure of a product to meet the specifications in the NDA. Application holders must submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Application holders must also submit advertising and other promotional material to the FDA and report on ongoing clinical trials. Legal requirements have also been enacted to require disclosure of clinical trial results on publicly available databases.


Manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations. In addition, manufacturers must comply with regulations promulgated by the FDA and other regulatory agencies, such as the Consumer Product Safety Commission, that govern packaging, labeling, and country of origin markings. If we or a regulatory agency discovers previously unknown issues or deficiencies with a product, such as adverse events of unanticipated severity or frequency, issues with a product's packaging or labeling, or problems with the facility where a product is manufactured, a regulatory agency may impose penalties, corrective measures, and/or implement restrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing, requiring new warnings or other labeling changes to limit use of the drug, requiring that we conduct additional clinical trials, imposing new monitoring requirements, or requiring that we establish risk evaluation and mitigation strategies. Moreover, because our inputs and products cross borders, they are subject to duties, fees, and taxes that can be amended or altered by government actors, affecting the prices of our products in ways that could be material. Action, or inaction, by government authorities at or concerning border points of entry and exit also can cause supply chain delays, including the suspension or detention of goods. And deficiencies or errors by the company or its employees or agents with respect to importing and exporting obligations and declarations, including with respect to the classifications, descriptions, valuations, and origins of goods, can results in additional duties, fees, and penalties. Advertising and promotional materials must comply with FDA and other regulatory agency rules in addition to other applicable federal and state laws and regulations. The distribution of product samples to physicians must comply with the requirements of the Prescription Drug Marketing Act. the packaging of products is subject to regulations, including under the Poison Packaging and Prevention Act. Government pricing and rebate programs must comply with statutory and regulatory requirements. Our products that are made available to authorized users of the Federal Supply Schedule of the General Services Administration are subject to additional requirements, including manufacture of origin. Finally, many of our activities are also potentially subject to federal and state consumer protection, false advertising, and unfair competition laws. If we or our third-party collaborators fail to comply with applicable regulatory requirements, a regulatory agency may:
conduct an investigation into our practices and any alleged violation of law;
issue warning letters or untitled letters asserting that we are in violation of the law;
seek an injunction or impose civil or criminal penalties or monetary fines;
suspend or withdraw regulatory approval;
suspend any ongoing clinical trials;
refuse to approve pending applications or supplements to applications filed by us;
suspend or impose restrictions on operations, including costly new manufacturing requirements;
seize or detain products or refuse to permit the import or export of products;
require us to initiate a product recall; or
refuse to allow us to enter into supply contracts, including government contracts.
The occurrence or investigation of any event or penalty described above may force us to expend significant amounts of time and resources, and may significantly inhibit our ability to bring to market or continue to market our products and generate revenues. Similar regulations apply in foreign jurisdictions.
Because we may not be able to obtain necessary regulatory clearances or approvals for some of our products (including any line extensions) or product candidates, we may not generate revenue in the amounts we expect, or in the amounts necessary to continue our business.
All of our proposed and existing products are subject to regulation in the U.S. by the FDA and/or other domestic and international governmental, public health agencies, regulatory bodies or non-governmental organizations. In particular, we are subject to strict governmental controls on the development, manufacture, labeling, distribution and marketing of our products and product candidates. The process of obtaining required approvals or clearances varies according to the nature of and uses for, a specific product or product candidate. These processes can involve lengthy and detailed laboratory testing, human clinical trials, sampling activities, and other costly, time-consuming procedures. The submission of an application to a regulatory authority does not guarantee that the authority will grant an approval or clearance for a product or product candidate. Each authority may impose its own requirements and can delay or refuse to grant approval or clearance, even though a product or product candidate has been approved in another country.
The time taken to obtain approval varies depending on the nature of the application and may result in the passage of a significant period of time from the date of submission of the application. Delays in the approval or clearance processes increase the risk that we will not succeed in introducing or selling the subject products or product candidates, and we may be required to abandon a proposed product or product candidate after devoting substantial time and resources to its development.
Changes in domestic and foreign government regulations could increase our costs and could require us to undergo additional trials or procedures, or could make it impractical or impossible for us to market our products for certain uses, in certain markets, or at all.


Changes in government regulations may adversely affect our financial condition and results of operations because we may have to incur additional expenses if we are required to change or implement new testing, manufacturing and control procedures. If we are required to devote resources to develop such new procedures, we may not have sufficient resources to devote to research and development, marketing, or other activities that are critical to our business. 
Any product candidate for which we obtain marketing approval could be subject to post-marketing restrictions or recall or withdrawal from the market, and we may therefore be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our drug candidates, when and if any of them are approved.
As with our current marketed products, any product candidate or new indication, use or formulation of our Products for which we obtain marketing approval, along with manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such new product or use, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate or line extension of a marketed Product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the requirement to implement a risk evaluation and mitigation strategy. If any of our product candidates receives marketing approval, the accompanying labeling may limit the approved use of our product, which could limit its sales.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. The FDA also regulates manufacturers’ communications regarding a product candidate or new use or indication of an approved product prior to FDA approval; if we market our products before such approval, we may be subject to enforcement actions for pre-approval promotion.
In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may have negative consequences, including:
restrictions on such products, manufacturers or manufacturing processes;
restrictions on the labeling or marketing of a product;
restrictions on product distribution or use;
requirements to conduct post-marketing studies or clinical trials;
warning or untitled letters;
recall or withdrawal of the products from the market;
refusal to approve pending applications or supplements to approved applications that we submit;
clinical holds;
fines, restitution or disgorgement of revenue or profit;
suspension or withdrawal of marketing approvals;
refusal to permit the import or export of our products or components of our products;
product seizure; or
injunctions or the imposition of civil or criminal penalties.
We are subject to healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
We are subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in which we conduct our business. Healthcare providers, including physicians, pharmacists, and allied healthcare professionals play a primary role in the recommendation and prescription of our Products. Our arrangements with healthcare providers, as well as third-party payors may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our Products. Restrictions under applicable federal and state healthcare laws and regulations include, but are not limited to, the following:
The federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid. In addition, the ACA includes various provisions designed to strengthen significantly fraud and abuse enforcement, such as increased funding for enforcement efforts and the lowering of the intent requirement of the federal anti-kickback statute and criminal health care fraud statute such that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it.
The federal False Claims Act imposes criminal and civil penalties, including those from civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the


federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government.
The federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.
The federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services.
The federal transparency requirements, sometimes referred to as the "Sunshine Act," under the Patient Protection and Affordable Care Act, require manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report on an annual basis to the Department of Health and Human Services information related to transfers of value to certain healthcare professionals, teaching hospitals and physician ownership and investment interests.
Analogous state laws and regulations, such as state anti-kickback and false claims laws and transparency laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures and drug pricing.
In addition, under the Food Drug and Cosmetic Act (FDCA), the FDA closely regulates the post-approval marketing and promotion of prescription products such as antibiotics to ensure such products are marketed only for the approved indications, uses, and patient population and in accordance with the provisions of the approved labeling. Although, healthcare providers may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical studies and approved by the regulatory authorities, the FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use, and if we do not market our products for their approved indications and uses, we may be subject to enforcement action for off-label marketing. Violations of the FDCA relating to the promotion of prescription products may lead to investigations alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws. Notwithstanding the regulatory restrictions on off-label promotion, the FDA and other regulatory authorities permit companies to engage in truthful, non-misleading and non-promotional scientific exchange concerning their products. In addition, recent FDA guidance suggests that there are circumstances in which the FDA would not object to the promotion of certain information that is not included in the approved labeling, provided that this information is consistent with the approved labeling and otherwise complies with applicable regulations.
Ensuring that our business arrangements with third parties and interactions with healthcare providers comply with applicable healthcare laws and regulations requires us to dedicate significant resources. Despite our efforts, it is possible that governmental authorities will conclude that our business practices do not fully comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations, including activities conducted by our sales team, were found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines and exclusion from government funded healthcare programs, such as Medicare and Medicaid, any of which could result in adverse publicity, substantially disrupt our operations an materially adversely affect our business. Moreover, if any of the physicians or other providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
Future legislation, and/or regulations and policies adopted by the FDA or other regulatory health authorities may increase the time and cost required for us to conduct and complete clinical trials for product candidates that we develop.
The FDA has established regulations, guidelines and policies to govern the drug development and approval process, as have foreign regulatory authorities. Any change in regulatory requirements due to the adoption by the FDA and/or foreign regulatory authorities of new legislation, regulations, or policies may require us to amend existing clinical trial protocols or add new clinical trials to comply with these changes. Such amendments to existing protocols and/or clinical trial applications or the need for new ones, may significantly impact the cost, timing and completion of the clinical trials.


In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process, particularly in our areas of focus, may significantly delay or prevent regulatory approval, as well as impose more stringent product labeling and post-marketing testing and other requirements.
Even if we obtain FDA approval of a given product candidate, we may fail to obtain approval for or be able to commercialize such product outside of the United States, which would limit our ability to realize their full market potential. If foreign approval is obtained, there are risks in conducting business in international markets.
In order to market a product outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and require additional pre-clinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays.
If we fail to comply with regulatory requirements in a foreign country or to obtain and maintain required approvals, our potential market for products will be reduced and our ability to realize the full market potential of our products will be harmed.
We are exposed to a variety of risks associated with Products and product candidates that are approved outside of the United States that could materially adversely affect our business.
With respect to our Products or product candidates which are approved outside the United States, we have entered into and will likely enter into additional agreements with third parties to commercialize such product outside the United States. We are, and expect that we will be, subject to additional risks related to entering into or maintaining these international business relationships, including:
different regulatory requirements for drug approvals in foreign countries;
differing U.S. and foreign drug import and export rules;  
reduced protection for intellectual property rights in foreign countries;  
unexpected changes in tariffs, trade barriers and regulatory requirements;
different reimbursement systems;
economic weakness, including inflation, or political instability in particular foreign economies and markets;  
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign taxes, including withholding of payroll taxes;  
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;  
workforce uncertainty in countries where labor unrest is more common than in the United States;  
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;  
potential liability resulting from development work conducted by these distributors; and
business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters.
Failure to comply with the U.S. Foreign Corrupt Practices Act, or FCPA, as well as the anti-bribery laws of the nations in which we conduct business, could subject us to penalties and other adverse consequences.
We are subject to the FCPA, which generally prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business and requires companies to maintain accurate books and records and internal controls. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, the healthcare providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers are subject to regulation under the FCPA. In addition, we are subject to other anti-bribery laws of the nations in which we conduct business that apply similar prohibitions as the FCPA, including the UK Bribery Act. Our employees, consultants, contractors or agents may engage in prohibited conduct without our knowledge, particularly given the high level of complexity of these laws ,for which we may be held responsible. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, implementation of compliance programs, and prohibitions on the conduct of our business. Any such violations could materially damage our reputation and our business, prospects, operating results, and financial condition.


Europe has enacted a new data privacy regulation, the General Data Protection Regulation, with hefty enforcement penalties, a violation of which could subject us to significant fines.
In May 2018, a new privacy regime, the General Data Protection Regulation (“GDPR”), took effect and is binding across all member states of the European Economic Area (“EEA”). The GDPR increases our obligations with respect to clinical trials, the transmission of safety data and other activities conducted in the EEA by expanding the definition of personal data and requiring changes to informed consent practices and more detailed notices. The GDPR also increases our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional mechanisms to ensure compliance with the new EU data protection rules.  It also imposes substantial fines for breaches of data protection requirements, which can be up to four percent of global turnover or 20 million Euros, whichever is greater, and it also confers a private right of action on data subjects for breaches of data protection requirements. Compliance with these obligations will be a rigorous and time-intensive process that may increase our cost of doing business, and the failure to comply with these laws could subject us to significant fines.
If we or our vendors fail to comply with the GDPR, or if the legal mechanisms we or our vendors rely upon to allow for the transfer of personal data from the EEA or Switzerland to the U.S. (or other countries not considered by the European Commission to provide an adequate level of data protection) are not considered adequate, we could be subject to government enforcement actions and significant penalties against us, and our business could be adversely impacted if our ability to transfer personal data outside of the EEA or Switzerland is restricted, which could adversely impact our operating results.  In addition, data protection authorities of the different EU Member States may interpret the GDPR differently, and guidance on implementation and compliance practices are often updated or otherwise revised, which adds to the complexity of processing personal data in the EU and transfer of such data outside the EEA. In addition, the privacy and data security landscape in the EU Member States continues to remain in flux as the final decision on UK’s withdrawal from the EU may require organizations to revisit the way they transfer personal data from and to the UK from the EU. 
Although there are legal mechanisms to allow for the transfer of personal data from the EEA to the US, a decision of the European Court of Justice in the Schrems case (Case C-362/14 Maximillian Schrems v. Data Protection Commissioner) that invalidated the safe harbor framework has increased uncertainty around compliance with EU privacy law requirements. As a result of the decision, it was no longer possible to rely on the safe harbor certification as a legal basis for the transfer of personal data from the EU to entities in the US. On February 29, 2016, however, the European Commission announced an agreement with the United States Department of Commerce (DOC) to replace the invalidated Safe Harbor framework with a new EU-US “Privacy Shield.” On July 12, 2016, the European Commission adopted a decision on the adequacy of the protection provided by the Privacy Shield; however, this decision has been subsequently challenged. If the Privacy Shield is ultimately invalidated, it will no longer be possible to rely on the Privacy Shield certification to support transfer of personal data from the EU to entities in the US. Adherence to the Privacy Shield is not mandatory and US-based companies are permitted to rely either on their adherence to the Privacy Shield or on the other authorized means and procedures to transfer personal data provided by the GDPR. However, a decision rendering the Privacy Shield invalid may give rise to further insecurity concerning appropriate means for US companies to comply with the GDPR and related data privacy obligations in the EU.
Product liability lawsuits could divert our resources, result in substantial liabilities and reduce the commercial potential of our products.
We face an inherent risk of product liability as a result of sales of our marketed products as well from the clinical testing of our product candidates despite obtaining appropriate informed consents from our clinical trial participants. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection laws. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
decreased demand for our products or product candidates that we may develop;
loss of revenue;
injury to our reputation;
withdrawal of clinical trial participants;
initiation of investigations by regulators;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;


exhaustion of any available insurance and our capital resources;
the inability to commercialize our products or product candidates; and
a decline in our stock price.
The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial. In addition, inability to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the development and commercial production and sale of our products, which could adversely affect our business, financial condition, results of operations, and prospects.
We are subject to various environmental, health and safety laws and regulations, in connection with which we could become subject to liabilities, fines, penalties or other sanctions, or incur costs, that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment, release and disposal of, and exposure to, hazardous materials and wastes. From time to time our operations involve and may, in the future, involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and wastes, we cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our handling, use, storage, treatment, release or disposal of hazardous materials, we could be held liable for any resulting damages, and any liability, which in certain cases could be joint and several, could exceed our resources. We also could incur significant costs, civil or criminal fines, penalties, or other sanctions for failure to comply with such laws and regulations. In addition, we may incur substantial costs in order to comply with current or future environmental health and safety laws and regulations, which have tended to become more stringent over time.
Although we maintain workers’ compensation insurance to cover us for costs and expenses, we may incur due to injuries to our employees resulting from hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims.
If we are not successful in retaining or attracting as necessary highly qualified personnel, we may not be able to successfully implement our business strategy.
Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends in large part on our ability to retain or attract as necessary highly qualified managerial, scientific, medical and sales and marketing personnel. Competition for skilled personnel is very intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.  Our current levels of total compensation may be below the level of companies who seek to hire our current employees, impacting our ability to retain members of our team. Despite our efforts to retain valuable employees, members of our management, scientific and medical teams may terminate their employment with us on short notice. The loss of the services of any of our executive officers or other key employees could potentially harm our business, operating results or financial condition. Our success also depends on our ability to continue to attract, retain and motivate highly skilled scientific and medical personnel.
Other biotechnology and pharmaceutical companies with which we compete for qualified personnel have greater financial and other resources, different risk profiles and longer histories than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high quality candidates than what we offer. If we are unable to continue to attract and retain high quality personnel, our ability to discover, develop and commercialize drug candidates will be limited.
Failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes Oxley Act could have a material adverse effect on our business and share price.
Section 404(a) (“Section 404”) of the Sarbanes Oxley Act of 2002 (the “Sarbanes Oxley Act”) requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and provide a management report on the internal control over financial reporting. If we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. Our management believes our internal controls are effective, and our independent auditors have attested that the operation of our internal controls was effective as of December 31, 2018; however, there can be no assurance that management and our independent auditors will be able to make similar reports in the future.
If in the future we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls that are deemed to be material weaknesses, we could be subject to sanctions or investigations by The Nasdaq Stock Market LLC, the SEC or other regulatory authorities, which would entail expenditure of additional financial and management resources and could materially adversely affect our stock price. Additionally, we would be unable to issue securities in the public markets through the use of a shelf


registration if we are not in compliance with Section 404. Furthermore, failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business and share price and could limit our ability to report our financial results accurately and timely.
Our employees, agents, contractors, and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could adversely affect our reputation and our business, operating results and financial conditions.
Although have adopted a Code of Conduct, it is not always possible to identify and deter misconduct by our employees, agents, contractors, and consultants, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure comply with applicable laws and regulations, including without limitation, in the areas of healthcare, trade restrictions and sanctions, environmental, competition, intellectual property, privacy, anti-bribery, fraud and abuse, pricing, insider trading and employment. In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by our employees, agents, contractors, and consultants could also involve the improper use of information obtained in the course of clinical trials. Misconduct by employees, agents, contractors, and consultants could violate such laws or regulations and any such improper actions could subject us to civil or criminal investigations, and monetary and injunctive penalties, and could adversely impact our ability to conduct business, operating results and our reputation.
Risks Related to our Intellectual Property
Our ability to pursue the development and commercialization of certain of our products depends upon the continuation of certain licenses.
We rely on certain licenses to certain patent rights and proprietary technology from third parties that are important or necessary to the development of our technology and products.
Baxdela. Our license agreement with Wakunaga Pharmaceutical Co., Ltd. provides us with a worldwide exclusive license to develop and sell Baxdela. In particular, we obtained an exclusive license to certain patents, patent applications and proprietary information, including patents and proprietary information owned by AbbVie Inc. and licensed to Wakunaga, covering the composition of matter to Baxdela, its manufacturing process, salt forms, pharmaceutical compositions containing Baxdela, methods of using Baxdela, and other proprietary information. Our license agreement with Wakunaga further grants us non-exclusive rights to other patents and applications. The license requires us to make certain milestone and royalty payments to Wakunaga. If we are unable to make any of these required payments under the license agreement, or if we do not use commercially reasonable efforts to achieve certain development and commercialization milestones for Baxdela within the timeframes required by the license agreement, our rights to develop and commercialize Baxdela could be terminated. In addition, Wakunaga may terminate the license agreement on a product-by-product and country-by-country basis based upon our material breach of the license agreement if not cured within 90 days from written notice of breach. If our license agreement with Wakunaga were terminated, we would lose our rights to develop and commercialize Baxdela, and would have to grant Wakunaga a perpetual, non-royalty bearing, exclusive license to our proprietary information reasonably necessary to commercialize Baxdela. Loss of our license agreement would materially and adversely affect our business, results of operations and future prospects.
Orbactiv.  As a result of the IDB Transaction, we are a party to a license agreement with Eli Lilly and Company (“Eli Lilly”). Under the terms of the agreement, we have exclusive worldwide rights to patents and other intellectual property related to Orbactiv and other compounds claimed in the licensed patent rights. We are required to make payments to Eli Lilly upon reaching specified regulatory and sales milestones. In addition, we are obligated to pay royalties based on net sales of products containing Orbactiv or the other compounds in any jurisdiction in which we hold license rights to a valid patent. The royalty rate due to Eli Lilly on sales increases as annual sales of these products increase. We are obligated to use commercially reasonable efforts to maintain regulatory approval for Orbactiv in the United States and to commercialize Orbactiv in the United States. If we breach that obligation, Eli Lilly may terminate our license in the United States, license rights to Orbactiv could revert to Eli Lilly and we would lose our rights to develop and commercialize Orbactiv. The license rights under the agreement remain in force, on a country-by-country basis, until there is no valid patent in such country and our obligation to pay royalties ceases in that country. Either party may terminate the agreement upon an uncured material breach by the other party. In addition, either party may terminate the agreement upon the other party’s insolvency or bankruptcy.
In addition, disputes may arise regarding intellectual property subject to a licensing agreement, including:
the scope of rights granted under the license agreement and other interpretation-related issues;  


the extent to which our technology and processes infringe on or misappropriate the intellectual property of the licensor that is not subject to the licensing agreement;  
the sublicensing of patent and other rights under the license agreement;  
our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
the payment of royalty fees, milestones or other costs under the license agreements; and
the priority of invention of patented technology.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
In addition, the agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligation under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
If our efforts to protect the proprietary nature of the intellectual property related to our products and product candidates are not adequate, we may not be able to compete effectively in our market.
Our commercial success will depend in part on our ability to obtain additional patents and protect our existing patent position as well as our ability to maintain adequate protection of other intellectual property for current and any future products in the United States and other countries. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. The patent positions of pharmaceutical companies are highly uncertain. The legal principles applicable to patents are in transition due to changing court precedent and legislative action and we cannot assure you that the historical legal standards surrounding questions of validity will continue to be applied or that current defenses relating to issued patents in these fields will be sufficient in the future. Changes in patent laws in the United States such as the America Invents Act of 2011 may affect the scope, strength and enforceability of our patent rights or the nature of proceedings which may be brought by us related to our patent rights. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies any future products are covered by valid and enforceable patents or are effectively maintained as trade secrets.
These risks include the possibility that:
the patent applications that we licensed or have filed on our own may fail to result in issued patents in the United States or in foreign countries;
patents issued or licensed to us or our partners may be challenged, discovered to have been issued on the basis of insufficient or incorrect information and/or held to be invalid or unenforceable;
the scope of any patent protection may be too narrow to exclude other competitors from developing or designing around these patents;
we or our licensors were not the first to make the inventions covered by each of our issued patents and pending patent applications;
we or our licensors were not the first to file patent applications for these inventions;
we may fail to comply with procedural, documentary, fee payment and other similar provisions during the patent application process, which can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights;
future product candidates may not be patentable;
others will claim rights or ownership with regard to patents and other proprietary rights which we hold or license;
delays in development, testing, clinical trials and regulatory review may reduce the period of time during which we could market our product candidates under patent protection; and
we may fail to timely apply for patents on our technologies, products or product candidates.
While we apply for patents covering both our technologies, products, and our potential products, as we deem appropriate, many biopharmaceutical companies and university and research institutions already have filed patent applications or have received patents in our areas of product development. These entities’ applications, patents and other intellectual property rights may conflict with patent applications to which we have rights and could prevent us from obtaining patents or could call into question the validity of any of our patents, if issued, or could otherwise adversely affect our ability to develop, manufacture or commercialize antibiotic candidates. In addition, if third parties file patent applications in the technologies that


also claim technology to which we have rights, we may have to participate in interference, derivation or other proceedings with the U.S. Patent and Trademark Office (“USPTO”) or applicable foreign patent regulatory authorities, as applicable, to determine our rights in the invention, which may be time-consuming and expensive. Moreover, issued patents may be challenged during post-grant proceedings brought by a third party or the USPTO, or in foreign countries, or in the courts. These proceedings may result in loss of patent claims or adverse changes to the scope of the claims. Patent applications may also be challenged during pre-grant proceedings. If we are unsuccessful in defending any such opposition, only part of such patent would issue or the patent might not issue at all.
If we or our licensors or partners fail to obtain and maintain patent protection for our products and product candidates, or our proprietary technologies and their uses, companies may be dissuaded from collaborating with us. In such event, our ability to commercialize our products and product candidates may be threatened, we could lose our competitive advantage and the competition we face could increase, all of which could adversely affect our business, financial condition, results of operations, and prospects.
If we are sued for infringing intellectual property rights of third parties, litigation will be costly and time consuming and could prevent us or delay us from developing or commercializing our products and product candidates.
Our commercial success depends, in part, on our not infringing the patents and proprietary rights of other parties and not breaching any collaboration or other agreements we have entered into with regard to our technologies, products and product candidates. Numerous third-party U.S. and non-U.S. issued patents and pending applications exist in the areas of antibacterial treatment, including compounds, formulations, treatment methods and synthetic processes that may be applied towards the synthesis of antibiotics. Although no legal action has been commenced or threatened against us by a third party for infringing intellectual property rights, we cannot provide assurances that we or our partners will be free to manufacture or market our product candidates as planned, or that we or our licensors’ and partners’ patents will not be opposed or litigated by third parties.
There is a substantial amount of litigation involving intellectual property in the biopharmaceutical industry generally. If a third party asserts that we infringe its patents or other proprietary rights, we could face a number of risks that could adversely affect our business, financial condition, results of operations, and prospects, including:
infringement and other intellectual property claims, which would be costly and time consuming to defend, whether or not we are ultimately successful, which in turn could delay the regulatory approval process, consume our capital and divert management’s attention from our business;
substantial damages for past infringement, which we may have to pay if a court determines that our products, product candidates or technologies infringe a competitor’s patent or other proprietary rights;
a court prohibiting us from selling or licensing our technologies, products or future products unless the third party licenses its patents or other proprietary rights to us on commercially reasonable terms, which it is not required to do;
if a license is available from a third party, we may have to pay substantial royalties or lump sum payments or grant cross licenses to our patents or other proprietary rights to obtain that license; and
redesigning our products or product candidates so they do not infringe, which may not be possible or may require substantial monetary expenditures and time.
Although we are not currently party to any legal proceedings asserting infringement of third-party intellectual property, in the future, third parties may file claims asserting that our technologies, processes or products infringe on their intellectual property. We cannot predict whether third parties will assert these claims against us or our partners or against the licensors of technology licensed to us, or whether those claims will harm our business. In addition, the outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. If we or our partners were to face infringement claims or challenges by third parties relating to our product candidates, an adverse outcome could subject us to significant liabilities to such third parties, and force us or our partners to curtail or cease the development of some or all of our products and product candidates, which could adversely affect our business, financial condition, results of operations, and prospects.
We may be required to file lawsuits or take other actions to protect or enforce our patents or the patents of our licensors, which could be expensive and time consuming.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may file infringement claims, which can be expensive and time-consuming. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally.


In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents, or those of our licensors, do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents, or those of our licensors, at risk of being invalidated, held unenforceable or interpreted narrowly and could put our patent applications, or those of our licensors, at risk of not issuing. Moreover, we may not be able to prevent, alone or with our licensors, misappropriation of our proprietary rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, if securities analysts or investors perceive public announcements of the results of hearings, motions or other interim proceedings or developments to be negative, the price of our common stock could be adversely affected. The occurrence of any of the above could adversely affect our business, financial condition, results of operations, and prospects.
If we are unable to protect the confidentiality of certain information, the value of our products and product candidates and technology could be materially adversely affected.
We rely on trade secrets, know-how and continuing technological advancement to develop and maintain our competitive position. To protect this competitive position, we regularly enter into confidentiality and proprietary information agreements with third parties, including employees, independent contractors, suppliers and collaborators. We cannot, however, ensure that these protective arrangements will be honored by third parties, and we may not have adequate remedies if these arrangements are breached. In addition, enforcement of claims that a third party has illegally obtained and is using trade secrets, know-how and technological advancements is expensive, time consuming and uncertain. Non-U.S. courts are sometimes less willing than U.S. courts to protect this information. Moreover, our trade secrets, know-how and technological advancements may otherwise become known or be independently developed by competitors in a manner providing us with no practical recourse against the competing parties. If any such events were to occur, they could adversely affect our business, financial condition, results of operations, and prospects.
We have not yet registered our trademarks in all of our potential markets, and failure to secure those registrations could adversely affect our business.
We have obtained trademark registrations with the USPTO for our marks, including “MELINTA,” “MELINTA THERAPEUTICS,” “MELINTA THE ANTIBIOTICS COMPANY” and “BAXDELA” for use in connection with our goods and services, and have filed a U.S. application for a BAXDELA logo mark. We also have filed and anticipate filing foreign trademark applications for the same marks for goods and services outside the United States, and have obtained registrations for some trademarks in jurisdictions outside the United States.  The registrations will be subject to use and maintenance requirements. We may not register all of our trademarks in all of our potential markets, and it is also possible that there are names or symbols other than the foregoing that may be protectable marks for which we have not sought registration, and failure to secure those registrations could adversely affect our business. We cannot assure you that opposition or cancellation proceedings will not be filed against our trademarks or that our trademarks would survive such proceedings.
As a result of the IDB Transaction, we have acquired trademarks and trademark applications filed with the USPTO or other jurisdictions for additional marks, including “ORBACTIV,” “TARGANTA,” and “VABOMERE,” for use in connection with our goods and services. We have also acquired a license to the “MINOCIN” mark. The ORBACTIV and VABOMERE marks, and two VABOMERE logo marks, have matured to registration in the United States. We have also filed applications for an ORBACTIV logo mark. We also have filed and anticipate filing foreign trademark applications for the same marks for goods and services outside the United States, and have obtained registrations for some trademarks in jurisdictions outside the United States.  The registrations will be subject to use and maintenance requirements. We may not register all of our trademarks in all of our potential markets, and it is also possible that there are names or symbols other than the foregoing that may be protectable marks for which we have not sought registration, and failure to secure those registrations could adversely affect our business. We cannot assure you that opposition or cancellation proceedings will not be filed against our trademarks or that our trademarks would survive such proceedings.
Any of our existing or future trademark applications in the United States and any other jurisdictions where we may file may not be allowed for registration, and registered trademarks may not be obtained, maintained or enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets or proprietary information of their former employers.


As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Such claims may lead to material costs for us, or an inability to protect or use valuable intellectual property rights, which could adversely affect our business, financial condition, results of operations, and prospects.
Melinta’s internal computer systems, or those of its CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of company operations.
Despite the implementation of security measures, Melinta’s internal computer systems and those of its CROs and other contractors and consultants are vulnerable to damage or disruption from computer viruses, software bugs, unauthorized access, natural disasters, terrorism, war, and telecommunication, equipment and electrical failures. While Melinta has not, to its knowledge, experienced any significant system failure or accident to date, if such an event were to occur and cause interruptions in its operations, it could result in a material disruption of its programs or operations. For example, the loss of clinical trial data from completed or ongoing clinical trials for any of its product candidates could result in delays in its regulatory approval efforts, expose us to liability under certain data privacy lapses, and significantly increase its costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to its data or applications, or inappropriate disclosure or theft of confidential or proprietary information, Melinta could incur liability and its competitive position could be compromised.
We rely significantly on information technology and services that utilize the cloud computing environment and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively.
We rely significantly on our information technology to effectively manage and maintain our clinical records, internal infrastructure systems and internal reports. Any failure, inadequacy or interruption of that infrastructure or security lapse of that technology, including cybersecurity incidents, could harm our ability to operate our business effectively. Cybersecurity attacks in particular are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, misappropriation of our confidential or otherwise protected information and corruption of data. While our existing insurance for cybersecurity risks will help limit our losses, a breach in security, unauthorized access resulting in misappropriation, theft, or sabotage with respect to our proprietary and confidential information, including research or clinical data, could require significant capital investments to remediate and could adversely affect our business, financial condition and results of operations.
Our agreement with BARDA includes provisions that grant rights and remedies to the U.S. government that, if incurred, may make it costlier and difficult for us to successfully market Vabomere and, in certain circumstances, may allow the government to seek title to the work performed under the BARDA agreement.
In February 2014, our subsidiary, Rempex Pharmaceuticals, Inc., entered into a cost-sharing agreement with BARDA to support the development of Vabomere, which includes provisions that reflect the U.S. government’s substantial rights and remedies, many of which are not typically found in commercial contracts.  These rights and remedies include powers of the government to claim rights to data, including intellectual property rights, developed under such contracts under certain circumstances.  The government may also impose U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such contracts. We may not have the right to prohibit the U.S. government from using certain technologies funded by the government and developed by us related to Vabomere, and we may not be able to prohibit third-party companies, including our competitors, from using those technologies in providing products and services to the U.S. government. The U.S. government generally takes the position that it has the right to royalty-free use of technologies that are developed under U.S. government contracts.  Failure to comply with provisions within the BARDA contract may make it costlier and difficult for us to successfully conduct our business. 
Risks Related to Ownership of Our Common Stock
Our largest shareholder owns a significant percentage of our common stock and is able to exert significant control over matters subject to shareholder approval.
As of February 22, 2019, Vatera Capital Management LLC (“VCM”) beneficially owned (as determined in accordance with Rule 13d-3 of the exchange Act) approximately 62% of our outstanding common stock, taking into account the funding of the initial $75 million of convertible loans under the Vatera Loan Agreement on an as-converted basis. In the event that Vatera acquires more than 50% of the outstanding shares of Melinta common stock through conversion of all or a portion of its convertible loans or otherwise, VCM will be able to exert control over matters requiring approval by the stockholders. For example, VCM would be able to control elections of directors, amendments of our organizational documents, or approval of


any merger, sale of assets, or other major corporate transaction. In addition, although Vatera and its affiliates can acquire 30% or more of Melinta common stock, upon exercise of the Vatera Convertible Loans or otherwise, without it being a change of control under the Deerfield Facility and the Vatera loan Agreement, in the event that a third party acquires from Vatera or otherwise shares of Melinta common stock and, as a result, beneficially owns 30% or more of the Melinta common stock, a "change of control" would occur under the Deerfield Facility and the Vatera Loan Agreement. As a result, the lenders under the Vatera Loan Agreement would have the right to seek repayment or convert their convertible loans, and the change of control would also constitute an Event of Default under the Deerfield Facility. This may prevent or discourage certain acquisition proposals or offers for our common stock, which could limit the opportunity for Melinta’s stockholders to receive a premium for their shares and could also affect the price that some investors are willing to pay for our common stock. Accordingly, VCM's interests may not always coincide with the interests of other stockholders.
Provisions in the Vatera Loan Agreement and the Deerfield Facility may deter or prevent a business combination that may be favorable to Melinta stockholders.
Certain provisions in the Vatera Loan Agreement and the Deerfield Facility could have an adverse impact on a potential acquisition of the Company:
If Melinta enters into a transaction that constitutes a “fundamental change” under the Vatera Loan Agreement and a lender elects to convert the convertible loans thereunder in connection therewith, the Company may be required to increase the conversion rate depending on the then applicable Stock Price (as defined in the Vatera Loan Agreement). The substantial number of shares that are issuable upon conversion of the convertible loans under the Vatera Loan Agreement, in addition to the $74 million principal amount under the Deerfield Facility that is convertible into Melinta common stock, may negatively impact the per share price that a third party may be willing to pay for the Company.
Furthermore, upon the occurrence of a Change of Control (as defined in the Vatera Loan Agreement), the lenders thereunder have the right to either convert the convertible loans (including at the “fundamental change” conversion price if the Change of Control also constitutes a “fundamental change”) or require payment in full at par plus accrued and unpaid interest.
Upon a Change of Control (as defined in the Deerfield Facility), the lenders thereunder have the right to require payment in full at par plus accrued and unpaid interest.
These and other provisions in the Vatera Loan Agreement and Deerfield Facility could deter or prevent a third party from acquiring the Company, or adversely impact the price that an acquirer is willing to pay, even when the acquisition may be favorable to Melinta stockholders.
Raising additional funds by issuing securities or through licensing or lending arrangements may cause dilution to our existing stockholders, restrict our operations or require us to relinquish proprietary rights.
Because we will need to raise additional capital to fund planned operating expenses, we may in the future sell substantial amounts of common stock or securities convertible into or exchangeable for common stock. These future issuances of common stock or common stock-related securities, together with the exercise of outstanding options, restricted stock units and warrants, may result in further dilution to investors, particularly if our stock price, like that of many other companies in the anti-infectives space in recent periods, remains depressed. Further, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders or result in downward pressure on the price of our common stock.
We are subject to a putative securities class action and shareholder derivative lawsuits, which may require significant management time and attention and significant legal expenses and may result in unfavorable outcomes, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
As discussed in Note 14 to the consolidated financial statements, on November 3, 2017, Melinta merged with Cempra, Inc. in a business combination. Prior to the merger, on November 4, 2016, a securities class action lawsuit was commenced in the United States District Court, Middle District of North Carolina, Durham Division, naming Cempra, Inc. (now known as Melinta Therapeutics, Inc.) (for purposes of this and the following description of legal proceedings, “Cempra”) and certain of Cempra’s officers as defendants.  Two substantially similar lawsuits were filed in the United States District Court, Middle District of North Carolina on November 22, 2016 and December 30, 2016, respectively. Pursuant to the Private Securities Litigation Reform Act, on July 6, 2017, the court consolidated the three lawsuits into a single action and appointed a lead plaintiff and co-lead counsel in the consolidated case. On August 16, 2017, the plaintiff filed a consolidated amended complaint. Plaintiff alleged violations of the Exchange Act in connection with allegedly false and misleading statements made by the defendants between July 7, 2015, and November 4, 2016 (the “Class Period”). the plaintiff sought to represent a class comprised of purchasers of Cempra’s common stock during the Class Period and sought damages, costs and expenses and such


other relief as determined by the court. On September 29, 2017, the defendants filed a motion to dismiss the consolidated amended complaint. After the motion to dismiss was fully briefed, the court heard oral arguments on July 24, 2018. On October 26, 2018, the court granted the defendants' motion to dismiss and dismissed the plaintiff's consolidated amended complaint in its entirety. On November 21, 2018, the plaintiff filed its notice of appeal to the Fourth Circuit. the appellant filed its opening brief and appendix on January 28, 2019, and the appellee filed its response brief on February 27, 2019. The appellant's reply is due on March 20, 2019. We believe that we have meritorious defenses and we intend to defend the lawsuit vigorously.
On December 21, 2016, a shareholder derivative lawsuit was commenced in the North Carolina Durham County Superior Court, naming certain of Cempra’s former and current officers and directors as defendants and Cempra as a nominal defendant, and asserting claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and corporate waste (the “December 2016 Action”).  A substantially similar lawsuit was filed in the North Carolina Durham County Superior Court on February 16, 2017 (the “February 2017 Action”).  The complaints are based on similar allegations as asserted in the securities lawsuits described above, and seek unspecified damages and attorneys’ fees.  Both cases were served and transferred to the North Carolina Business Court as mandatory complex business cases.  The Business Court consolidated the February 2017 Action into the December 2016 Action and appointed counsel for the plaintiff in the December 2016 Action as lead counsel.  On July 6, 2017, the court stayed the action pending resolution of the putative securities class action.  That stay was then lifted. The plaintiff filed an amended complaint on December 29, 2017, and was required to file a further amended complaint by February 6, 2018. On February 6, 2018, the plaintiff filed his second amended complaint. On March 8, 2018, defendants filed their motion to dismiss or, in the alternative, stay plaintiff’s second amended complaint. On April 9, 2018, plaintiff filed his opposition to defendants’ motion. Defendants’ filed their reply on April 26, 2018. On June 27, 2018, the parties filed a joint stipulation and consent order to stay the case until (1) 30 days after a final order dismissing the putative securities class action appeal with prejudice is entered; or (2) the parties file a joint stipulation to terminate the stay in the event that a plaintiff in a subsequently filed derivative action makes similar allegations and does not agree to stay the proceedings on substantially the same terms. On June 29, 2018, the court entered an order staying the case pursuant to the joint stipulation, which expired by its term following entry of the court’s dismissal order in the above putative securities class action. On November 29, 2018, the parties filed a second joint stipulation to continue the stay until (1) 30 days after the putative securities class action appeal and any appeals therefrom have been resolved; or (2) the parties file a joint stipulation to terminate the stay in the event that a plaintiff in a subsequently filed derivative action makes similar allegations and does not agree to a stay of proceedings on substantially the same terms. On November 30, 2018, the court entered an order staying the case pursuant to the second joint stipulation. We believe that we have meritorious defenses and we intend to defend the lawsuit vigorously.
On January 3, 2018, the plaintiff who commenced the February 2017 Action, which was subsequently consolidated into the December 2016 Action, transmitted to the Acting Chief Executive Officer of Cempra a litigation demand (the “Demand”).  The Demand requested that Cempra’s Board of Directors (the “Board”) “commence an independent investigation into the matters raised” in the complaint filed in the February 2017 Action and the Demand, “take any and all appropriate steps for Cempra to recover, through litigation if necessary, the damages proximately caused by the directors' and officers' alleged breaches of fiduciary duty,” and “implement corporate governance enhancements to prevent recurrence of the alleged wrongdoing.”  The Board has not yet formally responded to the Demand.
On July 31, 2017, a shareholder derivative lawsuit was commenced in the Court of Chancery of the State of Delaware, naming certain of Cempra’s former and current officers and directors as defendants and Cempra as nominal defendant, and asserting claims for breach of fiduciary duty, unjust enrichment, and corporate waste. The complaint is based on similar allegations as asserted in the putative securities class action described above, and seeks unspecified damages and attorneys’ fees. On October 23, 2017, the defendants filed a motion to dismiss or, in the alternative, stay, the complaint, which was supported by an opening brief filed on November 9, 2017. On January 8, 2018, the plaintiff filed his answering brief in opposition to the defendants’ motion.  The defendants filed their reply in support of their motion on February 7, 2018. On June 18, 2018, the parties filed a joint letter (1) indicating they have agreed to stay the case until the pending motion to dismiss in the November 4, 2016 consolidated federal securities action pending in the United States District Court, Middle District of North Carolina, Durham Division is decided; and (2) requesting that the June 22, 2018 oral argument scheduled for defendants’ motion to dismiss be canceled. On June 27, 2018, the parties filed a stipulation and proposed order to stay the case. On June 28, 2018, the court granted the proposed order and stayed the case on such terms, which expired by its term following entry of the court’s dismissal order in the above putative securities class action. On November 28, 2018, the parties filed a second stipulation and proposed order to stay the case, including all discovery, until (1) 30 days after the putative securities class action appeal and any appeals therefrom are resolved, or (2) the parties file a joint stipulation to terminate the stay in the event that a plaintiff in a subsequently filed derivative action makes similar allegations and does not agree to a stay of proceedings on substantially the same terms. On November 30, 2018, the court granted the joint stipulation and proposed order and stayed the case on such terms. We believe that we have meritorious defenses and we intend to defend the lawsuit vigorously.
On September 15, 2017, a shareholder derivative lawsuit was commenced in the United States District Court for the Middle District of North Carolina, Durham Division, naming certain of Cempra’s former and current officers and directors as defendants and Cempra as nominal defendant, and asserting claims for breach of fiduciary duty, unjust enrichment, abuse of


control, gross mismanagement, corporate waste, and violation of Section 14(a) of the Exchange Act. The complaint is based on similar allegations as asserted in the putative securities class action described above, and seeks unspecified damages and attorneys’ fees. On December 1, 2017, the parties filed a joint motion seeking to stay the shareholder derivative lawsuit pending resolution of the putative securities class action, which stipulation was ordered by the court on December 11, 2017. On December 11, 2018, the parties filed a joint status report indicating that they are in agreement that the case should remain stated pending the resolution of the putative securities class action appeal and any appeals therefrom. While we believe that we have meritorious defenses to the claims in these lawsuits and intend to vigorously defend the cases, these lawsuits could divert management’s attention from our ordinary business operations.  Further, the outcome of these proceedings is difficult to predict and quantify, and the defense against the proceedings could be costly. The ultimate resolution of these cases could result in payments of monetary damages or other costs, materially and adversely affect our business, financial condition, results of operations and cash flows, or adversely affect our reputation, and consequently, could negatively impact the trading price of our common stock.
We have various insurance policies related to the risks associated with our business, including directors’ and officers’ liability insurance policies. However, there is no assurance that our insurance coverage will be sufficient or that our insurance carriers will cover all claims in that litigation. If we are not successful in our defense of the claims asserted in these cases and those claims are not covered by insurance or exceed our insurance coverage, we may have to pay damage awards, indemnify our officers from damage awards that may be entered against them and pay the costs and expenses incurred in defense of, or in any settlement of, such claims.
In addition, it is possible that similar lawsuits may be filed in the future in the same or other courts that name the same or additional defendants, in which case we could be similarly materially and adversely affected by such additional litigation.
The trading market for our common stock may not provide our shareholders with adequate liquidity.
Our common stock has at times been thinly traded and may be so again. We cannot assure you that an active trading market for our common stock will be maintained. You may not be able to sell your shares quickly or at the market price if trading in our common stock is not active.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
The market price of our common stock is highly volatile, and you could lose all or part of your investment.
Our stock price could be subject to wide fluctuations in response to a variety of factors.  In addition, the stock market in general, and the Nasdaq Global Market and the stock of biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.
We have never declared or paid any cash dividends on our capital shares. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. In addition, under our credit agreement with Deerfield, we are prohibited from declaring or paying any cash dividends. Any future determination related to dividend policy will be made at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders and may prevent attempts by our shareholders to replace or remove our current management.
Provisions in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if an acquisition would benefit our shareholders, and could also make it more difficult to remove our current management. These provisions include:


authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without shareholder approval;
limiting the removal of directors by the shareholders;
creating a staggered board of directors;
prohibiting shareholder action by written consent, thereby requiring all shareholder actions to be taken at a meeting of shareholders;
eliminating the ability of shareholders to call a special meeting of shareholders; and
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at shareholder meetings.
These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested shareholder for a period of three years following the date on which the shareholder became an interested shareholder, unless such transactions are approved by the board of directors. This provision could have the effect of discouraging, delaying or preventing someone from acquiring us or merging with us, whether or not it is desired by or beneficial to our shareholders. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease approximately 21,681 square feet of office space in Morristown, New Jersey for our principal administrative facility, 17,031 square feet of office space in Lincolnshire, Illinois for administrative functions, approximately 27,613 square feet of office and laboratory space in New Haven, Connecticut for our principal research facility, and approximately 24,644 square feet of office space in Chapel Hill, North Carolina (of which, approximately 6,510 square feet are sub-leased). The leases expire in May 2023, June 2022, August 2021, and March 2021, respectively. We are in the process of vacating our leased facilities in New Haven and Chapel Hill.
Item 3. Legal Proceedings
The material set forth in Note 15 of the Notes to Consolidated Financial Statements in Item 10 of this Annual Report on Form 10-K is incorporated herein by reference.  
Item 4. Mine Safety Disclosures
Not applicable



PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the Nasdaq Global Market under the symbol “MLNT” as of November 6, 2017, the first trading date after the merger with Cempra. Between February 3, 2012, and November 6, 2017, our common stock was traded on the Nasdaq Global Market under the symbol “CEMP.”
On February 28, 2019, the closing price for the common stock as reported on the Nasdaq Global Market was $5.33.
As of February 28, 2019, there were 47 shareholders of record, which excludes shareholders whose shares were held in nominee or street name by brokers. We believe that, when our record holders and shareholders whose shares are held in nominee or street name by brokers are combined, we have in excess of 3,200 shareholders.
Dividend Policy
We have never declared or paid any cash dividends on our common stock.  We currently do not plan to declare dividends on shares of our common stock in the foreseeable future. We expect to retain our future earnings, if any, for use in the operation and expansion of our business. The payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition and any other factors our board deems relevant.
Pursuant to the terms of the Deerfield loan entered into on January 5, 2018, and as amended on January 14, 2019, for as long as the Deerfield loan is outstanding, we may not pay any cash dividends on our common stock. The Deerfield loan is discussed in Note 4 of the Notes to Consolidated Financial Statements included in Item 15 of this Annual Report on Form 10-K.
Equity Compensation Plans
The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters” in this report.


Stock Performance Graph
This chart compares the cumulative total return on our common stock with that of the Nasdaq Biotechnology Index and the Nasdaq Composite Index. The chart assumes $100 was invested at the close of market on December 31, 2013, in our common stock (formerly Cempra), and the two indexes and assumes the reinvestment of any dividends. The comparisons shown in the graph and table below are based upon historical data, adjusted for stock splits. We caution that the price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock.
chart-629243c909a95fd1948.jpg

$100 investment in stock or index Ticker 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018
Melinta Therapeutics, Inc. MLNT $100.00
 $189.75
 $251.25
 $22.60
 $25.50
 $1.28
Nasdaq
   Biotechnology Index		 NBI $100.00
 $134.10
 $149.41
 $117.01
 $141.61
 $128.45
Nasdaq Composite
   Index		 IXIC $100.00
 $113.40
 $119.89
 $128.89
 $165.29
 $158.87



Item 6. Selected Financial Data
The consolidated statement of income data set forth below with respect to the fiscal years ended December 31, 2018, 2017, 2016, and the consolidated balance sheet data at December 31, 2018 and 2017, are derived from the audited consolidated financial statements included in Item 8 of this Annual Report and should be read in conjunction with those financial statements and notes thereto. Share quantities have been adjusted to reflect the exchange ratio applied in the merger with Cempra on November 3, 2017, as well as the one-for-five reverse stock split that was effected on February 22, 2019.
Consolidated Statement of Operations Data         
 Year Ended December 31,
 2018 2017 2016 2015 2014
 (in thousands, except share and per share data)
Revenue:         
Total revenue$96,430
 $33,864
 $—
 $—
 $—
Operating expenses:         
Cost of goods sold41,057
 —
 —
 —
 —
Research and development55,409
 49,475
 49,791
 62,788
 53,647
Goodwill impairment25,088
 —
 —
 —
 —
Selling, general and administrative133,312
 63,325
 19,410
 14,159
 13,562
          
Total operating expenses254,866
 112,800
 69,201
 76,947
 67,209
          
Loss from operations(158,436) (78,936) (69,201) (76,947) (67,209)
          
Other income (expense), net1,244
 20,020
 (4,731) (1,729) (575)
          
Net loss(157,192) (58,916) (73,932) (78,676) (67,784)
Accretion of redeemable convertible preferred stock dividends—
 (19,259) (21,117) (16,248) (9,859)
Net loss attributable to common shareholders(157,192) (78,175) (95,049) (94,924) (77,643)
Basic and diluted loss per share$(17.12) $(109.28) $(20,600.13) $(130,929.66) $(246,485.71)
Weighted average shares used in computation of basic and diluted loss per share9,181,668
 715,369
 4,614
 725
 315
Consolidated Balance Sheet Data         
 As of December 31,
 2018 2017 2016 2015 2014
 (in thousands)
Balance sheet data:         
Cash and equivalents$81,808
 $128,387
 $11,409
 $30,158
 $10,541
Working capital$15,876
 $118,034
 $(8,330) $13,385
 $(10,800)
Total assets$441,590
 $160,273
 $16,634
 $36,228
 $13,702
Total debt, net$110,476
 $39,555
 $68,849
 $28,226
 $17,552
Total shareholders' equity (deficit)$190,064
 $72,336
 $(293,451) $(222,099) $(145,573)
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of


certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under “Item 1A. Risk Factors.”
Management Overview
We are a commercial-stage pharmaceutical company focused on developing and commercializing differentiated anti-infectives for the hospital and select non-hospital, or community, settings that address the need for effective treatments for infections due to resistant gram-negative and gram-positive bacteria. We currently market four antibiotics to treat a variety of infections caused by these resistant bacteria.
The following is a highlight of our 2018 activities:
On January 5, 2018, we acquired the Infectious Disease Businesses ("IDB") from Medicines, including the capital stock of certain subsidiaries of Medicines and certain assets related to its infectious disease business, including Vabomere, Orbactiv and Minocin for injection.
In connection with the acquisition of the IDB, we entered into a new financing agreement, the Deerfield Facility, with an affiliate of Deerfield Management Company, L.P. (together with certain funds managed by Deerfield Management Company, L.P. (“Deerfield”)). The Deerfield Facility provides up to $240.0 million in debt and equity financing, with a term of six years. Deerfield made an initial disbursement of $147.8 million in loan financing. The lender also purchased 3,127,846 shares of Melinta common stock for $42.2 million under the Deerfield Facility, for a total initial financing of $190.0 million.
In connection with the acquisition of IDB, Melinta received $40.0 million in additional equity financing from existing and new investors.
We raised another $115.3 million, net of issuance costs, in a public equity financing in May 2018.
In September 2018, we entered into a license agreement with Menarini which grants to Menarini the exclusive right to market Vabomere, Orbactiv and Minocin for injection in 68 countries in Europe, Asia-Pacific and the Commonwealth of Independent States. The total proceeds over the life of the agreement may exceed €100.0 million.
In November 2018, the European Commission approved Vabomere™ (meropenem and vaborbactam) for approval as a treatment for adult patients with complicated intra-abdominal (cIAI) and urinary tract infections (cUTI), hospital-acquired pneumonia including ventilator associated pneumonia (HAP/VAP), bacteraemia that occurs in association with any of these infections, and infections due to aerobic Gram-negative organisms where treatment options are limited.
On December 31, 2018, we entered into a Senior Subordinated Convertible Loan Agreement (the “Loan Agreement”) with Vatera Healthcare Partners LLC and Vatera Investment Partners LLC (together, “Vatera”) pursuant to which Vatera committed to provide $135.0 million over a period of five months, subject to the satisfaction of certain conditions (see Note 4 to the consolidated financial statements). This agreement was approved by shareholders at a Special Meeting held on February 19, 2019. We drew $75.0 million under this facility in February 2019, and we expect to draw the remaining $60.0 million by early July 2019.
On January 14, 2019, Melinta and Deerfield entered into an amendment to the Deerfield Facility (the “Deerfield Facility Amendment”). The amendments set forth in the Deerfield Facility Amendment adjust certain covenants and provides for the conversion of up to $74.0 million in principal amount of the loans under the Deerfield Facility at Deerfield’s option at any time, subject to the 4.985% Ownership Cap. See Note 4 to the consolidated financial statements for further details.
We are not currently generating revenue from operations that is sufficient to cover our operating expenses and do not anticipate generating revenue sufficient to offset operating costs in the short-term. We have incurred losses from operations since our inception and had an accumulated deficit of $719.8 million as of December 31, 2018, and we expect to incur substantial expenses and further losses in the short term for the development and commercialization of our product candidates and approved products. In addition, we have substantial commitments in connection with our acquisition of the infectious disease business of The Medicines Company that we completed in January 2018, including payments related to deferred purchase price consideration, assumed contingent liabilities and the purchase of inventory. And, there are certain financial-related covenants under our Deerfield Facility, as amended in January 2019, including requirements that we (i) file an Annual Report on Form 10-K for the fiscalyear ending December 31, 2019, with an audit opinion without a going concern qualification, (ii) maintain a minimum cash balance of $40.0 million through March 2020, and thereafter, a balance of $25.0 million, and (iii) achieve net revenue from product sales of at least $63.75 million for the year ending December 31, 2019. (See Note 4 to the consolidated financial statements for further details.) Our future cash flows are dependent on key variables such as our ability to access additional capital under our Vatera and Deerfield credit facilities, our ability to secure a working capital revolver, which is allowed under the Deerfield Facility and required under the Vatera facility, and most importantly, the level of sales


achievement of our four marketed products. Our current operating plans include assumptions about our projected levels of product sales growth in the next 12 months in relation to our planned operating expenses. Revenue projections are inherently uncertain but have a higher degree of uncertainty in an early-stage commercial launch, which we have in Baxdela and Vabomere, where there is not yet a robust sales history. While we have a plan to achieve the current expected sales levels of our products, we are unable to conclude based on applying the requirements of FASB Accounting Standards Codification 205-40, Presentation of Financial Statements - Going Concern (“ASC 205”) that such revenue is “probable” as defined under this accounting standard. In addition, given our forecasted product sales are not deemed probable under ASC 205, our ability to draw the additional $50.0 million of capacity under the Deerfield Facility, which is conditional based on meeting certain sales-based milestones before the end of 2019, is also not considered to be probable under the accounting guidance. As such, we are not able to conclude under ASC 205 that the actions discussed below will be effectively implemented and, therefore, our current operating plans, existing cash and cash collections from existing revenue arrangements and product sales may not be sufficient to fund our operations for the next 12 months. As such, we believe there is substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern.
In the fourth quarter of 2018, the Company took actions to reduce its operating spend, including a reduction to the workforce of approximately 20.0% and a decision to begin to wind down its research and discovery function. To provide additional operating capital, in December 2018, the Company entered into a Senior Subordinated Convertible Loan Agreement (the “Loan Agreement”) with Vatera Healthcare Partners LLC and Vatera Investment Partners LLC (together, “Vatera”) pursuant to which Vatera committed to provide $135.0 million over a period of five months, subject to the satisfaction of certain conditions (see Note 4 to the consolidated financial statements). We drew $75.0 million under this facility in February 2019, and we plan to draw the remaining $60.0 million by early July 2019.
 As of December 31, 2018, the Company had $81.8 million in cash and cash equivalents. In addition to drawing the additional $60.0 million available under the Vatera Facility, in the next several months, we plan to put a working capital revolver in place for up to $20.0 million, which is permitted under the Deerfield Facility (see Note 4) and required under the Vatera Loan Agreement (we must establish a working capital revolver of at least $10.0 million in order to draw the final $35.0 million tranche under the Vatera Loan Agreement in July 2019). We are also exploring options to modify the terms of certain liabilities to increase our liquidity over the next 12 to 18 months. Finally, if our cash collections from revenue arrangements, including product sales, and other financing sources are not sufficient, we plan to control spending and would take further actions to adjust the spending level for operations if required. However, there is no guarantee that we will be successful in executing any or all of these initiatives.
Financial Overview
Revenue
Our product sales, net, consist of sales of Baxdela, Vabomere, Orbactiv, and Minocin for injection, net of adjustments for discounts, chargebacks, rebates and other price adjustments. Contract research consists of reimbursement of development costs by licensees of Baxdela, principally associated with our CABP Phase 3 clinical trial, recognized over time as the underlying expense is incurred. License revenue consists of fees and milestones earned by licensing the right to market and distribute our products in territories outside the United States and is generally recognized at the point in time when the fees or milestones are earned.
Cost of Revenue
Cost of goods sold consists of direct and indirect costs—including royalties for intellectual property supporting our products—to manufacture, store and distribute the product sold, as well as amortization expense related to the intangible assets supporting our products. All of our manufacturing and distribution is performed by third parties.
Research and Development Expenses
Since our inception, we have focused much of 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, travel and share-based compensation expense;
fees paid to consultants and clinical research organizations (“CROs”) in connection with our pre-clinical and 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 and costs for developing additional manufacturing sources for and the manufacture of pre-approval inventory of our drugs under development;
costs related to compliance with regulatory requirements;


consulting fees paid to third parties related to non-clinical research and development;
research and laboratory supplies and facility costs; and
license, research and milestone payments related to licensed technologies while the related drug is in development.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) consist primarily of salaries and benefits-related expenses for personnel, including stock-based compensation expense, in our executive, finance, sales, marketing and business development functions. SG&A costs also include facility costs for our administrative offices and professional fees relating to legal, intellectual property, human resources, information technology, accounting and consulting services.
Interest income and Expense
Our excess cash balances are invested in money market funds, which generate a minimal amount of interest income. We expect to continue this investment philosophy for excess cash as additional funds are received or generated from product sales.
Historically, we have used notes payable and convertible promissory notes as sources of funding. We record interest on the notes using the effective interest method.
In addition, in connection with the Deerfield Facility and certain deferred and contingent payments due to The Medicines Company as a result of the IDB acquisition in 2018, we initially recorded certain liabilities at fair value, which we calculated using various models and by applying discount factors. These liabilities include two, $25.0 million payments and royalty obligations (discussed in Note 14 and Note 4 to the consolidated financial statements, respectively). The fair values of these liabilities are accreted to the estimated full-cash values of the obligations through non-cash interest expense.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in more detail in Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report. However, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations:
Revenue recognition
Stock-based compensation
Business combinations
In-process research and development
Inventory obsolescence
Impairment of long-lived assets
Revenue Recognition
On January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). For further information regarding the adoption of Topic 606, see Note 2 to the Consolidated Financial Statements included herein.  
Beginning in the first quarter of 2018, as a result of both the acquisition of IDB and the launch of Baxdela, we distribute Baxdela, Vabomere, Orbactiv, and Minocin for injection products commercially in the United States. While we sell some of our products directly to certain hospitals and clinics, the majority of our product sales are made to wholesale customers who subsequently resell our products to hospitals or certain medical centers, specialty pharmacy providers and other retail pharmacies. The wholesaler places orders with us for sufficient quantities of our products to maintain an appropriate level of inventory based on their customers’ historical purchase volumes and demand. We recognize revenue once we have transferred physical possession of the goods and the wholesaler obtains legal title to the product and accepts responsibility for all credit and collection activities with the resale customer.
The transaction price for our product sales includes several elements of variable consideration. In addition, we enter into arrangements with certain customers, as well as health care providers and payers that purchase our products from wholesalers,


that provide for government mandated and/or privately negotiated rebates, chargebacks and discounts with respect to the purchase of our products. The amount of revenue that we recognize upon the sale to the wholesaler, which is our estimate of the ultimate transaction price, reflects the amount we expect to be entitled to in connection with the sale of product to the end customer. At the time of sale to the wholesaler, which is when we transfer control of the product and our performance obligation under the sales contracts are complete, we record product revenues net of applicable reserves for various types of variable consideration, most of which are subject to constraint, while also considering the likelihood and the magnitude of any revenue reversal, based on our estimates of channel mix. The types of variable consideration in our product revenue are as follows:
Prompt pay discounts
Product returns
Chargebacks and customer rebates
Fee-for-service
Government rebates
Commercial payer and other rebates
GPO administration fees
MelintAssist voluntary patient assistance programs
In determining the mix of certain allowances and accruals, we must make significant judgments and estimates. For example, in determining these amounts, we estimate hospital demand, buying patterns by hospitals and/or group purchasing organizations from wholesalers and the levels of inventory held by wholesalers and customers. Making these determinations involves analyzing third party industry data to determine whether trends in historical channel distribution patterns will predict future product sales. We receive data periodically from our wholesale customers on inventory levels and historical channel sales mix and we consider this data in when determining the amount of the allowances and accruals for variable consideration.  
Variable consideration is only included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved (i.e., constraint). In assessing whether a constraint is necessary, we consider both the likelihood and the magnitude of the revenue reversal. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which will affect net product revenue and earnings in the period such variances become known. The specific considerations we use in our critical estimates and judgments related to variable consideration associated with our products are as follows:
Prompt Pay Discounts – We provide wholesale customers with certain discounts if the wholesaler pays within the payment term. Based on historical experience in the industry, we assume that all wholesale customers will take the prompt pay discount; therefore, the entire amount is reserved. Given that the prompt pay discount cannot exceed the percentage in the contract, there would be no possibility for an additional revenue reversal and thus a constraint is not required.  
Product Returns – In our assessment of the potential for the reversal of significant revenue for product sales, a significant judgment inherent in product sales relates to our estimation of future product returns. Generally, our customers have the right to return any unopened product during the 18-month period beginning six months prior to the labeled expiration date and ending 12 months after the labeled expiration date. Where historical rates of return exist, we use those rates as a basis to establish a returns reserve for product shipped to wholesalers. For our newly launched products, for which we currently do not have history of product returns, we estimate returns based on third-party industry data for comparable products in the market and our other products’ returns history. As we distribute our products and establish historical sales over a longer period of time (i.e., two years), we will be able to place more reliance on historical purchasing and return patterns of our customers when evaluating our reserves for product return. While we believe that our returns reserve is sufficient to avoid a significant reversal of revenue in future periods, if we were to increase or decrease the rate by 1%, it would have impacted revenue by $0.5 million in the year ended December 31, 2018.
At the end of each reporting period, for any of our products, we may decide to constrain revenue for product returns based on information from various sources, including channel inventory levels, product dating, sell-through data, price changes of competitive products and introductions of generic products. At December 31, 2018, after utilization of $0.3 million of the reserve for actual product returns, we maintained a reserve of $1.8 million based on our historical return rate and we increased our returns reserve by approximately $1.2 million due to risk factors that were present in connection with the initial stocking of inventory for the launch of our new products and due to product dating in the channel inventory.
Chargebacks and Rebates – Although we primarily sell products to wholesalers in the United States, we typically enter into agreements with medical centers, either directly or through GPOs acting on behalf of their hospital members, in connection with the hospitals’ purchases of products. Based on these agreements, most of our hospital customers have the right to receive a discounted price for products and volume-based rebates on product purchases. In the case of discounted pricing, we typically provide a credit to our wholesale customers (i.e., chargeback), representing the difference between the customer’s acquisition


list price and the discounted price. In the case of the volume-based rebates, we typically pay the rebate directly to the hospitals and medical centers.
Because of these agreements, at the time of product shipment, we estimate the likelihood that product sold to our customers might be ultimately sold to a GPO or medical center. We also estimate the contracting GPO’s or medical center’s volume of purchases. We base our estimate on industry data, hospital purchases and the historic chargeback data we receive from our customers, most of which they receive from wholesalers, which details historic buying patterns and sales mix for GPOs and medical centers, and the applicable customer chargeback rates and rebate thresholds.
Fees-for-service – We offer discounts and pay certain wholesalers service fees for sales order management, data, and distribution services which are explicitly stated at contractually determined rates in the customer’s contracts. We estimate our fee-for-service accruals and allowances based on historical sales, wholesaler and distributor inventory levels and the applicable discount rate. Our discounts are accrued at the time of sale and are typically settled within 60 days after the end of each respective quarter. There is little judgment involved or variation of outcomes for our fee-for-service accruals.
Government Rebates– There are three government rebate programs that we participate in: Medicaid, TRICARE and Medicare Part D.
Medicaid – The Medicaid Drug Rebate Program is a program that includes The Centers for Medicare and Medicaid Services, State Medicaid agencies, and participating drug manufacturers that helps to offset the federal and state costs of most outpatient prescription drugs dispensed to Medicaid patients. The program requires a drug manufacturer to enter into, and have in effect, a national rebate agreement with the Secretary of the Department of Health and Human Services (‘HHS’) in exchange for state Medicaid coverage of most of the manufacturer’s drugs. The Medicaid Drug Rebate Program is jointly funded by the states and the federal government. The program reimburses hospitals, physicians, and pharmacies for providing care to qualifying recipients who cannot finance their own medical expenses.
We enter into contracts with, and pay Medicaid rebates to, individual states; each state will establish and administer their own Medicaid programs and determine the type, amount, duration, and scope of services within broad federal guidelines. Participation in the program requires complex pricing calculations and stringent reporting and certification procedures. At the time of the sale it is not known what the Medicaid rebate rate will be, but we use historical Medicaid rates to estimate the deduction to revenue and current period accrual.
TRICARE – TRICARE is a benefit established by law as the health care program for uniformed service members, retired service members, and their families. We must pay the Department of Defense (“DOD”) rebates for our products that have entered into the normal commercial chain of transactions and are prescribed to TRICARE beneficiaries and paid for by the DOD. The rebate amount is the portion of the price of the product paid by the DOD that exceeds the federal ceiling price. TRICARE rebates have not been material to date.
Medicare Part D – We maintain contracts with Managed Care Organizations (“MCOs”) that administer prescription benefits for Medicare Part D and under which we pay rebates based on the volume of prescriptions. MCOs either own Pharmacy Benefit Managers (“PBMs”) or contract with several PBMs to fulfill prescriptions for patients enrolled under their plans. As patients obtain their prescriptions, utilization data are reported to the MCOs, who generally submit claims for rebates quarterly. We use historical prescriptions data to estimate the deduction to revenue and current period accrual.
We also estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. Our liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received.
Commercial Payer and Other Rebates – We contract with certain private payer organizations, primarily insurance companies and PBMs, for the payment of rebates with respect to utilization of Baxdela and contracted formulary status. We estimate these rebates and record reserves for such estimates in the same period the related revenue is recognized. Currently, the reserve for customer payer rebates considers future utilization, based on third party studies of payer prescription data, for product that remains in the distribution and retail pharmacy channel inventories at the end of each reporting period. As we distribute our products and establish historical sales over a longer period of time (i.e., more than two years), we will be able to place more reliance on historical data related to commercial payer rebates (i.e., actual utilization units) while continuing to rely on third party data related to payer prescriptions and utilization. In addition, we offer rebates to certain customers based on the volume of product purchased over fixed periods of time.
GPO Administration Fees – We contract with GPOs and pay administration fees related to contracting and membership management services. In assessing if the consideration paid to the GPO should be recorded as a reduction in the transaction price, we determine whether the payment is for a distinct good or service or a combination of both. Since our GPO fees are not specifically identifiable, we do not consider the fees separate from the purchase of the product. Additionally, the GPO services


generally cannot be provided by a third party. Because of these factors, the consideration paid is considered a reduction of revenue. When assessing our reserves for GPO administration fees, we review various data including, but not limited to, product remaining in wholesaler channel inventories using third party data.
MelintAssist – We offer patient assistance programs for certain of our products that are intended to provide financial assistance to qualified commercial patients with full or partial prescription drug co-payments required by payers. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receiveassociated with product that has been recognized as revenue but remains in the distribution and pharmacy channel inventories at the end of each reporting period.  
Product Sales Sensitivity Related to Variable Consideration–In assessing whether to constrain revenue for our various discounts, product returns, chargebacks, fees-for-services and other rebate and discount programs, we considered both the likelihood and the magnitude of the revenue reversal, as discussed above. The total transaction price and consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. As a sensitivity measure, the effect of constraining all variable consideration, in a manner that would result in the highest amount of revenue reversal, would have the effect of increasing our sales allowance reserves by $1.2 million at December 31, 2018.
Stock-Based Compensation
We account for stock-based compensation using the fair value method. The fair value of awards granted is estimated at the date of grant and recognized as expense on a straight-line basis over the requisite service period with the offsetting credit to additional paid-in capital. Stock options granted typically fully vest over four years from the grant date and expire after 10 years.
Under our equity plans, stock options are granted at exercise prices not less than the estimated fair value of Melinta’s common stock at the date of grant. We use the Black-Scholes option-pricing model for determining the estimated fair value of awards. Key inputs and assumptions include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, estimated fair value of our common stock, and exercise price. Many of the assumptions require significant judgment and any changes could have a material impact in the determination of stock-based compensation expense. If a stock-based award is modified, we remeasure the fair value of the award at the modification date using the Black-Scholes model and fresh inputs, then apply that remeasured fair value to the award. We do not estimate forfeitures when recognizing compensation expense; instead, we recognize forfeitures as they occur.
We have historically granted common stock options to members of our management. Prior to the merger with Cempra on November 3, 2017, the fair value of Melinta’s common stock has historically been determined by management with input from an independent external valuation expert. The intent of management was to ensure that the exercise price of issued options is not less than fair value at the date of the grant. As of November 3, 2017, Melinta’s common stock is traded on the Nasdaq market and we no longer use the valuation expert.
The following table summarizes the weighted-average assumptions, other than the estimated fair value of our common stock, used in the Black-Scholes model to value stock option grants for the years ended December 31, 2018, 2017 and 2016.  
 2018 2017 2016
Risk-free interest rate2.6% - 3.1%
 1.8% - 2.1%
 1.5%
Weighted-average volatility84.8% - 88.9%
 87.5% - 108.1%
 67.1%
Expected term - employee awards (in years)1.0 - 6.1
 3.1 - 6.1
 6.0
Forfeiture rate—
 —
 —
Dividend yield0% 0% 0%
Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the option’s expected term.
Weighted-average Volatility—After the merger with Cempra, all outstanding options are to purchase common shares of Cempra (re-named Melinta in the merger). To measure volatility, we used the historical volatility information of our shares in addition to a peer group consisting of the average of reported volatility of selected peer companies in the pharmaceutical and biotechnology industry; the resulting analysis is weighted 90% to the performance of our shares. Prior to the merger, the Company had been privately held since inception. Accordingly, prior to the merger, we determined volatility based on a similar peer group, without the inclusion of our shares.
Expected Term—Our historical exercise behavior on previous grants does not provide a reasonable estimate for future exercise activity for employees who have been awarded stock options in the past three years. Therefore,


the average expected term was calculated using the simplified method, as defined by GAAP, for estimating the expected term.
Forfeiture Rate—On January 1, 2016, Melinta adopted the guidance in ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, and changed its accounting policy for stock-based compensation to recognize stock option forfeitures as they occur rather than estimating an expected amount of forfeitures.  
Expected Dividend Yield—We have never declared or paid any cash dividends and do not expect to pay any cash dividends in the foreseeable future.
Business Combinations
We account for acquired businesses using the acquisition method of accounting. This method requires that most assets acquired and liabilities assumed be recognized as of the acquisition date. On January 1, 2018, we adopted ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business, which narrows the definition of a business and requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, which would not constitute the acquisition of a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. There is often judgment involved in assessing whether an acquisition transaction is a business combination under Topic 805 or an acquisition of assets. In our IDB acquisition, we evaluated the transaction and concluded that the IDB qualified as a “business” under Topic 805 as it has both inputs and processes with the ability to create outputs. Among IDB’s inputs are developed product rights, in-process research and development and intellectual property across multiple classes of drugs and indications, third-party contract manufacturing agreements and tangible assets from which there is potential to create value and outputs.
With respect to business combinations, we determine the purchase price, including contingent consideration, and allocate the purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed, based on estimated fair values. The excess of the purchase price over the identifiable assets acquired and liabilities assumed is recorded as goodwill. With respect to the purchase of assets that do not meet the definition of a business under Topic 805, goodwill is not recognized in connection with the transaction and the purchase price is allocated to the individual assets acquired or liabilities assumed based on their relative fair values.
We engage a third-party professional service provider to assist us in determining the fair values of the purchase consideration, assets acquired, and liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to contingent liabilities associated with the purchase price and intangible assets, such as developed product rights and in-process research and development programs. Critical estimates that we have used in valuing these elements include, but are not limited to, future expected cash flows using valuation techniques (i.e., Monte Carlo simulation models) and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.
We record contingent consideration and assumed contingent liabilities resulting from a business combination at their respective fair values on the acquisition date. The purchase price of IDB included contingent consideration related to certain tiered royalty payments based on future net sales, as well as pass-through payments related to licensing and other fees that we receive for the acquired products. Assumed contingent liabilities from Medicines at the time of the acquisition include the achievement of future regulatory and sales-based milestones associated with the acquired products. Over time, increases in fair value from the passage of time are accreted and recorded as non-cash interest expense in the consolidated statements of operation.
Changes to contingent consideration obligations, other than the passage of time, may result from adjustments related, but not limited, to changes in discount rates and the number of remaining periods to which the discount rate is applied, updates in the assumed achievement or timing of any development or commercial milestone or changes in the probability of certain clinical events, changes in our forecasted sales of products acquired, and changes in the assumed probability associated with regulatory approval. At the end of each reporting period, we evaluate the need to remeasure the contingent consideration and, if appropriate, we revalue these obligations and record increases or decreases in their fair value in selling, general and administrative expenses within the accompanying consolidated statements of operations. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, any change in the assumptions described above, could have a material impact on the amount we may be obligated to pay as well as the results of our consolidated results of operations in any given reporting period. During the quarter ended December 31, 2018, we recorded a net fair value reduction to the contingent consideration royalty liability payable to Medicines of approximately $10.3 million, which was driven by a reduction to our long-term revenue forecasts for the products on which we pay royalties. We also recorded a net fair value increase of $1.5 million related to our assumed contingent liabilities based on the achievement of a regulatory approval milestone.
In-Process Research and Development


The cost of in-process research and development, (“IPR&D”), acquired directly in a transaction other than a business combination, is capitalized if the projects have an alternative future use; otherwise it is expensed. The fair values of IPR&D projects acquired in business combinations are recorded as intangible assets. Several methods may be used to determine the estimated fair value of the IPR&D acquired in a business combination. We utilize the income approach (multi-period excess earnings method) where we forecast future revenue and cash flow for the IPR&D assets, deduct contributory asset charges, and then discount them to present value using an appropriate discount rate. This analysis is performed for each project independently. These assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written off, as appropriate. The IPR&D assets are tested for impairment at least annually or when a triggering event occurs that could indicate a potential impairment. If circumstances indicate the IPR&D assets might be impaired, we will re-apply the income analysis to determine if we need to adjust their carrying value. During the fourth quarter of 2018, we reclassified our IPR&D asset to a definite-lived intangible asset, and we did not recognize any related impairment charges.
Inventory Obsolescence
At December 31, 2018, and December 31, 2017, we reported inventory of $41.3 million and $10.8 million, respectively (net of inventory reserves of $7.1 million and $0.0 million, respectively). Each quarter we review for excess and obsolete inventories and assess the net realizable value. There are many factors that management considers in determining whether or not the amount by which a reserve should be established. These factors include the following:
expected future usage;
expiry dating for finished goods;
whether or not a customer is obligated by contract to purchase the inventory;
historical consumption experience; and
other risks of obsolescence.
Of these factors, expected future usage and the expiry dating of finished goods are the predominant reasons for our reserves at December 31, 2018.
Impairment of Long-Lived Assets
Our long-lived assets consist of goodwill, definite-lived intangible assets which are primarily related to developed product rights and indefinite-lived assets related to in-process research and development, as well as property and equipment. For long-lived assets other than goodwill, we evaluate the recoverability of the carrying amount of our long-lived assets whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable at the lowest level of identifiable cash flows, which is each product line. If impairment indicators are present, we assess whether the future estimated undiscounted cash flows attributable to the assets in question are greater than their carrying amounts. If these future estimated cash flows are less than carrying value, we then measure an impairment loss for the amount that carrying value exceeds fair value of the assets. During the fourth quarter of 2018, impairment indicators were present for our product rights intangible assets, so we prepared discounted cash flows attributable to each product to assess whether or not the intangible assets were impaired. The impairment indicators related to revised product sales forecasts, which were lower than those initially developed in connection of the acquisition of the assets. While we concluded that the intangible assets were not impaired because the undiscounted cash flows exceeded the carrying value, if revenue forecasts decrease again in the future, there is a risk that we may conclude that one or more of the intangible assets are impaired in a future period. For sensitivity purposes, if we were to reduce our estimates of cash flows by 10% for each of the intangible assets, we still would have concluded that the assets were not impaired.

Under ASC 350, Intangibles - Goodwill and Other (“ASC 350”), goodwill is required to be tested annually for impairment at a level of reporting referred to as a reporting unit. A reporting unit is an operating segment or one level below an operating segment (also known as a component). Melinta has a single operating segment and a single reporting unit. For the annual goodwill test, ASC 350 permits companies to skip the evaluation of potential impairment indicators and move directly to the quantitative analysis. We opted to move directly to the quantitative analysis to calculate the amount (if any) of goodwill impairment as of December 1, 2018, our annual goodwill impairment testing date.

We compared the carrying value of Melinta’s (net assets), including goodwill, at December 1, 2018 with its estimated fair value to conclude whether or not goodwill was impaired. We used the market capitalization, plus a control premium, as the key indicator of fair value of the Company’s net assets as of December 1, 2018. Given Melinta operates as one reporting unit, the market capitalization reflects the value that the public markets attribute to the Company. The market capitalization of Melinta, plus a control premium, was less than the carrying value of Melinta’s net assets at December 1, 2018; therefore, we concluded that goodwill was impaired. And, since the carrying amount of Melinta’s net assets exceeded its fair value in excess of book value goodwill, we wrote off the entire goodwill balance, resulting in impairment charges of $25.1 million in 2018.
Results of Operations (all amounts in tables in thousands)


Comparison of Years Ended December 31, 2018 and December 31, 2017
The results of legacy Cempra have been included in our financial results from the acquisition date, November 3, 2017, and the results of the IDB are included in our results from January 5, 2018. The following table summarizes our results of operations for the years ended December 31, 2018 and 2017:
 Year Ended December 31, Increase (Decrease)
 2018 2017 Dollars Percent
Product sales, net$46,580
 $—
 46,580
 NA
Contract research11,677
 13,959
 (2,282) (16.3)%
License revenue38,173
 19,905
 18,268
 91.8 %
Total revenue$96,430
 $33,864
 62,566
 184.8 %
Cost of goods sold$41,057
 $—
 $41,057
 NA
Research and development$55,409
 $49,475
 $5,934
 12.0 %
Goodwill impairment$25,088
 $—
 $25,088
 NA
Selling, general and administrative$133,312
 $63,325
 $69,987
 110.5 %
Total other income (expense), net$1,244
 $20,020
 $(18,776) (93.8)%
Revenue
We recorded product sales, net of adjustments for returns and other allowances, of $46.6 million in the year ended December 31, 2018.
For the year ended December 31, 2018, contract research revenue decreased $2.3 million, to $11.7 million, compared to the year ended December 31, 2017, (the “Original Form 10-K”). This Amendment No. 1 (the “Amendment,” due to lower expenses in the Baxdela CABP study, which is reimbursed 50% by Menarini. We completed the enrollment for the CABP study in July 2018—which will reduce expenses in future periods—and togetherwe expect a decision on FDA approval for Baxdela for the CABP indication in 2019. As such, contract research revenue from Menarini will decrease significantly beginning in 2019.
For the years ended December 31, 2018 and 2017, license revenue was $38.2 million and $19.9 million, respectively. The license revenue in the current period relates principally to the licensing of Vabomere, Orbactiv and Minocin for injection to Menarini, and the license revenue in 2017 relates to the licensing of Baxdela to Menarini.
Cost of goods sold
For the year ended December 31, 2018, cost of goods sold consisted of the cost of products sold to customers, including both direct and indirect costs, royalty expense related to our products and the amortization of intangible assets. We did not have cost of goods sold in the year ended December 31, 2017.
Research and development expenses
Our research and development expenses for the years ended December 31, 2018 and 2017, were $55.4 million and $49.5 million, respectively. The increase of $5.9 million was driven primarily by $3.4 million in employee-related expenses to support our new products, Vabomere, Orbactiv and Minocin for injection, as well as increases in spending on clinical studies of $2.5 million. Our most significant clinical study, examining the use of Baxdela to treat community-acquired bacterial pneumonia (CABP), concluded field work during the year; we incurred $18.3 million on the study during 2018. We expect to wrap up the study, publish results and apply for an sNDA in the second quarter of 2019.
In 2019, we are winding down our early-stage research programs. Accordingly, along with the Originalwinding down of the Baxdela CABP study, we expect research and development expenses to decrease materially from historical levels.
Selling, general and administrative expenses
Selling, general and administrative expenses were $133.3 million and $63.3 million for the years ended December 31, 2018 and 2017, respectively. The increase of $70.0 million was primarily driven by increases in selling and administrative personnel-related expenses of $44.0 million, professional and consulting fees of $8.8 million, marketing expenses of $7.7 million, severance expense of $5.3 million, FDA product-related fees of $1.2 million, increased insurance costs of $1.0 million, facility-related costs of $1.1 million because of the new leased facility in New Jersey, and other administrative costs of $9.7 million. These increases were partially offset by fair market value adjustments (gains) of $8.8 million related to the remeasurement of certain elements of contingent consideration from the IDB acquisition; see Note 14 to the consolidated financial statements for further discussion.


Goodwill impairment
We recorded goodwill of $25,088 as a component of the purchase accounting for the IDB acquisition in January 2018. In December 2018, we performed an impairment review of our goodwill and indefinite-lived assets. Our review indicated the carrying value of Melinta exceeded its fair value. Accordingly, we recorded an impairment adjustment of $25,088 in December 2018 to reduce our goodwill value to zero.
Other expense (income)
For the year ended December 31, 2018, we recognized other income, net, of $1.2 million as compared with the year ended December 31, 2017, when we recognized other expense, net, of $20.0 million, driven by the following:
Bargain purchase gain—Under the purchase accounting for the merger with Cempra, in 2017 we recognized a bargain purchase gain of $27.7 million, representing the excess of the value of Cempra’s assets acquired in the merger over the purchase price. See Note 14 to the consolidated financial statements in Item 15 of this Annual Report on Form 10-K the “Form 10-K”) amends Part III, Items 10 through 14for discussion of the Originalmerger.
Interest expense—Interest expense for the year ended December 31, 2018 and 2017, was $43.2 million and $7.6 million, respectively. Interest expense includes both cash and non-cash components of interest expense. The cash portion of interest expense was $17.5 million in 2018, an increase of $15.0 million from 2017, due to the transition from the 2017 Loan Agreement to the Deerfield Facility, which had a higher loan balance and interest rate. The non-cash portion of interest expense was $25.7 million in 2018, an increase of $20.6 million from 2017. Non-cash interest expense was due to:
◦Principal accretion and debt cost amortization related to the Deerfield Facility of $6.3 million;
◦Accretion of deferred purchase price and contingent royalty liabilities from the IDB acquisition of $15.4 million; and
◦Accretion of a milestone liability from the IDB acquisition of $4.0 million.
Change in fair value of warrant liability—We adjusted the carrying value of the warrant liability to the estimated fair value at each reporting period while the warrants are outstanding. Increases or decreases in the fair value of the warrant liability were recorded within other expense (income) in the statement of operations. We recognized gains of $33.2 million and $0.3 million in the years ended December 31, 2018 and 2017, respectively.
Loss on extinguishment of debt—We recognized a loss on the extinguishment of our 2017 Loan Agreement in the first quarter of 2018 of $2.6 million. See Note 4 to the consolidated financial statements for further discussion.
Gain on loss contract reversal—We recognized a gain of $5.3 million related to the extinguishment of the long-term liability associated with the Toyama long-term supply contract, which we initially recorded in connection with the reverse merger with Cempra in 2017.
Other—We recognized $7.7 million of grant income during the period.
Comparison of Years Ended December 31, 2017 and December 31, 2016
The following table summarizes our results of operations for the years ended December 31, 2017 and 2016:
 Year Ended December 31, Increase (Decrease)
 2017 2016 Dollars Percent
Revenue$33,864
 $—
 $33,864
 NA
Research and development$49,475
 $49,791
 $(316) (0.6)%
Selling, general and administrative$63,325
 $19,410
 $43,915
 226.2 %
Total other expense, net$20,020
 $(4,731) $24,751
 (523.2)%
Revenue
During the year ended December 31, 2017, we recognized revenue of $33.9 million. Of this amount, we recognized $33.0 million under the Menarini agreement, of which $19.9 million related to an upfront licensing fee and $13.1 million related to the cost-sharing arrangements for expenses incurred during 2017.
Research and development expenses
Our research and development expenses for the years ended December 31, 2017 and 2016, were $49.5 million and $49.8 million, respectively. We have focused on two primary areas in these periods. The first area of focus and the primary cost driver has been the clinical development and FDA approval of Baxdela, our lead product candidate that was approved by the FDA in June 2017 and launched commercially in January 2018. The second area of focus during the periods has been the pre-clinical


activity for the ESKAPE pathogen program as we work to select a lead program candidate with an optimal efficacy and safety profile.
In total, our research and development costs were relatively flat in 2017 over 2016. In 2017, incremental expense for our Phase 3 clinical study of Baxdela for CABP of $16.8 million was partially offset by reduced expense of $5.0 million due to the conclusion of our Phase 3 ABSSSI clinical study and lower expenses related to other development activities and the development of the ESKAPE pathogen program. Development expenses for our Phase 3 CABP clinical trial increased by $16.8 million in 2017 from 2016, driven by rapid patient enrollment during 2017. While the study was active for the entire year of 2016, we did not ramp up study activity until late in 2016 with our first patient enrollment in December 2016. Development expenses for our Phase 3 clinical study for ABSSSI, testing the intravenous and oral forms of Baxdela, decreased in 2017 versus 2016 by $5.0 million. The study was completed in 2016 and no costs were incurred in 2017. We do not expect to incur any additional costs related to this study.
Other development costs decreased in the year ended December 31, 2017, by $10.3 million versus 2016. This decrease was due primarily to the reduction of manufacturing expenses for Baxdela used in drug trials as we converted to production of commercial product, which is capitalized in inventory, and a reduction of costs associated with preparing to file the NDA for Baxdela, which was filed in the fourth quarter of 2016. In addition, we reduced certain research costs by approximately $3.8 million by shifting outsourced activities to lower cost vendors and internal personnel and lower milestone-related costs incurred in 2017.
Selling, general and administrative expenses
Selling, general and administrative expenses were $63.3 million and $19.4 million for the years ended December 31, 2017 and 2016, respectively. The increase of $43.9 million, or 226.2%, was primarily driven by increases in administrative personnel and facility-related costs of $5.4 million because of additional personnel from Cempra and additional hiring in preparation for becoming a public company, increases in marketing and other costs to support our commercial launch of Baxdela of $12.7 million, one-time costs of $11.7 million for preparation and execution of the merger with Cempra and the IDB acquisition, one-time merger-related personnel costs of $10.0 million, revenue-sharing payments and finders fees associated with the license of rights to Baxdela to Menarini of $2.1 million, and increases in legal expenses of $1.9 million.
Other expense (income)
For the year ended December 31, 2017, we recognized other income of $20.0 million as compared with the year ended December 31, 2016, when we recognized other expense of $4.7 million, driven by the following:
Bargain purchase gain—Under the purchase accounting for the merger with Cempra, we have recognized a bargain purchase gain of $27.7 million, representing the excess of the value of Cempra’s assets acquired in the merger over the purchase price. See Note 3 of the Notes to Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K for discussion of the merger.
Interest expense—Interest expense for the year ended December 31, 2017 and 2016, was $7.6 million and $4.4 million, respectively. Interest expense includes both cash and non-cash components of interest expense. The cash portion of interest expense was $2.5 million in 2017, an increase of $0.1 million from 2016, due to include information previously omittedthe transition from 2014 Loan Agreement to the Original2017 Loan Agreement, which had a higher loan balance. The non-cash portion of interest expense was $1.1 million in 2017, an increase of $0.1 million from 2016. In addition, we had non-cash interest expense on convertible promissory notes of $4.0 million in 2017, an increase of $3.0 million from 2016, driven by $68.6 million in convertible promissory notes that we issued in the second half of 2016 and first half of 2017. This interest was categorized as non-cash because in the next round of equity financing, all outstanding principal, as well as accrued interest, was to convert into shares of Melinta’s stock.
Change in fair value of tranche assets and liabilities—We adjusted the carrying value of the Convertible Preferred Stock tranche obligations to the estimated fair value at each reporting period while they were outstanding. Increases or decreases in the fair value of tranche obligations are recorded within other income (expense) in the statement of operations. We recognized $1.3 million of expense in the year ended December 31, 2016, upon issuance of the final tranche of Series 4 preferred stock in March 2016. We have not recorded a tranche asset or liability since that date.
Change in fair value of warrant liability—We adjusted the carrying value of the warrant liability to the estimated fair value at each reporting period while the warrants were outstanding (prior to the close of the Cempra merger in November 2017). Increases or decreases in the fair value of the warrant liability were recorded within other expense (income) in the statement of operations. We recognized gains of $0.3 million and $0.8 million in the years ended December 31, 2017 and 2016, respectively.
Loss on extinguishment of debt—We recognized a loss on the extinguishment of our 2014 Loan Agreement in the second quarter of 2017. See Note 5 in Notes to the Consolidated Financial Statements for further discussion.


Other—We participate in a Connecticut tax credit program whereby we can claim either cash payments or future tax credits based on qualifying expenditures. We have historically chosen the cash payment incentive and expect to continue to do so in future periods as the tax code allows. This tax credit comprises the majority of the other income for both periods.
Liquidity and Capital Resources
In connection with the IDB transaction, we raised $40.0 million in equity financing and entered into the Deerfield Facility. The Deerfield Facility, as amended in January 2019, provides up to $240.0 million in debt and equity financing, with a term of six years. Under the form of the agreement, Deerfield made an initial disbursement of $147.8 million in loan financing. The lender also purchased 3,127,846 shares of Melinta common stock for $42.2 million under the Deerfield Facility, for a total initial financing of $190.0 million. The interest rate on the debt portion of this initial financing is 11.75%. An additional $50.0 million of debt financing is available, at our discretion, if we have achieved certain revenue thresholds by the end of 2019, and, if drawn, will bear an interest rate of 14.75%. Pursuant to the Deerfield Facility, Deerfield also acquired warrants (held by certain funds managed by Deerfield) for the purchase of 3,792,868 shares of Melinta common stock at a purchase price per share of $16.50. Under the terms of the Deerfield Facility, we are able to secure a revolver credit line of up to $20.0 million. Deerfield holds a first lien on all of our assets, including our intellectual property, but would hold a second lien behind a revolver for working capital accounts. The Deerfield Facility allows for prepayment beginning in January 2021, with prepayment penalties equal to 2% plus a percentage of annual interest at the time of prepayment ranging between 25% and 75%. The Deerfield Facility, while it is outstanding, will limit our ability to raise debt financing in future periods outside of the $20.0 million revolver and the $135.0 million convertible note facility with Vatera, both of which are permitted under the arrangement.
In January 2019, in association with the Vatera Loan Agreement (discussed below), the Deerfield Facility was amended, reducing certain revenue thresholds, adding a requirement that we maintain a minimum cash balance of $40 million through March 2020, and converting $74.0 million of the original loan to convertible notes. The notes are convertible to convertible preferred shares—which can then be converted to common shares—or directly to common shares, at the discretion of Deerfield.
We raised additional capital in 2018 through public common stock offerings and strategic partnerships. In May 2018, the Company completed a follow-on offering in which we raised proceeds, net of issuance costs, of $115.3 million. In September 2018, we entered into a license agreement with Menarini, under which we granted the exclusive rights to market Vabomere, Orbactiv and Minocin for injection in 68 countries in Europe, Asia-Pacific and the Commonwealth of Independent States to Menarini and received an upfront license fee of €17.0 million. In addition, Menarini paid us a milestone of €15.0 million upon achieving European marketing approval for Vabomere in the fourth quarter of 2018, and it is required to pay us potential regulatory- and sales-based milestones, and sales-based royalties.
We have incurred significant losses and negative cash flows from operating activities since our inception. As of December 31, 2018, we had an accumulated deficit of $719.8 million, and we expect to continue to incur significant losses through at least 2020. In addition, we have substantial commitments in connection with our acquisition of the infectious disease business of The Medicines Company that we completed in January 2018, including payments related to deferred purchase price consideration, assumed contingent liabilities and the purchase of inventory. And, there are certain financial-related covenants under our Deerfield Facility, as amended in January 2019, including requirements that we (i) file an Annual Report on Form 10-K for the year ending December 31, 2019, with an audit opinion without a going concern qualification, (ii) maintain a minimum cash balance of $40.0 million through March 2020, and thereafter, a balance of $25.0 million, and (iii) achieve net revenue from product sales of at least $63.8 million for the year ending December 31, 2019. (See Note 4 to the consolidated financial statements for the accounting treatment of the Deerfield Facility.). In November 2018, the Company took actions to reduce its operating spend, including a reduction to the workforce of approximately 20.0% and a decision to begin to wind down its research and discovery function. To provide additional operating capital, in relianceDecember 2018, the Company entered into a Senior Subordinated Convertible Loan Agreement (the “Loan Agreement”) with Vatera Healthcare Partners LLC and Vatera Investment Partners LLC (together, “Vatera”) pursuant to which Vatera committed to provide $135.0 million over a period of five months, subject to the satisfaction of certain conditions (see Note 4). We drew $75.0 million under this facility in February 2019, and we plan to draw the remaining $60.0 million by early July 2019. We must establish a working capital revolver of at least $10.0 million in order to draw the final $35.0 million tranche under the Loan Agreement in July 2019.
As of December 31, 2018, we held cash and cash equivalents of $81.8 million to fund operations. We are focused on General Instruction G(3)several initiatives to Form 10-K. General Instruction G(3)fund the future operations of the Company and reduce our risk of default under the Deerfield Facility with respect to Form 10-Kminimum cash requirements. In addition to drawing the additional $60.0 million available under the Vatera Facility, in the next several months, we plan to put a working capital revolver in place for up to $20.0 million, which is permitted under the Deerfield Facility (see Note 4) and required under the Vatera Loan Agreement. We are also exploring options to modify the terms of certain liabilities to increase our liquidity over the next 12 to 18 months. Finally, if our cash collections from revenue arrangements, including product sales, and other financing sources are not sufficient, we plan to control spending and would


take further actions to adjust the spending level for operations if required. However, there is no guarantee that we will be successful in executing any or all of these initiatives.
As discussed in the Overview in Management's Discussion and Analysis, we believe there is substantial doubt about our ability to continue as a going concern. Should we be unable to adequately finance the Company, the Company’s business, result of operations, liquidity and financial condition would be materially and negatively affected, and we would be unable to continue as a going concern. Additionally, there can be no assurance that we will achieve sufficient revenue or profitable operations to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern.
As an early commercial-stage company, we have not yet demonstrated the ability to successfully commercialize and launch a product candidate or market and sell products, and our marketed products have very limited sales history, with Baxdela and Vabomere launching within the last 18 months, and Orbactiv and Minocin for injection launching in 2014 and 2015, respectively. As such, even if we obtain sufficient capital to support our operating plan, it is possible that we may fail to appropriately estimate the timing and amount of our funding requirements and we may need to seek additional funding sooner, and in larger amounts, than we currently anticipate.
The following table provides that registrants may incorporatea summary of our cash position as of each of the period-end dates and the cash flows for each of the periods presented below (in thousands): 
 Year Ended December 31,
 2018 2017 2016
Cash, cash equivalents and restricted cash as of the end of the period$82,008
 $128,587
 $11,409
Net cash provided by (used in):     
Operating activities(171,545) (75,598) (70,580)
Investing activities(170,072) 155,061
 (463)
Financing activities295,038
 37,715
 52,294
Net increase in cash and equivalents$(46,579) $117,178
 $(18,749)
Comparison of the Years ended December 31, 2018 and 2017
Operating Activities
Net cash used in operating activities for the years ended December 31, 2018 and 2017, was $171.5 million and $75.6 million, respectively. The primary use of cash during 2018 was to support our selling, general and administrative functions and fund our manufacturing and research and development activities for our products and product candidates. The primary use of cash during 2017 was to fund our research and development activities for our product candidates, prepare for the launch of Baxdela in early 2018, and to support our selling, general and administrative functions. We used $95.9 million more in operations during 2018 due primarily to higher inventory-related purchases of $47.5 million, principally from commitments assumed as part of the IDB acquisition, and higher operating expenses, excluding non-cash expenses, of $110.1 million, driven by reference certain information from a definitive proxy statementthe launch off Baxdela in 2018, the support of sales activities for Vabomere, Orbactiv and Minocin for injection, and additional headcount and acquisition-related transaction costs. These increases in the use of cash in operating activities were partially offset by an increase of $62.6 million in revenue recognized and by other changes in working capital accounts year over year totaling $0.9 million.
Investing Activities
Net cash used in investing activities was $170.1 million in the year ended December 31, 2018, compared with net cash provided of $155.1 million for the years ended December 31, 2017. The primary driver for the large decrease between years was the merger with Cempra in November 2017, in which involveswe acquired $161.4 million in cash, and the electionacquisition of directors if such definitive proxy statement is filedIDB in 2018, for which we paid $166.4 million. During the year ended December 31, 2017, we acquired $7.5 million of intangible assets—of which we paid $5.5 million during 2017 and $2.0 million in 2018—by making milestone payments in connection with the SecuritiesFDA approval of Baxdela. Other cash used in investing activities in both of these periods was primarily for capital expenditures for facility improvements, lab equipment, software and office furniture and equipment.
Financing Activities
Net cash provided by financing activities for the years ended December 31, 2018 and 2017, was $295.0 million and $37.7 million, respectively. During the year ended December 31, 2018, cash provided by financing activities related primarily to the Deerfield Facility, which provided $183.5 million through promissory notes, common stock, warrants and the assumption of certain liabilities; and the issuance of common stock for $155.3 million. These were partially offset by cash outflows for the


retirement of the 2017 Loan Agreement, including exit fees, of $42.2 million, and deferred IDB payments in the form of sales-based royalties of $1.6 million. During the year ended December 31, 2017, cash provided by financing activities was comprised primarily of the issuance of notes payable of $63.4 million, partially offset by note payments of $25.7 million.
Comparison of the Years Ended December 31, 2017 and 2016
Operating Activities
Net cash used in operating activities for the years ended December 31, 2017 and 2016, was $75.6 million and $70.6 million, respectively. For both periods presented, the primary use of cash was to fund development and discovery research activities for our product candidates and to support our selling, general and administrative functions. We used $5.0 million more in operations during 2017 due primarily to higher operating expenses, excluding non-cash expenses, of $6.8 million, driven by the preparation of our launch of Baxdela in 2018, additional headcount and acquisition-related transaction costs, partially offset by $33.9 million of revenue recognized in 2017. This increase in cash used in operations was partially offset by changes in working capital accounts year over year totaling $1.8 million.
Investing Activities
Net cash provided in investing activities was $155.1 million in the year ended December 31, 2017, compared with net cash used of $0.5 million for the years ended December 31, 2016. The primary driver for the large increase between years was the merger with Cempra in November 2017, in which we acquired $161.4 million in cash. During the year ended December 31, 2017, we also acquired $7.5 million of intangible assets—of which we have paid $5.5 million and have accrued $2.0 million—by making milestone payments in connection with the FDA approval of Baxdela. Other cash used in investing activities in both of these periods was primarily for capital expenditures for facility improvements, lab equipment, software and office furniture and equipment.
Financing Activities
Net cash provided by financing activities for the years ended December 31, 2017 and 2016, was $37.7 million and $52.3 million, respectively. During the year ended December 31, 2017, cash provided by financing activities related primarily to the issuance of convertible promissory notes totaling $24.5 million and the refinancing of our 2014 loan agreement with Hercules Growth Technologies (the “2014 Loan Agreement”), replacing it with the 2017 Loan Agreement. During the year ended December 31, 2016, cash provided by financing activities was comprised primarily of preferred stock financing of $13.6 million and the issuance of notes payable of $44.1 million, partially offset by note payments of $5.5 million.  
Funding Sources and Requirements
Our principal operating source of funds is product sales, although we also generate significant amounts of funds through licensing our products in markets outside the U.S. and thorough grants which reimburse a portion of our research and development activities.
In February 2018, we launched Baxdela in the United States and, in January 2018, we acquired rights to three commercial antibiotics in connection with the acquisition of the Infectious Disease Business from Medicines. We do not expect to generate revenue from any other product candidates under development unless and until we successfully commercialize our products or enter into additional collaborative agreements with third parties.
In addition, we are exploring other partnerships and collaborations to assist with the funding of certain of our early-stage and clinical-stage research and development programs.
In connection with the IDB Transaction, we entered into the Deerfield Facility. The Deerfield Facility, as amended in January 2019, provides up to $240.0 million in debt and equity financing, with a term of six years. Deerfield made an initial disbursement of $147.8 million in loan financing. The lender also purchased 3,127,846 shares of Melinta common stock for $42.2 million under the Deerfield Facility, for a total initial financing of $190.0 million. The interest rate on the debt portion of this initial financing is 11.75%. The additional $50.0 million of debt financing is available if we have achieved certain revenue thresholds by the end of 2019, and, if drawn, will bear an interest rate of 14.75%. Pursuant to the Deerfield Facility, Deerfield also acquired warrants (held by certain funds managed by Deerfield) for the purchase of 3,792,868 shares of Melinta common stock at a purchase price per share of $16.50. Under the terms of the Deerfield Facility, we are able to secure a revolver credit line of up to $20.0 million. Deerfield holds a first lien on all of our assets, including our intellectual property, but would hold a second lien behind a revolver for working capital accounts. The Deerfield Facility allows for prepayment beginning in January 2021, with prepayment penalties equal to 2% plus a percentage of annual interest at the time of prepayment ranging between 25% and 75%. The Deerfield Facility, while it is outstanding, will limit our ability to raise debt financing in future periods outside of the Vatera Loan Agreement for $135 million, which was effective in the first quarter of 2019, and the $20.0 million revolver, both permitted under the arrangement.


To provide additional operating capital, in December 2018, the Company entered into a Senior Subordinated Convertible Loan Agreement (the “Loan Agreement”) with Vatera Healthcare Partners LLC and Vatera Investment Partners LLC (together, “Vatera”) pursuant to which Vatera committed to provide $135.0 million over a period of five months, subject to the satisfaction of certain conditions (see Note 4). We drew $75.0 million under this facility in February 2019, and we plan to draw the remaining $60.0 million by early July 2019. We must establish a working capital revolver of at least $10.0 million in order to draw the final $35.0 million tranche under the Loan Agreement in July 2019.
We expect to continue to incur significant losses into 2020, as we continue the development of, and seek regulatory approvals for, our product candidates, and commercialize our approved products. We are also subject to the risks associated with the development of new therapeutic products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business operations. Additionally, we expect to incur additional costs associated with operating as a public company and may need substantial additional funding in connection with our continuing operations, commercial, discovery and product development activities.
As discussed above, we expect our operating expenses to continue to increase for the foreseeable future and, as a result, we will need additional capital to support the working capital requirements of commercialized products and to fund further development of Melinta’s other product candidates.
We intend to use our cash and cash equivalents as follows:
to fund the activities supporting the commercialization efforts for our marketed products;
pursue additional indications and regional approvals, leveraging our robust product portfolio and  minimum 10-year market exclusivity period in the United States, including our Phase 3 trial for Baxdela for the treatment of hospital treated CABP; and
the remainder for working capital, selling, general and administrative expenses, and other general corporate purposes.
In addition, we may also use a portion of our cash and cash equivalents for the acquisition of, or investment in, companies, technologies, products or assets that complement our business. With the Cempra and IDB transactions recently integrated, we believe we are well positioned to add both internally- and externally-developed products to our portfolio while adding minimal new costs given our infrastructure that is now in place. As such, we may selectively pursue the addition of externally-developed products to our portfolio, adding to our existing marketed products and pipeline.
Until we can generate a sufficient amount of revenue from our products and licensing agreements, we expect to finance our future cash needs through the capital available under the Vatera and Deerfield credit facilities.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the applicable rules of the SEC.
Contractual Obligations and Commitments
The following table summarizes our minimum future cash payments due under our contractual obligations as of February 28, 2019, that will affect our future liquidity (in thousands):
Contractual Obligations(1)
2019 2020 2021 2022 2023 
2024 &
Thereafter
 Total
Note payable(2)
$17,508
 $17,653
 $17,605
 $81,391
 $78,756
 $93,892
 $306,805
Purchase commitments(3)
19,145
 —
 —
 —
 —
 —
 19,145
Operating lease obligations(4)
2,348
 2,269
 1,827
 1,238
 624
 262
 8,568
Total contractual cash
   obligations
$39,001
 $19,922
 $19,432
 $82,629
 $79,380
 $94,154
 $334,518
(1)Table excludes milestones and other contingent payments that may become due under Melinta’s license and collaboration agreements because they are payable upon the occurrence of certain future events that are not currently probable. It also excludes any amounts that may become payable when we draw additional amounts under the Vatera Loan Agreement.
(2)Represents amounts payable under the Deerfield Facility, as amended, and the Vatera Loan Agreement, to the extent we have drawn funds under either agreement (see Note 4 to the Consolidated Financial Statements).
(3)Represents amounts that will be owed for firm commitments to purchase goods or services, principally inventory.
(4)Includes the minimum lease rental payments for our corporate office building in Lincolnshire, Illinois, our research and administrative facility in New Haven, Connecticut, our facilities in Chapel Hill, North Carolina, office equipment leases and vehicle leases.


Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates.  Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10.0% change in interest rates would not have a material effect on the fair market value of our portfolio.  Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio.
We do not believe that our cash and equivalents have significant risk of default or illiquidity. In addition, we maintain significant amounts of cash and equivalents at one or more financial institutions that are in excess of federally insured limits.
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations during 2018, 2017 or 2016.
Item 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Item 15.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Exchange Commission (the “SEC”Act Rule 13a-15(e)) are designed only to provide reasonable assurance that information to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within 120 days afterthe time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. As of the end of the fiscal year. The Company does not anticipateperiod 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 officer), of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that its definitive proxy statement involving the electionevaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of directors will be filed by April 30, 2018 (i.e., within 120 days after the end of the company’s 2017 fiscal year)period covered by this report to provide the reasonable assurance discussed above.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Accordingly, Part IIIOur internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Original Form 10-K is hereby amended and restated as set forth below.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by our principal executive officer and principal financial officer are filed as exhibits to this Amendment under Item 15 of Part IV hereof.

Except as stated herein, this Amendment does not reflect events occurring after the filingassets of the Original Form 10-KCompany; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

There are limitations inherent in any internal control, such as the possibility of human error and the circumvention or overriding of controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met, and may not prevent or detect misstatements. As conditions change over time, so too may the effectiveness of internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management, with the SECparticipation of our Chief Executive Officer and Chief Financial Officer, evaluated the Company’s internal control over financial reporting as of December 31, 2018, based on March 16,the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on its assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2018.
Deloitte Touche, LLP, an independent registered public accounting firm, was engaged to audit the effectiveness of our internal control over financial reporting as of December 31, 2018 and no attempt has been madeissued an audit report regarding their assessment of


the effectiveness of internal control over financial reporting which is included on page F-2 in this AmendmentAnnual Report on Form 10-K.

Changes in Internal Control over Financial Reporting
No change to modifyour internal control over financial reporting occurred during the last fiscal quarter ended December 31, 2018, that has materially affected, or update other disclosures as presented in the Original Form 10-K.

is reasonably likely to materially affect, our internal control over financial reporting.



Item 9B. Other Information
Not applicable.



PART III
PART III

Item 10. Directors, Executive Officers and Corporate Governance

Code of Ethics

We have adopted a written code of ethics and business conduct that applies to our directors, executive officers and all employees. We intend to disclose any amendments to, or waivers from, our code of ethics and business conduct that are required to be publicly disclosed pursuant to rules of the SEC by filing such amendment or waiver with the SEC. This code of ethics and business conduct can be found in the corporate governance section of our website, www.melinta.com.

Directors

Name

Age

Position

NameAgePosition
Kevin T. Ferro

47

48

Chairman of the Board of Directors

Jay Galeota

52

Director

David Gill

63

Director

Cecilia Gonzalo

43

Director

John H. Johnson

60

61

Chief Executive Officer and Director

Bruce L. Downey

71Director
Jay Galeota53Director
David Gill64Director
Thomas P. Koestler, Ph.D.

66

67

Director

Garheng Kong, M.D., Ph.D.

42

43

Director

Daniel Wechsler

50

Director, President and Chief Executive Officer

David Zaccardelli, Pharm.D.

53

54

Director

Kevin T. Ferro—Mr. Ferro has served as the chairman of the Company’s board of directors since November 2017. He has served as the chief executive officer chief investment officer and managing member of Vatera HoldingsCapital Management LLC, the manager of Vatera Healthcare Partners LLC, since April 2007.January 2019. Mr. Ferro serves as chairman of the boardsboard of ImmusanT, Inc. and served as chairman of the board of Arisaph Pharmaceuticals, Inc. Beginning October 2012, Mr. Ferro served as a member of the board of directors for Pearl Therapeutics, Inc., and was chairman from December 2012 until its sale to AstraZeneca in June 2013, and he served as a member of the board of directors of Kos Pharmaceuticals, Inc. from 2004 until its sale to Abbott Laboratories in 2006. Prior to forming Vatera Capital Management, Mr. Ferro served as the chief executive officer, chief investment officer and managing member of Vatera Holdings LLC, the former manager of Vatera Healthcare Partners LLC, from April 2007 through January 1, 2019. Mr. Ferro founded Ferro Capital LLC, an investment advisory firm, in 2001. Prior to that, Mr. Ferro was the Global Head of Alternative Investment Strategies for Commerzbank, one of Germany’s largest listed banks. Prior to Commerzbank, Mr. Ferro was a Vice President at D. E. Shaw & Co. LP. Mr. Ferro received an A.B. in Government from Harvard University.

John H. Johnson—Mr. Johnson has served as our interim Chief Executive Officer since October 2018 and as our chief Executive Officer since February 2019, and has served on the Company’s board of directors since June 2009. He served as president and chief executive officer of Dendreon Corp., a publicly traded biotechnology company (Nasdaq: DNDN), from February 2012, became chairman in July 2013, and served as chairman until June 2014 and president and chief executive officer until August 2014. He served as the chief executive officer and as a director of Savient Pharmaceuticals, Inc., a company that developed and commercialized specialty pharmaceuticals, from 2011 to January 2012. Mr. Johnson was senior vice president of Eli Lilly and Company (NYSE: LLY) and president of Lilly Oncology, Eli Lilly’s oncology business unit, from 2009 to 2011. From 2007 to 2009, Mr. Johnson was chief executive officer of ImClone Systems Incorporated, a biopharmaceutical development company, and was also a member of ImClone’s board of directors until it became a wholly owned subsidiary of Eli Lilly in 2008. From 2005 to 2007, Mr. Johnson served as company group chairman of Johnson & Johnson’s Worldwide Biopharmaceuticals unit. Mr. Johnson served as chairman of the board of Tranzyme, Inc. (Nasdaq: TZYM), a publicly traded biopharmaceutical company, from December 2010 until July 2013. Mr. Johnson serves as the chairman of the board of Strongbridge Biopharma PLC (Nasdaq: SBBP), a global biopharmaceutical company, and also serves as lead independent director of Portola Pharmaceuticals, Inc. (Nasdaq: PTLA), a biopharmaceutical company, and Histogenics Corporation (Nasdaq: HSGX), a regenerative medicine company. Mr. Johnson also serves on the board of directors of Aveo Pharmaceuticals, Inc. (Nasdaq: AVEO), a biopharmaceutical company. Mr. Johnson holds a B.S. in Education from East Stroudsburg University of Pennsylvania.
Bruce L. Downey—Mr. Downey has been a director since October 2018. He has served as a partner at NewSpring Capital, a venture capital firm, since April 2009. Previously, Mr. Downey was chairman and chief executive officer of Barr Pharmaceuticals, Inc., a global specialty pharmaceutical company that operated in more than 30 countries worldwide and was acquired by Teva Pharmaceutical Industries Ltd. in 2008. Mr. Downey is a member of the board of directors of Cardinal Health, Inc. (NYSE: CAH), serving on the audit committee, is Non-Executive Chairman and a member of the board of directors of Momenta Pharmaceuticals, Inc. (Nasdaq: MNTA), serving on the audit and compensation committees, as well as privately held


companies. Mr. Downey graduated with honors from Miami University in 1969 and received his law degree, cum laude, from The Ohio State University. Mr. Downey’s qualifications to sit on the board include his significant experience serving as a chief executive officer of a global generic pharmaceutical company that also had a substantial brand business and an active biologics research and development program, his years serving as a lawyer in private practice and his experience serving on other boards of directors in the biopharmaceutical industry.
Jay Galeota—Mr. Galeota has served as a member of the Company’s board of directors since November 2017. Mr. Galeota has served as the president and chief operating officer of G&W Laboratories since 2016. From 1988 to 2016 Mr. Galeota served in many diverse positions at Merck & Co., Inc., where he was most recently chief strategy & business development officer and president, emerging businesses. From 2011 to 2016 he was president of hospital & specialty care at Merck and from 2009 to 2011, he served as senior vice president of global human health strategy and business development. Mr. Galeota started his career in Merck’s commercial organization, where he held various US and global leadership positions and led numerous brands and key product launches across a variety of therapeutic areas. Mr. Galeota holds a Bachelor of Science degree in biology from Villanova University and is a graduate of Harvard Business School’s Advanced Management Program. He currently serves on the boards of Hackensack Meridian Health System, the New Jersey Symphony Orchestra, and the Metuchen Edison Woodbridge YMCA. In addition, he is a guest lecturer at the Wharton School of the University of Pennsylvania.

David Gill—Mr. Gill joined the Company’s board of directors in April 2012. Mr. Gill served as chief financial officer of EndoChoice Holdings, Inc. (NYSE: GI), a publicly traded medical device company from August 2014 to November 2016, and as president and chief financial officer from March 2016 to November 2016, when the company was acquired. He served as the chief financial officer of INC Research Holdings Inc. (NASDAQ: INCR), now known as Syneos Health, Inc. (Nasdaq: SYNH), a clinical research organization, from February 2011 to August 2013, after having served as a board member and its audit committee chairman from 2007 to 2010. From March 2009 to February 2011, Mr. Gill was the chief financial officer of TransEnterix (NYSEMKT: TRXC), a then private medical device company. He currently serves as a director of Histogenics Corporation (NASDAQ:(Nasdaq: HSGX), a regenerative medicine company, Evolus, inc. (NASDAQ:Inc. (Nasdaq: EOLS), an aesthetics company, Strata Skin Sciences (SSKN), and YmAbs Therapeutiecs,Therapeutics, an immuno-oncology company. From 2006


to 2009, he served on several public and private company boards of directors, including those of LeMaitre Vascular (NASDAQ: LMAT), and IsoTis, Inc. Earlier in his career, Mr. Gill served in a variety of senior executive leadership roles for several medical device and information technology companies, including NxStage Medical, CTIMolecular Imaging, Inc., InterlnadInterland Inc., Novoste Corporation and Dornier Medical. Mr. Gill holds a B.S. degree, cum laude, in Accounting from Wake Forest University and an M.B.A. degree, with honors, from Emory University, and was formerly a certified public accountant.

Cecilia Gonzalo

—Ms. Gonzalo has served as a member of the Company’s board of directors since November 2017. Ms. Gonzalo is a managing director of Vatera Holdings LLC, the manager of Vatera Healthcare Partners LLC, a position she has held since July 2015, where she is responsible for sourcing new investments and overseeing existing investments in the biopharmaceutical industry. From April 2013 to June 2015, Ms. Gonzalo was a managing director at Essex Woodlands, a healthcare-focused growth equity firm where she focused on investing across the healthcare sector in the US, Latin America and Europe. Ms. Gonzalo was previously a member and managing director of Warburg Pincus LLC and partner of Warburg Pincus & Co. from January 2010 to April 2013, a principal of Warburg Pincus LLC from January 2006 to December 2009 and an associate from August 2001 to December 2005, where she focused on healthcare investments in the pharmaceuticals, biotechnology and healthcare services sectors. Prior to Warburg Pincus, Ms. Gonzalo was an analyst at Goldman Sachs & Co., initially in the Investment Banking Division focusing on corporate finance and mergers and acquisitions transactions in Latin America, and then in the Principal Investment Area focusing on investments in the region. Ms. Gonzalo received an A.B. in Biochemical Sciences from Harvard College and her Master of Business Administration from Harvard Business School. Ms. Gonzalo is a board member and the co-president of the Harvard Business School Healthcare Alumni Association. Ms. Gonzalo has served as a member of the board of directors of various companies, including Talon Therapeutics, Inc., Allos Therapeutics Inc., Eurand N.V., LaVie Care Centers and Prestwick Pharmaceuticals, Inc., among others.

John H. Johnson—Mr. Johnson has served on the Company’s board of directors since June 2009. He served as president and chief executive officer of Dendreon Corp., a publicly traded biotechnology company (NASDAQ: DNDN), from February 2012, became chairman in July 2013, and served as chairman until June 2014 and president and chief executive officer until August 2014. He served as the chief executive officer and as a director of Savient Pharmaceuticals, Inc., a company that developed and commercialized specialty pharmaceuticals, from 2011 to January 2012. Mr. Johnson was senior vice president of Eli Lilly and Company (NYSE: LLY) and president of Lilly Oncology, Eli Lilly’s oncology business unit, from 2009 to 2011. From 2007 to 2009, Mr. Johnson was chief executive officer of ImClone Systems Incorporated, a biopharmaceutical development company, and was also a member of ImClone’s board of directors until it became a wholly owned subsidiary of Eli Lilly in 2008. From 2005 to 2007, Mr. Johnson served as company group chairman of Johnson & Johnson’s Worldwide Biopharmaceuticals unit. Mr. Johnson served as chairman of the board of Tranzyme, Inc. (NASDAQ: TZYM), a publicly traded biopharmaceutical company, from December 2010 until July 2013. Mr. Johnson serves as the chairman of the board of Strongbridge Biopharma PLC (NASDAQ: SBBP), a global biopharmaceutical company, and also serves as lead independent director of Portola Pharmaceuticals, Inc. (NASDAQ: PTLA), a biopharmaceutical company, and Histogenics Corporation (NASDAQ: HSGX), a regenerative medicine company. Mr. Johnson also serves on the board of directors of Aveo Pharmaceuticals, Inc. (NASDAQ: AVEO), a biopharmaceutical company. Mr. Johnson holds a B.S. in Education from East Stroudsburg University of Pennsylvania.

Thomas P. Koestler, Ph.D.—Dr. Koestler has served as a member of the Company’s board of directors since November 2017. Dr. KoestlerHe has served as an executive director of Vatera Holdings LLC, the manager ofa consultant to Vatera Healthcare Partners LLC since February 2010.January 2019. Dr. Koestler is also a member of the boards of directors of Momenta Pharmaceuticals Inc., ImmusanT, Inc. and was a member of the board of directors of Arisaph Pharmaceuticals, Inc. From March 2011 to April 2016, Dr. Koestler served as a member of the board of directors of Novo Nordisk A/S. Dr. Koestler served as an executive director of Vatera Holdings LLC, the former manager of Vatera Healthcare Partners LLC, from February 2010 through January 1, 2019. From 2006 to 2009, Dr. Koestler served as executive vice president of Schering Corporation and president of Schering-Plough Research Institute, the pharmaceutical research and development arm of Schering-Plough Corporation, and served as executive vice president, global development, of Schering-Plough Research Institute from 2005 to 2006, and executive vice president of Schering-Plough Research Institute from 2003 to 2005. Before joining Schering-Plough, Dr. Koestler served as senior vice president and head of global regulatory affairs for Pharmacia Corporation from 2001 to 2003. Before that, Dr. Koestler was senior vice president and global head, drug regulatory affairs, compliance assurance, clinical safety and epidemiology for Novartis. Dr. Koestler received his B.S. from Daemen College and his Ph.D. in Medicine and Pathology from SUNY Buffalo, Roswell Park Memorial Institute.


Garheng Kong, M.D., Ph.D.—Dr. Kong has served on the Company’s board of directors since September 2006. Dr. Kong has been the managing partner of Sofinnova HealthQuest, a healthcare investment firm, since July 2013. He was a general partner at Sofinnova Ventures, a venture firm focused on life sciences, from September 2010 to December 2013. From 2000 to September 2010, he was at Intersouth Partners, a venture capital firm, most recently as a general partner, where he was a founding investor or board member for various life sciences ventures, several of which were acquired by large pharmaceutical companies. Dr. Kong has also served on the board of directors of Histogenics Corporation (NASDAQ: HSGX)Avedro, Inc (Nasdaq: AVDR), a regenerative medicinecorneal health company, since July 2012,2018, Alimera Sciences, Inc. (NASDAQ:(Nasdaq: ALIM), a biopharmaceutical company, since October 2012, has served on the board of Laboratory Corporation of America Holdings (NYSE: LH), a healthcare company, since December 2013, and has served on the board of StrongBridge BioPharma plc (NASDAQ:(Nasdaq: SBBP) since September 2015. Dr. Kong holds a B.S. from Stanford University. Heholds an M.D., Ph.D. and M.B.A. from Duke University.

Daniel Wechsler

—Mr. Wechsler has served as President and CEO of Melinta since November 2017 and on the Company’s board of directors since that time. He was an operating partner of Welsh, Carson, Anderson & Stowe from October 2016 until November 2017. Prior to that, Mr. Wechsler served as president and CEO of Smile Brands, Inc. from March 2014 until the company’s sale in 2016, and as executive vice president and global president of pharmaceuticals at Bausch + Lomb Incorporated from 2011 to 2013. Mr. Wechsler started his career at The Upjohn Company and thereafter worked at Pharmacia Corporation, where he helped launch Zyvox, until the company’s acquisition by Pfizer, Inc. in 2003. Mr. Wechsler served as vice president of sales specialty at Pfizer, Inc. from 2003 to 2005, SVP of global operations at Schering-Plough Corporation from 2005 to 2009 and SVP of strategy and commercial model excellence at Merck & Co. from 2009 to 2011. Mr. Wechsler holds a master’s degree from the University of Rochester and a bachelor’s degree from the State University of New York at Brockport.

David Zaccardelli, Pharm.D.— Dr. Zaccardelli has served on the Company’s board of directors since August 2016 and was acting chief executive officer of Cempra from December 2016 until November 2017. From 2004 until 2016, Dr. Zaccardelli served in several senior management roles at United Therapeutics Corporation (NASDAQ:(Nasdaq: UTHR), including chief operating officer, chief manufacturing officer and executive vice president, pharmaceutical development and operations. Prior to joining United Therapeutics, Dr. Zaccardelli founded and led a startup company focused on contract pharmaceutical development services, from 1997 through 2003. From 1988 to 1996, Dr. Zaccardelli worked at Burroughs Wellcome & Co. and



Glaxo Wellcome, Inc. in a variety of clinical research positions. He also served as director of clinical and scientific affairs for Bausch & Lomb Pharmaceuticals from 1996 to 1997. Dr. Zaccardelli currently serves on the board of directors of Evecxia, Inc. and CoreRx, Inc., both privately held companies. Dr. Zaccardelli received a Pharm.D. from the University of Michigan.


Executive Officers  

As of April 30, 2018,March 1, 2019, our executive officers are Daniel Wechsler,John H. Johnson, our President and Chief Executive Officer, Sue Cammarata, M.D., our Chief Medical Officer, Paul Estrem,Peter J. Milligan, our Chief Financial Officer, and Erin Duffy, Ph.D., our Chief Scientific Officer. Information for each is provided below.

On February 25, 2019, we announced that Dr. Duffy will leave the company on March 15, 2019.

Name

Name
Age
(as of
4/30/18)

Business Experience For Last Five Years

Daniel Wechsler

John H. Johnson

50

61

Daniel Wechsler joined Melinta
Mr. Johnson has served as President andour interim Chief Executive Officer since October 2018 and as our Chief Executive Officer since February 2019, and has served on the Company’s board of directors since June 2009. He became the Company's permanent CEO in November 2017 and is a seasoned pharmaceutical executive with more than 25 years of healthcare experience across multiple companies and geographies, and a proven record of strategic, operational and commercial success. His notable antibiotics experience includes the commercialization of Zyvox (linezolid), an antibiotic that achieved blockbuster status. Mr. Wechsler started his career with The Upjohn Company selling antibiotics and other pharmaceutical products.February 2019. He subsequently led the team at Pharmacia Corporation that launched Zyvox until the company’s acquisition by Pfizer. Mr. Wechsler has held senior positions at Pfizer Inc., Schering-Plough Corporation and Merck & Co. In 2010, Mr. Wechsler joined Bausch + Lomb Incorporated as executive vice president and global president of pharmaceuticals, where he led a greater than one billion dollar global pharmaceutical business prior to the sale of the company to Valeant Pharmaceuticals for $8.7 billion. Most recently, Mr. Wechsler served as president and chief executive officer of Smile Brands,Dendreon Corp., a publicly traded biotechnology company (Nasdaq: DNDN), from February 2012, became chairman in July 2013, and served as chairman until June 2014 and president and chief executive officer until August 2014. He served as the chief executive officer and as a director of Savient Pharmaceuticals, Inc., a company that developed and commercialized specialty pharmaceuticals, from 2011 to January 2012. Mr. Johnson was senior vice president of Eli Lilly and Company (NYSE: LLY) and president of Lilly Oncology, Eli Lilly’s oncology business unit, from 2009 to 2011. From 2007 to 2009, Mr. Johnson was chief executive officer of ImClone Systems Incorporated, a biopharmaceutical development company, and was also a member of ImClone’s board of directors until its saleit became a wholly owned subsidiary of Eli Lilly in 2016, at which time he joined Welsh, Carson, Anderson2008. From 2005 to 2007, Mr. Johnson served as company group chairman of Johnson & StoweJohnson’s Worldwide Biopharmaceuticals unit. Mr. Johnson served as an operating partner. Hechairman of the board of Tranzyme, Inc. (Nasdaq: TZYM), a publicly traded biopharmaceutical company, from December 2010 until July 2013. Mr. Johnson serves as the chairman of the board of Strongbridge Biopharma PLC (Nasdaq: SBBP), a global biopharmaceutical company, and also serves as lead independent director of Portola Pharmaceuticals, Inc. (Nasdaq: PTLA), a biopharmaceutical company, and Histogenics Corporation (Nasdaq: HSGX), a regenerative medicine company. Mr. Johnson also serves on the board of directors of Aveo Pharmaceuticals, Inc. (Nasdaq: AVEO), a biopharmaceutical company. Mr. Johnson holds a master’s degreeB.S. in Education from theEast Stroudsburg University of Rochester and a bachelor’s degree from the State University of New York at Brockport.

Pennsylvania.

Sue Cammarata, M.D.

61

62

Dr. Cammarata, current Executive Vice President and Chief Medical Officer of Melinta, has more than 20 years of clinical experience in the development, approval and launch of pharmaceuticals, including several anti-infective brands such as Cubicin (daptomycin) in the E.U., and Zyvox (linezolid) globally. Since joining Melinta in 2014, she has led the successful Phase 3 clinical development of Baxdela, which was approved by the FDA in June, and is also responsible for medical affairs. Prior to joining Melinta, Dr. Cammarata served as vice president of clinical research at Shire HGT, where she was responsible for clinical development and post approval commitments for novel therapies in rare and orphan diseases. Earlier, she held several senior positions at Novartis, most recently as vice president and global program head for the company’s immunology and infectious disease franchises. In this role, she managed the integration of Chiron’s infectious disease portfolio after its acquisition by Novartis in 2006. In addition, she managed the E.U. approval process for Cubicin’s endocarditis and bacteremia indications. Before joining Novartis, Dr. Cammarata held several positions at Pharmacia Upjohn (later Pfizer, Inc.) where she was an integral member of the team that led the Phase 3 and subsequent global regulatory programs for Zyvox, a first-in-class antibiotic for gram-positive infections, including those resistant to vancomycin. Dr. Cammarata received her M.D. from Michigan State University, completed her residency in internal medicine and her fellowship in pulmonary and critical care medicine at Henry Ford Health Systems and was a pulmonary and critical care medicine specialist for several years in private practice before entering the pharmaceutical industry. Dr. Cammarata earned her B.S. in pharmacy from Purdue University.



Name

Name
Age
(as of
4/30/18)

Business Experience For Last Five Years

Paul Estrem

Peter J. Milligan

53

50

Paul Estrem, current Executive Vice President,

Mr. Milligan joined Melinta in 2018 as Chief Financial OfficerOfficer. He is an accomplished executive and Secretary of Melinta, has more than 27established corporate leader who brings nearly 30 years of financial leadership, with extensive experience in the pharmaceutical industry.managing all aspects of corporate and operational financial matters, including numerous capital market transactions. Prior to joining Melinta in 2013, Mr. Estremhe served as the Chief Financial Officer of G&W Laboratories, a privately held several senior positions at Baxter International, most recently vice president of integration for Baxter’s Medical Products,generic pharmaceutical company where he held a lead role in the $4 billion acquisitionhad oversight and leadership of Gambro and oversaw the integration of their products, facilities and employees. Earlier in his tenure, Mr. Estrem served as chiefall financial officer of Baxter Medical Products; chief financial officer and vice president of strategy in Baxter Medication Delivery, a division that later became Baxter Medical Products; chief financial officer of Baxter Bioscience, a specialty therapeutics division; and chief financial officer of Baxter Ltd, a subsidiary based in Tokyo, Japan. Mr. Estrem is a memberaspects of the American Institutecompany, including financial planning and analysis, accounting, internal control, treasury, and tax. Prior to that he was Senior Vice President and CFO of Certified Public AccountantsExelis, Inc. (NYSE: XLS), a leading global defense and aerospace company effective with its 2011 spin-off from ITT through the Institutesale of Internal Auditors.the business to Harris Corp in 2015. Prior to that he held various senior finance roles within ITT, Inc. He received an MBAalso spent over 10 years at AT&T in roles of increasing responsibility within their finance function. Peter holds a M.B.A. from Northwestern University’s Kellogg School of ManagementNew York University with a concentration in Finance and Economics and a B.S.B.B.A. in accountingAccounting from Illinois StateHofstra University.


Erin Duffy, Ph.D.

49

50

Dr. Duffy, current Executive Vice President and Chief Scientific Officer of Melinta, has more than 21 years of pharmaceutical research experience and has been responsible for translating Melinta’s Nobel Prize-winning ribosome technology platform into the discovery and early-stage development of novel antibiotic candidates. She joined the company in 2002 and has become one of the world’s leading experts on the structure and function of the bacterial ribosome and the interaction of antibiotics with their ribosomal targets. Dr. Duffy has led Melinta’s ESKAPE Pathogen Program from its infancy and has been instrumental in advancing the platform while also contributing to the development programs for other drug candidates. The ESKAPE Pathogen Program is Melinta’s most advanced preclinical initiative, focused on using a discrete, novel binding site within the bacterial ribosome to design and develop completely new classes of antibiotics to treat some of the deadliest multi-drug resistant gram-positive and gram-negative infections. Prior to joining Melinta, Dr. Duffy served as associate director of innovative discovery technologies at Achillion Pharmaceuticals, Inc. Dr. Duffy began her scientific career as a computational chemist with Pfizer Global Research and Development. Dr. Duffy trained at Yale University, where she received her Ph.D. in physical-organic chemistry and was a Howard Hughes postdoctoral fellow. She holds a B.S. in chemistry from Wheeling Jesuit University. 

Director independence

Our board of directors has undertaken a review of the independence of our directors and has determined that all directors except Mr. WechslerJohnson are independent within the meaning of Section 5605(a)(2) of the NASDAQNasdaq Marketplace Rules and the related rules applicable to the committees on which each director serves.

Audit Committee

Our board of directors has established an Audit Committee in accordance with Section 3(a)(58)(A) of the Securities Exchange Act consisting of Mr. Gill (Chair), Mr. Galeota, Ms. Gonzalo and Mr. Johnson.Downey. Mr. Gill, Mr. Galeota, Ms. Gonzalo and Mr. JohnsonDowney are each independent within the meaning of Section 5605(a)(2) of the NASDAQNasdaq Marketplace Rules and meet the additional test for independence for audit committee members imposed by the SEC, regulation and Section 5605(c)(2)(A) of the NASDAQNasdaq Marketplace Rules. Our board of directors has determined that Mr. Gill qualifies as a financial expert.

Section 16(a) Beneficial Ownership Reporting Compliance

Under Section 16(a) of the Exchange Act, our directors and executive officers and certain persons holding more than 10% of our outstanding common shares are required to report their initial ownership of common shares and any subsequent changes in that ownership to the SEC. Specific filing dates for these reports have been established by the SEC and we are required to disclose in this proxy statement any failure by such persons to file these reports in a timely manner during 2017.2018. Based upon our review of copies of Forms 3, 4 and 5 furnished to us and the written representations we received from each of our directors and executive officers that no Forms 5 were required, we believe that all Section 16(a) reports were filed timely in 2017.

2018.

Item 11. ExecutiveExecutive Compensation

COMPENSATION DISCUSSION AND ANALYSIS

Section I

OVERVIEW

Section II

PAY FOR PERFORMANCE PHILOSOPHY; EXECUTIVE COMPENSATION PROGRAM OBJECTIVES

Section III

COMPENSATION DETERMINATION PROCESS

Section IV

COMPONENTS OF EXECUTIVE COMPENSATION

Section V

COMPENSATION PRIOR TO, AND IN CONNECTION WITH, THE MERGER WITH CEMPRA

Section VI

ADDITIONAL COMPENSATION POLICIES AND PRACTICES

I.

OVERVIEW

This Compensation DiscussionThe information required by this Item concerning directors and Analysis describes: our executive compensation particularly following the November 2017 merger with Cempra; our early 2018 compensation decisions and actions; and, importantly, the contours of the philosophy, objectives, processes, components and additional aspects of our executive compensation program going forward. This Compensation Discussion and Analysis is intended to be read in conjunction with the tables that immediately follow this section, which provide further historical compensation information.

Background

We are a commercial-stage pharmaceutical company focused on discovering, developing and commercializing differentiated anti-infectives for the hospital and select non-hospital, or community, settings that address the need for effective treatments for infections due to resistant gram-negative and gram-positive bacteria. We currently market four antibiotics to treat a variety of infections caused by these resistant bacteria and other bacteria.

On November 3, 2017, Cempra, Inc., a clinical-stage company developing anti-infectives, completed a merger with privately held Melinta Therapeutics Inc., a commercial-stage company developing novel antibiotics for serious bacterial infections, with the surviving company changing its name to Melinta Therapeutics, Inc., Melinta or the Company. The combination resulted in an entity with extensive core competencies in developing and commercializing novel antibiotics to treat serious, life-threatening infections. Following the merger, Melinta shareholders owned approximately 52% of the combined company, and Cempra shareholders owned approximately 48%.

Prior to the merger, on June 19, 2017, we announced that the U.S. Food and Drug Administration had approved Baxdela™ (delafloxacin), indicated in adults for the treatment of acute bacterial skin and skin structure infections caused by susceptible bacteria. In the first quarter of 2018, we launched Baxdela in the United States and our European partner filed for marketing approval in Europe.

On January 5, 2018, we acquired the infectious disease business of The Medicines Company, bolstering our position as a leading antibiotics-focused company, with a large portfolio of current and potential products and substantial expertise in antibiotic development and commercialization. With this acquisition, our combined portfolio added three additional marketed products: Vabomere™ (meropenem and vaborbactam), Orbactiv® (oritavancin), and Minocin® (minocycline) for Injection.


In connection with the merger with Cempra, our board of directors recruited a new Chief Executive Officer (“CEO”) and established the rest of the management team by appointing the executive officers of the combined organization. This new CEO and certain other executive officers who were in office on December 31, 2017, the last day of our fiscal year, are included as 2017 Named Executive Officers, or NEOs, under SEC rules, and we refer to them as the Current NEOs. There are also other individuals who served as the principal executive officer or principal financial officer of Cempra during 2017 before the merger or who are otherwise included as NEOs under the SEC rules who we refer to as Former NEOs. Hence, the Company’s 2017 NEOs are as follows:

Current NEOs

Daniel Wechsler

President and CEO

Paul D. Estrem

Executive Vice President, Chief Financial Officer and Secretary

Sue K. Cammarata, M.D.

Executive Vice President and Chief Medical Officer

Erin Duffy, Ph.D.

Executive Vice President and Chief Scientific Officer

John Temperato(1)

Former Executive Vice President and Chief Commercial Officer

Former NEOs

David Zaccardelli, Pharm.D.

Former Acting CEO

Mark Hahn

Former Executive Vice President and Chief Financial Officer

John Bluth

Former Executive Vice President, Investor Relations and Corporate Communications

David Oldach, M.D.

Former Chief Medical Officer

(1)

Mr. Temperato’s employment with the Company ended on January 5, 2018.

Leadership Transitions

Effective as of the closing of the Cempra merger on November 3, 2017, we appointed Daniel Wechsler as President and CEO and a member of the board of directors. Mr. Wechsler is a seasoned pharmaceutical executive with more than 25 years of healthcare experience at companies including Pfizer, Schering-Plough, Merck, Upjohn, Pharmacia and Bausch & Lomb.

Also, effective upon the closing of the merger:

We appointed Sue Cammarata, M.D., as Chief Medical Officer. Dr. Cammarata has served as chief medical officer of Melinta since 2014. She has more than 20 years of clinical experience in the development, approval and launch of pharmaceuticals, including several anti-infective brands.

We appointed Erin Duffy, Ph.D., as Chief Scientific Officer. She joined Melinta in 2002 and has more than 21 years of pharmaceutical research experience. She has been responsible for translating Melinta’s ribosome technology platform into the discovery and early-stage development of novel antibiotic candidates.

We appointed Paul Estrem as Chief Financial Officer, a position he held prior to the merger. Mr. Estrem has more than 27 years of financial leadership experience in the pharmaceutical industry. Prior to joining Melinta, Mr. Estrem held several senior positions at Baxter International.

We appointed John Temperato as our Executive Vice President and Chief Commercial Officer, and effective as of January 5, 2018, Mr. Temperato’s employment with the Company ended.

The employment of Dr. Zaccardelli terminated in connection with the completion of the merger, effective November 3, 2017. He continues to serve on our board of directors as a non-employee member. Each of Messrs. Hahn and Bluth and Dr. Oldach resigned as officers of the Company effective November 15, 2017.


II.

PAY FOR PERFORMANCE PHILOSOPHY; EXECUTIVE COMPENSATION PROGRAM OBJECTIVES

Our mission is to meet the continually evolving threat of bacterial infections by discovering, developing and commercializing a continuous stream of novel antibiotics. In order to accomplish our mission, we must attract, motivate and retain highly skilled and experienced people to execute our corporate strategy and lead our team. In addition, we have designed our pay-for-performance compensation programs to reward the achievement of key operational and strategic objectives intended to help achieve our mission, given our current stage of development, our commercial activities and our goal of progressing product development. In light of these two principles, our executive compensation programs and decisions have the following objectives:

to link pay to performance over both the short- and long-term;

to align our executives’ interests with the interests of shareholders through long-term incentives linked to specific performance, and with the creation of shareholder value;

to attract, motivate and retain highly skilled and experienced executives;

to provide incentives that reward the achievement of performance goals, tie into corporate strategic and operational goals, and that directly correlate to the enhancement of shareholder value; and

to reduce incentives to expose Melinta to imprudent risks that might harm the Company or our shareholders.

Key Compensation Decisions and Actions After 2017 Merger

Between June 2017 and early 2018, we undertook a significant strategic transformation. As described above in the “Background” section, we closed a merger with Cempra, secured U.S. Food and Drug Administration approval of Baxdela and began marketing it in the U.S., and acquired the infectious disease business from The Medicines Company, thereby bringing three additional marketed products to the Company. At the time of this filing, we have become a leading antibiotics-focused company, based on these combinations with other organizations or parts thereof. The compensation committee of the board of directors (“Compensation Committee”) is of the view that while the executive leadership team is initially managing the new, larger organization and implementing the integration of the companies and units, setting goals can be more challenging. As such, visibility into the future is inferior to visibility in time periods with less significant transitions taking place. Given this current situation, in early 2018 the Compensation Committee evaluated what it believes to be the best structure and component mix of the executive compensation program, as well as performance metrics and total and component target amounts.

If we continue to achieve our corporate and operations goals and our research milestones, advance additional products toward commercialization and expand our executive team, we anticipate that our overall compensation philosophy and certain approaches, priorities and components of our executive compensation program will adapt and change.


Corporate Governance Practices

As part of the efforts of the Compensation Committee to ensure that our compensation program, which includes our policies and practices, aligns our executive officers’ interests with those of the Company and its shareholders, the Compensation Committee assesses the effectiveness of our compensation program periodically, including with respect to risk mitigation and governance of the program. The governance of our executive compensation program includes the following best practices:

What We DO:

What We DO NOT Do:

√

Align executive compensation with shareholder

returns by tying a significant portion of annual

target compensation to corporate performance

X

No gross-ups of excise taxes that may be imposed

as a result of severance or other payments made

in connection with a change in control

√

Review compensation data from peers whose stage

of development, revenues and number of

employees share similarities with Melinta

X

No special retirement plans for executive officers

√

Use equity for long-term incentive awards and

provide that awards have a vesting period of at least

one year

X

No compensation programs that encourage short-

term risk-taking at the expense of long-term

results or that otherwise create risks reasonably

likely to have a material adverse effect on the

Company

√

Maintain an appropriate balance between short- and

long-term compensation, which discourages short-

term risk-taking at the expense of long-term results

X

No guaranteed performance bonuses

√

Require executive officers to comply with our stock

ownership guidelines

X

No repricing of stock options without shareholder

approval

√

Engage an independent compensation advisor to the

Compensation Committee, who performs no other

services for Melinta

X

No discounted stock options

√

“Anti-Hedging policy” regarding our shares

applicable to directors and executive officers

X

No highly leveraged incentive plans that

encourage excessive risk taking

√

“Anti-Pledging policy” limiting the pledging of

shares applicable to directors and executive officers

X

No single-trigger vesting of equity upon a change

in control

√

Engage with shareholders to discuss and

understand their perceptions or concerns

regarding our executive compensation programs

X

No perquisites

2017 Say-on-Pay Results

We take very seriously and take into consideration the input and feedback that we receive from our shareholders about our executive compensation program. At the 2017 meeting of the legacy Cempra entity prior to the merger with Melinta, our say-on-pay proposal received support from 76% of the votes cast by our shareholders on the matter. Our Compensation Committee believes that the shareholders, through this advisory vote, generally endorsed the legacy Cempra compensation philosophy and principles. As described above, however, in early 2018 the Compensation Committee evaluated the nature of the executive compensation program following the Company’s strategic transformation. The Company is committed to regular, ongoing engagement with shareholders to ensure that we continue to understand shareholder feedback about our compensation programs and other key matters of interest to them, and to enable us to take that feedback into consideration for our compensation decisions.


III.

COMPENSATION DETERMINATION PROCESS

Compensation Data; Independent Compensation Consultant

The Compensation Committee has the power to retain independent compensation consultants, legal counsel, or other advisors as it may deem appropriate to assist it in the performance of its duties and responsibilities, without consulting or obtaining the approval of management of the Company. The Compensation Committee recognizes the importance of objective, independent expertise and advice in carrying out its responsibilities. In connection with its need to review and modify our executive compensation program in connection with the Company’s merger with Cempra and acquisition from The Medicines Company, in December 2017, the Compensation Committee retained Radford, an Aon Company, as its independent compensation consultant. Radford reports directly to, and is directly accountable to, the Compensation Committee, and the Compensation Committee has the sole authority to retain, terminate and obtain the advice of Radford at the Company’s expense. The Compensation Committee selected Radford as consultants because of the firm’s expertise and reputation and the fact that Radford provides no services to the Company other than its services to the Compensation Committee, has no other ties to management that could jeopardize its fully independent status, and has strong internal governance policies that help ensure that it maintains its independence. The Compensation Committee, with the assistance of its independent compensation consultant, monitors market compensation practices and developments, as well as the appropriateness of the various components of the executive pay program, as our business progresses and evolves with anticipated growth and changing market conditions.

In addition, in making determinations about executive compensation, our Compensation Committee believes that obtaining relevant market and benchmark data is very important. Collecting such information provides very helpful context and a solid reference point for making decisions, even though there are differences and unique aspects of the Company and its stage of development relative to other companies. Our Compensation Committee also considers corporate and individual performance, any shifts in the current or anticipated future domains and function of the executive officers and the input of other Company directors who are not members of the Compensation Committee.

More specifically, when our Compensation Committee makes decisions about the structure and component mix of our executive compensation program, it takes into consideration the amounts paid under, and the structure and components of, the executive compensation programs of other, comparable U.S. biotechnology and pharmaceutical companies, as derived from public filings and other sources. The Compensation Committee has worked with Radford to: assess our executive compensation philosophy, objectives and components; develop a peer group of companies for compensation comparison purposes; review considerations and market practices related to short-term cash incentive plans and long-term equity and other incentive plans, and trends in the biopharmaceutical industry, based in part on the Radford Global Life Sciences Survey; collect comparative compensation levels for each of our executive positions; assess our executives’ base salaries, short-term cash incentives and long-term equity compensation levels; review our equity compensation strategy, including the development of award guidelines; and review director compensation market practices among biopharmaceutical companies of comparable size and/or stage.

While the Compensation Committee takes into consideration the review and recommendations of Radford when making decisions about the Company’s executive compensation program, ultimately the Compensation Committee makes its own independent decisions about compensation matters.

The Compensation Committee has assessed the independence of Radford pursuant to SEC and Nasdaq rules. In doing so, the Compensation Committee considered each of the factors set forth by the SEC and Nasdaq with respect to a compensation consultant’s independence. The Compensation Committee also considered the nature and amount of work performed for the Compensation Committee and the fees paid for those services in relation to the firm’s total revenues. Radford did not provide any services to the Company other than the services provided to the Compensation Committee as described herein and in the “Director Compensation” section.

Radford has conducted a review of its performance, and has prepared an independence letter for the Compensation Committee that provides assurances and confirmation of the consultant’s independent status under the standards. None of the Compensation Committee members and none of our executive officers or directors have any personal relationship with Radford. The Compensation Committee also determined that there were no other factors that should be considered in connection with the assessment or that were otherwise relevant to the engagement of Radford. On the basis of its consideration of the foregoing, the Compensation Committee concluded that there were no conflicts of interest, and that Radford is independent.


Peer Group

When making decisions related to executive compensation, the Compensation Committee considers peer group and other industry compensation data and the recommendations of Radford, as well as the competitiveness of our compensation program, viewed from a variety of perspectives, and individual circumstances.

During the first part of 2018, our Compensation Committee, with input from our compensation consultant, established a peer group of companies that have similar characteristics to our Company, in order to make compensation decisions for 2018. This peer group consisted primarily of biopharmaceutical companies with marketed pharmaceutical products, as well as a couple of companies at the New Drug Application stage, and has been used as a frame of reference for compensation levels within our industry and for informing compensation decisions.

The following companies located in North America constitute the peer group approved in January 2018. These companies were considered comparable to us in terms of their stage of development, revenues and number of employees.

Achaogen, Inc.

Omeros Corporation

Adamas Pharmaceuticals, Inc.

Osiris Therapeutics, Inc.

Collegium Pharmaceutical, Inc.

Pacira Pharmaceuticals, Inc.

Corium International, Inc.

PTC Therapeutics, Inc.

Eagle Pharmaceuticals, Inc.

Retrophin, Inc.

Enzo Biochem, Inc.

Spectrum Pharmaceuticals, Inc.

Flexion Therapeutics, Inc.

Supernus Pharmaceuticals, Inc.

Keryx Biopharmaceuticals, Inc.

Theravance Biopharma, Inc.

Lexicon Pharmaceuticals, Inc.

Vanda Pharmaceuticals Inc.

Our peer group is subject to change, and we expect that our Compensation Committee will continue to periodically review and update the list, as appropriate, according to the criteria listed above.

Determining Executive Compensation

Our Compensation Committee has responsibility for establishing our compensation philosophy and objectives, determining the structure, components and other elements of our programs, and reviewing and approving, or recommending for approval by the board of directors, the compensation of our NEOs. The Compensation Committee exercises its judgment and experience when determining the particular component mix and amounts of compensation for each of our executive officers.

Our Compensation Committee’s approach to setting compensation for our executive officers is to consider market forms and levels of compensation, an executive officer’s responsibilities and contributions, and the objectives and overall progress of the Company. With the assistance of Radford, the Compensation Committee determined to establish a philosophy to target total compensation for our NEOs at the 50th percentile of the market, based on our peer group. Total compensation for this purpose is comprised of base salary, annual cash incentives and long-term equity incentives.

In addition to market benchmarking, as part of the process, our CEO will typically provide input and recommendations to the Compensation Committee on salary adjustments and target cash and equity incentive compensation levels for executive officers other than himself. The Compensation Committee will also consider the Company’s overall performance during the prior year, each executive’s individual contributions during the prior year, the individual’s annual performance reviews based on achievement of annual goals and other relevant market data. The Compensation Committee approves the overall compensation packages for each of our executive officers, including our CEO’s compensation package. When approving our CEO’s compensation package, the Compensation Committee meets with our independent compensation consultant, in an executive session, without management present. Our CEO does not have any control over setting the amount or mix of his compensation and is not present when the Compensation Committee discusses his compensation. With respect to new hires, our Compensation Committee considers an executive’s background, historical compensation and the role undertaken within the Company in lieu of prior year performance.


2018 Comprehensive Review and Restart of Equity Compensation Program

Having secured U.S. Food and Drug Administration, (“FDA”) approval of Baxdela™, closed the merger with Cempra, and acquired the infectious disease business from The Medicines Company, we have become a leading antibiotics-focused company. In light of the new larger size and profile of the Company, in early 2018, we undertook a comprehensive review and restart of our executive and broad-based equity compensation strategies. As described above, we sought input from Radford regarding, among other things, executive compensation philosophy, equity compensation strategy, market practices related to long-term equity, and information regarding comparative equity awards received by, and stock ownership of, executives at companies in our peer group and our industry and at our current stage of development.

As part of this comprehensive review, our Compensation Committee decided that the 2018 target total direct compensation for our CEO and other NEOs would be determined with reference to the 50th percentile of compensation for executives holding similar positions at the companies in our compensation peer group and companies that had recently completed initial public offerings. Consistent with this approach, in connection with the restart, the Compensation Committee made initial grants of equity to the CEO, the NEOs and the other executive officers in amounts representing the greater of an annual equity grant that approximated the market 50th percentile, or an amount that brought the recipient, considering their existing holdings, up to the market 50th percentile for a new hire equity grant for their position. The Compensation Committee also considered the resulting total ownership of the recipient relative to the market 50th percentile, and in some cases, sized the award so as not to exceed the range of the market 50th percentile of ownership. These initial restart grants were in the form of time-vested options and were made subject to shareholder approval of the 2018 Stock Incentive Plan at the 2018 Annual Meeting of Shareholders.  

The Compensation Committee has also taken note of the fact that as of the date of this filing, all of the stock options granted to the NEOs and other executive officers and employees are “underwater” (their exercise price is above the current trading price). After these 2018 restart grants, in 2019, the Compensation Committee intends to make annual grants to executive officers at the market 50th percentile.

IV.

COMPONENTS OF EXECUTIVE COMPENSATION

The primary elements of our executive compensation program are:

base salary;

annual performance-based cash incentive compensation; and

long-term equity incentive awards.

We also provide broad-based health and welfare benefits and severance and change in control benefits.


Our intention is to structure these components of our executive compensation program in a way that achieves the objectives of the program of linking pay to performance over both the short- and long-term, aligning executives’ interests with the interests of shareholders and attracting, motivating and retaining highly skilled and experienced executives.

Element

Description

Strategic Role

Base Salary

Fixed cash compensation.

Targeted generally within the range of the market median based on each NEO’s individual performance, skills, experience and internal equity.

Base salaries provide stable compensation to executive officers, allow Melinta to attract and retain capable executive talent and maintain a stable management team.

Short-Term Incentives: Annual Performance-Based Cash Incentive Compensation

Annual cash incentives are awarded based on the achievement of corporate goals.

Performance objectives are determined annually and generally incorporate specific milestones or other metrics.

Annual cash incentive amounts are designed to motivate executive officers to achieve key short-term milestones and measures.

Long-Term Incentives: Stock Options

Subject to time-based vesting conditions, stock options provide a right to purchase shares of the Company’s common stock at a specified price which is fixed at the time of grant during a specified period.

Stock options align the executive’s interest with shareholder interests because recipients only realize value from stock options if the value of the Company’s common stock increases above its value on the date the option was granted (which benefits all shareholders) and the recipient continues to provide services to the Company through the vesting period.

Discourages excessive risk taking.

Long-Term Incentives: RSUs

Subject to time-based vesting conditions, restricted stock units (RSUs) are contractual rights to receive a specified number of shares of the Company’s common stock at a future date.

Time-vested RSUs are “full value grants,” meaning that, upon vesting, the recipient is awarded the full share. As a result, while the value executives realize in connection with an award of RSUs does depend on our stock price, time-vested restricted stock units generally have some value even if the Company’s stock price significantly decreases following their grant. As a result, time-vested RSUs help to secure and retain executives and instill an ownership mentality, regardless of whether the Company’s stock price increases or decreases.

Discourages excessive risk taking.

Base Salary

We determine base salary amounts based on roles and responsibilities, skills, expertise, prior professional experience, achievements, educational background and seniority. For newly hired executive officers, we establish initial base salaries through arm’s-length negotiations at the time the executive is hired, considering the position, the executive’s experience, qualifications, and prior compensation salary. None of our executive officers is currently party to an employment agreement or offer letter that provides for automatic or scheduled increases in base salary.


In addition, the Compensation Committee considers a variety of other factors in determining both initial base salary levels and increases, including the executive’s performance and contributions during the prior year, performance over a period of years, promotion, general labor market conditions, the relative ease or difficulty of replacing the executive with a well-qualified person, our overall growth and development as a Company, general salary trends in our industry and among our peer group, and where the executive’s salary falls within the salary range presented by those comparator groups. In making decisions regarding salary increases, we may also draw upon the experience of members of our board of directors with other companies. We do not provide for any formulaic base salary increases for our NEOs.

NEOs

 

2018 ($)

 

 

2017 ($)

 

Daniel Wechsler(1)

 

 

572,000

 

 

 

550,000

 

Paul D. Estrem

 

 

365,084

 

 

 

333,410

 

Sue K. Cammarata, M.D.

 

 

446,437

 

 

 

433,434

 

Erin Duffy, Ph.D.

 

 

340,458

 

 

 

330,542

 

John Temperato

 

—

 

 

 

416,138

 

(1)

Effective November 3, 2017, in connection with the completion of the merger with Cempra, Mr. Wechsler was appointed President and CEO. The amount reflected in this table is annualized, and does not reflect the annual base salary actually earned by Mr. Wechsler with respect to 2017, which was prorated based on his period of employment with the Company.

Annual Cash Incentive

Following the merger with Cempra, in contemplating variable, at-risk annual cash incentives for our executive officers, our Compensation Committee took into account the review of considerations and market practices related to short-term cash incentive plans provided by Radford. Going forward, each executive officer will be eligible to receive annual performance-based cash incentive compensation in an amount based on a percentage of his or her base salary. Such annual incentives will reward our NEOs for the achievement of annual corporate objectives. For 2018, target percentages for annual performance-based cash incentive compensation for our executives range from 35% to 65% of base salary. The 2018 target percentages for annual cash incentives for our Current NEOs are set forth in the following table.

NEOs

 

2018

Target

 

 

2018

Maximum

 

Daniel Wechsler

 

 

65.0

%

 

 

84.5

%

Paul D. Estrem

 

 

40.0

%

 

 

52.0

%

Sue K. Cammarata, M.D.

 

 

40.0

%

 

 

52.0

%

Erin Duffy, Ph.D.

 

 

35.0

%

 

 

45.5

%

John Temperato

 

—

 

 

—

 


2017 Bonuses. In respect of 2017, a year during the majority of which Melinta was a private company, we paid annual bonuses to our NEOs based upon the achievement of significant milestones, performance or other factors. As described above in this “Compensation Discussion and Analysis,” between June 2017 and early 2018, the Company undertook a significant strategic transformation. We closed a merger with Cempra in November 2017, secured FDA approval of Baxdela in June 2017 and began marketing it in the U.S., and acquired the infectious disease business from The Medicines Company (announced in November 2017, closed in January 2018). At the time of this filing, the Company has become a leading antibiotics-focused Company. In light of the steps taken to effect this significant strategic transformation, the Compensation Committee evaluated the Current NEOs’ achievements, giving significant weight to the specific contributions of each Current NEO to Company-wide performance, as well as each Current NEO’s performance in their area of responsibility or function. In general, although each executive was eligible to earn an annual bonus equal to a certain percentage of his or her base salary, due to the unique nature of some of the elements of the strategic transformation that were executed in 2017, the Compensation Committee applied its judgement to determine bonus amounts based on a number of factors. By doing so, the Compensation Committee had the flexibility to take a holistic view of each Current NEO’s performance for the year, in contrast to an inflexible, formulaic approach that might not have accounted completely for certain intangible contributions, among other things. Based on the Compensation Committee’s evaluation of each Current NEO as described above, it awarded the following bonuses in 2017:

Name

 

2017 Bonus

 

 

Achievement or Performance Cited

Daniel Wechsler

 

$

100,000

 

 

For performance as CEO (partial year of service).

Paul D. Estrem

 

$

100,000

 

 

Efforts in connection with the merger with Cempra.

 

 

$

50,000

 

 

Efforts in connection with The Medicines Company transaction.

 

 

$

105,024

 

 

For performance as CFO.

Sue K. Cammarata, M.D.

 

$

200,000

 

 

Efforts in connection with the New Drug Application approval of Baxdela™.

 

 

$

50,000

 

 

Efforts in connection with the merger with Cempra.

 

 

$

130,030

 

 

For performance as Chief Medical Officer.

Erin Duffy, Ph.D.

 

$

100,000

 

 

Efforts in connection with the merger with Cempra.

 

 

$

99,162

 

 

For performance as Chief Scientific Officer.

John Temperato

 

$

100,000

 

 

Efforts in connection with the merger with Cempra.

Long-Term Equity Incentives

In connection with the process currently being undertaken by the Compensation Committee of making decisions about the structure and components of our executive compensation program, and in connection with obtaining the compensation advisory services of Radford, the Compensation Committee determined that, in addition to base salary and annual cash incentives, the third component of our executive compensation program will continue to be long-term equity incentives. We believe that equity awards provide our executives with a strong link to our long-term performance, create an ownership culture and help to align the interests of our executives with those of our shareholders. In addition, we believe that equity awards that vest over time promote executive retention because the executives will only realize the value of the equity if they remain in our employment during the vesting period.

On April 13, 2018, our board of directors approved the Melinta Therapeutics, Inc. 2018 Stock Incentive Plan, or the 2018 Incentive Plan, and we are seeking the approval of our shareholders of the 2018 Incentive Plan at the 2018 Annual Meeting of Shareholders. The 2018 Incentive Plan will authorize the grant of stock options, restricted stock awards, RSUs, stock appreciation rights, performance awards and other awards that may be settled in or based upon our common stock.

We currently maintain the Melinta Therapeutics, Inc. 2011 Equity Incentive Plan, as amended, or the 2011 Equity Incentive Plan, and the Melinta Therapeutics, Inc. 2011 Equity Incentive Plan, as amended, or the Private Melinta 2011 Equity Incentive Plan. Under these plans, we have granted various forms of equity compensation to our service providers, including our key employees, non-employee directors and consultants. We have historically granted mostly options to service providers, except for a grant of restricted stock units upon the hiring of our CEO in 2017, and grants of restricted stock units to Cempra employees prior to the closing of the Cempra merger.


Annual Equity Awards. Our 2011 Equity Incentive Plan allows the grant to officers and employees of stock options, as well as other forms of equity incentives, as part of our overall compensation program. Our practice has been to make annual stock option awards as part of our overall performance management program at the beginning of each calendar year. Typically, these grants have been made to ensure the executive officer’s average equity and option amounts were in line with similar positions at comparable companies. As with base salary and initial equity award determinations, a review of all components of the executive officer’s compensation was conducted when determining annual equity awards to ensure that an executive officer’s, including each NEO’s, total compensation conformed to our overall compensation philosophy and objectives.

Going forward, we intend to grant equity awards in the first quarter of each year in conjunction with our annual performance and compensation review cycle covering the prior year.

In determining the size of the annual equity awards granted to our NEOs, our Compensation Committee intends to consider recommendations developed by Radford, including information regarding comparative stock ownership of, and equity awards received by, executives at companies in our peer group and our industry and at our current stage of development. In addition, our Compensation Committee considers each executive’s individual performance, the amount of equity previously awarded to such executive and the future vesting of such awards, as well as our overall corporate performance and the executive’s potential for enhancing the creation of value for our shareholders. The Compensation Committee also plans to take into consideration the effects of the merger of Cempra with Melinta, as well as the acquisition of the infectious disease business from The Medicines Company, as a result of which the rights represented by stock options, RSUs and shares of stock held by NEOs and employees were diluted by more than half. The Compensation Committee has also taken note of the fact that as of the date of the filing of this amendment to our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, all of the stock options granted to the NEOs and other executive officers and employees are “underwater” (their exercise price is above the current trading price). The grant date fair values of equity awards granted to our NEOs are included in the amounts set forth in the “Summary Compensation Table” which immediately follows this “Compensation Discussion and Analysis” section.

Special Equity Awards. We might also make equity awards to certain of our NEOs and other employees other than the annual grants described above when specific circumstances warrant such grants. These situations might include grants upon promotion to a new position, or for purposes of recognizing the achievement of critical corporate objectives, or, if deemed necessary under the circumstances, for retention. In addition, we might make grants of equity to newly hired executive officers in connection with his or her commencement of employment on a case-by-case basis under the specific hiring circumstances. The size of each new hire grant is established through arm’s-length negotiations at the time the executive is hired, taking into account the position for which the executive is being considered and the executive’s qualifications, prior experience and equity holdings at prior companies, as well as external factors such as general labor market conditions and the relative ease or difficulty of replacing the executive with a well-qualified person. The new hire option award and RSUs granted to the CEO have the same vesting schedule as the annual awards.

Stock Options and RSUs. To date, given the Company’s current profile as one that has become a commercial stage company relatively recently, the Compensation Committee determined to use primarily stock options for the long-term equity portion of its compensation program. Subject generally to their providing services throughout the applicable vesting period, recipients only realize value from stock options if the value of our common stock increases over the value of our common stock on the date the option is granted or the assigned exercise price, if higher. Because the value of the award to the recipient is solely tied to an increase in the value of our common stock, the interests of recipients are aligned with those of shareholders. Also, options promote the long view and motivate and reward the recipient for Company performance not only over the vesting period, but also over the whole term of the option. The Compensation Committee might also incorporate restricted stock units, or RSUs, over time, as these “full value” awards encourage ownership and retention and tend to be more reflective of a company that is maturing, with multiple marketed products and a broader pipeline. The Compensation Committee might also consider performance awards once the Company becomes larger. In determining individual grant amounts for the CEO and the other Current NEOs, the Compensation Committee took into account several factors, including the effects of stock price volatility, striving to maintain a reasonable annual burn rate, delivering competitive equity levels, and considerations specific to each individual.


Typically, the stock options we have granted to our executive officers, including the RSUs we granted our Chief Executive Officer, vest with respect to 25% of the shares subject to the option or RSUs, as applicable, on the first anniversary of the grant date and with respect to the remaining shares in approximately equal monthly installments through the fourth anniversary of the grant date. Vesting ceases upon termination of employment, and exercise rights for options cease shortly after termination of employment. Prior to the exercise of a stock option or settlement of an RSU, the holder has no rights as a shareholder with respect to the shares subject to such option or RSU, including voting rights or the right to receive dividends or dividend equivalents; however, our CEO is entitled to dividend equivalents in connection with any dividends paid to shareholders of the Company during such vesting period; provided that any dividend equivalents paid with respect to unvested RSUs will be subject to the same vesting requirements as the underlying RSUs to which such dividend equivalents relate. To date, the Company has not paid dividends. We have historically granted stock options with exercise prices that are set at no less than the fair market value of shares of our common stock on the date of grant as determinedincorporated by reference to the closing market price of our common stock on the date of grant or, with respect to grants under the Private Melinta 2011 Equity Incentive Plan, based on a valuation prepared by a third-party valuation firm.

Severance and Change in Control Benefits

Pursuant to employment agreements or arrangements we have entered into with our executive officers, our executive officers are entitled to specified benefits in the event of the termination of their employment under specified circumstances, including termination following a change in control of Melinta. We have provided estimates of the value of the severance payments and other benefits that would have been made or provided to executive officers under various termination circumstances under the caption “Potential Payments on Termination and Change of Control” below.

We believe that providing these benefits helps us compete for executive talent. After reviewing the practices of companies represented in the compensation peer group, we believe that our severance and change in control benefits are generally in line with severance packages offered to executives of our publicly traded peer companies.

We have structured our change in control benefits as “double trigger” benefits. In other words, the change in control does not itself trigger benefits. Rather, benefits are paid only if the employment of the executive officer is terminated in connection with the change in control or our CEO’s equity awards are not assumed in connection with such transaction. We believe that a “double trigger” benefit maximizes shareholder value because it prevents an unintended windfall to executive officers in the event of a friendly change in control, while still providing them appropriate incentives to cooperate in negotiating any change in control in which they believe they may lose their jobs.

V.

COMPENSATION PRIOR TO, AND IN CONNECTION WITH, THE MERGER WITH CEMPRA

Employment Agreement with New President and Chief Executive Officer, Daniel Wechsler

In connection with Mr. Wechsler’s employment, the Company entered into an employment agreement with Mr. Wechsler. For additional information please see “Narrative to Summary Compensation Table and Grant of Plan-Based Awards Table” below. Upon commencing employment on November 3, 2017, Mr. Wechsler received the following sign-on equity awards: (i) 183,661 time-vesting RSUs; and (ii) 550,981 options, with an exercise price of $11.65.

Compensation Arrangements Prior to the Merger with Cempra

Prior to the closing of the merger with Cempra on November 3, 2017, the principal components of the executive compensation program for the Former NEOs were base salary, annual bonus, and long-term incentive. Annual base salary increases, annual bonuses, and long-term incentives, to the extent granted, were generally implemented during the first calendar quarter of the year.

Annual Salaries. Cempra provided base salaries to the Former NEOs to compensate them for their services rendered during the fiscal year based on their position and scope of responsibilities, their prior experience and training, and competitive market compensation data Cempra reviewed for similar positions in Cempra’s industry.


Annual Cash Bonus. Cempra had also implemented an annual cash incentive performance program, under which annual corporate goals were proposed by management and approved by the compensation committee of Cempra’s board of directors, or the Cempra Committee, at the start of each calendar year. These corporate goals include the achievement of qualitative operational goals and predefined research and development milestones. Each goal was weighted as to importance by the Cempra Committee. The Former NEOs did not receive any amounts in respect of the annual cash bonus component of the program for 2017.

Long-Term Incentives. Cempra’s equity-based long-term incentive program was designed to align the Former NEOs’ long-term incentives with shareholder value creation. Cempra’s practice was to make annual stock option awards as part of Cempra’s overall performance management program at the beginning of each calendar year. In December 2016, Cempra also began granting restricted stock units as part of Cempra’s overall performance management program. Typically, these grants were made to ensure the Former NEO’s average equity and option amounts were in line with similar positions at comparable companies. As with base salary and initial equity award determinations, a review of all components of the Former NEO’s compensation was conducted when determining annual equity awards to ensure that total compensation conformed to Cempra’s overall philosophy and objectives. The Cempra Committee made 2017 grants to the Former NEOs as follows:

Name(1)

 

Stock options

(#)

 

 

Grant date

fair value

($)

 

 

Restricted

stock units (#)

 

 

Grant date

fair value

($)

 

David Zaccardelli, Pharm.D.

 

0

 

 

0

 

 

0

 

 

0

 

Mark Hahn

 

 

30,000

 

 

 

319,497

 

 

 

15,000

 

 

 

115,250

 

John Bluth

 

 

19,999

 

 

 

116,500

 

 

 

10,000

 

 

 

115,250

 

David Oldach, M.D.

 

 

30,000

 

 

 

319,497

 

 

 

15,000

 

 

 

115,250

 

(1)

All amounts presented reflect the 5 for 1 stock split effected on November 3, 2017, in connection with the merger with Cempra.

The stock options granted to each of Messrs. Hahn and Bluth and Dr. Oldach in January 2017 were initially scheduled to vest in equal monthly installments over a four-year period on each monthly anniversary of January 1, 2017, and the stock options granted to each of Messrs. Hahn and Bluth and Dr. Oldach in February 2017 were initially scheduled to vest in equal monthly installments over a four-year period on each monthly anniversary of February 23, 2017. The stock options granted to each of Messrs. Hahn and Bluth and Dr. Oldach were accelerated in connection with each such executive’s termination of employment pursuant to each executive’s separation agreement, as discussed in more detail below under “Potential Payments on Termination and Change of Control.”

The RSUs granted to each of Messrs. Hahn and Bluth and Dr. Oldach in January 2017 were initially scheduled to vest and settle on January 1, 2019 and the RSUs granted to each of Messrs. Hahn and Bluth and Dr. Oldach in February 2017 were initially scheduled to vest and settle on January 9, 2019. The RSUs granted to each of Messrs. Hahn and Bluth and Dr. Oldach were accelerated in connection with each such executive’s termination of employment pursuant to each executive’s separation agreement, as discussed in more detail below under “Potential Payments on Termination and Change of Control.”

David Zaccardelli Employment Agreement

In connection with the hiring of Dr. Zaccardelli as Acting Chief Executive Officer in December 2016, Cempra entered into an Executive Employment Agreement with him. For additional information, please see “Narrative to Summary Compensation Table and Grant of Plan-Based Awards Table” below.

Severance and Change in Control Agreements with the Former NEOs

In connection with each Former NEO’s termination of employment, Cempra entered into severance agreements with such executive. For additional information, please see footnote (7) to the “Summary Compensation Table” below.


VI.

ADDITIONAL COMPENSATION POLICIES AND PRACTICES

Stock Ownership Guidelines

On February 25, 2016, Cempra adopted, and we are maintaining, stock ownership guidelines for certain executive officers and directors, with the objective of more closely aligning the interests of certain executive officers with those of our shareholders. The stock ownership guidelines will require the CEO to hold shares of our common stock with a market value of five times his annual base salary and will require the Chief Financial Officer, Chief Scientific Officer and Chief Medical Officer to hold stock valued at two times their respective annual base salaries. The stock ownership guidelines will be applicable at the later of (i) five years after the date the executive officer assumes his or her position or (ii) five years from the date of adoption of the stock ownership guidelines.

Current Position

Required Annual Base Salary Multiple

CEO

5x

All other executive officers

2x

Anti-Hedging and Anti-Pledging Policy

On September 25, 2015, Cempra’s board of directors adopted, and we are maintaining, an anti-hedging and anti-pledging policy, which we are maintaining. The anti-hedging and anti-pledging policy aligns the interests of our directors, executive officers and employees who are equity grant recipients with those of our shareholders. The policy prohibits our directors, executive officers and employees who are equity grant recipients from engaging in any transaction which could hedge or offset decreases in the market value of our common stock, including the use of financial instruments such as exchange funds, prepaid variable forwards, equity swaps, puts, calls, collars, forwards and other derivative instruments, or through the establishment of a short positionincluded in our securities. Additionally, directors and executive officers are prohibited from pledging our securities as collateral for a loan, including through the use of traditional margin accounts with a broker.

Compensation Risk Oversight

Our Compensation Committee has responsibility for establishing our compensation philosophy and objectives, determining the structure, components and other elements of our programs, and reviewing and approving the compensation of our NEOs. In addition, our executive compensation programs and decisions have, as one of their objectives, to reduce incentives to expose Melinta to imprudent risks that might harm the Company Proxy Statement and/or our shareholders. Our Compensation Committee has overseen the establishment of a number of governors and controls that address compensation-related risk and serve to mitigate such risk, including stock ownership guidelines for executive officers and directors and maintains an anti-hedging and anti-pledging policy. As a result, the Compensation Committee has concluded that the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on our Company.

Accounting Considerations

We account for equity compensation paid to our employees in accordance with FASB Accounting Standards Codification Topic 718, Compensation—Stock Compensation, or ASC 718, which requires us to measure and recognize compensation expense in our financial statements for all stock-based payments based on an estimate of their fair value over the service period of the award. We record cash compensation as an expense at the time the obligation is accrued.

Tax Considerations

Section 162(m) of the Internal Revenue Code, or Section 162(m), generally disallows public companies a tax deduction for compensation in excess of $1 million paid to their chief executive officers and three other highly compensated executive officers (other than the chief financial officer) unless an exemption applies. The Tax Cuts and Jobs Act, enacted on December 22, 2017, substantially modified Section 162(m) and, among other things, beginning in 2018, expanded the scope of the executive officers subject to Section 162(m), or the Covered Employees, to include any individual who served as the chief executive officer or the chief financial officer at any time during the taxable year and the three other most highly compensated officers (other than the chief executive officer and the chief financial officer) for the taxable year, and now provides that once an individual becomes a Covered Employee for any taxable year beginning after December 31, 2016, that individual will remain a Covered Employee for all future years, including following any termination of employment.


The Compensation Committee periodically reviews the potential consequences of Section 162(m) with respect to the elements of our compensation program; however, given that the impact of Section 162(m) on taxes currently payable by us is mitigated by our net operating loss carryforwards and in order to maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals in the best interests of the company, the Compensation Committee has not limited compensation to those levels or types of compensation that would be deductible by us.

Benefits and Other Compensation

General. We believe that establishing competitive benefit packages for our employees is an important factor in attracting and retaining highly qualified employees. We maintain broad-based benefits that are provided to all employees, including medical, dental and group life insurance, accidental death and dismemberment insurance, long- and short-term disability insurance, and a 401(k) plan. All of our executives are eligible to participate in all of our employee benefit plans, in each case on the same basis as other employees. Although we do not provide additional benefits or perquisites at this time, the Compensation Committee in its discretion may revise, amend or add to the NEOs’ benefits and perquisites if it deems it advisable.

Pension Benefits. We do not maintain any qualified or non-qualified defined benefit plans. As a result, none of our NEOs participate in or have account balances in qualified or non-qualified defined benefit plans sponsored by us. Our Compensation Committee may elect to adopt qualified or non-qualified benefit plans in the future if it determines that doing so is in our best interests.

Non-qualified Deferred Compensation. None of our NEOs participate in or have account balances in nonqualified defined contribution plans or other non-qualified deferred compensation plans maintained by us. Our Compensation Committee may elect to provide our officers and other employees with non-qualified defined contribution or other non-qualified deferred compensation benefits in the future if it determines that doing so is in our best interests.

Compensation Committee Report

The Compensation Committee of the board of directors of Melinta Therapeutics, Inc. has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with Melinta’s management. Based on such review and discussions, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in Melinta’s Annual Report on Form 10-K/A for the year ended December 31, 2017.

By the Compensation Committee of the board of directors of Melinta Corporation.

Cecilia Gonzalo, Chair

John H. Johnson

Thomas P. Koestler, Ph.D.

Garheng Kong, M.D., Ph.D.

A.

This report shall not constitute “soliciting material,” shall not be deemed “filed” with the SEC and is not to be incorporated by reference into any of our other filings under the Securities Act of 1933, as amended, or the Securities Act, or the Exchange Act, except to the extent that we specifically incorporate this report by reference therein.


Summary Compensation Table

The following table sets forth information concerning the compensation paid or accrued to the named executive officers in fiscal years 2017, 2016 and 2015.

Name and principal

position(1)(2)(3)

 

Year

 

Salary

($)

 

 

Bonus

($)(4)

 

 

Stock

awards

($)(5)

 

 

Option

awards

($)(6)

 

 

Non-equity

incentive

plan

compensation

($)

 

 

All other

compensation

($)(7)

 

 

Total

($)

 

Daniel Wechsler

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

President and Chief Executive Officer

 

2017

 

 

87,788

 

 

 

100,000

 

 

 

2,139,651

 

 

 

4,605,480

 

 

—

 

 

 

22,307

 

 

 

6,955,226

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paul D. Estrem

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive Vice President, Chief

Financial Officer and Secretary

 

2017

 

 

333,410

 

 

 

255,024

 

 

—

 

 

 

73,185

 

 

—

 

 

 

10,791

 

 

 

672,410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sue K. Cammarata, M.D.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive Vice President and

Chief Medical Officer

 

2017

 

 

433,434

 

 

 

380,030

 

 

—

 

 

 

54,680

 

 

—

 

 

 

2,376

 

 

 

870,520

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Erin Duffy, Ph.D.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive Vice President and

Chief Scientific Officer

 

2017

 

 

330,542

 

 

 

199,162

 

 

—

 

 

 

65,867

 

 

—

 

 

—

 

 

 

595,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

John Temperato(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Former Executive Vice President

and Chief Commercial Officer

 

2017

 

 

416,138

 

 

 

100,000

 

 

—

 

 

 

92,844

 

 

—

 

 

 

10,600

 

 

 

619,582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

David Zaccardelli, Pharm.D.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Former Acting Chief Executive

Officer

 

2017

 

 

456,231

 

 

—

 

 

—

 

 

—

 

 

—

 

 

 

1,871,992

 

 

 

2,328,223

 

 

 

2016

 

 

32,884

 

 

—

 

 

 

385,000

 

 

 

826,554

 

 

—

 

 

—

 

 

 

1,244,438

 

Mark Hahn

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Former Executive Vice President

and Chief Financial Officer

 

2017

 

 

350,000

 

 

—

 

 

 

174,750

 

 

 

234,300

 

 

—

 

 

 

1,045,850

 

 

 

1,804,900

 

 

 

2016

 

 

375,000

 

 

—

 

 

—

 

 

 

1,170,299

 

 

 

109,500

 

 

 

29,727

 

 

 

1,684,526

 

 

 

2015

 

 

350,000

 

 

—

 

 

—

 

 

 

699,955

 

 

 

97,633

 

 

 

27,832

 

 

 

1,175,420

 

John Bluth

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Former Executive Vice President,

Investor Relations and Corporate

Communications

 

2017

 

 

266,500

 

 

—

 

 

 

116,500

 

 

 

156,192

 

 

—

 

 

 

783,358

 

 

 

1,322,550

 

 

 

2016

 

 

108,330

 

 

—

 

 

—

 

 

 

628,997

 

 

 

31,633

 

 

 

6,938

 

 

 

775,898

 

David Oldach, M.D.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Former Chief Medical Officer

 

2017

 

 

350,000

 

 

—

 

 

 

174,750

 

 

 

234,300

 

 

—

 

 

 

1,074,401

 

 

 

1,833,451

 

 

 

2016

 

 

350,000

 

 

—

 

 

—

 

 

 

900,243

 

 

 

96,600

 

 

 

25,304

 

 

 

1,372,147

 

 

 

2015

 

 

300,000

 

 

—

 

 

—

 

 

 

347,237

 

 

 

84,210

 

 

 

23,090

 

 

 

754,537

 

(1)

This table includes compensation from the Company earned prior to and following the merger with Cempra.

(2)

Effective November 3, 2017, in connection with the completion of the merger with Cempra, Mr. Wechsler, Mr. Estrem, Dr. Cammarata, Dr. Duffy, and Mr. Temperato were appointed as our President and Chief Executive Officer, Executive Vice President, Chief Financial Officer and Secretary, Executive Vice President and Chief Medical Officer, Executive Vice President and Chief Scientific Officer, and Executive Vice President and Chief Commercial Officer, respectively. In accordance with SEC regulations, only compensation information for the fiscal year in which each executive became a named executive officer is included in the Summary Compensation Table.

(3)

Effective November 3, 2017, in connection with the completion of the merger with Cempra, Dr. Zaccardelli’s employment with the Company was terminated and each of Messrs. Hahn and Bluth and Dr. Oldach resigned as officers of the Company. Mr. Hahn’s and Dr. Oldach’s employment with the Company was terminated effective November 15, 2017. Mr. Bluth’s employment with the Company was terminated effective December 31, 2017. Dr. Zaccardelli continues to serve on our board of directors as a non-employee member.

(4)

The amounts reported in this column include the following payments with respect to 2017:

Dan Wechsler – A bonus equal to $100,000 earned in respect of Mr. Wechsler’s service in 2017 and paid in March 2018, which is equal to 112% of his base salary prorated for his partial year of service.


•

Paul D. Estrem – A one-time cash bonus equal to $100,000, paid in November 2017, in recognition of Mr. Estrem’s efforts in connection with the merger with Cempra, an additional one-time cash bonus equal to $50,000 paid in January 2018 in recognition of Mr. Estrem’s efforts in 2017 in connection with the acquisition of The Medicines Company, and an annual bonus equal to $105,024 earned in respect of Mr. Estrem’s service in 2017 and paid in March 2018.

Sue K. Cammarata, M.D. – A one-time cash bonus equal to $200,000 paid in June 2017, in connection with the New Drug Application approval of Baxdela™, which occurred on June 19, 2017, a one-time cash bonus equal to $50,000, paid in November 2017, in recognition of Dr. Cammarata’s efforts in connection with the merger with Cempra, and an annual bonus equal to $130,030 earned in respect of Dr. Cammarata’s service in 2017 and paid in March 2018.

Erin Duffy, Ph.D. – A one-time cash bonus equal to $100,000, paid in November 2017, in recognition of Dr. Duffy’s efforts in connection with the merger with Cempra, and an annual bonus equal to $99,162 earned in respect of Dr. Duffy’s service in 2017 and paid in March 2018.

John Temperato – A one-time cash bonus equal to $100,000, paid in November 2017, in recognition of Mr. Temperato’s efforts in connection with the merger with Cempra.

For additional information, please see “Compensation Discussion and Analysis—Components of Executive Compensation—Annual Cash Incentive” above.

(5)

The amounts reported in this column represent the aggregate grant date fair value of the restricted stock units granted to our named executive officers during our fiscal year ended December 31, 2017, calculated in accordance with FASB ASC Topic 718, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. See note 12 to our consolidated financial statements for the fiscal year ended December 31, 2017, for a discussion of the assumptions used to calculate these values.

(6)

The amounts reported in this column represent the aggregate grant date fair value of the stock option awards granted to our named executive officers during our fiscal year ended December 31, 2017, calculated in accordance with FASB ASC Topic 718, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. See note 12 to our consolidated financial statements for the fiscal year ended December 31, 2017, for a discussion of the assumptions used to calculate these values. In addition, in connection with the termination of each of Dr. Zaccardelli’s, Messrs. Hahn’s and Bluth’s and Dr. Oldach’s employment, the Company approved an extension of the exercise period for the vested stock options held by each executive as of the date of such termination until the earlier of (x) the end of the twelve-month period following such termination, and (y) the stated expiration date of the stock options; however, due to the then current per share price of our common stock relative to each applicable exercise price, in accordance with FASB ASC Topic 718, no incremental accounting charge was required to be taken by the Company as a result of such extension.

(7)

The amounts reported in this column as earned by each named executive officer include the estimated cost of the following perquisites and other benefits received by our named executive officers in 2017:

 

 

Severance(A)

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

 

Base

salary

 

 

Bonus

 

 

COBRA

premiums

 

 

RSU

acceleration(B)

 

 

Outplacement

assistance

 

 

401(k)

matching

contribution

 

 

Reimbursement

of advisor

fees

 

 

Total

 

Daniel Wechsler

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

 

22,307

 

 

 

22,307

 

Paul D. Estrem

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

 

10,791

 

 

—

 

 

 

10,791

 

Sue K. Cammarata, M.D.

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

 

2,376

 

 

—

 

 

 

2,376

 

Erin Duffy, Ph.D.

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

John Temperato

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

 

10,600

 

 

—

 

 

 

10,600

 

David Zaccardelli, Pharm.D.

 

 

1,080,000

 

 

 

648,000

 

 

 

24,117

 

 

 

116,250

 

 

 

20,000

 

 

 

9,249

 

 

—

 

 

 

1,871,992

 

Mark Hahn

 

 

600,000

 

 

 

240,000

 

 

 

18,088

 

 

 

183,750

 

 

 

20,000

 

 

 

10,800

 

 

—

 

 

 

1,045,850

 

John Bluth

 

 

399,759

 

 

 

159,900

 

 

 

27,408

 

 

 

165,500

 

 

 

20,000

 

 

 

10,800

 

 

—

 

 

 

783,358

 

David Oldach, M.D.

 

 

600,000

 

 

 

240,000

 

 

 

27,408

 

 

 

183,750

 

 

 

20,000

 

 

 

10,800

 

 

—

 

 

 

1,074,401

 

(A)

For additional information regarding the payments and benefits paid in connection with Dr. Zaccardelli’s and Messrs. Hahn’s and Bluth’s and Dr. Oldach’s departure from the Company, please see “— Potential Payments on Termination and Change of Control” below. We have included the full value of any COBRA reimbursements and outplacement assistance that were made available to each executive, although certain executives may elect not to utilize such benefits.

(B)

Amounts reported in this column were determined based on the closing sale price per share of Melinta common stock on the NASDAQ Global Market on the date each executive’s employment was terminated with respect to Dr. Zaccardelli, Mr. Hahn and Dr. Oldach, and as of January 2, 2018, with respect to Mr. Bluth.

(8)

Mr. Temperato’s employment with the Company ended on January 5, 2018. For additional information regarding the payments and benefits paid in connection with his departure from the Company, please see “Potential Payments on Termination and Change of Control” below.


Grants of Plan-Based Awards

The following table provides information regarding grants of plan-based awards made to the named executive officers in 2017.

 

 

 

 

Estimated future payouts

under non-equity

incentive plan awards

 

Estimated future payouts

under equity incentive

plan awards

 

Number

of shares

 

 

 

Number of

securities

 

 

 

Exercise

or base

price of

 

 

Grant

date fair

value of

stock and

 

Name(1)

 

Grant

date

 

Threshold

($)

 

Target

($)

 

Maximum

($)

 

Threshold

($)

 

Target

($)

 

Maximum

($)

 

of stock

or units

(#)(2)

 

 

 

underlying

options

(#)(2)

 

 

 

option

awards

($/Sh)(2)

 

 

option

awards

($)(8)

 

Daniel Wechsler

 

11/3/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

 

183,661

 

(3)

 

—

 

 

 

—

 

 

 

2,139,651

 

 

 

11/3/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

550,981

 

(5)

 

 

11.65

 

 

 

4,605,480

 

Paul D. Estrem

 

8/8/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

5,214

 

(6)

 

 

20.97

 

 

 

73,185

 

Sue K. Cammarata, M.D.

 

8/8/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

3,895

 

(6)

 

 

20.97

 

 

 

54,680

 

Erin Duffy, Ph.D.

 

8/8/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

4,692

 

(6)

 

 

20.97

 

 

 

65,867

 

John Temperato

 

8/8/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

6,615

 

(6)

 

 

20.97

 

 

 

92,844

 

David Zaccardelli, Pharm.D.

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

—

 

 

 

—

 

 

—

 

Mark Hahn

 

1/3/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

 

10,000

 

(4)

 

—

 

 

 

—

 

 

 

116,500

 

 

 

1/3/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

6,250

 

(7)

 

 

15.00

 

 

 

48,813

 

 

 

1/3/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

18,750

 

(7)

 

 

15.00

 

 

 

146,438

 

 

 

2/23/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

 

5,000

 

(4)

 

—

 

 

 

—

 

 

 

58,250

 

 

 

2/23/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

501

 

(7)

 

 

15.75

 

 

 

3,913

 

 

 

2/23/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

4,499

 

(7)

 

 

15.75

 

 

 

35,137

 

John Bluth

 

1/3/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

 

5,000

 

(4)

 

—

 

 

 

—

 

 

 

58,250

 

 

 

1/3/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

15,000

 

(7)

 

 

15.00

 

 

 

117,150

 

 

 

2/23/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

 

5,000

 

(4)

 

—

 

 

 

—

 

 

 

58,250

 

 

 

2/23/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

104

 

(7)

 

 

15.75

 

 

 

812

 

 

 

2/23/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

4,895

 

(7)

 

 

15.75

 

 

 

38,230

 

David Oldach, M.D.

 

1/3/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

 

10,000

 

(4)

 

—

 

 

 

—

 

 

 

116,500

 

 

 

1/3/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

6,250

 

(7)

 

 

15.00

 

 

 

48,813

 

 

 

1/3/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

18,750

 

(7)

 

 

15.00

 

 

 

146,438

 

 

 

2/23/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

 

5,000

 

(4)

 

—

 

 

 

—

 

 

 

58,250

 

 

 

2/23/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

501

 

(7)

 

 

15.75

 

 

 

3,913

 

 

 

2/23/2017

 

—

 

—

 

—

 

—

 

—

 

—

 

—

 

 

 

 

4,499

 

(7)

 

 

15.75

 

 

 

35,137

 

(1)

All stock options and restricted stock units granted to Dr. Zaccardelli and Messrs. Hahn and Bluth and Dr. Oldach were granted under the 2011 Equity Incentive Plan. All stock options granted to Mr. Estrem, Dr. Cammarata, Dr. Duffy and Mr. Temperato were granted under the Private Melinta 2011 Equity Incentive Plan. The stock option and restricted stock unit grants to Mr. Wechsler were made pursuant to the stock option and restricted stock unit inducement grant agreements entered into with Mr. Wechsler, in accordance with the provisions set forth in that certain employment agreement by and between the Company and Mr. Wechsler, dated October 30, 2017, and in accordance with the inducement grant exception under NASDAQ Listing Rule 5635(c)(4).

(2)

All amounts presented reflect the 5-for-1 stock split effected on November 3, 2017, in connection with the merger with Cempra.

(3)

The restricted stock units granted to Mr. Wechsler will become twenty-five percent vested on the first anniversary of Mr. Wechsler’s date of hire, with the remaining units vesting in equal monthly installments over the three-year period thereafter, subject to his continued service with the Company through such date. If the grant is not expressly assumed in a change in control, any then remaining unvested portion of such grant will become fully vested upon such change in control. The restricted stock unit grant entitles Mr. Wechsler to dividend equivalents in connection with any dividends paid to shareholders of the Company during such vesting period, provided that any dividend equivalents paid with respect to unvested restricted stock units will be subject to the same vesting requirements as the underlying restricted stock units to which such dividend equivalents relate, with the payment deferred and paid within ten days after such restricted stock units become vested.

(4)

The restricted stock units granted to each of Messrs. Hahn and Bluth and Dr. Oldach in January 2017 were initially scheduled to vest and settle on January 1, 2019, and the restricted stock units granted to each of Messrs. Hahn and Bluth and Dr. Oldach in February 2017 were initially scheduled to vest and settle on January 9, 2019. The restricted stock units granted to each of Messrs. Hahn and Bluth and Dr. Oldach were accelerated in connection with each such executive’s termination of employment pursuant to each executive’s separation agreement, as discussed in more detail below under “Potential Payments on Termination and Change of Control.”

(5)

The stock options granted to Mr. Wechsler will become twenty-five percent vested and exercisable on the first anniversary of Mr. Wechsler’s date of hire, with the remaining stock options vesting in equal monthly installments over the three-year period thereafter, subject to his continued service with the Company through such date. If the grant is not expressly assumed in a change in control, any then remaining unvested portion of such grant will become fully vested upon such change in control.

(6)

The stock options granted to each of Mr. Estrem, Dr. Cammarata, Dr. Duffy and Mr. Temperato will become twenty-five percent vested and exercisable on the first anniversary of the date of grant, with the remaining stock options vesting in equal monthly installments over the three-year period thereafter, subject to the executive’s continued service with the Company through such date.

(7)

The stock options granted to each of Messrs. Hahn and Bluth and Dr. Oldach in January 2017 were initially scheduled to vest in equal monthly installments over a four-year period on each monthly anniversary of January 1, 2017, and the stock options granted to each of Messrs. Hahn and Bluth and Dr. Oldach in February 2017 were initially scheduled to vest in equal monthly installments over a four-year period on each monthly anniversary of February 23, 2017. The stock options granted to each of Messrs. Hahn and Bluth and Dr. Oldach were accelerated in connection with each such executive’s termination of employment pursuant to each executive’s separation agreement, as discussed in more detail below under “Potential Payments on Termination and Change of Control.”


(8)

The amounts reported in this column represent the aggregate grant date fair value of the stock option and restricted stock unit awards, as applicable, granted to our named executive officers during our fiscal year ended December 31, 2017, calculated in accordance with FASB ASC Topic 718, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. See note 12 to our consolidated financial statements for the fiscal year ended December 31, 2017, for a discussion of the assumptions used to calculate these values. In addition, in connection with the termination of each of Dr. Zaccardelli’s, Messrs. Hahn’s and Bluth’s and Dr. Oldach’s employment, the Company approved an extension of the exercise period for the vested stock options held by each executive as of the date of such termination until the earlier of (x) the end of the twelve-month period following such termination, and (y) the stated expiration date of the stock options; however, due to the then current per share price of our common stock relative to each applicable exercise price, in accordance with FASB ASC Topic 718, no incremental accounting charge was required to be taken by the Company as a result of such extension.

Narrative to Summary Compensation Table and Grant of Plan-Based Awards Table

Executive Employment Agreements

Certain of the compensation paid to the named executive officers reflected in the Summary Compensation Table was provided pursuant to employment agreements or letter agreements with us, which are summarized below. In addition, with respect to our named executive officers, for a discussion of the potential payments and benefits that we would provide our currently employed named executive officers in connection with a termination of employment and/or a change in control of the Company and, with respect to our named executed officers who are no longer employed with us, for a discussion of the payments and benefits we have agreed to provide in connection with each executive’s respective termination of employment, please see “Potential Payments on Termination and Change of Control” below.

Daniel Wechsler. In connection with Mr. Wechsler’s employment, the Company entered into an employment agreement pursuant to which Mr. Wechsler is entitled to an annual base salary, currently $572,000. In addition, pursuant to his employment agreement, Mr. Wechsler is eligible to earn an annual bonus, initially set at a target equal to 60% of his base salary, with a maximum annual bonus opportunity to be set at a value not be less than 150% of his base salary; effective January 1, 2018, it was mutually agreed that Mr. Wechsler’s annual bonus would be set at a target equal to 65% of his base salary, with the maximum bonus opportunity equal to 84.5% of his base salary, in each case subject to the achievement of applicable Company and specific individual performance objectives for each fiscal year. Mr. Wechsler’s employment agreement provides that his annual bonus for 2017 could not be less than target, but would be prorated for the period in 2017 based on the number of days in the year actually worked. The bonus for 2017 actually paid to Mr. Wechsler was equal to 112% of his base salary, and was prorated based on the number of days in the year actually worked.

Paul D. Estrem; Sue K. Cammarata, M.D.; Erin Duffy, Ph.D.; John Temperato. Under the terms of each of Mr. Estrem’s, Dr. Cammarata’s, Dr. Duffy’s, and Mr. Temperato’s offer letters, each executive is or was to be employed on an “at-will” basis, as applicable. Currently, Mr. Estrem, Dr. Cammarata and Dr. Duffy earn a base salary of $365,084, $446,437 and $340,458, respectively, and each is eligible to earn an annual bonus equal to 30% of his or her base salary. During 2017, Mr. Temperato was eligible to earn a base salary equal to $416,138 and was eligible to earn an annual bonus equal to 50% of his base salary.

David Zaccardelli. In connection with the hiring of Dr. Zaccardelli as Acting Chief Executive Officer in December 2016, the Company entered into an employment agreement pursuant to which Dr. Zaccardelli was paid a base salary at the annual rate of $540,000 during his employment and was eligible for an annual incentive bonus for calendar years during his term, beginning in 2017, with a target bonus equal to 60% of his base salary. This bonus was subject to achievement of objectives established by the Company’s board of directors, consistent with those established for the Company’s senior management team.

The employment of Dr. Zaccardelli terminated in connection with the completion of the merger with Cempra, effective November 3, 2017. He continues to serve on our board of directors as a non-employee member, but did not receive any compensation for serving in that capacity while employed as the Company’s Acting Chief Executive Officer.

Stock Plan

During the fiscal year ended December 31, 2017, we granted stock options and restricted stock units to certain of our named executive officers. For a discussion of such stock option and restricted unit grants, please see “Components of Executive Compensation—Long-Term Equity Incentives” above.


Outstanding Equity Awards at Fiscal Year-End 2017

The following table contains certain information concerning outstanding equity awards to acquire shares of our common stock held by each of our named executive officers as of December 31, 2017.

 

 

 

 

Option awards

 

Stock awards

Name

 

Grant

date

 

Number of

securities

underlying

unexercised

options (#)

exercisable

(1)

 

 

Number of

securities

underlying

unexercised

options (#)

unexercisable

(1)

 

 

Equity

incentive

plan

awards:

number of

securities

underlying

unexercised

unearned

options

(#)

 

Option

exercise

price

($)(1)

 

Option

expiration

date

 

Number

of shares

or units

of stock

that have

not

vested

(#)(1)

 

 

Market

value of

shares or

units of

stock

that have

not vested

($)(1)(2)

 

 

Equity

incentive

plan

awards:

number of

unearned shares,

units or

other

rights that

have not

vested

(#)

 

Equity

incentive

plan

awards:

market or payout

value of

unearned

shares,

units or

other rights

that have

not vested

($)

Daniel Wechsler

 

11/3/2017(3)

 

—

 

 

—

 

 

—

 

—

 

—

 

 

183,661

 

 

 

2,901,844

 

 

—

 

—

 

 

11/3/2017(4)

 

—

 

 

 

550,981

 

 

—

 

11.65

 

11/2/2027

 

—

 

 

—

 

 

—

 

—

Paul D. Estrem

 

8/8/2017(5)

 

—

 

 

 

5,214

 

 

—

 

20.97

 

8/7/2027

 

—

 

 

—

 

 

—

 

—

 

 

9/1/2015(5)

 

 

5,630

 

 

 

3,379

 

 

—

 

36.25

 

8/31/2025

 

—

 

 

—

 

 

—

 

—

 

 

4/8/2014(5)

 

 

20,220

 

 

 

1,839

 

 

—

 

27.52

 

4/7/2024

 

—

 

 

—

 

 

—

 

—

 

 

12/17/2013(5)

 

 

25,793

 

 

—

 

 

—

 

17.04

 

12/16/2023

 

—

 

 

—

 

 

—

 

—

Sue K. Cammarata, M.D.

 

8/8/2017(5)

 

—

 

 

 

3,895

 

 

—

 

20.97

 

8/7/2027

 

—

 

 

—

 

 

—

 

—

 

 

9/29/2015(5)

 

 

8,782

 

 

 

5,270

 

 

 

 

36.25

 

9/28/2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9/1/2015(5)

 

 

2,815

 

 

 

1,689

 

 

—

 

36.25

 

8/31/2025

 

—

 

 

—

 

 

—

 

—

 

 

4/8/2014(5)

 

 

10,109

 

 

920

 

 

—

 

27.52

 

4/7/2024

 

—

 

 

—

 

 

—

 

—

 

 

12/17/2013(5)

 

 

12,896

 

 

—

 

 

—

 

17.04

 

12/16/2023

 

—

 

 

—

 

 

—

 

—

Erin Duffy, Ph.D.

 

8/8/2017(5)

 

—

 

 

 

4,692

 

 

—

 

20.97

 

8/7/2027

 

—

 

 

—

 

 

—

 

—

 

 

9/1/2015(5)

 

 

5,067

 

 

 

3,041

 

 

—

 

36.25

 

8/31/2025

 

—

 

 

—

 

 

—

 

—

 

 

4/8/2014(5)

 

 

18,198

 

 

 

1,655

 

 

—

 

27.52

 

4/7/2024

 

—

 

 

—

 

 

—

 

—

 

 

12/17/2013(5)

 

 

23,213

 

 

—

 

 

—

 

17.04

 

12/16/2023

 

—

 

 

—

 

 

—

 

—

John Temperato

 

8/8/2017(5)

 

—

 

 

 

6,615

 

 

—

 

20.97

 

8/7/2027

 

—

 

 

—

 

 

—

 

—

 

 

3/22/2016(5)

 

 

33,061

 

 

 

39,074

 

 

—

 

38.00

 

3/21/2026

 

—

 

 

—

 

 

—

 

—

David Zaccardelli, Pharm.D.(6)

 

12/9/2016

 

 

29,999

 

 

—

 

 

—

 

38.50

 

12/8/2026

 

—

 

 

—

 

 

—

 

—

 

 

8/10/2016

 

 

5,000

 

 

—

 

 

—

 

113.85

 

8/9/2026

 

—

 

 

—

 

 

—

 

—

Mark Hahn(6)

 

2/23/2017

 

 

5,000

 

 

—

 

 

—

 

15.75

 

2/22/2027

 

—

 

 

—

 

 

—

 

—

 

 

1/3/2017

 

 

25,000

 

 

—

 

 

—

 

15.00

 

1/2/2027

 

—

 

 

—

 

 

—

 

—

 

 

1/1/2016

 

 

11,931

 

 

—

 

 

—

 

155.65

 

12/31/2025

 

—

 

 

—

 

 

—

 

—

 

 

1/1/2015

 

 

9,272

 

 

—

 

 

—

 

117.55

 

12/31/2024

 

—

 

 

—

 

 

—

 

—

 

 

1/8/2014

 

 

11,999

 

 

—

 

 

—

 

65.50

 

1/7/2024

 

—

 

 

—

 

 

—

 

—

 

 

1/18/2013

 

 

10,000

 

 

—

 

 

—

 

33.15

 

1/17/2023

 

—

 

 

—

 

 

—

 

—

 

 

3/20/2012

 

 

4,999

 

 

—

 

 

—

 

38.10

 

3/19/2022

 

—

 

 

—

 

 

—

 

—

 

 

12/8/2010

 

 

1,814

 

 

—

 

 

—

 

10.45

 

12/7/2020

 

—

 

 

—

 

 

—

 

—

 

 

7/28/2010

 

 

1,528

 

 

—

 

 

—

 

10.45

 

7/28/2020

 

—

 

 

—

 

 

—

 

—

 

 

2/2/2010

 

 

9,378

 

 

—

 

 

—

 

10.45

 

2/1/2020

 

—

 

 

—

 

 

—

 

—

John Bluth(6)(7)

 

2/23/2017

 

—

 

 

—

 

 

—

 

—

 

—

 

 

5,000

 

 

 

79,000

 

 

—

 

—

 

 

2/23/2017

 

 

4,999

 

 

—

 

 

—

 

15.75

 

2/22/2027

 

—

 

 

—

 

 

—

 

—

 

 

1/3/2017

 

—

 

 

—

 

 

—

 

—

 

—

 

 

5,000

 

 

 

79,000

 

 

—

 

—

 

 

1/3/2017

 

 

15,000

 

 

—

 

 

—

 

15.00

 

1/2/2027

 

—

 

 

—

 

 

—

 

—

 

 

8/5/2016

 

 

7,999

 

 

—

 

 

—

 

120.70

 

8/4/2026

 

—

 

 

—

 

 

—

 

—

David Oldach, M.D.(6)

 

2/23/2017

 

 

5,000

 

 

—

 

 

—

 

15.75

 

2/22/2027

 

—

 

 

—

 

 

—

 

—

 

 

1/3/2017

 

 

25,000

 

 

—

 

 

—

 

15.00

 

1/2/2027

 

—

 

 

—

 

 

—

 

—

 

 

1/1/2016

 

 

9,178

 

 

—

 

 

—

 

155.65

 

12/31/2025

 

—

 

 

—

 

 

—

 

—

 

 

1/1/2015

 

 

4,599

 

 

—

 

 

—

 

117.55

 

12/31/2024

 

—

 

 

—

 

 

—

 

—

 

 

1/8/2014

 

 

1,500

 

 

—

 

 

—

 

65.50

 

1/7/2024

 

—

 

 

—

 

 

—

 

—

 

 

3/7/2013

 

 

2,000

 

 

—

 

 

—

 

33.20

 

3/6/2023

 

—

 

 

—

 

 

—

 

—

 

 

1/18/2013

 

 

2,817

 

 

—

 

 

—

 

33.15

 

1/17/2023

 

—

 

 

—

 

 

—

 

—

 

 

3/21/2012

 

 

3,999

 

 

—

 

 

—

 

37.35

 

3/20/2022

 

—

 

 

—

 

 

—

 

—

 

 

3/1/2011

 

 

3,269

 

 

—

 

 

—

 

11.40

 

3/2/2021

 

—

 

 

—

 

 

—

 

—

(1)

All amounts presented reflect the 5-for-1 stock split effected on November 3, 2017, in connection with the merger with Cempra.

(2)

The market value was determined based on the closing sale price per share of Melinta common stock on the NASDAQ Global Market on December 29, 2017, the last trading day of fiscal year 2017, which was $15.80.

(3)

The restricted stock units granted to Mr. Wechsler will become twenty-five percent vested on the first anniversary of Mr. Wechsler’s date of hire, with the remaining units vesting in equal monthly installments over the three-year period thereafter, subject to his continued service with the Company through such date. If the grant is not expressly assumed in a change in control, any then remaining unvested


portion of such grant will become fully vested upon such change in control. The restricted stock unit grant entitles Mr. Wechsler to dividend equivalents in connection with any dividends paid to shareholders of the Company during such vesting period, provided that any dividend equivalents paid with respect to unvested restricted stock units will be subject to the same vesting requirements as the underlying restricted stock units to which such dividend equivalents relate, with the payment deferred and paid within ten days after such restricted stock units become vested.

(4)

The stock options granted to Mr. Wechsler will become twenty-five percent vested and exercisable on the first anniversary of Mr. Wechsler’s date of hire, with the remaining stock options vesting in equal monthly installments over the three-year period thereafter, subject to his continued service with the Company through such date. If the grant is not expressly assumed in a change in control, any then remaining unvested portion of such grant will become fully vested upon such change in control.

(5)

The stock options granted to each of Mr. Estrem, Dr. Cammarata, Dr. Duffy and Mr. Temperato will become twenty-five percent vested and exercisable on the first anniversary of the date of grant, with the remaining stock options vesting in equal monthly installments over the three-year period thereafter, subject to the executive’s continued service with the Company through such date.

(6)

The stock options granted to each of Dr. Zaccardelli, Messrs. Hahn and Bluth, and Dr. Oldach became fully vested and exercisable, on November 3, 2017, with respect to Dr. Zaccardelli, and on November 15, 2017, with respect to Mr. Hahn and Dr. Oldach, and December 31, 2017, with respect to Mr. Bluth, in each case, in connection with the executive’s termination of employment.

(7)

The restricted stock units granted to Mr. Bluth became fully vested on December 31, 2017, in connection with Mr. Bluth’s termination of employment, which were settled on January 2, 2018.

Option Exercises and Stock Vested Table

The following table contains information concerning the vesting of stock awards held by our named executive officers during the fiscal year ended December 31, 2017. There were no exercises of stock options by the named executive officers in 2017.

 

 

Option awards

 

Stock awards

 

Name

 

Number of

shares acquired

on exercise

(#)

 

Value realized

on exercise

($)

 

Number of

shares acquired

on vesting

(#)

 

 

Value realized

on vesting

($)(1)

 

Daniel Wechsler

 

—

 

—

 

—

 

 

—

 

Paul D. Estrem

 

—

 

—

 

—

 

 

—

 

Sue K. Cammarata, M.D.

 

—

 

—

 

—

 

 

—

 

Erin Duffy, Ph.D.

 

—

 

—

 

—

 

 

—

 

John Temperato

 

—

 

—

 

—

 

 

—

 

David Zaccardelli, Pharm.D.(2)

 

—

 

—

 

 

10,000

 

 

 

116,250

 

Mark Hahn(2)

 

—

 

—

 

 

15,000

 

 

 

183,750

 

John Bluth

 

—

 

—

 

—

 

 

—

 

David Oldach, M.D.(2)

 

—

 

—

 

 

15,000

 

 

 

183,750

 

(1)

The value realized on vesting is calculated by multiplying the number of shares of common stock acquired on vesting by the closing price of our common stock on the vesting date.

(2)

Certain of Dr. Zaccardelli’s, Messrs. Hahn’s and Bluth’s, and Dr. Oldach’s restricted stock units vested in connection with each such executive’s termination of employment pursuant to each executive’s separation agreement, as discussed in more detail below under “Potential Payments on Termination and Change of Control.”

Pension Benefits 

We do not currently sponsor or maintain any defined benefit pension plans or other benefit plans providing specified retirement payments and benefits for employees.

Non-Qualified Deferred Compensation

We do not currently sponsor or maintain any non-qualified defined contribution or other non-qualified deferred compensation plans for employees.

Potential Payments on Termination and Change of Control

The following summaries describe, with respect to our named executive officers, the potential payments and benefits that we would provide our currently employed named executive officers in connection with a termination of employment and/or a change in control of the Company and, with respect to our named executive officers who are no longer employed with us, the payments and benefits we have agreed to provide in connection with each executive’s respective termination of employment.


Daniel Wechsler. Under the terms of Mr. Wechsler’s employment agreement, if the Company terminates Mr. Wechsler’s employment without cause or if he terminates his employment with the Company for good reason in accordance with the terms of his employment agreement, subject to Mr. Wechsler’s execution of a release of claims, he will be entitled to receive severance equal to:  (i) an amount equal to one and one-half times his then annual base salary and target annual bonus (provided that such multiple will be equal to two if the date of such termination occurs within three months prior to or twelve months following a change in control), payable in equal installments over eighteen months in accordance with the Company’s payroll practices; (ii) a prorated annual bonus for the year in which such termination occurs, based on actual performance; and (iii) reimbursement for the employer portion of the premium costs of his COBRA continuation coverage until the earlier of (x) the end of the eighteen-month period following such qualifying termination, and (y) the date Mr. Wechsler becomes eligible for coverage under another group health plan. In addition, if such termination of Mr. Wechsler’s employment by the Company without cause or by Mr. Wechsler with good reason occurs within three months prior to or twelve months following a change in control, all of his then outstanding equity awards subject to solely service-based vesting will become fully vested. In connection with any termination of Mr. Wechsler’s employment due to death or disability, he is entitled to a prorated bonus for the year in which such termination occurs, based on actual performance. In addition, if either of the inducement equity awards granted to Mr. Wechsler is not expressly assumed in a change in control, any then remaining unvested portion of such grants will become fully vested upon such change in control.

Mr. Wechsler also entered into an Employee Noncompetition, Nondisclosure and Developments Agreement pursuant to which he is subject to customary confidentiality restrictions that apply during his employment and indefinitely thereafter, an invention assignment provision, and covenants not to compete or to solicit our employees or customers while employed with the Company and for eighteen months following any termination of employment.

Paul D. Estrem; Sue K. Cammarata, M.D.; Erin Duffy, Ph.D. Each of Mr. Estrem, Dr. Cammarata, and Dr. Duffy has entered into a severance agreement, pursuant to which if the Company terminates the executive’s employment without cause or if the executive terminates his or her employment with the Company for good reason in accordance with the terms of the separation agreement, subject to his or her execution of a release of claims, the executive will be entitled to severance equal to:  (i) continued payment of the executive’s base salary for a twelve-month period; (ii) reimbursement for the employer portion of the premium costs of the executive’s COBRA continuation coverage, until the earlier of (x) the end of the twelve-month period following such qualifying termination, and (y) the date the executive becomes eligible for coverage under another group health plan; and (iii) if such qualifying termination occurs within six months of a change in control, a prorated annual bonus for the year in which such termination occurs.

Each of Mr. Estrem, Dr. Cammarata, and Dr. Duffy has also entered into an Employee Noncompetition, Nondisclosure and Developments Agreement pursuant to which the executive is subject to customary confidentiality restrictions that apply during the executive’s employment and indefinitely thereafter, an invention assignment provision, and covenants not to compete or to solicit our employees or customers while employed with the Company and for twelve months following any termination of employment.

John Temperato. On December 28, 2017, we entered into a separation and release agreement with Mr. Temperato, pursuant to which his employment ended on January 5, 2018. Pursuant to the terms of the separation agreement, in consideration for his release of claims and continued compliance with his covenants not to compete or to solicit the Company’s employees or customers, in each case, for a twelve-month period following his termination of employment, the Company will pay Mr. Temperato an amount equal to:  (i) continued payment of his base salary for a twelve-month period; (ii) reimbursement for the employer portion of the premium costs of his COBRA continuation coverage until the earlier to occur of (x) the end of the twelve month period following his termination of employment, and (y) the date he becomes eligible for coverage under another group health plan; and (iii) an additional payment equal to $208,068, representing the value of the annual bonus Mr. Temperato would have been eligible to earn with respect to performance in 2017. Consistent with the benefit provided to the other executive officers, notwithstanding the terms of his separation agreement, we have agreed to reimburse Mr. Temperato for the full cost of his COBRA continuation coverage.


David Zaccardelli Pharm.D.; Mark Hahn; John Bluth; David Oldach, M.D. In connection with the termination of the employment of Dr. Zaccardelli, Messrs. Hahn and Bluth, and Dr. Oldach, upon the date of their respective termination, the Company and each of Dr. Zaccardelli, Messrs. Hahn and Bluth, and Dr. Oldach entered into a separation and release agreement. In consideration for the executive’s release of claims and continued compliance with his covenants not to compete or to solicit the Company’s employees or customers, in each case, for an eighteen-month period following his termination of employment, the Company will pay each executive an amount equal to (i) continued payment of his base salary for an eighteen-month period (twenty-four months in the case of Dr. Zaccardelli); (ii) a lump sum amount equal to one and one half times his target bonus for 2017 (two times in the case of Dr. Zaccardelli); and (iii) reimbursement for the entire cost of his COBRA continuation coverage until the earlier to occur of (x) the end of the eighteen-month period following his termination date, and (y) the date he becomes eligible for coverage under another group health plan. In addition, the Company will provide outplacement assistance through a service provider selected by the Company for a period of eighteen months. The vesting of all outstanding and unvested stock options and restricted stock units held by the executive was accelerated and, if applicable, became immediately and fully exercisable. The exercise period for any of the executive’s stock options that vested prior to his termination date, or pursuant to his separation agreement, was extended through the date that is twelve months following his termination date, but in no event beyond the original expiration date of the each affected stock option. At the time of this filing, the exercise prices of all of the stock options held by Dr. Zaccardelli, Messrs. Hahn and Bluth, and Dr. Oldach were above the fair market value of such shares. Dr. Zaccardelli continues to serve as a non-employee member of our board of directors.

The table below reflects the amount of compensation and benefits payable to each named executive officer currently employed with us in the event of:  (i) a termination of the executive’s employment by the Company without cause or by the executive for good reason; (ii) a termination of the executive’s employment by the Company without cause or by the executive for good reason, with respect to Mr. Wechsler within three months prior to or twelve months following a change in control, and with respect to Mr. Estrem, Dr. Cammarata and Dr. Duffy, within six months following a change in control; and (iii) with respect to Mr. Wechsler, a termination of his employment in connection with his death or disability.

Name

 

Benefit

 

Termination

without cause

or resignation

for good

reason

($)(1)

 

 

Termination

without cause

or resignation

for good

reason in

connection

with a change

in control

($)(1)

 

 

Death or

disability

($)(1)

 

 

Change in

control

(2)

 

Daniel Wechsler

 

Cash payment

 

 

1,320,000

 

 

 

1,760,000

 

 

—

 

 

—

 

President and Chief Executive

 

Bonus

 

 

53,342

 

 

 

53,342

 

 

 

53,342

 

 

—

 

Officer

 

Continuation of benefits

 

 

15,746

 

 

 

15,746

 

 

—

 

 

—

 

 

 

Vesting of Options and RSUs

 

—

 

 

 

5,188,414

 

 

—

 

 

 

5,188,414

 

 

 

Total

 

 

1,389,088

 

 

 

7,017,502

 

 

 

53,342

 

 

 

5,188,414

 

Paul D. Estrem

 

Cash payment

 

 

333,410

 

 

 

333,410

 

 

—

 

 

—

 

Executive Vice President, Chief

 

Bonus

 

—

 

 

 

100,023

 

 

—

 

 

—

 

Financial Officer and Secretary

 

Continuation of benefits

 

 

18,220

 

 

 

18,220

 

 

—

 

 

—

 

 

 

Total

 

 

351,630

 

 

 

451,653

 

 

—

 

 

—

 

Sue K. Cammarata, M.D.

 

Cash payment

 

 

433,433

 

 

 

433,433

 

 

—

 

 

—

 

Executive Vice President and

 

Bonus

 

—

 

 

 

130,030

 

 

—

 

 

—

 

Chief Medical Officer

 

Continuation of benefits

 

 

790

 

 

 

790

 

 

—

 

 

—

 

 

 

Total

 

 

433,512

 

 

 

563,542

 

 

—

 

 

—

 

Erin Duffy, Ph.D.

 

Cash payment

 

 

330,541

 

 

 

330,541

 

 

—

 

 

—

 

Executive Vice President and

 

Bonus

 

—

 

 

 

99,162

 

 

—

 

 

—

 

Chief Scientific Officer

 

Continuation of benefits

 

 

6,245

 

 

 

6,245

 

 

—

 

 

—

 

 

 

Total

 

 

336,786

 

 

 

435,948

 

 

—

 

 

—

 

(1)

The severance amounts reported are based on the base salaries in effect on December 31, 2017.

(2)

Amounts reported in this column assume that any equity awards are not assumed by an acquirer in connection with a change in control.


CEO Pay Ratio – Annualized Approach

Pursuant to Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are required to disclose the ratio of our principal executive officer annual total compensation to the annual total compensation of our median employee.

During fiscal year 2017, the principal executive officer (“PEO”), of Melinta as of the determination date, December 31, 2017, was our President and Chief Executive Officer, Mr. Dan Wechsler. For 2017, the annual total compensation for Mr. Wechsler, as reported in the Summary Compensation Table, was $6,955,227. We note that a substantial portion of our President and CEO’s total compensation for 2017 was the sign-on equity awards he received in accordance with his employment agreement, which had a grant date fair value of $6,745,131. However, because Mr. Wechsler became our President and Chief Executive Officer on November 3, 2017, and served as our PEO for fewer than two months of the year, for purposes of calculating the PEO pay ratio, we annualized Mr. Wechsler’s base salary to $550,000 in accordance with SEC rules to estimate the compensation that he likely would have received if he had served as CEO for the entire year.

As a result, Mr. Wechsler’s compensation as CEO, for purposes of this pay ratio disclosure, was $7,417,439. The annual total compensation for our median employee was $215,327, annualized in a manner resulting in a pay ratio of approximately 34 to 1.

To find the median of the annual total compensation of all our employees (other than our CEO), we used wages from our payroll records as reported to the Internal Revenue Service on Form W-2 for fiscal 2017. In making this determination, we annualized the compensation of 91 full-time and part-time permanent employees who were employed on December 31, 2017, but did not work for us the entire year. No full-time equivalent adjustments were made for part-time employees. We identified our median employee using this compensation measure and methodology, which was consistently applied to all our employees included in the calculation.

The pay ratio reported above is a reasonable estimate calculated in a manner consistent with SEC rules based on our internal records and the methodology described above. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. Therefore, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates, and assumptions in calculating their own pay ratios.

DIRECTOR COMPENSATION

Director Compensation in Fiscal 2017

The following table shows the compensation earned by each non-employee director of Melinta for the year ended December 31, 2017.

Name(1)

 

Fees earned or

paid in cash

($)(2)

 

 

Option

awards

(3)(4)($)

 

 

All other

compensation

($)

 

Total

($)

 

Michael R. Dougherty

 

 

46,292

 

 

 

31,699

 

 

—

 

 

77,991

 

Kevin T. Ferro

 

—

 

 

—

 

 

—

 

—

 

Jay Galeota

 

—

 

 

—

 

 

—

 

—

 

David Gill

 

 

50,500

 

 

 

31,699

 

 

—

 

 

82,199

 

Dov A. Goldstein, M.D.

 

 

42,083

 

 

 

31,699

 

 

—

 

 

73,782

 

Cecilia Gonzalo

 

—

 

 

—

 

 

—

 

—

 

John H. Johnson

 

 

37,875

 

 

 

31,699

 

 

—

 

 

69,574

 

Richard Kent, M.D.

 

 

37,875

 

 

 

31,699

 

 

—

 

 

69,574

 

Thomas Koestler, Ph.D.(5)

 

—

 

 

—

 

 

—

 

—

 

Garheng Kong, M.D., Ph.D.

 

 

82,063

 

 

 

38,038

 

 

—

 

 

120,101

 

P. Sherill Neff

 

 

37,875

 

 

 

31,699

 

 

—

 

 

69,574

 

David Zaccardelli, Pharm.D.(6)

 

—

 

 

—

 

 

—

 

—

 

(1)

Effective November 3, 2017, in connection with the merger with Cempra, Michael Dougherty, Dov A. Goldstein, M.D., Richard Kent, M.D. and P. Sherrill Neff each resigned from our board of directors, and Kevin T. Ferro, Jay Galeota, Cecilia Gonzalo and Thomas P. Koestler, Ph.D. were appointed to our board of directors.


(2)

The reported amounts represent fees earned under our non-employee director compensation program between January 1, 2017, through November 3, 2017. As discussed below, following the merger with Cempra on November 3, 2017, our director compensation program was suspended pending a review of the program. Fees earned by each non-employee member of our board of directors were pro-rated for any partial period of service.

(3)

The reported amounts represent the aggregate grant date fair value of the stock option awards granted to non-employee directors during our fiscal year ended December 31, 2017, calculated in accordance with FASB ASC Topic 718, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. See note 12 to our consolidated financial statements for the fiscal year ended December 31, 2017, for a discussion of the assumptions used to calculate these values. Our compensation committee approved an extension of the exercise period for stock options held by members of our board of directors who resigned in connection with the merger with Cempra to the earlier of (x) November 3, 2018, and (y) the stated expiration date of the stock options, however, due to the then current per share price of our common stock relative to each applicable exercise price, in accordance with FASB ASC Topic 718, no incremental accounting charge was required to be taken by the Company as a result of such extension.

(4)

The non-employee members of our board of directors held the following aggregate number of unexercised stock options as of December 31, 2017:

Name

Aggregate

number

of options

outstanding

as of December

31, 2017

Michael R. Dougherty

17,000

Kevin T. Ferro

—

Jay Galeota

—

David Gill

20,000

Dov. A Goldstein, M.D.

7,832

Cecilia Gonzalo

—

John H. Johnson

23,756

Richard Kent, M.D., Ph.D.

15,000

Thomas Koestler, Ph.D.

19,876

Garheng Kong, M.D., Ph.D.

27,356

P. Sherill Neff

18,000

David Zaccardelli, Pharm.D.

34,999

(5)

Dr. Koestler served on the board of directors of Melinta Therapeutics, Inc. prior to the merger with Cempra, and earned a cash retainer equal to $84,167 during 2017 for such service. Dr. Koestler also earned an additional consulting fee equal to $42,083 in connection with his provision of consulting services from time to time. In addition, on August 8, 2017, Dr. Koestler received a grant of stock options with an aggregate grant date fair value equal to $23,434, calculated in accordance with FASB ASC Topic 718, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. See note 12 to our consolidated financial statements for the fiscal year ended December 31, 2017, for a discussion of the assumptions used to calculate this value.

(6)

Dr. Zaccardelli resigned as our Acting Chief Executive Officer on November 3, 2017. Dr. Zaccardelli’s compensation for his service as an employee is included in the table titled “Summary Compensation Table” below.

Director Compensation

Prior to the merger with Cempra, our board of directors had determined that compensation for our directors should be a mix of cash and equity-based compensation comprised of:

An annual cash retainer for all members of our board of directors equal to $40,000;

An additional annual cash retainer for the non-executive chair of our board of directors equal to $35,000;

An additional annual cash retainer for the chair of each of the Audit Committee, Compensation Committee, and Nominating and Governance Committee equal to $20,000, $12,500, and $10,000, respectively;

An additional annual retainer for members of the Audit Committee, Compensation Committee, and Nominating and Governance Committee (other than the chair of each such committee) equal to $10,000, $5,000, and $5,000, respectively;

An initial grant of 25,000 stock options when first appointed to our board of directors and thereafter annual grants of 15,000 stock options; and

An additional annual grant of 3,000 stock options for the chair of our board, if not a named executive officer.


Following the merger, we suspended our director compensation program in order to assess it in light of the significant strategic transformation. During the first quarter of 2018, with the assistance of Radford, an independent compensation consultant, the Compensation Committee reviewed our non-employee director compensation program against the peer group approved in January 2018 with the goal of aligning director compensation at the 50th percentile of the peer group. For a discussion of the peer group, see “Compensation Discussion and Analysis—Compensation Determination Process—Peer Group”. The Compensation Committee’s review confirmed that our director compensation program compared to our peers was below the 50th percentile in several respects. As a result, Radford proposed that the annual cash retainer be increased from $40,000 to $45,000, that the additional annual cash retainer for the chair of the board be reduced from $35,000 to $25,000, that the additional annual cash retainer for the chair of the Compensation Committee be increased from $12,500 to $14,000 and that the additional retainer for members of the Compensation Committee be increased from $5,000 to $7,000. In addition, Radford recommended that the additional annual grant for the chair of the board be eliminated.

The Compensation Committee considered Radford’s recommendation and recommended to the board of directors, and our board of directors approved, that effective for fiscal 2018, each non-employee director will receive the following compensation for service on our board of directors:

An annual cash retainer for all members of our board of directors equal to $45,000;

An additional annual cash retainer for the chair of the board equal to $25,000;

An additional annual cash retainer for the chair of each of the Audit Committee, Compensation Committee, and Nominating and Governance Committee equal to $20,000, $14,000, and $10,000, respectively;

An additional retainer for members of the Audit Committee, Compensation Committee, and Nominating and Governance Committee (other than the chair of each such committee) equal to $10,000, $7,000, and $5,000, respectively; and

An initial grant of 25,000 stock options when first appointed to our board of directors that vests over a period of three years and thereafter annual grants of 15,000 stock options.

Because most of the current members of the board of directors do not have any equity ownership and the remaining directors hold underwater stock options, Radford also recommended, and our board of directors approved, that all of the directors receive an initial grant of stock options in fiscal 2018 vesting over three years, and a pro-rata annual grant covering the period from the closing of the merger through the date of our 2018 Annual Meeting of Shareholders vesting on the first anniversary of the grant date.

Director Stock Ownership Guidelines

We have stock ownership guidelines for directors, which were updated by our compensation committee in March 2018 and further our goal of more closely aligning the interests of our directors and shareholders. The stock ownership guidelines require each of our directors to hold Melinta common stock (including unvested shares of time-based restricted stock and vested in-the-money stock options) with a market value equal to three times his or her then-current annual cash retainer (or such lesser amount as the director has been granted to date). The stock ownership guidelines will be applicable at the later of (i) five years after the date the director assumes his or her position or (ii) February 16, 2021, which is the date five years from the date the stock ownership guidelines were originally adopted. Directors generally are not permitted to sell any of the equity granted to them unless they have met their ownership requirements.


Item 12. Security Ownership of Certain Beneficial OwnersOwners and Management and Related Shareholder Matters

The following table sets forth the indicated information as of December 31, 2017,2018, with respect to our equity compensation plans:

Plan Category

 

Number of

securities to be

issued upon

exercise of

outstanding

options, warrants

and rights

 

 

Weighted-average

exercise price

of outstanding

options, warrants

and rights(1)

 

 

Number of

securities

remaining available

for future

issuance under

equity

compensation

plans(2)

 

Equity compensation plans approved by our shareholders(3)

 

 

1,647,078

 

 

$

41.65

 

 

 

764,745

 

Equity compensation plans not approved by our shareholders(4)

 

 

734,642

 

 

$

11.65

 

 

 

—

 

Total

 

 

2,381,720

 

 

 

 

 

 

 

764,745

 

Plan Category 
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
 
Weighted-average
exercise price
of outstanding
options, warrants
and rights(1)
 
Number of
securities
remaining available
for future
issuance under
equity
compensation
plans(2)
Equity compensation plans approved by our shareholders(3) 628,590
 $63.18
 813,526
Equity compensation plans not approved by our shareholders(4) 74,000
 $22.50
 —
Total 702,590
   813,526

(1)

(1)Represents the weighted average exercise price of outstanding stock options and is calculated without taking into account the shares of common stock subject to outstanding restricted stock units that become issuable without any cash payment required for such shares.

(2)

(2)Includes only shares remaining available for future issuance under the 2011 Equity2018 Stock Incentive Plan. No shares are reserved for future issuance under the 2011 Equity Incentive Plan, the Private Melinta 2011 Equity Incentive Plan or the 2006 Stock Option and Incentive Plan, other than shares issuable upon exercise of equity awards outstanding under such plans. In addition, the 2011 Equity2018 Stock Incentive Plan contains an “evergreen” provision pursuant to which the number of shares reserved for issuance under that plan automatically increases on January 1 of each year, continuing through January 1, 2021, by 4% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year (unless our board of directors determines to increase the number of shares subject to the plan by a lesser amount). The number of shares of common stock reported in this column does not include the 879,957175,991 shares of common stock that became available for issuance as of January 1, 2018, pursuant to the evergreen provision of our 2011 Equity2018 Stock Incentive Plan.

(3)

(3)Includes the 2018 Stock Incentive Plan, 2011 Equity Incentive Plan, the 2006 Plan and the Private Melinta 2011 Equity Incentive Plan. Of these 1,647,078628,590 securities outstanding, there were options to purchase 1,510,078611,230 shares of common stock and 137,00017,360 restricted stock units.

(4)

(4)Represents the inducement grant to Daniel Wechsler,Peter J. Milligan, our President and Chief ExecutiveFinancial Officer, of an optionoptions to purchase 550,981370,000 shares of common stock at a strike price of $11.65 per share, and 183,661 restricted stock units. These grants$22.50, which were not granted under any of the stock plans.

Principal Shareholders

The table below sets forth information as of April 27, 2018,February 28, 2019, regarding the beneficial ownership of our common stock by:

Each person known by us to beneficially own more than 5% of our outstanding common stock

Each of our directors

Each of our NEOs; and

All of our directors and executive officers as a group


Name of Beneficial Owner

 

Total Beneficial

Ownership

 

 

Percentage of

Common Stock

Beneficially

Owned

 

5% and Greater Stockholders

 

 

 

 

 

 

 

 

Vatera Healthcare Partners LLC(1)

 

 

8,507,237

 

 

 

27.1

%

The Medicines Company(2)

 

 

3,313,702

 

 

 

10.6

%

Deerfield(3)

 

 

3,127,846

 

 

 

9.9

%

Malin Life Sciences Holdings(4)

 

 

1,557,628

 

 

 

5.0

%

Executive Officers and Directors

 

 

 

 

 

 

 

 

Daniel Wechsler(5)

 

—

 

 

 

0.0

%

David Gill(6)

 

 

21,000

 

 

*

 

Paul Estrem(6)

 

 

54,233

 

 

*

 

John H. Johnson(6)

 

 

25,756

 

 

*

 

Garheng Kong, M.D., Ph.D.(6)

 

 

27,922

 

 

*

 

Sue Cammarata, M.D.(6)

 

 

37,068

 

 

*

 

David Zaccardelli, Pharm.D.(7)

 

 

44,999

 

 

*

 

Erin Duffy, Ph.D.(6)

 

 

48,809

 

 

*

 

Kevin T. Ferro(1)

 

 

8,507,237

 

 

 

27.1

%

Jay Galeota

 

—

 

 

 

0.0

%

Cecilia Gonzalo(1)

 

—

 

 

 

0.0

%

Thomas P. Koestler, Ph.D.(1)(6)

 

 

11,758

 

 

*

 

All directors and current executive officers as a group (13 persons)

 

 

8,778,782

 

 

 

27.8

%


Name of Beneficial Owner 
Total Beneficial
Ownership
 
Percentage of
Common Stock
Beneficially
Owned
5% and Greater Stockholders  
  
Vatera Capital Management LLC(1) 12,696,590
 61.6%
Executive Officers and Directors  
  
John H. Johnson(2) 23,637
 *
Peter J. Milligan —
 —
David Gill(3) 8,686
 *
Garheng Kong, M.D., Ph.D.(4) 9,070
 *
Sue Cammarata, M.D.(5) 13,464
 *
David Zaccardelli, Pharm.D.(6) 19,785
 *
Erin Duffy, Ph.D.(7) 13,257
 *
Kevin T. Ferro(1)(8) 12,700,076
 61.6%
Jay Galeota(9) 3,486
 *
Bruce Downey —
 —
Thomas P. Koestler, Ph.D.(1)(10) 6,887
 *
Paul Estrem(11) 2,000
 *
Daniel Wechsler(12) 16,028
 *
All directors and current executive officers as a group (13 persons) 12798,348
 61.8%

*

*Indicates beneficial ownership of less than 1%.

(1)

(1)Based on the Schedule 13D/A filed with the SEC on February 22, 2019. Vatera Healthcare Partners LLC ("VHP") directly holds, and has voting and dispositive power over, 12,576,446 shares. VHPM Holdings LLC ("VHPM") directly holds, and has voting and dispositive power over, 120,144 shares. Vatera Capital Management LLC ("VCM"), as the manager of VHP and VHPM, has voting and dispositive power over all of the shares. The address for VateraVCM LLC is c/o Vatera Holdings LLC, 499 Park Avenue, 23rd Floor, New York, NY 10022. Each of Thomas Koestler, Ph.D.,400 Royal Palm Way, Suite 212, Palm Beach, FL 33480. Kevin Ferro and Cecilia Gonzalo presently serves on the Company’s board of directors. Kevin Ferrodirectors and is Chairman of the Board of the Company. Kevinboard. Mr. Ferro is the Chief Executive Officer Chief Investment Officer and the managing member of Vatera Holdings LLC,VCM, the manager of Vatera,VHP and VHPM, and by virtue of that position, may be deemed to have beneficial ownership of the shares held by VHP and VHPM. Other than for purposes of Vatera.Rule 13d-3 of the Exchange Act, Mr. Ferro disclaims beneficial ownership of the shares held by VateraVHP and VHPM except to the extent of his pecuniary interest therein. Dr.Mr. Koestler is an Executive Director,a consultant to VHP.
(2)Consists of 400 shares owned by Mr. Johnson and Ms. Gonzalo is a Managing Director, of Vatera Holdings LLC.

(2)

Based on Schedule 13G filed with the SEC on January 11, 2018. The address of The Medicines Company is 8 Sylvan Way, Parsippany, NJ 07054.

(3)

Based on 13G filed with the SEC on January 9, 2018. The amount includes (i) 2,150,394 shares of common stock held by Deerfield Private Design Fund IV, L.P., (ii) 651,530 shares of common stock held by Deerfield Private Design Fund III, L.P., and (iii) 325,922 shares of common stock held by Deerfield Special Situations Fund, L.P. The address of Deerfield is c/o Deerfield Mgmt., L.P. 780 Third Avenue, 37th Floor, New York, NY 10017.

(4)

The address for Malin Life Sciences Holdings is 2 Harbour Square, Crofton Road, Dun Laoghaire, Co. Dublin Ireland.

(5)

Pursuant to the terms of Mr. Wechsler’s employment agreement with the Company, Mr. Wechsler has been granted an employee inducement award of an option to purchase 550,981 shares of Melinta common stock at an exercise price of $11.65, and a restricted stock unit award for 183,661 shares of Melinta common stock. The stock option and restricted stock unit grant will become 25% vested on the one year anniversary of Mr. Wechsler’s date of hire, with the remaining shares vesting in equal monthly installments thereafter over the next three years, subject to his continuing service with the Company.

(6)

Consists of23,237 shares issuable upon the exercise of options exercisable within 60 days of April 27, 2018.

February 28, 2019.

(7)

(3)Consists of 1,200 shares owned by Mr. Gill and shares issuable upon the exercise of 7,486 options exercisable within 60 days of February 28, 2019.
(4)Consists of 113 shares owned by Dr. Kong and shares issuable upon the exercise of 8,957 options exercisable within 60 days of February 28, 2019.
(5)Consists of 800 shares owned by Dr. Cammarata and shares issuable upon the exercise of 12,664 options exercisable within 60 days of February 28, 2019.
(6)Consists of 9,300 shares owned by Dr. Zaccardelli and shares issuable upon the exercise of 10,485 options exercisable within 60 days of February 28, 2019.
(7)Consists of 800 shares owned by Dr. Duffy and shares issuable upon the exercise of 12,457 options exercisable within 60 days of February 28, 2019.
(8)Includes shares issuable upon the exercise of 3,486 options exercisable within 60 days of February 28, 2019.
(9)Consists of shares issuable upon the exercise of 34,9993,486 options exercisable within 60 days of April 27, 2018, and 10,000 restricted stock units.

February 28, 2019.
(10)Consists of shares issuable upon the exercise of 6,887 options exercisable within 60 days of February 28, 2019.
(11)Consists of 2,000 shares owned by Mr. Estrem.
(12)Consists of 16,028 shares owned by Mr. Estrem.

Item 13. Certain Relationships and RelatedRelated Transactions, and Director Independence

Related-Party Transactions

With respect

The information required by this Item is incorporated by reference to reviewing and approving related-party transactions, the Audit Committee reviews related-party transactions for potential conflicts of interests or other improprieties. Under SEC rules, related-party transactions are those transactions to which we are or may be a party in which the amount involved exceeds $120,000 annually, and in which any of our directors or executive officers or any other related person had or will have a direct or indirect material interest, excluding, among other things, compensation arrangements with respect to employment and board membership. Our Audit Committee may approve a related-party transaction if it determines that the transaction isinformation included in our best interests. Our directors are required to disclose to this committee or the full board of directors any potential conflict of interest, or personal interest in a transaction that our board of directors is considering. Our executive officers are required to disclose any related-party transaction to the Audit Committee. We also poll our directors on an annual basis with respect to related-party transactions and their service as an officer or director of other entities. Any director involved in a related-party transaction that is being reviewed or approved must recuse himself or herself from participation in any related deliberation or decision. Whenever possible, we strive to ensure that the transaction is approved in advance and, if not approved in advance, it must be submitted for ratification as promptly as practical.

Dr. Thomas Koestler was Melinta’s non-executive Chairman of the Board prior to the merger with Cempra, Inc. (“Cempra”) and is engaged by our largest investor. Dr. Koestler received compensation for his role as non-executive Chairman in the amount of $84,167 for the year ended December 31, 2017. In addition, during the year ended December 31, 2017, we granted additional options to Dr. Koestler to purchase 1,669 shares with an exercise price of $20.97. Dr. Koestler stepped down as non-executive Chairman of the Board in November 2017, in conjunction with the merger with Cempra, but remains on our board as a director.

In August 2015, we entered into a supply and distribution agreement with Malin Life Sciences Holdings Limited (“Malin”), an investor of the Company. Pursuant to the terms and conditions of the supply and distribution agreement, Malin or its affiliates are entitled to exclusive rights to obtain product approval, procure supply from us and to commercialize Baxdela in Africa and the Middle East. In connection with the supply and distribution agreement, we are entitled to receive a royalty percentage of net sales of Baxdela. No upfront payments were received or paid in connection with this agreement.

In 2016 and 2017, we issued convertible promissory notes to certain of our investors, none of which are outstanding as of December 31, 2017.

Agreements with Vatera

Registration Rights

Concurrently with the closing of the merger of Melinta Subsidiary Corp. (f/k/a Melinta Therapeutics, Inc.) and Castle Acquisition Corp., a direct wholly owned subsidiary of the Company (the “Merger”), the Company entered into a Registration Rights Agreement with certain pre-closing Melinta stockholders (the “Vatera Registration Rights Agreement”). Under the Vatera Registration Rights Agreement, the Company was obligated to file, within 90 calendar days from the date of execution of the Vatera Registration Rights Agreement, a shelf registration statement on Form S-3 providing for the resale by such stockholders of the common stock of the Company, par value $0.001 (the “Company Common Stock”) issued or issuable to such stockholders in the Merger (the “Registrable Securities”). Stockholder Vatera Healthcare Partners LLC (the “Vatera Stockholder”) is entitled to two underwritten offerings under such shelf registration statement. Additionally, if the Company registers shares of Company Common Stock (subject to certain exceptions) for public sale, such stockholders will have the right to include their Registrable Securities in the registration statement. The registration rights under the Vatera Registration Rights Agreement will terminate upon the earliest of (i) termination of the agreement by the consent of the Vatera Stockholder, (ii) the date on which the Vatera Stockholder holds Company Common Stock equal to or less than 10% of the total Company Common Stock issued and outstanding (on a non-fully-diluted basis) and (iii) the dissolution, liquidation or winding up of the Company.


Voting and Lock-Up Agreements

Concurrently with the execution of the Agreement and Plan of Merger and Reorganization by and between the Company, Melinta Subsidiary Corp. and Castle Acquisition Corp., certain Melinta stockholders entered into voting and lock-up agreements with the Company (collectively, the “Voting and Lock-Up Agreements”). Pursuant to the Voting and Lock-Up Agreements, among other things, the stockholders party thereto are subject to a 180-day lock -up on the sale of shares of capital stock of the Company, which period began upon the consummation of the merger on November 3, 2017.

Agreements with Deerfield

Concurrently with the execution of the Purchase and Sale Agreement, dated November 28, 2017 (the “Purchase Agreement”), by and between the Company and The Medicines Company (“Medicines”), Melinta entered into a Commitment Letter (the “Deerfield Commitment Letter”), dated November 28, 2017, with an affiliate of Deerfield Management Company, L.P. (together with certain funds managed by Deerfield Management Company, L.P., “Deerfield” or the “Deerfield Funds”), pursuant to which the Deerfield Funds committed, upon the satisfaction of certain conditions set forth therein, to provide $190.0 million (less the amount of the Deerfield equity investment described below) of senior secured loans, having an interest rate of 11.75% per annum, to finance the acquisition from Medicines of the capital stock of certain subsidiaries of Medicines (the “Transferred Subsidiaries”) and certain assets related to Medicines’ infectious disease business, including pharmaceutical products containing (i) meropenem and vaborbactam as the active pharmaceutical ingredient and distributed under the brand name VabomereTM (“Vabomere”), (ii) oritavancin as the active pharmaceutical ingredient and distributed under the brand name Orbactiv® (“Orbactiv”) and (iii) minocycline as the active pharmaceutical ingredient and distributed under the brand name Minocin® for injection (“Minocin” and, together with Vabomere and Orbactiv, the “Products”) and line extensions thereof (the “Purchase” or the “Acquisition”), together with, subject to certain conditions, up to $50.0 million in a senior secured delayed draw term loan facility, having an interest rate of 14.75% per annum. At the closing of the Acquisition, Melinta entered the Facility Agreement setting forth the definitive terms and conditions of the $147.8 million principal amount of initial senior secured loans and the $50.0 million senior secured delayed draw term loan facility, as further described below.

Deerfield Facility Agreement

On January 5, 2018, Melinta became the borrower under that certain Facility Agreement, dated as of January 5, 2018 (the “Facility Agreement”) by and among Melinta (as borrower), certain of Melinta’s subsidiaries party thereto as guarantors, the Deerfield Funds (consisting of Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P. and Deerfield Special Situations Fund, L.P.), and Cortland Capital Market Services LLC, as agent for the secured parties. Under the Facility Agreement, the lenders made available to Melinta an initial disbursement of $147.8 million in loan financing. The Facility Agreement includes provisions for additional subsequent disbursements in an amount of up to $50.0 million, which may be made available upon the satisfaction of certain conditions, such as Melinta having achieved annualized net sales of at least $75.0 million during the applicable period.

The initial disbursement under the Facility Agreement bears interest at a rate of 11.75%, while funds distributed pursuant to any subsequent disbursement will bear interest at a rate of 14.75%. Melinta is also required to pay the lenders an end-of-term fee or exit fee of 2% of the amount of any loans on the payment, repayment, redemption or prepayment thereof upon the date of such payment, repayment, redemption or prepayment thereof. The principal of the initial disbursement must be paid by January 5, 2024. The loans are not permitted to be prepaid prior to January 6, 2021, and are subject to certain prepayment fees for prepayments occurring on or after such date.

Obligations under the Facility Agreement are secured by liens on substantially all assets of Melinta and its subsidiaries. The proceeds of the initial loans under the Facility Agreement were used to pay part of the consideration for the Acquisition, pay certain fees and expenses associated with the Acquisition and the transactions contemplated by the Facility Agreement, pay amounts owed under a certain loan facility with Suchard SA LLC and certain other lenders and the remainder for general corporate purposes. The Facility Agreement has a financial maintenance covenant requiring Melinta and its subsidiaries to maintain a minimum cash balance of $25.0 million, and further requires the loan parties thereunder to maintain minimum net sales of at least (A) $45.0 million for the fiscal year ending December 31, 2018, (B) $75.0 million for the fiscal year ending December 31, 2019, and (C) $100.0 million for the fiscal year ending December 31, 2020, and each fiscal year ending thereafter. The Facility Agreement contains customary affirmative covenants, negative covenants (including, among others, limitations on


indebtedness, liens, advances, equity and debt and other investments, dividends, asset sales, transactions with affiliates, changes in nature of business and mergers and acquisitions), representations and warranties and events of default (including, among others, a change of control event of default) that are customary for similar financings.

Deerfield Equity Purchase

Under the Deerfield Commitment Letter, subject to the conditions set forth therein, the Deerfield Funds committed to purchase the Deerfield equity investment, equal to 9.985% of the number of shares of Company Common Stock outstanding immediately following the Acquisition (inclusive of such shares) for a purchase price per share of $13.50, representing 90% of the closing price for the Company Common Stock on November 28, 2017, the date on which the Deerfield Commitment Letter was executed. At the closing of the Acquisition, Melinta and the Deerfield Funds entered into a Securities Purchase Agreement, dated January 5, 2018 (the “Securities Purchase Agreement”), setting forth the definitive terms of the Deerfield equity investment, pursuant to which the Deerfield Funds purchased 3,127,846 shares of Company Common Stock for an aggregate purchase price of $42.2 million. The Securities Purchase Agreement contains customary representations, covenants and indemnitees by each of the parties thereto.

Deerfield Warrants

In accordance with the Deerfield Commitment Letter and pursuant to the Facility Agreement, on the closing date of the Acquisition, Melinta issued to Deerfield Private Design Fund IV, L.P. a warrant to purchase 2,607,597 shares of Company Common Stock, to Deerfield Private Design Fund III, L.P. a warrant to purchase 790,054 shares of Company Common Stock, and to Deerfield Special Situations Fund, L.P. a warrant to purchase 395,217 shares of Company Common Stock (collectively, the “Deerfield Warrants”), in the aggregate representing a number of shares of Company Common Stock equal to 38.5% of the $147.8 million principal amount of the senior secured loans, divided by $15.00, representing the closing price for the Company Common Stock on November 28, 2017, the date on which the Deerfield Commitment Letter was executed. The Deerfield Warrants are exercisable for duration of 7 years at a strike price of $16.50. The number of shares with respect to which the Deerfield Warrants are exercisable and the strike price of the Deerfield Warrants are subject to adjustment to reflect certain events relating to the shares of Company Common Stock, such as any subdivision, combination, reclassification or similar transaction with respect to the shares of Company Common Stock. The Deerfield Warrants are subject to a restriction on the exercise thereof to the extent that, upon such exercise, a holder, its affiliates and any “group” of which such holder is a member would not beneficially own greater than 9.985% of the outstanding shares of Company Common Stock. In its capacity as the holder of a Deerfield Warrant, each of the Deerfield Funds is entitled to receive dividends paid, and distributions made, to holders of shares of Company Common Stock as if such Deerfield Warrant had been exercised in full on the applicable record date for such dividend or distribution. In addition, Melinta has reserved for issuance a number of authorized and unissued shares of Company Common Stock sufficient for the exercise of the Deerfield Warrants in full (assuming a cash exercise and disregarding any limitations on exercise). Other than with respect to dividends and distributions, the Deerfield Warrants do not entitle the Deerfield Funds, prior to the exercise of the Deerfield Warrants, to rights as a Melinta stockholder.

The Deerfield Warrants also provide that, in the event of a major transaction as described in clause (i) or (ii) below where shares of Company Common Stock are converted into the right to receive cash or other assets or in which Melinta has announced its intention to liquidate and distribute its assets to its stockholders, each of the Deerfield Funds will be entitled to convert the Deerfield Warrants into an amount of the transaction consideration equal to the Black-Scholes value of the Deerfield Warrants following such major transaction. With respect to all other major transactions, each of the Deerfield Funds are entitled to exercise the Deerfield Warrants for a number of shares of Company Common Stock (calculated in accordance with the terms of the Deerfield Warrants) equal to the Black-Scholes value of its Deerfield Warrant. Alternatively, if the successor entity is publicly traded, each of the Deerfield Funds may require that its Deerfield Warrant be assumed by the successor entity (or its parent company) in a major transaction. The documentation reflecting any such assumption must provide that the Deerfield Warrants will be exercisable for the appropriate number of shares of the successor entity.

The Deerfield Warrants also provide that in the case of certain transactions in which holders of Company Common Stock are entitled to receive stock, securities or assets in respect of their Company Common Stock (including certain major transactions in which the successor entity is not publicly traded and the holder of a Deerfield Warrant does not exercise its right to receive the amounts described above), the documentation reflecting the transaction will provide that the Deerfield Warrants will be exercisable for the kind and amount of securities, cashProxy Statement and/or other property which a holder of shares of Company Common Stock would have been entitled to receive in such transaction.

Form 10-K/A.

The Black-Scholes value of the Deerfield Warrants for purposes of a major transaction will be determined based on, among other things, a risk-free interest rate corresponding to the US$ LIBOR/Swap rate (or, to the extent LIBOR ceases to be determined, a successor interest rate determined in accordance with the Deerfield Warrants) for a period equal to the remaining term of the Deerfield Warrants, zero borrowing cost, the arithmetic mean of the historical volatility of the shares of Company Common Stock for the 10, 30 and 50 trading day periods prior to the public announcement of such major transaction and a stock price equal to the greater of (1) the closing price of the Company Common Stock on the trading day immediately preceding the consummation of such major transaction, (2) the first closing market price following the first public announcement of such major transaction or (3) the closing market price of the date immediately prior to the first public announcement of such major transaction.

A major transaction is defined in the Deerfield Warrants to include: (i) a consolidation, merger, business consolidation, reorganization, recapitalization or similar transaction that results in a change in control of Melinta (i.e., its current shareholders no longer holding at least 50% of the shares of Company Common Stock or no longer having the ability to elect a majority of its board of directors), (ii) a sale or transfer of assets for a purchase price of more than 50% of Melinta’s enterprise value or a sale of all or substantially all of its assets, (iii) a purchase, tender or exchange offer resulting in a change in control of Melinta, (iv) any issuance or series of issuances of shares of Company Common Stock equal to 50% or more of the shares of Company Common Stock outstanding as of such issuance, (v) any liquidation, bankruptcy, insolvency, dissolution or winding up affecting Melinta, (vi) any cessation of the Company Common Stock to be listed, traded or publicly quoted on the NASDAQ Global Market (without prompt re-listing or requoting on the New York Stock Exchange, the NYSE American, the NASDAQ Global Select Market or the NASDAQ Capital Market), or (vii) the Company Common Stock ceasing to be registered under Section 12 of the Exchange Act.

Upon certain failures by Melinta to comply with its obligations under the Deerfield Warrants or the Deerfield registration rights agreement described below, Melinta may be required to pay to the holders of the Deerfield Warrants as partial liquidated damages an amount equal to 15% per annum (or the maximum rate permitted by law, whichever is less) of the Black-Scholes value of the Deerfield Warrants in cash or, at Melinta’s option (but subject to a 9.985% ownership limitation), in shares of Company Common Stock (valued based on the volume weighted average price of the Company Common Stock as of such time). If such failure remains uncured and the holders of the Deerfield Warrants deliver notice of a default under the Deerfield Warrants, Melinta will be entitled to redeem the Deerfield Warrants for cash in an amount equal to the Black-Scholes value of the Deerfield Warrants and, if following such notice of default Melinta does not redeem the Deerfield Warrants, the holders may elect to exercise the Deerfield Warrants for a number of shares (valued at the arithmetic average of the volume weighted average price of the Company Common Stock for the 5 trading days immediately prior to the date of the applicable default notice) equal to the greater of (x) the Black-Scholes value of the Deerfield Warrants as of the date of the notice of default and (y) the Black-Scholes value of the Deerfield Warrants on the trading day immediately prior to the date that such shares are issued to Deerfield.

The Black-Scholes value of the Deerfield Warrants for purposes of such events of default or failures will be determined based on, among other things, a risk-free interest rate corresponding to the US$ LIBOR/Swap rate (or, to the extent LIBOR ceases to be determined, a successor interest rate determined in accordance with the Deerfield Warrants) for a period equal to the remaining term of the warrant, zero borrowing cost, the arithmetic mean of the historical volatility of the Company Common Stock for the 10, 30 and 50 trading day periods ending on the date of determination and a stock price equal to the volume weighted average price of the Company Common Stock on the date of such calculation.


Deerfield Registration Rights

Pursuant to the Facility Agreement and Securities Purchase Agreement, Melinta and Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P., and Deerfield Special Situations Fund, L.P. entered into a registration rights agreement on January 5, 2018 (the “Deerfield Registration Rights Agreement”), the date of the closing of the Acquisition, in respect of the shares of Company Common Stock issued pursuant to the Securities Purchase Agreement and issuable upon exercise of, or otherwise pursuant to, the Deerfield Warrants. Under the Deerfield Registration Rights Agreement, Melinta was obligated to file a shelf registration statement on Form S-3 providing for the resale by the Deerfield Funds of the 3,127,846 shares of Company Common Stock issued to them pursuant to the Securities Purchase Agreement and the shares of Company Common Stock issuable pursuant to the Deerfield Warrants. The Deerfield Registration Rights Agreement includes customary black-out and suspension periods related to the Deerfield Funds’ use of the Registration Statement. Under the Deerfield Registration Rights Agreement, the Deerfield Funds are also entitled to two demand registrations within a 12-month period (subject to a minimum proceeds requirement of $10.0 million) and customary piggy back registration rights, subject to customary grace periods and, in connection with an underwritten public offering in which the Deerfield Funds participate, lock-up periods.

Subject to the Deerfield Funds’ compliance with certain covenants in the Deerfield Registration Rights Agreement, if a Registration Failure (for this paragraph as defined in the Deerfield Registration Rights Agreement) occurs then the Company is required to pay additional damages to Deerfield for each 30-day period (prorated for any partial period) after the date of such Registration Failure in a cash payment equal to one percent (1.00%) of the aggregate purchase price for all Registrable Securities (as set forth in the Deerfield Registration Rights Agreement) as of the date such Registration Failure occurs. Such payments shall accrue until the earlier of (i) such time as the Registration Failure has been cured and (ii) the date on which all of the Registrable Securities may be disposed of for the holder’s own account without restriction under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”).

The Deerfield Funds are entitled to registration rights until the earlier of (1) such time as all of the registrable securities under the Deerfield Registration Rights Agreement have been sold and (2) assuming the Deerfield Warrants will be exercised for cash, the date on which all of the shares of Company Common Stock issuable under the Deerfield Warrants may be immediately sold to the public without limitation, restriction or condition (including any current public information requirement) pursuant to Rule 144 of the Securities Act.

Deerfield Royalty Agreement

On the closing date of the Acquisition, Melinta entered into a Royalty Agreement (the “Royalty Agreement”) with Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P., and Deerfield Special Situations Fund, L.P., pursuant to which, in respect of each fiscal year for a seven year period, the Company agreed to make royalty payments equal to 3% (or 2%, following the satisfaction of all of Melinta’s obligations under the Facility Agreement and other loan documents) of U.S. sales of VabomereTM and certain related products exceeding $75.0 million and less than or equal to $500.0 million, subject to conditions described therein.

Agreements with Medicines

Purchase and Sale Agreement

On November 28, 2017, Melinta entered into the Purchase Agreement pursuant to which the Company completed the Acquisition. Certain businesses related to the Transferred Subsidiaries, including the research and development of Oravance, Omnivance, the pre-clinical polymyxin programs and the programs being conducted at Medicines’s San Diego facilities were specifically excluded from the assets purchased by the Company. The purchase price payable under the Purchase Agreement consisted of (i) a payment by the Company to Medicines of $165.0 million in cash and the issuance to the Medicines of a number of shares of the Company Common Stock equal to $50.0 million, divided by 90% of the volume weighted average price of the Company Common Stock for the trailing 10 trading day period ending 3 trading days prior to closing; (ii) a payment by the Company to Medicines of $25.0 million following each of the twelve and eighteen month anniversaries of the closing date, (iii) the assumption of certain liabilities related to the acquired business and (iv) royalties on annual net sales of the Products as follows:

U.S. net sales of Vabomere:

On net sales above $50.0 million and at or below $100.0 million = 5.0%

On net sales above $100.0 million and at or below $200.0 million = 7.5%


•

On net sales above $200.0 million and at or below $500.0 million = 15.0%

On net sales above $500.0 million = 25%

U.S. combined net sales of Minocin and Orbactiv

On net sales at or below $100.0 million = 5.0%

On net sales above $100.0 million = 15.0%

Ex-U.S. net sales of Vabomere, Orbactiv and Minocin

On all net sales, including all milestone and royalty payments or other consideration received from ex-U.S. transfers of rights with respect to the products = 15.0%

The Purchase Agreement contains certain representations and warranties made by Medicines with respect to Medicines, the Transferred Subsidiaries and the purchased assets. The Purchase Agreement includes an indemnity from Medicines for breaches of representations, warranties and covenants and in respect of the excluded assets and the excluded liabilities. Medicines’s indemnity obligations are subject to specified limitations described in the Purchase Agreement.

Pursuant to the terms of the Purchase Agreement and certain ancillary agreements that the parties intended to enter into upon the closing of the transaction, Medicines agreed to provide certain transition services to the Company following the closing to facilitate the transition of the supply, sale and distribution of the Products in exchange for agreed upon compensation.

Medicines Registration Rights

On the closing date of the Acquisition, Melinta entered into a Registration Rights Agreement with Medicines (the “Medicines Registration Rights Agreement”). Under the Medicines Registration Rights Agreement, Melinta was obligated to file, by January 9, 2018, a shelf registration statement on Form S-3 (the “Medicines Shelf Registration Statement”) providing for the resale by Medicines of the 3,313,702 shares of Company Common Stock issued to Medicines pursuant to the Purchase Agreement. Under the Medicines Registration Rights Agreement Medicines is entitled to four underwritten offerings under the Medicines Shelf Registration Statement, subject to customary black-out and suspension periods related to Medicines’ use of the Medicines Shelf Registration Statement.

In addition, if Melinta registers shares of Company Common Stock on a registration statement for public sale, Medicines will have the right, subject to certain limitations, to include its Registrable Securities (as defined in the Medicines Registration Rights Agreement) in such registration statement, subject to customary cutbacks as advised by the managing underwriter engaged in the public sale of Common Stock by Melinta.

Further, the Medicines Registration Rights Agreement provides for a (i) 180-day lock-up expiring July 5, 2018, covering 50% of the shares of Company Common Stock (1,656,851 shares) issued to Medicines pursuant to the Purchase Agreement, subject to certain customary exceptions including, but not limited to hedging transactions, and (ii) covenant requiring Medicines to enter into underwriter lock-up agreements under certain circumstances in connection with an underwritten public offering of Company Common Stock by Melinta.

Subject to Medicines compliance with certain covenants in the Medicines Registration Rights Agreement, if a Registration Failure (for this paragraph as defined in the Medicines Registration Rights Agreement) occurs then the Company is required to pay additional damages to Medicines for each 30-day period (prorated for any partial period) after the date of such Registration Failure in a cash payment equal to one percent (1.00%) of the aggregate purchase price for all Registrable Securities (as set forth in the Purchase Agreement) as of the date such Registration Failure occurs. Such payments shall accrue until the earlier of (i) such time as the Registration Failure has been cured and (ii) the date on which all of the Registrable Securities may be disposed of for the holder’s own account without restriction under Rule 144 of the Securities Act.

The Medicines Registration Rights Agreement includes customary indemnification and expense reimbursement provisions. The registration rights provided in the Medicines Registration Rights Agreement terminate upon the date on which Medicines ceases to own any Registrable Securities (as defined in the Medicines Registration Rights Agreement), but in no event later than the fifth anniversary of the effective date of the Medicines Shelf Registration Statement.


Item 14. Principal AccountantAccounting Fees and Services



The information required by this Item is incorporated by reference to information included in our Proxy Statement and/or Form 10-K/A.


PART IV
Item 15. Exhibits, Financial Statement Schedules

For

Page
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets
F-4
Consolidated Statements of Operations
F-5
Consolidated Statements of Shareholders’ Equity
F-6
Consolidated Statements of Cash Flows
F-7
Notes to Consolidated Financial Statements
F-9
(2) Financial Statement Schedules:
All financial statement schedules have been omitted because they are not applicable, not required or the years ended December 31, 2016 and December 31, 2017, Deloitte & Touche LLP (“D&T”) performed professional services for us. The professional services provided by D&T andinformation required is shown in the fees billed for those services are set forth below.

Audit Fees

The aggregate fees billed by D&T for the audit of our annual financial statements foror the fiscal years ended December 31, 2016 and 2017, were $433,000 and $2,236,000, respectively.

Audit-Related Fees

The aggregate fees billed by D&T for assurance and related services that were reasonably related to the audit or review of our financial statements for the fiscal years ended December 31, 2016 and 2017, were $89,000 and $203,000, respectively.

Tax Fees

No fees were billed by D&T for tax services for the fiscal years ended December 31, 2016 and 2017.

All Other Fees

No fees were billed by D&T for services other than those reported above for each of the fiscal years ended December 31, 2016 and 2017.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee pre-approves the engagement of our independent auditor to render any audit services to our company. The Audit Committee also pre-approves any other engagement of our independent auditor, which is limited to specified permitted non-audit services on a case-by-case basis. The Audit Committee generally limits its pre-approval of non-audit services to a specified period of time and, for some services, to a maximum dollar amount.

notes thereto.

PART IV

Item 15. Exhibits

(3) Exhibits. The following exhibits are included herein or incorporated herein by reference:

Exhibit

No.

 

Description

    Form   

Dated

Exhibit

Number

Filed

Herewith

  1.1

 

Sales Agreement, dated May 6, 2016, between Cempra, Inc. and Cowen and Company, LLC

8-K

05/06/2016

1.1

 

  2.1

 

Form of Plan of Conversion of Cempra Holdings, LLC.

S-1

10/12/2011

2.1

 

  2.2

 

Agreement and Plan of Merger and Reorganization, dated as of August  8, 2017, among Cempra, Inc., Castle Acquisition Corp. and Melinta Therapeutics, Inc.

8-K

8/10/2017

2.1

 

  2.3

 

Agreement and Plan of Merger among the Medicines Company, Boxford Subsidiary Corporation, and Targanta Therapeutics Corporation, dated as of January 12, 2009

8-K (Filed by the Medicines Company)

1/14/2009

2.1

 

  2.4

 

Agreement and Plan of Merger, dated December 3, 2013, by and among the Medicines Company, Rempex Pharmaceuticals, Inc., Ravioli Acquisition Corp. and Fortis Advisors LLC

8-K (Filed by the Medicines Company)

12/6/2014

2.1

 

  2.5

 

Purchase and Sale Agreement, dated as of November 28, 2017, by and between The Medicines Company and Melinta Therapeutics, Inc.

8-K

12/1/2017

2.1

 

  3.1

 

Certificate of Incorporation of Melinta Therapeutics, Inc. f/k/a Cempra, Inc.

S-1/A

1/13/2012

3.1

 

  3.2

 

Amendment to Certificate of Incorporation of Melinta Therapeutics, Inc. f/k/a Cempra, Inc. (Reverse Stock Split)

8-K

11/3/2017

3.1

 

  3.3

 

Amendment to Certificate of Incorporation of Melinta Therapeutics, Inc. f/k/a Cempra, Inc. (Name Change)

8-K

11/3/2017

3.2

 

  3.4

 

Amended and Restated Bylaws of Melinta Therapeutics, Inc. f/k/a Cempra, Inc.

8-K

11/3/2017

3.3

 

  4.1

 

Specimen of Common Stock Certificate of Melinta Therapeutics, Inc. (f/k/a Cempra, Inc.)

S-1/A

11/22/2011

4.1

 

  4.2

 

Registration Rights Agreement, dated as of November 3, 2017, by and among the Company, Vatera and the other stockholders party thereto

8-K

11/3/2017

10.1

 

Exhibit
No.
 DescriptionForm   Dated
Exhibit
Number
Filed
Herewith
1.1 
Sales Agreement, dated May 6, 2016, between Cempra, Inc. and Cowen and Company, LLC
8-K5/6/20161.1 
2.1 
Form of Plan of Conversion of Cempra Holdings, LLC.
S-110/12/20112.1 
2.2 
Agreement and Plan of Merger and Reorganization, dated as of August  8, 2017, among Cempra, Inc., Castle Acquisition Corp. and Melinta Therapeutics, Inc.
8-K8/10/20172.1 
2.3 
Agreement and Plan of Merger among the Medicines Company, Boxford Subsidiary Corporation, and Targanta Therapeutics Corporation, dated as of January 12, 2009
8-K (Filed by the Medicines Company)1/14/20092.1 
2.4 
Agreement and Plan of Merger, dated December 3, 2013, by and among the Medicines Company, Rempex Pharmaceuticals, Inc., Ravioli Acquisition Corp. and Fortis Advisors LLC
8-K (Filed by the Medicines Company)12/6/20142.1 
2.5 
Purchase and Sale Agreement, dated as of November 28, 2017, by and between The Medicines Company and Melinta Therapeutics, Inc.
8-K12/1/20172.1 
3.1 
Certificate of Incorporation of Melinta Therapeutics, Inc. f/k/a Cempra, Inc.
S-1/A1/13/20123.1 
3.2 
Amendment to Certificate of Incorporation of Melinta Therapeutics, Inc. f/k/a Cempra, Inc. (Reverse Stock Split)
8-K11/3/20173.1 
3.3 
Amendment to Certificate of Incorporation of Melinta Therapeutics, Inc. f/k/a Cempra, Inc. (Name Change)
8-K11/3/20173.2 

Exhibit

No.

 

Description

    Form   

Dated

Exhibit

Number

Filed

Herewith

  4.3

 

Registration Rights Agreement, dated as of January 5, 2018, between Melinta Therapeutics, Inc. and The Medicines Company

8-K

1/9/2018

4.1

 

  4.4

 

Registration Rights Agreement, dated as of January 5, 2018, between Melinta Therapeutics, Inc. and Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P., and Deerfield Special Situations Fund, L.P.

8-K

1/9/2018

4.2

 

  4.5

 

Warrant W-1 to purchase shares of common stock issued to Deerfield Private Design Fund IV, L.P., dated January 5, 2018

8-K

1/9/2018

4.3

 

  4.6

 

Warrant W-2 to purchase shares of common stock issued to Deerfield Private Design Fund III, L.P., dated January 5, 2018

8-K

1/9/2018

4.4

 

  4.7

 

Warrant W-3 to purchase shares of common stock issued to Deerfield Special Situations Fund, L.P., dated January 5, 2018

8-K

1/9/2018

4.5

 

  4.8

 

Warrant Agreement to purchase shares of common stock issued to Hercules Technology Growth Capital, Inc.

8-K

3/14/2018

4.1

 

  4.9

 

Voting and Lock-up Agreement, dated as of August 8, 2017, by and among the Company, Vatera and the other Company stockholders party thereto

14A

10/5/2017

Annex D-2

 

10.1

*

License and supply agreement dated November 30, 2010 by and between Melinta Therapeutics, Inc. and CyDex Pharmaceuticals, Inc. (a wholly owned subsidiary of Ligand Pharmaceuticals Incorporated).

8-K

3/14/2018

10.17

 

10.2

 

Securities Purchase Agreement, dated January 5, 2018, between Melinta Therapeutics, Inc. and Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P., and Deerfield Special Situations Fund, L.P.

8-K

1/9/2018

10.1

 

10.3

 

Facility Agreement, dated as of January 5, 2018, by and among Melinta Therapeutics, Inc., the other loan parties thereto, and Cortland Capital Market Services LLC, as Agent. (Deerfield Facility Agreement)

8-K

1/9/2018

10.2

 


Exhibit
No.
 DescriptionForm   Dated
Exhibit
Number
Filed
Herewith
3.4 
Amendment to the Certificate of Incorporation of Melinta Therapeutics, Inc.
8-K2/21/20193.1 
3.5 
Certificate of Designations of Series A Convertible Preferred Stock of Melinta Therapeutics
8-K2/25/20193.1 
3.6 
Amended and Restated Bylaws of Melinta Therapeutics, Inc. f/k/a Cempra, Inc.
8-K11/3/20173.3 
4.1 
Specimen of Common Stock Certificate of Melinta Therapeutics, Inc. (f/k/a Cempra, Inc.)
S-1/A11/22/20114.1 
4.2 
Registration Rights Agreement, dated as of November  3, 2017, by and among the Company, Vatera and the other stockholders party thereto
8-K11/3/201710.1 
4.3 
Registration Rights Agreement, dated as of January 5, 2018, between Melinta Therapeutics, Inc. and The Medicines Company
8-K1/9/20184.1 
4.4 
Registration Rights Agreement, dated as of January 5, 2018, between Melinta Therapeutics, Inc. and Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P., and Deerfield Special Situations Fund, L.P.
8-K1/9/20184.2 
4.5 
Warrant W-1 to purchase shares of common stock issued to Deerfield Private Design Fund IV, L.P., dated January 5, 2018
8-K1/9/20184.3 
4.6 
Warrant W-2 to purchase shares of common stock issued to Deerfield Private Design Fund III, L.P., dated January 5, 2018
8-K1/9/20184.4 
4.7 
Warrant W-3 to purchase shares of common stock issued to Deerfield Special Situations Fund, L.P., dated January 5, 2018
8-K1/9/20184.5 
4.8 
Warrant Agreement to purchase shares of common stock issued to Hercules Technology Growth Capital, Inc.
8-K3/14/20184.1 
4.9 
Voting and Lock-up Agreement, dated as of August 8, 2017, by and among the Company, Vatera and the other Company stockholders party thereto
14A10/5/2017Annex D-2 
10.1*
License and supply agreement dated November 30, 2010 by and between Melinta Therapeutics, Inc. and CyDex Pharmaceuticals, Inc. (a wholly owned subsidiary of Ligand Pharmaceuticals Incorporated).
8-K6/8/201810.17 
10.2 
Securities Purchase Agreement, dated January 5, 2018, between Melinta Therapeutics, Inc. and Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P., and Deerfield Special Situations Fund, L.P.
8-K1/9/201810.1 

Exhibit

No.

 

Description

    Form   

Dated

Exhibit

Number

Filed

Herewith

10.4

 

Royalty Agreement, dated January 5, 2018, between Melinta Therapeutics, Inc. and Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P., and Deerfield Special Situations Fund, L.P.

8-K

1/9/2018

10.3

 

10.5

+

Melinta Therapeutics, Inc. 2011 Equity Incentive Plan, as amended.

S-8

11/13/2017

99.1

 

10.6

+

Form of Stock Option Agreement Granted Under the 2011 Equity Incentive Plan, as amended.

S-8

11/13/2017

99.2

 

10.7

+

Cempra, Inc. Sixth Amended and Restated 2006 Stock Plan.

S-1/A

1/13/2012

10.2

 

10.8

+

Cempra, Inc. 2011 Equity Incentive Plan, as amended May 23, 2013.

10-Q

7/31/2013

10.3

 

10.9

+

Cempra, Inc. 2011 Equity Incentive Plan, as amended May 21, 2015, and Form of Stock Option Agreement thereunder.

S-1/A

1/13/2012

10.3

 

10.10

+

Amendment No. 1 to the Cempra, Inc. 2011 Equity Incentive Plan, as amended May 21, 2015.

8-K

3/14/2018

10.1

 

10.11

+

Change in Control Severance Agreement, dated June 26, 2017, by and between Cempra, Inc. and David S. Zaccardelli, Pharm.D.

8-K

6/28/2017

10.1

 

10.12

+

Retirement and Consulting Agreement, dated December 9, 2016, by and between Cempra, Inc. and Prabhavathi Fernandes.

10-K

2/28/2017

10.40

 

10.13

+

Employment Agreement, dated October 30, 2017, by and between Melinta Therapeutics, Inc. and Daniel Mark Wechsler.

8-K

11/03/2017

10.5

 

10.14

+

Employment Inducement Stock Option Agreement with Daniel Mark Wechsler.

S-8

11/13/2017

99.3

 

10.15

+

Employment Inducement Restricted Stock Unit Agreement with Daniel Mark Wechsler.

S-8

11/13/2017

99.4

 

10.16

+

Letter Agreement, dated November 8, 2013, as amended, by and between Melinta Therapeutics, Inc. and Paul Estrem, as amended and restated on August 28, 2015.

8-K

3/14/2018

10.2

 

10.17

+

Amended and Restated Severance Agreement, dated August 29, 2017, by and between Melinta Therapeutics, Inc. and Paul Estrem.

8-K

3/14/2018

10.3

 


Exhibit
No.
 DescriptionForm   Dated
Exhibit
Number
Filed
Herewith
10.3 
Facility Agreement, dated as of January 5, 2018, by and among Melinta Therapeutics, Inc., the other loan parties thereto, and Cortland Capital Market Services LLC, as Agent. (Deerfield Facility Agreement)
8-K1/9/201810.2 
10.4 
First Amendment to Facility Agreement, dated as of January 14, 2019, by and among Melinta Therapeutics, Inc., Deerfield Special Situations Fund, L.P., Deerfield Private Design Fund III, L.P., Deerfield Private Design Fund IV, L.P. and Cortland Capital Market Services LLC
8-K1/16/201910.2 
10.5 
Second Amended and restated Senior Subordinated Convertible Loan Agreement, originally dated as of December 31, 2018, and amended and restated as of January 14, 2019, and February 22, 2019, by and among Melinta Therapeutics, Inc., the other loan parties party thereto from time to time, and the lenders party
8-K2/25/201910.1 
10.6 
Royalty Agreement, dated January 5, 2018, between Melinta Therapeutics, Inc. and Deerfield Private Design Fund IV, L.P., Deerfield Private Design Fund III, L.P., and Deerfield Special Situations Fund, L.P.
8-K1/9/201810.3 
10.7+
Melinta Therapeutics, Inc. 2011 Equity Incentive Plan, as amended.
S-811/13/201799.1 
10.8+
Form of Stock Option Agreement Granted Under the 2011 Equity Incentive Plan, as amended.
S-811/13/201799.2 
10.9+
Cempra, Inc. Sixth Amended and Restated 2006 Stock Plan.
S-1/A1/13/201210.2 
10.10+
Cempra, Inc. 2011 Equity Incentive Plan, as amended May 23, 2013.
10-Q7/31/201310.3 
10.11+
Cempra, Inc. 2011 Equity Incentive Plan, as amended May 21, 2015, and Form of Stock Option Agreement thereunder.
S-1/A1/13/201210.3 
10.12+
Amendment No. 1 to the Cempra, Inc. 2011 Equity Incentive Plan, as amended May 21, 2015.
8-K3/14/201810.1 
10.13+
Form of Option Agreement granted under the 2018 Stock Incentive Plan, as amended
8-K6/14/201810.1 
10.14+
Form of Option Agreement granted under the 2018 Stock Incentive Plan, as amended
8-K6/14/201810.2 
10.15+
Form of Amended and Restated 2018 Stock Incentive Plan
8-K2/25/201910.3 
10.16+
Employment Agreement, dated October 22, 2018, by and between Melinta Therapeutics, Inc. and John H. Johnson
8-K10/24/201810.1 

Exhibit

No.

 

Description

    Form   

Dated

Exhibit

Number

Filed

Herewith

10.18

+

Employee Noncompetition, Nondisclosure and Developments Agreement, dated November 9, 2013, by and between Melinta Therapeutics, Inc. and Paul Estrem.

8-K

3/14/2018

10.4

 

10.19

+

Letter Agreement, dated November 18, 2013, by and between Melinta Therapeutics, Inc. and Sue Cammarata.

8-K

3/14/2018

10.5

 

10.20

+

Amended and Restated Severance Agreement, dated August 29, 2017, by and between Melinta Therapeutics, Inc. and Sue Cammarata.

8-K

3/14/2018

10.6

 

10.21

+

Employee Noncompetition, Nondisclosure and Developments Agreement, dated November 18, 2013, by and between Melinta Therapeutics, Inc. and Sue Cammarata.

8-K

3/14/2018

10.7

 

10.22

+

Letter Agreement, dated as of December 2, 2001, by and between Melinta Therapeutics, Inc. and Erin Duffy.

8-K

3/14/2018

10.8

 

10.23

+

Amended and Restated Severance Agreement, dated August 29, 2017, by and between Melinta Therapeutics, Inc. and Erin Duffy.

8-K

3/14/2018

10.9

 

10.24

+

Employee Noncompetition, Nondisclosure and Developments Agreement, dated January 9, 2001, by and between Melinta Therapeutics, Inc. and Erin Duffy.

8-K

3/14/2018

10.10

 

10.25

+

Letter Agreement, dated as of February 5, 2016, by and between Melinta Therapeutics, Inc. and John Temperato.

8-K

3/14/2018

10.11

 

10.26

+

Amended and Restated Severance Agreement, dated August 29, 2017, by and between Melinta Therapeutics, Inc. and John Temperato.

8-K

3/14/2018

10.13

 

10.27

+

Employee Noncompetition, Nondisclosure and Developments Agreement, dated as of February 16, 2016, by and between Melinta Therapeutics, Inc. and John Temperato.

8-K

3/14/2018

10.12

 

10.28

+

Separation and Release Agreement, dated as of December 28, 2017, by and between Melinta Therapeutics, Inc. and John Temperato.

8-K

3/14/2018

10.16

 

10.29

+

Form of indemnification agreement by and between Melinta Therapeutics, Inc. and its directors.

8-K

11/3/2017

10.2

 


Exhibit
No.
 DescriptionForm   Dated
Exhibit
Number
Filed
Herewith
10.17+
Employment Agreement, dated February 22, 2019, between Melinta Therapeutics, Inc. and John H. Johnson
8-K2/25/201910.2 
10.18+
Employment Agreement, dated October 30, 2017, by and between Melinta Therapeutics, Inc. and Daniel Mark Wechsler.
8-K11/3/201710.5 
10.19+
Employment Inducement Stock Option Agreement with Daniel Mark Wechsler.
S-811/13/201799.3 
10.20+
Employment Inducement Restricted Stock Unit Agreement with Daniel Mark Wechsler.
S-811/13/201799.4 
10.21+
Amendment No. 1 to Employment Agreement, dated May 17, 2018, by and between Melinta Therapeutics, Inc. and Daniel Wechsler
10-Q8/9/201810.2 
10.22+
Side Letter Agreement, dated October 23, 2018, by and between Melinta Therapeutics, Inc. and Daniel Wechsler
8-K10/24/201810.2 
10.23+
Employment Inducement Stock Option Agreement, dated September 21, 2018, by and between Melinta Therapeutics, Inc. and Peter J. Milligan
10-Q11/7/201810.1 
10.24+
Employment Agreement, dated September 17, 2018, by and between Melinta Therapeutics, Inc. and Peter J. Milligan
10-Q11/7/201810.2 
10.25+
Change in Control and Severance Agreement, dated September 17, 2018, by and between Melinta Therapeutics, Inc. and Peter J. Milligan
10-Q11/7/201810.3 
10.26 
Letter Agreement, dated November 8, 2013, as amended, by and between Melinta Therapeutics, Inc. and Paul Estrem, as amended and restated on August 28, 2015.
8-K3/14/201810.2 
110.27+
Amended and Restated Severance Agreement, dated August 29, 2017, by and between Melinta Therapeutics, Inc. and Paul Estrem.
8-K3/14/201810.3 
10.28+
Employee Noncompetition, Nondisclosure and Developments Agreement, dated November 9, 2013, by and between Melinta Therapeutics, Inc. and Paul Estrem.
8-K3/14/201810.4 
10.29+
Separation and Release Agreement, dated September 17, 2018, by and between Melinta Therapeutics, Inc. and Paul Estrem
8-K10/5/201810.1 
10.30+
Letter Agreement, dated November 18, 2013, by and between Melinta Therapeutics, Inc. and Sue Cammarata.
8-K3/14/201810.5 

Exhibit

No.

 

Description

    Form   

Dated

Exhibit

Number

Filed

Herewith

10.30

+

Form of Amended and Restated Indemnification Agreement by and between Melinta Therapeutics, Inc. and its directors

8-K

11/3/2017

10.3

 

10.31

+

Form of indemnification agreement by and between Melinta Therapeutics, Inc. and its directors

8-K

11/3/217

10.4

 

10.32

 

License Agreement, dated December 23, 2005 by and between Targanta Therapeutics Corporation (as successor to InterMune, Inc.) and Eli Lilly and Company

S-1 (Filed by the Medicines Company)

3/11/2007

10.11

 

10.33

 

Amendment to the License Agreement, dated as of January 6, 2009, by and between Eli Lilly and Company and Targanta Therapeutics Corporation

8-K

3/14/2018

10.18

 

10.34

 

Exclusive License and Development Agreement by and between Cempra Pharmaceuticals, Inc. and Toyama Chemical Co., Ltd., dated May 8, 2013.

10-Q

7/31/2013

10.13

 

10.35

 

Supply Agreement by and between Cempra Pharmaceuticals, Inc. and Toyama Chemical Co., Ltd., dated May 8, 2013.

10-Q

7/31/2013

10.14

 

10.36

 

Amendment No. 1, effective as of September 26, 2013 to Exclusive License And Development Agreement by and between Cempra Pharmaceuticals, Inc. and Toyama Chemical Co., Ltd, dated May 8, 2013.

10-Q

10/29/2013

10.19

 

10.37

 

API Manufacturing and Supply Agreement, entered into January 18, 2016, by and between Cempra, Inc. and FUJIFILM Finechemicals Co., Ltd.

10-K

02/25/2016

10.35

 

10.38

*

Amended and Restated License Agreement, dated May 1, 2017, between the Company and Wakunaga Pharmaceutical Co. Ltd.

8-K

3/14/2018

10.14

 

10.39

 

Patheon Master Manufacturing Services Agreement, dated July 20, 2016, by and between the Company and Patheon UK Limited.

8-K

3/14/2018

10.15

 

10.40

 

Contract by and between Cempra, Inc. and the Biomedical Advanced Research and Development Authority, dated May 24, 2013.

10-Q

7/31/2013

10.15

 

10.41

 

Development and Supply Agreement by and between Cempra Pharmaceuticals, Inc. and Hospira Worldwide, Inc. effective as of July 1, 2013.

10-Q/A

11/8/2013

10.18

 


Exhibit
No.
 DescriptionForm   Dated
Exhibit
Number
Filed
Herewith
10.31+
Amended and Restated Severance Agreement, dated August 29, 2017, by and between Melinta Therapeutics, Inc. and Sue Cammarata.
8-K3/14/201810.6 
10.32+
Employee Noncompetition, Nondisclosure and Developments Agreement, dated November 18, 2013, by and between Melinta Therapeutics, Inc. and Sue Cammarata.
8-K3/14/201810.7 
10.33+
Letter Agreement, dated as of December 2, 2001, by and between Melinta Therapeutics, Inc. and Erin Duffy.
8-K3/14/201810.8 
10.34+
Amended and Restated Severance Agreement, dated August 29, 2017, by and between Melinta Therapeutics, Inc. and Erin Duffy.
8-K3/14/201810.9 
10.35+
Employee Noncompetition, Nondisclosure and Developments Agreement, dated January 9, 2001, by and between Melinta Therapeutics, Inc. and Erin Duffy.
8-K3/14/201810.10 
10.36+
Form of Indemnification Agreement by and between Melinta Therapeutics, Inc. and its directors.
8-K11/3/201710.2 
10.37+
Form of Amended and Restated Indemnification Agreement by and between Melinta Therapeutics, Inc. and its directors
8-K11/3/201710.3 
10.38+
Form of Indemnification Agreement by and between Melinta Therapeutics, Inc. and its directors
8-K11/3/201710.4 
10.39 
License Agreement, dated December 23, 2005 by and between Targanta Therapeutics Corporation (as successor to InterMune, Inc.) and Eli Lilly and Company
S-1 (Filed by the Medicines Company)3/11/200710.11 
10.40 
Amendment to the License Agreement, dated as of January 6, 2009, by and between Eli Lilly and Company and Targanta Therapeutics Corporation
8-K3/14/201810.18 
10.41 
Exclusive License and Development Agreement by and between Cempra Pharmaceuticals, Inc. and Toyama Chemical Co., Ltd., dated May 8, 2013.
10-Q7/31/201310.13 
10.42 
Supply Agreement by and between Cempra Pharmaceuticals, Inc. and Toyama Chemical Co., Ltd., dated May 8, 2013.
10-Q7/31/201310.14 
10.43 
Amendment No. 1, effective as of September 26, 2013 to Exclusive License And Development Agreement by and between Cempra Pharmaceuticals, Inc. and Toyama Chemical Co., Ltd, dated May 8, 2013.
10-Q10/29/201310.19 

Exhibit

No.

 

Description

    Form   

Dated

Exhibit

Number

Filed

Herewith

10.42

 

Amendment, dated November 13, 2014, to Contract by and between Cempra Pharmaceuticals, Inc. and the Biomedical Advanced Research and Development Agency, dated May 24, 2013.

10-K

2/29/2015

10.27

 

10.43

 

Amendment, dated February 29, 2016, to Contract by and between Cempra Pharmaceuticals, Inc. and the Biomedical Advanced Research and Development Agency, dated May 24, 2013, as amended.

10-Q

05/02/2016

10.36

 

10.44

 

Amendment, dated September 26, 2016, to contract by and between Cempra Pharmaceuticals, Inc. and the Biomedical Advanced Research and Development Agency, dated May 24, 2013, as amended.

10-Q

10/27/2016

10.1

 

10.45

 

Manufacturing Services Agreement, dated March 30, 2011, between registrant and Patheon International A.G.

10-Q (Filed by the Medicines Company)

11/9/2011

10.1

 

10.46

 

Contingent Payment Rights Agreement dated February 25, 2009 between the Medicines Company and American Stock Transfer & Trust Company

8-K (filed by the Medicines Company)

3/2/2009

99.1

 

21.1

†

List of subsidiaries of Melinta Therapeutics, Inc.

 

 

 

 

23.1

†

Consent of Independent Registered Public Accounting Firm

 

 

 

 

31.1

 

Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

X

31.2

 

Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

X

101

†

The following financial statements and notes from the Melinta Therapeutics, Inc. Annual Report on Form 10-K for the year ended December 31, 2017 filed on March 16, 2018, formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statement of Changes in Shareholders Equity; (iv) Consolidated Statements of Cash Flows; and (v) the Notes to Consolidated Financial Statements.

 

 

 

 


Exhibit
No.
 DescriptionForm   Dated
Exhibit
Number
Filed
Herewith
10.44*
Amendment No. 2 to Exclusive License and Development Agreement, dated as of May 8, 2013, and amended as of September 26, 2013, by and between Cempra Pharmaceuticals, Inc. and Toyama Chemical Co., Ltd. dated as of September 26, 2018
10-Q11/7/201810.50 
10.45 
API Manufacturing and Supply Agreement, entered into January 18, 2016, by and between Cempra, Inc. and FUJIFILM Finechemicals Co., Ltd.
10-K2/25/201610.35 
10.46*
Amended and Restated License Agreement, dated May 1, 2017, between the Company and Wakunaga Pharmaceutical Co. Ltd.
8-K/A6/8/201810.14 
10.47 
Patheon Master Manufacturing Services Agreement, dated July 20, 2016, by and between the Company and Patheon UK Limited.
8-K3/14/201810.15 
10.48 
Contract by and between Cempra, Inc. and the Biomedical Advanced Research and Development Authority, dated May 24, 2013.
10-Q7/31/201310.15 
10.49 
Development and Supply Agreement by and between Cempra Pharmaceuticals, Inc. and Hospira Worldwide, Inc. effective as of July 1, 2013.
10-Q/A11/8/201310.18 
10.50 
Amendment, dated November 13, 2014, to Contract by and between Cempra Pharmaceuticals, Inc. and the Biomedical Advanced Research and Development Agency, dated May 24, 2013.
10-K2/29/201510.27 
10.51 
Amendment, dated February 29, 2016, to Contract by and between Cempra Pharmaceuticals, Inc. and the Biomedical Advanced Research and Development Agency, dated May 24, 2013, as amended.
10-Q5/2/201610.36 
10.52 
Amendment, dated September 26, 2016, to contract by and between Cempra Pharmaceuticals, Inc. and the Biomedical Advanced Research and Development Agency, dated May 24, 2013, as amended.
10-Q10/27/201610.1 
10.53 
Manufacturing Services Agreement, dated March 30, 2011, between registrant and Patheon International A.G.
10-Q (Filed by the Medicines Company)11/9/201110.1 
10.54 
Contingent Payment Rights Agreement dated February 25, 2009 between the Medicines Company and American Stock Transfer & Trust Company
8-K (filed by the Medicines Company)3/2/200999.1 
10.55*
License Agreement, dated September 28, 2018, by and between Melinta Therapeutics, Inc. and A. Menarini Industrie Farmaceutiche Riunite S.r.l.
10-Q11/7/201810.4 


*

Exhibit
No.
DescriptionForm   Dated
Exhibit
Number
Filed
Herewith
21.1
List of subsidiaries of Melinta Therapeutics, Inc.
X
23.1
Consent of Independent Registered Public Accounting Firm
X
31.1
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
31.2
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
32.1
Certification of the Chief Executive Officer Pursuant to 18 U.S. C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
32.2
Certification of the Chief Financial Officer Pursuant to 18 U.S. C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
101The following financial statements and notes from the Melinta Therapeutics, Inc. Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 13, 2019, formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statement of Changes in Shareholders Equity; (iv) Consolidated Statements of Cash Flows; and (v) the Notes to Consolidated Financial Statements.X
*The Company has requestedreceived confidential treatment with respect to portions of this exhibit. Those portions have been omitted and filed separately with the SECSecurities and Exchange Commission pursuant to a confidential treatment request.

+

The exhibit contains a management contract, compensatory plan or arrangement which is required to be identified in this report.

†

Filed with the Original Form 10-K.

&

These certifications are being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18 United States Code) and are not being filed as part of this report.


SIGNATURES



SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: April 30, 2018

MELINTA THERAPEUTICS, INC.

By: 

/s/ Daniel Mark Wechsler

John H. Johnson

Daniel Mark Wechsler

John H. Johnson
Chief Executive Officer

48

Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons on behalf of the Registrant and on the dates indicated.
SignatureTitleDate

/s/ John H. Johnson
Chief Executive Officer and Director
(Principal Executive Officer)
March 13, 2019
John H. Johnson
/s/ Peter J. Milligan
Chief Financial Officer
(Principal Financial and Accounting Officer)
March 13, 2019
Peter J. Milligan
/s/ Kevin T. Ferro
Chairman of the Board
March 13, 2019
Kevin T. Ferro
/s/ James J. Galeota, Jr.
Director
March 13, 2019
James J. Galeota, Jr.
/s/ Bruce Downey
Director
March 13, 2019
Bruce Downey
/s/ David N. Gill
Director
March 13, 2019
David N. Gill
/s/ Thomas P. Koestler
Director
March 13, 2019
Thomas P. Koestler
/s/ Garheng Kong
Director
March 13, 2019
Garheng Kong
/s/ David Zaccardelli
Director
March 13, 2019
David Zaccardelli



INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
MELINTA THERAPEUTICS, INC.
Page
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets
F-4
Consolidated Statements of Operations
F-5
Consolidated Statements of Shareholders’ Equity
F-6
Consolidated Statements of Cash Flows
F-7
Notes to Consolidated Financial Statements
F-9



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Melinta Therapeutics, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Melinta Therapeutics, Inc. and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of operations, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company's recurring losses from operations and their need to obtain additional capital raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP
Chicago, Illinois  
March 13, 2019  
We have served as the Company's auditor since 2014.


MELINTA THERAPEUTICS, INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
 December 31,
2018		 December 31,
2017
Assets   
Cash and equivalents$81,808
 $128,387
Receivables (See Note 3)22,485
 7,564
Inventory41,341
 10,825
Prepaid expenses and other current assets3,848
 2,988
Total current assets149,482
 149,764
Property and equipment, net1,586
 1,596
Intangible assets, net229,196
 7,500
Other assets (including restricted cash of $200 in both periods)61,326
 1,413
Total assets$441,590
 $160,273
Liabilities   
Current liabilities   
Accounts payable$16,765
 $7,405
Accrued expenses (See Note 3)33,924
 24,041
Deferred purchase price and other liabilities (See Note 14)78,394
 —
Accrued interest on notes payable4,485
 284
Warrant liability38
 —
Total current liabilities133,606
 31,730
Long-term liabilities   
Notes payable, net of debt discount110,476
 39,555
Deferred revenue—
 10,008
Other long-term liabilities7,444
 6,644
Total long-term liabilities117,920
 56,207
Total liabilities$251,526
 $87,937
Commitments and Contingencies (Note 10)

 

    
Shareholders' Equity   
Preferred stock; $.001 par value; 5,000,000 shares and none authorized; no shares issued or
   outstanding at December 31, 2018 and December 31, 2017		—
 —
Common stock; $.001 par value; 80,000,000 shares authorized; 11,204,050 and 4,399,788
   issued and outstanding at December 31, 2018 and December 31, 2017, respectively		11
 4
Additional paid-in capital909,896
 644,991
Accumulated deficit(719,843) (572,659)
Total shareholders’ equity$190,064
 $72,336
Total liabilities and shareholders’ equity$441,590
 $160,273
The accompanying notes are an integral part of these consolidated financial statements


MELINTA THERAPEUTICS, INC.
Consolidated Statements of Operations
(In thousands, except share and per share data)
 Years Ended December 31,
 2018 2017 2016
Revenue     
Product sales, net$46,580
 $—
 $—
Contract research11,677
 13,959
 —
License38,173
 19,905
 —
Total revenue96,430
 33,864
 —
Operating expenses     
Cost of goods sold41,057
 —
 —
Research and development55,409
 49,475
 49,791
Goodwill impairment25,088
 —
 —
Selling, general and administrative133,312
 63,325
 19,410
Total operating expenses254,866
 112,800
 69,201
Loss from operations(158,436) (78,936) (69,201)
Other income (expenses)     
Interest income730
 155
 30
Interest expense(43,179) (3,608) (3,390)
Interest expense on convertible promissory notes (See Note 4)—
 (4,016) (1,016)
Change in fair value of tranche assets and liabilities—
 —
 (1,313)
Change in fair value of warrant liability33,226
 335
 781
Loss on extinguishment of debt(2,595) (607) —
Grant income5,828
 —
 —
Other income and expense1,904
 98
 177
Gain on loss contract reversal5,330
 —
 —
Bargain purchase gain—
 27,663
 —
Total other income (expense), net1,244
 20,020
 (4,731)
Net loss$(157,192) $(58,916) $(73,932)
Accretion of convertible preferred stock dividends—
 (19,259) (21,117)
Net loss available to common shareholders$(157,192) $(78,175) $(95,049)
Basic and diluted net loss per share$(17.12) $(109.28) $(20,600.13)
Basic and diluted weighted average shares outstanding9,181,668
 715,369
 4,614
 The accompanying notes are an integral part of these consolidated financial statements



MELINTA THERAPEUTICS, INC.
Consolidated Statements of Shareholders’ Equity
(In thousands, except share data)
 Ordinary Shares Common Stock 
Additional
Paid-In
Capital
 Accumulated Deficit 
Total
Shareholders'
Equity
 Shares Amount Shares Amount   
Balance as of December 31, 20154,595
 $—
 —
 $—
 $217,712
 $(439,811) $(222,099)
Share-based compensation—
 —
 —
 —
 2,515
 —
 2,515
Common stock forfeitures(1) —
 —
 —
 —
 —
 —
Stock option exercises725
 —
 —
 —
 65
 —
 65
Net loss—
 —
 —
 —
 —
 (73,932) (73,932)
Balance as of December 31, 20165,319
 $—
 —
 $—
 $220,292
 $(513,743) $(293,451)
Share-based compensation—
 —
 —
 —
 6,450
 —
 6,450
Stock repurchase(8) —
 —
 —
 1,123
 —
 1,123
Stock option exercises—
 —
 172
 —
 88
 —
 88
Vesting of restricted stock grants—
 —
 12,400
 —
 —
 —
 —
Conversion of convertible preferred stock, debt & warrants into common stock—
 —
 2,286,722
 2
 291,226
 —
 291,228
Acquisition of Cempra, Inc.(5,311) —
 2,100,494
 2
 125,812
 —
 125,814
Net loss

 

 

 

 

 (58,916) (58,916)
Balance as of December 31, 2017—
 $—
 4,399,788
 $4
 $644,991
 $(572,659) $72,336
Deferred revenue adjustment upon adoption of accounting standard (See Note 2)—
 —
 —
 —
 —
 10,008
 10,008
Share-based compensation, including amount capitalized as inventory—
 —
 —
 —
 3,674
 —
 3,674
Issuance of common shares upon exercise of options—
 —
 40
 —
 3
 —
 3
Vesting of restricted stock grants—
 —
 10,920
 —
 —
 —
 —
Acquisition of IDB and related financing—
 —
 1,865,301
 2
 145,961
 —
 145,963
Issuance of common shares—
 —
 4,928,000
 5
 115,267
 —
 115,272
Net loss—
 —
 —
 —
 —
 (157,192) (157,192)
Balance as of December 31, 2018—
 $—
 11,204,049
 $11
 $909,896
 $(719,843) $190,064
The accompanying notes are an integral part of these consolidated financial statements



MELINTA THERAPEUTICS, INC.
Consolidated Statements of Cash Flows
(In thousands)
 Year ended December 31,
 2018 2017 2016
Operating activities     
Net loss$(157,192) $(58,916) $(73,932)
Adjustments to reconcile net loss to net cash used in operating activities:     
Depreciation and amortization16,901
 451
 497
Bargain purchase gain—
 (27,663) —
Change in fair value of  tranche assets and liabilities—
 —
 1,313
Non-cash interest expense25,673
 5,091
 2,010
Share-based compensation3,465
 6,450
 2,515
Change in fair value of warrant liability(33,226) (335) (781)
Change in fair value for IDB contingent liabilities(8,817) —
 —
Loss on extinguishment of debt2,595
 607
 —
Reversal of loss contract(5,330) —
 —
Provision for inventory obsolescence8,042
 —
 —
Write off of deferred equity finance costs—
 —
 969
Asset impairment26,076
 —
 —
Other—
 70
 —
Changes in operating assets and liabilities:     
Receivables(5,044) (3,140) 43
Inventory(17,541) (10,825) —
Prepaid expenses and other current assets2,180
 600
 (1,461)
Accounts payable8,285
 (1,269) (21)
Accrued expenses1,445
 12,014
 (1,840)
Accrued interest on notes payable4,202
 110
 (14)
Deferred revenues—
 1,000
 —
Deposits on future inventory purchases(40,773) —
 —
Other non-current assets and liabilities(2,486) 157
 122
Net cash used in operating activities(171,545) (75,598) (70,580)
Investing activities     
Cash acquired in merger with Cempra, Inc.—
 161,410
 —
IDB acquisition(166,382) —
 —
Purchases of intangible assets(2,000) (5,500) —
Purchases of property and equipment(1,690) (849) (463)
Net cash provided by (used in) investing activities(170,072) 155,061
 (463)
Financing activities     
Proceeds from financing (see Note 4):     
Proceeds from the issuance of notes payable111,421
 38,844
 44,111
Costs associated with the issuance of notes payable(6,455) —
 —
Proceeds from the issuance of warrants33,264
 —
 —
Proceeds from the issuance of royalty agreement1,472
 —
 —
Purchase of notes payable disbursement option(7,609) —
 —
Proceeds from issuance of common stock, net, to lender51,452
 —
 —
Other financing activities:     
Proceeds from issuance of common stock, net155,273
 —
 —
Proceeds from the issuance of convertible promissory notes—
 24,526
 —


Payment of debt extinguishment fees(2,150) (1,240) —
IDB acquisition deferred payments(1,633) —
 —
Proceeds from the exercise of stock options, net of cancellations3
 88
 65
Proceeds from the issuance of convertible preferred stock—
 —
 13,625
Payment of preferred stock issuance costs—
 —
 (9)
Repayment of notes payable(40,000) (24,503) (5,498)
Net cash provided by financing activities295,038
 37,715
 52,294
Net change in cash and equivalents(46,579) 117,178
 (18,749)
Cash, cash equivalents and restricted cash at beginning of the period128,587
 11,409
 30,158
Cash, cash equivalents and restricted cash at end of the period (See Note 4)$82,008
 $128,587
 $11,409
Supplemental cash flow information     
Cash paid for interest$13,259
 $2,326
 $2,411
Cash received from exchange of state tax credits, net$—
 $283
 $207
Non-cash investing and financing activities     
Accrued purchases of fixed assets$10
 $2,155
 $12
Accrued notes payable issuance costs$—
 $—
 $475
The accompanying notes are an integral part of these consolidated financial statements



MELINTA THERAPEUTICS, INC.
December 31, 2018
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
NOTE 1 – NATURE OF THE BUSINESS
Melinta Therapeutics, Inc. (the “Company,” “we,” “us,” “our,” or “Melinta,” the registrant previously known as Cempra, Inc.) is a commercial-stage pharmaceutical company focused on discovering, developing and commercializing differentiated anti-infectives for the acute care and community settings to meet critical medical needs in the treatment of bacterial infectious diseases. Melinta is headquartered in New Haven, Connecticut, with locations in Lincolnshire, Illinois, Morristown, New Jersey and Chapel Hill, North Carolina. We have four products: (i) delafloxacin as the active pharmaceutical ingredient and distributed under the brand name Baxdela™, (ii) meropenem and vaborbactam as the active pharmaceutical ingredients and distributed under the brand name Vabomere™ (“Vabomere”), (iii) oritavancin as the active pharmaceutical ingredient and distributed under the brand name Orbactiv®  (“Orbactiv”) and (iiii) minocycline as the active pharmaceutical ingredient and distributed under the brand name Minocin® for injection and line extensions of such products.
Our stock is traded on the Nasdaq market under the symbol “MLNT.”
The accompanying consolidated financial statements have been prepared assuming Melinta Therapeutics, Inc. (the “Company,” “we,” “us,” “our,” or “Melinta”) will continue as a going concern. We are not currently generating revenue from operations that is sufficient to cover our operating expenses and do not anticipate generating revenue sufficient to offset operating costs in the short-term. We have incurred losses from operations since our inception and had an accumulated deficit of $719,843 as of December 31, 2018, and we expect to incur substantial expenses and further losses in the short term for the development and commercialization of our product candidates and approved products. In addition, we have substantial commitments in connection with our acquisition of the infectious disease business of The Medicines Company ("Medicines") that we completed in January 2018, including payments related to deferred purchase price consideration, assumed contingent liabilities and the purchase of inventory. And, there are certain financial-related covenants under our Deerfield Facility, as amended in January 2019, including requirements that we (i) file an Annual Report on Form 10-K for the year ending December 31, 2019, with an audit opinion without a going concern qualification, (ii) maintain a minimum cash balance of $40,000 through March 2020, and thereafter, a balance of $25,000, and (iii) achieve net revenue from product sales of at least $63,750 for the year ending December 31, 2019. (See Note 4 to the consolidated financial statements for further details on the Deerfield Facility.)
Our future cash flows are dependent on key variables such as our ability to access additional capital under our Vatera and Deerfield credit facilities, our ability to secure a working capital revolver, which is allowed under the Deerfield Facility and required under the Vatera facility, and most importantly, the level of sales achievement of our four marketed products. Our current operating plans include assumptions about our projected levels of product sales growth in the next 12 months in relation to our planned operating expenses. Revenue projections are inherently uncertain but have a higher degree of uncertainty in an early-stage commercial launch, which we have in Baxdela and Vabomere, where there is not yet a robust sales history. While we have a plan to achieve the current expected sales levels of our products, we are unable to conclude based on applying the requirements of FASB Accounting Standards Codification 205-40, Presentation of Financial Statements - Going Concern (“ASC 205”) that such revenue is “probable” (as defined under this accounting standard). In addition, given our forecasted product sales are not deemed probable under ASC 205, our ability to draw the additional $50,000 of capacity under the Deerfield Facility, which is conditional based on meeting certain sales-based milestones before the end of 2019, is also not considered to be probable under the accounting guidance. As such, we are not able to conclude under ASC 205 that the actions discussed below will be effectively implemented and, therefore, our current operating plans, existing cash and cash collections from existing revenue arrangements and product sales may not be sufficient to fund our operations for the next 12 months. As such, we believe there is substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern.
In the fourth quarter of 2018, the Company took actions to reduce its operating spend, including a reduction to the workforce of approximately 20.0% and a decision to begin to wind down its research and discovery function. To provide additional operating capital, in December 2018, the Company entered into a Senior Subordinated Convertible Loan Agreement (the “Loan Agreement”) with Vatera Healthcare Partners LLC and Vatera Investment Partners LLC (together, “Vatera”) pursuant to which Vatera committed to provide $135,000 over a period of five months, subject to the satisfaction of certain conditions (see Note 4). We drew $75,000 under this facility in February 2019, and we plan to draw the remaining $60,000 by early July 2019.


 As of December 31, 2018, the Company had $81,808 in cash and cash equivalents. In addition to drawing the additional $60,000 available under the Vatera Facility, in the next several months, we plan to put a working capital revolver in place for up to $20,000, which is permitted under the Deerfield Facility (see Note 4) and required under the Vatera Loan Agreement (we must establish a working capital revolver of at least $10,000 in order to draw the final $35,000 tranche under the Vatera Loan Agreement in July 2019). We are also exploring options to modify the terms of certain liabilities to increase our liquidity over the next 12 to 18 months. Finally, if our cash collections from revenue arrangements, including product sales, and other financing sources are not sufficient, we plan to control spending and would take further actions to adjust the spending level for operations if required. However, there is no guarantee that we will be successful in executing any or all of these initiatives.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation—The accompanying consolidated financial statements include the accounts and results of operations of Melinta 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. We have changed the presentation of income from our contract with the Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services (“BARDA”) (see Grant Income discussion below) to conform to the 2018 presentation of revenue under Topic 606. Accordingly, grant income reported in 2018 has been moved from "Contract research" in Revenue to "Grant income" in Other income (expense). As we adopted Topic 606 using the modified retrospective method, we did not change the presentation of 2017 grant income. In addition, on February 20, 2019, the board approved a 1-for-5 reverse split of our common stock, which was effective February 22, 2019. All share, share price and per share amounts presented have been adjusted to reflect these values as if the reverse split had occurred at the beginning of the earliest period presented.
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.
Cash and Cash Equivalents—We consider all highly liquid investments with original maturities of three months or less at time of purchase to be cash equivalents. We invest excess cash primarily in money market funds.
Trade and Other Receivables—Trade receivables consist of amounts billed for product shipments. Receivables for product shipments are recorded as shipments are made and title to the product is transferred to the customer.
Other receivables consist of amounts billed, and amounts earned but unbilled, under our licensing agreements and our contracts with BARDA. Receivables for license agreements are recorded as we achieve the requirements of the agreements, and receivables under the BARDA contracts are recorded as qualifying research activities are conducted and invoices from our vendors are paid. Unbilled receivables are also recorded based upon work estimated to have been completed for which we have not paid vendor invoices.  
We carry our receivables net of an allowance for doubtful accounts. On a periodic basis, we evaluate our receivables for collectability. We have recorded an allowance for doubtful accounts of $26 for specifically identified receivables that may not be fully collectible.
Concentration of Credit Risk—Concentration of credit risk exists with respect to cash and cash equivalents and receivables. We maintain our cash andcash equivalents with federally insured financial institutions, and at times, the amounts may exceed the federally insured deposit limits. To date, we have not experienced any losses on our deposits of cash and cash equivalents. We believe that we are notexposed to significant credit risk due to the financial position of the depository institutions in which deposits are held.
A significant portion of our trade receivables is due from three large wholesaler customers for our products, which constitute 46%, 32% and 15%, respectively, of our trade receivable balance at December 31, 2018.
Inventory—Inventory is stated at the lower of cost or estimated net realizable value. Inventory is valued on a first-in, first-out basis and consists primarily of material costs, third-party manufacturing costs, overhead—principally the cost of managing our manufacturers—and related transportation costs. We capitalize inventory upon regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed. Costs of drug product to be consumed in any current or future clinical trials will continue to be recognized as research and development expense. Wereview inventories on hand at least quarterly and record provisions for estimated excess, slow-moving and obsolete inventory, as well as inventory with a carrying value in excess of net realizable value. As of December 31, 2018, we had recorded $7,070 reserves for our inventory. Activity in our inventory reserve account is summarized below:


Beginning Balance as of January 1, 2018 Charges to Cost of Goods Sold Inventory Discards Ending Balance as of December 31, 218
$—
 $8,042
 $(972) $7,070
Fair Value of Financial Instruments—The carrying amounts of our financial instruments, which include cash and cash equivalents, tax credit and other receivables, accounts payable, accrued expenses, notes payable, and preferred stock warrants, approximated their fair values at December 31, 2018 and 2017.
Debt Issuance Costs—Debt issuance costs represent legal and other direct costs incurred in connection with our notes payable. These costs were recorded as a contra-liability included in the notes payable line item and amortized as a non-cash component of interest expense using the effective interest method over the term of the note.
Property and Equipment—Property and equipment are recorded at cost less accumulated depreciation and are depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are amortized over the shorter of their useful lives or the remaining term of the lease. Major improvements are capitalized, while repair and maintenance costs, which do not improve or extend the useful lives of the respective assets, are expensed as incurred. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the balance sheets and any resulting gain or loss is credited or charged to income.
Depreciation periods for our property and equipment are as follows:
TypePeriod
Laboratory equipment5 years
Furniture and fixtures5 years
Office equipment3 years
Leasehold improvementsShorter of useful life or lease life
Purchased software3 years
Goodwill and Intangible Assets—Intangible assets consist of capitalized milestone payments for the licenses we use to make our products and the fair value of identifiable intangible assets, including in-process research and development (“IPR&D”), acquired in the IDB transaction. Given the uncertainty of forecasts of future revenue for our products, we amortize the cost of intangible assets on a straight-line basis over the estimated economic life of each asset, generally the exclusivity period of each associated product. IPR&D is reclassified to intangible assets (developed product rights) once the associated product has received approval by the appropriate regulatory agency. Amortization for these developed product rights does not begin until both the associated product has received approval and sales have commenced. We will recognize amortization for our intangible assets over periods of approximately 10 to 17 years, commencing with the launch of the products. 
 As of December 31, 2017, product right intangible assets were $7,500.  Amortization had not yet commenced as product launch occurred in early 2018. As of December 31, 2018, gross product right intangible assets and the related accumulated amortization were $245,529 and $16,332. 
Amortization of intangible assets, which is included in cost of goods sold, was $16,332 for the year ended December 31, 2018. No intangible asset amortization was recorded in 2017. For each of the years ending December 31, 2019, through December 31, 2023, we expect to recognize amortization expense of $16,603, with approximately $125,113 to be recognized thereafter. In addition, there is $21,069 of developed product rights primarily related to Vabomere that will begin amortization over approximately 10 years when the launch of Vabomere in Europe has occurred.
Goodwill and indefinite-lived assets, including IPR&D, are not amortized, but are subject to an impairment review annually and more frequently when indicators of impairment exist. An impairment of goodwill could occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. An impairment of indefinite-lived intangible assets would occur if the fair value of the intangible asset is less than the carrying value. Prior to reclassifying an IPR&D asset to a definite-lived intangible asset, we perform an impairment analysis.
We test goodwill, IPR&D and indefinite-lived assets for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount. If we conclude it is more likely than not that the fair value of the asset under review is less than its carrying amount, a quantitative impairment test is performed.
In December 2018, we performed our annual impairment test for goodwill. As a result, we concluded that the implied value of goodwill was negative, and we recorded an impairment adjustment of $25,088 in December 2018 to reduce our goodwill value to zero. This was driven primarily by the sustained decrease in the Melinta's stock price over the course of the


previous year, and since we operate as one single operating unit, the market capitalization of the Company is a strong indicator of fair value.
Impairment of Long-Lived Assets—Long-lived assets consist primarily of property and equipment and intangible assets with a definite life. We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable at the lowest level of identifiable cash flows, which is each product line. If impairment indicators are present, we assess whether the future estimated undiscounted cash flows attributable to the assets in question are greater than their carrying amounts. If these future estimated cash flows are less than carrying value, we then measure an impairment loss for the amount that carrying value exceeds fair value of the assets. In the year ended December 31, 2018, we recorded expense of $988 in research and development expenses related to the write-off of in-process validation costs for manufacturing projects that we abandoned during the year. We did not have a corresponding impairment expense in 2017 or 2016.
During the fourth quarter of 2018, impairment indicators were present for our product rights intangible assets, so we prepared undiscounted cash flows attributable to each product to assess whether or not the intangible assets were impaired. The impairment indicators related to revised product sales forecasts, which were lower than those initially developed in connection of the acquisition of the assets. While we concluded that the intangible assets were not impaired because the undiscounted cash flows exceeded the carrying value, if revenue forecasts decrease again in the future, there is a risk that we may conclude that one or more of the intangible assets are impaired in a future period.
Revenue Recognition—On January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-9,Revenue from Contracts with Customers (“Topic 606”), and all related amendments. For further information regarding the adoption of Topic 606, see the “Adoption of Topic 606” section of this Note 2.  
Topic 606 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of this new revenue recognition guidance is that a company will recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Topic 606 defines the following five-step process to achieve this core principle, and in doing so, it is possible that significant judgment and estimates may be required within the revenue recognition process.  
1.identify the contract(s) with a customer;
2.identify the performance obligations in the contract;
3.determine the transaction price;
4.allocate the transaction price to the performance obligations in the contract; and
5.recognize revenue when (or as) the entity satisfies a performance obligation.
The new guidance only applies the five-step model to arrangements that meet the definition of a contract under Topic 606, including the consideration of whether it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations; the assessment includes the evaluation of whether each promised good or service is distinct within the context of the contract. Under Topic 606, we recognize revenue separately for performance obligations that are “distinct.” Performance obligations are considered to be distinct if (a) the customer can benefit from the license or services either on its own or together with other resources that are readily available to the customer, and (b) our promise to transfer the license or services is separately identifiable from other promises in the contract. If a license or service is not individually distinct, we combine the license or service with other promised licenses and/or services until we identify a bundle of licenses and/or services that together are distinct.
We recognize, as revenue, the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. In determining the transaction price, we consider all forms of variable consideration, which can take various forms, including, but not limited to, prompt-pay discounts, rebates, credits, and milestone payments. We estimate variable consideration using either the “expected value” or “most likely amount” method, depending on which method better predicts the amount of consideration to which we will be entitled. The expected value method is a probability-weighted approach that considers all possible outcomes while the most likely approach uses the single most likely amount in a range of possible outcomes. We apply a variable consideration constraint to the estimated transaction price if we conclude that it is probable that there is a risk of significant reversal of revenue once the uncertainty related to the variable consideration is resolved.
Under the guidance of Topic 606, we recognize revenue for each performance obligation when the customer obtains control of the product and we have satisfied each of our respective obligations. Control is defined as the ability of the customer to direct the use of and obtain substantially all the benefits of the asset.


In addition, as of December 31, 2018, we do not have any contract assets or liabilities and our contracts do not have any significant financing components. And, we have not capitalized contract origination costs.  
Licensing Arrangements
We enter into license and collaboration agreements for the research and development and/or commercialization of therapeutic products. The terms of these agreements may include nonrefundable licensing fees, funding for research, development and manufacturing, milestone payments and royalties on any product sales derived from the collaborations in exchange for the delivery of licenses and rights to sell our products within specified territories outside the United States.
In the determination of whether our license and collaboration agreements are accounted for under Topic 606 or Accounting Standards Classification (“ASC”) 808, Contract Accounting, we first assess whether or not the partner in the arrangement is a customer. If the partner in the arrangement is deemed a customer as it relates to some or all of our performance obligations, then the consideration associated with those performance obligations is accounted for as revenue under Topic 606.
Our license agreements may include contingent or variable consideration based upon the achievement of regulatory- and sales-based milestones and future royalties based on a percentage of the partner’s net product sales. Our performance obligations to deliver distinct licenses are recognized at a point in time. Milestone payments from licensees that are contingent and/or variable upon future regulatory events and product sales are not considered probable of being achieved until the milestones are earned and, therefore, the contingent revenue is subject to significant risk of reversal. As such, we constrain this variable consideration and do not include it in the transaction price (or recognize the revenue related to these milestones) until such time that the contingencies are resolved and generally recognized at a point in time. In addition, under the sales- or usage- based royalty exception in Topic 606, we do not estimate, at the onset of the arrangement, the variable consideration from future royalties or sales-based milestones. Instead, we wait to recognize royalty revenue until the future sales occur.
In September 2018, we entered into a license agreement with Menarini, which grants to Menarini the exclusive right to market Vabomere, Orbactiv and Minocin for injection in 68 countries in Europe, Asia-Pacific and the Commonwealth of Independent States. The agreement includes an upfront license fee of €17,000 (which we received in October 2018), a milestone payment of €15,000 upon European marketing approval for Vabomere, potential regulatory- and sales-based milestones, and sales-based royalties. Menarini received European marketing approval in November 2018, and we received the €15,000 milestone payment in the fourth quarter of 2018. We determined that Menarini is a customer and we should account for the agreement under Topic 606. We identified one performance obligation under the agreement, the delivery of the licensed rights. In addition, we agreed to supply the products to Menarini in the future at a cost that is consistent with our other similar licensing arrangements. We provided Menarini immediate access to the licensed rights and, as such, we allocated the upfront payment entirely to the license and recognized revenue at the point in time when the licensed rights were delivered, in September 2018. We will recognize any future contingent consideration, including regulatory and sales-based milestone payments and royalty revenue, at such time when the milestones or royalties have been achieved. Menarini received European marketing approval in November 2018, so we recognized the €15,000 milestone payment as revenue in the fourth quarter of 2018.
Adoption of Topic 606
We adopted Topic 606 on January 1, 2018, using the modified retrospective method applied to those contracts which were not complete as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with legacy U.S. GAAP under ASC 605. In our adoption of Topic 606, we did not use practical expedients. In addition, we have considered the nature, amount and timing of our different revenue sources. Accordingly, the disaggregation of revenue from contracts with customers is reflected in different captions within the consolidated statement of operations. For our Eurofarma distribution arrangements under which revenue was previously deferred, revenue is now recognized at the point in time when the license is granted and has benefit to Eurofarma. These deferred revenues were originally expected to be recognized in future periods over the period of time over which we supplied Baxdela under the supply arrangement, which could have lasted up to 10 years or longer. The cumulative effect of the adoption was recognized as a decrease to opening accumulated deficit and a decrease to deferred revenue of $10,008 on January 1, 2018. The effect of the adoption of Topic 606 on our consolidated balance sheet is as follows: 
 Balance at December 31, 2017 
Adjustments Due to
Topic 606
 
Balance at January
1, 2018
Liabilities:     
Deferred revenue$10,008
 $(10,008) $—
Shareholders’ equity:     
Accumulated deficit$(572,659) $10,008
 $(562,651)


In connection with the adoption of Topic 606, we no longer recognize grant income as revenue (see Grant Income discussion below), but there was no change to the timing of historical recognition. Also, there was no change to the timing of recognition of contract revenue under our licensing agreements. For product sales, recognition of revenue under Topic 605 would have been the same as under Topic 606 for the year ended December 31, 2018, as we have established sufficient sales history to analyze trends in revenue constraints. In addition, the initial stocking of product in connection with product launches in the first quarter of 2018 was sold through to end customers before the end of 2018, establishing a fixed transaction price for these sales to wholesalers.
We have no outstanding performance obligations as of December 31, 2018, related to our licensing arrangements. Although we have agreements in place to supply our drug products to our partners once they achieve regulatory approval in their respective territories, we concluded that the option to purchase our products from us is not a material right. All performance obligations under our licensing arrangements were satisfied historically at a point in time. Variable consideration in the form of regulatory and sales-based milestones, which are payable under the terms of our licensing arrangements, has been constrained because of the risk of significant revenue reversal as in our revenue recognition policy included in this Note 2. Further, we recognize contract research revenue from Menarini as we incur the reimbursable development costs.
Product Sales
Product Year Ended December 31, 2018
Baxdela $6,485
Vabomere 7,416
Orbactiv 22,951
Minocin for injection 9,728
Total product sales, net $46,580
Beginning in January 2018, as a result of both the acquisition of IDB and the launch of Baxdela, we distribute Baxdela, Vabomere, Orbactiv, and Minocin for injection products commercially in the United States. While we sell some of our products directly to certain hospitals and clinics, the majority of our product sales are made to wholesale customers who subsequently resell our products to hospitals or certain medical centers, as well as specialty pharmacy providers and other retail pharmacies. The wholesaler places orders with us for sufficient quantities of our products to maintain an appropriate level of inventory based on their customers’ historical purchase volumes and demand. We recognize revenue once we have transferred physical possession of the goods and the wholesaler obtains legal title to the product and accepts responsibility for all credit and collection activities with the resale customer. In addition, we enter into arrangements with health care providers that purchase our products from wholesalers—as well as payers and certain other customers—that provide for government mandated and/or privately negotiated rebates, chargebacks and discounts with respect to the purchase of our products. The transaction price that we recognize as revenue reflects the amount we expect to be entitled to in connection with the sale and transfer of control of product to our customers. Variable consideration is only included in the transaction price, to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. At the time that our customers take control of the product, which is when our performance obligation under the sales contracts is complete, we record product revenues net of applicable reserves for various types of variable consideration based on our estimates of channel mix. The types of variable consideration in our product revenue are as follows:
Prompt pay discounts
Product returns
Chargebacks and rebates
Fee-for-service
Government rebates
Commercial payer and other rebates
Group purchasing organization (“GPO”) administration fees
MelintAssist voluntary patient assistance programs
In determining the amounts of certain allowances and accruals, we must make significant judgments and estimates. For example, in determining these amounts, we estimate hospital demand, buying patterns by hospitals, hospital systems and/or group purchasing organizations from wholesalers and the levels of inventory held by wholesalers and customers. Making these determinations involves analyzing third party industry data to determine whether trends in historical channel distribution patterns will predict future product sales. We receive data periodically from our wholesale customers on inventory levels and historical channel sales mix, and we consider this data when determining the amount of the allowances and accruals for variable consideration.  


The amount of variable consideration is estimated by using either of the following methods, depending on which method better predicts the amount of consideration to which we are entitled:
a)The “expected value” is the sum of probability-weighted amounts in a range of possible consideration amounts. Under Topic 606, an expected value may be an appropriate estimate of the amount of variable consideration if we have many contracts with similar characteristics.
b)The “most likely amount” is the single most likely amount in a range of possible consideration amounts (i.e., the single most likely outcome of the contract). Under Topic 606, the most likely amount may be an appropriate estimate of the amount of variable consideration if the contract has only two possible outcomes (i.e., either achieve or don’t achieve a threshold specified in a contract).
The method selected is applied consistently throughout the contract when estimating the effect of an uncertainty on an amount of variable consideration. In addition, we consider all the information (historical, current, and forecasts) that is reasonably available to us and shall identify a reasonable number of possible consideration amounts. The relevant factors used in this determination include, but are not limited to, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns.
In assessing whether a constraint is necessary, we consider both the likelihood and the magnitude of the revenue reversal. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. The specific considerations we use in estimating these amounts related to variable consideration associated with our products are as follows:
Prompt Pay Discounts – We provide wholesale customers with certain discounts if the wholesaler pays within the payment term, which is generally between 30 and 60 days.  
Product returns – Generally, our customers have the right to return any unopened product during the 18-month period beginning six months prior to the labeled expiration date and ending 12 months after the labeled expiration date. Where historical rates of return exist, we use history as a basis to establish a returns reserve for product shipped to wholesalers. For our newly launched products, for which we currently do not have history of product returns, we estimate returns based on third-party industry data for comparable products in the market. As we distribute our products and establish historical sales over a longer period of time (i.e., two years), we will be able to place more reliance on historical purchasing and return patterns of our customers when evaluating our reserves for product return.
At the end of each reporting period for any of our products, we may decide to constrain revenue for product returns based on information from various sources, including channel inventory levels and dating and sell-through data, the expiration dates of product currently being shipped, price changes of competitive products and introductions of generic products. In the year ended December 31, 2018, we increased our returns reserve by $1,700 due to risk factors that were present primarily in connection with the initial stocking of inventory for the launch of our new products.  
Chargebacks – Although we primarily sell products to wholesalers in the United States, we typically enter into agreements with medical centers, either directly or through GPOs acting on behalf of their hospital members, in connection with the hospitals’ purchases of products. Based on these agreements, most of our hospital customers have the right to receive a discounted price for products and volume-based rebates on product purchases. In the case of discounted pricing, we typically provide a credit to our wholesale customers (i.e., chargeback), representing the difference between the customer’s acquisition list price and the discounted price.
Fees-for-service – We offer discounts and pay certain wholesalers service fees for sales order management, data, and distribution services which are explicitly stated at contractually determined rates in the customer’s contracts. In assessing if the consideration paid to the customer should be recorded as a reduction of the transaction price, we determine whether the payment is for a distinct good or service or a combination of both. Since our wholesaler fees are not specifically identifiable, we do not consider the fees separate from the wholesaler's purchase of the product. Additionally, wholesaler services generally cannot be provided by a third party. Because of these factors, the consideration paid is considered a reduction of revenue. We estimate our fee-for-service accruals and allowances based on wholesalers' purchases, demand pull-through, wholesaler inventory levels and the applicable discount rate.    
Government Rebates – We participate in three rebate programs under various government programs: Medicaid, TRICARE and Medicare Part D. At the time of the sale it is not known what the government rebate rate will be, but historical rates are used to estimate the current period accrual.
Medicaid – The Medicaid Drug Rebate Program is a program that includes The Centers for Medicare and Medicaid Services, State Medicaid agencies, and participating drug manufacturers that helps to offset the federal and state costs of most outpatient prescription drugs dispensed to Medicaid patients. The Medicaid Drug Rebate


Program is jointly funded by the states and the federal government. The program reimburses hospitals, physicians, and pharmacies for providing care to qualifying recipients who cannot finance their own medical expenses.
TRICARE – TRICARE is a benefit established by law as the health care program for uniformed service members, retired service members, and their families. We must pay the Department of Defense (“DOD”) refunds for drugs entered into the normal commercial chain of transactions that end up as prescriptions given to TRICARE beneficiaries and paid for by the DOD. The refund amount is the portion of the price of the drug sold by us that exceeds the federal ceiling price. Refunds due to TRICARE are based solely on utilization of pharmaceutical agents dispensed through a TRICARE Retail Pharmacy to DOD beneficiaries.
Medicare Part D – We maintain contracts with Managed Care Organizations (“MCOs”) that administer prescription benefits for Medicare Part D. MCOs either own pharmacy benefit managers (“PBMs”) or contract with several PBMs to fulfill prescriptions for patients enrolled under their plans. As patients obtain their prescriptions, utilization data are reported to the MCOs, which generally submit claims for rebates quarterly.    
Commercial Payer and Other Rebates – We contract with certain private payer organizations, primarily insurance companies and PBMs, for the payment of rebates with respect to utilization of Baxdela and contracted formulary status. We estimate these rebates and record reserves for such estimates in the same period the related revenue is recognized. Currently, the reserve for customer payer rebates considers future utilization based on third party studies of payer prescription data; the utilization is applied to product that remains in the distribution and retail pharmacy channel inventories at the end of each reporting period. As we distribute our products and establish historical sales over a longer period of time (i.e., two years), we will be able to place more reliance on historical data related to commercial payer rebates (i.e., actual utilization units) while continuing to rely on third party data related to payer prescriptions and utilization. In addition, we offer rebates to certain customers based on the volume of product purchased over an agreed period of time.
GPO Administration Fees – We contract with GPOs and pay administration fees related to contracting and membership management services provided. In assessing if the consideration paid to the GPO should be recorded as a reduction in the transaction price, we determine whether the payment is for a distinct good or service or a combination of both. Since our GPO fees are not specifically identifiable, we do not consider the fees separate from the purchase of the product. Additionally, the GPO services generally cannot be provided by a third party. Because of these factors, the consideration paid is considered a reduction of revenue.
MelintAssist – We offer certain voluntary patient assistance programs for prescriptions, such as savings/co-pay cards, which are intended to provide financial assistance to qualified patients with full or partial prescription drug co-payments required by payers. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue but remains in the distribution and pharmacy channel inventories at the end of each reporting period.
At the end of each reporting period, we adjust our allowances for cash discounts, product returns, chargebacks, fees-for-service and other rebates and discounts when believe actual experience may differ from current estimates. The following table provides a summary of activity with respect to our sales allowances and accruals during 2018:

 
Cash
Discounts
 
Product
Returns
 Chargebacks 
Fees-for-
Service
 MelintAssist 
Government
Rebates
 
Commercial
Rebates
 
Admin
Fee
Balance as of January 1, 2018$—
 $—
 $—
 $—
 $—
 $—
 $—
 $—
Allowances for sales1,184
 3,664
 5,792
 3,240
 1,224
 864
 1,491
 476
Payments & credits issued(939) (694) (5,030) (2,422) (812) (171) (892) (338)
Balance as of December 31, 2018$245
 $2,970
 $762
 $818
 $412
 $693
 $599
 $138
The allowances for cash discounts, bad debt, and chargebacks are recorded as contra-assets in trade receivables; the other balances are recorded in other accrued expenses.
Grant Income
We have several agreements with BARDA related to certain development costs for solithromycin and Vabomere. We concluded that BARDA is not a customer under Topic 606 because it does not engage with us in reciprocal transactions but, rather, provides contributions to our development efforts to encourage the development of more antibiotics for the welfare of society. As such, we view the income as a contribution and classify it within other income and expense, net, rather than in


revenue. We recognize grant income under the BARDA contracts over time as qualifying research activities are conducted. In the first quarter of 2018, we and BARDA agreed to terminate the solithromycin BARDA contract and wind down the study, which was substantially complete as of December 31, 2018.
In addition, in May 2018, we announced that we had entered into a partnership with the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (“CARB-X”), under which Melinta was awarded up to $6,200 to support the development of the company’s investigational pyrrolocytosine compounds. CARB-X was established in 2016 by BARDA, the National Institute of Allergy and Infectious Diseases of the U.S. Department of Health and Human Services and the Wellcome Trust, a global charitable foundation dedicated to improving health, to accelerate pre-clinical product development in the area of antibiotic-resistant infections, one of the world’s greatest health threats.
In November 2018, we decided to suspend the development of our pyrrolocytosine compounds and have accordingly suspended our partnership with CARB-X. In fiscal year 2018, we recognized $425 in grant income related to awards from CARB-X; we do not anticipate receiving any further award under this contract.
Business Combinations—We account for acquired businesses using the acquisition method of accounting. This method requires that most assets acquired and liabilities assumed be recognized as of the acquisition date. On January 1, 2018, we adopted ASU 2017-1, Business Combinations (Topic 805) Clarifying the Definition of a Business, which narrows the definition of a business and requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, which would not constitute the acquisition of a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. There is often judgment involved in assessing whether an acquisition transaction is a business combination under Topic 805 or anacquisition of assets. In our IDB acquisition, we evaluated the transaction and concluded that the IDB qualified as a “business” under Topic 805as it has both inputs and processes with the ability to create outputs. Among IDB’s inputs are developed product rights, in-process research and development and intellectual property across multiple classes of drugs and indications, third-party contract manufacturing agreements and tangible assets from which there is potential to create value and outputs.
With respect to business combinations, we determine the purchase price, including contingent consideration, and allocate the purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed, based on estimated fair values. The excess of the purchase price over the identifiable assets acquired and liabilities assumed is recorded as goodwill. With respect to the purchase of assets that do not meet the definition of a business under Topic 805, goodwill is not recognized in connection with the transaction and the purchase price is allocated to the individual assets acquired or liabilities assumed based on their relative fair values.
We engage a third-party professional service provider to assist us in determining the fair values of the purchase consideration, assets acquired, and liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to contingent liabilities associated with the purchase price and intangible assets, such as developed product rights and in-process research and development programs. Critical estimates that we have used in valuing these elements include, but are not limited to, future expected cash flows using valuation techniques (i.e., Monte Carlo simulation models) and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.
We record contingent consideration resulting from a business combination at its fair value on the acquisition date. The purchase price of IDB included contingent consideration related to the achievement of future regulatory milestones, sales-based milestones associated with the products we acquired, and certain royalty payments based on tiered net sales of the acquired products. The sales-based milestones were assumed contingent liabilities from Medicines at the time of the acquisition.
Changes to contingent consideration obligations can result from adjustments related, but not limited, to changes in discount rates and the number of remaining periods to which the discount rate is applied, updates in the assumed achievement or timing of any development or commercial milestone or changes in the probability of certain clinical events, changes in our forecasted sales of products acquired, the passage of time and changes in the assumed probability associated with regulatory approval. At the end of each reporting period, we revalue these obligations and record increases or decreases in their relative fair values in selling, general and administrative expenses within the accompanying consolidated statements of operations. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, any change in the assumptions described above could have a material impact on the amount we may be obligated to pay as well as the results of our consolidated results of operations in any given reporting period. During the year ended December 31, 2018, we recorded adjustments to the liabilities discussed above, as discussed in Note 14.
Advertising Expense—We record advertising expenses when they are incurred. We recognized advertising expense of $3,878, $1,234 and $1,066, in the years ended December 31, 2018, 2017, and 2016, respectively. 


Segment and Geographic Information—Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. We operate and manage our business as one operating segment. Although substantially all of our license and contract research revenue is generated from agreements with companies that are domiciled outside of the U.S., we do not operate outside of the U.S., nor do we have any significant assets in any foreign country. See this Note 2 for further discussion of the license and contract research revenue.
Research and Development Costs—Research and development costs are expensed as incurred and primarily include:
employee-related expenses, which include salaries, benefits, travel and share-based compensation expense;
fees paid to consultants and clinical research organizations (“CROs”) in connection with our pre-clinical and clinical trials, and other related clinical trial costs, such as investigator grants, patient screening, laboratory work and statistical compilation and analysis;
costs related to acquiring and manufacturing clinical trial materials and costs for developing additional manufacturing sources for, and the manufacture of pre-approval inventory of, our drugs under development;
costs related to compliance with regulatory requirements;
consulting fees paid to third parties related to non-clinical research and development;
research and laboratory supplies and facility costs; and
license, research and milestone payments related to licensed technologies while the related drug is in development in the respective territory.
Patent Costs—All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed to selling, general and administrative expenses as incurred, as recoverability of such expenses is uncertain.
Stock-Based Compensation— We account for share-based compensation following the provisions of ASC 718. We recognize stock-based compensation expense on a straight-line basis over the requisite service period of the individual grants, which is generally the vesting period, based on the estimated grant-date fair values. Stock options granted to employees typically vest over four years from the grant date and expire after 10 years. Stock options granted to non-employees are subject to periodic revaluation over their vesting terms. As a result, the charge to operations for non-employee options with vesting is affected each reporting period by changes in the fair value of the stock options.
We have four active stock-based compensation plans, known as the Sixth Amended and Restated 2006 Stock Plan (the “2006 Plan”), the 2011 Equity Incentive Plan (the “2011 Incentive Plan”), the Melinta 2011 Equity Incentive Plan (the “Melinta 2011 Plan”) and the 2018 Stock Incentive Plan (the "2018 Plan"). Under these plans, restricted stock units, stock options and other stock-related awards may be granted to our directors, officers, employees and consultants. Stock options are granted at exercise prices not less than the estimated or actual fair market value of our common stock at the date of grant.
We utilize the Black-Scholes option-pricing model for determining the estimated fair value of awards. Key inputs and assumptions include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, estimated fair value of our common stock, and exercise price. Many of the assumptions require significant judgment and any changes could have a material impact in the determination of stock-based compensation expense. We do not estimate forfeitures when recognizing compensation expense; instead, we recognize forfeitures as they occur.
Comprehensive Loss—Comprehensive loss is equal to net loss as presented in the accompanying statements of operations.
Income Taxes—We utilize the asset and liability method of accounting for income taxes, as set forth in ASC 740,Income Taxes. Under this method, deferred tax assets and liabilities are recognized based on the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established against net deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the net deferred tax assets will not be realized.
We have recorded a full valuation allowance against deferred tax assets at each balance sheet date presented. Based on the available evidence, we do not believe that it is more likely than not that it will be able to utilize our deferred tax assets in the future.
In accordance with the provisions of ASC 740, we would accrue for the estimated amount of taxes for uncertain tax positions if it is more likely than not that we would be required to pay such additional taxes. An uncertain tax position will not be recognized if it has a less than 50% likelihood of being sustained. Our policy is to recognize any interest and penalties related to income taxes in income tax expense. As of December 31, 2018 and 2017, we had no uncertain tax positions.
Recently Issued and Adopted Accounting Pronouncements:
In March 2016, the FASB issued ASU 2016-6, Contingent Put and Call Options in Debt Instruments, which clarifies that in assessing whether an embedded contingent put or call option is clearly and closely related to the debt host, an entity is


required to perform only the four-step decision sequence in ASC 815-15-25-42 (as amended by ASU 2016-6), but it does not have to separately assess whether the event that triggers its ability to exercise the contingent option is itself indexed only to interest rates or credit risk. ASU 2016-6 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018 and requires the use of a modified retrospective transition approach. We adopted this guidance on January 1, 2018; the adoption had no material impact on our financial position, operations and cash flows.
In January 2017, the FASB issued ASU 2017-1, Business Combinations (Topic 805) Clarifying the Definition of a Business, which narrows the definition of a business and requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, which would not constitute the acquisition of a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We adopted this guidance as of January 1, 2018. The adoption did not have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-4, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which removes step two from the goodwill impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The new guidance requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We early adopted this standard in connection with our annual goodwill impairment test on December 1, 2018.
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-2, Leases, which requires lessees to recognize assets and liabilities for most leases with terms of more than 12 months on the balance sheet but recognize expense on the income statement in a manner similar to current accounting. The standard requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements and is effective for us in the first quarter of 2019. In July 2018, the FASB issued ASU No. 2018-11, Targeted Improvements - Leases (Topic 842). This update provides an optional transition method that allows entities to elect to apply the standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the prior comparative period’s financials will remain the same as those previously presented. We have elected to apply the guidance at the beginning of the period of adoption and not restate comparative periods.
We lease fleet vehicles as well as our research and administrative facility in New Haven, Connecticut, and our office facilities in Lincolnshire, Illinois, Chapel Hill, North Carolina and Morristown, New Jersey. We are evaluating the impact of ASU 2016-2, which we plan to adopt on January 1, 2019, on our consolidated financial statements. To date, we have identified all of our leases, we have evaluated practical expedients, and we are still evaluating our discount rates to apply to the leases. We anticipate that adoption of ASU 2016-2 will result in the recognition of additional right-to-use assets and lease liabilities of between $6,500 and $8,500.
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies or removes certain disclosure requirements in Topic 820, Fair Value Measurements. The update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We are currently evaluating the impact of the adoption of this ASU on our financial statements.
In August 2018, the FASB issued ASU 2018-15, Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which provides guidance on implementation costs incurred in a cloud computing arrangement that is a service contract. The ASU amends Topic 350, Intangibles—Goodwill and Other, to include these implementation costs in its scope and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized. The update is effective for public entities for fiscal years beginning after December 15, 2019. we are currently evaluating the impact the adoption of this ASU will have on our financial statements.
In November 2018, the FASB issued ASU 2018-18, Clarifying the Interaction between Topic 808 and Topic 606, which amends ASC 808 to clarify when transactions between participants in a collaborative arrangement under ASC 808 are within the scope of ASC 606, Revenue from Contracts with Customers. The ASU provides clarity in both ASC 606 and 808 regarding when transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606. The


update is effective for public entities for fiscal years beginning after December 15, 2019. we are currently evaluating the impact the adoption of this ASU will have on our financial statements.
NOTE 3 – BALANCE SHEET COMPONENTS
Cash, Cash Equivalents and Restricted Cash—Cash, cash equivalents and restricted cash, as presented on the Consolidated Statements of Cash Flows, consisted of the following:
 As of December 31,
 2018 2017
Cash and cash equivalents$81,808
 $128,387
Restricted cash (included in Other assets)200
 200
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows$82,008
 $128,587
Accounts receivable—Accounts receivable consisted of the following:
 As of December 31,
 2018 2017
Trade receivables$11,509
 $—
Contracted services10,293
 7,202
Other receivables683
 362
Total receivables$22,485
 $7,564
Inventory—Inventory consisted of the following:
 As of December 31,
 2018 2017
Raw materials$24,507
 $5,545
Work in process$11,700
 $181
Finished goods12,204
 5,099
Gross value of inventory$48,411
 $10,825
Less: valuation reserves$(7,070) $—
Total inventory$41,341
 $10,825
We review inventories on hand at least quarterly and record provisions for estimated excess, slow-moving and obsolete inventory, as well as inventory with a carrying value in excess of net realizable value. As of December 31, 2018, we had established reserves for our inventory totaling $7,070.
Property and Equipment, Net—Property and equipment, net consisted of the following:
 As of December 31,
 2018 2017
Laboratory equipment$3,387
 $3,339
Manufacturing equipment178
 65
Office equipment1,062
 604
Purchased software860
 860
Furniture and fixtures390
 390
Leasehold improvements4,943
 4,869
Assets in development301
 437
Property and equipment, gross11,121
 10,564
Less-accumulated depreciation(9,535) (8,968)
Property and equipment, net$1,586
 $1,596


Depreciation expense relating to property and equipment was $570 and $451 in each of the years ended December 31, 2018 and 2017, respectively.
Other Assets—Other assets consisted of the following:
 As of December 31,
 2018 2017
Deerfield disbursement option (see Note 4)$7,608
 $—
Long-term inventory deposits51,127
 —
Other assets2,391
 1,213
Restricted cash200
 200
Total other assets$61,326
 $1,413
The long-term inventory deposits relate primarily to prepayments we are required to make under long-term contracts for the manufacture and delivery of Vabomere inventory, which requires extended lead-times.
Accrued Expenses—Accrued expenses consisted of the following:
 As of December 31,
 2018 2017
Accrued contracted services$2,909
 $5,596
Payroll-related expenses15,585
 9,885
Professional fees3,598
 3,621
Accrued royalty payments2,052
 2,040
Accrued sales allowances5,630
 —
Accrued other4,150
 2,899
Total accrued expenses$33,924
 $24,041
Accrued contracted services are primarily comprised of amounts owed to third-party clinical research organizations and contract manufacturers for research and development work performed on behalf of Melinta, and amounts owed to third-party marketing organizations for work performed to support the commercialization of our four products.
Accrued payroll-related expenses are primarily comprised of accrued employee termination benefits, bonuses and vacation.
NOTE 4 – FINANCING ARRANGEMENTS
Melinta’s outstanding debt balances consisted of the following as of December 31, 2018 and 2017:
 As of December 31,
 2018 2017
Principal balance under loan agreements$118,752
 $40,000
Debt discount and deferred financing costs for loan agreements(8,276) (445)
Total long-term debt, net of current maturities$110,476
 $39,555
 2014 Loan Agreement
In December 2014, we entered into an agreement with a lender pursuant to which we borrowed an initial term loan amount of $20,000 (the “2014 Loan Agreement”). In December 2015, pursuant to the achievement of certain milestones with respect to the terms in the 2014 Loan Agreement, we borrowed an additional term loan advance in the amount of $10,000.
We were obligated to make monthly payments in arrears of interest only, at a rate of the greater of 8.25% or the sum of 8.25% plus the prime rate minus 4.5% per annum, commencing on January 1, 2015, and continuing on the first day of each successive month thereafter through and including June 1, 2016. Commencing on July 1, 2016, and continuing on the first day of each month through and including the maturity date of June 1, 2018, we were required to make consecutive equal monthly payments of principal and interest.  


In June 2017, we repaid the entire outstanding balance under the 2014 Loan Agreement (see discussion below under “2017 Loan Agreement”). In the years ended December 30, 2018 and 2017, we recognized $0 and $1,229 of interest expense, respectively, related to the 2014 Loan Agreement.
2017 Loan Agreement
On May 2, 2017, we entered into a Loan and Security Agreement with a new lender (the “2017 Loan Agreement”). Under the 2017 Loan Agreement, the lender made available to us up to $80,000 in debt financing and up to $10,000 in equity financing.
The 2017 Loan Agreement bore an annual interest rate equal to the greater of 8.25% or the sum of 8.25% plus the prime rate minus 4.5%. We were also required to pay the lender an end-of-term fee upon the termination of the arrangement. If the outstanding principal was at or below $40,000, the 2017 Loan Agreement required interest-only monthly payments for 18 months from the funding of the first tranche, at which time we would have had the option to pay the principal due or convert the outstanding loan to an interest plus royalty-bearing note.
On June 28, 2017, we drew the first tranche of financing under the 2017 Loan Agreement, the gross proceeds of which were $30,000. We used the proceeds to retire amounts outstanding under the 2014 Loan Agreement. In August 2017, we drew the second tranche of financing, receiving $10,000. We retired the 2017 Loan Agreement in January 2018 (see discussion below).
Deerfield Facility
On January 5, 2018 (the “Agreement Date”), in connection with the IDB acquisition, we entered into the Deerfield Facility (the “Deerfield Facility”) with affiliates of Deerfield Management Company, L.P. (collectively, “Deerfield”). Pursuant to the terms of the Deerfield Facility, which was later amended in January 2019 (see discussion below), Deerfield agreed to loan us $147,774 as an initial disbursement (the “Term Loan”). The Deerfield Facility also provides us the right to draw from Deerfield additional disbursements up to $50,000 (the “Disbursement Option”), which may be made available upon the satisfaction of certain conditions, such as our having achieved annualized net sales of at least $75,000 before the end of 2019. The option to draw the additional $50 million expires on January 4, 2020. We agreed to pay Deerfield an upfront fee and a yield enhancement fee, both equal to 2.0% of the principal amount of the funds disbursed pursuant to the Deerfield Facility.
The Term Loan bears interest at a rate of 11.75%, while funds distributed pursuant to the Disbursement Option will bear interest at a rate of 14.75%. We are also required to pay Deerfield an exit fee of 2.0% of the amount of any loans on the payment, repayment, redemption or prepayment thereof (later amended to 4%, as discussed below under Deerfield Facility Amendment). The principal of the Term Loan must be paid by January 5, 2024. The Deerfield Facility requires the outstanding principal amount of the Term Loan and any loans drawn pursuant to the Disbursement Option to be repaid in equal monthly cash amortization payments between the fourth and the sixth anniversary of the Agreement Date. The Term Loan and any loans drawn pursuant to the Disbursement Option are not permitted to be prepaid prior to January 6, 2021, under the terms of the Deerfield Facility and are subject to certain prepayment fees for prepayments occurring on or after such date. In addition, the Deerfield Facility permits us to secure a revolving credit line of up to $20,000 from a different lender, subject to working capital balances. Deerfield holds a first lien on all our assets, including our intellectual property, except for working capital accounts, for which they hold a second lien while any revolving credit line with a different lender is in place. The Deerfield Facility, while it is outstanding, limits our ability to raise debt financing in future periods outside of the $20,000 revolver permitted thereunder, to sell any assets, enter into partnerships, enter into any other debt, enter into capital leases, or pay dividends (however, as amended, it permits the execution of the Vatera Loan Agreement, discussed below). The Deerfield Facility, as amended, has a financial maintenance covenant requiring us to maintain a minimum cash balance of $40,000 through March 2020, and thereafter of $25,000, at all times, a requirement that we achieve net product sales of at least $63,750 during 2019, and other normal covenants, including periodic financial reporting and a restriction on the payment of dividends.
In connection with the Deerfield Facility, we issued 625,569 shares of our common stock to Deerfield at a price of $67.50 on January 5, 2018, pursuant to a Securities Purchase Agreement. We received proceeds of $42,226 from this issuance of common stock. We received total proceeds of $190,000 from the Term Loan and the issuance of common stock together.
We used these proceeds to fund the IDB acquisition, to retire the $40,000 of principal balance outstanding under the 2017 Loan Agreement and to fund ongoing working capital requirements and other general corporate expenses. As a result, we recognized a debt extinguishment loss of $2,595, comprised of prepayment penalties and exit fees related to retiring the 2017 Loan Agreement totaling $2,150 and unamortized debt issuance costs of $445.
In connection with the Deerfield Facility and the Securities Purchase Agreement, we entered into the following freestanding instruments, with Deerfield as a counterparty, on January 5, 2018:
Term Loan with stated principal of $147,774 with a 11.75% interest rate;
Disbursement Option for additional draw of up to $50,000;
625,569 shares of our common stock;


Warrants to purchase 758,573 shares of our common stock with a purchase price of $82.50 and expiration date of January 5, 2025 (the “Warrants”); and
Rights to royalty payments equal to between 2.0% and 3.0% of certain U.S. sales of Vabomere for a period of 7 years, ending on December 31, 2024, as further described below (the “Royalty Agreement”).
For accounting purposes, because there are multiple freestanding instruments within the arrangement to which we are required to assign value under U.S. GAAP, we performed a valuation to determine the allocation of the gross proceeds of $190,000 to the five financial instruments listed above. We first calculated the fair value of the warrants, and then we allocated the remaining proceeds across the other four instruments using the relative fair value approach. The relative fair values of these financial instruments, which approximated their respective fair values as of the Agreement Date, were as follows: 
 Liabilities / (Assets)
Term Loan$111,421
Warrants33,263
Royalty Agreement1,472
Disbursement Option(7,608)
Common Stock Consideration51,452
Total Consideration$190,000
The terms of these instruments and the methodology and assumptions used to value each of them are discussed below.
Term Loan
The relative fair value of the term loan was estimated to be $111,421 using a discounted cash flow model (Level 3 inputs). We used a risk-adjusted discount rate of 19.8%. In connection with the Deerfield Facility, we paid $6,455 of upfront term loan fees and legal debt issuance costs. For accounting purposes, we elected to allocate these upfront fees and costs all to the term loan, leaving a net carrying value of $104,966.    
The upfront fees and costs were recorded as debt discount and are being amortized as additional interest expense over the term of the loan. In addition, a 2.0% exit fee of $2,956 is payable as the loan principal payments are made. Therefore, total required future cash payments are $150,730 (term loan principal of $147,774 plus exit fee of $2,956). The exit fee cost is also being amortized as additional interest expense over the life of the loan. The total cost of all items (cash-based interest payments, upfront fees and costs, and the 2.0% exit fee) is being expensed as interest expense using an effective interest rate of 21.4%. During the years ended December 31, 2018 and 2017, we recorded cash interest expense and term loan accretion expense of $17,460 and $5,510, and $0 and $0, respectively. All amounts were recorded as interest expense in our statement of operations.
The accretion of the principal of the term loan and the future payments, including the 2.0% exit fee due at the end of the term, and excluding the 11.75% rate applied to the $147,774 note per the form of the Deerfield Facility, are as follows: 
 
Beginning
Balance
 
Accretion of
Interest
Expense
 
Principal
Payments
and Exit Fee
 Ending Balance
January 5 - December 31, 2018$104,966
 $5,510
 $—
 $110,476
Year Ending December 31, 2019110,476
 7,135
 —
 117,611
Year Ending December 31, 2020117,611
 8,638
 —
 126,249
Year Ending December 31, 2021126,249
 10,799
 —
 137,048
Year Ending December 31, 2022137,048
 9,827
 (69,084) 77,791
Year Ending December 31, 202377,791
 3,846
 (75,365) 6,272
Year Ending December 31, 20246,272
 9
 (6,281) —
Total  $45,764
 $(150,730)  
Warrants
Under the terms of the Deerfield Facility, we issued Warrants to Deerfield to purchase 758,573 shares of common stock with an exercise price of $82.50 and a term of seven years. The holders of the Warrants may exercise the Warrants for cash, on a cashless basis or through a reduction of an amount of principal outstanding under the Term Loan or any subsequent disbursements pursuant to the Disbursement Option. In connection with certain major transactions (as defined therein), the holders may have the option to convert the Warrants, in whole or in part, into the right to receive the transaction consideration payable upon consummation of such major transaction in respect of a number of shares of common stock of the Company equal to the Black-Scholes value of the Warrants, as defined therein, and in the case of other major transactions, the holders


may have the right to exercise the Warrants, in whole or in part, for a number of shares of common stock of the Company equal to the Black-Scholes value of the Warrants.
We used the Black-Scholes option-pricing model to estimate the fair value of the Warrants (Level 3 inputs), which resulted in a fair value of $33,263 on the Agreement Date. To measure the Warrants at January 5, 2018, the assumptions used in the Black-Scholes option-pricing model were: the price of the common stock on January 5, 2018, an expected life of 7.0 years, a risk-free interest rate of 2.4% and an expected volatility of 50.0%.
We classified the Warrants as a liability in our balance sheet and are required to remeasure the carrying value of these Warrants to fair value at each balance sheet date, with adjustments for changes in fair value recorded in Other income or expense in our statements of operations.
To remeasure the Warrants at December 31, 2018, the assumptions used in the Black-Scholes option-pricing model were: the price of our common stock on December 31, 2018, an expected life of 6.0 years, a risk-free interest rate of 2.55% and an expected volatility of 50.0%. The fair value of the Warrants at December 31, 2018, was $38, resulting in a gain during the years ended December 31, 2018, of $33,226.
Royalty Agreement  
In connection with the Deerfield Facility, we entered into a Royalty Agreement with Deerfield, pursuant to which we agreed to make royalty payments equal to 3.0% (or 2.0%, following the satisfaction of all our obligations under the Deerfield Facility and other loan documents) of annual U.S. sales of Vabomere exceeding $75,000 ($74,178 for 2018) and less than or equal to $500,000 for a seven-year period. To determine the fair value of the obligation under the Royalty Agreement, we applied a Monte Carlo simulation model to our revenue forecasts for Vabomere, which was discounted using an adjusted weighted average cost of capital (“WACC”). The WACC incorporated our estimated senior unsecured discount rate, our expected tax rate, and our estimated cost of equity, and then was adjusted for operational leverage.
On January 5, 2018, we estimated the fair value of the royalty liability under the Royalty Agreement to be $1,472. Over the seven-year term, we will accrete the royalty liability using an effective interest rate of 42.9% and reduce the liability for any royalty payments made to Deerfield. During the year ended December 31, 2018 , we recorded accretion expense of $758. At the end of each quarter, we are required to prospectively revise the rate of accretion if there are any significant changes in our long-term sales forecasts. During the quarter ended December 31, 2018, we did not identify any significant changes in our sales forecasts and, accordingly, did not revise the rate of accretion. As we have not yet reached the $75,000 sales threshold for annual sales of Vabomere, we have not made any royalty payments to Deerfield.
Disbursement Option
The Disbursement Option allows us to draw additional funds up to $50,000 once we achieve annual net product sales of at least $75,000. The annual net sales target is measured by using the sales result for the preceding six months and multiplying by two. The disbursement must be drawn within two years from the effective date of the transaction and requires quarterly interest payments at a rate of 14.75% and requires the principal amount outstanding to be repaid in equal monthly cash payments between the fourth and the sixth anniversary of the effective date of the agreement.
We calculated the fair value of the Disbursement Option using a discounted cash flow model (Level 3 inputs), under which estimated cash flows were discounted using a risk-adjusted rate that aligns with the lender’s estimated credit risk to disburse the $50,000. We estimated the relative fair value of the Disbursement Option to be $7,608 as of the effective date of the transaction, which we recorded as a long-term asset on our balance sheet to be carried at that value until settlement.
Common Stock Consideration
Pursuant to the terms of the Securities Purchase Agreement, we issued 625,569 shares of our common stock to Deerfield at a price of $67.50 on January 5, 2018. Based on our closing stock price on January 5, 2018 , of $82.25 (Level 1 input), the fair value of this consideration was $51,452, which was recorded as additional paid-in capital in stockholders’ equity.
Deerfield Facility Amendment
On January 14, 2019, in conjunction with the Vatera Loan Agreement (discussed below),we entered into an amendment to the Deerfield Facility (the “Deerfield Facility Amendment”). The Deerfield Facility Amendment was a condition (among other conditions) to funding the Vatera Facility. The amendments set forth in the Deerfield Facility Amendment, except for specified amendments described below which were immediately effective, became effective upon the funding of the initial $75,000 disbursement under the Vatera Facility in February 2019.
The Deerfield Facility Amendment(i) modifies the definition of “change of control” under the Deerfield Facility to permit Vatera Healthcare Partners LLC ("VHP"), Vatera Investment Partners LLC ("VIP" and, together with VHP, "Vatera") and their respective affiliates to own 50% or more of the equity interests in the Company on a fully diluted basis; (ii) modifies the definition of “Indebtedness” under the Deerfield Facility to exclude certain specific payments under (x) the Agreement and


Plan of Merger, dated as of December 3, 2013, among the Medicines Company, Rempex Pharmaceuticals, Inc. and the other parties thereto and (y) the Purchase and Sale Agreement, dated as of November 28, 2017, between The Medicines Company and Melinta Therapeutics, Inc.; (iii) modifies the definition of “Permitted Indebtedness” under the Deerfield Facility to permit the payment of a certain amount of the interest on the Convertible Loans (described below) in cash; (iv) eliminates the requirement that the Company’s audited financial statements for the fiscal year ending December 31, 2018, be delivered without an explanatory paragraph expressing doubt as to the Company’s status as a going concern; (v) reduces the net sales covenant set forth in the Deerfield Facility for all periods after December 31, 2018, by 15%; (vi) requires the Company to hold a minimum cash balance of $40,000 through March 31, 2020, and thereafter $25,000 (the current requirement); (vii) increases the exit fee under the Deerfield Facility from 2% to 4%; and (viii) makes certain other technical modifications, including to accommodate the Vatera Facility and the Vatera Convertible Loans. 
Under the terms of the Deerfield Facility Amendment, $74,000 in principal amount of the loans under the Deerfield Facility (the “Deerfield Convertible Loan”) are convertible into shares of the Company’s common stock at Deerfield’s option at any time and evidenced by a convertible note (the “Deerfield Convertible Note”), subject to the 4.985% Ownership Cap as described below. The conversion price for the Deerfield Convertible Loan (the “Deerfield Convertible Loan Conversion Price”) is the greater of (i) $5.15, which is the minimum initial conversion price, subject to adjustment for stock splits (including a reverse split), stock combinations or similar transactions, and (ii) 95.0% of the lesser of (A) the closing price of the Company’s common stock on the trading day immediately preceding the conversion date and (B) the arithmetic average of the volume weighted average price of the Company’s common stock on each of the three trading days immediately preceding the conversion date. A lender’s ability to convert its portion of the Deerfield Convertible Loan is subject to a restriction that no lender will be permitted to convert such portion if it would result in such lender and its affiliates beneficially owning more than 4.985% of the total number of shares of the Company’s common stock outstanding (the “4.985% Ownership Cap”). However, that will not prevent a lender from periodically converting its portion of the loan up to the 4.985% Ownership Cap and then selling the shares such that up to $74,000 of the loan is converted over time. However, no lender may, without the approval of a majority of the Company’s board of directors, sell or dispose, in a pre-arranged single transaction or series of related transactions any shares of the Company’s common stock issued upon conversion of the Deerfield Convertible Loan to any person or group if such lender knows, in advance of effecting such transaction or series of related transactions, that such transferee holds, or after giving effect to such sale would hold, in excess of 15.0% of the issued and outstanding shares of the Company’s common stock. This 15.0% limitation does not apply if the sale is part of a tender offer or exchange offer made to all stockholders of the Company, or otherwise is in connection with a merger or other business combination transaction and also does not restrict the ability of any lender to transfer all or any portion of the Deerfield Convertible Note in accordance with its terms or to sell any shares of the Company’s common stock that have been issued upon conversion of the Deerfield Convertible Loan in open-market transactions.
The Deerfield Convertible Loan continues to be secured by the collateral and the liens granted pursuant to the Deerfield Facility and related loan documents.
The Deerfield Facility Amendment also amended the Deerfield Warrants to replace the 9.985% ownership cap set forth therein with a 4.985% Ownership Cap. As a result, the Company is subject to a restriction on its ability to satisfy interest due and payable through the issuance of the Company’s common stock to the extent that, upon such issuance, a holder, its affiliates and any “group” of which such holder is a member would beneficially own greater than 4.985% of the outstanding shares of the Company’s common stock.
The Deerfield Facility Amendment also provides that the Deerfield Registration Rights Agreement will cover the shares of the Company’s common stock issuable upon conversion of the $5,000 of convertible loans that will be deemed funded by Deerfield upon the initial funding under the Vatera Loan Agreement (See Vatera Loan Agreement below).
In addition to the funding of the initial $75,000 disbursement under the Vatera Facility, the effectiveness of the Deerfield Facility Amendment also was subject to the satisfaction (or waiver) of other customary conditions,
In addition, the Company is required at all times after the effective date of the Deerfield Facility Amendment to reserve and keep available a sufficient number of shares of common stock for the purpose of enabling the Company to issue all of the underlying shares of common stock issuable pursuant to the Deerfield Convertible Note.
Vatera Loan Agreement
On December 31, 2018, we entered into a Senior Subordinated Convertible Loan Agreement (the “Loan Agreement”) with Vatera for $135,000, and on January 14, 2019, we amended the Loan Agreement pursuant to which, among other things, Deerfield will be deemed to have funded an additional $5,000 of senior subordinated convertible loans (the "Convertible Loans") under the Vatera Loan Agreement as consideration for entering into the Deerfield Facility Amendment. No amount was drawn under the Loan Agreement as of December 31, 2018, as its effectiveness was contingent upon the satisfaction of several conditions.


The proceeds of the Convertible Loans will be used for working capital and other general corporate purposes. The Convertible Loans are senior unsecured obligations of the Company and are contractually subordinated to the obligations under the Deerfield Facility. Interest on the Convertible Loans is 5% per year and will be paid in arrears at the end of each fiscal quarter, with 50% of such interest paid in cash and the remaining 50% of such interest paid in kind by increasing the principal balance of the outstanding Convertible Loans in an amount equal thereto (which increase will bear interest once added to such principal balance). The maturity date of the Convertible Loans is January 6, 2025.
The Convertible Loans are convertible at Vatera's option into shares of convertible preferred stock of the Company at a conversion rate of 1.25 shares of preferred Stock per one thousand dollars. The preferred stock is further convertible at Vatera's option into shares of common stock of the Company at a rate of 100 shares of common stock per one share of preferred stock (the “Common Stock Conversion Rate”). At Vatera's option, the Convertible Loans are also directly convertible into common stock at an initial conversion rate equal to the Loan Conversion Rate multiplied by the Common Stock Conversion Rate. The preferred stock is non-participating, convertible preferred stock, with no dividend rights (other than to participate in common stock dividends on the Company’s common stock on an as-converted basis) or voting rights, and is senior to the common stock upon liquidation (with a liquidation preference equal to the Conversion Amount for the converted loans, as it may thereafter be adjusted pursuant to the Certificate of Designations (plus, if applicable, the amount of any declared but unpaid dividends on such shares of preferred stock)).
An exit fee (the “Interim Exit Fee”) of 1% of the aggregate amount of Convertible Loans funded under the Loan Facility is payable upon repayment or conversion of such funded amount (payable in preferred stock in the case of conversion). In addition, an exit fee (the “Final Exit Fee” and, together with the Interim Exit Fee, the “Exit Fee”) of 3% on the portion of the aggregate committed amount of Convertible Loans not drawn by the Company under the Loan Facility is payable on any repayment in full or conversion in full of the Convertible Loans (payable in preferred stock in the case of conversion).
Subject to the satisfaction (or waiver) of the conditions precedent set forth in the Loan Agreement, as amended, $75,000 of Convertible Loans may be drawn in a single draw on or prior to February 25, 2019, up to $25,000 of additional Convertible Loans may be drawn in a single draw after March 31, 2019, but on or prior to June 30, 2019, and up to $35,000 of additional Convertible Loans may be drawn in a single draw after June 30, 2019, but on or prior to July 10, 2019.
Among the conditions precedent, the Loan Agreement required the approval of the shareholders of Melinta of measures to ensure the number of authorized shares of common stock was sufficient to accommodate the potential conversion of the Convertible Loans and approval of the issuance of the Convertible Loans, in accordance with Nasdaq rules. On January 19, 2019, at a Special Meeting of the shareholders, the shareholders approved both a reverse stock split and an increase of the authorized shares, as well as the issuance of the Convertible Notes. Melinta drew the first tranche of $75,000 on February 22, 2019.
NOTE 5 – LICENSE AGREEMENTS
Eurofarma
In December 2014, we entered into a Series 3-B Convertible Preferred Stock Purchase Agreement (the “Stock Purchase Agreement) and concurrent Distribution Agreement (the “Distribution Agreement”) and Supply Agreement (the “Supply Agreement”) with Eurofarma Laboratorios S.A. (“Eurofarma”). The Distribution Agreement and Supply Agreement, collectively, are referred to as the “Commercial Agreements.” Pursuant to the Stock Purchase Agreement, we agreed to issue to Eurofarma 1,052,474 shares of Series 3-B Convertible Preferred Stock at the purchase price of $13.301985 per share. Melinta received the proceeds of $14,000 from this stock sale on January 6, 2015, and thus, the purchaser’s right to the shares of Series 3-B Convertible Preferred Stock began accruing on that date.
Under the Distribution Agreement, we appointed Eurofarma as our sole and exclusive distributor of Baxdela formulations in Brazil for use in various indications and Eurofarma agreed to commercialize Baxdela in Brazil for those indications. Eurofarma paid us $1,000 under the Distribution Agreement in January 2015. An additional $2,000 will be due upon the earlier of (i) approval of pricing to sell Baxdela in Brazil and (ii) Eurofarma’s first commercial sale of Baxdela in Brazil.
We recorded approximately $6,000 of Series 3-B Convertible Preferred Stock and approximately $9,008 of deferred revenue in January 2015, the period when the funding provided by these agreements was received and the Series 3-B Convertible Preferred Stock was issued. Under ASC 605, the deferred revenue would be recognized as product is delivered under the Commercial Agreements.
In August 2017, Melinta and Eurofarma entered into an amendment to the distribution and supply agreement to extend the licensed territory to substantially all of Central America and South America for upfront consideration of $1,000 (the “Eurofarma Amendment”) as well as other regulatory based milestones when and if they occur. Because the Eurofarma Amendment did not significantly change the nature of the deliverables under the arrangement, management concluded that it did not constitute a material modification of the original arrangement. As such, the $9,008 of deferred revenue recorded in


connection with the original agreement was appropriately deferred as of December 31, 2017, as we had not yet commenced commercial supply of Baxdela for the territory (Brazil).
In addition, because the Eurofarma Amendment was negotiated at arms’ length, it was deemed to be a separate arrangement from the original contract. The Eurofarma Amendment has multiple elements, including the delivery of the license and the exclusive supply of Baxdela with respect to the licensed territories. We concluded that there was no standalone value for the delivered license in the Eurofarma Amendment; accordingly, the consideration of $1,000 was recorded as deferred revenue. Under ASC 605, we would commence recognition of the revenue when we begin to deliver under the supply agreement.
We adopted Topic 606 on January 1, 2018, using the modified retrospective method applied to those contracts which were not complete as of January 1, 2018. In our adoption of Topic 606, we did not use practical expedients. In addition, we have considered the nature, amount and timing of our different revenue sources. Accordingly, the disaggregation of revenue from contracts with customers is reflected in different captions within the consolidated statement of operations. For our Eurofarma distribution arrangements under which revenue was previously deferred, revenue is now recognized at the point in time when the license is granted and has benefit to Eurofarma. These deferred revenues were originally expected to be recognized in future periods over the period of time over which we supplied Baxdela under the supply arrangement, which could have lasted up to 10 years or longer. The cumulative effect of the adoption was recognized as a decrease to opening accumulated deficit and a decrease to deferred revenue of $10,008 on January 1, 2018.
In October 2018, Eurofarma received approval to sell Baxdela in Argentina, and, accordingly, we recognized milestone revenue of $500. Because the approval of Baxdela in Argentina was the first approval of Baxdela outside of the United States, we also recorded a milestone payable to Wakunaga of $1,200.
Menarini
In February 2017, we executed a license agreement with A. Menarini Industrie Farmaceutiche Riunite S.r.l. (“Menarini”), a leading pharmaceutical company in Western Europe, under which we licensed rights to commercialize Baxdela in certain European, Asia-Pacific (except for Japan) and other rest-of-world territories (the “Agreement”). Pursuant to the terms and conditions of the Agreement, Menarini is entitled to exclusive rights to obtain product approval, procure supply from us and to commercialize Baxdela in the licensed territories, and we are entitled to receive regulatory, commercial and sales-based milestones as well as sales-based royalties on future net sales of Baxdela. In addition, we agreed with Menarini to share jointly in the future development cost of Baxdela. We received $19,905 upon the execution of the Agreement. On an ongoing basis, we receive reimbursement for 50% of the costs incurred for efforts to expand the applicable indications for Baxdela, and we may receive up to approximately €90,000 for regulatory, commercial and sales-based milestones as well as sales-based royalties on future sales of Baxdela.
At the time the agreement was entered into, we identified two deliverables: the delivery of the Baxdela license to Menarini and the right to a related sublicense. While we are also providing development services in connection with the expansion of applicable indications for Baxdela, we are under no obligation to perform such services. In the event that we perform development services related to other indications of Baxdela, Menarini has the option to obtain the results of such services by reimbursing us for 50% of our related costs, and we have determined that Menarini’s option is not priced at a significant and incremental discount. To the extent that we are reimbursed for development services, such amounts will be recognized separately from the initial license.
The agreement also states a separate Supply Agreement will be entered into at a future date under which Menarini will purchase Baxdela products from us until it can commence its own manufacturing. The pricing of Baxdela products under the Supply Agreement will not be at a significant, incremental discount. And, as noted above, we are entitled to receive up to approximately €90,000 for regulatory, commercial and sales-based milestones as well as royalties on future sales of Baxdela. We will recognize any future milestone payment received as revenue when Menarini achieves the milestone.
For immediate use of the license and right to the sublicense, Menarini is able to leverage the information contained within the Baxdela NDAs, which were filed by us with the FDA in October 2016 for ABSSSI, to prepare the regulatory filings in the licensed territories. And, while the FDA approval was received in June 2017, regulatory approval in many of the licensed territories is not contingent upon U.S. FDA approval. We recognized $19,905, the consideration that was fixed and determinable at the inception of the agreement, upon delivery of the license and right to the sublicense in the first quarter of 2017, and we will recognize revenue associated with the development services as they are provided to Menarini. In the year ended December 31, 2018, we recognized revenue totaling $11,325 related to the development services. Of that amount, we have received $7,316 in cash payments; the balance of $4,009 is recorded in Receivables as of December 31, 2018.
In connection with the Agreement, we paid Wakunaga Pharmaceutical Co. Ltd. (“Wakunaga”) $1,590, which was credited toward our future payment obligations under the license agreement we have with them for certain intellectual property underlying Baxdela. See Note 10 “Commitments and Contingencies” for further information on our license agreement with


Wakunaga.  This expense was recorded in the year ended December 31, 2017, in selling, general and administrative expense, which is where we record all expenses related to intellectual property that are generated by events and activities outside our research and development activities. In this case, the payment was triggered by the receipt of upfront licensing fees from Menarini.
In September 2018, we entered into a license agreement with Menarini, which grants to Menarini the exclusive right to market Vabomere, Orbactiv and Minocin for injection in 68 countries in Europe, Asia-Pacific and the Commonwealth of Independent States. The agreement includes an upfront license fee of €17,000 (which we received in October 2018), a milestone payment of €15,000 upon European marketing approval for Vabomere (which Menarini received in November 2018 and which we received in January 2019), potential regulatory- and sales-based milestones, and sales-based royalties. We determined that Menarini is a customer and we should account for the agreement under Topic 606. We identified one performance obligation under the agreement, the delivery of the licensed rights. In addition, we agreed to supply the products to Menarini at a cost that we concluded did not incorporate a significant incremental discount. We provided Menarini immediate access to the licensed rights and, as such, we allocated the upfront payment entirely to the license and recognized revenue at the point in time when the licensed rights were delivered, in September 2018. We will recognize any future contingent consideration, including milestone payments or royalty revenue, at such time when the milestones or royalties have been achieved.
NOTE 6 – FAIR VALUE MEASUREMENTS
The provisions of the accounting standard for fair value define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The transaction of selling an asset or transferring a liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant who holds the asset or owes the liability. Therefore, the objective of a fair value measurement is to determine the price that would be received when selling an asset or paid to transfer a liability (an exit price) at the measurement date. This standard classifies the inputs used to measure fair value into the following hierarchy:
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3—Unobservable inputs for the asset or liability.
The following table lists our assets and liabilities that are measured at fair value and the level of inputs used to measure their fair value at December 31, 2018 and 2017. The money market fund is included in cash & cash equivalents on the balance sheet; the other items are in the captioned line of the balance sheet.
 As of December 31, 2018
 Level 1 Level 2 Level 3 Total
Assets:       
Money market fund$32,883
 $—
 $—
 $32,883
Total assets at fair value$32,883
 $—
 $—
 $32,883
        
        
Liabilities:       
Current royalty contingent consideration from IDB acquisition$—
 $—
 $(1,006) $(1,006)
Long-term royalty contingent consideration from IDB acquisition—
 —
 (4,708) (4,708)
Warrant liability—
 —
 (38) (38)
Total liabilities at fair value$—
 $—
 $(5,752) $(5,752)


 As of December 31, 2017
 Level 1 Level 2 Level 3 Total
Assets:       
Money market fund$76,777
 $—
 $—
 $76,777
Total assets at fair value$76,777
 $—
 $—
 $76,777
The following tables summarize the changes in fair value of our Level 3 liabilities for the years ended December 31, 2018 and 2017:
Level 3 Liabilities Fair Value at December 31,
2017		 Accretion Recorded in interest Expense 
Change in Unrealized Gains
(Losses)
 (Issuances) Settlements, Net Net Transfer (In) Out of Level 3 Fair Value at December 31,
2018
Current royalty contingent consideration from IDB acquisition $—
 $(1,055) $(1,151) $1,200
 $—
 $(1,006)
Long-term royalty contingent consideration from IDB acquisition $—
 $(5,489) $11,468
 $(10,687) $—
 $(4,708)
Contingent milestone payment $—
 (4,015) (1,500) (24,485) 30,000
 $—
Warrant liability $—
 $—
 $33,225
 $(33,263) $—
 $(38)
Total liabilities at fair value $—
 $(10,559) $42,042
 $(67,235) $30,000
 $(5,752)
             
Level 3 Liabilities Fair Value at December 31,
2016		 Accretion Recorded in interest Expense 
Change in Unrealized Gains
(Losses)
 Reclassification to APIC Net Transfer (In) Out of Level 3 Fair Value at December 31,
2017
Preferred stock warrants $(674) $—
 $335
 $339
 $—
 $—
Total liabilities at fair value $(674) $—
 $335
 $339
 $—
 $—
             
NOTE 7 – SHAREHOLDERS' EQUITY
At December 31, 2018, our certificate of incorporation, as amended, authorizes us to issue up to 80,000,000 shares of $0.001 par value common stock and 5,000,000 shares of $0.001 par value preferred stock. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of our shareholders. Holders of our common stock are not entitled to receive dividends, unless declared by the board of directors. There have been no dividends declared to date. We have reserved and keep available out of our authorized but unissued common stock a sufficient number of shares of common stock to execute the conversion of all issued and outstanding warrants and stock options. On January 19, 2019, our shareholders voted to approve a reverse stock split and on February 20, 2019, our board authorized a one-for-five reverse split, which was effective on February 22, 2019. Earnings per share and all share information in this Annual Report on Form 10-K have been adjusted to reflect the split.
On January 5, 2018, we issued 662,740 shares of common stock to Medicines as part of the purchase price of IDB (see Note 14 for further discussion). We also issued 625,569 shares of common stock and warrants to purchase 758,573 shares of common stock to Deerfield as part of the Deerfield Facility (see Note 4 for further discussion). In conjunction with the IDB transaction, we received $40,000 in additional equity financing from existing and new investors, in exchange for which we issued 576,992 shares of common stock. Further, in May 2018, we issued 4,928,000 shares of common stock to new and existing investors in a follow-on public offering for proceeds, net of issuance costs, of $115,273. And, during the year ended December 31, 2018, we issued 10,920 shares of common stock for restricted stock units that vested in the period.
Warrants
We have warrants to purchase our common stock outstanding at December 31, 2018, as follows: 


Issued 
Warrants
Outstanding
 Exercise Price Expiration
February 2012 8
 $86,670.35
 February 2019
December 2014 6,757
 $166.50
 December 2024
December 2015 1,351
 $166.50
 December 2024
January 2018 758,573
 $82.50
 January 2025
Total 766,689
    

NOTE 8 – STOCK-BASED COMPENSATION
2006 Stock Plan—Upon closing the merger with Cempra, Inc. (“Cempra”) on November 3, 2017, Melinta assumedthe 2006 Stock Plan, which hadbeenadopted by Cempra 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 December 31, 2018, there were options for an aggregate of 2,344 shares issued and outstanding under the 2006 Plan. During the period January 1, 2018, to December 31, 2018, 11,328 options were forfeited; there was no other activity during the period.
2011 Equity Incentive Plan—Upon closing the merger with Cempra on November 3, 2017, Melinta assumed the 2011 Equity Incentive Plan, which had been adopted by Cempra in October 2011 (the “2011 Incentive Plan”). On January 1, 2018, under the evergreen feature of the 2011 Incentive Plan, the authorized shares under the 2011 Incentive Plan increased by 175,991 to 523,889. In April 2018, we awarded 321,193 shares to employees with an exercise price of $37.25 and a grant date fair value of $27.05. On June 12, 2018, the shareholders approved the adoption of the 2018 Stock Incentive Plan (the “2018 Plan”) (see below). With the adoption of the 2018 Plan, the 2011 Incentive Plan was frozen. At December 31, 2018, there were 304,883 shares outstanding under the 2011 Incentive Plan and no shares available to award as either options or restricted stock units.
Private Melinta 2011 Equity Incentive Plan—In November 2011, the Melinta board of directors adopted the 2011 Equity Incentive Plan (“Melinta 2011 Plan”). The Melinta 2011 Plan provided for the granting of incentive stock options, nonqualified options, stock grants, and stock-based awards to employees, directors, and consultants of the Company. On November 3, 2017, in conjunction with the merger with Cempra, all outstanding options under the Melinta 2011 Plan converted to 146,499 options to purchase common shares of Cempra (re-named Melinta in the merger), the Melinta 2011 Plan was frozen and authorized shares under the Melinta 2011 Plan were reduced to 146,499. Any grants under the Melinta 2011 Plan that expire or are forfeited will reduce the authorized shares under the plan. As of December 31, 2018, we had 97,706 shares of common stock reserved under the Melinta 2011 Plan for issuance upon exercise of stock options.
2018 Stock Incentive Plan—OnApril 20, 2018, we granted stock options to purchase 173,053 shares of common stock under the 2018 Plan at an exercise price of $37.25 and an average grant date fair value of $27.65, as measured on June 12, 2018, the date the grants received shareholder approval. The grants were subject to, and contingent upon, shareholder approval of the 2018 Plan at the annual meeting in June 2018. On June 12, 2018, the shareholders approved the 2018 Plan, which was initially authorized with 400,000 shares. Under the evergreen feature of the 2018 Plan, these authorized shares may be increased on January 1 of each of the first three years following the year in which the 2018 Plan was adopted by the lesser of (i) 4% of the outstanding shares of the Company on the last day of the immediately preceding fiscal year, or (ii) such number of shares determined by the compensation committee of the board of directors. Upon approval of the 2018 Plan in June 2018, the fair value of the stock options granted on April 20, 2018, was established at $28.71, which is the basis for the expense recognition. An additional 128,920 options were granted at various dates between May 2018 and December 2018, with a weighted-average exercise price of $26.80 and a weighted-average fair value of $18.35.
The 2018 Plan replaces the 2011 Incentive Plan, and no further equity awards will be granted from the 2011 Incentive Plan, which has been frozen. Any shares that are undelivered as a result of outstanding awards under the 2011 Incentive Plan expiring or being canceled, forfeited or settled in cash without the delivery of the full number of shares to which the award related will become available for grant under the 2018 Plan. As of December 31, 2018, there were 235,323 shares available for awards under the 2018 Plan.
In connection with his appointment as interim Chief Executive Officer in October 2018, Mr. Johnson received an option to purchase 30,000 common shares at a strike price of $14.00 and a grant date fair value of $4.75, and a grant of 10,000 restricted stock units. The options will vest ratably over 12 months, and the restricted stock units will cliff vest after 12 months.
On February 19, 2019, the shareholders of Melinta approved a one-for-five reverse stock split, effective on February 22, 2019, which had the effect of reducing all existing awards by a factor of five and increasing all strike prices by a factor of five. All share and per share amounts in this Annual Report on Form 10-K have been adjusted to reflect this reverse stock split. In


addition, they approved the addition of 400,000 shares to the authorized shares for the 2018 Plan for grants to our chief executive officer and the addition of 600,000 shares for awards for executive management and other employees.
Inducement Grants—On November 3, 2017, Melinta granted Daniel Wechsler, our former President and Chief Executive Officer, an option to purchase 110,196 shares of common stock, at a strike price of $58.25 per share and a grant date fair value of $41.80, and 36,732 restricted stock units, pursuant to the option and restricted stock unit inducement agreements made with Mr. Wechsler. Both grants were to vest over four years, 25% after one year and then ratably monthly over the remaining 36 months. In October 2018, our board of directors appointed John H. Johnson as Interim Chief Executive Officer to succeed Daniel Wechsler, who stepped down from his role as President, CEO and director to pursue other opportunities. In connection therewith, Mr. Wechsler forfeited all of his inducement grant stock options and all but 9,183 of his restricted stock units, which vested on December 31, 2018.
On September 21, 2018, Melinta granted Peter J. Milligan, our recently appointed Chief Financial Officer, an option to purchase 74,000 shares of common stock, at a strike price of $22.50 per share and a grant date fair value of $16.55, pursuant to the option inducement agreement made with Mr. Milligan. The grant will vest over four years, 25% after one year and then ratably monthly over the remaining 36 months.
Stock Option Activity—The exercise price of each stock option issued under all of the stock plans is specified by the board of directors at the time of grant, but cannot be less than 100% of the fair market value of the stock on the grant date. In addition, the vesting period is determined by the board of directors at the time of the grant and specified in the applicable option agreement. Our practice is to issue new shares upon the exercise of options.
All options granted under either the 2018 Plan, the 2011 Incentive Plan or the Melinta 2011 Plan during the years ended December 31, 2018 and 2017, were granted with exercise prices not less than the fair market value of our common stock on the grant date, as approved by our board of directors.
A summary of the stock option activity under the 2006 Plan is presented in the table below:
 
Number of
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Contractual
Term (in years)
 
Aggregate
Intrinsic
Value
Outstanding - November 3, 201713,672
 $54.00
 1.2  
Outstanding - December 31, 201713,672
 54.00
 1.1 $342
Forfeited(11,328) $54.41
    
Outstanding - December 31, 20182,344
 $52.25
 1.4 $—
Exercisable - December 31, 20182,344
 $52.25
 1.4 $—
Vested and expected to vest at December 31, 20182,344
 $52.25
 1.4 $—
A summary of the stock-option activity under the 2011 Incentive Plan is presented in the table below:
 
Number of
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Contractual
Term (in years)
 
Aggregate
Intrinsic
Value
Outstanding - November 3, 2017149,060
 $300.10
 6.2  
Exercised(172) 78.15
    
Forfeited(1,289) 140.00
    
Expired(3,056) 322.05
    
Outstanding - December 31, 2017144,543
 $301.30
 3.9 $113
Granted321,193
 37.25
    
Exercised(40) 78.05
    
Forfeited(78,513) 46.80
    
Expired(89,660) 312.85
    
Outstanding - December 31, 2018297,523
 $79.95
 8.8 $—
Exercisable - December 31, 201851,328
 $278.30
 6.2 $—
Vested and expected to vest at December 31, 2018297,521
 $79.95
 8.8 $—


A summary of the stock-option activity under the Melinta 2011 Plan is presented in the table below:
 
Number of
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Contractual
Term (in years)
 
Aggregate
Intrinsic
Value
Outstanding - December 31, 20154,362,836
 $3.00
 8.5  
Granted1,240,499
 3.55
    
Exercised(31,685) 2.05
    
Canceled/expired(331,209) 3.85
    
Outstanding - December 31, 20165,240,441
 3.10
 7.9  
Granted1,830,199
 2.40
    
Exercised(26,366) 3.60
    
Canceled/expired(797,571) 2.55
    
Conversion(6,102,901)(2)     
Outstanding - December 31, 2017143,802
 $129.40
 7.9  
Exercised(25,480)(1)135.05
(1)   
Canceled/expired(20,616)(1)151.90
(1)   
Outstanding - December 31, 201897,706
(1)$123.15
(1)5.1 $—
Exercisable - December 31, 201881,419
(1)$124.15
(1)4.5 $—
Vested and expected to vest at December 31, 201897,703
(1)$123.15
(1)5.1 $—
(1) Amounts are after conversion
(2) Options outstanding on November 3, 2017, were converted to options to purchase common shares of Cempra (re-named Melinta in the merger) at a 0.0229 conversion ratio
The weighted-average grant-date per share fair value of options granted under the Melinta 2011 Plan during the years ended December 31, 2018, 2017 and 2016 was $0.00, $1.30, and $2.15, respectively ($0.00, $37.00 and $31.60, respectively, after conversion and re-valuation on November 3, 2017). The total fair value of options that vested under the Melinta 2011 Plan during the years ended December 31, 2018, 2017 and 2016, was approximately $690, $2,900 and $2,300, respectively. The intrinsic value of options exercised in 2018 was not material.
A summary of the stock-option activity under the 2018 Plan is presented in the table below:
 
Number of
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Contractual
Term (in years)
 
Aggregate
Intrinsic
Value
Outstanding - December 31, 2017—
      
Granted301,973
 32.80
    
Canceled/expired(76,650) 37.41
    
Outstanding - December 31, 2018225,323
 $31.21
 9.5 $—
Exercisable - December 31, 201814,402
 $29.20
 8.9 $—
Vested and expected to vest at December 31, 2018225,323
 $31.21
 9.5 $—
The weighted-average grant-date per share fair value of options granted under the 2018 Plan during the years ended December 31, 2018, 2017 and 2016 was $27.65, $0.00 and $0.00, respectively. The total fair value of options that vested under the 2018 Plan during the years ended December 31, 2018, 2017 and 2016, was approximately $285, $0 and $0, respectively.
The following table summarizes certain information about all options outstanding as of December 31, 2018:


  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)
$10.60 - $25.00 147,720
 9.8 5,000
 9.8
$25.01 - $50.00 402,896
 9.3 18,150
 8.5
$50.01 - $75.00 8,004
 5.7 7,504
 5.6
$75.01 - $100.00 31,826
 4.4 28,639
 4.0
$100.01 - $125.00 31,569
 6.8 17,697
 5.6
$125.01 - $1,085.75 74,875
 5.0 72,188
 4.9
  696,890
   149,178
  
Stock-Based Compensation—We use a Black-Scholes option-pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes option-pricing model requires the use of the subjective assumptions in order to determine the fair value of stock-based awards.
On November 3, 2017, in conjunction with the merger with Cempra, all outstanding options under the Melinta 2011 Plan converted to 732,499 options to purchase common shares of Cempra (re-named Melinta in the merger).  For accounting purposes, this was treated as a modification of the awards, generating a remeasurement of the estimated fair value of all vested and unvested Melinta 2011 Plan outstanding stock awards on the day of the stock conversion. After taking into consideration the terms of the Melinta 2011 Plan, the total remeasured estimated fair value of $2,362 on November 3, 2017, for the vested stock options was immediately recorded as additional stock-based compensation expense in the fourth quarter of 2017, since the options were fully vested and had no future service requirement. The remeasured fair value of the unvested options of $2,476 is being recognized as expense over the remaining service period of each grant.  
On November 3, 2017, all outstanding stock options issued under the assumed 2006 Plan and 2011 Incentive Plan were remeasured to estimated fair value on the day assumed by Melinta. The estimated fair value of $2,626 on the day of acquisition of the acquired vested stock options related to prior service periods was recorded as additional purchase price for the acquisition of Cempra (see Note 14). The remeasured fair values will be used to record stock-based compensation expense for the unvested shares over the remaining service period for each grant.  
Due to the different remaining contractual terms and remaining vesting periods of outstanding stock options on the day of merger from both the assumed 2011 Incentive Plan and Melinta 2011 Plan, a range of Black-Scholes assumptions were used to estimate the fair value on November 3, 2017.
The range of assumptions used to value stock option grants for all plans—plus the vested stock option grants under the Melinta 2011 Plan which were remeasured on the merger date—were as follows:
 2018 2017 2016
Risk-free interest rate2.6% - 3.1%
 1.8% - 2.1%
 1.5%
Weighted-average volatility84.8% - 85.6%
 87.5% - 108.1%
 67.1%
Expected term - employee awards (in years)1.0 - 6.1
 3.1 - 6.1
 6.0
Forfeiture rate—% —% —%
Dividend yield0.00% 0.00% 0.00%
The range of assumptions used calculate the estimated value of the acquire vested stock options under the 2006 Plan and the 2011 Equity Plan that was recorded as additional purchase price for the acquisition of Cempra at the merger date were as follows (the wide range of volatility was due to the various remaining expected terms for the options, some of which were less than one year):
November 3, 2017
Risk-free interest rate1.2% - 2.0%
Weighted-average volatility51.0% - 147.4%
Expected term - employee awards (in years)0.2-5.6
Forfeiture rate0.00%
Dividend yield0.00%


Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the option’s expected term.
Weighted-average Volatility—After the merger with Cempra, all outstanding options are to purchase common shares of Cempra (re-named Melinta in the merger). Since these shares are publicly traded, we primarily used the historical volatility information for the publicly traded shares. Prior to the merger, the Company had been privately held since inception. Therefore, there was no specific historical or implied volatility information available. Accordingly, prior to the merger, we determine volatility based on an average of reported volatility of selected peer companies in the pharmaceutical and biotechnology industry in a similar stage of development.
Expected Term—Our historical exercise behavior for previous grants does not provide a reasonable estimate for future exercise activity for employees who have been awarded stock options in the past three years. Therefore, the average expected term was calculated using the simplified method, as defined by GAAP, for estimating the expected term.
Forfeiture Rate—On January 1, 2016, Melinta adopted the guidance in ASU 2016-9, Improvements to Employee Share-Based Payment Accounting, and changed its accounting policy for stock-based compensation to recognize stock option forfeitures as they occur rather than estimating an expected amount of forfeitures.  
Expected Dividend Yield—We have never declared or paid any cash dividends and do not expect to pay any cash dividends in the foreseeable future.
In 2016 and 2017, Cempra issued time-vested restricted stock units (RSUs) from the 2011 Incentive Plan to certain employees, subject to continuous service with us at the vesting time. When vested, the grants represented the right to be issued the number of shares of our common stock that is equal to the number of RSUs granted. On November 3, 2017, all outstanding RSUs issued under the acquired 2011 Incentive Plan were remeasured to fair value on the day acquired by Melinta. The estimated fair value of $834 on day of acquisition related to the prior service periods for unvested RSUs was recorded as additional purchase price for the acquisition of Cempra (see Note 3). After the merger, certain Cempra employees were terminated. Under their severance agreements and equity award clauses, the vesting of 16,400 RSUs was accelerated on the date of termination. In accordance with ASC 718, $573 of additional compensation expense was recognized in the fourth quarter of 2018, with the accelerated vesting. 12,400 common shares under the accelerated awards were issued in 2018, and 4,000 common shares will be issued in 2019 for the remaining accelerated awards.
A summary of the activity related to our RSUs (except for the inducement grant discussed above) is as follows:
 
Number of
Restricted
Stock Units
Outstanding
 
Weighted
Average
Fair Value
Balance - November 3, 201740,400
 $58.25
Vested and issued(12,400) 58.25
Forfeited(600) 58.25
Balance - December 31, 201727,400
 58.25
Granted10,000
 14.00
Vested and issued(10,920) 58.25
Forfeited(5,120) 58.25
Balance - December 31, 201821,360
 32.75
Vested at December 31, 20184,000
 $58.25
Stock-based compensation reported in our statements of operations was as follows:
 Year Ended December 31,
 2018 2017 2016
Cost of goods sold$48
 $—
 $—
Research and development750
 651
 1,169
General and administrative2,667
 5,799
 1,346
Total$3,465
 $6,450
 $2,515
Stock-based compensation expense for our manufacturing-related employees of $209 was capitalized in inventory as a component of overhead expense and recognized as cost of goods sold based on inventory turns. No related tax benefits


associated with stock-based compensation expense have been recognized and no related tax benefits have been realized from the exercise of stock options due to our net operating loss carryforwards.
Total aggregate unrecognized stock-based compensation cost under all the plans and inducement grants as of December 31, 2018 and the Melinta 2011 Plan on December 31, 2017, was $9,783 and $4,703, respectively. The unrecognized stock-based compensation as of December 31, 2018, will be recognized over a weighted-average period of 3.4 years.
NOTE 9 – INCOME TAXES
The Company utilizes the liability method of accounting for income taxes and deferred taxes which are determined based on the differences between the financial statements and tax basis of assets and liabilities given the provisions of the enacted tax laws. In assessing the realizability of the deferred tax assets, the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized through the generation of future taxable income. In making this determination, the Company assessed all of the evidence available at the time including recent earnings, forecasted income projections, and historical financial performance. The Company has fully reserved deferred tax assets as a result of this assessment.
The income tax expenses (benefits) from continuing operations are summarized as follows:
 2018 2017
Federal:   
Current$—
 $—
Deferred—
 —
 —
 —
State:   
Current(139) (103)
Deferred—
 —
 (139) (103)
Total$(139) $(103)
The provision for income taxes differs from income taxes computed at the federal statutory tax rates for the years ended December 31, 2018 and 2017, due to the following items (presented as benefits/(expenses)):
 2018 2017
Federal Statutory rate21.0 % 34.0 %
State income taxes, net of federal income tax benefit17.7
 0.2
Bargain purchase gain—
 15.9
Transaction cost—
 (2.3)
Interest expense—
 (2.3)
Impact of change in fair value of tranche assets and liabilities4.4
 2.0
Other permanent differences(0.2) (2.0)
Federal tax rate change—
 (75.3)
Change in valuation allowance(14.1) 28.0
Research and development tax credits1.2
 3.3
Prior year adjustment(1.0) —
Section 382 adjustment(28.9) —
Other—
 (1.3)
Effective income tax rate0.1 % 0.2 %
On November 3, 2017, we completed our tax-free merger with Cempra. To reflect the opening balance sheet deferred tax assets and liabilities of Cempra, we recorded a net deferred tax asset of $107,688 offset with valuation allowance of $107,688. (See Note 3 for further information regarding the merger.) During the fourth quarter, we completed a Section 382 study and reduced the opening balance sheet deferred tax assets and liabilities by $101,195 which was offset with a valuation allowance of $101,195 to record the reduction of the tax attributes from the section 382 analysis.


On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but not limited to, a corporate tax decrease from 34% to 21% effective for tax years beginning after December 31, 2017, limitation of the business interest deduction, modification of the net operating loss deduction, reduction of the business tax credit for qualified clinical testing expenses for certain drugs for rare diseases or conditions, and acceleration of depreciation for certain assets placed into service after September 27, 2017.  
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record and provisional estimate in the financial statement.  
During the fourth quarter, we completed accounting for the impact of the Act, and, as a result of purchase accounting adjustments, have recorded $83,007 as an additional income tax expense offset with $83,007 tax benefit from the change in the valuation allowance. The $83,007 of income tax expense included an adjustment of $82,013 related to the reduction of certain tax attributes as a result of the Section 382 analysis completed in 2018.  
The tax effects of the temporary differences and net operating losses that give rise to significant portions of deferred tax assets are as follows (in thousands):
 2018 2017
Deferred tax assets:   
Net operating loss carryforwards$94,596
 $172,481
Tax credit carryforwards7,409
 24,924
Deferred revenue—
 3,364
Fixed assets677
 593
Stock compensation expense2,195
 2,503
Intangibles12,026
 3,978
Interest expense carryforward7,617
 —
Others4,273
 2,151
Total deferred tax assets128,793
 209,994
Less valuation allowance(128,793) (209,994)
Net deferred tax assets$—
 $—
We have established a full valuation allowance because we do not believe that it is more likely than not that we will generate sufficient taxable income to realize the deferred tax assets nor recognize any benefits from our net operating losses, tax credits, and other deferred tax assets. For the year ended December 31, 2018, our valuation allowance increased by $22,443, excluding the deferred tax asset valuation allowance of $101,195 associated with the Cempra opening balance sheet adjustment and $2,449 from the adoption of Topic 606.
We have determined that our ability to utilize our previously generated federal net operating losses and federal tax credits would be limited under Sections 382 and 383 of the Internal Revenue Code (“Section 382”). The limitations under Section 382 apply if an ownership change, as defined by Section 382, occurs. Generally, an ownership change occurs when certain shareholders increase their aggregated ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically three years). We determined that certain deferred tax assets will be subject to Section 382 limitations due to previous ownership changes, specifically associated with our recapitalization in 2012 and from the November 2017 tax-free merger with Cempra. During the fourth quarter of 2018, we adjusted total Cempra deferred tax assets by $101,195 and recorded a corresponding valuation allowance of $101,195 as a result of Section 382 limitations pursuant to the study performed. Also during the fourth quarter of 2018, we adjusted total Melinta deferred tax assets by $26,126 and recorded a corresponding valuation allowance of $26,126 as a result of Section 382 limitations pursuant to the study performed.
As of December 31, 2018, we had approximately $267,597 of gross Federal net operating loss carryforwards and $7,409 in tax credit carryforwards that are available to offset taxable income in the future. The tax credit carryforwards will begin to expire in 2037. The federal net operating loss carryforwards begin to expire in 2020. State net operating loss carryforwards and tax credit carryforwards, on a tax-effected basis and net of federal tax benefits, are $38,401 and $5,010, respectively. The state net operating loss carryforwards begin to expire in 2020.


The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates.  With few exceptions, the major jurisdictions subject to examination by the relevant tax authorities, and open tax years, stated as the Company's fiscal years, are as follows:
JurisdictionOpen Tax Years
U.S. Federal2015 - 2017
U.S. State2014 - 2017
ASC 740, Income Taxes, prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized.
As of December 31, 2018, we did not have any unrecognized tax benefits. To the extent penalties and interest would be assessed on any underpayment of income tax, our policy is that such amounts would be accrued and classified as a component of income tax expense in the financial statements. To date, we have not recorded any such interest or penalties.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Operating Leases
We are a lessee under lease agreements, as follows:
a lease for our principal research facility at 300 George Street, New Haven, Connecticut, that expires in August 2021;
a lease for our administrative facility at 300 Tri-State International, Lincolnshire, Illinois, that expires in March 2022;
A lease for our administrative office at 44 Whippany Road, Morristown, New Jersey, that expires in February 2024; and
three leases for our office facilities at 6320 Quadrangle Drive, Chapel Hill, North Carolina, the last of which expires in March 2021. One of the spaces under lease in Chapel Hill has been sub-leased through the termination date of the lease, March 2021.
The terms of the Connecticut lease provide for even rental payments over the life of the lease; the terms of the other leases provide for rental payments on a graduated scale. We are required to pay a proportionate share of building operating expenses for all locations. We recognize rent expense on a straight-line basis over the noncancelable lease term of each lease.
We also lease vehicles for many of our field-based employees, principally sales representatives. At December 31, 2018, we had approximately 210 leased vehicles.
Rent expense under operating leases for facilities, vehicles and equipment was $1,747, $907 and $690 for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, minimum operating lease payments under noncancelable leases (as amended) were as follows:
 Amounts
2019$2,796
20202,710
20212,327
20221,233
2023 and thereafter886
Total future minimum payments *$9,952
*Minimum payments have not been reduced by minimum sublease rentals of $271 due in the future under noncancelable subleases
In May 2017, we entered into a master fleet agreement with Automotive Rentals, Inc. (“ARI”) under which we lease vehicles for certain field-based employees. Under the master fleet agreement, each vehicle is leased under a separate lease agreement for a term of up to four years. All other terms of the individual leases are essentially identical. In connection with the fleet agreement, in June 2017, we issued to ARI a $200 letter of credit, which auto-renews annually. As of December 31, 2018, we had vehicles under lease with annual minimum lease payments totaling approximately $1,091. We have determined that these vehicle leases are operating leases under current U. S. GAAP because (i) we have no right to purchase the vehicles at any time, (ii) the future minimum lease payments are less than 90% of the fair value of the vehicles at the time of lease and (iii) our


use of the vehicles does not exceed 75% of the vehicles useful lives. Accordingly, we are recognizing the lease payments as expense as incurred.
License Agreements with Future Payments
We are parties to several license agreements, under which we will be required to make payments based on the achievement of agreed-upon milestones or circumstances. As of December 31, 2018, we were not obligated to make any of the future payments discussed below.
Yale University. In December 2001, we entered into an exclusive license agreement with Yale University (“Yale”) under which we obtained an exclusive right to use certain technology related to the high-resolution X-ray crystal structure of a 50S ribosome through the term of Yale’s patent rights on such technology. In return, we issued 61 shares of our common stock. The fair value of the shares of $35 was charged to operations in 2001. In September 2004 and December 2009, the license agreement was amended to include additional 50S ribosome technology and 70S ribosome technology owned by Yale, and we paid Yale license fees of $15 upon each amendment. We use the licensed technology in our ESKAPE pathogen program. We are obligated to certain diligence requirements and have the right to grant sublicenses to third parties, although Yale is entitled to a portion of payments received from the sublicensees. Under the license agreement, we may be required to make payments to Yale of upto $900 upon achieving certain regulatory approval milestones for each of the first three products developed under the license. In accordance with the license agreement, Yale is also entitled to receive percentage royalty payments in the single digits based on net sales, if any, of products using the subject matter of the license. Upon the occurrence of certain events, Yale has the right to terminate the license agreement upon 60 days’ written notice to us, should we fail to make a material payment under the agreement, commit a material breach of the agreement, fail to carry insurance required by the agreement, cease to carry on our business, or become subject to bankruptcy or a similar insolvency event. We have the right to terminate the license agreement upon 90 days’ written notice to Yale. Unless earlier terminated, the agreement will continue in effect until the last of the licensed patents expires.
Medical Research Council. In March 2005, we entered into an exclusive license agreement with the Medical Research Council (“MRC”) under which we acquired rights to certain patent applications and other intellectual property related to the high-resolution X-ray crystal structure of a 30S ribosome through the term of the MRC’s patent rights on such technology. Upon entering into the license agreement, we paid the MRC a license fee of $10. We use the licensed technology in our ESKAPE pathogen program. We are obligated to certain diligence requirements and have the right to grant sublicenses to third parties. Under the license agreement, we may be required to pay the MRC an aggregate of $610 upon the achievement of specified development and regulatory approval milestones for a pharmaceutical product and $100 for a diagnostic product. In accordance with the license agreement, the MRC is also entitled to receive percentage royalty payments in the single digits based on net sales, if any, of licensed pharmaceutical and diagnostic products. We and the MRC have the right to terminate the license agreement upon 30 days’ written notice if the other party commits a material breach of the agreement or an insolvency event occurs with respect to the other party, and the MRC may terminate the agreement if we challenge the protection of the licensed patent rights and know-how. Unless earlier terminated, the term of the agreement continues until the expiration of the last to expire claim of the licensed patent rights on a country-by-country basis.
Wakunaga Pharmaceutical Co., Ltd. In May 2006, we and Wakunaga executed a license agreement under which we acquired rights to certain patents, patent applications, and other intellectual property related to Baxdela. To date, we have made $11,600 of nonrefundable payments to Wakunaga. Under the license, we have the right to grant sublicenses, although Wakunaga is entitled to a substantial portion of non-royalty income received from a sublicense of the Wakunaga technology. Pursuant to an amendment of the license agreement in November 2012, and later amended in May 2017, the future payments under the license agreement were adjusted. The license agreement, as amended, provided for potential additional future payments of up to $9,000 to Wakunaga upon the achievement of specified development and regulatory milestones, in addition to potential future sales milestone payments, and tiered royalty payments in the single digits on net sales, if any, of the licensed product. Of the $9,000, we paid Wakunaga $1,590 in March 2017 in connection with our license and collaboration agreement with Menarini (see Note 5) and we owed $6,000 in June 2017 in connection with the FDA approval of Baxdela, of which we paid $4,000 in 2017; the remaining $2,000 was paid in June 2018. In addition, we have paid Wakunaga $200 in connection with licensing and milestone payments we received from Eurofarma. Wakunaga has certain termination rights, should we fail to perform our obligations under the agreement, we become subject to bankruptcy or similar events, or our business is transferred or sold and the successor requires us to terminate a substantial part of our development activities under the agreement. We have the right to terminate the license for cause upon six months’ written notice to Wakunaga. Unless earlier terminated, the license agreement will continue in effect on a country-by-country and product‑by‑product basis until we is no longer required to pay any royalties, which is the later of the date the manufacture, use or sale of a licensed product in a country is no longer covered by a valid patent claim, or a specified number of years following the first commercial sale in such country. The remaining $1,210 of license payments became due when Eurofarma received approval to market Baxdela in Argentina. The payment has been recorded in accrued liabilities as of December 31, 2018, and paid in the first quarter of 2019.


CyDex Pharmaceuticals, Inc. In November 2010, we entered into a license and supply agreement with CyDex Pharmaceuticals, Inc. (now a wholly-owned subsidiary of Ligand Pharmaceuticals Incorporated, both hereafter referred to as Ligand) under which we obtained an exclusive right, under certain patents and patent applications, to use Ligand’s beta sulfobutyl cyclodextrin, Captisol, in our development and commercialization of a Baxdela product. In addition, under the terms of the license agreement, we obtained a nonexclusive license to Ligand’s Captisol data package. Upon entering into the license agreement, we made a nonrefundable payment of $300 to Ligand. In January 2011, May 2013, October 2016 and July 2017, we made milestone payments to Ligand under the agreement of $150, $500, $1,500 and $1,500, respectively. We are obligated to certain diligence requirements and have the right to grant sublicenses to third parties. The license agreement provides for payments of up to $600 to Ligand upon the achievement of future development and commercial milestones, and obligations to make percentage royalty payments in the single digits based on net sales, if any, of the licensed product. Additionally, we have agreed to purchase our requirements of Captisol from Ligand for use in a Baxdela product, with pricing established pursuant to a tiered pricing schedule. Ligand has certain rights to terminate the agreement following a cure period, should we fail to perform our obligations under the agreement. In addition, Ligand may terminate the agreement immediately if we fail to pay milestones or royalties due under the agreement or if we become subject to bankruptcy or similar events. We have the right to terminate the license upon 90 days’ written notice to Ligand. Unless earlier terminated, the agreement will continue in effect until the expiration of our obligation to pay royalties. Such obligation expires, on a country-by-country basis, over a specified number of years following the expiration date of the last valid claim of a licensed product in the country of sale; if there has never been a valid claim of a licensed product in the country of sale, then such number of years after the first sale of the licensed product in such country.
Radezolid. In December 2014, we entered into a license agreement with a contract research organization (“CRO”) for the development and commercialization of Radezolid in topical formulations for a variety of dermatological indications. Melinta retains the option to co-develop or fully regain rights to Radezolid upon completion of specific development milestones. In March 2016 and February 2017, we paid milestones totaling $900 and $450, respectively, to the CRO under this license agreement, which was recorded as an expense when paid. In addition, in 2017 we agreed to reimburse the CRO up to $250 of certain development expenses, of which we have paid $154 through December 31, 2018.
Commitments Assumed in the Merger with Cempra, Inc.
Optimer Pharmaceuticals, Inc. (now owned by Merck). In March 2006, Cempra entered into a Collaborative Research and Development and License Agreement with Optimer, a biotechnology company focused on discovering, developing and commercializing innovative anti-infective products. Under this agreement, we obtained access to a library of over 500 macrolide compounds, including solithromycin. Optimer was acquired by Cubist in October 2013, which in turn was acquired by Merck in 2015.  Optimer granted us an exclusive license to these compounds in all countries of the world except the member-nations of the Association of Southeast Asian Nations (“ASEAN”)—which are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), the Philippines, Singapore, Thailand and Vietnam—with the right to sublicense, under Optimer’s patents and know-how related to certain macrolide and ketolide antibiotics and related proprietary technology. The exclusivity of our license is potentially subject to the U.S. government’s right to obtain a non-exclusive, irrevocable, royalty-free, paid-up right to practice and have practiced certain patents worldwide. As partial consideration for granting us such license, we issued shares of our common stock to Optimer. We also have an obligation to make additional payments upon achievement of specified development, regulatory and commercialization milestones. The aggregate amount of such milestone payments we may need to pay is based in part on the number of products developed under the agreement. The aggregate amount would be $27,500 if four products are developed and gain FDA approval. Additional limited milestone payments would be due if we develop more than four products. In July 2010 and July 2012, Cempra made $500 and $1,000 milestone payments, respectively, to Optimer after our successful completion of the Phase 1 and Phase 2 trials for oral solithromycin. If we decide to pursue further development of solithromycin, we will owe a milestone payment of $9,500 upon FDA approval of solithromycin. We are also obligated to make tiered, mid-single-digit royalty payments to Optimer based on annual net sales of licensed products outside the ASEAN countries, which royalties are subject to reduction in the event additional licenses are obtained from third parties in order to practice our rights under the agreement and/or we are required to grant a compulsory license to a third party.
The agreement also includes the grant of an exclusive license to Optimer and its affiliates, with rights of sublicense, under our patents and other intellectual property in any products covered by the agreement to permit Optimer to develop and/or commercialize such products in ASEAN countries. In consideration of such license, Optimer will pay us $1,000 in milestone payments for the first two products that receive regulatory approval or have a first commercial sale in any ASEAN country, as well as tiered, mid-single-digit royalty payments based on net sales of such products, which royalties are subject to reduction in the event additional licenses are obtained from third parties in order to practice Optimer’s rights under the agreement and/or Optimer is required to grant a compulsory license to a third party. The agreement also included a collaborative research program, to be performed by the parties, which was completed on March 31, 2008.
Subject to certain exceptions, on a country-by-country and product-by-product basis, a party’s rights and obligations under the agreement continue until the later of: (i) the expiration of the last to expire patent rights of a covered product in the


applicable country or (ii) 10 years from the first commercial sale of a covered product in the applicable country. As a result, the final expiration date of the Optimer license is indeterminable until the last such patents issue and results of potential patent extensions are known, or each of the first commercial sales are made, as applicable. Upon expiration of the agreement with respect to a particular product and country, the licenses granted in the agreement with respect to such product and country will remain in effect and convert to a perpetual, unrestricted, fully-paid, royalty-free, worldwide license. Either party may terminate the agreement (i) in the event of a material breach by the other party, subject to prior notice and the opportunity to cure, (ii) in the event the other party fails to use diligent efforts to develop and commercialize products in its respective territory, or if the other party makes a determination not to develop and commercialize at least one product under the agreement, or (iii) in the event of the other party’s bankruptcy. In the case of these terminations, the terminating party can elect that all licenses granted by the other party survive, subject to continuing royalty, payment and other obligations. Additionally, either party may terminate the agreement for any reason upon 30 days’ prior written notice, in which case the non-terminating party can elect that all licenses granted by the other party survive, subject to continuing royalty, payment, and other obligations.
The Scripps Research Institute. Effective June 12, 2012, Cempra entered into a license agreement with The Scripps Research Institute (“TSRI”), whereby TSRI licensed rights to us, 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-catalyzed ligation of azides and acetylenes. The rights licensed to us are exclusive as to the People’s Republic of China (excluding Hong Kong), South Korea and Australia, and are non-exclusive in all other countries worldwide, except ASEAN, which are not included in the territory of the license. Under the terms of the agreement with TSRI, Cempra paid a one-time only, non-refundable license issue fee in the amount of $350 which was charged to research and development expense in the second quarter of 2012. Our rights under the agreement are subject to certain customary rights of the U.S. government that arise or result from TSRI’s receipt of research support from the U.S. government.
Cempra was also obligated to pay annual maintenance fees to TSRI in the amount of (i) $50 each year for the first three years (beginning on the first anniversary of the agreement), and (ii) $85 each year thereafter (beginning on the fourth anniversary of the agreement). Each calendar year’s annual maintenance fees will be credited against sales royalties due under the agreement for such calendar year. Under the terms of the agreement, we 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 $1,100 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 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, we are also required to pay additional fees on royalties, sublicensing and milestone payments if we, 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. The term of the license agreement (and the period during which we must pay royalties to TSRI in a particular country for a particular product) will end, on a country-by-country and product-by-product basis, at such time as no patent rights licensed from TSRI cover a particular product in the particular country.
TSRI may terminate the agreement in the event (i) we fail to cure any non-payment or default on our indemnity or insurance obligations, (ii) we declare insolvency or bankruptcy, (iii) if we are convicted of a felony relating to the development, manufacture, use, marketing, distribution or sale of any products licensed under the agreement, (iv) we fail to cure any underreporting or underpayment by a certain amount in any 12-month period, or (v) we fail to cure any default on any other obligation under the agreement.  We may terminate the agreement with or without cause upon written notice.  In the event of such termination, (i) all licenses granted to us will terminate except in the case of any sublicensee that was not the cause of the termination, is not in default on its obligations under its sublicense, and that pays any unpaid amounts owed by us under the agreement with respect to the sublicense, and (ii) we may complete any work in progress and sell any completed inventory on hand for a period of time after termination.
BARDA. In May 2013, Cempra entered into an agreement with the BARDA for the evaluation and development of solithromycin for the treatment of bacterial infections in pediatric populations and infections caused by bioterror threat pathogens, specifically anthrax and tularemia.


The agreement is a cost-plus fixed fee development contract, with a base performance segment valued at approximately $18,700, and four optional work segments that BARDA may request in its sole discretion. If all 4 option segments are requested, the cumulative value of the agreement would be approximately $68,200 and the estimated period of performance would be until approximately May 2018. Three of the options are cost plus fixed fee arrangements, and one option is a cost sharing arrangement for which we are responsible for a designated portion of the costs associated with that work segment. The period of performance for the base performance segment was May 2013 through February 2016.
BARDA exercised the second option in November 2014.  The value of the second option work segment is approximately $16,000 and the period of performance was November 2014 through April 2017. In February 2016, BARDA exercised the third option work segment of the agreement, which is intended to fund a Phase 2/3 study of intravenous, oral capsule and oral suspension formulations of solithromycin in pediatric patients from two months old to 17 years with CABP. This option is a cost sharing arrangement under which BARDA will contribute $25,500 and we will be responsible for an additional designated portion of the costs associated with the work segment. In September 2016, the contract was modified to increase the third option work segment by $8,000 for increased manufacturing work related to the development of a second supply source for solithromycin. The amendment raises the value of the third option work segment to approximately $33,500.
In the first quarter of 2018, we agreed with BARDA to terminate the agreement and wind down the study of solithromycin. We continued to incur expenses--and receive BARDA grant income--into the fourth quarter of 2018, when the study and BARDA both terminated.
Toyama Chemical Co., Ltd. Under our agreement with Optimer, we have global rights (other than ASEAN countries) to solithromycin. In May 2013, Cempra entered into a license agreement with Toyama whereby it licensed to Toyama the exclusive right, with the right to sublicense, to make, use and sell any product in Japan that incorporates solithromycin as its sole API for human therapeutic uses, other than for ophthalmic indications or any condition, disease or affliction of the ophthalmic tissues. Toyama also has a nonexclusive license in Japan and certain other countries, with the right to sublicense, to manufacture or have manufactured API for solithromycin for use in manufacturing such products, subject to limitations and obligations of the concurrently executed supply agreement discussed below. Toyama has granted us certain rights to intellectual property generated by Toyama under the license agreement with respect to solithromycin or licensed products for use with such products outside Japan or with other solithromycin-based products inside or outside Japan. Toyama has successfully completed a Phase 1 trial in healthy Japanese volunteers, a Phase 1 trial to measure solithromycin levels in the upper respiratory tract, and a Phase 2trial in CABP. In December 2016,Toyama initiated Phase 3 trials in patients infected with CABP and other respiratory infections. Toyama and we are sharing the results of our respective development activities.
As consideration for the execution of the license agreement, Toyama paid us an upfront payment of $10,000. Toyama is also obligated to pay us up to an aggregate of $60,000 in milestone payments, depending on the achievement of various regulatory, patent, development and commercial milestones. The first of these milestones was achieved in the third quarter of 2014 for which Cempra received a payment of $10,000 from Toyama. In March 2015, Cempra recognized a $10,000 milestone from Toyama based on the Japan Patent Office issuing a Decision of Allowance for our patent covering certain crystal forms of solithromycin in Japan, which payment was received in April 2015. In October 2016, Cempra received a $10,000 milestone payment when Toyama decided to progress to Phase 3 studies. Under the terms of the license agreement, Toyama must also pay us a royalty equal to a low-to-high first double decimal digit percentage of net sales, subject to downward adjustment in certain circumstances.
The term of the license agreement (and the period during which Toyama must pay royalties under the license agreement) will end, on a product-by-product basis, at the later of: (i) such time as no patent rights under the agreement cover a particular licensed product in Japan; (ii) 15 years after such product is first launched in Japan, or (iii) the first commercial sale in Japan by a third party of a generic equivalent of such licensed product.
Toyama may terminate the license agreement (i) at any time, with or without cause, upon advance notice to us, (ii) upon the occurrence of any serious adverse effect in any human clinical trial of any licensed product that would significantly impact the long term commercial viability of a licensed product in Japan, or (iii) upon our failure to obtain the issuance of certain patents or file for U.S. regulatory approvals by certain dates, or to continue certain key clinical trials. We may terminate the license agreement if Toyama or any of its sublicensees is convicted of a felony relating to the development, manufacture, use, marketing, distribution or sale of a licensed product, or upon Toyama’s failure to (i) initiate certain clinical trials in Japan by certain dates, (ii) obtain regulatory approval in Japan within a certain period of completing certain clinical trials in Japan, (iii) launch and commercialize approved licensed products in Japan within a certain period of approval, (iv) use commercially reasonable efforts to market and sell licensed products, or (v) achieve expected benchmarks for net sales of licensed products. Either party may terminate the license agreement due to the other party’s insolvency or for uncured material breach.
As part of the license agreement, Toyama and Cempra also entered into a supply agreement, whereby we will be the exclusive supplier (with certain limitations) to Toyama and its sublicensees of API for solithromycin for use in licensed products in Japan, as well as the exclusive supplier to Toyama and its sublicensees of finished forms of solithromycin to be


used in clinical trials in Japan. Pursuant to the supply agreement, Toyama will pay us for such clinical supply of finished product and all supplies of API for solithromycin for any purpose, other than the manufacture of products for commercial sale in Japan, at prices equal to our costs. All API for solithromycin supplied by us to Toyama for use in the manufacture of finished product for commercial sale in Japan will be ordered from us at fixed prices determined by our agreement, which currently exceeds our expected cost to supply such API. Accordingly, we recorded $5,330 as part of the Cempra merger fair value adjustments upon assuming this agreement. The supply agreement will continue until the expiration or termination of the license agreement. Either party may terminate the supply agreement for an uncured material breach or in the event of insolvency of the other party, with Toyama’s right to terminate for our breach subject to certain further conditions in the case of our failure to supply API for solithromycin or clinical supply.
On September 26, 2018, Cempra Pharmaceuticals, Inc. (“CPI”), a wholly-owned subsidiary of Melinta and Toyama entered into the following agreements related to the development of solithromycin : (i) Amendment No. 2 to the Exclusive License and Development Agreement, dated as of May 8, 2013 and amended as of September 26, 2013, by and between CPI and Toyama, (ii) Amendment to the Quality Agreement effective as of February 1, 2017 by and among CPI, Fujifilm Finechemicals Co., Ltd. (“FFFC,” now known as Fujifilm Wako Pure Chemical Corporation (“FFWK”), and Toyama, and (iii) Agreement to Assign the API Manufacturing and Supply Agreement, entered into as of December 16, 2015, by and between CPI and FFFC. In addition, the parties terminated the Supply Agreement between CPI and Toyama dated May 8, 2013, which related to supply of the active pharmaceutical ingredient used in the manufacture of solithromycin (“API”) and clinical supply. These agreements are referred to collectively as the "Amended Toyama Arrangement."
Under the terms of the Amended Toyama Arrangement, CPI is legally relieved of all obligations related to the supply of API or clinical supply to Toyama, which resulted in the extinguishment of the $5,330 long-term liability, representing the fair value of the loss contract upon our merger with Cempra in November 2017. We recognized this gain in other income in the statement of operations in September 2018. In consideration for this relief, Cempra granted Toyama the right to manufacture and procure such API and clinical supply, and forfeited rights to all future milestone payments related to Toyama’s development of solithromycin in Japan. In addition, Melinta will be entitled to receive royalties on sales of solithromycin by Toyama if and when the product receives regulatory approval in Japan, at a rate generally between 4% and 6% of net sales. The amended terms have been treated as a contract modification, and under the sales- or usage- based royalty exception in Topic 606, we do not estimate variable consideration from future royalties. As such, we will not recognize royalty revenue under this arrangement until the future sales occur and royalties are earned.
FUJIFILM Finechemicals Co., Ltd. In January 2016, Cempra entered into a supply agreement with FUJIFILM Finechemicals Co., Ltd., which is intended to provide us with solithromycin in sufficient quantities and at reasonable prices to ensure we meet our obligation to Toyama under the supply agreement. We may be subject to a minimum purchase obligation for a designated number of years in the event of the successful completion of a manufacturing facility to be built and validation studies to be conducted by FFFC that could run to $80,000 in the aggregate, which expense would be reduced by any supply sold to Toyama. The agreement’s initial term runs until December 16, 2025. After the end of the initial term, and at the end of each year thereafter, the term will automatically extend for an additional year unless either party gives written notice to the other of its intent to terminate within a designated period of time prior to the expiration of the term, in which case the agreement will terminate at the end of such term. The parties may at any time terminate the agreement by mutual written consent. Each party has the right to terminate the agreement immediately if there is a product failure, the other party becomes involved in bankruptcy, insolvency or similar proceedings or materially breaches the agreement and such breach remains uncured for a period of time following notice of the breach. A violation by us of the minimum purchase obligation is considered a material breach. We have the right to terminate the agreement upon written notice if there is a supply failure. We also may terminate in the event that FFFC cannot provide us with solithromycin for more than a designated period of time. Upon termination, any unfulfilled binding portion of the forecast must be delivered by FFFC and paid for by us. We also may elect to purchase the remaining inventory of FFFC’s solithromycin and any remaining raw materials. If FFFC terminates the agreement for a material breach by us and, prior to such termination, (i) FFFC has constructed a facility in Japan for the primary purpose of manufacturing API for us under the agreement and (ii) such facility is completed and fully operational and qualified for the manufacture of API for delivery thereunder, then, except to the extent otherwise agreed to by the parties, we may be subject to declining penalties that could aggregate as much as $17,500.  
As stated above, on September 26, 2018, we entered into a series of agreements, including one with FFFC, which assigned our rights and obligations under the supply agreement to Toyama. We have no further obligations or commercial relationship with FFFC.
All payments made under these license agreements have been expensed as research and development expenses in our statements of operations.
Contingencies


As discussed in Note 14, on November 3, 2017, Melinta merged with Cempra, Inc. in a business combination. Prior to the merger, on November 4, 2016, a securities class action lawsuit was commenced in the United States District Court, Middle District of North Carolina, Durham Division, naming Cempra, Inc. (now known as Melinta Therapeutics, Inc.) (for purposes of this Contingencies section, “Cempra”) and certain of Cempra’s officers as defendants.  Two substantially similar lawsuits were filed in the United States District Court, Middle District of North Carolina on November 22, 2016, and December 30, 2016, respectively. Pursuant to the Private Securities Litigation Reform Act, on July 6, 2017, the court consolidated the three lawsuits into a single action and appointed a lead plaintiff and co-lead counsel in the consolidated case. On August 16, 2017, the plaintiff filed a consolidated amended complaint.  Plaintiff alleged violations of the Securities Exchange Act of 1934 (the “Exchange Act”) in connection with allegedly false and misleading statements made by the defendants between July 7, 2015 and November 4, 2016 (the “Class Period”). Plaintiff sought to represent a class comprised of purchasers of Cempra’s common stock during the Class Period and sought damages, costs and expenses and such other relief as determined by the court. On September 29, 2017, the defendants filed a motion to dismiss the consolidated amended complaint. After the motion to dismiss was fully briefed, the court heard oral arguments on July 24, 2018. On October 26, 2018, the court granted Defendants' motion to dismiss and dismissed the plaintiff's consolidated amended complaint in its entirety. On November 21, 2018, the plaintiff filed its notice of appeal, and on December 20, 2018, the Fourth Circuit entered its briefing schedule. The appellant filed its brief on January 28, 2019 and the appellee filed its response brief on February 27, 2019. The appellant's reply brief is due on March 20, 2019. Cempra believes it has meritorious defenses and intends to defend the lawsuit vigorously. It is possible that similar lawsuits may yet be filed in the same or other courts that name the same or additional defendants.
On December 21, 2016, a shareholder derivative lawsuit was commenced in the North Carolina Durham County Superior Court, naming certain of Cempra’s  former and current officers and directors as defendants and Cempra as a nominal defendant, and asserting claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and corporate waste (the “December 2016 Action”). A substantially similar lawsuit was filed in the North Carolina Durham County Superior Court on February 16, 2017 (the “February 2017 Action”). The complaints are based on similar allegations as asserted in the securities lawsuits described above, and seek unspecified damages and attorneys’ fees. Both cases were served and transferred to the North Carolina Business Court as mandatory complex business cases. The Business Court consolidated the February 2017 Action into the December 2016 Action and appointed counsel for the plaintiff in the December 2016 Action as lead counsel. On July 6, 2017, the court stayed the action pending resolution of the putative securities class action. That stay was then lifted. The plaintiff filed an amended complaint on December 29, 2017, and was required to file a further amended complaint by February 6, 2018. On February 6, 2018, the plaintiff filed his second amended complaint. On March 8, 2018, defendants filed their motion to dismiss or, in the alternative, stay plaintiff’s second amended complaint. On April 9, 2018, plaintiff filed his opposition to defendants’ motion. Defendants’ filed their reply on April 26, 2018. On June 27, 2018, the parties filed a joint stipulation and consent order to stay the case until (1) 30 days after a final order dismissing the putative securities class action appeal with prejudice is entered; or (2) the parties file a joint stipulation to terminate the stay in the event that a plaintiff in a subsequently filed derivative action makes similar allegations and does not agree to stay the proceedings on substantially the same terms. On June 29, 2018, the court entered an order staying the case pursuant to the joint stipulation, which expired by its term following entry of the court’s dismissal order in the above putative securities class action. On November 29, 2018, the parties filed a second joint stipulation to continue the stay until (1) 30 days after the putative securities class action appeal and any appeals therefrom have been resolved; or (2) the parties file a joint stipulation to terminate the stay in the event that a plaintiff in a subsequently filed derivative action makes similar allegations and does not agree to a stay of proceedings on substantially the same terms. On November 30, 2018, the court entered an order staying the case pursuant to the second joint stipulation. Cempra believes it has meritorious defenses and intends to defend the lawsuit vigorously. It is possible that similar lawsuits may yet be filed in the same or other courts that name the same or additional defendants.
On January 3, 2018, the plaintiff who commenced the February 2017 Action, which was subsequently consolidated into the December 2016 Action, transmitted to the former Acting Chief Executive Officer of Cempra a litigation demand (the “Demand”).  The Demand requested that Cempra’s Board of Directors (the “Board”) “commence an independent investigation into the matters raised” in the complaint filed in the February 2017 Action and the Demand, “take any and all appropriate steps for Cempra to recover, through litigation if necessary, the damages proximately caused by the directors' and officers' alleged breaches of fiduciary duty,” and “implement corporate governance enhancements to prevent recurrence of the alleged wrongdoing.”  The Board has not yet formally responded to the Demand.
On July 31, 2017, a shareholder derivative lawsuit was commenced in the Court of Chancery of the State of Delaware, naming certain of Cempra’s former and current officers and directors as defendants and Cempra as nominal defendant, and asserting claims for breach of fiduciary duty, unjust enrichment, and corporate waste. The complaint is based on similar allegations as asserted in the putative securities class action described above, and seeks unspecified damages and attorneys’ fees. On October 23, 2017, the defendants filed a motion to dismiss or, in the alternative, stay, the complaint, which was supported by an opening brief filed on November 9, 2017. On January 8, 2018, the plaintiff filed his answering brief in opposition to the defendants’ motion.  The defendants filed their reply in support of their motion on February 7, 2018.  On June 18, 2018, the parties filed a joint letter (1) indicating they have agreed to stay the case until the pending motion to dismiss in


the November 4, 2016 consolidated federal securities action pending in the United States District Court, Middle District of North Carolina, Durham Division is decided; and (2) requesting that the June 22, 2018 oral argument scheduled for defendants’ motion to dismiss be canceled. On June 27, 2018, the parties filed a stipulation and proposed order to stay the case until (1) 30 days after a final order dismissing the November 4, 2016, consolidated federal securities action pending in the United States District Court, Middle District of North Carolina, Durham Division with prejudice is entered; or (2) the parties file a joint stipulation to terminate the stay in the event that a plaintiff in a subsequently filed derivative action makes similar allegations and does not agree to stay the proceedings on substantially the same terms. On June 28, 2018, the court granted the proposed order and stayed the case on such terms. On November 28, 2018, the parties filed a joint stipulation agreeing to stay the case, including all discovery, until (1) 30 days after the appeal for the November 4, 2016 consolidated federal securities action pending in the United States District Court, Middle District of North Carolina, Durham Division, and any appeals therefrom, was resolved or (2) the parties file a joint stipulation to terminate the stay in the event that a plaintiff in a subsequently filed derivative action makes similar allegations and does not agree to a stay of proceedings on substantially the same terms. On November 30, 2018, the court stayed the case pursuant to the joint stipulation. Cempra believes it has meritorious defenses and intends to defend the lawsuit vigorously. It is possible that similar lawsuits may yet be filed in the same or other courts that name the same or additional defendants.    
On September 15, 2017, a shareholder derivative lawsuit was commenced in the United States District Court for the Middle District of North Carolina, Durham Division, naming certain of Cempra’s former and current officers and directors as defendants and Cempra as nominal defendant, and asserting claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, corporate waste, and violation of Section 14(a) of the Exchange Act. The complaint is based on similar allegations as asserted in the putative securities class action described above, and seeks unspecified damages and attorneys’ fees. On December 1, 2017, the parties filed a joint motion seeking to stay the shareholder derivative lawsuit pending resolution of the putative securities class action, which stipulation was ordered by the court on December 11, 2017. On December 11, 2018, the parties filed a joint status report indicating that they believe the action remains stayed pending the outcome of the putative securities class action. Cempra believes it has meritorious defenses and intends to defend the lawsuit vigorously. It is possible that similar lawsuits may yet be filed in the same or other courts that name the same or additional defendants.    
On September 27, 2017, and October 6, 2017, putative class action complaints were filed against Cempra, members of its board of directors and Melinta Therapeutics, Inc. (now known as Melinta Subsidiary Corp.) (for the purposes of this Contingencies section, “Melinta”) on behalf of the public stockholders of Cempra in the United States District Court for the Middle District of North Carolina. The complaints allege that the preliminary proxy statement issued in connection with the proposed merger between Cempra and Melinta omitted material information in violation of Sections 14(a) and 20(a) of the Exchange Act, rendering the preliminary proxy statement false and misleading. On February 7, 2018, the plaintiffs and the defendants executed a settlement agreement that resolved plaintiffs’ claims with prejudice as to the named plaintiffs and without prejudice to any other member of the putative class. Defendants agreed to pay attorneys’ fees of $263 in connection with settlement of the actions, which was paid in early 2018.
On December 3, 2018, James Naples, a purported Company shareholder, filed a putative class action suit against the Company and its Board of Directors in the Court of Chancery of the State of Delaware, alleging that the Board had breached its fiduciary duties related to a proposed, and subsequently abandoned, $75,000 common stock financing that was contemplated with affiliates of Vatera Holdings LLC.  The suit alleged that the Board of Directors breached its fiduciary duties by, among other things, failing to disclose all material information to Company shareholders.  The suit sought, among other things, to enjoin the shareholder vote on the financing proposal until additional disclosures were issued.  On February 27, 2019, the suit was voluntarily dismissed with prejudice as moot, though the court has retained jurisdiction solely for the purpose of adjudicating a claim by the plaintiff for attorneys' fees and expenses, if one is submitted.
On December 18, 2018, we filed a complaint in the Court of Chancery of the State of Delaware against Medicines for breach of contract claim and fraud arising from the Purchase and Sale Agreement (“Purchase Agreement”), dated November 28, 2017, pursuant to which we acquired the Infectious Disease Businesses from Medicines.  In the complaint, we alleged claims for damages of at least $68.3 million.  On December 28, 2018, we received a letter from Medicines demanding the payment of Milestone No. 4 under the Agreement and Plan of Merger, dated as of December 3, 2013, among Medicines, Rempex Pharmaceuticals, Inc. and the other parties thereto, in the amount of $30,000 (a milestone which the Company had assumed as an “Assumed Liability” under the Purchase Agreement).  On January 7, 2019, we notified Medicines that we would not be making the Milestone No. 4 payment in the amount of $30,000, or the First Deferred Payment in the amount of $25,000 under the Purchase Agreement, because the Company had asserted claims in the litigation in excess of these amounts. On January 9, 2019, Medicines filed a motion to dismiss our claims.
Other than as described above, we are not a party to any legal proceedings and we are not aware of any claims or actions pending or threatened against us. In the future, we might from time to time become involved in litigation relating to claims arising from our ordinary course of business.


NOTE 11 – BENEFIT PLAN
We have a 401(k) Plan in which all of our employees are eligible to participate. Each year, we may, but are not required to, make matching contributions to the 401(k) Plan. For the years ended December 31, 2018, 2017 and 2016, we made matching contributions to the 401(k) Plan of $1,961, $475 and $306, respectively.
NOTE 12 – RELATED PARTY TRANSACTIONS
We use various software tools in the research and development discovery process. These tools are licensed at market rates from a company owned by Dr. William Jorgensen. Dr. Jorgensen is a founder of the Company and is the spouse of our Chief Scientific Officer. Total fees paid to Dr. Jorgensen’s company were $40, $40 and $43 for the years ended December 31, 2018 and 2017 and 2016, respectively.
Dr. Thomas Koestler was our non-executive Chairman of the Board prior to the merger with Cempra, continues to serve on our board of directors and is a consultant to our largest investor, Vatera Healthcare Partners LLC. Dr. Koestler received compensation for his role in the amount of $58 and $126 for the years ended December 31, 2018 and 2017, respectively. In addition, during the years ended December 31, 2018 and 2017, we granted options to purchase 6,820 and 333 shares, respectively, with exercise prices of $37.25 and $104.85, respectively. In 2018 and 2017, we recorded $73 and $151, respectively, of share-based compensation related to these options. Dr. Koestler stepped down as Chairman of the Board in November 2017, in conjunction with the merger with Cempra, but remains on our board as a director.
Vatera is a significant investor in the company. Kevin Ferro, one of our directors and chairman of the Board, serves as the chief executive officer and managing member of Vatera Capital Management LLC, the current manager of Vatera Healthcare Partners LLC, and Dr. Koestler, one of our directors, serves as a consultant to Vatera Healthcare Partners LLC. On December 31, 2018, we entered into a Senior Subordinated Convertible Loan Agreement (the “Loan Agreement”) with Vatera pursuant to which Vatera committed to provide $135,000 over a period of five months, subject to the satisfaction of certain conditions (see Note 4 to the consolidated financial statements). This agreement was approved by shareholders at a Special Meeting held on February 19, 2019. On February 22, 2019, we drew $75,000 in the first tranche of the Loan Agreement.



NOTE 13 – SELECTED QUARTERLY DATA (Unaudited)
 Quarter Ended
 March 31,
2018		 June 30,
2018		 September 30,
2018		 December 31,
2018
Revenue$14,841
 $12,022
 $34,078
 $35,489
Operating expenses:       
Cost of goods sold7,686
 10,989
 13,393
 8,989
Research and development16,129
 15,813
 13,065
 10,402
Goodwill impairment—
 —
 —
 25,088
Selling, general and administrative34,624
 34,946
 34,287
 29,455
Loss from operations(43,598) (49,726) (26,667) (38,445)
Total Other Income (Expense), net14,166
 (6,054) (1,193) (5,675)
Net loss$(29,432) $(55,780) $(27,860) $(44,120)
Accretion of preferred dividends—
 —
 —
 —
Net loss available to shareholders$(29,432) $(55,780) $(27,860) $(44,120)
Net loss per share - basic and diluted$(4.76) $(6.92) $(2.49) $(3.94)
Weighted average shares used in calculating basic and diluted net loss per share6,184
 8,059
 11,203
 11,204
        
 Quarter Ended
 March 31,
2017		 June 30,
2017		 September 30,
2017		 December 31,
2017
Revenue$22,463
 $3,979
 $3,191
 $4,231
Operating expenses:       
Research and development12,917
 14,075
 10,884
 11,599
Selling, general and administrative7,973
 7,699
 10,304
 37,349
Loss from operations1,573
 (17,795) (17,997) (44,717)
Total Other (Income) Expense, net1,647
 2,631
 1,639
 (25,937)
Net loss$(74) $(20,426) $(19,636) $(18,780)
Accretion of preferred dividends(5,720) (5,721) (5,720) (2,098)
Net loss available to shareholders$(5,794) $(26,147) $(25,356) $(20,878)
Net loss per share - basic and diluted$(1,040.78) $(4,420.46) $(4,286.73) $(7.40)
Weighted average shares used in calculating basic and diluted net loss per share6
 6
 6
 2,821
NOTE 14 – BUSINESS COMBINATIONS
Acquisition of the Infectious Disease Business
On January 5, 2018, we completed the acquisition of the IDB, in which we acquired a group of antibiotic drug products and certain other assets from Medicines, including 100% of the capital stock of certain subsidiaries and the pharmaceutical products containing (i) meropenem and vaborbactam as the active pharmaceutical ingredient and distributed under the brand name Vabomere, (ii) oritavancin as the active pharmaceutical ingredient and distributed under the brand name Orbactiv and (iii) minocycline as the active pharmaceutical ingredient and distributed under the brand name Minocin for injection and line extensions of such products. The integration of the acquired products within our existing portfolio further strengthens our ability to serve the needs of providers treating patients with serious bacterial infections across the healthcare delivery continuum. In addition to the products acquired in the IDB transaction, we hired approximately 135 individuals from Medicines to our team. The new team members bring with them significant experience specific to infectious diseases and better position us to effectively execute our commercial and other activities.
The acquisition was financed using borrowings under the Deerfield Facility and additional equity financing from existing and new investors. See Note 4 for further information regarding these financing arrangements. Expenses related to


legal and other services in connection with the IDB acquisition were $2,339 and $2,617 in the years ended December 31, 2018 and 2017, respectively. The expenses incurred in the year ended December 31, 2018, included 1,320 related to certain transition services that Medicines agreed to provide to us to facilitate transition and integration of the IDB. The transition services included the temporary provision of facilities and equipment for newly hired personnel, assistance with finance functions and support in connection with the transition of the supply, sale and distribution of the products to our third-party logistics provider. The transition services were substantially complete at the end of 2018.
The consideration paid to Medicines consisted of a cash payment of $166,383 and 662,740 shares of our common stock, which was calculated by dividing $50,000 by $75.45, representing 90% of the volume weighted average price of the common stock for the trailing ten trading day period ending three trading days prior to the closing date. In addition, subject to the terms and conditions of the IDB purchase agreement, we are required to make two additional payments of $25,000 on each of the twelve and eighteen-month anniversaries of the closing date (January and July 2019, respectively), and we will pay royalties to Medicines on certain net sales of the acquired antibiotic products.
The purchase price, including non-cash consideration, for the acquisition of IDB is as follows (except for the initial cash payment, these items have been treated as non-cash investing activity in the condensed consolidated statement of cash flows, and will be treated as financing activity when the remaining items are paid in cash):
Cash of $166,383, including a net working capital adjustment of $1,383;
Common stock of $54,510;
Deferred consideration of $38,541, representing the present value of two payments of $25,000 each due in January and July 2019; and
Contingent consideration of $12,271, representing the fair value of sales-based royalty payments.
We recorded the contingent consideration related to the sales-based royalty payments at fair value, and, during 2018, we were accreting the amount to the estimated aggregate amounts payable to Medicines, $354,000, based on an effective interest of rate of 49%, which is in line with the effective interest rate, 43%, used to accrete the royalty liability associated with the Deerfield Facility. During the year ended December 31, 2018, we recorded $6,544, respectively, of non-cash interest expense related to the accretion of the fair value of sales-based royalty payments. As of December 31, 2018, $2,784 of the royalty liability is currently due and has been reclassified out of current deferred purchase price and recorded either as a credit offset to receivables (up to the amount due from Medicines) or in accrued liabilities. At the end of the fourth quarter of 2018, we updated our estimate of the remaining aggregate amounts of royalty payable to Medicines for future periods to approximately $60,000. We recorded the updated fair value of $5,714 at December 31, 2018 ($1,006 and $4,708, in short-term and long-term liabilities, respectively). We recorded $10,317 of favorable net fair value adjustments to operating expenses in the fourth quarter of 2018.
As of December 31, 2018, we have finalized the valuation for the acquisition. The goodwill resulting from the acquisition largely consists of the estimated value of IDB’s assembled and trained workforce, our expected future product sales, synergies resulting from combining IDB products with our existing product offering and IDB’s going concern value.
The following table sets forth our final of the purchase price allocation.
Current assets$33,725
Goodwill25,088
Intangible assets236,819
Non-current assets9,486
Current liabilities(32,837)
Non-current liabilities(576)
Total purchase price$271,705
We believe that the historical values of IDB’s current assets and current liabilities (except for certain inventory items, which we stepped up in value) approximate their fair values based on the short-term nature of such items. The current liabilities include a contingent liability of $24,485, representing the probability-weighted present value of a $30,000 milestone payment payable third parties upon the approval of Vabomere in Europe. During the year ended December 31, 2018, we recorded $4,015 of non-cash accretion, included within interest expense, of this contingent payment and a fair value adjustment of $1,500 in the fourth quarter of 2018 when Vabomere received approval in Europe. The accretion is based on an effective interest rate of 20.9% which is consistent with the interest rate associated with the Deerfield Facility.
We recorded the two $25,000 deferred payments to Medicines at fair value, and we are accreting them to $50,000 based on an effective interest rate of 21.1%. During the year ended December 31, 2018, we recorded $8,847 of non-cash accretion, included within interest expense, of these deferred payments. At December 31, 2018, the carrying value of the short-term deferred payments was $47,388.


The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of the acquisition: 
 Average useful life Fair value
Developed product rights13 to 17 years $216,960
In-process research and developmentIndefinite 19,859
Total intangible assets  $236,819
During the year ended December 31, 2018, we recorded $16,332 of amortization expense related to the developed product rights. In the fourth quarter of 2018, we transferred our in-process research and development balance of $19,859 to developed product rights (intangible assets) because the related product, Vabomere, received regulatory approval in Europe. We will begin amortizing the intangible asset over its estimated useful life when sales of Vabomere commence in Europe, anticipated to be sometime in 2019 or 2020. At December 31, 2018, the carrying value of all our developed product rights was $221,276. For the year ended December 31, 2018, IDB added $40,096 of revenue and $1,938 of grant income, respectively, to our consolidated results. It is impracticable to measure the effect IDB had on our net loss for the year ended December 31, 2018, because IDB has been integrated into our existing operations and is not accounted for separately. Since the date of the acquisition, IDB’s results are reflected in our consolidated financial statements.
Goodwill Impairment
As noted above, we initially recorded goodwill of $25,088 at the date of the acquisition. In December 2018, we performed our annual impairment assessment. Due to the decrease in the market price of the Company's stock during 2018, our market capitalization was significantly below the carrying value of our net assets. Given that we operate as one reporting unit, the market capitalization reflects the value that the public markets attribute to our equity. After further fair value analysis and testing, including considering control premiums, we concluded that goodwill was impaired and had a current fair value of $0. Accordingly, we recognized impairment of our goodwill totaling $25,088 in the fourth quarter of 2018. We determined that there is no impairment of the acquired IDB identified intangible assets based on the undiscounted forecasted cash flows associated with each of the acquired intangible assets.
Merger with Cempra
Cempra’s results have been reflected in our condensed consolidated financial statements since the date of the merger on November 3, 2017. As a result of the merger, Cempra's operations contributed $3,465 and $870 of grant income to our consolidated results of operations in the years ended December 31, 2018 and 2017, respectively. We incurred $256 and $9,119 of acquisition-related expense (excluding severance) in the years ended December 31, 2018 and 2017, respectively, related to the merger with Cempra.
Pro Forma Financial Information
The following table provides unaudited supplemental pro forma information as if the acquisition of IDB and the Cempra merger took place at the beginning of fiscal 2017.
 2017
Pro forma revenue$67,617
Pro forma net loss$(264,909)
The unaudited supplemental pro forma consolidated results reflect the historical financial information of Melinta, Medicine’s IDB and Cempra, adjusted to give effect to the IDB acquisition and the Cempra merger as if they had occurred as of the beginning of fiscal 2017 and 2016, respectively, primarily for the following adjustments:

Effects of Topic 606.
Additional interest expense and accretion related to the financing of the business combinations.
Additional accretion expense related to the IDB acquisition.
Additional accretion on deferred and contingent payments and additional amortization of intangible assets recognized as part of the business combinations.
Elimination of historical nonrecurring transaction costs and severance related to the business combinations.
The remeasurement gain on the warrant liability (using $33,226 for the year ended December 31, 2018).
Elimination of the bargain purchase gain in the Cempra merger of $27,663.
Elimination of the tax valuation allowance reversals recorded by IDB.



In addition, excluded from the supplemental pro forma information was $10,497 of nonrecurring IDB acquisition costs (debt extinguishment costs, inventory fair value step-up amortization, and transaction and severance costs) recorded during the year ended December 31, 2018.
NOTE 15 –NET LOSS PER SHARE
Basic net loss attributable to common shareholders per share is computed by dividing the net loss attributable to common shareholders by the weighted-average number of common shares outstanding for the period. During periods where we might earn net income, we would allocate to participating securities a proportional share of net income determined by dividing total weighted-average participating securities by the sum of the total weighted-average common shares and participating securities (the “two-class method”). Our preferred stock, if any, participates in any dividends declared by us and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods where we incurred net losses, we allocate no loss to participating securities because they have no contractual obligation to share in our losses. We computed diluted loss per common share after giving consideration to the dilutive effect of stock options and warrants that are outstanding during the period, except where such nonparticipating securities would be antidilutive. Because we have reported net losses for the years ended December 31, 2018, 2017 and 2016, diluted net loss per common share is the same as basic net loss per common share for those periods. The weighted-average shares outstanding, reported loss per share and potential dilutive common share equivalents for the periods prior to November 3, 2017, the date of the Cempra merger, have been retrospectively adjusted to reflect historical weighted-average number of common shares outstanding multiplied by the exchange ratio established in the merger agreement. All shares have also been adjusted to reflect the one-for-five reverse stock split that was effective on February 22, 2018.
During 2017 and 2016, we had shares of convertible preferred stock outstanding which earned dividends at a rate of 8% per year. Our net loss attributable to common shareholders for those years was adjusted to reflect the accretion of dividends on the convertible preferred stock before computing net loss per share.
The following potentially dilutive securities (in common stock equivalent shares) have been excluded from the computation of diluted weighted-average shares outstanding because such securities have an antidilutive impact due to losses reported:
 December 31,
 2018 2017 2016
Options to purchase common stock696,890
 412,211
 120,007
Preferred stock warrants—
 —
 6,331
Unvested restricted stock17,360
 64,132
 —
Common stock warrants766,691
 11,913
 9
Convertible preferred stock—
 —
 1,166,029
 1,480,941
 488,256
 1,292,376
NOTE 16 – SEVERANCE
In connection with the merger with Cempra, several employees were terminated under established individual employment plans and a corporate-wide severance plan. The legacy Cempra entity had put in place a severance plan that provided severance benefits to employees who, in connection with a change-in-control event, either were terminated or resigned due to having a diminished role going forward with the combined company.
Most of the affected employees were notified that they would be terminated in connection with the change-in-control event in advance of the merger, and the Company recognized the associated severance costs when the liability became probable, which was after the merger closed. The postemployment benefits for the individuals include continued salary and benefits for a period of time determined by historical length of service to, and role with, the Company (up to six months for non-executives, 18 months for executives, and 24 months for the CEO), outplacement services and contractual or prorated bonuses. While all the affected employees were notified before or immediately after the merger, some of the termination dates were extended into 2018.
In addition to the severance costs incurred in connection with the Cempra merger, the Company incurs additional severance costs as part of its on-going operations. In October 2018, our Board of Directors appointed John H. Johnson as Interim Chief Executive Officer to succeed Daniel Wechsler, who stepped down from his role as President, CEO and director to pursue other opportunities. In connection with Mr. Wechsler's termination from the Company, we recorded total severance-related payments of approximately $1,469 (before the adjustment to net present value) in Q4 2018, which will be paid over 18 months. He will also receive a pro-rata bonus for 2018, to be paid in the first quarter of 2019.


In November 2018, the Board of Directors approved a plan to reduce our operating expenses, principally through an approximately 20% reduction in headcount. In addition to the severance expense recorded in the fourth quarter of 2018 for Daniel Wechsler, we recorded a fourth quarter 2018 net charge of $5,894 post-employment benefit costs. The remainder of the total 2018 severance expense was incurred in the first three quarters of 2018 as part of the company’s on-going operations. In addition to severance payments, terminated employees will receive a pro-rated bonus for 2018 to be paid in the first quarter of 2019 (except some contractual bonus payments which were or will be paid out at the time of termination).
A summary of merger and non-merger activity in our severance accrual (included in accrued expenses or long-term liabilities on the consolidated balance sheets) is below. 
Balance - December 31, 2016$—
Severance accruals (recorded in SG&A)6,383
Severance liability acquired in Cempra merger769
Severance payments(431)
Balance - December 31, 2017$6,721
Severance accruals (recorded in SG&A)12,371
Severance payments(9,325)
Balance - December 31, 2018$9,767
On December 31, 2018, $9,390 was included in accrued expenses and $377 was included in long-term liabilities. We also recognized $407 and $1,547 of additional stock-based compensation expense related to the acceleration of equity awards for terminated employees under ASC 718 as severance expense during the years ended December 31, 2018 and 2017, respectively. The 2018 stock-based compensation expense includes $174 for the acceleration of Mr. Wechsler's first-year vesting of his incentive RSU award. The acceleration of the first-year vesting was considered a modification and accounted for as a new award at a fair value of $174. The cumulative stock-based compensation expense for the original awards recorded through the third quarter of 2018 of $486 was reversed in the fourth quarter of 2018.
In the second quarter of 2018, we vacated a significant portion of our office facilities in Chapel Hill, North Carolina. As a consequence, we recorded an estimated lease exit liability of $556. The lease exit liability was determined by computing the fair value of the remaining lease payments, net of any projected sub-lease rentals. A summary of activity in our lease liability is below. 
Balance - December 31, 2017$—
Fair value of lease liability recognized556
Lease termination adjustment(233)
Termination fee136
Less: payments(391)
Balance - December 31, 2018$68

F-50