UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

~~FORM 10-Q~~

☒

FORM 10-Q



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

For the quarterly period ended ~~September~~June 30, ~~2017~~

2019

☐

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

For the Transition Period from to

Commission File Number: 001-35405

~~CEMPRA, INC.~~

~~(Exact name of registrant specified in its charter)~~

~~Delaware~~	~~2834~~	~~45-4440364~~

MELINTA THERAPEUTICS, INC. (Exact name of registrant specified in its charter)



Delaware	2834	45-4440364
(State or Other Jurisdiction of Incorporation or Organization)		(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

~~6320 Quadrangle Drive, Suite 360~~

~~Chapel Hill, NC 27517~~

44 Whippany Road

Morristown, NJ 07960

(Address of Principal Executive Offices)

~~(919) 313-6601~~

(908) 617-1309

(Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Exchange Act:



Title of Each Class	Trading Symbol	Name of Exchange on which Registered
Common Stock, $0.001 Par Value	MLNT	Nasdaq Global Market

~~Securities Registered Pursuant to Section 12(g) of the Act: None~~

Securities Registered Pursuant to Section 12(g) of the Act: None

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

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

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



Large accelerated filer	¨	☒	Accelerated filer	☐ x

Non-accelerated filer	¨	☐ ~~(Do~~(Do not check if a smaller reporting company)	Smaller reporting company	☐ x
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 ☒x

As of ~~October 27, 2017~~August 2, 2019, there were ~~52,512,385~~13,750,691 shares of the registrant’s common stock, $0.001 par value, outstanding.

~~CEMPRA,~~

MELINTA THERAPEUTICS, INC.

TABLE OF CONTENTS

P~~ART~~

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

~~CEMPRA,~~

MELINTA THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

September 30,

December 31,

2017

2016

Assets

Current assets

Cash and equivalents

$
176,134

$
231,553

Receivables

2,803

6,162

Prepaid expenses

833

579

Total current assets

179,770

238,294

Furniture, fixtures and equipment, net

27

48

Deposits

83

173

Total assets

$
179,880

$
238,515

Liabilities

Current liabilities

Accounts payable

$
6,665

$
15,657

Accrued expenses

1,036

2,929

Accrued payroll and benefits

1,286

4,267

Current portion of long-term debt

6,667

6,667

Total current liabilities

15,654

29,520

Deferred revenue

16,987

16,987

Long-term debt

3,682

8,660

Total liabilities

36,323

55,167

Commitments and contingencies (Notes 4 and 8)

Shareholders' Equity

Preferred stock; $.001 par value; 5,000,000 shares authorized; no shares issued or
   outstanding at September 30, 2017 and December 31, 2016

-

-

Common stock; $.001 par value; 80,000,000 shares authorized; 52,509,281
   and 52,392,905 issued and outstanding at September 30, 2017 and December 31, 2016,
   respectively

53

52

Additional paid-in capital

626,001

620,279

Accumulated deficit

(482,497
)

(436,983
)
Total shareholders’ equity

143,557

183,348

Total liabilities and shareholders’ equity

$
179,880

$
238,515



	June 30, 2019			December 31, 2018
Assets
Current assets
Cash and equivalents	$	90,343		$	81,808
Receivables (See Note 3)	19,081			22,485
Inventory	42,043			41,341
Prepaid expenses and other current assets	5,292			3,848
Total current assets	156,759			149,482
Property and equipment, net	1,309			1,586
Intangible assets, net	220,949			229,196
Other assets (See Note 3)	61,355			61,326
Total assets	$	440,372		$	441,590
Liabilities
Current liabilities
Accounts payable	$	5,792		$	16,765
Accrued expenses	27,260			33,924
Deferred purchase price and other liabilities (See Notes 3 and 4)	83,031			78,394
Accrued interest on notes payable	4,305			4,485
Warrant liability	129			38
Conversion liability (See Note 4)	11,869			—
Total current liabilities	132,386			133,606
Long-term liabilities
Notes payable, net of debt discount and costs (See Note 4)	93,821			110,476
Convertible notes payable to related parties, net of debt discount and costs (See note 4)	63,239			—
Other long-term liabilities	9,259			7,444
Total long-term liabilities	166,319			117,920
Total liabilities	298,705			251,526
Commitments and contingencies (See Note 10)
Shareholders' Equity
Preferred stock; $.001 par value; 5,000,000 shares authorized; -0- shares issued or outstanding at June 30, 2019, and December 31, 2018, respectively	—			—
Common stock; $.001 par value; 80,000,000 shares authorized; 11,829,897 and 11,204,050 issued and outstanding at June 30, 2019, and December 31, 2018, respectively	12			11
Additional paid-in capital	926,152			909,896
Accumulated deficit	(784,497		)	(719,843		)
Total shareholders’ equity	141,667			190,064
Total liabilities and shareholders’ equity	$	440,372		$	441,590

The accompanying notes are an integral part of these condensed consolidated financial statements

~~CEMPRA,~~

MELINTA THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Revenue

Contract research

$
1,717

$
3,972

$
7,449

$
10,071

Total revenue

1,717

3,972

7,449

10,071

Operating expenses

Research and development

4,383

21,096

28,338

60,643

General and administrative

7,867

15,021

21,291

35,333

Restructuring

-

-

3,553

-

Total operating expenses

12,250

36,117

53,182

95,976

Loss from operations

(10,533
)

(32,145
)

(45,733
)

(85,905
)
Other income (expense)

Interest income

382

128

896

330

Interest expense

(208
)

(295
)

(677
)

(948
)
Other income (expense), net

174

(167
)

219

(618
)
Net loss

$
(10,359
)

$
(32,312
)

$
(45,514
)

$
(86,523
)
Basic and diluted net loss per share

$
(0.20
)

$
(0.62
)

$
(0.87
)

$
(1.74
)
Basic and diluted weighted average shares outstanding

52,508,598

52,072,536

52,470,568

49,616,785



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenue
Product sales, net	$	13,825		$	9,152		$	25,600		$	20,998
Contract research	2,130			2,870			3,539			5,865
License	—			—			900			—
Total revenue	15,955			12,022			30,039			26,863
Operating expenses:
Cost of goods sold	8,639			10,989			16,004			18,675
Research and development	3,527			15,813			8,891			31,942
Selling, general and administrative	30,932			34,946			56,873			69,570
Total operating expenses	43,098			61,748			81,768			120,187
Loss from operations	(27,143		)	(49,726		)	(51,729		)	(93,324		)
Other income (expense):
Interest income	210			63			397			273
Interest expense	(8,176		)	(10,659		)	(15,279		)	(20,855		)
Interest expense (related party, see Note 4)	(1,365		)	—			(1,929		)	—
Change in fair value of warrant and conversion liabilities	261			2,389			6,276			26,474
Loss on extinguishment of debt	—			—			(346		)	(2,595		)
Other income (expense)	8			32			(65		)	36
Grant income (expense)	25			2,121			(37		)	4,779
Other income (expense), net	(9,037		)	(6,054		)	(10,983		)	8,112
Net loss	$	(36,180	)	$	(55,780	)	$	(62,712	)	$	(85,212	)
Basic and diluted net loss per share	$	(3.07	)	$	(6.92	)	$	(5.42	)	$	(11.96	)
Basic and diluted weighted average shares outstanding	11,801,874			8,059,471			11,567,250			7,126,687

The accompanying notes are an integral part of these condensed consolidated financial statements

~~CEMPRA,~~

MELINTA THERAPEUTICS, INC.

Condensed Consolidated Statements of ~~Cash Flows~~

Shareholders’ Equity

(In ~~thousands)~~

~~(Unaudited)~~

thousands, except share data)

Nine Months Ended September 30,

2017

2016

Operating activities

Net loss

$
(45,514
)

$
(86,523
)
Adjustments to reconcile net loss to net cash used in operating activities

Depreciation

21

40

Share-based compensation

5,464

7,518

Amortization of debt issuance costs

22

44

Changes in operating assets and liabilities

Receivables

3,359

3,108

Prepaid expenses

(254
)

(219
)
Deposits

90

(73
)
Accounts payable

(8,992
)

2,896

Accrued expenses

(1,893
)

615

Accrued payroll and benefits

(2,981
)

1,342

Net cash used in operating activities

(50,678
)

(71,252
)
Investing activities

Purchases of furniture, fixtures and equipment

-

(9
)
Net cash used in investing activities

-

(9
)
Financing activities

Payment of long-term debt

(5,000
)

(2,779
)
Proceeds from exercise of stock options

259

364

Proceeds from issuance of common stock, net of underwriting discounts

-

169,112

Payment of offering costs

-

(284
)
Net cash (used in) provided by financing activities

(4,741
)

166,413

Net change in cash and equivalents

(55,419
)

95,152

Cash and equivalents at beginning of the period

231,553

153,765

Cash and equivalents at end of the period

$
176,134

$
248,917

Supplemental cash flow information

Cash paid for interest

$
673

$
916



	Six Months Ended June 30, 2019
	Common Stock			Additional Paid-In Capital		Accumulated Deficit			Total Shareholders' Equity
	Shares	Amount		Additional Paid-In Capital		Accumulated Deficit			Total Shareholders' Equity
Balance as of January 1, 2019	11,204,049	$	11	$	909,896	$	(719,843	)	$	190,064
Share-based compensation	—	—		909		—			909
Issuance of common shares	1,705	—		8		—			8
Vesting of restricted stock units	24,143	—		—		—			—
Issuance of common shares upon conversion of convertible notes	550,000	1		2,766		—			2,767
Discount on issuance of convertible notes (deemed shareholder contribution) (Note 4)	—	—		11,242		—			11,242
Cumulative adjustment upon adoption of lease accounting standard (Note 6)	—	—		—		(1,942		)	(1,942		)
Net loss	—	—		—		(26,532		)	(26,532		)
Balance as of March 31, 2019	11,779,897	$	12	$	924,821	$	(748,317	)	$	176,516
Share-based compensation	—	—		1,331		—			1,331
Vesting of restricted stock units	50,000	—		—		—			—
Net loss	—	—		—		(36,180		)	(36,180		)
Balance as of June 30, 2019	11,829,897	$	12	$	926,152	$	(784,497	)	$	141,667



	Six Months Ended June 30, 2018
	Common Stock			Additional Paid-In Capital		Accumulated Deficit			Total Shareholders' Equity
	Shares	Amount		Additional Paid-In Capital		Accumulated Deficit			Total Shareholders' Equity
Balance as of January 1, 2018	4,399,788	$	4	$	644,991	$	(572,659	)	$	72,336
Adoption of revenue accounting standard	—	—		—		10,008			10,008
Share-based compensation	—	—		955		—			955
Issuance of common shares	40	—		3		—			3
Vesting of restricted stock units	5,521	—		—		—			—
Issuance of common shares in connection with IDB Transaction	1,865,301	2		145,961		—			145,963
Net loss	—	—		—		(29,432		)	(29,432		)
Balance as of March 31, 2018	6,270,650	$	6	$	791,910	$	(592,083	)	$	199,833
Share-based compensation	—	—		1,649		—			1,649
Vesting of restricted stock units	3,400	—		—		—			—
Issuance of common shares	4,928,000	5		115,267		—			115,272
Net loss	—	—		—		(55,780		)	(55,780		)
Balance as of June 30, 2018	11,202,050	$	11	$	908,826	$	(647,863	)	$	260,974

The accompanying notes are an integral part of these condensed consolidated financial statements

MELINTA THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

~~CEMPRA,~~(Unaudited)



	Six Months Ended June 30,
	2019			2018
Operating activities
Net loss	$	(62,712	)	$	(85,212	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	8,421			8,494
Non-cash interest expense	7,909			12,225
Share-based compensation	2,207			2,373
Change in fair value of warrant and conversion liabilities	(6,276		)	(26,474		)
Loss on extinguishment of debt	346			2,595
Gain on extinguishment of lease liabilities	(914		)	—
Provision for inventory obsolescence	392			2,532
Changes in operating assets and liabilities:
Receivables	3,404			(3,169		)
Inventory	(1,060		)	(4,628		)
Prepaid expenses and other current assets and liabilities	(581		)	519
Accounts payable	(10,901		)	4,632
Accrued expenses	(4,605		)	(1,323		)
Accrued interest on notes payable	(181		)	4,105
Deposits on inventory	—			(22,983		)
Other non-current assets and liabilities	1,554			565
Net cash used in operating activities	(62,997		)	(105,749		)
Investing activities
IDB acquisition	—			(166,383		)
Purchases of intangible assets	(1,209		)	(2,000		)
Purchases of property and equipment	(12		)	(927		)
Net cash used in investing activities	(1,221		)	(169,310		)
Financing activities
Proceeds from the issuance of notes payable	—			111,421
Proceeds from the issuance of convertible notes payable to related party	75,000			—
Costs associated with the issuance of notes payable	(2,183		)	(6,455		)
Proceeds from the issuance of warrants	—			33,264
Proceeds from the issuance of royalty agreement	—			1,472
Purchase of notes payable disbursement option	—			(7,609		)
Proceeds from issuance of common stock, net, to lender	—			51,452
Proceeds from issuance of common stock, net	8			155,759
Debt extinguishment	—			(2,150		)
IDB acquisition deferred payments	(72		)	(398		)
Proceeds from the exercise of stock options, net of cancellations	—			3
Principal payments on notes payable	—			(40,000		)
Net cash provided by financing activities	72,753			296,759
Net increase in cash and equivalents	8,535			21,700
Cash, cash equivalents and restricted cash at beginning of the period	82,008			128,587
Cash, cash equivalents and restricted cash at end of the period	$	90,543		$	150,287
Supplemental cash flow information:
Cash paid for interest	$	8,762		$	4,480
Supplemental disclosure of non-cash financing and investing activities:
Accrued purchases of fixed assets	$	—		$	366

The accompanying notes are an integral part of these condensed consolidated financial statements

MELINTA THERAPEUTICS, INC.

~~September~~

June 30, ~~2017~~

2019

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data or as otherwise noted)

(Unaudited)

~~1. Description of Business~~

~~Cempra,~~

NOTE 1 – FINANCIAL STATEMENTS

The accompanying condensed consolidated financial statements have been prepared assuming Melinta Therapeutics, Inc. (the ~~“Company”~~“Company,” “we,” “us,” “our,” or ~~“Cempra”~~“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 ~~successor entity~~short-term. We have incurred losses from operations since our inception and had an accumulated deficit of ~~Cempra Pharmaceuticals, Inc. which was incorporated on November 18, 2005~~$784,497 as of June 30, 2019, and ~~commenced operations~~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 ("IDB") of The Medicines Company ("Medicines") that we completed in January ~~2006. Cempra~~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.)

In addition, under a Senior Subordinated Convertible Loan Agreement with Vatera Healthcare Partners LLC and Oikos Investment Partners LLC (formerly known as Vatera Investment Partners LLC) (together, “Vatera”), as amended in June 2019 (the "Amended Loan Agreement"), we have access to an additional $27,000 by October 31, 2019, subject to certain closing conditions. These conditions include a requirement that no default has occurred or is ~~located~~reasonably expected to occur under the terms of the Amended Loan Agreement, including the condition that the Company's audit opinion on the 2019 financial statements will not include a going concern qualification, and the Company must also establish a working capital revolver of at least $10,000. In addition, we are subject to certain financial-related covenants under the Amended Loan Agreement, including 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 $36,000 through March 2020, and thereafter, a balance of $22,500, and (iii) achieve net revenue from product sales of at least $57,375 for the year ending December 31, 2019. (See Note 4 to the consolidated financial statements for further details on the Amended Loan Agreement.)

~~The~~which would result in both our inability to draw the remaining $27,000 under the Amended Loan Agreement and an event of default under both the Deerfield Facility and Amended Loan Agreement. If an event of default occurs without obtaining waivers or amending certain covenants, the lenders could exercise their rights under the Deerfield Facility and Amended Loan Agreement to accelerate the terms of repayment. If repayment is accelerated, it would be unlikely that the Company ~~expects~~would be able to repay the outstanding amounts, including any interest and exit fees, under these credit facilities.

Due to the conditions outlined above, we are not able to conclude under FASB Accounting Standards Codification ("ASC") 205-40, Presentation of Financial Statements - Going Concern, that it is probable 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 ~~incur losses~~the recoverability and ~~require additional financial resources~~classification of liabilities that might be necessary should we be unable to ~~advance its products~~continue as a going concern.

As of June 30, 2019, the Company had $90,343 in cash and cash equivalents. We continue to ~~either commercial stage~~look for alternative sources of liquidity, including exploring options to modify the terms of certain assumed liabilities and commitments with various stakeholders and claimants, including $80,000 in payments relating to the IDB acquisition and contractually due to The Medicines Company (see Note 10). And, while we filed a claim against The Medicines Company to dispute payment of such amounts, it is not certain that we will get relief from all or ~~liquidity events. There~~any portion of these payments. In addition, in order to avoid default under our credit facilities, we are working to negotiate with our creditors to amend the terms of the respective agreements, but there can be no assurance that such negotiations will be successful.

The Company is continuing its evaluation of strategic alternatives, which may include seeking additional public or private financing, sale or merger of the Company, or other alternatives that would enhance the liquidity and ongoing continuing operations of the business. There can be no assurances that the Company will be ~~able to obtain additional debt or equity financing or generate revenues from collaborative partners, on terms acceptable to~~successful in the implementation of any of these alternatives. If our efforts described in this and the preceding paragraph are unsuccessful, the Company ~~on a timely basis or at all. The failure of the Company~~may be forced to ~~obtain sufficient funds on acceptable terms when needed could~~materially reduce its operations, which would have a material adverse effect on ~~the Company’s business,~~its results of operations, ~~and financial condition.~~

In August 2017, the Company entered into an Agreement and Plan of Merger and Reorganization (“Merger Agreement”), with Melinta Therapeutics Inc. (“Melinta”). Under the terms of the Merger Agreement, shares of Melinta stock willor it may be ~~exchanged for Company shares whereby the current shareholders of Melinta will own approximately 52% of the Company’s stock after completion of the merger. The exchange ratio is subject~~unable to adjustment based upon the following; (1) the Company’s net cash balance at the closing of the transaction, (2) incremental debt incurred by Melinta before the close of the transaction, and (3) amount of transaction-related expenses incurred by Melinta. Consummation of the transaction is subject to certain closing conditions, including, among other things, approval by the stockholders of the Company of the transactions contemplated by the Merger Agreement and related matters. The Merger Agreement contains certain termination rights for both the Company and Melinta, and further provides that, upon termination of the Merger Agreement under specified circumstances,continue as a going concern, in which case the Company may be ~~required~~forced to ~~pay Melinta~~seek relief through a termination fee of $7.9 million and/or to reimburse certain expenses incurred by Melinta in an amount up to $2.0 million. The Company is expected to change its name to Melinta Therapeutics, Inc. and tradefiling under the ~~ticker symbol MLNT after the merger closes.~~

~~2. Basis of Presentation~~

U.S. Bankruptcy Code.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

—The accompanying unaudited condensed consolidated financial statements include the accounts and results of operations of ~~Cempra~~Melinta and its ~~wholly owned~~wholly-owned subsidiaries. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).The information reflects all adjustments (consisting of only normal, recurring adjustments) necessary for a fair presentation of the information.All intercompany balances and transactions have been eliminated in consolidation.

~~Unaudited Interim Financial Data~~

The accompanying interim consolidated financial statements are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2016 contained in the Company’s Annual Report on Form 10-K. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for the fair statement of the Company’s financial position as of September 30, 2017 and the results of operations and cash flows for the three and nine-months ended September 30, 2017 and 2016. The December 31, 2016 consolidated balance sheet included herein was derived from audited consolidated financial statements, but does not include all disclosures including notes required by U.S. GAAP for complete financial statements.

Use of Estimates

—The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires ~~management~~us 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.

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 40%, 25% and 24%, respectively, of our trade receivable balance at June 30, 2019.

~~Receivables~~Fair Value of Financial Instruments

~~Receivables~~—The carrying amounts of our financial instruments, which include cash and cash equivalents, trade and other receivables, accounts payable, accrued expenses, and notes payable approximated their fair values at June 30, 2019, and December 31, 2018.

Intangible Assets—Intangible assets consist of ~~amounts billed~~capitalized milestone payments for the licenses we use to make our products and ~~amounts earned but unbilled under~~ the ~~Company’s contract with~~fair value of identifiable intangible assets acquired. Given the ~~Biomedical Advanced Research~~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. Amortization of intangible assets was $4,124 and ~~Development Authority~~$8,247, for the three and six months ended June 30, 2019, respectively, and $3,542 and $8,218 for the three and six months ended June 30, 2018, respectively. Based on the intangible asset balances as of June 30, 2019, amortization expense is expected to be approximately $8,247 for the remaining six months of 2019 and $16,495 in each of the ~~U.S. Department~~years 2020 through 2023.

Revenue Recognition—We recognize revenue from sales of ~~Health~~our commercial products and ~~Human Services (“BARDA”~~under our licensing arrangements in accordance with ASC 606, Revenue from Contracts with Customers ("ASC 606"). ~~Receivables~~

Product Sales

We recognize revenue from product sales upon the transfer of control, which depends on the delivery terms set forth in customer contracts and is generally upon delivery. Payment terms between Melinta and our customers vary by customer, but are generally between 30 and 60 days from the invoice date.

Management exercises judgment in estimating variable consideration. Provisions for prompt-pay discounts, chargebacks, rebates, wholesalers fees-for-services, group purchasing organization administration fees, voluntary patient assist programs, returns and other adjustments are recorded in the period the related sales are recognized. We provide discounts to certain hospitals and private entities, and we provide rebates to government agencies, group purchasing organizations and other private entities.

Chargebacks, rebates administration fees and discounts offered under our patient assistance programs are generally based upon the ~~BARDA contract~~contractual discounts or the volume of purchases for our products. 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 offered to certain hospitals. For the other certain discounts, we pay rebates based on the program that is ultimately utilized by the hospital or, in the retail setting, the patient under our patient assistance program. Factors used in these calculations include the identification of which products have been sold subject to a discount, rebate or administration fee, which customer, government agency, or group purchasing organization price terms apply, and the estimated lag time between the sale of the product and when the discount, rebate or administration fee is reported to us. Using historical trends, adjusted for current changes, we estimate the amount of these discounts, rebates and administration fees that will be paid, and record them as a reduction to gross sales when we recognize revenue for the sale of our products. Settlement of discounts, rebates and administration fees generally occurs from between one and six months after the initial sale to the wholesaler. We regularly analyze historical trends and make adjustments to reserves for changes in trends and terms of rebate programs. Historically, adjustments to prior periods' rebate accruals have not been material to net product sales.

For 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.

Adjustments to gross sales related to prompt-pay discounts and fees-for-services require less judgment as they are based on contractual percentages and the amounts invoiced to the wholesalers.

At the end of each reporting period, we adjust our product sales allowances when we 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 the first six months of 2019:



	Cash Discounts			Product Returns			Chargebacks			Fees-for- Service			MelintAssist			Government Rebates			Commercial Rebates			Admin Fees
Balance as of January 1, 2019	$	245		$	2,970		$	762		$	818		$	412		$	693		$	599		$	138
Allowances for sales	658			919			2,764			1,902			757			1,120			741			310
Payments and credits issued	(684		)	(681		)	(2,801		)	(1,984		)	(671		)	(653		)	(640		)	(278		)
Balance as of June 30, 2019	$	219		$	3,208		$	725		$	736		$	498		$	1,160		$	700		$	170

The allowances for cash discounts and chargebacks are recorded as ~~qualifying research activities~~contra-assets in trade receivables; the other balances are ~~conducted~~recorded in other accrued expenses.

Licensing Arrangements

We enter into license and ~~invoices from~~collaboration agreements for the Company’s vendors are received. Unbilled receivables are also recorded based upon work estimated to be complete for which the Company has not received vendor invoices. The Company carries its accounts receivable less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance based on its history of collections and write-offs and the current status of all receivables. The Company does not accrue interest on trade receivables. If accounts become uncollectible, they will be written off through a charge to the allowance for doubtful accounts. The Company has not recorded an allowance for doubtful accounts as management believes all receivables are fully collectible.

~~Research and Development Expenses~~

Research and development (“R&D”) expenses include direct and indirect R&D costs. Direct R&D consists principally of external costs, such as fees paid to investigators, consultants, central laboratories and clinical research organizations, including costs incurred in connection with clinical trials, and related clinical trial fees and all employee-related expenses for those employees working in research and development ~~functions, including stock-based compensation~~("R&D") and/or commercialization of therapeutic products. The terms of these agreements may include nonrefundable licensing fees, funding for ~~R&D personnel. Indirect R&D costs include insurance or other indirect costs related to the Company’s~~ research and development ~~function to specific product candidates. R&D costs are expensed as incurred. Expenses paid but not yet incurred are recorded in prepaid expenses.~~ ~~The Company expenses purchases of pre-approval inventory as R&D until regulatory approval is received.~~

~~Clinical Trial Accruals~~

~~As part of the process of preparing financial statements, the Company is required to estimate its expenses resulting from its obligation under contracts with vendors~~ and consultants and clinical site agreements in connection with conducting clinical trials. The Company’s objective is to reflect the appropriate clinical trial expenses in its financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. The Company determines accrual estimates through discussion with applicable personnel and outside service providers as to the progress of trials or the services completed. During the course of a clinical trial, the Company adjusts its rate of clinical trial expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low for any particular period. The Company’s clinical trial accrual is dependent upon the timely and accurate reporting of fee billings and passthrough expenses from contract research organizations and other third-party vendors as well as the timely processing of any change orders from the contract research organizations.

~~Revenue Recognition~~

~~The Company’s revenue generally consists of research related revenue under federal contracts and licensing revenue related to non-refundable upfront fees,~~manufacturing, milestone payments and royalties ~~earned under license agreements. Revenue is recognized when~~on any product sales derived from the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the products and/or services has occurred; (3) the selling price is fixed or determinable; and (4) collectability is reasonably assured.

~~For arrangements that involve~~collaborations in exchange for the delivery of ~~more than one element, each product, service and/~~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 ASC 606 or ~~right~~ASC 808, Collaborative Arrangements, 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 ~~use assets is evaluated to determine whether it qualifies as a separate unit~~some or all of ~~accounting. This determination is based on whether the deliverable has “stand-alone value” to the customer. The consideration that is fixed or determinable is~~our performance obligations, then allocated to each separate unit of accounting based on the relative selling prices of each deliverable. The consideration allocated to each unit of accounting is recognized as the related goods and services are delivered, limited to the consideration ~~that is not contingent upon future deliverables. When an arrangement~~associated with those performance obligations is accounted for as ~~a single unit of accounting, the Company determines the period over which the performance obligations will be performed and~~ revenue ~~recognized.~~

~~Milestone payments are recognized when earned, provided that (i) the milestone event is substantive; (ii) there is no ongoing performance obligation related to~~under ASC 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 ~~milestone earned; and (iii) it would result~~partner’s net product sales. Performance obligations to deliver distinct licenses are recognized at a point in ~~additional payments.~~time. Milestone payments from licensees that are contingent and/or variable upon future regulatory events and product sales are not considered ~~substantive if all~~probable of being achieved until the ~~following conditions~~milestones are ~~met:~~earned and, therefore, the ~~milestone payment~~contingent revenue is ~~non-refundable; achievement~~subject to significant risk of ~~the milestone was~~reversal. As such, we constrain this variable consideration

and do not reasonably assured at the inception of the arrangement; substantive effort is involved to achieve the milestone; and the amount of the milestone appears reasonable in relation to the effort expended, the other milestonesinclude it in the ~~arrangement,~~transaction price (or recognize the revenue related to these milestones) until such time that the contingencies are resolved and ~~the related risk associated with the achievement of the milestone. Contingent-based payments the Company may receive under a license agreement will be~~generally recognized ~~when received.~~

~~Recent Accounting Pronouncements~~

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. This new guidance clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. This guidance, as amended by ASU 2015-14, is effective for fiscal years and interim periods within those years beginning after December 15, 2017, which is effective for the Company for the year ending December 31, 2018. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies an entity’s identification of its performance obligations in a contract. The update also clarifies the guidance regarding an entity’s evaluation of the nature of its promise to grant a license of intellectual property and whether or not that revenue is recognized over time or at a point in time. In ~~May 2016,~~addition, under the ~~FASB issued ASU 2016-12, Revenue~~sales- or usage- based royalty exception in ASC 606, we do not estimate, at the onset of the arrangement, the variable consideration from ~~Contracts with Customers: Narrow-Scope Improvements~~future royalties or sales-based milestones. Instead, we wait to recognize royalty revenue until the future sales occur.

As of June 30, 2019, we do not have any contract assets or liabilities and ~~Practical Expedients, which amends the guidance~~our contracts do not have any significant financing components. And, we have not capitalized contract origination costs.

Comprehensive Loss—Comprehensive loss is equal to net loss as presented in the ~~new revenue standard on collectability, non-cash consideration, presentation~~accompanying statements of ~~sales tax,~~operations.

Advertising Expense—We record advertising expenses when they are incurred. We recognized $298 and ~~transition. In December 2016,~~$474, of advertising expense in the ~~FASB issued ASU 2016-20, Technical Corrections~~three and ~~Improvements~~six months ended June 30, 2019, respectively, and $475 and $885 in the three and six months ended June 30, 2018, respectively.

Leases—On January 1, 2019, we adopted Topic 842, Leases ("Topic 842") which requires lessees to ~~Topic 606, Revenue from Contracts with Customers which increases shareholders’ awareness~~recognize assets and liabilities for most leases at the lease inception. All of the ~~proposals~~Company's leases are operating leases, which are included in other long-term assets as operating right of use ("ROU") assets and expedites improvements to Update 2014-09. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), which allows certain public business entities to electother liabilities as operating lease liabilities in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the ~~non-public~~lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We will use the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are accounted for separately.

Segment and Geographic Information—Operating segments are defined as components of an enterprise engaging in business ~~entities effective dates~~activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to ~~adopt new standards on revenue (ASC 606)~~allocate resources and ~~leases (ASC 842). The amendments are intended to address implementation issues that were raised by stakeholders~~in assessing performance. We operate and ~~provide additional practical expedients to reduce the cost~~manage our business as one operating segment. Although substantially all of our license and ~~complexity of applying the new revenue standard. These pronouncements have the same effective date as the new revenue standard.~~

~~The Company has evaluated the~~ contract research ~~agreement~~revenue is generated from agreements with ~~BARDA, and does~~companies that are domiciled outside of the U.S., we do not ~~anticipate a material impact on~~operate outside of the ~~financial statements. The Company is currently evaluating~~U.S., nor do we have any significant assets in any foreign country. See this Note 2 for further discussion of the license ~~agreement with Toyama to determine the impact that the implementation of this standard will have~~and contract research revenue.

Recently Issued and Adopted Accounting Pronouncements

We adopted Topic 842, Leases, codified as ASC 842 on ~~the financial statements, if any. The Company plans to use the full retrospective method of adoption effective~~ January 1, ~~2018.~~

~~In February 2016, the FASB issued ASU 2016-02, Leases. The new guidance will increase transparency and comparability among organizations by recognizing lease~~2019 ("Effective Date"). ASC 842 requires lessees to recognize assets and ~~lease~~ liabilities on the balance sheet for most leases but recognize expense on the income statement in a manner similar to previous 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 or an optional transition method, whereby an entity can elect to apply the standard at the adoption date and ~~disclosing key information about leasing arrangements. This~~recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restatement of comparative prior periods. We adopted this guidance on the Effective Date, electing the optional transition method. Consequently, we did not recast the comparative periods presented in this Quarterly Report on Form 10-Q. In addition, as permitted under ASC 842, we elected several practical expedients and therefore did not reassess at the Effective Date (1) whether any existing contract is or contains a lease, (2) the classification of existing leases, (3) whether previously capitalized costs continue to qualify as initial indirect costs. We also elected not to record on the balance sheet a lease whose term is 12 months or less and does not include a purchase option that the lessee is reasonably certain to exercise. We did not elect the practical expedient to not separate lease and non-lease components.

Upon adoption of ASC 842 on the Effective Date, we recorded ROU assets of $4,768, net of historical deferred rent liabilities and aggregate charges of $1,942 to retained earnings in connection with ROU asset impairments on the Effective Date. In addition, we recorded lease liabilities of $7,411 related to facility and vehicle leases. See Note 6 for further details. The transition to ASC 842, did not result in a cumulative-effect adjustment to the opening balance of retained earnings.

Recently Issued Accounting Pronouncements Not Yet Adopted

For discussion of other issued accounting standards prior to January 1, 2019, but not yet effective, refer to Note 2. Summary of Significant Accounting Polices - Recently Issued Accounting Pronouncements Not Yet Adopted in our Annual Report on Form 10-K for the year ended December 31, 2018.

NOTE 3 – BALANCE SHEET COMPONENTS

Cash, Cash Equivalents and Restricted Cash—Cash, cash equivalents and restricted cash, as presented on the Condensed Consolidated Statements of Cash Flows, consisted of the following:



	June 30, 2019		December 31, 2018
Cash and cash equivalents	$	90,343	$	81,808
Restricted cash (included in Other Assets)	200		200
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	90,543	$	82,008

Accounts Receivable—Accounts receivable consisted of the following:



	June 30, 2019		December 31, 2018
Trade receivables	$	10,573	$	11,509
Contracted services	8,031		10,293
Other receivables	477		683
Total receivables	$	19,081	$	22,485

Inventory—Inventory consisted of the following:



	June 30, 2019			December 31, 2018
Raw materials	$	28,838		$	24,507
Work in process	10,658			11,700
Finished goods	9,276			12,204
Gross value of inventory	48,772			48,411
Less: valuation reserves	(6,729		)	(7,070		)
Total inventory	$	42,043		$	41,341

Other Assets—Other assets consisted of the following:



	June 30, 2019		December 31, 2018
Deerfield disbursement option (see Note 4)	$	7,609	$	7,608
Long-term inventory deposits	47,615		51,127
Other assets	1,356		2,391
Right-of-use assets	4,575		—
Restricted cash	200		200
Total other assets	$	61,355	$	61,326

Long-term inventory deposits consist of advances made to contract manufacturers for production of drug products, principally API for Vabomere. These Vabomere advances were related to contractual commitments assumed under long-term contract manufacturing agreements in connection with a previously acquired entity. As deliveries are made, we transfer appropriate amounts from inventory deposits to inventory.

Accrued Expenses—Accrued expenses consisted of the following:



	June 30, 2019		December 31, 2018
Accrued contracted services	$	3,223	$	2,909
Payroll related expenses	9,223		15,585
Professional fees	189		3,598
Accrued royalty payments	1,883		2,052
Accrued sales allowances	6,473		5,630
Accrued other	6,269		4,150
Total accrued expenses	$	27,260	$	33,924

Accrued contracted services are primarily comprised of amounts owed to third-party clinical research organizations for research and development work and contract manufacturers for research and commercial drug product manufacturing performed on behalf of Melinta, and amounts owed to third-party marketing organizations for work performed to support the commercialization and sale of our products.

Accrued payroll related expenses are primarily comprised of accrued employee termination benefits, bonus and vacation.

Deferred Purchase Price and Other Liabilities—Other liabilities consisted of the following:



	June 30, 2019		December 31, 2018
Deferred purchase price	$	51,107	$	48,394
Milestone liability	30,000		30,000
Lease liabilities, current	1,924		—
Total deferred purchase price and other liabilities	$	83,031	$	78,394

Other Long-Term Liabilities—Other liabilities consisted of the following:



	June 30, 2019		December 31, 2018
Lease liabilities, net of current	$	3,567	$	—
Long-term accrual royalties	657		2,230
Long-term deferred purchase price	5,018		4,708
Other long-term liabilities	17		506
Total other long-term liabilities	$	9,259	$	7,444

NOTE 4 – FINANCING ARRANGEMENTS

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.

In January 2018, we retired the 2017 Loan Agreement with the execution of the Facility Agreement (discussed below), in connection with which we recognized a debt extinguishment loss of $2,595 comprised of prepayment penalties and exit fees totaling $2,150 and unamortized debt issuance costs of $445.

Facility Agreement

On January 5, 2018 (the “Agreement Date”), we entered into the Facility Agreement (the “Facility Agreement”) with affiliates of Deerfield Management Company, L.P. (collectively, “Deerfield”). Pursuant to the terms of the Facility Agreement, (i) we issued 625,569 shares of our common stock to Deerfield at a price of $67.50 on January 5, 2018, for total proceeds of $42,226, pursuant to a Securities Purchase Agreement, and (ii) Deerfield loaned us $147,774 as an initial disbursement (the “Term Loan”), for total proceeds of $190,000. We used the proceeds from the Facility Agreement to retire the 2017 Loan Agreement (discussed above) and to fund the IDB acquisition on the Agreement Date.

Under the terms of the Facility Agreement, we have 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 over a trailing two-quarter period prior to the end of 2019. 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%.

On January 14, 2019, in conjunction with the Vatera Loan Agreement (discussed below), we entered into an amendment to the Facility Agreement (the “Deerfield Facility Amendment”). The Deerfield Facility Amendment was a condition (among other conditions) to the funding of the Vatera Loan Agreement, and became effective upon the funding of the initial $75,000 disbursement under the Vatera Loan Agreement in February 2019.

The Deerfield Facility Amendment (i) modified the definition of “change of control” under the Deerfield Facility to permit Vatera and their respective affiliates to own 50% or more of the equity interests in Melinta on a fully diluted basis; (ii) modified the definition of “Indebtedness” under the Deerfield Facility to exclude certain specific payments under (a) 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 (b) the Purchase and Sale Agreement, dated as of November 28, 2017, between The Medicines

Company and Melinta Therapeutics, Inc.; (iii) modified the definition of “Permitted Indebtedness” under the Deerfield Facility to permit the payment of a certain amount of the interest on the Vatera Loan Agreement (described below) in cash; (iv) eliminated the requirement that the Company’s audited financial statements for the fiscal ~~years beginning~~year ending December 31, 2018, be delivered without an explanatory paragraph expressing doubt as to the Company’s status as a going concern; (v) reduced the net sales covenant set forth in the Facility Agreement for all periods after December ~~15,~~31, 2018, by 15% (we must now achieve net product sales of at least $63,750 during 2019 and ~~interim periods within those fiscal years.~~at least $85,000 during 2020); (vi) requires the Company to hold a minimum cash balance of $40,000 through March 31, 2020, and $25,000 thereafter; (vii) increased the exit fee under the Deerfield Facility from 2% to 4%; and (viii) made certain other technical modifications, including to accommodate the Vatera Loan Agreement. The requirement to achieve annualized net sales of $75,000 over a trailing two-quarter period by the end of 2019 in order to draw the Disbursement Option was not amended.

The Deerfield Facility Amendment also provided for the conversion of up to $74,000 in principal ("Convertible Notional Amount") amount of the Term Loan 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 this option 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. Deerfield's conversion rights are subject to a 4.985% beneficial ownership cap based on the total number of shares of the Company’s common stock outstanding. However, this will not prevent Deerfield from periodically converting 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.

The Deerfield Facility Amendment also provided for $5,000 of convertible loans that were deemed funded by Deerfield upon the initial funding under the Vatera Loan Agreement, with terms identical to the Vatera Loan Agreement (the "Deerfield Portion" of the Loan Agreement (see Vatera Loan Agreement discussion below).

In addition, the Company is ~~currently evaluating~~required to reserve and keep available a sufficient number of shares of common stock for the ~~impact~~purpose of enabling the Company to issue all of the underlying shares of common stock issuable pursuant to the Deerfield's conversion rights under the Facility Agreement, as amended, and under the Loan Agreement.

We concluded that the ~~implementation~~amendment represented a debt modification and not a new debt arrangement that extinguished the former arrangement. As such, the fair value of any new instruments or features and any fees paid to Deerfield in connection with the amendment are added to the discount balance of the Term Loan immediately prior to the amendment and amortized to interest expense over the remaining term.

Based on an analysis of the provisions and features contained in the Deerfield Facility Amendment, we concluded that arrangement contained a share-settled redemption feature that is required to be bifurcated and recorded at fair value (the "Conversion Right") as a derivative liability. Therefore, the Company performed a valuation, in accordance with ASC 820, Fair Value Measurements ("ASC 820"), to determine the fair value of the Conversion Right, which will reduce the carrying amount of the Term Loan and the value of which, will be amortized over the remaining term of the Term Loan utilizing the effective interest method. The terms of these instruments and the methodology and assumptions used to value each of them are discussed below.

Conversion Right

The initial fair value of the Conversion Right was determined to be $18,962 using a "with and with-out" model. The with and with-out model compares the fair value of the amended Term Loan with the Conversion Right, which assumes the full Convertible Notional Amount is converted based on market conditions and other factors at the amendment date, which is based on an option pricing technique, compared with the fair value of the Term Loan assuming no Conversion Right, which is based on a discounted cash flow ("DCF") analysis of the contractual terms of the Convertible Notional Amount.

The significant assumptions or inputs used in the with and with-out model used to estimate the fair value of the Convertible Notional Amount were: the price of our common stock on the amendment date, an expected volatility of 80%, and an estimated yield of 20.6%. Due to the inherent uncertainty of determining the fair value of the Convertible Notional Amount using Level 3 inputs, the fair value may differ significantly from the values that would have been used had a ready market or observable inputs existed. We will remeasure this ~~standard~~Conversion Right liability at fair value at each quarterly reporting period.

The fair value of the Conversion Right liability was $11,869 as of June 30, 2019. The change in fair value of the Conversion Right liability was recorded as a gain in fair value of $367 and $6,367, in the three and six months ended June 30, 2019, respectively, and $726 was recorded as an offset to loss on extinguishment of debt (because of the conversion discussed below) in the six months ended June 30, 2019.

In March 2019, Deerfield converted principal of $2,833 under the Term Loan at a rate of $5.15 per share, resulting in the issuance of 550,000 shares of common stock. We recognized a loss on extinguishment of debt of $346, related primarily to the write off of unamortized debt issuance costs associated with the converted principal amount, partially offset by the gain discussed in the previous paragraph.

After the end of the quarter, in July 2019, Deerfield converted principal of $11,633 under the Term Loan at a weighted-average rate of $6.06 per share, resulting in the issuance of 1,920,794 new shares of common stock.

Term Loan

The Deerfield Facility Amendment increased the exit fee from 2.0% to 4.0%. Therefore, total required future cash payments are $153,685 (Term Loan principal of $147,774 plus exit fee of $5,911). The exit fee cost is being accreted as additional interest expense over the life of the loan. After adjusting for the Conversion Right, the effective interest rate is 30.0%. The total cost of all items (cash-based interest payments, upfront fees and costs, and the 4% exit fee) is being expensed as interest expense using the effective interest rate of 30.0%. All amounts were recorded as interest expense in our statement of operations.

The $2,833 of principal converted to common shares in March 2019, was carried on the books at the discounted value of $1,694 on the day of conversion. After deducting the $2,833 of principal converted to common shares (and the avoidance of paying the 4.0% exit fee on the amount converted), the new remaining amount of required future cash payments was reduced to $150,739 (remaining term loan principal of $144,941 plus exit fee of $5,798). The Facility Agreement allows for prepayment beginning only 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%. As such, if we were to refinance the Term Loan in January 2021, the prepayment penalties would be approximately $15,000.

Under the Facility Agreement, as amended, the accretion of the principal of the term loan, conversion redemptions, and the future payments, including the 4.0% exit fee due at the end of the term, but excluding the 11.75% rate applied to the $147,774 note per the form of the Facility Agreement, at June 30, 2019, are as follows:



	Beginning Balance		Record Conversion Right and Issuance Costs					Accretion Expense(2)		Principal Payments and Exit Fee (2)			Conversion			Ending Balance
January 5 - December 31, 2018	$	104,966						$	5,510	—			$	—		$	110,476
January 1 - June 30, 2019	110,476		(23,621		)	(1	)	4,330		—			(1,694		)	89,491
July 1 - December 31, 2019 (3)	89,491							5,366		—			—			94,857
Year Ending December 31, 2020	94,857							13,284		—			—			108,141
Year Ending December 31, 2021	108,141							18,044		—			—			126,185
Year Ending December 31, 2022	126,185							17,459		(69,089		)	—			74,555
Year Ending December 31, 2023	74,555							7,079		(75,370		)	—			6,264
Year Ending December 31, 2024	6,264							16		(6,280		)	—			—
			$	(23,621	)			$	71,088	$	(150,739	)	$	(1,694	)

(1.)

Consists of $18,962, representing the day-one fair value of the conversion right, and $4,659, which is comprised of (a) additional issuance costs of $408, and (b) the initial fair value of the Deerfield Portion of the Vatera Loan Agreement of $4,251; as we did not receive cash from Deerfield but, rather, issued the Deerfield Portion in consideration for amending the Facility Agreement, the $4,251 is treated as debt issuance costs. The total of $23,621 will be accreted over the remaining life of the loan.


(2.)	Accretion expense, principal payments and the exit fee will be reduced each time Deerfield exercises their conversion right.


(3.)	The table does not reflect any conversions made after June 30, 2019.

As of June 30, 2019, as reflected in the table above, the carrying value of the Facility Agreement was $89,491; this amount, combined with $4,330, the carrying value of the amount payable for the Deerfield Portion of the Vatera Loan Agreement, including interest and accretion expense, equals the amount of the notes payable to Deerfield on our consolidated balance sheet of $93,821.

Vatera Loan Agreement

On December 31, 2018, we entered into a Senior Subordinated Convertible Loan Agreement (the “Loan Agreement”) with Vatera, a related party, for $135,000 ("Vatera Portion"), and on January 14, 2019, we amended the Loan Agreement pursuant to which, among other things, Deerfield was deemed to have funded an additional $5,000 ("Deerfield Portion") 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, including the execution of the Deerfield Facility Amendment.

The proceeds of the Convertible Loans will ~~have~~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 conversion rate for common stock is $8.00 per share. The preferred stock is non-participating, convertible preferred stock, with no preferred dividend rights or voting rights. However, the preferred stock may participate in common stock dividends on the Company’s ~~consolidated~~common stock on an as-converted basis 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 in February 2019, $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. (The amount of additional Convertible Loans available to us was reduced when we and Vatera amended the Loan Agreement terms in June 2019 - please refer to Vatera Loan Amendment section below.)

Among the conditions precedent, the Loan Agreement required the approval of the shareholders of Melinta 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. In addition, before each draw, these conditions include a requirement that no default is reasonably expected to occur under the terms of the Amended Loan Agreement, including the condition that the Company's audit opinion on the 2019 financial ~~statements.~~

statements does not include a going concern qualification, and the Company must also establish a working capital revolver of at least $10,000 to draw the last tranche under the Agreement. Melinta drew the first tranche ("Initial Draw") of $75,000 on February 22, 2019 ("Initial Draw Date"), at which time we deemed issuance of the $5,000 Deerfield Portion, for a total of $80,000 outstanding. On February 19, 2019, at a Special Meeting of the shareholders, the shareholders approved both a reverse stock split and an increase of the authorized shares, only one of which was to be implemented by the board of directors, as well as the issuance of the Convertible Notes. the board of directors implemented a 1-for-5 reverse split on February 22, 2019.

Based on an analysis of the provisions and features contained in the Loan Agreement, including the embedded conversion option, we recognized the Convertible Loans as a liability in its entirety. Since Vatera is a related party as Melinta's largest shareholder, and the Convertible Notes contained below-market terms, we determined that the par value did not represent the fair value of the Convertible Notes. Therefore, the Company performed a valuation, in accordance with ASC 820, to determine the appropriate discount to apply to the principal amount of the Convertible Notes, which was deemed a capital contribution from a related party.

We used a convertible bond lattice model to estimate the fair value of the Convertible Notes (Level 3 inputs), which resulted in an estimated fair value of the Vatera Portion of $63,758 on the Initial Draw Date. The related discount and capital contribution of $11,242 ("Valuation Discount") was recorded as a reduction in the carrying amount of the Convertible Notes with an offsetting amount recorded to additional paid-in-capital. The estimated fair value of the Deerfield Portion of the Convertible Loans, for which Melinta did not receive cash but was, rather, consideration for amending the Deerfield Credit Facility, was $4,251, which was recorded as additional debt issuance costs on the Deerfield Term Loan. The discount of $749 was recorded as a discount to the Deerfield Portion of the Convertible Loans. We concluded that there was no beneficial conversion feature present given the conversion price is not "in the money" and that we are not required to revalue the Convertible Notes at the end of each reporting period.

The significant assumptions or inputs used in the convertible bond lattice model used to estimate the fair value of the Convertible Notes were: the price of our common stock on the Initial Draw Date, an expected volatility of 76%, and an estimated yield of 29.8%. Due to the inherent uncertainty of determining the fair value of the Convertible Notes using Level 3 inputs, the fair value may differ significantly from the values that would have been used had a ready market or observable inputs existed.

In ~~March 2016,~~connection with the ~~FASB issued ASU 2016-09, Compensation-Stock Compensation.~~Initial Draw, the Company incurred debt issue costs of $1,775, which is being amortized as additional interest expense over the term of the Convertible Loans. In addition, we will accrete the Interim Exit Fee as additional interest expense over the term of the Convertible Loans, which will ultimately total $928. The ~~new guidance simplifies several aspects~~total cost of all items (cash and paid-in kind interest ("PIK interest") expense as well as amortization/accretion of the debt issuance costs, the Interim Exit Fee, and the Valuation Discount) is being recognized as interest expense using an effective interest rate of approximately 8.6%.

The following table summarizes the fair value of the Convertible Notes on the Initial Draw Date:



Principal amount of Convertible Loans	$	80,000
Discount and related capital contribution associated with below market terms of Convertible Loans	(11,242		)
Discount on Deerfield portion of Convertible Loans	(749		)
Debt issue costs	(1,775		)
Carrying value at the Initial Draw Date	$	66,234

Of the $66,234, $4,251 was the initial carrying value of the Deerfield Portion, and $61,983 (net of $1,775 of debt issuance costs) was the initial carrying value of the Vatera Portion.

The accretion of the principal of the Loan Agreement, PIK interest, and the future payments, including the exit fees due at the end of the term, for the $80,000 outstanding under the arrangement (including the $5,000 "Deerfield Portion"), are as follows:



	Beginning Balance		Additional Draws	Paid-in Kind Interest		Accretion Expense		Principal Payments and Exit Fee			Ending Balance
February 25 - June 30, 2019	$	66,234		$	718	$	617	$	—		$	67,569
July 1 - December 31, 2019	67,569			1,035		931		—			69,535
Year Ending December 31, 2020	69,535			2,098		2,037		—			73,670
Year Ending December 31, 2021	73,670			2,146		2,296		—			78,112
Year Ending December 31, 2022	78,112			2,200		2,586		—			82,898
Year Ending December 31, 2023	82,898			2,257		2,905		—			88,060
Year Ending December 31, 2024	88,060			2,321		3,264		—			93,645
Year Ending December 31, 2025	93,645			38		57		(93,740		)	—
Total				$	12,813	$	14,693	$	(93,740	)

Of the $67,569 carrying value of the Convertible Notes as of June 30, 2019, as reflected in the table above, $63,239 related to the Vatera Portion and $4,330 related to the Deerfield Portion.

Vatera Loan Amendment

On June 28, 2019, we and Vatera agreed to an amendment to the Loan Agreement (the “Loan Agreement Amendment”) to provide for certain modifications, including an extension of the period to draw the remaining unfunded commitments under the Loan Agreement to October 31, 2019 and a reduction of such commitments to $27,000 (replacing the $60,000 of unfunded commitments that were previously available for borrowing under the Loan Agreement). Our ability to borrow the additional $27,000 remains subject to satisfaction of certain conditions precedent set forth in the original Loan Agreement, including, without limitation: the absence of a material adverse effect on the Company; the absence of a default or event of default under the Loan Agreement and no such default or event of default being reasonably expected to occur; accuracy of the representations and warranties made by the Company and its subsidiaries under the Loan Agreement and the related loan documents in all material respects; and the common stock of the Company remaining listed on NASDAQ or another eligible market.

Interest

We recorded amortization expense and cash interest for the Facility Agreement and Loan Agreement in the three and six months ended June 30, 2019 and 2018, as follows. All amounts were recorded as interest expense in our statement of operations.



	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Facility Agreement
Amortization	2,368	1,373	4,331	2,497
Cash Interest	4,305	4,389	8,534	8,585
Total	6,673	5,762	12,865	11,082
Loan Agreement
Amortization	439	—	617	—
Cash Interest	507	—	718	—
Total	946	—	1,335	—

NOTE 5 – FAIR VALUE MEASUREMENTS

The provisions of the accounting standard for ~~share-based payment transactions, including~~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 is an explanation of the valuation techniques used in establishing fair value for our Level 3 liabilities held at fair value on a recurring basis. Depending on the complexity of the valuation technique we may engage a third-party professional service provider to assist us in determining the fair value.

Royalty Contingent Consideration from IDB Acquisition

We estimate the fair value of the royalty contingent consideration from the IDB acquisition by a applying an option-pricing model in conjunction with a DCF technique. This methodology includes applying a Black-Scholes option-pricing model to evaluate the royalty payments based on projected net sales of the related products, which are then discounted using a credit risk adjusted rate to arrive at the present value.

Changes to the royalty contingent consideration, 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 ("SG&A") expenses within the accompanying consolidated statements of operations.

Warrant liability

We estimate the fair value of the common stock warrants acquired by Deerfield in connection with the Deerfield Facility Agreement by applying a Black-Scholes option-pricing model. The significant inputs include the risk-free interest rate, remaining contractual term, and expected volatility.

We remeasure the warrant liability as of the end of each quarterly reporting period and record increases or decreases in estimated fair value in change in fair value of warrant and conversion liabilities within the accompanying consolidated statement of operations.

Conversion right liability

We estimate the fair value of the Conversion Right using a "with and with-out" model. The with and with-out model compares the fair value of the amended Term Loan with the Conversion Right, which assumes the full Convertible Notional Amount is converted based on market conditions and other factors at the measurement date, which is based on an option pricing technique, compared with the fair value of the Term Loan assuming no Conversion Right, which is based on a DCF analysis of the contractual terms of the Convertible Notional Amount. The significant inputs used in the with and with-out model used to estimate the fair value of the Convertible Notional Amount are the price of our common stock on the measurement date, expected volatility, and estimated yield.

We remeasure Conversion Right liability as of the end of each quarterly reporting period and record increases or decreases in estimated fair value in change in fair value of warrant and conversion liabilities within the accompanying consolidated statement of operations.

The following table lists our assets and liabilities that are measured at fair value and the level of the lowest significant inputs used to measure their fair value at June 30, 2019, and December 31, 2018. The money market fund is included in cash and cash equivalents on the balance sheet; the other items are in the captioned line of the balance sheet.



	As of June 30, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Money market fund	$	33,263	$	—	$	—	$	33,263
Total assets at fair value	$	33,263	$	—	$	—	$	33,263

Liabilities:
Current royalty contingent consideration from IDB acquisition	$	—	$	—	$	1,179	$	1,179
Long-term royalty contingent consideration from IDB acquisition	—		—		5,018		5,018
Warrant liability	—		—		129		129
Conversion liability (see Note 4)	—		—		11,869		11,869
Total liabilities at fair value	$	—	$	—	$	18,195	$	18,195



	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

The following tables provide quantitative information about valuation techniques and the Company’s significant inputs to the Company’s Level 3 fair value measurements as of June 30, 2019, and December 31, 2018. The table below is not intended to be exhaustive, but rather provides information on the significant Level 3 inputs as they relate to our fair value measurements.



	Fair Value at June 30, 2019		Valuation technique	Unobservable inputs	Range (Weighted average)
Liabilities:
Royalty contingent consideration from IDB acquisition	$	6,197	Option pricing / DCF	Net sales	N/A
				Asset volatility	51.7% (N/A)
				Credit spread	20.0% (N/A)

Warrant liability	129		Option pricing	Volatility	50.0%

Conversion liability	11,869		Option pricing / DCF	Volatility	96% (N/A)
				Yield	17.3% (N/A)
Total liabilities at fair value	$	18,195



	Fair Value at December 31, 2018		Valuation technique	Unobservable inputs	Range (Weighted average)
Liabilities:
Royalty contingent consideration from IDB acquisition	$	5,714	Option pricing / DCF	Net sales	N/A
				Asset volatility	51.7% (N/A)
				Credit spread	20.0% (N/A)

Warrant liability	38		Option pricing	Volatility	50.0%

Total liabilities at fair value	$	5,752

Significant increases or decreases in any of these inputs in isolation would result in a significantly different estimated fair value measurement. Generally, an increase in net sales or volatility, and a decrease in yield or credit spread, would result in an increase in the estimated fair value of the liabilities in the preceding table that contain such input.

The following table summarizes the changes in fair value of our Level 3 assets and liabilities for the six months ended June 30, 2019 (there were no transfers into or out of Level 3 assets or liabilities during the period):



Level 3 Liabilities	Fair Value at December 31, 2018		Accretion Recorded in Interest Expense		Change in Unrealized Gains (Losses)			(Issuances) Settlements, Net			Net Transfer Between Liabilities			Fair Value at June 30, 2019
Current royalty contingent consideration from IDB acquisition	$	1,006	$	347	$	—		$	(793	)	$	619		$	1,179
Long-term royalty contingent consideration from IDB acquisition	4,708		929		—			—			(619		)	5,018
Warrant liability	38		—		91			—			—			129
Conversion liability (see Note 4)	—		—		(6,367		)	18,236			—			11,869
Total liabilities at fair value	$	5,752	$	1,276	$	(6,276	)	$	17,443		$	—		$	18,195

NOTE 6 – LEASES

As of June 30, 2019, we were a lessee under three operating lease agreements for office facilities and an operating lease for vehicles for our field-based employees, principally sales representatives.

As more fully described in Note 2, we adopted ASC 842 on January 1, 2019 ("Effective Date"), which requires lessees to recognize assets and liabilities on the balance sheet for most leases recognize expense on the income ~~tax consequences, classification~~statement in a manner similar to previous accounting. We elected the optional transition method, whereby an entity can elect to apply the standard at the Effective Date and recognize a cumulative-effect adjustment to the opening balance of ~~awards~~retained earnings in the period of adoption without restatement of comparative prior periods. Consequently, the prior comparative period’s financials will remain the same as ~~either equity~~those previously presented. In addition, the transition to ASC 842 did not result in a cumulative-effect adjustment to the opening balance of retained earnings.

The company has not elected the practical expedient under which the lease components would not be separated from the nonlease components. Therefore, the Company allocates the total transaction price to the lease component and nonlease components on a relative stand-alone price basis obtained from the lessor. Our facility leases include one or more options to renew, with renewal terms that can extend the lease term from three to five years. As of June 30, 2019, the renewal options were not reasonably certain; therefore, the payments associated with renewal were excluded from the measurement of the lease liabilities and ~~classification on the statement of cash flows.~~ROU assets at June 30, 2019. The Company ~~adopted~~determined that there was no discount rate implicit in its leases. Thus, the Company used its incremental borrowing rate of 15% to discount the lease payments in determination of its ROU assets and lease liabilities for all leases.

Upon adoption of Accounting Standards Update 2016-02, Topic 842-Leases, we determined our ROU assets related to the operating leases for our principal research facility in New Haven, Connecticut, and our office facilities in Chapel Hill, North Carolina were impaired and therefore reduced to a fair value of zero with a corresponding charge to retained opening earnings of $1,942. See Note 2 for further details.

In March 2019, we terminated our operating lease for our principal research facility in New Haven, Connecticut. In connection with the termination, we agreed to pay the lessor a $462 early termination fee. As a result, we reduced the lease liability equal to the termination fee and recorded a gain of $792, which was recorded in other income. In May 2019, we amended our operating lease in Chapel Hill, North Carolina, which resulted in the termination of certain of our office facilities in that location, the remaining of which we do not occupy. We paid the lessor a termination of $154, which was recorded in other expense. As of June 30, 2019, the lease liability associated with this ~~guidance~~lease was $197.

Lease cost recognized under ASC 842 was $424 and $897, respectively, for the three and six months ended June 30, 2019. Lease cost for the three and six months ended June 30, 2018 was $811 and $1,144, respectively, recognized under ASC 840, the lease accounting standard in effect prior to 2019.

As of June 30, 2019, the Company's net ROU assets and lease liabilities were as follows:



	Classification	June 30, 2019
Assets
Total operating lease assets	Other assets	$	4,575
Liabilities
Current	Deferred purchase price and other liabilities	1,924
Noncurrent	Other long-term liabilities	3,567
Total operating lease liabilities		$	5,491

As of ~~January 1, 2017.~~ June 30, 2019, the maturities of the Company's lease liabilities were as follows:



Maturity of Lease Liabilities	Amount
Remainder of 2019	$	1,025
2020	2,056
2021	1,952
2022	1,233
2023	638
After 2023	156
Total operating lease payments	$	7,060
Less: Interest	(1,569		)
Present value of operating lease liabilities	$	5,491

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting standard, ASC 840, the total commitment for our non-cancelable operating lease was $8,568 as of December 31, ~~2016,~~2018:



Maturity of Lease Liabilities	Amount
2019	$	2,348
2020	2,269
2021	1,827
2022	1,238
2023	624
2024 and thereafter	262
Total operating lease payments	$	8,568

As of June 30, 2019, the weighted average remaining lease term was 3.6 years, calculated on the basis of the remaining lease term and the lease liability balance of each lease.

The following table sets forth supplemental cash flow information for the six months ended June 30, 2019:



	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,622
Right of use assets obtained in exchange for lease obligations	$	378

NOTE 7 – STOCK-BASED COMPENSATION

In the first six months of 2019, we granted 64,400 stock options and 1,702,500 restricted stock units under our incentive stock plans. At June 30, 2019, approximately 261,700 shares were reserved for future grants. As of June 30, 2019, there were 1,655,500 restricted stock unit awards outstanding, and details regarding the number of options outstanding and exercisable as of June 30, 2019, are as follows:



	Outstanding		Exercisable
Number of shares	592,992		204,023
Weighted-average remaining life	8.4		7.2
Weighted-average exercise price	$	49.20	$	91.42
Intrinsic value	$	—	$	—

The total unrecognized share-based compensation expense at June 30, 2019, was approximately $13,356, which is expected to be recognized over the next 2.3 years.

Stock-based compensation expense recognized in the three and six months ended June 30, 2019 and 2018, was as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Cost of goods sold	$	—	$	—	$	—	$	—
Research and development	179		166		258		295
Selling, general and administrative	1,136		1,379		1,949		2,078
Total	$	1,315	$	1,545	$	2,207	$	2,373

No related tax benefits associated with stock-based compensation expense have been recognized due to our net losses.

NOTE 8 – INCOME TAXES

At the end of each interim period, the Company ~~has accumulated excess~~makes its best estimate of the effective tax ~~benefits from temporary differences~~rate expected to be applicable for the full calendar year and uses that rate to provide for income taxes on a current year-to-date basis before discrete items. If a reliable estimate cannot be made, the Company may make a reasonable estimate of the annual effective tax rate, including use of the actual effective rate for the year-to-date. The impact of the discrete items is recorded in the ~~amount and timing of stock compensation expense and the Company’s deductions on its income tax return from the award compensation that reduces the net operating loss deferred tax asset.~~ quarter in which they occur.

The Company ~~provided a full valuation allowance against its net~~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, ~~since it has been determined that~~the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be ~~realized. Upon implementation~~realized through the generation of future taxable income. In making this ~~standard,~~determination, the ~~stock compensation excess tax benefit will be eliminated, resulting in an increase to~~Company assessed all of the ~~net operating loss~~evidence available at the time including recent earnings, forecasted income projections, and historical financial performance. The Company has fully reserved deferred tax ~~asset, with an increase in the valuation allowance of the same. The implementation of this standard has no impact on the Company’s consolidated financial statements.~~

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. This new guidance is effective for fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact that the implementation of this standard will have on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business which revises the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This new guidance is effective for fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact that the implementation of this standard will have on the Company’s consolidated financial statements.

fiscal years beginning after December 15, 2017. The Company is currently evaluating the impact that the implementation of this standard will have on the Company’s consolidated financial statements.

~~3. Fair Value of Financial Instruments~~

~~The carrying values of cash and equivalents, receivables, prepaid expenses, and accounts payable at September 30, 2017 approximated their fair values due to the short-term nature of these items.~~

The Company’s valuation of financial instruments is based on a three-tiered approach, which requires that fair value measurements be classified and disclosed in one of three tiers. These tiers are: Level 1, defined as quoted prices in active markets for identical assets or liabilities; Level 2, defined as valuations based on observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable input data; and Level 3, defined as valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.

At September 30, 2017 and December 31, 2016, the Company held money market funds classified as Level 1 financial instruments of $173.0 million and $228.5 million, respectively. The carrying value of the Term Loan (defined and discussed in Note 7), which is classified as a Level 2 liability, approximates its fair value. At September 30, 2017, the carrying value was $10.3 million. There were no transfers between levels of the fair value hierarchy for any assets or liabilities measured at fair value in the nine months ended September 30, 2017.

~~4. Significant Agreements and Contracts~~

~~License Agreements~~

~~Optimer Pharmaceuticals, Inc.~~

In March 2006, the Company, through its wholly owned subsidiary, Cempra Pharmaceuticals, Inc., entered into a Collaborative Research and Development and License Agreement (“Optimer Agreement”) with Optimer Pharmaceuticals, Inc. (“Optimer”) which was acquired by Cubist Pharmaceuticals, Inc. in October 2013, which was in turn acquired by Merck in January 2015. Under the terms of the Optimer Agreement, the Company acquired exclusive rights to further develop and commercialize certain Optimer technology worldwide, excluding member nations of the Association of Southeast Asian Nations (“ASEAN”).

In exchange for this license, during 2006 and 2007, the Company issued an aggregate of 125,646 common shares with a total fair value of $0.2 million to Optimer. These issuances to Optimer were expensed as incurred in research and development expense.

In July 2010, the Company paid a $0.5 million milestone payment to Optimer after the successful completion of its first solithromycin Phase 1 program. In July 2012, the Company paid a $1.0 million milestone after the successful completion of its first solithromycin Phase 2 program. Both milestones were expensed as incurred in research and development expense. Under the terms of the Optimer Agreement, the Company will owe Optimer additional payments, contingent upon the achievement of various development, regulatory and commercialization milestone events. One such milestone event would be owed upon FDA approval of solithromycin which would result in a payment to Optimer of $9.5 million. The aggregate amount of such milestone payments the Company may need to pay is based in part on the number of products developed under the agreement and would total $27.5 million (including the two milestone payments made to date and the milestone payment for FDA approval) if four products are developed and gain FDA approval. The Company will also pay tiered mid-single-digit royalties based on the amount of annual net sales of its approved products.

~~The Scripps Research Institute~~

In June 2012, the Company entered into a license agreement with The Scripps Research Institute (“TSRI”), whereby TSRI licensed to the Company rights, with rights of sublicense, to make, use, sell, and import products for human or animal therapeutic use that use or incorporate one or more macrolides as an active pharmaceutical ingredient (“API”) and is covered by certain patent rights owned by TSRI claiming technology related to copper-catalysed ligation of azides and acetylenes. The rights licensed to the Company are exclusive as to the People’s Republic of China (excluding Hong Kong), South Korea and Australia, and are non-exclusive in all other countries worldwide, except ASEAN member-nations, which are not included in the territory of the license. Under the terms of the agreement with TSRI, the Company paid a one-time only, non-refundable license issue fee in the amount of $0.4 million which was charged to research and development expense in the second quarter of 2012.

The Company is also obligated to pay annual maintenance fees to TSRI in the amount of (i) $50,000 each year for the first three years (beginning on the first anniversary of the agreement), and (ii) $85,000 each year thereafter (beginning on the fourth anniversary of the agreement). Each calendar 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, the Company must pay TSRI low single-digit percentage royalties on the net sales of the products covered by the TSRI patents for the life of the TSRI patents, a low single-digit percentage of non-royalty sublicensing revenue received with respect to countries in the nonexclusive territory and a mid-single-digit percentage of sublicensing revenue received with respect to countries in the exclusive territory, with the sublicensing revenue royalty in the exclusive territory and the sales royalties subject to certain reductions under certain circumstances. TSRI is eligible to receive milestone payments of up to $1.1 million with respect to regulatory approval in the exclusive territory and first commercial sale, in each of the exclusive territory and nonexclusive territory, of the first licensed product to achieve those milestones that is based upon each macrolide covered by the licensed patents. Each milestone is payable once per each macrolide. Each milestone payment made to TSRI with respect to a particular milestone will be creditable against any payment due to TSRI with respect to any sublicense revenues received in connection with the achievement of such milestone. Pursuant to the terms of the Optimer Agreement, any payments made to TSRI under this license for territories subject to the Optimer Agreement can be deducted from any sales-based royalty payments due under the Optimer Agreement up to a certain percentage reduction of the royalties due to Optimer.

Under the terms of the agreement, the Company is also required to pay additional fees on royalties, sublicensing and milestone payments if the Company, an affiliate with the Company, or a sub licensee 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. In December 2014, the Company paid a $0.2 million milestone payment to TSRI in relation to license and milestone payments received under the license agreement with Toyama (discussed below).

The term of the license agreement (and the period during which the Company 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) the Company fails to cure any non-payment or default on its indemnity or insurance obligations, (ii) the Company declares insolvency or bankruptcy, (iii) the Company is convicted of a felony relating to the development, manufacture, use, marketing, distribution or sale of any products licensed under the agreement, (iv) the Company fails to cure any underreporting or underpayment by a certain amount in any 12-month period, or (v) the Company fails to cure any default on any other obligation under the agreement. The Company may terminate the agreement with or without cause upon written notice. In the event of such termination, (i) all licenses granted to the Company 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 the Company under the agreement with respect to the sublicense, and (ii) the Company may complete any work in progress and sell any completed inventory on hand for a period of time after termination.

~~Biomedical Advanced Research and Development Authority~~

In May 2013, the Company entered into an agreement with BARDA, for the evaluation and development of the Company’s lead product candidate solithromycin for the treatment of bacterial infections in pediatric populations and infections caused by bioterror threat pathogens.

The agreement is a cost plus fixed fee development contract, with a base performance segment valued at approximately $18.7 million with contract modifications, and four option work segments that BARDA may request at its sole discretion pursuant to the agreement. If all four option segments are requested, the cumulative value of the agreement, as amended to date, would be approximately $68.2 million 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 without fixed fee, for which the Company is 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 $16.0 million and the estimated period of performance is November 2014 through September 2018, which was extended in October 2017 at the Company’s request to allow more time to deliver the completed work product. This extension will not increase the cost of the work to be performed under the option nor does it change any other terms or provisions of the BARDA contract, including timeframes for other work options.

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 newborn to 17 years with community acquired bacterial pneumonia. This option work segment is a cost-sharing arrangement under which BARDA will contribute $25.5 million and the Company 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 $8.0 million 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 $33.5 million. The estimated period of performance of this option work segment runs through May 2018.

Under the agreement, the Company is reimbursed and recognizes revenue as allowable costs are incurred plus a portion of the fixed-fee earned. The Company considers fixed-fees under cost reimbursable agreements to be earned in proportion to the allowable costs incurred in performance of the work as compared to total estimated agreement costs, with such costs incurred representing a reasonable measurement of the proportional performance of the work completed. Since inception of the agreement through September 30, 2017, the Company has recognized $46.7 million in revenue under this agreement.

The agreement provides the U.S. government the ability to terminate the agreement for convenience or to terminate for default if the Company fails to meet its obligations as set forth in the statement of work. The Company believes that if the government were to terminate the agreement for convenience, the costs incurred through the effective date of such termination and any settlement costs resulting from such termination would be allowable costs.

~~Any of the funding sources may request reimbursement for expenses or return of funds, or both,~~ as a result of ~~noncompliance~~this assessment.

Based on the Company’s full valuation allowance against the net deferred tax assets, the Company’s effective tax rate for the calendar year is zero, and zero income tax expense was recorded in the three and six months ended June 30, 2019 and 2018.

NOTE 9 –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 ~~Company with~~weighted-average number of common shares outstanding for the ~~terms~~period. We compute diluted loss per common share after giving consideration to the dilutive effect of stock options and warrants that are outstanding during the ~~grant. No reimbursement of expenses or return of funds~~period, except where such nonparticipating securities would be antidilutive. Because we have reported net losses for ~~noncompliance has~~the three and six months ended June 30, 2019 and 2018, 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 three and six months ended June 30, 2019 and 2018, have been ~~requested or made since inception of~~retroactively adjusted to reflect the ~~contract.~~

~~Toyama Chemical Co., Ltd.~~

In May 2013, Cempra Pharmaceuticals, Inc., the Company’s wholly owned subsidiary, entered into a license agreement with Toyama Chemical Co., Ltd. (“Toyama”), whereby the Company licensed to Toyama the exclusive right, with the right to sublicense, to make, use and sell any product in Japan that incorporates solithromycin, the Company’s lead compound, 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 granted the Company 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.

Following execution of the agreement, the Company received a $10.0 million upfront payment from Toyama. Toyama is also obligated to pay the Company up to an aggregate of $60.0 million in milestone payments, depending on the achievement of various regulatory, patent, development and commercial milestones. Under the terms of the license agreement, Toyama must also pay the Company a royalty equal to a low-to-high first double decimal digit percentage of net sales, subject to downward adjustment in certain circumstances. ~~In August 2014, the Company received a $10.0 million milestone payment from Toyama (“August 2014 Milestone”),~~1-for-5 reverse stock split which was ~~triggered by Toyama’s progress~~effective February 22, 2019.

The following potentially dilutive securities (in common stock equivalent shares) have been excluded from the computation of ~~its solithromycin clinical development program~~diluted weighted-average shares outstanding because such securities have an antidilutive impact due to losses reported:



	Three Months Ended June 30,
	2019	2018
Warrants outstanding	766,680	770,486
Stock options outstanding	592,992	397,429
Restricted stock units outstanding	1,655,500	56,092
	3,015,172	1,224,007

NOTE 10 – COMMITMENTS AND CONTINGENCIES

As discussed in ~~Japan. The payment was made following Toyama’s receipt of regulatory acceptance to begin~~Note 11, on November 3, 2017, Melinta merged with Cempra, Inc. in a Phase 2 trial of solithromycin in Japan following successful completion of a Phase 1 trial. In March 2015, the Company recognized a $10.0 million milestone from Toyama (“March 2015 Milestone”) based on the Japan Patent Office issuing a Decision of Allowance for the Company’s patent covering certain crystal forms of solithromycin in Japan, which payment was received in April 2015. In October 2016, the Company received the third $10.0 million milestone from Toyama (“October 2016 Milestone”), which was triggered by Toyama’s progress of the solithromycin clinical development program in Japan.

As part of the license agreement, Toyama and the Company also entered into a supply agreement, whereby the Company 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 Phase 1 and Phase 2 clinical trials in Japan. Pursuantbusiness combination. Prior to the supply agreement, which is an exhibit to the license agreement, Toyama will pay the Company 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 the Company’s cost. All API for solithromycin supplied by the Company to Toyama for use in the manufacture of finished product for commercial sale in Japan will be ordered from the Company at prices determined by the Company’s manufacturing costs, and which may, dependingmerger, on such costs, equal, exceed, or be less than such costs. Either party may terminate the supply agreement for uncured material breach or insolvency of the other party, with Toyama’s right to terminate for the Company’s breach subject to certain further conditions in the case of the Company’s failure to supply API for solithromycin or clinical supply, but otherwise the supply agreement will continue until the expiration or termination of the license agreement. Since inception of the agreement through September 30, 2017, the Company has recognized $6.1 million in revenue under this supply agreement.

The Company has determined that there are six deliverables under this agreement including (1) the license to develop and commercialize solithromycin in Japan, (2) the obligation of the Company to conduct Phase 3 studies and obtain regulatory approval in the United States and one other territory, (3) participation in a Joint Development Committee (“JDC”), (4) participation in a Joint Commercialization Committee (“JCC”), (5) the right to use the Company’s trademark, and (6) a supply agreement. The amounts received under the license agreement have been allocated to the deliverables based on their relative fair values and will be recognized into income when the revenue recognition criteria have been achieved.

~~Royalties are recorded as earned in accordance with the contract terms when third party sales can be reliably measured and collectability is reasonably assured.~~

The Company recognized $4.3 million in revenue associated with the delivery of the license in May 2013. Additionally, because the milestone event triggering the August 2014 Milestone and October 2016 Milestone payments were considered non-substantive for accounting purposes, these milestone payments are being recognized into revenue proportionately to the six deliverables in the agreement using the same allocation as the upfront payment. Therefore, $4.3 million of the August 2014 Milestone payment was recognized into revenue in August 2014 and $4.3 million of the October 2016 Milestone payment was recognized into revenue in October 2016. The remainder of the upfront and milestone payments which aggregate to $17.0 million are recorded as deferred revenue at September 2017 and will be recognized as revenue when the revenue recognition criteria of each deliverable has been met. The Company also recognized in March 2015 a $10.0 million milestone ~~based on the Japan Patent Office issuing a Decision of Allowance for the Company’s patent covering certain crystal forms of solithromycin in Japan.~~ ~~The March 2015 Milestone payment is considered substantive for accounting purposes, and therefore the $10.0 million milestone was recognized in its entirety as revenue in March 2015.~~

~~FUJIFILM Finechemicals Co., Ltd~~.

In January 2016, Cempra Pharmaceuticals, Inc. entered into an API manufacturing and supply agreement with FUJIFILM Finechemicals Co., Ltd. (“FFFC”), which will provide the Company with solithromycin in sufficient quantities and at reasonable prices to help ensure it meets its obligation under the May 2013 supply agreement with Toyama. The Company will use reasonable efforts to ensure that the solithromycin supplied by FFFC is for use as the active pharmaceutical ingredient in a human drug product to be used or sold in Japan.

The Company is subject to a minimum purchase obligation for a designated number of years after the successful completion of the manufacturing facility and validation studies by FFFC. Each calendar month, the Company will submit to FFFC a projection of the anticipated volume of solithromycin that it will order for the next designated period (as set forth in the agreement) (or, if earlier, the final calendar month of the current term). Several months of each forecast are binding and the remaining months are non-binding, provided that the quantity of solithromycin ordered for any month is between designated percentages of the quantity specified in the initial forecast and between designated percentages of the most recent previous forecast.

~~The price of each shipment of solithromycin will be equal to the total number of kilograms in such shipment multiplied by the per-kilogram transfer price as set forth in the agreement.~~

For the term of the agreement plus an additional five years or until the expiration of the patents identified in the agreement, FFFC is prohibited from supplying, selling or distributing solithromycin to, or enabling the manufacture of solithromycin by, any third party for any purpose. The Company is not precluded from developing one or more alternative or additional sources of solithromycin.

The agreement’s initial term runs until December 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 in Japan, 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 the Company of the minimum purchase obligation is considered a material breach. A product failure is not

considered a material breach by the Company. The Company has the right to terminate the agreement upon written notice if there is a supply failure. The Company also may terminate in the event that FFFC cannot provide the Company 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 the Company. The Company 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 the Company and, prior to such termination, (i) FFFC has constructed a facility in Japan for the primary purpose of manufacturing API for the Company 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, the Company will pay FFFC an amount equal to (a) the remaining book value of the facility less (b) the product of the number of kilograms of API ordered by the Company under the agreement prior to such termination times a designated dollar amount, provided that if the total direct costs incurred by FFFC in the construction of the facility, net of any tax credits, tax refunds, government subsidies, or similar financial, monetary, or in-kind benefits provided by any governmental agency or authority, do not equal or exceed a designated dollar amount, then the remaining book value will be reduced by a pro rata amount, based on ratios set forth in the agreement, and (z) no amount will be payable if the agreement terminates after December 31, 2025; provided, however, that if FFFC manufactures any product or performs any activities (other than the manufacture of API for the Company under the agreement) in, by, or using the facility prior to such termination and makes any profit thereby, the total amount of such profits will be subtracted from the total payment amount due from the Company to FFFC.

~~Macrolide Pharmaceuticals, Inc.~~

On January 29, 2016, Cempra Pharmaceuticals, Inc. entered into an Option and License Agreement with Macrolide Pharmaceuticals, Inc. (“MP”), pursuant to which MP granted the Company an exclusive option to license certain of MP’s patents and know-how involving macrolides, including specifically novel methods of synthesizing solithromycin (the “Compound”). Under the agreement, the Company will support research at MP focused on developing a novel, cost-competitive manufacturing approach to solithromycin. The option will run until the later to occur of (i) the earlier of (a) the date that the Company first obtains FDA approval for any product incorporating the Compound as an API, or (b) January 27, 2019, or (ii) the date that is six months after the earlier of (a) MP’s satisfaction of certain milestones, or (b) the Company’s termination of MP’s obligations under the evaluation program. Under the evaluation program called for in the agreement, MP will conduct research activities for the manufacture of the Compound, which activities the Company will evaluate to determine whether to exercise the option to license.

Upon execution of the agreement, the Company paid MP a non-refundable, non-creditable initial license fee of $0.4 million. For conducting the evaluation program, the Company paid MP a non-refundable, non-creditable fee in the amount of $0.4 million.

~~In June 2017, the Company entered into a Settlement Agreement with Macrolide Pharmaceuticals, Inc. to terminate the Option and License Agreement and paid the settlement payment of $0.2 million.~~

~~5. Receivables~~

Receivables consist of amounts billed and amounts earned but unbilled under the Company’s contract with BARDA. At September 30, 2017, the Company’s receivables consisted primarily of earned but unbilled receivables under the BARDA agreement.

~~6. Accrued Expenses~~

~~Accrued expenses are comprised of the following as of (in thousands):~~

September 30,

December 31,

2017

2016

Accrued severance

$
731

$
1,999

Franchise tax

98

570

Deferred rent

81

85

Accrued interest

61

80

Lease liability

41

-

Other accrued expenses

24

50

Accrued professional fees

-

145

Total accrued expenses

$
1,036

$
2,929

~~7. Long-term Debt~~

In July 2015, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”) with Comerica Bank (“Comerica”). The Loan and Security Agreement provides that the Company may borrow up to $20.0 million in a term loan (the “Term Loan”) and, upon FDA approval of its New Drug Application for solithromycin, the Company may also borrow an

aggregate amount equal to the lesser of (i) up to 75% of its eligible inventory and 80% of eligible accounts receivable or (ii) $10.0 million (the “Revolver”). After FDA approval of the Company’s New Drug Application for solithromycin, the Company may convert the Term Loan to the Revolver, in which event the Revolver would have a maximum amount available to the Company of $25.0 million. The Loan and Security Agreement specifies the criteria for determining eligible inventory and eligible accounts receivable and sets forth ongoing limitations and conditions precedent to the Company’s ability to borrow under the Revolver. The Company granted Comerica a security interest in substantially all of its personal property assets, excluding its intellectual property and its stock in its subsidiaries, to secure its outstanding obligations under the Loan and Security Agreement. The Company is also obligated to comply with various other customary covenants, including, among other things, restrictions on its ability to: dispose of assets, make acquisitions, be acquired, incur indebtedness, grant liens, make distributions to its stockholders, make investments, enter into certain transactions with affiliates, or pay down subordinated debt, subject to specified exceptions.

Amounts borrowed under the Term Loan may be repaid and reborrowed at any time without penalty or premium. The Term Loan was interest-only through April 30, 2016, followed by an amortization period of 36 months of equal monthly payments of principal plus interest, beginning on May 1, 2016 and continuing on the same day of each month thereafter until paid in full. Any amounts borrowed under the Term Loan will bear interest at a floating interest rate equal to the 30 Day LIBOR rate plus 5.2%. Amounts available to be borrowed under the Revolver may also be repaid and reborrowed at any time without penalty or premium prior to December 31, 2017, at which time all advances under the Revolver shall be immediately due and payable in full. Any amounts borrowed under the Revolver will bear interest at the 30 Day LIBOR rate plus 4.2%. Once available, the Revolver is subject to an annual unused facility fee equal to 0.25%. Under the Loan and Security Agreement, the Company is subject to certain covenants including maintaining a minimum unrestricted cash balance of $15.0 million and continuing the development or commercially launching solithromycin. The Company was in compliance with all covenants at September 30, 2017.

~~8. Commitments and Contingencies~~

~~Legal Proceedings~~

On November 4, 2016, a securities class action lawsuit was commenced in the United States District Court, ~~for the~~ Middle District of North Carolina, Durham Division, naming ~~the Company~~Cempra, Inc. (now known as Melinta Therapeutics, Inc.) (for purposes of this Contingencies section, “Cempra”) and certain of ~~the Company’s~~Cempra’s officers as defendants, and alleging violations of the Securities Exchange Act of 1934 in connection with allegedly false and misleading statements made by the defendants between May 1, 2016 and November 1, 2016 (the “Class Period”). The plaintiff seeks to represent a class comprised of purchasers of the Company’s common stock during the Class Period and seeks damages, costs and expenses and such other relief as determined by the Court.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, seeking to assert claims on behalf of all purchasers of the Company's common stock from July 7, 2015 through December 29, 2016, inclusive.~~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 ~~plaintiffs in the case~~plaintiff filed a consolidated amended complaint. The 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”). 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 ~~in the case~~ 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, and on December 20, 2018, the Fourth Circuit entered its briefing schedule. The ~~Company believes it~~appellant filed its brief on January 28, 2019; the appellee filed its response brief on February 27, 2019; and the appellant filed its reply brief on March 20, 2019. The court has not yet ruled on the appeal. We believe that we have meritorious defenses and ~~intends~~intend to defend the ~~lawsuits~~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 ~~the Company’s~~Cempra’s former and current officers and directors as defendants and ~~the Company~~Cempra as a nominal defendant, and asserting claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and corporate ~~waste.~~waste (the “December 2016 Action”). A substantially similar lawsuit was filed in the North Carolina Durham County Superior Court on February 16, ~~2017.~~2017 (the “February 2017 Action”). The complaints are based on similar allegations as asserted in the ~~putative~~ securities ~~class action~~lawsuits described above and seek unspecified damages and ~~attorneys'~~attorneys’ fees. Both cases were served and transferred to the North Carolina Business Court as mandatory complex business cases. The Business Court ~~has~~ consolidated

the ~~two derivative cases~~February 2017 Action into ~~a single action~~the December 2016 Action and appointed ~~lead~~ counsel for the plaintiff in the ~~consolidated case.~~December 2016 Action as lead counsel. On July 6, 2017, the court ~~entered an order staying~~stayed the ~~consolidated~~ 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 ~~August~~February 6, 2018, the plaintiff filed his second amended complaint. On March 8, 2018, the defendants filed their motion to dismiss or, in the alternative, stay the plaintiff’s second amended complaint. On April 9, 2018, the plaintiff filed his opposition to the defendants’ motion. The 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 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. 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 ~~the Company's~~Cempra’s former and current officers and directors as defendants and ~~the Company~~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'~~attorneys’ fees. On October 23, 2017, the defendants ~~in the case~~ filed a motion to dismiss or, in the ~~complaint.~~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 the 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, with that stay expiring 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 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. We believe that we have meritorious defenses and we intend 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 ~~State~~States District Court for the Middle District of North Carolina, Durham Division, naming certain of ~~the Company’s~~Cempra’s former and current officers and directors as defendants and ~~the Company~~Cempra as nominal defendant, and asserting claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, corporate waste, and ~~alleged~~ 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. ~~The complaint has not yet been served.~~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. We believe

that we have meritorious defenses and we intend 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,~~October 22, 2018, the Company received a litigation demand on behalf of putative Cempra shareholder Dr. Alan Cauldwell (the “Demand”), purporting to reinstate Dr. Cauldwell’s previous demand, dated as of January 3, 2018, held in abeyance after further discussion and negotiation with the Company. The Demand appears premised on the same factual allegations as the shareholder derivative lawsuits previously filed against the Company, as detailed above, and requests, in part, that Cempra’s board of directors commence an investigation of the misconduct alleged therein. We believe that we have meritorious defenses to Dr. Cauldwell’s claims, and we intend to defend any litigation relating to the Demand vigorously.

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 retained jurisdiction solely for the purpose of adjudicating a claim by the plaintiff for attorneys' fees and expenses. The Company subsequently agreed to pay $350,000 to plaintiff’s counsel for attorneys’ fees and expenses in full satisfaction of the claim for attorneys’ fees and expenses in the Action. The Court has not been asked to review, and will pass no judgment on, the payment of the attorneys’ fees and expenses or their reasonableness. The Court closed the matter on June 6, 2019.

On December 18, 2018, we filed a complaint ~~was filed~~in the Court of Chancery of the State of Delaware against ~~Cempra~~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 IDB from Medicines (the “Medicines Action”). In the complaint, we alleged claims for damages of at least $68,300. 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 ~~members~~other parties thereto (“Merger Agreement”), 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, and on March 15, 2019, Medicines filed its Opening Brief in Support of Its Motion to Dismiss. On April 23, 2019, we filed an Amended Complaint alleging claims for damages of at least $80,000. On May 3, 2019, Medicines filed a motion to dismiss our claims in the Amended Complaint. On June 10, 2019, Medicines filed its brief in support of its ~~board of directors~~motion to dismiss. Our answering brief is due August 2, 2019, and Medicines’ reply brief is due September 6, 2019. The Court is scheduled to hear oral argument on ~~behalf~~Medicines’ motion on September 19, 2019.

On March 28, 2019, Fortis Advisors LLC, in its capacity as the authorized legal representative of the ~~public stockholders~~former shareholders of ~~Cempra~~Rempex Pharmaceuticals, Inc. (“Former Rempex Shareholders”), filed a complaint in the ~~United States District~~ Court ~~for~~of Chancery of the ~~Middle District~~State of ~~North Carolina.~~Delaware against Medicines and us (the "Fortis Action"). The Former Rempex Shareholders’ complaint alleges ~~that~~breach of contract claims against Medicines arising out of the ~~preliminary proxy statement issued~~Merger Agreement and alleges a third-party beneficiary claim against us for breach of the Purchase Agreement. The Former Rempex Shareholders’ complaint seeks to hold us and Medicines jointly and severally liable for alleged damages of at least $30,000, as well as pre- and post-judgment interest, fees, costs, expenses, and disbursements. On April 18, 2019, we filed a motion to dismiss the Former Rempex Shareholders’ claim against us. That motion is fully briefed as of July 25, 2019, and the Court will hear oral argument on September 19, 2019. Also on April 18, 2019, Medicines filed its answer to the Former Rempex Shareholders’ complaint, as well as a crossclaim against us. Medicines’ crossclaim. On June 21, 2019, Medicines filed a Motion for Judgment on the Pleadings in connection with Count I of its crossclaim and its opening brief in support of that motion. Our answering brief is due August 7, 2019, and Medicines’ reply brief is due September 11, 2019. The Court is scheduled to hear oral argument on that motion, along with our motion to dismiss the ~~proposed merger between Cempra~~Fortis Action and ~~Melinta Therapeutics, Inc. omitted material information in violation of Sections 14(a) and 20(a) of~~Medicines’ motion to dismiss the ~~Exchange Act, rendering~~Medicines Action, on September 19, 2019. We filed a motion to consolidate the preliminary proxy statement false and misleading. Among other remedies, the action seeks to enjoin the merger unless and until additional disclosures are provided, damage, and attorneys’ fees. Cempra believes that the action is without merit and that no further disclosure is required to supplement the preliminary proxy statement under applicable laws.

~~On October 6, 2017, a putative class action complaint was filed against Cempra~~Fortis Action and the ~~members of its board of directors~~Medicines Action on ~~behalf of~~May 8, 2019, and the ~~public stockholders of Cempra in~~Court heard oral argument on that motion on July 8, 2019. The Court stated that it would issue a ruling on the ~~United States District Court for~~motion to consolidate at the ~~Middle District of North Carolina. The complaint, filed after a definitive proxy statement was issued on October 5, 2017 in connected with~~September 19 hearing and ordered the ~~proposed merger between Cempra~~parties to coordinate both actions prior to oral argument. We believe that we have meritorious defenses and ~~Melinta Therapeutics, Inc, alleges that~~we intend to defend the ~~preliminary proxy statement omitted material information in violation of Sections 14(a)~~lawsuit and 20(a) of the Exchange Act, rendering the preliminary proxy statement false and misleading. Among other remedies, the action seeks to enjoin the merger unless and until additional disclosures are provided, damage and attorneys’ fees. Cempra believes that the action is without merit and that no further disclosure is required to supplement the preliminary proxy statement under applicable laws.

crossclaim vigorously.

Other than as described above, ~~the Company is~~we are not a party to any legal proceedings and iswe are not aware of any claims or actions pending or threatened against ~~the Company.~~us. In the future, ~~the Company~~we might from time to time become involved in litigation relating to claims arising from ~~its~~our ordinary course of business.

~~9. Shareholders’ Equity~~

~~Common Stock~~

~~During January 2016,~~

NOTE 11 – SEVERANCE AND EXIT COSTS

A summary of merger and non-merger activity in our severance accrual (included in accrued expenses or long-term liabilities on the ~~Company completed a public offering~~condensed consolidated balance sheets) is below.



Balance - December 31, 2018	$	9,767
Additional severance accruals (recorded in SG&A)	1,104
Severance payments	(8,080		)
Balance - June 30, 2019	$	2,791

On June 30, 2019, all of ~~4,166,667 shares~~the balance was included in accrued expenses. We also recognized $143 and $218 of ~~common stock, at a price of $24.00 per share, resulting in net proceeds~~additional stock-based compensation expense related to the ~~Company~~acceleration of ~~approximately $93.8 million after deducting underwriting discounts~~equity awards for terminated employees under ASC 718, Compensation-Stock Compensation, as severance expense during the three and ~~expenses of approximately $6.2 million.~~

six months ended June 30, 2018. No equity awards were accelerated in 2019.

In May 2016, the Company entered into an at-the-market (“ATM”) sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”) under which the Company may, at its discretion, from time to time sell shares of its common stock, with a sales value of up to $150.0 million. The Company has provided Cowen with customary indemnification rights, and Cowen is entitled to a commission at a fixed commission rate of 3.0% of the gross proceeds per share sold. Sales of the shares under the Sales Agreement are to be madeMarch 2019, we terminated our operating lease for our principal research facility in ~~transactions deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended.~~

The Company began the sale of ATM shares in May 2016 and through July 2016 the Company sold 4,140,307 shares of common stock under the Sales Agreement resulting in net proceeds of $75.1 million after deducting commissions and expenses of $2.3 million. The Company has not sold any shares under the ATM since July 2016.

~~During the first nine months of 2017, the Company issued 116,376 shares of common stock at a weighted average exercise price of $2.23 per share upon the exercise of option grants.~~

~~The following table presents common stock reserved for future issuance for the following equity instruments as of September 30, 2017:~~

~~Warrants to purchase common stock~~			~~94,912~~
~~Outstanding stock options~~			~~4,120,220~~
~~Outstanding restricted stock units~~			~~1,015,000~~
~~Available for future grants under the 2011 Equity Incentive Plan~~			~~3,578,696~~
~~Total common stock reserved for future issuance~~			~~8,808,828~~

~~10. Stock Option Plans~~

The Company adopted the 2006 Stock Plan (the “2006 Plan”) in January 2006. 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 September 30, 2017, there were options for an aggregate of 341,854 shares issued and outstanding under the 2006 Plan.

The Company’s board of directors and stockholders adopted the 2011 Equity Incentive Plan (the “2011 Plan”) in October 2011, which, as amended, authorizes the issuance of up to 8,697,451 shares under the 2011 Plan, and provides for an automatic annual increase in the number of shares of common stock reserved for issuance thereunder in the amount of 4% of the shares of common stock outstanding on December 31 of the preceding year. As of September 30, 2017, there were 3,578,696 options available under the 2011 Plan for future grant.

Upon adoption of the 2011 Plan, the Company eliminated the authorization for any unissued shares previously reserved under the Company’s 2006 Plan. The stock awards previously issued under the 2006 Plan remain in effect in accordanceNew Haven, Connecticut. In connection with the ~~terms of~~termination, we agreed to pay the ~~2006 Plan.~~

~~The following table summarizes~~lessor a $462 early termination fee. As a result, we reduced the ~~Company’s 2006 and 2011 Plan stock option activity:~~

Weighted

Weighted

Average

Average

Aggregate

Number of

Exercise

Contractual

Intrinsic

Options

Price

Term (in years)

Value ⁽¹⁾

Outstanding - December 31, 2016

3,784,346

$
16.26

Granted

1,921,750

3.08

Exercised

(116,376
)

2.23

Forfeited

(1,074,516
)

13.11

Expired

(394,984
)

16.64

Outstanding - September 30, 2017

4,120,220

11.30

6.90

$
607,444

Exercisable - September 30, 2017

2,634,222

12.30

5.77

$
434,044

Vested and expected to vest at September 30, 2017 ⁽²⁾

4,011,877

$
11.44

6.84

$
591,929

~~(1)~~

~~Intrinsic value is the excess of the fair value of the underlying common shares as of September 30, 2017 over the weighted-average exercise price.~~

~~(2)~~

~~The number of stock options expected to vest takes into account an estimate of expected forfeitures.~~

~~The following table summarizes certain information about all stock options outstanding as of September 30, 2017:~~

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)

$2.09 - $3.15

1,682,841

7.75

661,739

5.31

$3.95 - $6.63

261,598

5.56

239,202

5.18

$6.64 - $12.38

659,093

5.62

630,839

5.47

$12.79 - $19.25

500,797

5.46

412,062

5.11

$22.77 - $34.49

996,141

7.37

676,629

7.06

$35.29 - $43.43

19,750

7.82

13,751

7.82

4,120,220

2,634,222

During the three-month periods ended September 30, 2017 and 2016, the Company recorded $1.5 million and $2.5 million in share-based compensation expense, respectively. During the nine-month periods ended September 30, 2017 and 2016, the Company recorded $5.5 million and $7.5 million in share-based compensation expense, respectively. As of September 30, 2017, approximately $5.6 million of total unrecognized compensation cost related to unvested share options is expected to be recognized over a weighted-average period of 2.43 years.

In 2016, the Company began issuing time-vested Restricted Stock Units (RSUs) from the 2011 Plan to certain employees, subject to continuous service with the Company at the vesting time. When vested, the RSU represents the right to be issued the number of shares of the Company’s common stock that islease liability equal to the ~~number~~termination fee and recorded a gain of ~~RSUs granted.~~

~~A summary of the activity related to the Company’s RSUs is as follows:~~

Number of

Weighted

Restricted

Average

Stock Units

Grant-Date

Outstanding

Fair Value

Balance - December 31, 2016

50,000

$
7.70

Granted

1,283,000

3.12

Vested

-

-

Forfeited

(318,000
)

3.09

Expired

-

-

Balance - September 30, 2017

1,015,000

3.35

~~11. Income Taxes~~

The Company estimates an annual effective tax rate of 0% for the year ending December 31, 2017 as the Company incurred losses for the nine-month period ended September 30, 2017 and is forecasting additional losses through the fourth quarter, resulting$792, which was recorded in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2017. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes have been accounted for using the liability methodother income.

In May 2019, we amended our operating lease in ~~accordance with FASB ASC 740.~~

Due to the Company’s history of losses since inception, there is not enough evidence at this time and it is not more likely than not that the Company will generate sufficient future income of a nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a valuation allowance, since it has been determined that it is more likely than not that all of the deferred tax assets will not be realized.

~~12. Net Loss Per Share~~

Basic and diluted net loss per common share was determined by dividing net loss attributable to common shareholders by the weighted average common shares outstanding during the period. The Company’s potentially dilutive shares,Chapel Hill, North Carolina, which ~~include warrants, common share options and restricted stock units, have not been included~~resulted in the ~~computation~~termination of ~~diluted net loss per share for all periods as~~certain of our office facilities in that location, the ~~result would be antidilutive.~~

~~The following potentially dilutive securities have been excluded from~~remaining of which we do not occupy. We paid the ~~computation~~lessor a termination of ~~diluted weighted average shares outstanding, as they would be antidilutive:~~

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Warrants outstanding

94,912

94,912

94,912

94,912

Stock options outstanding

4,199,997

3,605,373

4,576,930

3,517,324

Restricted stock units outstanding

1,082,184

-

1,019,013

-

5,377,093

3,700,285

5,690,855

3,612,236

$154, which was recorded in other expense. As of June 30, 2019, the lease liability associated with this lease was $197.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operation~~

Operations

The unaudited interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, ~~2016,~~2018, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to risks and uncertainties, including those set forth under “Part I. Item 1. Business - Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, and elsewhere in this report, that could cause actual results to differ materially from historical results or anticipated results.

Overview

We are a ~~clinical-stage~~commercial-stage pharmaceutical company focused on developing and commercializing differentiated anti-infectives for the ~~acute care~~hospital and select non-hospital, or community, settings to meet critical medical needs in the treatment of bacterial infectious diseases. Our lead product, solithromycin, has completed two Phase 3 clinical trials, for which we submitted new drug applications, or NDAs, for both oral and IV formulations for the treatment of community acquired bacterial pneumonia, or CABP, in April 2016. In December 2016, we received a complete response letter, or CRL, from the U.S. Food and Drug Administration, or FDA, on our NDAs. The CRL 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 approved. We met with the FDA in February 2017 to discuss the CRL and the FDA reiterated their request for additional clinical safety data prior to approval. Importantly, the FDA has agreed that the efficacy of solithromycin has been established. Based on input from the FDA at the meeting, we have developed and provided to the FDA a protocol that includes safety data from 6,000 CABP patients treated with solithromycin at the time we respond to the CRL. Data from an additional 3,000 CABP patients treated with solithromycin would be provided subsequently including in the post approval period. The study will evaluate oral solithromycin with a 5-day treatment regimen, with the goal of enhancing enrollment efficiency and solithromycin safety. The 5-day course of treatment with oral solithromycin excludes selected concomitant medications. Additional safety data for intravenous solithromycin would need to be provided under a separate study to be discussed with the FDA.

We are seeking non-dilutive funding to support the execution of the study and as noted, would plan to seek an initial approval with our oral formulation of solithromycin. To achieve potential approval, our response to the CRL would also need to address the ~~manufacturing items noted in our CRL.~~need for effective treatments for infections due to resistant gram-negative and gram-positive bacteria. We ~~are working with our manufacturing partners~~currently market four antibiotics to address these items and believe that the time required to accumulate clinical safety data in an additional 6,000 oral solithromycin patients will be the rate-limiting step in our timeline to respond to the CRL. In March 2017, we announced the withdrawaltreat a variety of our previously filed marketing authorization application seeking European Medicines Agency, or EMA, approval of oral capsule and intravenous formulations of solithromycin for the treatment of CABP in adults.

Enrollment in the Phase 2/3 study of solithromycin in pediatric patients with CABP began in late 2016 and is ongoing. We anticipate submitting a request for a pre-IND meeting with the FDA for ophthalmic solithromycin in 2018.

Our second product, fusidic acid, is an antibiotic that has been used for decades outside the U.S., including in Western Europe, but has never been approved in the U.S. In the first quarter of 2017, we completed a successful Phase 3 study evaluating fusidic acid as an oral treatment of acute bacterial skin and skin structure infections, or ABSSSI, which are frequently caused by methicillin-resistant ~~Staphylococcus aureus~~, or MRSA. Based on the results of this study, we discussed with the FDA in the second quarter of 2017 the next steps required to bring fusidic acid to patients in the United States. The FDA has agreed that a second Phase 3 study with similar design to the first successfully completed Phase 3 study could support potential approval of fusidic acid in patients with ABSSSI. We are also exploring the potential use of fusidic acid for the long-term oral treatment of refractory bone and joint infections, or BJI, including prosthetic joint infections, or PJI, caused by staphylococci, including ~~S. aureus~~ ~~and MRSA. Currently, there is no optimal oral, chronic antibiotic for treating these infections.~~

Following our engagement of Morgan Stanley to assist us in a process to evaluate and assess external late-stage assets and other potential strategic business opportunities to determine the best use of our cash resources and late stage clinical programs, we announced on August 8, 2017 that we had entered into a definitive agreement under which Melinta Therapeutics will merge with a subsidiary of Cempra. The merger is expected to create a NASDAQ-listed company committed to discovering, developing and commercializing important anti-infective therapies for patients and physicians in areas of significant need. Further details regarding the proposed transaction can be found in our definitive proxy statement on Schedule 14A, which is available at ~~www.cempra.com~~ ~~and is filed with the SEC. Assuming stockholder approval and the satisfaction of all conditions to closing, the merger is anticipated to close in November 2017.~~

~~Financial Overview~~

~~Revenue~~

To date, we have not generated revenue from the sale of any products. All of our revenue to date has been derived from (1) a government contract and (2) the receipt of proceeds under our license and supply agreements with Toyama Chemical Co., Ltd., or Toyama, a portion of which has been recognized as revenue in accordance with generally accepted accounting principles in the U.S., or U.S. GAAP.

In May 2013, we entered into an agreement with the Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services, or 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~~these resistant bacteria.

We are not currently generating revenue from operations that is sufficient to cover our operating expenses and ~~tularemia.~~

The agreement is a cost plus fixed fee development contract, with a base performance segment valued at approximately $18.7 million with contract modifications, and four option work segments that BARDA may request at its sole discretion pursuant to the agreement. If all four option segments are requested, the cumulative value of the agreement, as amended to date, would be approximately $68.2 million 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 without fixed fee, 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 $16.0 million and the estimated period of performance is November 2014 through September 2018, which was extended in October 2017 at our request to allow more time to deliver the completed work product. This extension willdo not ~~increase the cost of the work to be performed under the option nor does it change any other terms or provisions of the BARDA contract, including timeframes for other work options.~~

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 community acquired bacterial pneumonia. This option work segment is a cost-sharing arrangement under which BARDA will contribute $25.5 million 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 $8.0 million 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 $33.5 million. The estimated period of performance of this option work segment runs through May 2018.

Under the agreement, we are reimbursed and recognize revenue as allowable costs are incurred plus a portion of the fixed-fee earned. We consider fixed-fees under cost reimbursable contracts to be earned in proportion to the allowable costs incurred in performance of the work as compared to total estimated contract costs, with such costs incurred representing a reasonable measurement of the proportional performance of the work completed. Since inception of the agreement through September 30, 2017, we recognized $46.7 million in revenue under this agreement.

In October 2017 we submitted an application to BARDA requesting $50 million of support for the solithromycin safety study requested by the FDA. We anticipate a response from BARDA to our application in the first half of 2018.

In May 2013, Cempra Pharmaceuticals, Inc., our wholly owned subsidiary, entered into a license agreement with Toyama, whereby we 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 active pharmaceutical ingredient, or 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.

Following execution of the agreement, we received a $10.0 million upfront payment from Toyama. Toyama is also obligated to pay us up to an aggregate of $60.0 million 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 we received a payment of $10.0 million from Toyama. The second $10.0 million milestone was recognized in the first quarter of 2015 based on the Japan Patent Office issuing a Decision of Allowance for our patent covering certain crystal forms of solithromycin in

Japan. We received payment for the second milestone in April 2015. In October 2016, we received the third $10.0 million milestone which was triggered by Toyama’s decision to progress to a Phase 3 trial of solithromycin in Japan following successful completion of a Phase 2 trial. 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. Cumulatively, through September 30, 2017, we have recognized $23.0 million in revenue under this agreement with the remaining $17.0 million received being recorded as deferred revenue. Substantially all of this deferred revenue would be recognized upon FDA approval of solithromycin in the United States and subsequent commercial launch in the United States and one additional country. As part of the license agreement, we also entered into a supply agreement with Toyama, 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 its 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 prices determined by our manufacturing costs, and which may, depending on such costs, equal, exceed, or be less than such costs. Either party may terminate the supply agreement for uncured material breach or 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, but otherwise the supply agreement will continue until the expiration or termination of the license agreement.

~~In the future, we~~ anticipate generating revenue ~~from a combination of sales of our products, if approved, through our own sales force~~sufficient to offset operating costs in the ~~U.S.~~short-term. We have incurred losses from operations since our inception and had an accumulated deficit of $784.5 million as of June 30, 2019, and we expect to incur substantial expenses and further losses in the short term for ~~solithromycin,~~the development and ~~third parties elsewhere, and license fees, milestone payments and royalties in connection with strategic collaborations regarding any~~commercialization of our product candidates. We expect that any revenue we generate will fluctuate from quarter to quarter. If we or our strategic partners fail to complete the development of solithromycin or fusidic acid in a timely manner or obtain regulatory approval for them, or if we fail to develop our own sales force or find one or more strategic partners for the commercialization ofcandidates and approved ~~products, our ability to generate future revenue, and our financial condition and results of operations would be materially adversely affected.~~

~~Research and Development Expenses~~

~~Since our inception,~~products. In addition, we have focused our resources on our research and development activities, including conducting pre-clinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates. We recognize our research and development expenses as they are incurred. Our research and development expenses consist primarily of:

~~employee-related expenses, which include salaries, benefits and share-based compensation expense;~~

~~fees paid to consultants and clinical research organizations, or CROs,~~had substantial commitments in connection with our ~~clinical trials, and other related clinical trial costs, such as for investigator grants, patient screening, laboratory work and statistical compilation and analysis;~~

~~costs related to acquiring and manufacturing clinical trial materials and costs for developing additional manufacturing sources for and~~acquisition of the ~~manufacture~~Infectious Disease Business ("IDB") of ~~pre-approval inventory of solithromycin;~~

~~costs related to compliance with regulatory requirements;~~

~~consulting fees paid to third parties related to non-clinical research and development;~~

~~research supplies; and~~

~~license, research and milestone~~The Medicines Company ("Medicines") that we completed in January 2018, including payments related to ~~in-licensed technologies.~~

Our direct research and development expenses consist principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials, and related clinical trial fees. Our internal resources, employees and infrastructure are not directly tied to any individual research project and are typically deployed across multiple projects. Through our clinical development programs, we are advancing solithromycin and fusidic acid in parallel primarily for the treatment of CABP (for solithromycin) and ABSSSI and refractory bone and joint infections (for fusidic acid) as well as for other indications. Through our pre-clinical development programs, we are seeking to develop macrolide product candidates for non-antibacterial indications. The following table sets forth costs incurred on a program-specific basis for solithromycin and fusidic acid, excluding personnel-related costs. Macrolide research includes costs for discovery programs. All employee-related expenses for those employees working in research and development functions are included in “Research and development personnel cost” in the table, including salary, bonus, employee benefits and share-based compensation. We do not allocate insurance or other indirect costs related to our research and development function to specific product candidates. Those expenses are included in “Indirect research and development expense” in the table.

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

(In thousands)

(In thousands)

Direct research and development expense by program:

Solithromycin

$
2,466

$
13,036

$
18,512

$
36,943

Fusidic acid

79

3,829

2,253

9,122

Macrolide research

(55
)

425

56

1,886

Research and development personnel cost

1,857

3,599

7,316

11,885

Total direct research and development expense

4,347

20,889

28,137

59,836

Indirect research and development expense

36

207

201

807

Total research and development expense

$
4,383

$
21,096

$
28,338

$
60,643

The successful development of our clinical and pre-clinical product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or pre-clinical product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

~~the scope, rate of progress, expense and results of our ongoing, as well as any additional, clinical trials required and other research and development activities;~~

~~future clinical trial costs and results;~~

~~the costs~~deferred purchase price consideration, assumed contingent liabilities and the ~~timing~~purchase of inventory. And, there are certain financial-related covenants under our ~~regulatory submissions and any regulatory approvals; and~~

~~changes~~Deerfield Facility, as amended in ~~regulations governing drug approval, manufacturing, marketing and reimbursement.~~

~~A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of~~January 2019, including requirements that ~~product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those which~~ we currently anticipate or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

We have completed two pivotal trials for solithromycin in CABP, including one with oral solithromycin and one with IV solithromycin progressing to oral solithromycin. We also are conducting a Phase 2/3 trial for solithromycin in pediatric patients with CABP which is funded by BARDA.

~~While we are conducting~~(i) file an exploratory study of fusidic acid for long-term suppressive therapy of refractory bone and joint infections, including PJI, we concluded a Phase 3 trial for fusidic acid in ABSSSI in the first quarter of 2017 and we expect our research and development expenses to temporarily trend lower. Following the completion of the proposed merger with Melinta Therapeutics, we expect the combined company will conduct a portfolio review to prioritize our future development efforts and determine related research and development expenses.

~~General and Administrative Expenses~~

General and administrative expenses consist primarily of salaries and related costs, including share-based compensation, for employees in executive, operational, commercial, finance and human resources functions. Other significant general and administrative expenses include professional fees for accounting, legal, and information technology services, facilities costs, expenses associated with obtaining and maintaining patents, and costs of commercial preparation activities.

Our general and administrative expenses have trended downward during 2017, driven primarily by reductions in personnel and expenses related to commercial preparations. If the proposed transaction with Melinta is approved, we expect general and administrative expenses to increase significantly in the fourth quarter primarily driven by costs related to the transaction.

~~Critical Accounting Policies and Estimates~~

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of

contingent assets and liabilities in our financial statements. We evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation, on an ongoing basis. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

~~Our significant accounting policies are described in more detail in the notes to our audited consolidated financial statements included in our~~ Annual Report on Form 10-K for the year ~~ended~~ending December 31, ~~2016 that we filed~~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 ~~U.S. Securities and Exchange Commission, or SEC, on February 28, 2017. We believe the following accounting policies to be most critical~~year ending December 31, 2019. (See Note 4 to the ~~judgments and estimates used in preparation of our~~consolidated financial statements for further details on the Deerfield Facility.)

In addition, under a Senior Subordinated Convertible Loan Agreement with Vatera Healthcare Partners LLC and ~~such policies~~Oikos Investment Partners LLC (formerly known as Vatera Investment Partners LLC) (together, “Vatera”), as amended in June 2019 (the "Amended Loan Agreement"), we have ~~been reviewed and discussed with our audit committee.~~

~~Research and Development Prepaids and Accruals~~

~~As part~~access to an additional $27.0 million by October 31, 2019, subject to certain closing conditions. These conditions include a requirement that no default has occurred or is reasonably expected to occur under the terms of the ~~process of preparing our~~Amended Loan Agreement, including the condition that the Company's audit opinion on the 2019 financial statements ~~we are required to estimate our expenses resulting from our obligations under contracts with vendors, consultants~~will not include a going concern qualification, and ~~clinical site agreements in connection with our research and development efforts. The financial terms~~the Company must also establish a working capital revolver of ~~these contracts~~at least $10.0 million. In addition, we are subject to ~~negotiations which vary~~certain financial-related covenants under the Amended Loan Agreement, including 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 $36.0 million through March 2020, and thereafter, a balance of $22.5 million, and (iii) achieve net revenue from ~~contract~~product sales of at least $57.4 million for the year ending December 31, 2019. (See Note 4 to ~~contract and may result in payment flows that do not match~~ the ~~periods over which materials or services are provided to us under such contracts.~~

~~Our objective is to reflect the appropriate research and development expenses in our~~consolidated financial statements ~~by matching those expenses with~~for further details on the ~~period~~Amended Loan Agreement.)

Our future cash flows are dependent on key variables such as our ability to access additional capital under our Deerfield Facility and Amended Loan Agreement, our ability to secure a working capital revolver, which is allowed under the Deerfield Facility and required in ~~which services~~order to access the remaining commitments under the Amended Loan Agreement, our ability to raise additional capital from the equity markets, and efforts are expended. We account for these expenses according to the progress of our research and development efforts. We determine prepaid and accrual estimates through reviewing open contracts and purchase orders, communicating with applicable vendor personnel to identify services that have been performed on our behalf and estimatingmost importantly, the level of ~~service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority~~sales achievement of our ~~service providers invoice us monthly in arrears for services performed. We make estimates~~four marketed products, all of ~~our prepaid and accrued expenses as of each balance sheet date~~which is subject to significant uncertainty. Given the softness in our ~~financial statements~~product sales to date, we believe that there is risk in compliance with the minimum sales covenant under the Deerfield Facility of $63.8 million for 2019, as well as our ability to meet the conditions to draw the additional $50.0 million of capacity under the Deerfield Facility, which will become available only upon achieving annualized net sales of $75.0 million over a two-quarter period ($37.5 million) before the end of 2019. Further, based on ~~facts~~our current forecast, and ~~circumstances known to us at~~given our current cash on hand and expected challenges and low likelihood of securing sufficient additional capital in the equity markets, it is likely in the next few quarters that ~~time. If~~we will not be in compliance with the ~~actual timing of the performance of services~~minimum cash requirement or the ~~level~~going concern covenants mentioned above, either of effort varies from our estimate, we will adjust the accrual accordingly. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. We do not currently anticipate the future settlement of existing accruals to differ materially from our estimates.

~~Revenue Recognition~~

Our revenue generally consists of research related revenue under federal contracts, supply revenue and licensing revenue related to non-refundable upfront fees, milestone payments and royalties earned under license agreements. Revenue is recognized when the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the products and/or services has occurred; (3) the selling price is fixed or determinable; and (4) collectability is reasonably assured.

For arrangements that involve the delivery of more than one element, each product, service and/or right to use assets is evaluated to determine whether it qualifies as a separate unit of accounting. This determination is based on whether the deliverable has “stand-alone value” to the customer. The consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the fair value of each deliverable. The consideration allocated to each unit of accounting is recognized as the related goods and services are delivered, limited to the consideration that is not contingent upon future deliverables. When an arrangement is accounted for as a single unit of accounting, we determine the period over which the performance obligations will be performed and revenue recognized. Management exercises significant judgment in the determination of whether a deliverable has stand-alone value, is considered to be a separate unit of accounting, and in estimating the relative fair value of each deliverable in the arrangement.

Milestone payments are recognized when earned, provided that (i) the milestone event is substantive; (ii) there is no ongoing performance obligation related to the achievement of the milestone earned; and (iii) it would result in ~~additional payments. Milestone payments are considered substantive if all~~both our inability to draw the remaining $27.0 million under the Amended Loan Agreement and an event of default under both the ~~following conditions are met:~~Deerfield Facility and Amended Loan Agreement. If an event of default occurs without obtaining waivers or amending certain covenants, the ~~milestone payment~~lenders could exercise their rights under the Deerfield Facility and Amended Loan Agreement to accelerate the terms of repayment. If repayment is ~~non-refundable; achievement of~~accelerated, it would be unlikely that the ~~milestone was not reasonably assured at~~Company would be able to repay the ~~inception of the arrangement; substantive effort is involved to achieve the milestone;~~outstanding amounts, including any interest and ~~the amount of the milestone appears reasonable in relation~~exit fees, under these credit facilities.Due to the ~~effort expended, the other milestones in the arrangement, and the related risk associated with the achievement of the milestone. Contingent-based payments~~conditions outlined above, we ~~may receive~~are not able to conclude under ~~a license agreement will be recognized when received.~~

~~Valuation of Financial Instruments~~

~~Share-Based Compensation~~

~~In accordance with~~FASB Accounting Standards Codification ~~or ASC, Topic 718,~~ ("ASC") 205-40, ~~Stock Compensation~~Presentation of Financial Statements - Going

Concern, ~~as modified or supplemented, issued by~~that it is probable the ~~Financial Accounting Standard Board, or FASB, we measure compensation cost for share-based payment awards granted~~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 employees and non-employee directors at fair value using the Black-Scholes option-pricing model. We recognize compensation expense on a straight-line basis over the service period for awards expected to vest. Share-based compensation cost related to share-based payment awards granted to non-employees is adjusted each reporting period for changes in the fair value of our shares until the measurement date. The measurement date is generally considered to be the date when all services have been rendered or the date that options are fully vested.

We calculate the fair value of share-based compensation awards using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the use of subjective assumptions, including share price volatility, the expected life of options, risk-free interest rate and the fair value of the underlying common shares on the date of grant. In developing our assumptions, we take into account the following:

we do not have sufficient history to estimate the volatility of our common share price. We calculate expected volatility based on reported data for selected reasonably similar publicly traded companies for which the historical information is available. For the purpose of identifying peer companies, we consider characteristics such as industry, market capitalization, length of trading history, similar vesting terms and in-the-money option status. We plan to continue to use the guideline peer group volatility information until the historical volatility of our common shares is relevant to measure expected volatility for future option grants;

~~we determine the risk-free interest rate by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant;~~

~~the assumed dividend yield is based on our expectation of not paying dividends in the foreseeable future;~~

~~we determine the average expected life of options based on the mid-point between the vesting date and the contractual term; and~~

~~we estimate forfeitures based on our historical analysis of actual option forfeitures.~~

~~Results of Operations~~

~~The following table summarizes the results of~~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.

As of June 30, 2019, the Company had $90.3 million in cash and cash equivalents. We continue to look for alternative sources of liquidity, including exploring options to modify the terms of certain assumed liabilities and commitments with various stakeholders and claimants, including $80.0 million in payments relating to the IDB acquisition and contractually due to The Medicines Company (see Note 10). And, while we filed a claim against The Medicines Company to dispute payment of such amounts, it is not certain that we will get relief from all or any portion of these payments. In addition, in order to avoid default under our credit facilities, we are working to negotiate with our creditors to amend the terms of the respective agreements, but there can be no assurance that such negotiations will be successful.

The Company is continuing its evaluation of strategic alternatives, which may include seeking additional public or private financing, sale or merger of the Company, or other alternatives that would enhance the liquidity and ongoing continuing operations of the business. There can be no assurances that the Company will be successful in the implementation of any of these alternatives. If our efforts described in this and the preceding paragraph are unsuccessful, the Company may be forced to materially reduce its operations, which would have a material adverse effect on its results of operations, or it may be unable to continue as a going concern, in which case the Company may be forced to seek relief through a filing under the U.S. Bankruptcy Code.

Recent Developments

In April 2019, we filed a supplemental New Drug Application ("sNDA") for Baxdela for the treatment of community-acquired bacterial pneumonia ("CABP"). In June 2019, we received formal U.S. Food and Drug Administration ("FDA") acceptance of the filing as well as confirmation of the Prescription Drug User Fee Act ("PDUFA") date of October 24, 2019. The approval of Baxdela for CABP would expand the market potential for Baxdela beyond Acute Bacterial Skin and Skin Structure Infection ("ABSSSI") with our target audience in the hospital and non-hospital settings.

In June 2019, we and Vatera agreed to an amendment (the “Loan Agreement Amendment”) to our Senior Subordinated Convertible Loan Agreement (the “Loan Agreement”) to provide for certain modifications, including an extension of the period to draw the remaining unfunded commitments under the Loan Agreement to October 31, 2019 and a reduction of such commitments to $27.0 million (replacing the $60.0 million of unfunded commitments that were previously available for borrowing under the Loan Agreement). Our ability to borrow the additional $27.0 million remains subject to satisfaction of certain conditions precedent set forth in the original Loan Agreement, including, without limitation: the absence of a material adverse effect on the Company; the absence of a default or event of default under the Loan Agreement and no such default or event of default being reasonably expected to occur; accuracy of the representations and warranties made by the Company and its subsidiaries under the Loan Agreement and the related loan documents in all material respects; and the common stock of the Company remaining listed on NASDAQ or another eligible market.

In July 2019, we commenced our clinical study for the development of a new formulation of Orbactiv, which is targeted to reduce the infusion time from three hours to one hour. We expect the study to enroll approximately 100 patients and ~~nine-month periods ended September 30, 2017 and 2016, together with the changes in those items in dollars:~~

last for approximately six months.

Three Months Ended September 30,

Dollar

Nine Months Ended September 30,

Dollar

2017

2016

Change

2017

2016

Change

(In thousands)

(In thousands)

Revenue

Contract research

$
1,717

$
3,972

$
(2,255
)

$
7,449

$
10,071

$
(2,622
)
Total revenue

1,717

3,972

(2,255
)

7,449

10,071

(2,622
)

Research and development expense (1)

4,383

21,096

(16,713
)

28,338

60,643

(32,305
)
General and administrative expense (1)

7,867

15,021

(7,154
)

21,291

35,333

(14,042
)
Restructuring

-

-

-

3,553

-

3,553

Other income (expense), net

174

(167
)

341

219

(618
)

837

(1) Includes the following share-based compensation
expenses:

Research and development expense

$
645

$
627

$
18

$
2,244

$
2,348

$
(104
)
General and administrative expense

860

1,851

(991
)

3,220

5,169

(1,949
)

~~Comparison~~

Results of Operations for the Three Months Ended ~~September~~June 30, ~~2017~~2019 and ~~September~~2018

Revenue

We recorded product sales, net of adjustments for returns and other allowances, of $13.8 million and $9.2 million for the three months ended June 30, ~~2016~~

~~Contract revenue~~

2019 and 2018, respectively. On a year-over-year basis, the 51% growth in net product sales was driven primarily by higher Baxdela and Vabomere demand. In the second quarter of 2018, net product sales were negatively impacted by approximately $2.7 million related to the integration of distribution channels in connection with the acquisition of the IDB of The Medicines Company. Absent this integration activity in the second quarter of 2018, net product sales for the three-month period ended June 30, 2019 would have increased by approximately 17% year-over-year.

For the three months ended ~~September~~June 30, ~~2017,~~2019, contract research revenue decreased $0.7 million compared to the three months ended June 30, 2018, due primarily to lower reimbursable expenses incurred in connection with the Baxdela CABP study, which is reimbursed 50% by Menarini. This decrease was partially offset by increases in reimbursement related to expenses incurred for other licensed products. We completed the enrollment for the Baxdela CABP study in July 2018, we filed the sNDA in April 2019, and we expect a decision on FDA approval for Baxdela for the CABP indication in the fourth quarter of 2019. As such, contract research revenue will continue to decrease over the remainder of 2019.

We did not record any license revenue in the three months ended June 30, 2019 or 2018.

Cost of goods sold

Cost of goods sold for the three months ended June 30, 2019 and 2018, was $8.6 million and $11.0 million, respectively. Cost of goods sold includes the direct manufacturing cost of products sold and allocated manufacturing overhead, including royalties for intellectual property supporting our products. Cost of goods sold in the three months ended June 30, 2019 and 2018, also includes $4.1 million and $3.5 million, respectively, of amortization of product rights (intangible assets) resulting from the purchase accounting for the IDB acquisition.

Research and Development Expense

For the three months ended June 30, 2019, our research and development expense decreased $12.3 million compared to the three months ended June 30, 2018, driven primarily by:

lower development activities, principally clinical studies, for all of our products of $7.0 million ;

lower early stage research expense of $2.5 million, due to winding down those programs;

lower personnel-related and travel expenses of $0.9 million due to a reduction in headcount;

lower quality and regulatory activities of $0.4 million, due to integration of the IDB products; and

a reduction of other costs of $1.2 million.

We completed the CABP study in 2018, and we filed an sNDA with the FDA for Baxdela for the treatment of adult patients with CABP in April 2019. In addition, we terminated our agreement with Biomedical Advanced Research and Development Authority ("BARDA") for the development of solithromycin in 2018, and we wound down our early stage research programs in the first quarter of 2019. Accordingly, the company's R&D expenses will decrease significantly in 2019 compared to 2018.

Selling, General and Administrative Expense

For the three months ended June 30, 2019, selling, general and administrative expense decreased $4.0 million compared to the three months ended June 30, 2018, driven primarily by lower costs in connection with the integration of the Melinta, Cempra and IDB businesses in 2018, including:

lower legal, consulting and other professional fees of $3.0 million;

lower commercial support and expenses of $1.4 million;

lower medical education of $1.0 million; and

lower severance costs of $0.4 million.

Other Income (Expense), Net

Other expense, net, increased by $3.0 million for the three months ended June 30, 2019, compared to the three months ended June 30, 2018, due principally to the recognition in 2018 of a $2.5 million gain on the remeasurement of our warrant liability and $2.0 million decrease in grant income due to reduced reimbursable research activity in 2019 resulting from the termination of our agreements with BARDA and CARB-X. Partially offsetting these decreases year-over-year was an increase in interest income of $0.1 million due to higher cash balances, and a decrease in cash and non-cash interest expense of $1.1 million.

Results of Operations for the Six Months Ended June 30, 2019 and 2018

Revenue

We recorded product sales, net of adjustments for returns and other allowances, of $25.6 million and $21.0 million for the six months ended June 30, 2019 and 2018, respectively. On a year-over-year basis, the 22% growth in net product sales was driven primarily by higher Vabomere and Baxdela demand, and, to a lesser extent, Minocin demand; these increases were partially offset by slight decrease in Orbactiv net product sales. As discussed above, in the second quarter of 2018, net product sales were negatively impacted by approximately $2.7 million related to the integration of distribution channels in connection with the acquisition of the IDB of The Medicines Company. Absent this integration activity in the second quarter of 2018, net product sales for the six-month period ended June 30, 2019 would have increased by approximately 8% year-over-year.

For the six months ended June 30, 2019, contract research revenue decreased $2.3 million compared to the ~~three~~six months ended ~~September~~June 30, ~~2016~~2018, due primarily to lower reimbursable expenses incurred in connection with the ~~completion of~~Baxdela CABP study, which is reimbursed 50% by Menarini. This decrease was partially offset by increases in reimbursement related to expenses incurred for other licensed products. We completed the ~~first option period of~~enrollment for the ~~BARDA contract~~Baxdela CABP study in July 2018, we filed the sNDA in April 2019, and we expect a decision on FDA approval for Baxdela for the CABP indication in the ~~first~~fourth quarter of ~~2017 and~~

~~decreased activity in the second option period. We expect~~2019. As such, contract research revenue will continue to decrease ~~somewhat as activity~~over the remainder of 2019.

For the six months ended June 30, 2019, license revenue was $0.9 million compared to $0.0 million for the six months ended June 30, 2018. The license revenue in the ~~second option~~current period relates to rights licensed to a partner to commercialize Baxdela in the Middle East/North Africa territories.

Cost of goods sold

Cost of goods sold for the six months ended June 30, 2019 and 2018 was $16.0 million and $18.7 million, respectively. Cost of goods sold includes the direct manufacturing cost of products sold and allocated manufacturing overhead, including royalties for intellectual property supporting our products. Cost of goods sold in the six months ended June 30, 2019 and 2018, also includes $8.2 million in each period of amortization of product rights (intangible assets) resulting from the ~~BARDA contract continues to wind down.~~

purchase accounting for the IDB acquisition.

Research and Development Expense

For the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2019, our research and development expense decreased ~~$16.7~~$23.1 million compared to the ~~three~~six months ended ~~September~~June 30, ~~2016. The decrease is~~2018, driven primarily ~~related to the following:~~

by:

lower development activities, principally clinical studies, for all of our products of $13.6 million;

~~a decrease~~lower early stage research expenses of $4.4 million ~~in purchases of commercial API as we purchased significant amounts of API in the third quarter of 2016 in preparation for the then anticipated commercial launch of solithromycin;~~

resulting from winding down those programs;

~~a decrease in clinical~~lower personnel-related and travel expenses of ~~$3.7~~$1.3 million due to lower headcount;

lower quality and regulatory expenses of $1.1 million due to lower headcount and regulatory activities; and

a reduction of other costs of $2.5 million.

We completed the ~~wrap-up~~CABP study in 2018, and we filed an sNDA with the FDA for Baxdela for the treatment of adult patients with CABP in April 2019. In addition, we terminated our agreement with BARDA for the ~~phase 3 fusidic acid study for ABSSSI~~development of solithromycin in 2018, and we wound down our early stage research programs in the first quarter of ~~2017;~~

2019. Accordingly, the company's research and development expenses will decrease significantly in 2019 compared to 2018.

Selling, General and Administrative Expense

For the six months ended June 30, 2019, selling, general and administrative expense decreased $12.7 million compared to the six months ended June 30, 2018, driven primarily by higher costs incurred in connection with the integration of the Melinta, Cempra and IDB businesses in 2018:

lower legal, consulting and other professional fees of $6.0 million;

lower personnel and recruiting expenses of $3.7 million;

lower commercial support and expenses of $2.0 million;

lower medical education of $1.4 million;

lower severance costs of $0.9 million;

partially offset by higher operating expenses of $1.3 million for additional office space and related activities.

Other Income (Expense), Net

Other expense, net, increased by $19.1 million for the six months ended June 30, 2019, compared to the six months ended June 30, 2018, due principally to the recognition in 2018 of a ~~decrease~~$26.5 million gain on the remeasurement of ~~$2.6~~our warrant liability and $4.7 million in ~~clinical and drug product costs due to significantly fewer ongoing studies for solithromycin as~~grant income recognized under contracts that were terminated in 2018. Partially offsetting these decreases in 2019 year-over-year was a ~~result~~gain of $6.3 million on the ~~completion~~remeasurement of ~~the phase 3 IV trial and cancellation~~our conversion liability, lower non-cash interest expense of ~~COPD and NASH studies;~~

~~a decrease of employee costs of $1.9~~$3.6 million related to the ~~reduction in headcount effected~~accretion of certain liabilities assumed in the ~~first quarter~~IDB Transaction that were fully accreted or nearly fully accreted by the end of ~~2017 as a result~~2018, and lower loss on extinguishment of debt of $2.2 million.

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in our 2018 Annual Report on Form 10-K and Note 2, “Summary of Significant Accounting Policies,” in the Notes to the Consolidated Financial Statements, which includes further information about recently issued accounting pronouncements. There were no material changes in our critical accounting policies since the filing of our 2018 Annual Report on Form 10-K.

Liquidity and Capital Resources

We have incurred significant losses and negative cash flows from operating activities since our inception. As of June 30, 2019, we had an accumulated deficit of $784.5 million, and we expect to continue to incur significant losses in the short term. In addition, we have had substantial commitments in connection with our acquisition of the ~~delay of our planned commercial launch of solithromycin;~~

~~a decrease~~IDB from The Medicines Company that we completed in ~~BARDA related expenses of $1.9 million due to decreased activity in the second option period;~~

~~a decrease in regulatory expenses of $1.7 million~~January 2018, including payments related to ~~NDA expenses incurred during 2016;~~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

~~a decrease~~

product sales of ~~$0.5 million in expenses related to research for other potential indications of solithromycin.~~

~~General and Administrative Expense~~

~~General and administrative expense decreased $7.2~~at least $63.8 million for the ~~three months ended September 30, 2017 compared~~year ending December 31, 2019. (See Note 4 to the ~~three months ended September 30, 2016. The decrease is primarily related~~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 ~~following:~~

workforce of approximately 20.0% and a ~~decrease~~decision to begin to wind down its research and discovery function. To provide additional operating capital, in ~~employee costs~~December 2018, the Company entered into a Senior Subordinated Convertible Loan Agreement (the “Loan Agreement”) with Vatera Healthcare Partners LLC and Oikos Investment Partners LLC (formerly known as Vatera Investment Partners LLC) (together, “Vatera”) pursuant to which Vatera committed to provide $135.0 million over a period of ~~$5.7 million due~~five months, subject to the ~~reduction in workforce;~~

satisfaction of certain conditions. Under the terms of the Loan Agreement, we are subject to certain financial-related covenants, including that we (i) file an Annual Report on Form 10-K for the year ending December 31, 2019, with an audit opinion without a ~~decrease in professional services~~going concern qualification, (ii) maintain a minimum cash balance of ~~$5.2~~$22.5 million, ~~related to pre-commercialization activities during the third quarter~~and (iii) achieve net revenue from product sales of ~~2016 that did not continue in the third quarter of 2017; and~~

~~an increase in professional services of $3.7 million related to the strategic review process and potential transaction with Melinta.~~

~~Other Income (Expense), Net~~

~~Other income increased by $0.3~~at least $57.4 million for the ~~three months ended September 30, 2017 compared~~year ending December 31, 2019. (See Note 4 to the ~~three months ended September~~consolidated financial statements for further details on the Loan Agreement.) Upon the effectiveness and under the terms of the Loan Agreement, we provided a deemed issuance of these notes to Deerfield in the amount of $5.0 million. We drew $75.0 million under this facility in February 2019. In June 2019, we were unable to meet the conditions to draw the remaining $60.0 million, and we and Vatera amended the Loan Agreement (as amended, the "Loan Agreement Amendment"). The Loan Agreement Amendment reduced their remaining commitment to $27.0 million and extended the time frame over which it is available to October 31, 2019, subject to certain conditions.

As of June 30, ~~2016 due~~2019, we held cash and cash equivalents of $90.3 million to fund operations. Our future cash flows are dependent on key variables such as our ability to access additional capital under our Deerfield Facility and Amended Loan Agreement, our ability to secure a ~~higher rate~~working capital revolver, which is allowed under the Deerfield Facility and required in order to access the remaining commitments under the Amended Loan Agreement, our ability to raise additional capital from the equity markets, and most importantly, the level of ~~return on cash equivalents,~~sales achievement of our four marketed products. As discussed in Note 1 and the Overview of Management's Discussion and Analysis, we believe there is risk in our ability to draw the additional $50.0 million under the Deerfield Facility and the $27.0 million under the Loan Agreement Amendment, as well as ~~a lower~~risk of default under both of these facilities in the next few quarters. In the event of default, without obtaining waivers or amending certain covenants, the lenders could exercise their rights under the Deerfield Facility and Amended Loan Agreement to accelerate the terms of repayment. If repayment is accelerated, it would be unlikely that the Company would be able to repay the outstanding amounts, including any interest ~~rate~~ and ~~lower balance on~~exit fees, under these credit facilities.

Also, as discussed in Note 1 and in the ~~July 2015 Note.~~

~~Comparison~~Overview to Management's Discussion and Analysis, we continue to look for alternative sources of liquidity, including exploring options to modify the terms of certain assumed liabilities and commitments with various stakeholders and claimants. In addition, in order to avoid default under our credit facilities, we are working to negotiate with our creditors to amend the terms of the ~~Nine Months Ended September 30, 2017~~respective agreements, and ~~September 30, 2016~~

~~Contract revenue~~

~~For~~we are continuing our evaluation of strategic alternatives, which may include seeking additional public or private financing, sale or merger of the ~~nine months ended September 30, 2017, contract research revenue decreased $2.6 million compared to~~Company, or other alternatives that would enhance the ~~nine months ended September 30, 2016 due to decreased activity~~liquidity and ongoing continuing operations of the business. There can be no assurances that the Company will be successful in the ~~second option period~~implementation of any of these alternatives. If unsuccessful, the ~~BARDA contract. We expect contract research revenue~~Company may be forced to materially reduce its operations and/or seek to reorganize or restructure its debt, including under the U.S. Bankruptcy Code, which would have a material adverse effect on its results of operations.

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 ~~balance of 2017 to decrease somewhat as activity in the second option period of the BARDA contract winds down~~timing and ~~then increase as the 2017-2018 northern hemisphere CABP season begins to drive enrollment in the Phase 2/3 pediatric program.~~

~~Research and Development Expense~~

For the nine months ended September 30, 2017, our research and development expense decreased $32.3 million compared to the nine months ended September 30, 2016. The decrease is primarily related to the following:

~~a decrease in regulatory expenses of $11.7 million primarily related to the NDA expenses incurred during 2016;~~

~~a decrease of $6.9 million in expenses related to fusidic acid due primarily to the wrap-up of the phase 3 study for ABSSSI in the first quarter of 2017;~~

a decrease of $5.2 million in purchases of commercial API as we purchased significant amounts of API in the third quarter of 2016 in preparation for the then anticipated commercial launch of solithromycin;

•

~~a decrease of employee costs of $5.0 million related to the reduction in headcount effected in the first quarter of 2017 as a result of the delay of our planned commercial launch of solithromycin;~~

~~a decrease of $1.8 million in expenses related to research for other potential indications of solithromycin;~~

a decrease of $0.9 million in clinical and drug product costs due to significantly fewer ongoing studies for solithromycin as a result of the completion of the phase 3 IV trial and cancellation of COPD and NASH studies;

~~a decrease in BARDA related expenses of $0.6 million due to decreased activity in the second option period during the second and third quarters of 2017; and~~

~~a decrease in professional services related expenses of $0.2 million due to the delay~~amount of our ~~planned commercial launch of solithromycin.~~

~~General~~funding requirements and ~~Administrative Expense~~

~~General~~we may need to seek additional funding sooner, and ~~administrative expense decreased $14.0 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The decrease is primarily related to the following:~~

~~a decrease~~ in ~~professional services of $11.1 million related to pre-commercialization activities during 2016 that did not continue in 2017;~~

larger amounts, than we currently anticipate.

~~a decrease in employee costs of $8.2 million due to the reduction in workforce; and~~

~~an increase in professional services of $5.3 million related to the strategic review process and potential transaction with Melinta.~~

~~Restructuring~~

In February 2017, as a consequence of the solithromycin complete response letter we received from the FDA, and subsequent discussions with the FDA, resulting in the delay of the potential approval of solithromycin, we initiated companywide cost and personnel reductions. These actions resulted in an approximately 67% reduction in our workforce from 136 to 45 employees, and significant ~~reductions~~ in external spending related to commercial preparedness and non-essential activities. We also vacated two of the leased office suites that were no longer necessary for our operations. As a result of these decisions, we recorded a one-time charge of $3.6 million.

~~Other Income (Expense), Net~~

Other income increased by $0.8 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 due to a higher rate of return on cash equivalents, as well as a lower interest rate and lower outstanding loan balance on the July 2015 Note.

~~Liquidity and Capital Resources~~

~~Sources of Liquidity~~

Since our inception through September 30, 2017, we have funded our operations principally with $618.6 million from the sale of debt and equity instruments (common and preferred), $46.7 million of research funding from our BARDA contract, and $40.0 million of licensing and milestone payments. As of September 30, 2017, we had cash and equivalents to fund operations of approximately $176.1 million.

~~Cash Flows~~

The following table ~~sets forth~~provides a summary of our cash position as of each of the ~~major sources~~period-end dates and ~~uses~~the cash flows for each of ~~cash for~~ the periods ~~set forth below:~~

presented below (in thousands):

Nine Months Ended September 30,

2017

2016

(In thousands)

Net cash provided by (used in):

Operating activities

$
(50,678
)

$
(71,252
)
Investing activities

-

(9
)
Financing activities

(4,741
)

166,413

Net increase in cash and equivalents

$
(55,419
)

$
95,152



	Six Months Ended June 30,
	2019			2018
	(In thousands)
Net cash provided by (used in):
Operating activities	$	(62,997	)	$	(105,749	)
Investing activities	(1,221		)	(169,310		)
Financing activities	72,753			296,759
Net change in cash and equivalents	$	8,535		$	21,700

Operating Activities. ~~Cash~~Net cash used in operating activities ~~of $50.7 million~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and 2018, was $63.0 million and $105.7 million, respectively. In 2018, the primary use of cash was related to supporting our commercial activities, in addition to development and discovery research activities for our product candidates and support for our general and administrative functions. We used $42.8 million less in operations during 2019 due primarily to lower operating expenses, excluding non-cash and debt extinguishment expenses, of $32.8 million, due primarily to a ~~result~~reduction in R&D expenses because of the conclusion of our ~~$45.5 million net loss~~CAPB study and the wind-down of our early-stage research activities, which was substantially completed by March 31, 2019. The cash used in changes in operating assets and liabilities of $10.7 million, primarily a reduction in accounts payable and accrued expenses, partially offset by non-cash items of $5.5 million. Cash used in operating activities of $71.3 million for the nine months ended September 30, 2016operations year-over-year was ~~primarily a result of our $86.5 million net loss offset~~driven slightly higher by changes in ~~operating assets and liabilities of $7.6 million and non-cash items of $7.6~~working capital accounts totaling $9.9 million.

Investing Activities.Net cash used in investing activities ~~of $0 and $9,000~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016, respectively~~2019, of $1.2 million was related principally to a $1.2 million licensing payment related to one of our commercial products. Net cash used in investing activities for the six months ended June 30, 2018, related to the purchase of IDB and the purchases of equipment.

Financing Activities. Net cash used in financing activities of $4.7 million for the nine months ended September 30, 2017 was the result of $5.0 million in payment of long-term debt reduced by $0.3 million in proceeds from the exercise of stock options. Net cash provided by financing activities of ~~$166.4~~$72.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2019, consisted primarily of ~~net proceeds of $169.1~~$73.7 million ~~from~~provided by the issuance of ~~common stock, $0.4~~convertible notes (net of $1.3 million of ~~proceeds from~~debt issuance costs).

Net cash provided by financing activities of $296.8 million for the ~~exercise~~six months ended June 30, 2018, consisted primarily of:

$190.0 million provided by the facility agreement;

$155.8 million provided by additional equity funding;

$6.5 million used for debt issuance costs; and

$40.0 million used for payment of ~~stock options, offset by $2.8~~notes payable, as well as $2.2 million for debt extinguishment.

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 through grants which reimburse a portion of our research and development activities.

In connection with the IDB Transaction in January 2018, we entered into the Deerfield Facility. The Deerfield Facility, as amended in January 2019, provided up to $240.0 million in ~~payment of long-term~~ debt and ~~$0.3~~equity financing, with a term of six years. We have approximately $145.0 million principal outstanding under the Deerfield Facility as of ~~offering costs.~~

~~Funding Requirements~~

June 30, 2019 (see Liquidity and Capital Resources above for further details.)

To ~~date,~~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 Oikos

Investment Partners LLC (formerly known as 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. We drew $75.0 million under the Loan Agreement in February 2019, and in June 2019, we ~~have not generated any product revenue~~and Vatera amended the terms of the Loan Agreement (as amended, the "Loan Agreement Amendment") to reduce the additional availability from ~~our clinical stage product candidates or from any other source.~~ $60.0 million to $27.0 million and extend its availability to October 31, 2019, subject to certain conditions (see Notes 1 and 4).

We ~~do not know when, or if, we will generate any product revenue. We do not~~ expect to generate product revenue unless and until we obtain marketing approval of and commercialize solithromycin and/or fusidic acid or any of our other product candidates. At the same time, we expect our expensescontinue to ~~increase if~~incur significant losses into 2020, as we continue the ~~research,~~ development ~~and clinical trials~~ of, and seek regulatory ~~approval~~approvals for, our product candidates, and ~~engage in commercial readiness activities for, solithromycin and fusidic acid and~~commercialize our ~~other product candidates. In addition,~~approved products. We are also subject to ~~obtaining regulatory approval~~the risks associated with the development of ~~any of~~new therapeutic products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our ~~product candidates,~~business operations. Additionally, we expect to incur ~~significant commercialization expenses for product sales, marketing, manufacturing~~additional costs associated with operating as a public company and ~~distribution. We will~~may need substantial additional funding in connection with our continuing ~~operations.~~

~~Based on current assumptions,~~operations, commercial and product development activities.

As discussed above, we ~~believe that~~expect our ~~existing cash~~operating losses to continue to increase for the foreseeable future and, equivalents will enable us to fund our current operating expenses and capital requirements for at least the next 12 months from the filing date of this report. Such operating and capital requirements do not contemplate incremental expenses associated withas a full scale commercial launch of solithromycin or any additional clinical trials with any of our product candidates or any funds from future financings or partnerships beyond the Toyama relationship and the BARDA contract. Weresult, we will need ~~to obtain~~ additional ~~financing for the continued development of solithromycin and fusidic acid and our other product candidates and~~capital to support the ~~commercialization~~working capital requirements of ~~solithromycin and/or any~~commercialized products and to fund further development of ~~our~~Melinta’s other product ~~candidates should any receive regulatory approval.~~ candidates.

We ~~have based our estimates on assumptions that may prove~~intend to ~~be wrong, and we may~~ use our ~~available~~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 Baxdela for the treatment of CABP and a reformulation for Orbactiv; and

the remainder for working capital, ~~resources sooner than~~selling, general and administrative expenses, and other general corporate purposes.

As discussed in Note 1 and the Overview in Management's Discussion and Analysis, we currently expect. Due to the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of our product candidates.

~~Our future capital requirements will depend on many factors, including:~~

the scope, progress costs, and results of pre-clinical development, laboratory testing and clinical trials for any of our product candidates including any pre- or post-approval safety studies for solithromycin and any additional clinical trials for fusidic acid;

~~the costs, timing and outcome of regulatory review of our product candidates;~~

the costs and timing of commercialization readiness activities for any of our product candidates, including developing manufacturing sources and building our inventory of commercial product, in anticipation of regulatory approval;

~~the costs and timing of commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive regulatory approval;~~

~~the costs of commercial and clinical supplies of any of our drug candidates;~~

~~obtaining milestone payments from Toyama;~~

~~receipt of payments under the BARDA contract;~~

believe there is substantial doubt about our ability to ~~establish collaborations on favorable terms;~~

~~the costs~~continue as a going concern, and we are seeking alternative sources of ~~preparing, filing~~liquidity and ~~prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;~~

~~the acceptance in the medical community~~are continuing our evaluation of ~~any of our product candidates for which we receive approval;~~

strategic alternatives.

•

~~revenue, if any, and the timing of the related payment, from the sale of our product candidates, should any receive regulatory approval;~~

~~obtaining a commercially viable price for any of our product candidates, should any receive regulatory approval;~~

~~the availability of adequate coverage and reimbursement from federal, state and private healthcare payors for any of our product candidates, should any receive regulatory approval;~~

~~reimbursement and medical policy changes that may adversely affect the pricing, profitability or commercial appeal of any of our product candidates, should any receive regulatory approval;~~

~~our ability to enter into any license agreements for the distribution of our product candidates outside the U.S.;~~

~~the extent to which we acquire or invest in businesses, products and technologies; and~~

~~our ability to obtain government or other third-party funding.~~

Until we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. We do not anticipate any substantial product revenue for the foreseeable future. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interests will be diluted, and the terms of any securities may include liquidation or other preferences that adversely affect our stockholders’ rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt or declaring dividends, such as those imposed under the Comerica loan. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.

We will need additional financing to continue development activities to obtain regulatory approval of and to commercialize solithromycin, fusidic acid and our other product candidates. We plan, as noted, to seek partners as well as equity or debt financings or other sources of third-party funding, including government grants to support the continued development and commercialization of solithromycin, fusidic acid and our other product candidates. If we are unable to raise additional funds when needed, whether on favorable terms or not, we may be required to delay, limit, reduce or terminate our development of our product candidates, or our commercialization efforts, or to grant rights to third parties to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

We enter into contracts in the normal course of business with clinical research organizations for clinical trials and clinical supply manufacturing and with vendors for pre-clinical research studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice and therefore we believe that our non-cancelable obligations under these agreements are not material.

~~During the nine months ended September 30, 2017, there~~

There have been no ~~material~~significant changes toin our contractual obligations and commitments ~~outside~~since the ~~ordinary course~~filing of ~~business from those specified~~and as disclosed in our ~~2016~~2018 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under ~~SEC~~the Securities and Exchange Commission ("SEC") rules.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers. This new guidance clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP. The guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. This guidance, as amended by ASU 2015-14, is effective for fiscal years and interim periods within those years beginning after December 15, 2017, which is effective for us for the year ending December 31, 2018. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies an entity’s identification of its performance obligations in a contract. The update also clarifies the guidance regarding an entity’s

evaluation of the nature of its promise to grant a license of intellectual property and whether or not that revenue is recognized over time or at a point in time. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, which amends the guidance in the new revenue standard on collectability, non-cash consideration, presentation of sales tax, and transition. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers which increases shareholders’ awareness of the proposals and expedites improvements to Update 2014-09. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), which allows certain public business entities to elect to use the non-public business entities effective dates to adopt new standards on revenue (ASC 606) and leases (ASC 842). The amendments are intended to address implementation issues that were raised by stakeholders and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. These pronouncements have the same effective date as the new revenue standard.

We have evaluated the contract research agreement with BARDA, and do not anticipate a material impact on our consolidated financial statements. We are currently evaluating the license agreement with Toyama to determine the impact that the implementation of this standard will have on our consolidated financial statements, if any. We plan to use the full retrospective method of adoption effective January 1, 2018.

In February 2016, the FASB issued ASU 2016-02, Leases. The new guidance will increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We are currently evaluating the impact that the implementation of this standard will have on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation. The new guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We adopted this guidance as of January 1, 2017. As of December 31, 2016, we had accumulated excess tax benefits from temporary differences in the amount and timing of stock compensation expense and deductions on our income tax return from the award compensation that reduces the net operating loss deferred tax asset. We provided a full valuation allowance against our net deferred tax assets since it has been determined that it is more likely than not that all of the deferred tax assets will not be realized. Upon implementation of this standard, the stock compensation excess tax benefit will be eliminated, resulting in an increaseSee Note 2 to the ~~net operating loss deferred tax asset, with an increase in the valuation allowance~~Condensed Consolidated Financial Statements for discussion of ~~the same. The implementation of this standard has no impact on our consolidated financial statements.~~

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. This new guidance is effective for fiscal years beginning after December 15, 2017. We are currently evaluating the impact that the implementation of this standard will have on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business which revises the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This new guidance is effective for fiscal years beginning after December 15, 2017. We are currently evaluating the impact that the implementation of this standard will have on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation. This new guidance provides clarity and reduces both diversity and complexity to the terms or conditions of a share-based payment award. This new guidance is effective for fiscal years beginning after December 15, 2017. We are currently evaluating the impact that the implementation of this standard will have on our consolidated financial statements.

recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have not been any material changes to our exposure to market risk during the quarter ended ~~September~~June 30, ~~2017.~~2019. For additional information regarding market risk, refer to “Item 7A. Quantitative and Qualitative Disclosure About Market Risk” of our ~~2016~~2018 Annual Report on Form 10-K.

I~~tem~~

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the ~~Securities Exchange Act of 1934, as amended, or the~~ Exchange Act), are designed only to provide reasonable assurance that information to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As of the end of the period covered by this report, ~~we carried out an evaluation, under the supervision and with the participation of our~~ management, including our ~~Acting~~ Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our ~~Acting~~ Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide the reasonable assurance discussed above.

Changes in Internal Control over Financial Reporting

No change to our internal control over financial reporting occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1A. Risk Factors

~~There have been no material changes to~~

The risk factor set forth below updates the risk factors ~~previously disclosed~~ in our Annual Report on Form 10-K for the year ended December 31, ~~2016, as amended by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, except the additional risks as set forth below.~~

~~Risks Related~~2018. In addition to the ~~Proposed Merger with Melinta Therapeutics, Inc.~~

~~We might not~~risk factor below, you should carefully consider the risk factors discussed in our most recent Form 10-K report, which could materially affect our business, financial position and results of operations.

There can be no assurances that the Company will be able to ~~successfully integrate our operations~~borrow additional amounts under the Deerfield Facility Agreement or the Vatera Loan Agreement or otherwise comply with its covenants under those agreements or that such amounts, even if borrowed, would provide sufficient liquidity for the Company.

There can be no assurances that the Company will be able to meet the borrowing conditions for the additional $27.0 million under the Vatera Loan Agreement and, therefore, the Company may not have access to the additional funding. Further, there can be no assurance that even if such amount is borrowed that it will provide sufficient liquidity to the Company. Additionally, while we have the ability until January 5, 2020, to borrow an additional $50.0 million under the Deerfield Facility Agreement if we meet certain minimum product sales requirements by the end of ~~Melinta Therapeutics, Inc. and might not realize some or all of the anticipated benefits from the proposed merger with Melinta Therapeutics, Inc.~~

~~We expect to complete the proposed merger with Melinta Therapeutics, Inc., or Melinta,~~2019, currently there is risk in November 2017, whereby Melinta will become our wholly owned subsidiary. Our integration of the operations and personnel of Melinta may require significant efforts, including significant amounts of management’s time, and result in additional expenses. Factors that will affect the success of the merger include the strength of our combined product pipelines, our ability to ~~execute our business strategy, our ability~~reach these minimum product sales requirements, as well as remaining in compliance with the covenants thereunder, which are a condition to adequately fund research and development and retain key employees, and results of clinical trials, regulatory approvals and reimbursement levels of any approved product, including Melinta’s FDA-approved product, Baxdela. draw the $50.0 million.

Our failure to ~~successfully manage~~comply with the ~~Melinta merger could have~~covenants under either the Deerfield Facility Agreement or the Vatera Loan Agreement, if not modified or waived by the required lenders, would result in an event of default, which would allow our lenders under those agreements to accelerate the related debt and also may result in the acceleration of any other debt to which a ~~material adverse impact on our business.~~cross-acceleration or cross-default provision applies and may result in a cross-default under other contracts. In addition, an event of default under the Deerfield Facility Agreement would permit the lenders under the Deerfield Facility Agreement to terminate the remaining $50.0 million available to the Company until January 5, 2020, if we ~~cannot be~~meet certain sales milestones by the end of 2019. Furthermore, if we were unable to repay the amounts due and payable under the Deerfield Facility Agreement, the lenders under that ~~Melinta’s technology will be successfully developed or, if approved as is~~agreement could proceed against the ~~case with Baxdela, become profitable or remain so.~~

~~The success~~collateral granted to them to secure that debt. In the event our lenders accelerate the repayment of ~~the merger with Melinita also will be dependent on~~any of our ~~new management team, including the planned hiring of a new Chief Executive Officer, which will be determined after the merger. Consequently, the new management team will~~borrowings, we and our subsidiaries would not have ~~worked together before. In addition,~~sufficient assets to repay that debt. If an event of default occurs, or we believe that such an event may ~~continue~~occur, under either the Deerfield Facility Agreement or the Vatera Loan Agreement, and we are not able to ~~expand our management team in~~reach an agreement with the future. Our future performance will depend, in part, on our ability to successfully assemble and integrate our management team and their ability to develop and maintain an effective working relationship. Our failure to integrate the management team could result in inefficiencies in the development and commercialization of Baxdela as well as our product candidates, thereby harming sales of Baxdela and ourlenders for a waiver or other ~~product candidates, future regulatory approvals, and our results of operations.~~

~~Moreover,~~relief, we have not determined where our company will have its headquarters and the relocation of any member of our management team to our headquarters location, or working outside of our headquarters location, if allowed, may make the integration of our management team and our other employees more challenging. In addition, we could have difficulty attracting experienced personnel to our company and may be required to ~~expend significant financial resources in~~consider other alternatives, including a sales process, a reorganization or other restructuring, including seeking relief through a filing under the U.S. Bankruptcy Code, or other actions with respect to our ~~employee recruitment~~debt and ~~retention efforts.~~

~~If the proposed merger with Melinta is not consummated, our business~~operations, which actions could ~~suffer materially and our stock price could decline.~~

The consummation of the proposed merger with Melinta is subject to a number of closing conditions, including the approval of the stock issuance pursuant to the merger agreement by our stockholders and other customary closing conditions. We anticipate that the merger will close in November 2017.

~~If the proposed merger is not consummated, we may be subject to a number of material risks, and our business and stock price could be adversely affected, as follows:~~

•

~~We have incurred and expect to continue to incur significant expenses related to the proposed merger with Melinta even if the merger is not consummated.~~

•

The merger agreement contains covenants relating to our solicitation of competing acquisition proposals and the conduct of our business between the date of signing the merger agreement and the closing of the merger. As a result, significant business decisions and transactions before the closing of the merger require the consent of Melinta. Accordingly, we may be unable to pursue business opportunities that would otherwise be in our best interest as a standalone company. If the merger agreement is terminated after we have invested significant time and resources in the transaction process, we will have a limited ability to launch any approved product candidates without obtaining additional financing to fund our operations.

•

We could be obligated to pay Melinta a $7.9 million termination fee in connection with the termination of the merger agreement, depending on the reason for the termination. Additionally, if our stockholders do not approve the issuance of shares in the merger or the amendments to our certificate of incorporation required under the merger agreement, and either party thereafter terminates the merger agreement, we will be obligated to pay up to $2.0 million of out-of-pocket costs incurred by Melinta in connection with the transactions (and any termination fee subsequently payable by us would be reduced by the amount of any such expense reimbursement).

•

~~Our prospective customers, collaborators and other business partners and investors in general may view the failure to consummate the merger as a poor reflection on our business or prospects.~~

•

~~The market price of our common stock may decline to the extent that the current market price reflects a market assumption that the proposed merger will be completed.~~

In addition, if the merger agreement is terminated and our board of directors determines to seek another business combination, it may not be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the merger. In such circumstances, our board of directors may elect to, among other things, divest all or a portion of our business, or take the steps necessary to liquidate all of our business and assets, and in either such case, the consideration that we receive may be less attractive than the consideration to be received by us pursuant to the merger agreement.

~~The announcement and pendency of the proposed merger with Melinta could adversely affect our business.~~

~~The announcement and pendency of the proposed merger could adversely affect our business for a number of different reasons, many of which are not within our control, including as follows:~~

•

~~Some of our suppliers, distributors, collaborators and other business partners may seek to change or terminate their relationships with us as a result of the proposed merger;~~

•

As a result of the proposed merger, current and prospective employees could experience uncertainty about their future roles within the combined company. This uncertainty may adversely affect our ability to retain our key employees, who may seek other employment opportunities; and

•

~~Our management team may be distracted from day-to-day operations as a result of the proposed merger.~~

~~The merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes and other causes.~~

In general, either party can refuse to complete the merger if there is a material adverse change affecting the other party between August 8, 2017, the date of the merger agreement, and the closing. However, some types of changes do not permit either party to refuse to complete the merger, even if such changes would have a material adverse effect on ~~us or Melinta, to the extent they resulted from the following (unless, in some cases, they have a materially disproportionate effect~~our business, results of operations and financial condition and on ~~us or Melinta, as the case may be):~~

•

~~changes in general economic, business, financial or market conditions;~~

•

~~changes or events affecting the industries or industry sectors in which the parties operate generally;~~

•

~~changes in generally accepted accounting principles;~~

•

~~changes in laws, rules, regulations, decrees, rulings, ordinances, codes or requirements issued, enacted, adopted or otherwise put into effect by or under the authority of any governmental body;~~

•

~~changes caused by any action taken with the other party’s prior written consent or any action expressly required by the merger agreement;~~

•

~~changes caused by any act of war, terrorism, national or international calamity or any other similar event;~~

•

~~changes caused by the announcement or pendency of the merger;~~

•

with respect to us, changes caused by any decision or action, or inaction, by the FDA or other comparable foreign governmental body, with respect to solithromycin, fusidic acid or any product of any competitor of ours or of any third-party company developing anti-infective products;

•

with respect to us, changes caused by any scientific, treatment or clinical trial results relating to solithromycin, fusidic acid or any product of any competitor of ours or of any third-party company developing anti-infective products; or

•

~~with respect to us, a decline in our stock price.~~

~~If adverse changes occur but we~~our common stockholders and ~~Melinta must still complete the merger, the combined company’s stock price may suffer.~~

~~During the pendency~~other stakeholders. Any of the ~~merger, we may not be able to enter into a business combination with another party because of restrictions in~~forgoing could materially adversely affect the ~~merger agreement.~~

~~Covenants in the merger agreement impede the ability of~~relationships between us or Melinta to make acquisitions or complete other transactions that are not in the ordinary course of business pending completion of the merger. As a result, if the merger is not completed, the parties may be at a disadvantage to their competitors. and our existing and potential customers, employees, suppliers, partners and others.

In addition, ~~while the merger agreement~~as previously disclosed, we believe there currently is in effect and subject to limited exceptions, each party is prohibited from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition of our common stock, a tender offer for our common stock or a merger or other business combination outside the ordinary course of business, which transactions could be favorable to such party’s stockholders.

~~The market price of the combined company’s common stock may decline as a result of the merger.~~

~~The market price of the combined company’s common stock may decline as a result of the merger for a number of reasons including if:~~

•

~~the combined company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts;~~

•

~~the effect of the merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or~~

•

~~investors react negatively to the effect on the combined company’s business and prospects from the merger.~~

~~Our common stock could be delisted from the NASDAQ Global Market if we do not comply with its initial listing standards at the time of the merger.~~

Pursuant to the NASDAQ Listing Rules, consummation of the merger requires the combined company to submit an initial listing application and, at the time of the merger, meet all of the criteria applicable to a company initially requesting listing (including a $4.00 per share minimum bid price for our common stock). We intend to apply for listing on the NASDAQ Global Market and are seeking stockholder approval of a reverse stock split in order to satisfy the initial listing criteria. While we intend to obtain listing status for the combined company and maintain the same, no guarantees can be madesubstantial doubt about our ability to ~~do so. In~~continue as a going concern unless we can secure additional sources of liquidity. We continue to look for alternative sources of liquidity, including exploring options to modify the ~~event~~terms of certain assumed liabilities and commitments with various stakeholders and claimants, including, as previously disclosed, potential payments relating to the ~~merger is approved by our stockholders but the reverse stock split is not, the merger~~IDB acquisition and payments potentially due to The Medicines Company, all of which potential payments could ~~still be consummated and shares of our common stock would not be listed on a national securities exchange.~~

~~If our common stock is unable~~total up to $80.0 million if required to be listed on NASDAQ or another national securities exchange, the common stock may be eligible to trade on the OTC Bulletin Board or another over-the-counter market. Any such alternative would likely result in it being more difficult for the combined company to raise additional capital through the public or private sale of equity securities and for investors to dispose of, or obtain accurate quotations as to the market value of, the common stock.made. In addition, ~~there can be no assurance that the common stock would be eligible for trading on any such alternative exchange or markets.~~

we regularly evaluate our strategic direction and ongoing business plans and, as part of this evaluation, we from time to time consider a variety of strategic alternatives, including modifications to our business plan and strategy, potential sale, mergers and acquisitions activity and other actions.

Item 6. E~~xhibits~~

Exhibits

~~Exhibit~~

~~Number~~

Exhibit

Number

Description of Document

Registrant’s

Form

Filed

Exhibit

Number

Filed

Herewith

31.1

~~31.1~~

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

31.2

~~31.2~~

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

32.1

~~32.1~~

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

~~32.2~~

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

~~101~~

Financials in XBRL format.



+	The exhibit contains a management contract, compensatory plan or arrangement which is required to be identified in this report.
*	The Company has requested confidential treatment with respect to portions of this exhibit. Those portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

				~~CEMPRA, INC.~~

~~Dated: November 2, 2017~~			~~By:~~		~~/s/ David S. Zaccardelli, Pharm.D.~~ MELINTA THERAPEUTICS, INC.
		~~David S. Zaccardelli, Pharm.D.~~
Dated:	By:	~~Acting~~/s/ John H. Johnson
August 9, 2019		John H. Johnson
		Interim Chief Executive Officer and Director

Dated: ~~November 2, 2017~~	By:	~~By:~~		/s/ ~~Mark W. Hahn~~ Peter J. Milligan
August 9, 2019		~~Mark W. Hahn~~ Peter J. Milligan
		Chief Financial Officer

			~~Page~~

	Page
PART I—FINANCIAL INFORMATION		1

Item 1.	Financial Statements (Unaudited)		1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		16 24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		26 30

Item 4.	Controls and Procedures		27 30

PART II—OTHER INFORMATION			28 31

Item 1A.	Risk Factors		28 31

Item 6.	Exhibits		31 32

	September 30,			December 31,
	2017			2016
Assets
Current assets
Cash and equivalents	$	176,134		$	231,553
Receivables		2,803			6,162
Prepaid expenses		833			579
Total current assets		179,770			238,294
Furniture, fixtures and equipment, net		27			48
Deposits		83			173
Total assets	$	179,880		$	238,515
Liabilities
Current liabilities
Accounts payable	$	6,665		$	15,657
Accrued expenses		1,036			2,929
Accrued payroll and benefits		1,286			4,267
Current portion of long-term debt		6,667			6,667
Total current liabilities		15,654			29,520
Deferred revenue		16,987			16,987
Long-term debt		3,682			8,660
Total liabilities		36,323			55,167
Commitments and contingencies (Notes 4 and 8)
Shareholders' Equity
Preferred stock; $.001 par value; 5,000,000 shares authorized; no shares issued or outstanding at September 30, 2017 and December 31, 2016		-			-
Common stock; $.001 par value; 80,000,000 shares authorized; 52,509,281 and 52,392,905 issued and outstanding at September 30, 2017 and December 31, 2016, respectively		53			52
Additional paid-in capital		626,001			620,279
Accumulated deficit		(482,497	)		(436,983	)
Total shareholders’ equity		143,557			183,348
Total liabilities and shareholders’ equity	$	179,880		$	238,515

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenue
Contract research	$	1,717		$	3,972		$	7,449		$	10,071
Total revenue		1,717			3,972			7,449			10,071
Operating expenses
Research and development		4,383			21,096			28,338			60,643
General and administrative		7,867			15,021			21,291			35,333
Restructuring		-			-			3,553			-
Total operating expenses		12,250			36,117			53,182			95,976
Loss from operations		(10,533	)		(32,145	)		(45,733	)		(85,905	)
Other income (expense)
Interest income		382			128			896			330
Interest expense		(208	)		(295	)		(677	)		(948	)
Other income (expense), net		174			(167	)		219			(618	)
Net loss	$	(10,359	)	$	(32,312	)	$	(45,514	)	$	(86,523	)
Basic and diluted net loss per share	$	(0.20	)	$	(0.62	)	$	(0.87	)	$	(1.74	)
Basic and diluted weighted average shares outstanding		52,508,598			52,072,536			52,470,568			49,616,785

				Weighted		Weighted
				Average		Average		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price		Term (in years)		Value ⁽¹⁾
Outstanding - December 31, 2016		3,784,346		$	16.26
Granted		1,921,750			3.08
Exercised		(116,376	)		2.23
Forfeited		(1,074,516	)		13.11
Expired		(394,984	)		16.64
Outstanding - September 30, 2017		4,120,220			11.30		6.90	$	607,444
Exercisable - September 30, 2017		2,634,222			12.30		5.77	$	434,044
Vested and expected to vest at September 30, 2017 ⁽²⁾		4,011,877		$	11.44		6.84	$	591,929

	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)
$2.09 - $3.15		1,682,841		7.75		661,739		5.31
$3.95 - $6.63		261,598		5.56		239,202		5.18
$6.64 - $12.38		659,093		5.62		630,839		5.47
$12.79 - $19.25		500,797		5.46		412,062		5.11
$22.77 - $34.49		996,141		7.37		676,629		7.06
$35.29 - $43.43		19,750		7.82		13,751		7.82
		4,120,220				2,634,222

	Number of			Weighted
	Restricted			Average
	Stock Units			Grant-Date
	Outstanding			Fair Value
Balance - December 31, 2016		50,000		$	7.70
Granted		1,283,000			3.12
Vested		-			-
Forfeited		(318,000	)		3.09
Expired		-			-
Balance - September 30, 2017		1,015,000			3.35

	Three Months Ended September 30,					Dollar			Nine Months Ended September 30,					Dollar
	2017		2016			Change			2017		2016			Change
	(In thousands)								(In thousands)
Revenue
Contract research	$	1,717	$	3,972		$	(2,255	)	$	7,449	$	10,071		$	(2,622	)
Total revenue		1,717		3,972			(2,255	)		7,449		10,071			(2,622	)

Research and development expense (1)		4,383		21,096			(16,713	)		28,338		60,643			(32,305	)
General and administrative expense (1)		7,867		15,021			(7,154	)		21,291		35,333			(14,042	)
Restructuring		-		-			-			3,553		-			3,553
Other income (expense), net		174		(167	)		341			219		(618	)		837

(1) Includes the following share-based compensation expenses:
Research and development expense	$	645	$	627		$	18		$	2,244	$	2,348		$	(104	)
General and administrative expense		860		1,851			(991	)		3,220		5,169			(1,949	)