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 June 30, ~~2018~~

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

~~MELINTA THERAPEUTICS, 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.)

~~300 George Street, Suite 301~~

~~New Haven, CT 06511~~

44 Whippany Road

Morristown, NJ 07960

(Address of Principal Executive Offices)

(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 August ~~3, 2018,~~2, 2019, there were ~~56,010,254~~13,750,691 shares of the registrant’s common stock, $0.001 par value, outstanding.

MELINTA THERAPEUTICS, INC.

TABLE OF CONTENTS

P~~ART~~

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

MELINTA THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

June 30,

December 31,

2018

2017

Assets

Current assets

Cash and equivalents

$
150,087

$
128,387

Trade receivables

8,064

-

Other receivables

12,546

7,564

Inventory

33,960

10,825

Prepaid expenses and other current assets

5,510

2,988

Total current assets

210,167

149,764

Property and equipment, net

2,459

1,596

In-process research and development

19,859

-

Other intangible assets

221,877

7,500

Goodwill

17,614

-

Other assets

42,671

1,413

Total assets

$
514,647

$
160,273

Liabilities

Current liabilities

Accounts payable

$
13,352

$
7,405

Accrued expenses

31,386

24,041

Warrant liability

6,790

-

Current deferred purchase price and contingent consideration

23,925

-

Contingent milestone payments

27,052

-

Accrued interest on notes payable

4,389

284

Total current liabilities

106,894

31,730

Long-term liabilities

Notes payable, net of debt discount

107,463

39,555

Deferred revenues

-

10,008

Deferred purchase price and contingent consideration

31,289

Other long-term liabilities

8,027

6,644

Total long-term liabilities

146,779

56,207

Total liabilities

253,673

87,937

Commitments and contingencies

Shareholders' Equity

Preferred stock; $.001 par value; 5,000,000 shares authorized; no shares issued or
   outstanding at June 30, 2018, and December 31, 2017, respectively

-

-

Common stock; $.001 par value; 80,000,000 shares authorized; 56,010,254
   and 21,998,942 issued and outstanding at June 30, 2018, and
   December 31, 2017, respectively

56

22

Additional paid-in capital

908,781

644,973

Accumulated deficit

(647,863
)

(572,659
)
Total shareholders’ equity

260,974

72,336

Total liabilities and shareholders’ equity

$
514,647

$
160,273



	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

MELINTA THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Revenue

Product sales, net

$
9,152

$
-

$
20,998

$
-

Contract research

2,870

3,979

5,865

6,538

License

-

-

-

19,905

Total revenue

12,022

3,979

26,863

26,443

Operating expenses:

Cost of goods sold

10,989

-

18,675

-

Research and development

15,813

14,075

31,942

26,992

Selling, general and administrative

34,946

7,699

69,570

15,672

Total operating expenses

61,748

21,774

120,187

42,664

Loss from operations

(49,726
)

(17,795
)

(93,324
)

(16,221
)
Other income (expense):

Interest income

63

12

273

18

Interest expense

(10,659
)

(1,762
)

(20,855
)

(3,384
)
Change in fair value of warrant liability

2,389

(311
)

26,474

(366
)
Loss on extinguishment of debt

-

(607
)

(2,595
)

(607
)
Other income

32

37

36

61

Grant income

2,121

-

4,779

-

Other income (expense), net

(6,054
)

(2,631
)

8,112

(4,278
)
Net loss

$
(55,780
)

$
(20,426
)

$
(85,212
)

$
(20,499
)
Accretion to redemption value of convertible preferred
stock

-

(5,721
)

(11,441
)
Net loss attributable to common shareholders

(55,780
)

(26,147
)

(85,212
)

(31,940
)
Basic and diluted net loss per share

$
(1.38
)

$
(884.09
)

$
(2.39
)

$
(1,112.50
)
Basic and diluted weighted average shares outstanding

40,297,364

29,575

35,633,443

28,710



	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

MELINTA THERAPEUTICS, INC.

Condensed Consolidated Statements of ~~Cash Flows~~

Shareholders’ Equity

(In ~~thousands)~~

~~(Unaudited)~~

thousands, except share data)

Six Months Ended June 30,

2018

2017

Operating activities

Net loss

$
(85,212
)

$
(20,499
)
Adjustments to reconcile net loss to net cash used in operating activities

Depreciation and amortization

8,494

221

Non-cash interest expense

12,225

2,498

Share-based compensation

2,373

1,080

Change in fair value of warrant liability

(26,474
)

366

Loss on disposal of assets

-

42

Loss on extinguishment of debt

2,595

607

Changes in operating assets and liabilities

Receivables

(3,169
)

(3,825
)
Inventory

(2,096
)

(551
)
Prepaid expenses and other current assets

519

634

Accounts payable

4,632

3,435

Accrued expenses

(1,323
)

2,218

Accrued interest on notes payable

4,105

(153
)
Deferred revenues

-

-

Other non-current assets and liabilities

(22,418
)

(508
)
Net cash used in operating activities

(105,749
)

(14,435
)
Investing activities

IDB acquisition

(166,383
)

-

Purchases of intangible assets

(2,000
)

(2,000
)
Purchases of property and equipment

(927
)

(593
)
Net cash used in investing activities

(169,310
)

(2,593
)
Financing activities

Proceeds from financing (see Note 4):

Proceeds from the issuance of notes payable, net of issuance costs

104,966

30,000

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

-

Other financing activities:

Proceeds from issuance of common stock, net

155,759

-

Proceeds from the issuance of convertible notes payable

-

24,526

Debt extinguishment

(2,150
)

(1,240
)
IDB acquisition contingent payments

(398
)

-

Proceeds from the exercise of stock options, net of cancellations

3

95

Principal payments on notes payable

(40,000
)

(24,503
)
Net cash provided by financing activities

296,759

28,878

Net change in cash and equivalents

21,700

11,850

Cash, cash equivalents and restricted cash at beginning of the period

128,587

11,409

Cash, cash equivalents and restricted cash at end of the period

$
150,287

$
23,259

Supplemental cash flow information

Cash paid for interest

$
4,480

$
1,867

Supplemental non-cash flow information:

Accrued payments for intangible assets

$
-

$
5,500

Accrued purchases of fixed assets

$
366

$
112

Accrued notes payable issuance costs

$
-

$
1,028



	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)

(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.

June 30, ~~2018~~

2019

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share ~~data)~~

data or as otherwise noted)

(Unaudited)

NOTE 1 – FINANCIAL STATEMENTS

The accompanying ~~unaudited~~ condensed consolidated financial statements have been prepared assuming Melinta Therapeutics,, Inc. (the “Company,” “we,” “us,” “our,” or “Melinta”) will continue as a going concern. We are not currently generating revenue from operations that is sufficient to cover our operating expenses and do not anticipate generating revenue sufficient to offset operating costs in the short-term. We have incurred losses from operations since our inception and had an accumulated deficit of ~~$647,863~~$784,497 as of June 30, ~~2018,~~2019, and we expect to incur substantial expenses and further losses in the short term for the ~~research,~~ 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 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 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.)

Our future cash flows are dependent on key variables such as our ~~success with out-licensing products in our portfolio, our~~ ability to access additional ~~debt~~ capital under our Deerfield Facility ~~or the~~and Amended Loan Agreement, our ability to secure a 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 ~~notably,~~importantly, the level of sales achievement of our four marketed ~~products. Our~~products, all of which is subject to significant uncertainty. Given the softness in our product sales to date, we believe that there is risk in compliance with the minimum sales covenant under the Deerfield Facility of $63,750 for 2019, as well as our ability to meet the conditions to draw the additional $50,000 of capacity under the Deerfield Facility, which will become available only upon achieving annualized net sales of $75,000 over a two-quarter period ($37,500) before the end of 2019. Further, based on our current ~~operation plans include assumptions about~~forecast, and given our ~~projected levels~~current cash on hand and expected challenges and low likelihood of ~~sales growth~~securing sufficient additional capital in the equity markets, it is likely in the next ~~12 months~~few quarters that we will not be in ~~relation~~compliance with the minimum cash requirement or the going concern covenants mentioned above, either of which would result in both our inability to ~~our planned operating expenses. Revenue projections are inherently uncertain but have a higher degree~~draw the remaining $27,000 under the Amended Loan Agreement and an event of ~~uncertainty in~~default under both the Deerfield Facility and Amended Loan Agreement. If an ~~early-stage commercial launch, which we have in Baxdela~~event of default occurs without obtaining waivers or amending certain covenants, the lenders could exercise their rights under the Deerfield Facility and ~~Vabomere, where there~~Amended Loan Agreement to accelerate the terms of repayment. If repayment is ~~not yet a demonstrated sales history. While~~accelerated, it would be unlikely that the Company 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 ~~confident in achieving the current expected sales levels of our products, including those of our early-stage commercial products, in relation to our operating spend, we are unable~~not able to conclude ~~based on applying the requirements of~~under FASB Accounting Standards Codification ("ASC") 205-40, Presentation of Financial Statements –- Going Concern, that it is probable ~~(as defined under this accounting standard) that~~ the actions discussed below will be ~~effective in mitigating the risk that~~effectively implemented and, therefore, our current operating plans, existing cash and cash collections from existing revenue arrangements and product sales may not be sufficient to fund our operations for the next 12 months. As such, we believe there is substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern.

~~In May 2018,~~

As of June 30, 2019, the Company ~~successfully completed~~had $90,343 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 $80,000 in payments relating to the IDB acquisition and contractually due to The Medicines Company (see Note 10). And, while we filed a ~~follow-on offering~~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 ~~we raised proceeds, net of issuance costs, of $115,300. In addition~~case the Company may be forced to our focus on the successful continued commercialization of our four marketed products, we are currently in discussions with several parties to out-license certain products which would increase our license revenues. And, if needed, we also plan to access additional capacity under our existing Deerfield Facility, where we can draw an additional $50,000 dependent on the achievement of certain sales milestones. We also plan to putseek relief through a ~~working capital revolver in place for up to $20,000 that would provide additional funding to Melinta~~filing under the Deerfield Facility if needed, which is subject to certain conditions. Finally, if our cash collections from revenue arrangements, including product sales, and other financing sources are not sufficient, we also plan to control spending and would take actions to adjust the spending level for operations if required.

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 Melinta and its 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.

Use of Estimates—The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires 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.

~~Trade and Other Receivables—Trade receivables consist of amounts billed for product shipments. Receivables for product shipments are recorded as shipments are made and title to the product is transferred to the customer.~~

~~Other receivables consist of amounts billed, and amounts earned but unbilled, under our licensing agreements and our contracts with the~~ ~~Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services (“BARDA”)~~. Receivables for license agreements are recorded as we achieve the requirements of the agreements, and receivables under the BARDA contracts are recorded as qualifying research activities are conducted and invoices from our vendors are received. Unbilled receivables are also recorded based upon work estimated to be complete for which we have not received vendor invoices.

We carry our receivables net of an allowance for doubtful accounts. On a periodic basis, we evaluate our receivables for collectability. We have not recorded an allowance for doubtful accounts as we believe all receivables are fully collectible.

Concentration of Credit Risk—Concentration of credit risk exists with respect to cash and cash equivalents and receivables. We maintain our cash andcash equivalents with federally insured financial institutions, and at times, the amounts may exceed the federally insured deposit limits. To date, we have not experienced any losses on our deposits of cash and cash equivalents. We believe that we are notexposed to significant credit risk due to the financial position of the depository institutions in which deposits are held.

A significant portion of our trade receivables is due from three large wholesaler customers for our products, which constitute ~~34%~~40%, ~~30%~~25% and ~~23%~~24%, respectively, of our trade receivable balance at June 30, ~~2018.~~

~~Inventory~~2019.

—Inventory is stated at the lower of cost or estimated net realizable value. Inventory is valued on a first-in, first-out basis and consists primarily of third-party manufacturing costs, overhead—principally the cost of managing our manufacturers—and related transportation costs. We capitalize inventory upon regulatory approval when, based on our judgment, future commercialization is considered probable and future economic benefit is expected to be realized; otherwise, such costs are expensed. We review inventories on hand at least quarterly and record provisions for estimated excess, slow-moving and obsolete inventory, as well as inventory with a carrying value in excess of net realizable value.

Fair Value of Financial Instruments—The carrying amounts of our financial instruments, which include cash and cash equivalents, trade and other receivables, accounts payable, accrued expenses, and notes payable ~~royalty liability and common stock warrants,~~ approximated their fair values at June 30, ~~2018,~~2019, and December 31, ~~2017.~~2018.

~~Debt Issuance Costs~~

—Debt issuance costs represent legal and other direct costs incurred in connection with our notes payable. These costs were recorded as debt issuance costs in the balance sheets and amortized as a non-cash component of interest expense using the effective interest method over the term of the note payable.

~~Long-Lived Assets~~—Long-lived assets consist primarily of property and equipment and intangible assets with a definite life. We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. If impairment indicators are present, we assess whether the future estimated undiscounted cash flows attributable to the assets in question are greater than their carrying amounts. If these future estimated cash flows are less than carrying value, we then measure an impairment loss for the amount that carrying value exceeds fair value of the assets. We have not recorded any significant impairment charges to date with respect to our long-lived assets.

Amortization of intangible assets was $3.5 million and $8.2 million for the three and six months ended June 30, 2018, respectively. Based on the intangible asset balances as of June 30, 2018, amortization expense is expected to be approximately $8.5 million for the remaining six months of 2018 and $17.0 million in each of the years 2019 through 2022.

~~Goodwill and~~ Intangible Assets—Intangible assets consist of capitalized milestone payments for the licenses we use to make our products and the fair value of identifiable intangible assets ~~including in-process research and development (“IPR&D”), acquired in the IDB transaction.~~acquired. Given the uncertainty of forecasts of future revenue for our products, we amortize the cost of intangible assets on a straight-line basis over the estimated economic life of each asset, generally the exclusivity period of each associated product. Amortization ~~for IPR&D does not begin until the associated product has received approval and sales have commenced.~~

~~Goodwill and indefinite-lived assets, including IPR&D, are not amortized, but are subject to an impairment review annually and more frequently when indicators~~ of ~~impairment exist. An impairment of goodwill could occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. An impairment of indefinite-lived~~ intangible assets ~~would occur if~~was $4,124 and $8,247, for the ~~fair value of~~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 ~~less than~~expected to be approximately $8,247 for the ~~carrying value.~~

~~The Company tests its goodwill, IPR&D~~remaining six months of 2019 and indefinite-lived assets for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount. If the Company concludes it is more likely than not that the fair value$16,495 in each of the ~~asset~~years 2020 through 2023.

Revenue Recognition—We recognize revenue from sales of our commercial products and under review is less than its carrying amount, a quantitative impairment test is performed. For its quantitative impairment tests, the Company uses both and income and market approach. The income approach involves an estimate of future cash flows are based on internal projection models, industry projections and other assumptions deemed reasonable by management. The market approach utilizes analysis of recent sales, offerings, and financial multiples of comparable businesses. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of the assets and potentially resultour licensing arrangements in ~~different impacts to the Company's results of operations. Actual results may differ from the company's estimates.~~

~~Revenue Recognition—On January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09,~~accordance with ASC 606, Revenue from Contracts with Customers ~~(“Topic 606”), and all related amendments. For further information regarding the adoption of Topic 606, see the “Recently Issued and Adopted Accounting Pronouncements” section of this Note 2.~~ ("ASC 606").

Topic 606 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of this new revenue recognition guidance is that a company will

Product Sales

We recognize revenue ~~when promised goods or services~~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 ~~transferred~~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 ~~customers in an amount that reflects the consideration~~certain hospitals and private entities, and we provide rebates to ~~which the company expects to be entitled in exchange for those goods or services. Topic 606 defines the following five-step process to achieve this core principle,~~government agencies, group purchasing organizations and ~~in doing so, it is possible that significant judgment and estimates may be required within the revenue recognition process.~~

~~identify the contract(s) with a customer;~~

other private entities.

~~identify the performance obligations in the contract;~~

~~determine the transaction price;~~

~~allocate the transaction price to the performance obligations in the contract; and~~

~~recognize revenue when (or as) the entity satisfies a performance obligation.~~

~~The new guidance only applies~~Chargebacks, rebates administration fees and discounts offered under our patient assistance programs are generally based upon the ~~five-step model~~contractual discounts or the volume of purchases for our products. In the case of discounted pricing, we typically provide a credit to ~~arrangements~~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 ~~meet~~is ultimately utilized by the ~~definition~~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 ~~contract under Topic 606, including~~discount, rebate or administration fee, which customer, government agency, or group purchasing organization price terms apply, and the ~~consideration of whether it is probable that~~estimated lag time between the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations; the assessment includes the evaluation of whether each promised good or service is distinct within the contextsale of the ~~contract. Under Topic 606,~~product and when the discount, rebate or administration fee is reported to us. Using historical trends, adjusted for current changes, we recognize revenue separately for performance obligations that are “distinct.” Performance obligations are considered to be distinct if (a) the customer can benefit from the license or services either on its own or together with other resources that are readily available to the customer, and (b) our promise to transfer the license or services is separately identifiable from other promises in the contract. If a license or service is not individually distinct, we combine the license or service with other promised licenses and/or services until we identify a bundle of licenses and/or services that together are distinct.

~~We recognize, as revenue,~~estimate the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. In determining the transaction price, we consider all forms of variable consideration, which can take various forms, including, but not limited to, prompt-paythese discounts, rebates ~~credits,~~ and milestone payments. We estimate variable consideration using either the “expected value” or “most likely amount” method, depending on which method better predicts the amount of consideration to which weadministration fees that will be ~~entitled. The expected value method is~~paid, and record them as a probability-weighted approach that considers all possible outcomes while the most likely approach uses the single most likely amount in a range of possible outcomes. We apply a variable consideration constraintreduction to ~~the estimated transaction price if we conclude that it is probable that there is a risk of significant reversal of revenue once the uncertainty related to the variable consideration is resolved.~~

~~Under the guidance of Topic 606,~~gross sales when we recognize revenue for ~~each performance obligation when~~ the ~~customer obtains control of the product and we have satisfied each~~sale of our ~~respective obligations. Control is defined~~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 ~~the ability of the customer~~a basis to ~~direct the use of and obtain substantially all the benefits of the asset.~~

~~In addition, as of June 30, 2018,~~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 ~~contract assets or liabilities~~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 ~~contracts do not have any significant financing components. And,~~product sales allowances when we ~~have not capitalized contract origination costs.~~

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 contra-assets in trade receivables; the other balances are recorded in other accrued expenses.

Licensing Arrangements

We enter into license and collaboration agreements for the research and development ("R&D") and/or commercialization of therapeutic products. The terms of these agreements may include nonrefundable licensing fees, funding for research and development and manufacturing, milestone payments and royalties on any product sales derived from the collaborations in exchange for the delivery of licenses and rights to sell our products within specified territories outside the United States.

In the determination of whether our license and collaboration agreements are accounted for under ~~Topic~~ASC 606 or ~~Accounting Standards Classification (“ASC”)~~ASC 808, ~~Contract Accounting~~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 some or all of our performance obligations, then the consideration associated with those performance obligations is accounted for as revenue under ~~Topic~~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 partner’s net product sales. Performance obligations to deliver distinct licenses are recognized at a point in time. Milestone payments from licensees that are contingent and/or variable upon future regulatory events and product sales are not considered probable of being achieved until the milestones are earned and, therefore, the contingent revenue is subject to significant risk of reversal. As such, we constrain this variable consideration

and do not include it in the transaction price (or recognize the revenue related to these milestones) until such time that the contingencies are resolved and generally recognized at a point in time. In addition, under the sales- or usage- based royalty exception in ~~Topic~~ASC 606, we do not estimate, at the onset of the arrangement, the variable consideration from future royalties or sales-based milestones. Instead, we wait to recognize royalty revenue until the future sales occur.

~~Adoption of Topic 606~~

We adopted Topic 606 on January 1, 2018, using the modified retrospective method applied to those contracts which were not complete as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with legacy U.S. GAAP under ASC 605. In our adoption of Topic 606, we did not use practical expedients. In addition, we have considered the nature, amount and timing of our different revenue sources. Accordingly, the disaggregation of revenue from contracts with customers is reflected in different captions within the condensed consolidated statement of operations. For our Eurofarma distribution arrangements under which revenue was previously deferred, revenue is now recognized at the point in time when the license is granted and has benefit to Eurofarma. These deferred revenues were originally expected to be recognized in future periods over the period of time over which we supplied Baxdela

under the supply arrangement, which could have lasted up to 10 years or longer. The cumulative effect of the adoption was recognized as a decrease to opening accumulated deficit and a decrease to deferred revenue of $10,008 on January 1, 2018. The effect of the adoption of Topic 606 on our condensed consolidated balance sheet is as follows:

Balance at December
31, 2017

Adjustments Due to
Topic 606

Balance at January
1, 2018

Liabilities:

Deferred revenue
$
10,008

$
(10,008
)

$
-

Shareholders’ equity:

Accumulated deficit
$
(572,659
)

$
10,008

$
(562,651
)

In connection with the adoption of Topic 606, we no longer recognize grant income as revenue (see Grant Income discussion below), but there was no change to the timing of historical recognition. Also, there was no change to the timing of recognition of contract revenue under our licensing agreements. However, unlike Topic 606, we believe that ASC 605 would have precluded revenue recognition for the recent launches of Baxdela and Vabomere™ for the initial stocking of product at wholesalers that had not sold through as of the end of the reporting period. As such, the following reflects what we believe our condensed consolidated balance sheet and condensed consolidated statement of operations would have been under ASC 605 compared to the recognition of revenue under Topic 606 as of, and for the three and six months ended, June 30, 2018:

Three Months Ended June 30, 2018

Revenue
Recognized

Adjustments Due to
Topic 606

Pro Forma Balance
Under ASC 605

Revenue:

Product sales, net
$
9,152

$
(442
)

$
8,710

Cost of goods sold
$
10,989

$
(394
)

$
10,595

Net loss
$
(55,780
)

$
(48
)

$
(55,828
)
Net loss per share
$
(1.38
)

$
(1.39
)

Six Months Ended June 30, 2018

Revenue
Recognized

Adjustments Due to
Topic 606

Pro Forma Balance
Under ASC 605

Revenue:

Product sales, net
$
20,998

$
(2,660
)

$
18,338

Cost of goods sold
$
18,675

$
(1,448
)

$
17,227

Net loss
$
(85,212
)

$
(1,212
)

$
(86,424
)
Net loss per share
$
(2.39
)

$
(2.43
)

Balance at June
30, 2018

Adjustments Due to
Topic 606

Pro Forma Balance
Under ASC 605

Assets:

Prepaid and other current assets
$
5,510

$
1,448

$
6,958

Liabilities:

Deferred revenue
$
-

$
10,008

$
10,008

Shareholders' equity:

Accumulated deficit
$
(647,863
)

$
(1,212
)

$
(649,075
)

~~The table above does not reflect the reclassification of Grant income from Other income to Revenue under ASC 605. The reclassification would have no effect on net loss per share.~~

~~We have no outstanding performance obligations, as~~ of June 30, ~~2018. Although~~2019, we have agreements in place to supply Baxdela to our partners once they achieve regulatory approval in their respective territories, we concluded that the option to purchase Baxdela from us is not a material right because the product will not be priced at a significant discount. All performance obligations under our licensing arrangements were satisfied historically at a point in time. Variable consideration in the form of regulatory and sales-based milestones, which are payable under the terms of our licensing arrangements, has been constrained because of the risk of significant revenue reversal as in our revenue recognition policy included in this Note 2.

Further, we recognize contract research revenue from Menarini as we incur the reimbursable development costs. We expect to continue these development efforts through early 2019, although we expect the related revenue to decline through that timeframe, as the associated development effort winds down.

~~Product Sales~~

Historically, substantially all our revenue was related to licensing and contract research arrangements related to our Baxdela product, and we did not sell any products. Beginning in January of 2018, as a result of both the acquisition of IDB and the launch of Baxdela, we now distribute Baxdela, Vabomere, Orbactiv^®~~, and Minocin~~^® products commercially in the United States. While we sell some of our products directly to certain hospitals and clinics, the majority of our product sales are made to wholesale customers who subsequently resell our products to hospitals or certain medical centers, as well as specialty pharmacy providers and other retail pharmacies. The wholesaler places orders with us for sufficient quantities of our products to maintain an appropriate level of inventory based on their customers’ historical purchase volumes and demand. We recognize revenue once we have transferred physical possession of the goods and the wholesaler obtains legal title to the product and accepts responsibility for all credit and collection activities with the resale customer. In addition, we enter into arrangements with health care providers that purchase our products from wholesalers—as well as payers and certain other customers—that provide for government mandated and/or privately negotiated rebates, chargebacks and discounts with respect to the purchase of our products. The transaction price that we recognize as revenue reflects the amount we expect to be entitled to in connection with the sale and transfer of control of product to our customers. Variable consideration is only included in the transaction price, to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. At the time that our customers take control of the product, which is when our performance obligation under the sales contracts is complete, we record product revenues net of applicable reserves for various types of variable consideration, most of which are subject to constraint while also considering the likelihood and the magnitude of any revenue reversal, based on our estimates of channel mix. The types of variable consideration in our product revenue are as follows:

~~Prompt pay discounts~~

~~Product returns~~

~~Chargebacks and rebates~~

~~Fee-for-service~~

~~Government rebates~~

~~Commercial payer and other rebates~~

~~Group purchasing organization (“GPO”) administration fees~~

~~MelintAssist voluntary patient assistance programs~~

In determining the amounts of certain allowances and accruals, we must make significant judgments and estimates. For example, in determining these amounts, we estimate hospital demand, buying patterns by hospitals, hospital systems and/or group purchasing organizations from wholesalers and the levels of inventory held by wholesalers and customers. Making these determinations involves analyzing third party industry data to determine whether trends in historical channel distribution patterns will predict future product sales. We receive data periodically from our wholesale customers on inventory levels and historical channel sales mix, and we consider this data when determining the amount of the allowances and accruals for variable consideration.

~~The amount of variable consideration is estimated by using either of the following methods, depending on which method better predicts the amount of consideration to which we are entitled:~~

The “expected value” is the sum of probability-weighted amounts in a range of possible consideration amounts. Under Topic 606, an expected value may be an appropriate estimate of the amount of variable consideration if we have many contracts with similar characteristics.

The “most likely amount” is the single most likely amount in a range of possible consideration amounts (i.e., the single most likely outcome of the contract). Under Topic 606, the most likely amount may be an appropriate estimate of the amount of variable consideration if the contract has only two possible outcomes (i.e., either achieve or don’t achieve a threshold specified in a contract).

The method selected is applied consistently throughout the contract when estimating the effect of an uncertainty on an amount of variable consideration. In addition, we consider all the information (historical, current, and forecasts) that is reasonably available to us and shall identify a reasonable number of possible consideration amounts. The relevant factors used in this determination include, but are not limited to, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns.

In assessing whether a constraint is necessary, we consider both the likelihood and the magnitude of the revenue reversal. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. The specific considerations we use in estimating these amounts related to variable consideration associated with our products are as follows:

~~Prompt Pay Discounts~~ – We provide wholesale customers with certain discounts if the wholesaler pays within the payment term, which is generally between 30 and 60 days. The discount percentage is reserved as a reduction of revenue in the period the related product revenue is recognized. The most likely amount methodology is used to determine the appropriate reserve that is applied, as there are only two outcomes: whether the wholesale customer takes the discount, or they do not.

~~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~~any contract assets or liabilities and our products and establish historical sales over a longer period of time (i.e., two years), we will be able to place more reliance on historical purchasing and return patterns of our customers when evaluating our reserves for product return.

At the end of each reporting period for any of our products, we may decide to constrain revenue for product returns based on information from various sources, including channel inventory levels and dating and sell-through data, the expiration dates of product currently being shipped, price changes of competitive products and introductions of generic products. In the three months ended March 31, 2018, incremental to the historically-based returns rate, we increased our returns reserve by approximately $0.3 million due to risk factors that were present in connection with the initial stocking of inventory for the launch of our new products. At June 30, 2018, we maintained this reserve on our balance sheet.

~~Chargebacks~~ – Although we primarily sell products to wholesalers in the United States, we typically enter into agreements with medical centers, either directly or through GPOs acting on behalf of their hospital members, in connection with the hospitals’ purchases of products. Based on these agreements, most of our hospital customers have the right to receive a discounted price for products and volume‐based rebates on product purchases. In the case of discounted pricing, we typically provide a credit to our wholesale customers (i.e., chargeback), representing the difference between the customer’s acquisition list price and the discounted price.

~~Fees‐for‐service~~ – We offer discounts and pay certain wholesalers service fees for sales order management, data, and distribution services which are explicitly stated at contractually determined rates in the customer’s contracts. In assessing if the consideration paid to the customer should be recorded as a reduction in the transaction price, we determine whether the payment is for a distinct good or service or a combination of both. Since our wholesaler fees are not specifically identifiable, wecontracts do not consider the fees separate from the wholesaler's purchase of the product. Additionally, wholesaler services generally cannot be provided by a third party. Because of these factors, the consideration paid is considered a reduction of revenue. We estimate our fee‐for‐service accruals and allowances based on historical sales, wholesaler and distributor inventory levels and the applicable discount rate.

~~Government Rebates~~ ~~– We participate in three rebate programs under various government programs: Medicaid, TRICARE and Medicare Part D. At the time of the sale it is~~have any significant financing components. And, we have not known what the government rebate rate will be, but historical rates are used to estimate the current period accrual. Given that there is a range of possible consideration amounts, we use the expected value method as this is an appropriate estimate of the amount of variable consideration.

~~Medicaid~~capitalized contract origination costs.

– The Medicaid Drug Rebate Program is a program that includes The Centers for Medicare and Medicaid Services, State Medicaid agencies, and participating drug manufacturers that helps to offset the federal and state costs of most outpatient prescription drugs dispensed to Medicaid patients. The Medicaid Drug Rebate Program is jointly funded by the states and the federal government. The program reimburses hospitals, physicians, and pharmacies for providing care to qualifying recipients who cannot finance their own medical expenses.

~~TRICARE~~ – TRICARE is a benefit established by law as the health care program for uniformed service members, retired service members, and their families. We must pay the Department of Defense (“DOD”) refunds for drugs entered into the normal commercial chain of transactions that end up as prescriptions given to TRICARE beneficiaries and paid for by the DOD. The refund amount is the portion of the price of the drug sold by us that exceeds the federal ceiling price. Refunds due to TRICARE are based solely on utilization of pharmaceutical agents dispensed through a TRICARE Retail Pharmacy to DOD beneficiaries.

~~Medicare Part D~~ – We maintain contracts with Managed Care Organizations (“MCOs”) that administer prescription benefits for Medicare Part D. MCOs either own pharmacy benefit managers (“PBMs”) or contract with several PBMs to fulfill prescriptions for patients enrolled under their plans. As patients obtain their prescriptions, utilization data are reported to the MCOs, which generally submit claims for rebates quarterly.

~~Commercial Payer and Other Rebates~~ – We contract with certain private payer organizations, primarily insurance companies and PBMs, for the payment of rebates with respect to utilization of Baxdela and contracted formulary status. We estimate these rebates and record reserves for such estimates in the same period the related revenue is recognized. Currently, the reserve for customer payer rebates considers future utilization based on third party studies of payer prescription data; the utilization is applied to product that remains in the distribution and retail pharmacy channel inventories at the end of each reporting period. As we distribute our products and establish historical sales over a longer period of time (i.e., two years), we will be able to place more reliance on historical data related to commercial payer rebates (i.e., actual utilization units) while continuing to rely on third party data related to payer prescriptions and utilization. In addition, we offer rebates to certain customers based on the volume of product purchased over an agreed period of time.

The amount of consideration to which we will be entitled is based on a range of possible consideration outcomes and, therefore, we use the expected value method as this is an appropriate estimate of the amount of variable consideration.

~~GPO Administration Fees~~ – We contract with GPOs and pay administration fees related to contracting and membership management services provided. In assessing if the consideration paid to the GPO should be recorded as a reduction in the transaction price, we determine whether the payment is for a distinct good or service or a combination of both. Since our GPO fees are not specifically identifiable, we do not consider the fees separate from the purchase of the product. Additionally, the GPO services generally cannot be provided by a third party. Because of these factors, the consideration paid is considered a deduction of revenue.

~~MelintAssist~~ – We offer certain voluntary patient assistance programs for prescriptions, such as savings/co-pay cards, which are intended to provide financial assistance to qualified patients with full or partial prescription drug co-payments required by payers. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue but remains in the distribution and pharmacy channel inventories at the end of each reporting period. Given that there is a range of possible consideration amounts, we use the expected value method as this is an appropriate estimate of the amount of variable consideration.

At the end of each reporting period, we adjust our allowances for cash discounts, product returns, chargebacks, fees‐for‐service and other rebates and discounts when believe actual experience may differ from current estimates. The following table provides a summary of activity with respect to our sales allowances and accruals during 2018:

Cash
Discounts

Product
Returns

Chargebacks

Fees-for-
Service

MelintAssist

Government
Rebates

Commercial
Rebates

Admin
Fee

Balance as of January 1, 2018
$
-

$
-

$
-

$
-

$
-

$
-

$
-

$
-

Allowances for sales

531

1,161

3,247

1,554

437

417

675

256

Payments & credits issued

(349
)

(9
)

(2,319
)

(782
)

(100
)

(4
)

(237
)

(106
)
Balance as of June 30, 2018
$
182

$
1,152

$
928

$
772

$
337

$
413

$
438

$
150

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

~~Grant Income~~

We have several agreements with BARDA related to certain development costs for solithromycin and Vabomere. We concluded that BARDA is not a customer under Topic 606 because it does not engage with us in reciprocal transactions but, rather, provides contributions to our development efforts to encourage the development of more antibiotics for the welfare of society. As such, we view the income as a contribution and classify it within other income and expense, net, rather than in revenue. We recognize grant income under the BARDA contracts over time as qualifying research activities are conducted. In the first quarter of 2018, we and BARDA agreed to terminate the solithromycin BARDA contract and wind down the study, but we will continue to recognize grant income until the wind-down activities are completed later this year.

In addition, in May 2018, we announced that we had entered into a partnership with the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (“CARB-X”), under which Melinta will be awarded up to $6.2 million to support the development of the company’s investigational pyrrolocytosine compounds. CARB-X was established in 2016 by BARDA and the National Institute of Allergy and Infectious Diseases of the U.S. Department of Health and Human Services and the Wellcome Trust, a global charitable foundation dedicated to improving health, to accelerate pre-clinical product development in the area of antibiotic-resistant infections, one of the world’s greatest health threats. Under the terms of the partnership, we will receive an initial award of up to $2.3 million from CARB-X, with the possibility of $3.9 million in additional awards based on the achievement of certain project milestones. Our pyrrolocytosine compounds are a novel class of antibiotics from our ESKAPE Pathogen Program, a program based on Melinta’s proprietary drug discovery platform focused on developing breakthrough antibiotics for bacterial “superbugs” by targeting the bacterial ribosome.

Comprehensive Loss—Comprehensive loss is equal to net loss as presented in the accompanying statements of operations.

~~Business Combinations—~~

We account for acquired businesses using the acquisition method of accounting. This method requires that most assets acquired and liabilities assumed be recognized as of the acquisition date. On January 1, 2018, we adopted ASU 2017-01, Advertising Expense~~Business Combinations (Topic 805) Clarifying the Definition of a Business~~, which narrows the definition of a business and requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, which would not constitute the acquisition of a business. The guidance also requires a

business to include at least one substantive process and narrows the definition of outputs. There is often judgment involved in assessing whether an acquisition transaction is a business combination under Topic 805 or an acquisition of assets. In our IDB acquisition, we evaluated the transaction and concluded that the IDB qualified as a “business” under Topic 805 as it has both inputs and processes with the ability to create outputs. Among IDB’s inputs are developed product rights, in-process research and development and intellectual property across multiple classes of drugs and indications, third-party contract manufacturing agreements and tangible assets from which there is potential to create value and outputs.

With respect to business combinations, we determine the purchase price, including contingent consideration, and allocate the purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed, based on estimated fair values. The excess of the purchase price over the identifiable assets acquired and liabilities assumed is recorded as goodwill. With respect to the purchase of assets that do not meet the definition of a business under Topic 805, goodwill is not recognized in connection with the transaction and the purchase price is allocated to the individual assets acquired or liabilities assumed based on their relative fair values.

We engage a third-party professional service provider to assist us in determining the fair values of the purchase consideration, assets acquired, and liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to contingent liabilities associated with the purchase price and intangible assets, such as developed product rights and in-process research and development programs. Critical estimates that we have used in valuing these elements include, but are not limited to, future expected cash flows using valuation techniques (i.e., Monte Carlo simulation models) and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.

—We record ~~contingent consideration resulting from a business combination at its fair value on the acquisition date. The purchase price~~advertising expenses when they are incurred. We recognized $298 and $474, of IDB included contingent consideration related to the achievement of future regulatory milestones, sales-based milestones associated with the products we acquired, and certain royalty payments based on tiered net sales of the acquired products. The sales-based milestones were assumed contingent liabilities from Medicines at the time of the acquisition.

Changes to contingent consideration obligations can result from adjustments related, but not limited, to changes in discount rates and the number of remaining periods to which the discount rate is applied, updatesadvertising expense in the ~~assumed achievement or timing of any development or commercial milestone or changes~~three and six months ended June 30, 2019, respectively, and $475 and $885 in the ~~probability of certain clinical events, changes in our forecasted sales of products acquired, the passage of time~~three and changes in the assumed probability associated with regulatory approval. At the end of each reporting period, we revalue these obligations and record increases or decreases in their fair value in selling, general and administrative expenses within the accompanying condensed consolidated statements of operations. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, any change in the assumptions described above, could have a material impact on the amount we may be obligated to pay as well as the results of our unaudited condensed consolidated results of operations in any given reporting period. During the six months ended June 30, 2018, respectively.

Leases—On January 1, 2019, we ~~did~~adopted Topic 842, Leases ("Topic 842") which requires lessees to recognize assets and liabilities for most leases at the lease inception. All of the Company's leases are operating leases, which are included in other long-term assets as operating right of use ("ROU") assets and other liabilities as operating lease liabilities in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the 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 ~~record~~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 ~~adjustments~~lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the ~~liabilities discussed above.~~

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 activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. We operate and manage our business as one operating segment. Although substantially all of our license and contract research revenue is generated from agreements with companies that are domiciled outside of the U.S., we do not operate outside of the U.S., nor do we have any significant assets in any foreign country. See this Note 2 for further discussion of the license and contract research revenue.

Recently Issued and Adopted Accounting ~~Pronouncements:~~

OnPronouncements

We adopted Topic 842, Leases, codified as ASC 842 on January 1, ~~2018, we adopted ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~2019 ("Effective Date"). The standard outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of this new revenue recognition guidance is that a company will recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

~~The Financial Accounting Standards Board (“FASB”) has also issued certain clarifying guidance to Topic 606 that we have considered as follows:~~

~~ASU No. 2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),~~ provides guidance for evaluating whether the nature of a company’s promise to the customer is to provide the underlying goods or services (i.e., the entity is the principal in the transaction) or to arrange for a third party to provide the underlying goods or services (i.e., the entity is the agent in the transaction). This update defines a specified good or service and provides guidance to help a company determine whether it controls a specified good or service before the good or service is transferred to the customer. ASU No. 2016-08 removes from the new revenue standard two of the five indicators used in the evaluation of control and reframes the remaining three indicators to help an entity determine when it is acting as a principal rather than as an agent.

•

~~ASU No. 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,~~ clarifies assessing whether promises to transfer goods or services are distinct, and whether an entity's promise to grant a license provides a customer with a right to use or right to access the entity's intellectual property.

~~ASU No. 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,~~ defines a completed contract as “a contract for which the entity has transferred all of the goods or services identified in accordance with revenue guidance that is in effect before the date of initial application.” The update also included the following clarifications or amendments to the guidance of Topic 606:

Allowed companies that elect the modified retrospective transition method to apply the guidance of Topic 606 to either: 1) all contracts, completed or not completed, or 2) only to contracts that were not completed. We elected to apply the new standard to contracts with our customers that were incomplete of January 1, 2018.

Clarified the objective of the entity’s collectability assessment (one of the five criteria of step 1 of the revenue recognition model) and provides new guidance on when an entity would recognize as revenue consideration it receives if the entity concludes that collectability is not probable.

~~Permitted an entity to present revenue net of sales taxes collected on behalf of governmental authorities (i.e., exclude sales taxes that meet certain criteria, from the transaction price).~~

Specifies that the fair value measurement date for noncash consideration to be received is the contract inception date. Subsequent changes in the fair value of noncash consideration after contract inception would be included in the transaction price as variable consideration (subject to the variable consideration constraint) only if the fair value varies for reasons other than the “form” of the consideration.

~~ASU No. 2016-20,~~ ~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, provides corrections or improvements to issues that affect narrow aspects of the guidance.~~

The new guidance provided for two transition methods, a full retrospective approach and a modified retrospective approach, and requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We utilized the modified retrospective method of adoption and recognized the cumulative effect of adoption as an adjustment to retained earnings at January 1, 2018, in the amount of $10,008, solely related to revenue that was previously deferred on a contract that has yet to be completed.

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases, which~~ASC 842 requires lessees to recognize assets and liabilities ~~for most leases with terms of more than 12 months~~ on the balance sheet for most leases but recognize expense on the income statement in a manner similar to ~~current~~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 ~~is effective for us~~recognize a cumulative-effect adjustment to the opening balance of retained earnings in the ~~first quarter~~period of ~~2019. Early~~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 ~~ASU 2016-02 is permitted. We~~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 ~~certain office equipment~~liabilities of $7,411 related to facility and ~~vehicles as well as our office building~~vehicle leases. See Note 6 for further details. The transition to ASC 842, did not result in ~~Lincolnshire, Illinois, our research and administrative facility in New Haven, Connecticut, our office facilities in Chapel Hill, North Carolina and Morristown, New Jersey. We are evaluating~~a cumulative-effect adjustment to the ~~impact~~opening balance of ~~ASU 2016-02, which we plan~~retained earnings.

Recently Issued Accounting Pronouncements Not Yet Adopted

For discussion of other issued accounting standards prior to ~~adopt on~~ 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 our consolidated financial statements. To date, we have begun a comprehensive review of all our leases, and a review of our material contracts to determine if they contain imbedded leases. We anticipate that adoption of ASU 2016-02 will result in the recognition of additional assets and lease liabilities, along with the associated recognition of amortization expenseForm 10-K for the ~~right-to-use assets.~~

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment~~, which removes step two from the goodwill impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The new guidance requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, including goodwill. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment. The standard is effective for financial statements issued for fiscal years beginning afteryear ended December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact of adoption of this ASU on our methodology for evaluating goodwill for impairment subsequent to adoption of this standard.

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,

December 31,

2018

2017

Cash and cash equivalents

$
150,087

$
128,387

Restricted cash (included in Other Assets)

200

200

Total cash, cash equivalents and restricted cash shown in the Condensed
Consolidated Statements of Cash Flows

$
150,287

$
128,587



	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,

December 31,

2018

2017

Raw materials

$
15,874

$
5,545

Work in process

7,663

181

Finished goods

12,775

5,099

Gross value of inventory

36,312

10,825

Less: valuation reserves

(2,352
)

-

Total inventory

$
33,960

$
10,825



	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

review inventories on hand at least quarterly and record provisions for estimated excess, slow-moving and obsolete inventory, as well as inventory with a carrying value in excess of net realizable value. During the three months ended June 30, 2018, we recorded reserves for our inventory totaling $2,352.

Other Assets—Other assets consisted of the following:

June 30,

December 31,

2018

2017

Deerfield disbursement option (see Note 4)

$
7,609

$
-

Long-term inventory deposits

33,345

-

VAT receivable

793

248

Research study deposit

-

500

Security deposits

724

465

Restricted cash

200

200

Total other assets

$
42,671

$
1,413



	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 ~~pre-payments~~advances made to contract manufacturers for ~~future~~ 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,

December 31,

2018

2017

Accrued contracted services

$
10,520

$
5,596

Payroll related expenses

10,064

9,885

Professional fees

1,391

3,621

Accrued royalty payment

747

2,040

Accrued sales allowances

3,263

-

Accrued other

5,401

2,899

Total accrued expenses

$
31,386

$
24,041



	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

~~The amounts accrued represent our best estimate of amounts owed through period-end. Such estimates are subject to change as additional information becomes available.~~

NOTE 4 – FINANCING ARRANGEMENTS

~~Melinta’s outstanding debt balances consisted of the following as of June 30, 2018 and December 31, 2017:~~

June 30,

December 31,

2018

2017

Principal balance under loan agreements

$
116,358

$
40,000

Debt discount and deferred debt issuance costs for loan agreements

(8,895
)

(445
)
Long-term balance under the loan agreements

$
107,463

$
39,555

~~2014 Loan Agreement~~

In December 2014, we entered into an agreement with a lender pursuant to which we borrowed an initial term loan amount of $20,000 (the “2014 Loan Agreement”). In December 2015, pursuant to the achievement of certain milestones with respect to the terms in the 2014 Loan Agreement, we borrowed an additional term loan advance in the amount of $10,000.

We were obligated to make monthly payments in arrears of interest only, at a rate of the greater of 8.25% or the sum of 8.25% plus the prime rate minus 4.5% per annum, commencing on January 1, 2015, and continuing on the first day of each successive month thereafter through and including June 1, 2016. Commencing on July 1, 2016, and continuing on the first day of each month through and including the maturity date of June 1, 2018, we were required to make consecutive equal monthly payments of principal and interest.

In June 2017, we repaid the entire outstanding balance under the 2014 Loan Agreement (see discussion below under “2017 Loan Agreement”). In the three and six months ended June 30, 2017, we recognized $662 and $1,229 of interest expense related to the 2014 Loan Agreement.

2017 Loan Agreement

On May 2, 2017, we entered into a Loan and Security Agreement with a new lender (the “2017 Loan Agreement”). Under the 2017 Loan Agreement, the lender made available to us up to $80,000 in debt financing and up to $10,000 in equity financing.

The 2017 Loan Agreement bore an annual interest rate equal to the greater of 8.25% or the sum of 8.25% plus the prime rate minus 4.5%. We were also required to pay the lender an end of term fee upon the termination of the arrangement. If the outstanding principal was at or below $40,000, the 2017 Loan Agreement required interest-only monthly payments for 18 months from the funding of the first tranche, at which time

In January 2018, we ~~would have had the option to pay the principal due or convert the outstanding loan to an interest plus royalty-bearing note.~~

On June 28, 2017, we drew the first tranche of financing under the 2017 Loan Agreement, the gross proceeds of which were $30,000. We used the proceeds to retire amounts outstanding under the 2014 Loan Agreement. In August 2017, we drew the second tranche of financing, receiving $10,000. We retired the 2017 Loan Agreement ~~in January 2018 (see discussion below).~~

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”), ~~in connection with the IDB acquisition,~~ 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 ~~agreed~~at a price of $67.50 on January 5, 2018, for total proceeds of $42,226, pursuant to ~~loan to~~a Securities Purchase Agreement, and (ii) Deerfield loaned us $147,774 as an initial disbursement (the “Term Loan”)~~. The~~, for total proceeds of $190,000. We used the proceeds from the Facility Agreement ~~also provides us~~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 ~~during the applicable period. We agreed to pay Deerfield an upfront fee and~~over a ~~yield enhancement fee, both equal to 2% of the principal amount of the funds disbursed pursuant~~trailing two-quarter period prior to the ~~Facility Agreement.~~

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%. ~~We are also required~~

On January 14, 2019, in conjunction with the Vatera Loan Agreement (discussed below), we entered into an amendment to ~~pay~~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 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 31, 2018, by 15% (we must now achieve net product sales of at least $63,750 during 2019 and 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 ~~2.0%~~$75,000 over a trailing two-quarter period by the end of 2019 in order to draw the ~~amount~~Disbursement Option was not amended.

The Deerfield Facility Amendment also provided for the conversion of ~~any loans on the payment, repayment, redemption or prepayment thereof. The~~up to $74,000 in principal ("Convertible Notional Amount") amount of the Term Loan ~~must be paid~~into shares of the Company’s common stock at Deerfield’s option at any time and evidenced by ~~January 5, 2024.~~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 required to reserve and keep available a sufficient number of shares of common stock for the purpose of enabling the Company to issue all of the underlying shares of common stock issuable pursuant to the Deerfield's conversion rights under the Facility Agreement, ~~requires~~as amended, and under the ~~outstanding principal~~Loan Agreement.

We concluded that the 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 ~~any loans drawn pursuant to~~ the ~~Disbursement Option to~~value of which, will be ~~repaid in equal monthly cash amortization payments between~~amortized over the ~~fourth and the sixth anniversary~~remaining term of the Agreement Date. The Term Loan and any loans drawn pursuant to the Disbursement Option are not permitted to be prepaid prior to January 6, 2021 under the terms of the Facility Agreement and are subject to certain prepayment fees for prepayments occurring on or after such date. In addition, the Facility Agreement permits us to secure a revolving credit line of up to $20,000 from a different lender. Deerfield holds a first lien on all our assets, including our intellectual property, except for working capital accounts, for which they hold a second lien while any revolving credit line with a different lender is in place. The Facility Agreement, while it is outstanding, will limit our ability to raise debt

financing in future periods outside of the $20.0 million revolver permitted thereunder. The Facility Agreement has a financial maintenance covenant requiring us to maintain a minimum cash balance of $25.0 million, a requirement that we achieve product sales of at least $45.0 million during 2018, and other normal covenants, including periodic financial reporting and a restriction on the payment of dividends.

In connection with the Facility Agreement, we issued 3,127,846 shares of our common stock to Deerfield at a price of $13.50 on January 5, 2018, pursuant to a Securities Purchase Agreement. We received proceeds of $42,226 from this issuance of common stock. We received total proceeds of $190,000 from the Term Loan ~~and~~utilizing the ~~issuance of common stock together.~~

We used these proceeds to fund the IDB acquisition, to retire the $40,000 of principal balance outstanding under the 2017 Loan Agreement and to fund ongoing working capital requirements and other general corporate expenses. As a result, we recognized a debt extinguishment loss of $2,595, comprised of prepayment penalties and exit fees related to retiring the 2017 Loan Agreement totaling $2,150 and unamortized debt issuance costs of $445.

~~In connection with the Facility Agreement and the Securities Purchase Agreement, we entered into the following freestanding instruments with Deerfield as a counterparty on January 5, 2018:~~

~~Term Loan with stated principal of $147,774 with a 11.75%~~effective interest ~~rate;~~

~~Disbursement Option for additional draw of up to $50,000;~~

~~3,127,846 shares of our common stock;~~

~~Warrants to purchase 3,792,868 shares of our common stock with a purchase price of $16.50 and expiration date of January 5, 2025 (the “Warrants”); and~~

~~Rights to royalty payments equal to between 2% and 3% of certain U.S. sales of Vabomere for a period of 7 years, ending on December 31, 2024, as further described below (the “Royalty Agreement”).~~

For accounting purposes, because there are multiple freestanding instruments within the arrangement to which we are required to assign value under U.S. GAAP, we performed a valuation to determine the allocation of the gross proceeds of $190,000 to the five financial instruments listed above. We first calculated the fair value of the warrants, and then we allocated the remaining proceeds across the other four instruments using the relative fair value approach. The relative fair values of these financial instruments, which approximated their respective fair values as of the Agreement Date, were as follows (in thousands):

Term Loan

$
111,421

Warrants

33,264

Royalty Agreement

1,472

Disbursement Option

(7,609
)
Common Stock Consideration

51,452

Total Consideration

$
190,000

method. The terms of these instruments and the methodology and assumptions used to value each of them are discussed below.

~~Term Loan~~

Conversion Right

The ~~relative~~initial fair value of the ~~term loan~~Conversion Right was ~~estimated~~determined to be ~~$111,421~~$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 ~~model.~~("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 ~~used~~will remeasure this 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 ~~risk-adjusted discount~~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 ~~19.8%. In connection~~$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 ~~Facility Agreement, we paid $6,455 of upfront term loan fees and legal debt issuance costs. For accounting purposes, we elected to allocate these upfront fees and costs all to~~converted principal amount, partially offset by the ~~term loan, leaving a net carrying value of $104,966.~~

~~The upfront fees and costs were recorded as debt discount and are being amortized as additional interest expense over~~gain discussed in the ~~term~~previous paragraph.

After the end of the ~~loan. In addition,~~quarter, in July 2019, Deerfield converted principal of $11,633 under the Term Loan at a 2%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 ~~of $2,956 is payable as the loan principal payments are made.~~from 2.0% to 4.0%. Therefore, total required future cash payments are ~~$150,730 (term loan~~$153,685 (Term Loan principal of $147,774 plus exit fee of ~~$2,956)~~$5,911). The exit fee cost is ~~also~~ being ~~amortized~~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 2%4% exit fee) is being expensed as interest expense using anthe effective interest rate of ~~21.4%~~30.0%. ~~During the three and six months ended June 30, 2018, we recorded cash interest expense and term loan accretion expense of $4,389 and $8,585, and $1,373 and $2,497, respectively.~~ 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.

~~The~~

Under the Facility Agreement, as amended, the accretion of the principal of the term loan, conversion redemptions, and the future payments, including the 2%4.0% exit fee due at the end of the term, ~~and~~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

Accretion of
Interest
Expense

Principal
Payments
and Exit Fee

Ending Balance

January 5 - June 30, 2018

$
104,966

$
2,496

$
-

$
107,462

July 1 - December 31, 2018

107,462

3,112

-

110,574

Year Ending December 31, 2019

110,574

7,040

-

117,614

Year Ending December 31, 2020

117,614

8,637

-

126,251

Year Ending December 31, 2021

126,251

10,798

-

137,049

Year Ending December 31, 2022

137,049

9,826

(69,085
)

77,790

Year Ending December 31, 2023

77,790

3,846

(75,365
)

6,271

Year Ending December 31, 2024

6,271

9

(6,280
)

-

Total

$
45,764

$
(150,730
)

~~Warrants~~

~~Under~~



	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 ~~terms~~table above, the carrying value of the Facility Agreement ~~we issued Warrants~~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 ~~purchase 3,792,868~~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 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 ~~common~~convertible preferred stock ~~with an exercise price of $16.50 and a term of seven years. The holders~~ of the ~~Warrants may exercise the Warrants for cash, on~~Company at a ~~cashless basis or through a reduction~~conversion rate of ~~an amount~~1.25 shares of principal outstanding under the Term Loan or any subsequent disbursements pursuant to the Disbursement Option. In connection with certain major transactions (as defined therein), the holders may have thepreferred Stock per one thousand dollars. The preferred stock is further convertible at Vatera's option ~~to convert the Warrants, in whole or in part,~~ into ~~the right to receive the transaction consideration payable upon consummation of such major transaction in respect of a number of~~ shares of common stock of the Company 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 ~~Black-Scholes value~~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 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 ~~Warrants, as defined therein, and~~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 ~~other major transactions,~~conversion). In addition, an exit fee (the “Final Exit Fee” and, together with the ~~holders~~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 ~~have~~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 ~~right~~Loan Agreement terms in June 2019 - please refer to ~~exercise~~Vatera Loan Amendment section below.)

Among the ~~Warrants, in whole or in part, for a~~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 does not include a going concern qualification, and the Company ~~equal~~must also establish a working capital revolver of at least $10,000 to draw the ~~Black-Scholes~~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 ~~Warrants.~~

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 ~~the Black-Scholes option-pricing~~a convertible bond lattice model to estimate the fair value of the ~~Warrants,~~Convertible Notes (Level 3 inputs), which resulted in a fair value of $33,264 on the Agreement Date. To measure the Warrants at January 5, 2018, the assumptions used in the Black-Scholes option-pricing model were: the price of the common stock on January 5, 2018, an ~~expected life of 7 years, a risk-free interest rate of 2.4% and an expected volatility of 50.0%.~~

We classified the Warrants as a liability in our balance sheet and are required to remeasure the carrying value of these Warrants to fair value at each balance sheet date, with adjustments for changes in fair value recorded to Other income or expense in our statements of operations. On March 31, 2018, the remeasuredestimated fair value of the ~~Warrants was $9,179, resulting in a gain~~Vatera Portion of ~~$24,085, which~~$63,758 on the Initial Draw Date. The related discount and capital contribution of $11,242 ("Valuation Discount") was recorded ~~in Other income~~as a reduction in the ~~three months ended March 31, 2018. To remeasure the Warrants at June 30, 2018, the assumptions used in the Black-Scholes option-pricing model were: the price~~carrying amount of the ~~common stock on June 30, 2018,~~Convertible Notes with an ~~expected life of 6.5 years, a risk-free interest rate of 2.8% and an expected volatility of 50.0%.~~offsetting amount recorded to additional paid-in-capital. The estimated fair value of the ~~Warrants at June 30, 2018,~~Deerfield Portion of the Convertible Loans, for which Melinta did not receive cash but was, ~~$6,790, resulting in a further gain of $2,389,~~rather, consideration for amending the Deerfield Credit Facility, was $4,251, which was recorded ~~in Other income~~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 ~~three months ended June 30, 2018.~~

~~Royalty Agreement~~

~~In connection with the Facility Agreement, we entered into a Royalty Agreement with Deerfield, pursuant~~convertible bond lattice model used to which we agreed to make royalty payments equal to 3% (or 2%, following the satisfaction of all our obligations under the Facility Agreement and other loan documents) of annual U.S. sales of Vabomere exceeding $75,000 ($74,178 for 2018) and less than or equal to $500,000 for a seven-year period. To determineestimate the fair value of the ~~obligation under~~Convertible Notes were: the ~~Royalty Agreement, we applied a Monte Carlo simulation model~~price of our common stock on the Initial Draw Date, an expected volatility of 76%, and an estimated yield of 29.8%. Due to ~~our revenue forecasts for Vabomere, which was discounted using an adjusted weighted average cost~~the inherent uncertainty of ~~capital (“WACC”). The WACC incorporated our estimated senior unsecured discount rate, our expected tax rate, and our estimated cost of equity, and then was adjusted for operational leverage.~~

~~On January 5, 2018, we estimated~~determining the fair value of the ~~royalty liability under~~Convertible Notes using Level 3 inputs, the ~~Royalty Agreement to be $1,472. Over~~fair value may differ significantly from the ~~seven-year~~values that would have been used had a ready market or observable inputs existed.

In connection with the 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 ~~royalty liability~~Interim Exit Fee as additional interest expense over the term of the Convertible Loans, which will ultimately total $928. The 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 42.9% and reduce the liability for any royalty payments made to Deerfield. During the first quarter of 2018, we recorded interest expense of $152, increasing the value of the liability to $1,624 at March 31, 2018. During the three months ended June 30, 2018, we recorded interest expense of $179, increasing the liability to $1,804 at June 30, 2018. At the end of each quarter, we are required to prospectively revise the rate of accretion if there are any significant changes in our sales forecasts. There were no such changes in the second quarter of 2018.

~~Disbursement Option~~

approximately 8.6%.

The Disbursement Option allows us to draw additional funds up to $50,000 once we achieve annual net product sales of at least $75,000. The annual net sales target is measured by using the sales result for the preceding six months and multiplying by two. The disbursement must be drawn within two years from the effective date of the transaction and requires quarterly interest payments at a rate of 14.75% and requires the principal amount outstanding to be repaid in equal monthly cash amortization payments between the fourth and the sixth anniversary of the effective date of the agreement.

~~We calculated~~following table summarizes the fair value of the ~~Disbursement Option using a discounted cash flow model, under which estimated cash flows were discounted using a risk-adjusted rate that aligns with~~Convertible Notes on the ~~lender’s estimated credit risk to disburse~~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 ~~$50.0 million. We estimated~~$66,234, $4,251 was the ~~relative fair~~initial carrying value of the ~~Disbursement Option to be $7,609~~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 ~~effective date~~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 ~~transaction, which we~~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 ~~a long-term asset on~~interest expense in our ~~balance sheet to be carried at that cost until settlement.~~

~~Common Stock Consideration~~

~~Pursuant to the terms~~statement of the Securities Purchase Agreement, we issued 3,127,846 shares of our common stock to Deerfield at a price of $13.50 on January 5, 2018. Based on our closing stock price on January 5, 2018, of $16.45, the fair value of this consideration was $51,452, which was recorded as additional paid-in capital in stockholders’ equity.

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 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, ~~2018,~~2019, and December 31, ~~2017.~~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, 2018

Level 1

Level 2

Level 3

Total

Assets:

Money market fund

$
22,432

$
-

$
-

$
22,432

Total assets at fair value

$
22,432

$
-

$
-

$
22,432

Liabilities:

Royalty liability in current deferred purchase price

$
-

$
-

$
(1,488
)

$
(1,488
)
Royalty liability in noncurrent deferred purchase price

-

-

(11,086
)

(11,086
)
Contingent milestone payments

-

-

(27,052
)

(27,052
)
Common stock warrants

-

-

(6,790
)

(6,790
)
Total liabilities at fair value

$
-

$
-

$
(46,416
)

$
(46,416
)

As of December 31, 2017

Level 1

Level 2

Level 3

Total

Assets:

Money market fund

$
76,777

$
-

$
-

$
76,777

Total assets at fair value

$
76,777

$
-

$
-

$
76,777



	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 ~~common stock warrants were valued using a Black-Scholes option-pricing model. The~~following tables provide quantitative information about valuation techniques and the Company’s significant inputs ~~include~~to the ~~risk-free interest rate, remaining contractual term,~~Company’s Level 3 fair value measurements as of June 30, 2019, and ~~expected volatility.~~ 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. ~~An increase in the risk-free interest rate, and/or~~Generally, an increase in ~~the remaining contractual term~~net sales or ~~expected~~ volatility, and a decrease in yield or credit spread, would result in an increase in the estimated fair value of the ~~warrants.~~

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, ~~2018:~~

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,
2017

Realized
Gains
(Losses)

Change in
Unrealized
Gains
(Losses)

(Issuances)
Settlements

Net Transfer
(In) Out of
Level 3

Fair Value at June 30, 2018

Royalty liability in current deferred
purchase price

$
-

$
-

$
(291
)

$
(1,197
)

$
-

$
(1,488
)
Royalty liability in noncurrent deferred
purchase price

-

-

(2,440
)

(8,646
)

-

(11,086
)
Contingent milestone payments

-

-

(2,567
)

(24,485
)

-

(27,052
)
Common stock warrants

-

-

26,474

(33,264
)

-

(6,790
)
Total liabilities at fair value

$
-

$
-

$
21,176

$
(67,592
)

$
-

$
(46,416
)



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 – ~~SHAREHOLDERS EQUITY~~

~~Under our certificate of incorporation, we are authorized to issue up to 5,000,000 shares of preferred stock and 80,000,000 shares of common stock. There was no outstanding preferred stock as~~LEASES

As of June 30, ~~2018,~~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 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 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 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 ~~December 31, 2017. Holders of our common stock are not entitled~~more options to ~~receive dividends, unless declared by~~renew, with renewal terms that can extend the ~~board of directors. There have been no dividends declared~~

lease term from three to date. We have reserved and keep available out of our authorized but unissued common stock a sufficient number of shares of common stock to affect the conversion of all issued and outstanding warrants and stock options. Outstanding common stock asfive 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 ROU assets at June 30, 2019. The Company 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 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 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, ~~2017,~~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 ~~56,010,254 and 21,998,942, respectively.~~

~~On January 5, 2018, we issued 3,313,702 shares of common stock to Medicines as part~~3.6 years, calculated on the basis of the ~~purchase price~~remaining lease term and the lease liability balance of ~~IDB (see Note 11~~each lease.

The following table sets forth supplemental cash flow information for further discussion.). We also issued 3,127,846 shares of common stock and warrants to purchase 3,792,868 shares of common stock to Deerfield as part of the Facility Agreement (see Note 4 for further discussion). In conjunction with the IDB transaction, we received $40,000 in additional equity financing from existing and new investors, in exchange for which we issued 2,884,961 shares of common stock. Further, in May 2018, we issued 24,640,000 shares of common stock to new and existing investors in a follow-on public offering for proceeds, net of issuance costs, of $115,300. During the six months ended June 30, ~~2018, we issued 34,600 shares of common stock for restricted stock units that vested in the period.~~

~~Warrants~~

~~We have warrants to purchase our common stock outstanding at June 30, 2018, as follows:~~

2019:

Issued

Warrants
Outstanding

Exercise Price

Expiration
August 2011

18,979

$
30.00

August 2018
February 2012

42

$
17,334.07

February 2022
December 2014

33,788

$
33.30

December 2024
December 2015

6,757

$
33.30

December 2024
January 2018

3,792,868

$
16.50

January 2025



	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

~~2006 Stock Plan—Upon closing~~

In the ~~merger with Cempra, Inc. (“Cempra”) on November 3, 2017, Melinta assumed~~ ~~the 2006 Stock Plan, which had~~ ~~been~~ ~~adopted by Cempra in January 2006 (the “2006 Plan”). The 2006 Plan provided for the granting~~first six months of ~~incentive share options, nonqualified share~~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 ~~to Company employees, representatives and consultants.~~were reserved for future grants. As of June 30, ~~2018,~~2019, there were options for an aggregate of 57,314 shares issued and outstanding under the 2006 Plan. During the period January 1, 2018, to June 30, 2018, 11,050 options were forfeited; there was no other activity during the period.

~~2011 Equity Incentive Plan~~—Upon closing the merger with Cempra on November 3, 2017, Melinta assumed the 2011 Equity Incentive Plan, which had been adopted by Cempra in October 2011 (the “2011 Incentive Plan”). On January 1, 2018, under the evergreen feature of the 2011 Incentive Plan, the authorized shares under the 2011 Incentive Plan increased by 879,957 to 2,619,447. In April 2018, we awarded 1,605,967 shares to employees with an exercise price of $7.45 and a grant date fair value of $5.41. On June 12, 2018, the shareholders approved the adoption of the 2018 Stock Incentive Plan (the “2018 Plan”) (see below). With the adoption of the 2018 Plan, the 2011 Incentive Plan was frozen. At June 30, 2018, there were 2,240,764 shares awarded under the 2011 Incentive Plan and no shares available to award as either options or1,655,500 restricted stock ~~units.~~

~~Private Melinta 2011 Equity Incentive Plan—In November 2011,~~unit awards outstanding, and details regarding the ~~Melinta board~~number of ~~directors adopted the 2011 Equity Incentive Plan (“Melinta 2011 Plan”). The Melinta 2011 Plan provided for the granting of incentive stock~~ options ~~nonqualified options, stock grants,~~outstanding and stock-based awards to employees, directors, and consultants of the Company. On November 3, 2017, in conjunction with the merger with Cempra, all outstanding options under the Melinta 2011 Plan converted to 732,499 options to purchase common shares of Cempra (re-named Melinta in the merger), the Melinta 2011 Plan was frozen and authorized shares under the Melinta 2011 Plan were reduced to 732,499. Any grants under the Melinta 2011 Plan that expire or are forfeited will reduce the authorized shares under the plan. Asexercisable as of June 30, ~~2018, we had 623,223 shares of common stock reserved under the Melinta 2011 Plan for issuance upon exercise of stock options.~~

~~Inducement Grant~~—On November 3, 2017, Melinta granted Daniel Wechsler, our President and Chief Executive Officer, an option to purchase 550,981 shares of common stock, at a strike price of $11.65 per share, and 183,661 restricted stock units, pursuant to the option and restricted stock unit inducement agreements made with Mr. Wechsler. Both grants will vest over four years, 25% after one year and then ratably monthly over the remaining 36 months.

~~2018 Stock Incentive Plan—On~~ ~~April 20, 2018, we granted stock options to purchase 865,267 shares of common stock under the 2018 Stock Incentive Plan at an exercise price of $7.45 and an average grant date fair value of $5.53.~~ 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 grants were subject to, and contingent upon, shareholder approval of the 2018 Plan at the annual meeting in June 2018. On June 12, 2018, the shareholders approved the 2018 Plan, which was initially authorized with 2,000,000 shares. Under the evergreen feature of the 2018 Plan, these authorized shares may be increased on January 1 of each year by the lesser of (i) 4% of the outstanding shares of the Company on the last day of the immediately preceding fiscal year, or (ii) such number of shares determined by thetotal unrecognized share-based compensation committee of the board of directors. The 2018 Plan replaces the 2011 Incentive Plan, and no further equity awards will be granted from the 2011 Incentive Plan, which has been frozen. Any shares that are undelivered as a result of outstanding awards under the 2011 Incentive Plan expiring or being canceled, forfeited or settled in cash without the delivery of the full number of shares to which the award related will become available for grant under the 2018 Plan. As of June 30, 2018, there were 1,106,983 shares available for awards under the 2018 Plan.

~~Stock Option Activity~~—The exercise price of each stock option issued under all of the stock plans is specified by the board of directors at the time of grant but cannot be less than 100% of the fair value of the stock on the grant date. In addition, the vesting period is determined by the board of directors at the time of the grant and specified in the applicable option agreement. Our practice is to issue new shares upon the exercise of options, unless it is a cashless exercise.

~~A summary of the combined activity under the 2006 Plan, 2011 Incentive Plan, the Melinta 2011 Plan, the inducement grant and the 2018 Plan is presented in the table below:~~

Weighted

Weighted

Average

Average

Aggregate

Number of

Exercise

Contractual

Intrinsic

Options

Price

Term (in years)

Value

Outstanding - January 1, 2018

2,060,809

$
33.63

Granted

2,694,334

$
7.52

Exercised

(203
)

$
15.61

Forfeited

(156,124
)

$
20.20

Expired

(100,967
)

$
47.68

Outstanding - June 30, 2018

4,497,849

$
18.14

8.3

$
-

Exercisable - June 30, 2018

1,078,268

$
45.78

3.8

$
-

Vested and expected to vest at June 30, 2018

4,497,849

$
18.14

8.3

$
-

During the six months ended June 30, 2018, 34,600 restricted stock units vested and 19,600 restricted stock units were forfeited. There was no other restricted stock activity in the period. There were 246,461 restricted stock units outstanding under all the plansexpense at June 30, ~~2018. In addition,~~2019, was approximately $13,356, which is expected to be recognized over the ~~awards given under the inducement grant were also outstanding.~~

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,

2018

2017

2018

2017

Research and development

$
166

$
125

$
295

$
271

Selling, general and administrative

1,379

383

2,078

809

Total

$
1,545

$
508

$
2,373

$
1,080

Stock-based compensation expense for our manufacturing-related employees of $106 and $231 for the three and six months ended June 30, 2018, is capitalized in inventory as a component of overhead expense and recognized as cost of goods sold based on inventory turns. During the three and six months ended June 30, 2018, $143 and $218 of accelerated vesting expense related to employee terminations is included in selling, general and administrative expenses.



	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 ~~and no related tax benefits have been realized from the exercise of stock options~~ due to our net ~~operating loss carryforwards.~~

losses.

NOTE 8 – INCOME TAXES

At the end of each interim period, the Company makes its best estimate of the effective tax 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 quarter in which they occur.

The Company utilizes the liability method of accounting for income taxes and deferred taxes which are determined based on the differences between the financial statements and tax basis of assets and liabilities given the provisions of the

enacted tax laws. In assessing the realizability of the deferred tax assets, the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized through the generation of future taxable income. In making this determination, the Company assessed all of the evidence available at the time including recent earnings, forecasted income projections, and historical financial performance. The Company has fully reserved deferred tax assets as a result of this assessment.

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, ~~2018~~2019 and ~~2017.~~

On November 3, 2017, we completed our tax-free merger with Cempra. To reflect the opening balance sheet deferred tax assets and liabilities of Cempra, we recorded a net deferred tax asset of $107,688 offset with a valuation allowance of $107,688. Under ASC 805, ~~Business Combinations~~, we are required to recognize adjustments to provisional amounts during the measurement period as they are identified, and to recognize such adjustments retrospectively, as if the accounting for the business combination had been completed at the acquisition date. We will adjust the net deferred tax assets and valuation allowance during the remeasurement period, including any unrecognized tax positions. See Note 11 for further information regarding the merger.

2018.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but not limited to, a corporate tax decrease from 34% to 21% effective for tax years beginning after December 31, 2017, limitation of the business interest deduction, modification of the net operating loss deduction, reduction of the business tax credit for qualified clinical testing expenses for certain drugs for rare diseases or conditions, and acceleration of depreciation for certain assets placed into service after September 27, 2017.

On December 22, 2017, the Securities and Exchange Commission (the “SEC”) staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Act. SAB 118 provides a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under ASC 740, ~~Income Taxes~~. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statement.

We have calculated our best estimate of the impact of the Act in our 2017 income tax provision in accordance with our understanding of the Act and guidance available, and, as a result, as of December 31, 2017, have recorded $44,438 as an additional income tax expense offset with $44,438 tax benefit from the change in the valuation allowance in the fourth quarter of 2017, the period in which the legislation was enacted. The adjustments to deferred tax assets and liability are provisional amounts estimated based on information available as of December 31, 2017. We have not updated our estimates as of June 30, 2018, nor have we recorded any additional income tax expense or valuation allowance based on our net loss for the period. As we collect and prepare necessary data and interpret the Act—and any additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and other standard-setting bodies—we may make adjustments to the provisional amounts. As additional information becomes available, we will recognize any changes to the provisional amounts as we refine our estimates of our cumulative temporary differences related to Cempra’s opening balance sheet from the merger, in accordance with ASC 805.

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 weighted-average number of common shares outstanding for the period. Prior to the merger with Cempra, during periods when we earned net income, we would allocate to participating securities a proportional share of net income determined by dividing total weighted-average participating securities by the sum of the total weighted-average common shares and participating securities (the “two-class method”). Historically, our preferred stock participated in any dividends declared by us and were therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods where we incur net losses, we allocate no loss to participating securities because they have no contractual obligation to share in our losses. We compute diluted loss per common share after giving consideration to the dilutive effect of stock options and warrants that are outstanding during the period, except where such nonparticipating securities would be antidilutive. Because we have reported net losses for the three and six months ended June 30, ~~2018~~2019 and ~~2017,~~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, ~~2017,~~2019 and 2018, have been ~~retrospectively~~retroactively adjusted to reflect ~~historical weighted-average number of common shares outstanding multiplied by~~ the ~~exchange ratio established in the merger with Cempra.~~

1-for-5 reverse stock split which was effective February 22, 2019.

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

Three Months Ended June 30,

2018

2017

Warrants outstanding

3,852,434

31,702

Stock options outstanding

4,497,849

564,698

Restricted stock units outstanding

246,461

-

Convertible preferred stock outstanding

-

5,800,922

8,596,744

6,397,322



	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 Note 11, on November 3, 2017, Melinta merged with Cempra, Inc. in a business combination. Prior to the merger, onon November 4, 2016, a securities class action lawsuit was commenced in the United States District Court, Middle District of North Carolina, Durham Division, naming Cempra, Inc. (now known as Melinta Therapeutics, Inc.) (for purposes of this Contingencies section, “Cempra”) and certain of Cempra’s officers as defendants. Two substantially similar lawsuits were filed in the United States District Court, Middle District of North Carolina on November 22, 2016, and December 30, 2016, respectively. Pursuant to the Private Securities Litigation Reform Act, on July 6, 2017, the court consolidated the three lawsuits into a single action and appointed a lead plaintiff and co-lead counsel in the consolidated case. On August 16, 2017, the plaintiff filed a consolidated amended complaint. ~~Plaintiff alleges~~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��~~Period”). ~~Plaintiff seeks~~The plaintiff sought to represent a class comprised of purchasers of Cempra’s common stock during the Class Period and ~~seeks~~sought damages, costs and expenses and such other relief as determined by the court. On September 29, 2017, the defendants filed a motion to dismiss the consolidated amended complaint. ~~On November 13, 2017,~~After the ~~plaintiff filed an opposition to the defendants’~~ motion to dismiss ~~the consolidated amended complaint. On December 4, 2017, the defendants filed a reply brief. On July 24, 2018,~~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.~~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 ~~motion remains pending.~~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 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 December 21, 2016, a shareholder derivative lawsuit was commenced in the North Carolina Durham County Superior Court, naming certain of Cempra’s former and current officers and directors as defendants and Cempra as a nominal defendant, and asserting claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and corporate waste (the “December 2016 Action”). A substantially similar lawsuit was filed in the North Carolina Durham County Superior Court on February 16, 2017 (the “February 2017 Action”). The complaints are based on similar allegations as asserted in the securities lawsuits described above and seek unspecified damages and attorneys’ fees. Both cases were served and transferred to the North Carolina Business Court as mandatory complex business cases. The Business Court consolidated

the February 2017 Action into the December 2016 Action and appointed counsel for the plaintiff in the December 2016 Action as lead counsel. On July 6, 2017, the court stayed the action pending resolution of the putative securities class action. That stay ~~has since been~~was then lifted. The plaintiff filed an amended complaint on December 29, 2017, and was required to file a further amended complaint by February 6, 2018. On February 6, 2018, the plaintiff filed his second amended complaint. On March 8, 2018, 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. ~~Defendants’~~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 ~~November 4, 2016 consolidated federal~~putative securities class 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 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'~~directors’ and ~~officers'~~officers’ alleged breaches of fiduciary duty,” and “implement corporate governance enhancements to prevent recurrence of the alleged wrongdoing.” The Board has not yet formally responded to the Demand.

On July 31, 2017, a shareholder derivative lawsuit was commenced in the Court of Chancery of the State of Delaware, naming certain of Cempra’s former and current officers and directors as defendants and Cempra as nominal defendant, and asserting claims for breach of fiduciary duty, unjust enrichment, and corporate waste. The complaint is based on similar allegations as asserted in the putative securities class action described above and seeks unspecified damages and attorneys’ fees. On October 23, 2017, the defendants filed a motion to dismiss or, in the alternative, stay, the complaint, which was supported by an opening brief filed on November 9, 2017. On January 8, 2018, the plaintiff filed his answering brief in opposition to the defendants’ motion. The defendants filed their reply in support of their motion on February 7, 2018. On June 18, 2018, the parties filed a joint letter (1) indicating they have agreed to stay the case until the pending motion to dismiss in the November 4, 2016, consolidated federal securities action pending in the United States District Court, Middle District of North Carolina, Durham Division is decided; and (2) requesting that the June 22, 2018, oral argument scheduled for the defendants’ motion to dismiss be ~~cancelled.~~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 States District Court for the Middle District of North Carolina, Durham Division, naming certain of Cempra’s former and current officers and directors as defendants and Cempra as nominal defendant, and asserting claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, corporate waste, and violation of Section 14(a) of the Exchange Act. The complaint is based on similar allegations as asserted in the putative securities class action described above and seeks unspecified damages and attorneys’ fees. On December 1, 2017, the parties filed a joint motion seeking to stay the shareholder derivative lawsuit pending resolution of the putative securities class action, which stipulation was ordered by the court on December 11, 2017. 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 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 in the Court of Chancery of the State of Delaware against Medicines for breach of contract claim and fraud arising from the Purchase and Sale Agreement (“Purchase Agreement”), dated November 28, 2017, pursuant to which we acquired the 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 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 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 Medicines’ motion on September 19, 2019.

On March 28, 2019, Fortis Advisors LLC, in its capacity as the authorized legal representative of the former shareholders of Rempex Pharmaceuticals, Inc. (“Former Rempex Shareholders”), filed a complaint in the Court of Chancery of the State of Delaware against Medicines and us (the "Fortis Action"). The Former Rempex Shareholders’ complaint alleges breach of contract claims against Medicines arising out of the 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 Fortis Action and Medicines’ motion to dismiss the Medicines Action, on September 19, 2019. We filed a motion to consolidate the Fortis Action and the Medicines Action on May 8, 2019, and the Court heard oral argument on that motion on July 8, 2019. The Court stated that it would issue a ruling on the motion to consolidate at the September 19 hearing and ordered the parties to coordinate both actions prior to oral argument. We believe that we have meritorious defenses and we intend to defend the lawsuit and crossclaim vigorously.

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

~~NOTE 11 – BUSINESS COMBINATIONS~~

~~Acquisition of the Infectious Disease Business~~

On January 5, 2018, we completed the acquisition of the IDB, in which we acquired a group of antibiotic drug products and certain other assets from Medicines, including 100% of the capital stock of certain subsidiaries and the pharmaceutical products containing (i) meropenem and vaborbactam as the active pharmaceutical ingredient and distributed under the brand name Vabomere, (ii) oritavancin as the active pharmaceutical ingredient and distributed under the brand name Orbactiv and (iii) minocycline as the active pharmaceutical ingredient and distributed under the brand name Minocin for injection and line extensions of such products. The integration of the acquired products within our existing portfolio further strengthens our ability to serve the needs of providers treating patients with serious bacterial infections across the healthcare delivery continuum. In addition to the products acquired in the IDB transaction, we added approximately 135 individuals from Medicines to our team. The new team members bring with them significant experience specific to infectious diseases and better position us to effectively execute our commercial and other activities.

The acquisition was financed using borrowings under the Facility Agreement and additional equity financing from existing and new investors. See Note 4 for further information regarding these financing arrangements. Expenses related to legal and other services in connection with the IDB acquisition were $2,600 and $2,100 in the fourth quarter of 2017 and the first half of 2018, respectively. The expenses incurred in the first half of 2018 included $1,088 related to certain transition services that Medicines agreed to provide to us to facilitate transition and integration of the IDB. The transition services included the temporary provision of facilities and equipment for newly hired personnel, assistance with finance functions and support in connection with the transition of the supply, sale and distribution of the products to our third-party logistics provider. The transition services have been substantially completed as of June 30, 2018.

~~The consideration paid to Medicines consisted of a cash payment~~ ~~of $166,383 and 3,313,702 shares of our common stock, which was calculated by dividing~~ $50,000 by $15.08886, representing 90% of the volume weighted average price of the common stock for the trailing 10 trading day period ending three trading days prior to the closing date. In addition, we are required to make two additional payments of $25,000 on each of the twelve and eighteen-month anniversaries of the closing date (January and July 2019, respectively), and we will pay royalties to Medicines on certain net sales of the acquired antibiotic products.

~~The purchase price, including non-cash consideration, for the acquisition of IDB is as follows:~~

~~Cash of $166,383, including a net working capital adjustment of $1,383;~~

~~Common stock of $54,510;~~

~~Deferred consideration of $38,541, representing the present value of two payments of $25,000 each due in January and July 2019; and~~

~~Contingent consideration of $10,570, representing the fair value of sales-based royalty payments.~~

We recorded the contingent consideration related to the sales-based royalty payments at fair value, and we are accreting the amount to the estimated aggregate amounts payable to Medicines ($347,000) based on an effective interest of rate of 49% which is in line with the effective interest rate used to accrete the royalty liability associated with the Facility Agreement (43%). During the three and six months ended June 30, 2018, we recorded $1,104 and $2,731, respectively, of non-cash interest expense related to the accretion of the fair value of sales-based royalty payments. Through June 30, 2018, $727 of the royalty liability became currently due and was reclassified out of current deferred purchase price; $398 was recorded as credit offsets to receivables due from Medicines and $329 was recorded in accrued expenses at June 30, 2018. At June 30, 2018, the carrying values of the short-term and long-term liabilities were $1,488 and $11,086, respectively.

We are currently in the process of finalizing the valuation of the significant acquired intangible assets, deferred and contingent purchase consideration and related deferred tax liabilities, which will be completed in 2018. The goodwill resulting from the acquisition largely consists of the estimated value of IDB’s assembled and trained workforce, our expected future product sales, synergies resulting from combining IDB products with our existing product offering and IDB’s going concern value.

The following table sets forth our initial estimate of the purchase price allocation as of the acquisition date, which was recorded in the three months ended March 31, 2018, and our current estimate, reflecting adjustments recorded in the three months ended June 30, 2018. The changes in certain values are because we refined our estimates supporting those values, principally the value and timing of future sales and gross margins.

March 31, 2018

June 30, 2018

Current assets

$
28,299

$
33,726

Goodwill

13,059

17,614

Intangible assets

258,000

242,454

Non-current assets

12,278

12,278

Current liabilities

(37,000
)

(35,492
)
Non-current liabilities

(576
)

(576
)
Total purchase price

$
274,060

$
270,004

We believe that the historical values of IDB’s current assets and current liabilities (except for certain inventory items, which we stepped up in value) approximate their fair values based on the short-term nature of such items. The current liabilities include a contingent liability of $24,485, representing the present value of a $30,000 milestone payment payable third parties upon the approval of Vabomere in Europe. During the three and six months ended June 30, ~~2018, we recorded $1,351 and $2,568 of non-cash interest expense related to the accretion of this contingent payment.~~ The accretion is based on an effective interest rate of 20.9% which is consistent with the interest rate associated with the Facility Agreement. We updated our IDB purchase accounting in the second quarter of 2018, which affected the fair value of inventory, intangible assets and the total purchase price, resulting in a change in estimate for intangible asset amortization, the amortization of the inventory basis step up and non-cash interest expense. The change in the estimated purchase price accounting allocations and amounts resulted in a cumulative six-month year-to-date net increase to cost of goods sold of $2,674 (amortization of the inventory step-up value, partially offset by reduced intangible amortization), and a net reduction of year-to-date non-cash interest expense of $293, of which $1,103 and $280 relate to the three months ended March 31, 2018.

We recorded the two $25,000 deferred payments to Medicines at fair value, and we are accreting them to $50,000 based on an effective interest rate of 21.1%. During the three and six months ended June 30, 2018, we recorded $ 2,263 and $4,098 of non-cash interest expense related to the accretion of these deferred payments. At June 30, 2018, the carrying values of the short-term and long-term liabilities were $22,436 and $20,202, respectively.

~~The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of the acquisition:~~

Average useful life

Fair value

Developed product rights

13 to 17 years

$
222,595

In-process research and development

Indefinite

19,859

Total intangible assets

$
242,454

During the three and six months ended June 30, 2018, we recorded $3,345 and $7,824 of amortization expense related to the developed product rights. At June 30, 2018, the carrying value of the developed product rights was $214,771. For the three and six months ended June 30, 2018, IDB added $8,308 and $17,822 of revenue and $837 and $1,977 of grant income, respectively, to our unaudited consolidated results. It is impracticable to measure the effect IDB had on our net loss for the three and six months ended June 30, 2018, because IDB has been integrated into our existing operations and is not accounted for separately. Since the date of the acquisition, IDB’s results are reflected in our unaudited condensed consolidated financial statements.

~~Merger with Cempra~~

Cempra’s results have been reflected in our condensed consolidated financial statements since the date of our merger with them on November 3, 2017. As a result, we added $1,284 and $2,802 of grant income to our unaudited condensed consolidated results of operations in the three and six months ended June 30, 2018. We also incurred an additional $0 and $217 of acquisition-related expense in the three and six months ended June 30, 2018, related to the merger with Cempra. It is impracticable to measure the effect Cempra had on our net loss for the six months ended June 30, 2018, because Cempra has been integrated into our existing operations and is not accounted for separately.

~~Pro Forma Financial Information~~

The following unaudited pro forma information shows our results of operations as if the acquisition of IDB and merger with Cempra had been completed as of the beginning of fiscal 2017 and 2016, respectively. Adjustments have been made for the pro forma effects of Topic 606, interest expense and accretion related to the financing of the business combinations, loss on extinguishment of debt, accretion expense related to the IDB acquisition deferred and contingent payments, transaction costs, amortization of intangible assets recognized as part of the business combinations and the fair value gain on the warrant liability. The pro forma impact of IDB for the three and six months ended June 30, 2018, was not material.

Three Months Ended June 30, 2017

Six Months Ended June 30, 2017

Pro forma revenue

$
11,861

$
41,075

Pro forma net loss

$
(81,158
)

$
(144,852
)

NOTE 1211 – SEVERANCE AND EXIT COSTS

In connection with the merger with Cempra, several employees were terminated under established individual employment plans and a corporate-wide severance plan. The legacy Cempra entity had put in place a severance plan that provided severance benefits to employees who, in connection with a change-in-control event, either were terminated or resigned due to having a diminished role going forward with the combined company.

~~Most~~

A summary of ~~the affected employees were notified that they would be terminated in connection with the change-in-control event in advance of the~~ merger and the Company recognized the associated severance costs when the liability became probable, which was after the merger closed. The postemployment benefits for the individuals include continued salary and benefits for a period of time determined by historical length of service to, and role with, the Company (up to six months for non-executives, 18 months for executives, and 24 months for the CEO), outplacement services and contractual or prorated bonuses. While all the affected employees were notified before or immediately after the merger, some of the termination dates were extended into 2018. A summary ofnon-merger activity in our severance accrual (included in accrued expenses or long-term liabilities on the condensed consolidated balance sheets) is below.

Balance - December 31, 2017

$
6,721

Additional severance accruals (recorded in SG&A)

1,427

Bonus to be paid as severance

223

Severance payments

(4,696
)
Balance - June 30, 2018

$
3,675



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, ~~2018, $3,389~~2019, all of the balance was included in accrued ~~expenses and $317 was included in long-term liabilities.~~expenses. We also recognized $143 and $218 of additional stock-based compensation expense related to the acceleration of equity awards for terminated employees under ASC 718, Compensation-Stock Compensation, as severance expense during the three and six months ended June 30, 2018.

No equity awards were accelerated in 2019.

In March 2019, we terminated our operating lease for our principal research facility in New Haven, Connecticut. In connection with the ~~second quarter~~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 ~~2018,~~$792, which was recorded in other income.

In May 2019, we ~~vacated a significant portion~~amended our operating lease in Chapel Hill, North Carolina, which resulted in the termination of certain of our office facilities in ~~Chapel Hill, North Carolina. As a consequence, we recorded an estimated lease exit liability of $556. The lease exit liability was determined by computing the fair value of~~that location, the remaining ~~lease payments, net~~ of ~~any projected sub-lease rentals. A summary~~which we do not occupy. We paid the lessor a termination of ~~activity~~$154, which was recorded in ~~our~~other expense. As of June 30, 2019, the lease liability ~~is below.~~

Balance - December 31, 2017

$
-

Fair value of lease liability recognized

556

Amortization (recorded in SG&A)

(120
)
Balance - June 30, 2018

$
436

~~We recognized $120 and $120 of amortization related to~~associated with this lease ~~liability in the three and six months ended June 30, 2018.~~

was $197.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of 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, ~~2017,~~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, 2017. As further described in “Note 3 – Merger with Cempra” in our audited financial statements in the Form 10-K, the former private company Melinta was determined to be the accounting acquirer in our November 2017 reverse merger with Cempra and, accordingly, historical financial information for the first quarter of 2017 presented in this Form 10-Q reflects the standalone former private company Melinta and, therefore, period-over-period comparisons may not be meaningful.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, ~~2017,~~2018, and elsewhere in this report, that could cause actual results to differ materially from historical results or anticipated results.

Overview

We are a commercial-stage pharmaceutical company focused on ~~discovering,~~ developing and commercializing differentiated anti-infectives for the ~~acute care~~hospital and select non-hospital, or community, settings that address the need for effective treatments for infections due to ~~meet critical medical needs in the treatment~~resistant gram-negative and gram-positive bacteria. We currently market four antibiotics to treat a variety of ~~bacterial infectious diseases.~~

We have four commercial products, (i) delafloxacin, distributed under the brand name Baxdela™, (ii) meropenem and vaborbactam as the active pharmaceutical ingredient and distributed under the brand name Vabomere™ (“Vabomere”), (iii) oritavancin as the active pharmaceutical ingredient and distributed under the brand name Orbactiv® (“Orbactiv”) and (iv) minocycline as the active pharmaceutical ingredient and distributed under the brand name Minocin® for injection (“Minocin”) and line extensions of such products. Melinta is also investigating Baxdela as a treatment for community acquired bacterial pneumonia (“CABP”). We also have a proprietary drug discovery platform, enabling a unique understanding of how antibiotics combat infection, and have generated a pipeline spanning multiple phases of research and clinical development. The formal commercial launch of Baxdela occurred in February 2018.

~~The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern.~~ infections caused by these resistant bacteria.

We are not currently generating revenue from operations that is ~~significant relative~~sufficient to ~~its level of~~cover our operating expenses and do not anticipate generating revenue sufficient to offset operating costs in the ~~short-term to mid-term.~~short-term. We have incurred losses from operations since our inception and had an accumulated deficit of ~~$647,863~~$784.5 million as of June 30, ~~2018~~2019, and we expect to incur substantial expenses and further losses in the ~~foreseeable future~~short term for the ~~research,~~ development and commercialization of our product candidates and approved products. ~~Because~~In addition, we have had substantial commitments in connection with our acquisition of ~~these circumstances,~~the Infectious Disease Business ("IDB") of The Medicines Company ("Medicines") that we completed in January 2018, including payments related to deferred purchase price consideration, assumed contingent liabilities and the purchase of inventory. And, there are certain financial-related covenants under our Deerfield Facility, as amended in January 2019, including requirements that we (i) file an Annual Report on Form 10-K for the year ending December 31, 2019, with an audit opinion without a going concern qualification, (ii) maintain a minimum cash balance of $40.0 million through March 2020, and thereafter, a balance of $25.0 million, and (iii) achieve net revenue from product sales of at least $63.8 million for the year ending December 31, 2019. (See Note 4 to the consolidated financial statements for 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 $27.0 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 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 $10.0 million. 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 $36.0 million through March 2020, and thereafter, a balance of $22.5 million, and (iii) achieve net revenue from product sales of at least $57.4 million for the year ending December 31, 2019. (See Note 4 to the consolidated financial statements for further details on the 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 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 sales achievement of our four marketed products, all of which is subject to significant uncertainty. Given the softness in our 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 our current forecast, and given our current cash on hand and expected challenges and low likelihood of securing sufficient additional capital in the equity markets, it is ~~possible~~likely in the next few quarters that we will not be in compliance with the minimum cash requirement or the going concern covenants mentioned above, either of which would result in both our inability to draw the remaining $27.0 million 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 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.

~~In May 2018, the Company successfully completed a follow-on offering in which~~ As such, we ~~raised proceeds, net of issuance costs, of $115.3 million, strengthening the financial position of the Company. We plan to further strengthen~~believe there is substantial doubt about our cash position by achieving our revenue targets from our lead product, Baxdela as well as the assets we acquired the Infectious Disease assets from Medicines, where we now have four on market products generating revenue. In addition, Melinta has, and will continue to undertake, a robust process to identify partners to which we intend to out-license products in our portfolio outside the United States. We are currently in discussions with several parties to out-license certain products which would increase our license revenues. Also, if needed, we plan to access additional capacity under our existing Deerfield Facility, where we can draw an additional $50.0 million, dependent on the achievement of certain sales milestones. We also plan to put a working capital revolver in place for up to $20.0 million, that would provide additional funding to Melinta under the Deerfield Facility, which is subject to certain conditions.

Should we be unable to adequately finance the Company, the Company’s business, result of operations, liquidity and financial condition would be materially and negatively affected, and we would be unable to continue as a going concern. Additionally, there can be no assurance that we will achieve sufficient revenue or profitable operationsability 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.

~~Recent Developments~~

~~On January 5, 2018, we acquired~~

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 ~~Medicines, including the capital stock of certain subsidiaries of Medicines and certain assets related to its infectious disease business, including Vabomere, Orbactiv and Minocin.~~

In connection with the acquisition of the IDB, we entered into a new financing agreement, the Facility Agreement, with an affiliate of Deerfield Management Company, L.P. (together with certain funds managed by Deerfield Management Company, L.P. (“Deerfield”)). The Facility Agreement provides up to $240.0 million in debt and equity financing, with a term of six years. Deerfield made an initial disbursement of $147.8 million in loan financing. The lender also purchased 3,127,846 shares of Melinta common stock for $42.2 million under the Facility Agreement, for a total initial financing of $190.0 million. The interest rate on the debt

all or any portion of ~~this initial financing is 11.75%. The additional $50.0 million of debt financing is available, at~~these payments. In addition, in order to avoid default under our ~~discretion, after~~credit facilities, we ~~have achieved certain revenue thresholds, and, if drawn, will bear an interest rate of 14.75%. Pursuant~~are working to Facility Agreement, Deerfield also acquired warrants (held by certain funds managed by Deerfield) for the purchase of 3,792,868 shares of Melinta common stock at a purchase price per share of $16.50. Further, undernegotiate with our creditors to amend the terms of the ~~Facility Agreement, we are required to maintain a minimum cash balance~~respective agreements, but there can be no assurance that such negotiations will be successful.

The Company is continuing its evaluation of ~~$25.0 million, and we are allowed to secure a revolver credit line of up to $20.0 million from a different lender.~~

~~Also, in connection with the acquisition of IDB, Melinta received $40.0 million in~~strategic alternatives, which may include seeking additional ~~equity~~public or private financing, ~~from existing and new investors. The proceeds from these arrangements, totaling $230.0 million, were used primarily to fund the acquisition~~sale or merger of the ~~IDB~~Company, or other alternatives that would enhance the liquidity and ~~retire~~ongoing continuing operations of the ~~$40.0 million outstanding debt under a Loan and Security Agreement dated as of May 2, 2017, (the “2017 Loan Agreement”). See Note 4 to~~business. There can be no assurances that the ~~Condensed Consolidated Financial Statements for further details on these debt and equity financing arrangements.~~

~~We raised another $115.3 million, net of issuance costs, in a public equity financing in May 2018.~~

~~In addition, in May 2018, we announced that we had entered into a partnership with the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (“CARB-X”), under which Melinta~~Company will be ~~awarded up~~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 ~~$6.2~~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 ~~support~~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 the company’s investigational pyrrolocytosine compounds. CARB-X was established in 2016 by BARDA and the National Institute of Allergy and Infectious Diseases of the U.S. Department of Health and Human Services and the Wellcome Trust, a global charitable foundation dedicated to improving health, to accelerate pre-clinical product development in the area of antibiotic-resistant infections, one of the world’s greatest health threats. Under the terms of the partnership, we will receive an initial award of up to $2.3 million from CARB-X, with the possibility of $3.9 million in additional awards based on the achievement of certain project milestones. Our pyrrolocytosine compounds are a novel class of antibiotics from our ESKAPE Pathogen Program, a program based on Melinta’s proprietary drug discovery platform focused on developing breakthrough antibiotics for bacterial “superbugs” by targeting the bacterial ribosome.

~~In August 2018, the Centers for Medicare & Medicaid Services granted~~ a new ~~technology add-on payment (“NTAP”)~~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 last for Vabomere when administered to Medicare patients in a hospital setting. The NTAP program will provide hospitals with a payment—in addition to the standard-of-care Diagnostic Related Group reimbursement—of up to 50% of the cost of Vabomere for a period of two to three years, beginning on October 1, 2018. This additional payment significantly reduces the cost of using Vabomere for hospitals.

~~Financial Overview~~

~~Revenue~~

Our product sales, net, consist of sales of Baxdela, Vabomere, Orbactiv, and Minocin, net of adjustments for discounts, chargebacks, rebates and other price adjustments. Contract research consists of reimbursement of development costs by licensees of Baxdela, principally associated with our CABP Phase 3 clinical trial, recognized over time as the underlying expense is incurred. License revenue consists of fees and milestones earned by licensing the right to distribute our products to companies in markets outside the United States and is generally recognized at the point in time when the fees or milestones are earned.

~~Cost of goods sold~~

Cost of goods sold consists of direct and indirect costs—including royalties for intellectual property supporting our products—to manufacture, store and distribute the product sold, as well as amortization expense related to the intangible assets supporting our products. All of our manufacturing and distribution is performed by third parties.

~~Research and Development Expenses~~

Research and development expenses consist of the expenses related to development of late-stage and commercial products and the expenses related to our early-stage discovery efforts, principally around our ESKAPE Pathogen Program. We recognize our research and development expenses as they are incurred. Our research and development expenses consist primarily of:

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

approximately six months.

fees paid to consultants and clinical research organizations (“CROs”) in connection with our pre-clinical and clinical trials, and other related clinical trial costs, such as for investigator grants, patient screening, laboratory work and statistical compilation and analysis;

costs related to acquiring and manufacturing clinical trial materials and costs for developing additional manufacturing sources for and the manufacture of pre-approval inventory of our drugs under development;

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

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

~~research and laboratory supplies and facility costs; and~~

~~license, research and milestone payments related to licensed technologies while the related drug is in development.~~

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses (“SG&A”) consist primarily of salaries and benefits-related expenses for personnel, including stock-based compensation expense, in our executive, finance, sales, marketing and business development functions. SG&A costs also include facility costs for our administrative offices and professional fees relating to commercial, legal, intellectual property, human resources, information technology, accounting and consulting services.

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

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, 2019 and ~~$21.0~~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 ~~and six~~months ended June 30, 2019, contract research revenue decreased $0.7 million compared to the three months ended June 30, 2018, ~~respectively.~~

During the second quarter of 2018, as part of the final integration steps related to the acquisition of infectious disease assets from Medicines, we aligned the supply chain and sales channels for Vabomere, Orbactiv and Minocin with Baxdela’s. As a result of this integration, we were able to shorten the overall supply chain and sales cycle, while reducing fees that we pay to third-party logistics providers and to wholesalers to distribute our products. This transition had the effect of removing approximately one month of inventory from our sales channel, creating a one-time negative impact on sales of $2.7 million, of which the majority was related to Orbactiv. For the three and six months ended June 30, 2018, contract research revenue decreased $1.1 million and $0.7 million, respectively, compared to the three and six months ended June 30, 2017, 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—which will reduced expenses—~~July 2018, we filed the sNDA in April 2019, and we expect ~~to achieve~~a decision on FDA approval for Baxdela for the CABP indication in the fourth quarter of 2019. As such, contract research revenue ~~from Menarini~~ will continue to decrease ~~significantly beginning~~over the remainder of 2019.

We did not record any license revenue in ~~2019.~~

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 six 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 ~~$11.0~~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.

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 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 ~~three and~~ six months ended June 30, 2019 and 2018, also includes ~~$3.5 million and~~ $8.2 million ~~respectively,~~in each period of amortization of product rights (intangible assets) ~~and $3.1 million and $3.1 million, respectively, for amortization of the step-up basis of inventory~~ resulting from the purchase accounting for the IDB acquisition. We updated our IDB purchase accounting in the second quarter of 2018, which affected the fair value of inventory and intangible assets, resulting in a change in estimate for intangible asset amortization of $2.7 million and the amortization of the inventory basis step up. In addition, during the second quarter of 2018, we recognized charges of $1.8 million related to certain of our product inventories that we expect will not be sold prior to expiration. Also, in the second quarter of 2018, we recognized charges of $0.5 million related to our plan to sell, below cost, on-hand Baxdela inventory to one of our partners for use in clinical studies.

Research and Development Expense

For the ~~three~~six months ended June 30, 2019, our research and development expense decreased $23.1 million compared to the six months ended June 30, 2018, ~~our research and development expense increased $1.7 million and $4.9 million, respectively, compared to the three and six months ended June 30, 2017.~~

~~For the three-month period ended June 30, 2018, these increases were~~ driven primarily by:

~~$2.7 million for~~lower development activities, principally clinical studies, ~~supporting Vabomere, Orbactiv~~for all of our products of $13.6 million;

lower early stage research expenses of $4.4 million resulting from winding down those programs;

lower personnel-related and ~~Minocin, as well as development~~travel expenses of ~~solithromycin;~~

$1.3 million due to lower headcount;

~~$1.0~~lower quality and regulatory expenses of $1.1 million ~~higher expense for pharmacovigilance~~due to lower headcount and regulatory activities; and

a reduction of other ~~support expenses for our products; and~~

costs of $2.5 million.

~~$0.1 million in early-stage research associated with our ESKAPE Pathogen Program.~~

~~These increases were partially offset by $2.1 million less of expenses related to~~We completed the CABP study ~~due to the early completion of enrollment.~~

~~For the six-month period ended June 30,~~in 2018, ~~these increases were driven primarily by:~~

$5.1 million for development activities, principally clinical studies, supporting the three products acquired from Medicines, Vabomere, Orbactiv and Minocin, as well as winddown expenses for our solithromycin study;

~~$0.9 million higher expense for pharmacovigilance and other support expenses for our products;~~

~~$0.3 million in early-stage research associated with our ESKAPE Pathogen Program.~~

~~These increases were partially offset by $1.7 million less expense related to the CABP study.~~

~~We have completed the enrollment for the CABP study,~~ and we ~~expect to achieve~~filed an sNDA with the FDA ~~approval~~ for Baxdela for the treatment of adult patients with CABP ~~indication~~ in April 2019. In addition, we ~~have~~ terminated our agreement with BARDA for the development of solithromycin ~~which~~in 2018, and we ~~expect to wind~~wound down ~~during 2018. As such,~~our early stage research programs in the ~~research and development expenses for these studies will decrease significantly in~~first quarter of 2019. ~~Also, while we have a grant arrangement in place with CARB-X, we do not expect that our~~Accordingly, the company's research and development expenses will ~~increase~~decrease significantly ~~as a result. The reimbursement for research and development costs under our license agreements and under our BARDA and CARB-X grant arrangements is classified~~ in ~~“contract research” and “other income” in our Statement of Operations, respectively.~~

2019 compared to 2018.

Selling, General and Administrative Expense

For the ~~three~~six months ended June 30, 2019, selling, general and administrative expense decreased $12.7 million compared to the six months ended June 30, 2018, ~~selling, general and administrative expense increased $27.2 million and $53.9 million, respectively, compared to the three and six months ended June 30, 2017.~~

~~For the three-month period ended June 30, 2018, these increases were~~ driven primarily ~~by:~~

~~employee~~by higher costs incurred in connection with the integration of ~~$13.1 million due to~~ the ~~planned expansion~~Melinta, Cempra and IDB businesses in 2018:

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

lower personnel and ~~sales team to support sales~~recruiting expenses of ~~our four products—most of this workforce was not present in the prior year period, including 35 new salespeople hired during the current year period;~~

$3.7 million;

lower commercial support and expenses of ~~$3.7 million related to the launch of Baxdela and the acquisition of IDB in the first quarter of 2018;~~

$2.0 million;

lower medical education of ~~$2.1 million to support our products;~~

$1.4 million;

~~administrative personnel expenses of $4.4 million due to the Cempra merger, acquisition of IDB and general growth of the company;~~

~~consulting and transition services of $0.6 million to support the merger with Cempra and IDB acquisition;~~

~~legal and patent expenses of $1.7 million, driven by the two transactions and increased number of patents, as well as our follow-on financing;~~

lower severance ~~expense of $0.5 million related to postemployment benefits for departing employees;~~

~~facility and overhead expenses of $0.7 million due to the addition of Cempra’s facilities and our new office in New Jersey; and~~

~~professional services of $0.3 million driven by our transition to a publicly traded company.~~

~~For the six-month period ended June 30, 2018, these increases were driven primarily by:~~

~~employee~~ costs of ~~$24.3 million due to the planned expansion of our commercial and sales team to support sales of our four products—most of this workforce was not present in the prior year period;~~

$0.9 million;

~~commercial support and~~partially offset by higher operating expenses ~~of $8.6 million related to the launch of Baxdela and the acquisition of IDB in the first quarter of 2018;~~

~~medical education of $4.2 million to support our products;~~

~~administrative personnel expenses of $8.1 million due to the Cempra merger, acquisition of IDB and general growth of the company~~

~~consulting and transition services of $2.6 million to support the Cempra merger and IDB acquisition;~~

~~legal and patent expenses of $1.9 million, driven by the two transactions and increased number of patents;~~

~~severance expense of $2.1 million related to postemployment benefits for departing employees;~~

~~facility and overhead expenses of $0.9 million due to the addition of Cempra’s facilities and our new office in New Jersey; and~~

~~professional services~~ of $1.3 million ~~driven by our transition to a publicly traded company.~~

for additional office space and related activities.

Other Income (Expense), Net

Other expense, net, increased by $3.4 million for the three months ended June 30, 2018, compared to the three months ended June 30, 2017, due principally to higher cash and non-cash interest expense of $10.7 million this year, compared with $1.8 million in the prior year period, due to higher levels of debt and accretion of the liabilities recorded in connection with the Facility Agreement. This was partially offset by higher unrealized fair value gains on the warrant liability of $2.4 million and grant income of $2.1 million. In addition, we did not incur a loss on extinguishment of debt in the current year; we incurred a $0.6 million loss on extinguishment of debt in 2017. See Note 4 to the Condensed Consolidated Financial Statements for further details on the warrant liability.

~~Other income increased by $12.4~~$19.1 million for the six months ended June 30, ~~2018,~~2019, compared to the six months ended June 30, ~~2017,~~2018, due principally to the recognition in 2018 of a $26.5 million ~~change in~~gain on the ~~fair value~~remeasurement of ~~the~~our warrant liability and ~~$4.8~~$4.7 million ofin grant income ~~during~~recognized under contracts that were terminated in 2018. Partially offsetting these decreases in 2019 year-over-year was a gain of $6.3 million on the ~~period. This income was partially offset by a $17.5 million increase in cash and~~remeasurement of our conversion liability, lower non-cash interest expense ~~due~~of $3.6 million related to ~~higher debt levels and~~the accretion of certain liabilities assumed in the ~~liabilities recorded in connection with~~IDB Transaction that were fully accreted or nearly fully accreted by the ~~Facility Agreement, as well as a $2.6 million~~end of 2018, and lower loss on extinguishment of debt ~~extinguishment in connection with the refinance~~ of ~~our $40.0 million loan that we entered into in June 2017, replaced by the Facility Agreement in January 2018.~~

$2.2 million.

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in our ~~2017~~2018 Annual Report on Form 10-K and Note 2, “Summary of Significant Accounting Policies,” in the Notes to the ~~Condensed~~ 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 ~~2017~~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 IDB from The Medicines Company that we completed in January 2018, including payments related to deferred purchase price consideration, assumed contingent liabilities and the purchase of inventory. And, there are certain financial-related covenants under our Deerfield Facility, as amended in January 2019, including requirements that we (i) file an Annual Report on Form 10-K ~~other than disclosed herein. The preparation~~for the year ending December 31, 2019, with an audit opinion without a going concern qualification, (ii) maintain a minimum cash balance of $40.0 million through March 2020, and thereafter, a balance of $25.0 million, and (iii) achieve net revenue from

product sales of at least $63.8 million for the ~~condensed~~year ending December 31, 2019. (See Note 4 to the consolidated financial statements ~~in conformity with generally accepted~~for the accounting principles (“U.S. GAAP”) in the United States requires management to make certain estimates and assumptions that affect the amount of reported revenue and expenses, assets and liabilities, disclosure of contingent assets and liabilities, and other financial information. In addition, our reported financial condition and results of operations could vary due to a change in the application, or adoption, of an accounting standard.

Not all our significant accounting policies require us to make estimates and assumptions; however, we believe that the following are critical areas of accounting that either require significant judgment by management or may be affected by changes in general market conditions outside the control of management. As a result, changes in estimates and general market conditions could cause actual results to differ materially from future expected results. Historically, our estimates in these critical areas have not differed materially from actual results.

~~Business Combinations~~

~~We account for acquired businesses using the acquisition method of accounting. This method requires that most assets acquired and liabilities assumed be recognized as~~treatment of the ~~acquisition date. On January 1,~~Deerfield Facility.).

In November 2018, ~~we adopted ASU 2017-01,~~ ~~Business Combinations (Topic 805) Clarifying~~ the ~~Definition~~Company took actions to reduce its operating spend, including a reduction to the workforce of approximately 20.0% and a ~~Business~~,decision to begin to wind down its research and discovery function. To provide additional operating capital, in December 2018, the Company entered into a Senior Subordinated Convertible Loan Agreement (the “Loan Agreement”) with Vatera Healthcare Partners LLC and Oikos Investment Partners LLC (formerly known as Vatera Investment Partners LLC) (together, “Vatera”) pursuant to which ~~narrows~~Vatera committed to provide $135.0 million over a period of five months, subject to the ~~definition~~satisfaction of ~~a business and requires an entity to evaluate if substantially all~~certain conditions. Under the terms of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, which would not constitute the acquisition of a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs. There is often judgment involved in assessing whether an acquisition transaction is a business combination under Topic 805 or an acquisition of assets. In our IDB acquisition,Loan Agreement, we evaluated the transaction and concluded that the IDB qualified as a “business” under Topic 805 as it has both inputs and processes with the ability to create outputs. Among IDB’s inputs are developed product rights, in-process research and development and intellectual property across multiple classes of drugs and indications, third-party contract manufacturing agreements and tangible assets from which there is potential to create value and outputs.

We record contingent consideration resulting from a business combination at its fair value on the acquisition date. The purchase price of IDB included contingent consideration related to the achievement of future regulatory milestones, sales-based milestones associated with the products we acquired, and certain royalty payments based on tiered net sales of the acquired products. The sales-based milestones were assumed contingent liabilities from Medicines at the time of the acquisition.

Changes to contingent consideration obligations can result from adjustments related, but not limited, to changes in discount rates and the number of remaining periods to which the discount rate is applied, updates in the assumed achievement or timing of any development or commercial milestone or changes in the probability of certain clinical events, changes in our forecasted sales of products acquired, the passage of time and changes in the assumed probability associated with regulatory approval. At the end of each reporting period, we revalue these obligations and record increases or decreases in their fair value in selling, general and administrative expenses within the accompanying condensed consolidated statements of operations. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, any change in the assumptions described above, could have a material impact on the amount we may be obligated to pay as well as the results of our unaudited condensed consolidated results of operations in any given reporting period. During the six months ended June 30, 2018, we did not record any adjustments to the liabilities discussed above.

~~In-Process Research and Development~~

The cost of in-process research and development, (“IPR&D”), acquired directly in a transaction other than a business combination, is capitalized if the projects have an alternative future use; otherwise it is expensed. The fair values of IPR&D projects acquired in business combinations are recorded as intangible assets. Several methods may be used to determine the estimated fair value of the IPR&D acquired in a business combination. We utilize the income approach (multi-period excess earnings method) where we forecast future revenue and cash flow for the IPR&D assets, deduct contributory asset charges, and then discount them to present value using an appropriate discount rate. This analysis is performed for each project independently. These assets are treated as indefinite-lived intangible assets until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written off, as appropriate. The IPR&D assets are tested for impairment at least annually or when a triggering event occurs that could indicate a potential impairment. If circumstance indicate the IPR&D assets might be impaired, we will re-apply the income analysis to determine if we need to adjust their carrying value.

~~Inventory Obsolescence~~

At June 30, 2018, and December 31, 2017, we reported inventory of $34.0 million and $10.8 million, respectively (net of inventory reserves of $2.4 million and $0.0 million, respectively). Each quarter we review for excess inventories and assess the net realizable value. There are many factors that management considers in determining whether or not the amount by which a reserve should be established. These factors include the following:

~~expected future usage;~~

~~expiry dating for finished goods;~~

~~whether or not a customer is obligated by contract to purchase the inventory;~~

~~historical consumption experience; and~~

~~other risks of obsolescence.~~

After reviewing the factors listed above, we recorded a reserve for inventory totaling $2.4 million based on our current sales projections and plans to sell certain dated inventory below our cost to our European partner for use in its clinical studies. If circumstances related to the above factors change, there could be a material impact on the net realizable value of the inventories in future periods.

~~Impairment of Long-Lived Assets~~

Our long-lived assets consist of goodwill, definite-lived intangible assets which are primarily related to developed product rights and indefinite-lived assets related to in-process research and development, as well as property and equipment. We evaluate the recoverability of the carrying amount of our long-lived assets whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. If impairment indicators are present, we assess whether the future estimated undiscounted cash flows attributable to the assets in question are greater than their carrying amounts. If these future estimated cash flows are less than carrying value, we then measure an impairment loss for the amount that carrying value exceeds fair value of the assets.

We evaluate goodwill for impairment annually in the fourth quarter and when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. We assess goodwill for impairment by first performing a qualitative assessment, which considers specific factors, based on the weight of evidence, and the significance of all identified events and circumstances in the context of determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount using the qualitative assessment, we perform the two-step impairment test. From time to time, we may also bypass the qualitative assessment and proceed directly to the two-step impairment test. The first step of the impairment test is to identify a potential impairment by comparing the fair value of a reporting unit with its carrying amount. The estimates of fair value of a reporting unit are determined using the income approach and the market approach as described below. If step one of the test indicates a carrying value above the estimated fair value, the second step of the goodwill impairment test is performed by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The implied residual value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.

The income approach is a quantitative evaluation to determine the fair value of the reporting unit. Under the income approach we determine the fair value based on estimated future cash flows discounted by an estimated weighted-average cost of capital plus a forecast risk, which reflects the overall level of inherent risk of the reporting unit and the rate of return a market participant would expect to earn. The inputs used for the income approach are significant unobservable inputs, or Level 3 inputs, as described in the accounting fair value hierarchy. Estimated future cash flows are based on our internal projection models, industry projections and other assumptions deemed reasonable by management.

The market approach measures the fair value of a reporting unit through the analysis of recent sales, offerings, and financial multiples (sales or earnings before interest, tax, depreciation and amortization ) of comparable businesses. Consideration is given to the financial conditions and operating performance of the reporting unit being valued relative to those publicly-traded companies operating in the same or similar lines of business.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the goodwill impairment test will prove to be an accurate prediction of future results.

~~Revenue Recognition for Product Sales~~

~~On January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606). For further information regarding the adoption of Topic 606, see Note 12 to the Condensed Consolidated Financial Statements included herein.~~

Historically, substantially all our revenue was related to licensing and contract research arrangements related to our Baxdela product and we did not sell any products. Beginning in the first quarter of 2018, as a result of both the acquisition of IDB and the

launch of Baxdela, we now distribute Baxdela, Vabomere, Orbactiv, and Minocin products commercially in the United States. While we sell some of our products directly to certain hospitals and clinics, the majority of our product sales are made to wholesale customers who subsequently resell our products to hospitals or certain medical centers, specialty pharmacy providers and other retail pharmacies. The wholesaler places orders with us for sufficient quantities of our products to maintain an appropriate level of inventory based on their customers’ historical purchase volumes and demand. We recognize revenue once we have transferred physical possession of the goods and the wholesaler obtains legal title to the product and accepts responsibility for all credit and collection activities with the resale customer.

The transaction price for our product sales includes several elements of variable consideration. In addition, we enter into arrangements with certain customers, as well as health care providers and payers that purchase our products from wholesalers, that provide for government mandated and/or privately negotiated rebates, chargebacks and discounts with respect to the purchase of our products. The amount of revenue that we recognize upon the sale to the wholesaler, which is our estimate of the ultimate transaction price, reflects the amount we expect to be entitled to in connection with the sale and transfer of control of product to the end customers. At the time of sale, which is when our performance obligation under the sales contracts are complete, we record product revenues net of applicable reserves for various types of variable consideration, most of which are subject to ~~constraint, while also considering~~certain financial-related covenants, including that we (i) file an Annual Report on Form 10-K for the ~~likelihood~~year ending December 31, 2019, with an audit opinion without a going concern qualification, (ii) maintain a minimum cash balance of $22.5 million, and (iii) achieve net revenue from product sales of at least $57.4 million for the ~~magnitude of any revenue reversal, based~~year ending December 31, 2019. (See Note 4 to the consolidated financial statements for further details on ~~our estimates of channel mix. The types of variable consideration in our product revenue are as follows:~~

~~Prompt pay discounts~~

~~Product returns~~

~~Chargebacks~~the Loan Agreement.) Upon the effectiveness and ~~customer rebates~~

~~Fee-for-service~~

~~Government rebates~~

~~Commercial payer and other rebates~~

~~GPO administration fees~~

~~MelintAssist voluntary patient assistance programs~~

~~In determining~~under the mix of certain allowances and accruals, we must make significant judgments and estimates. For example, in determining these amounts, we estimate hospital demand, buying patterns by hospitals and/or group purchasing organizations from wholesalers and the levels of inventory held by wholesalers and customers. Making these determinations involves analyzing third party industry data to determine whether trends in historical channel distribution patterns will predict future product sales. We receive data periodically from our wholesale customers on inventory levels and historical channel sales mix and we consider this data in when determining the amountterms of the ~~allowances and accruals for variable consideration.~~

~~The amount~~Loan Agreement, we provided a deemed issuance of ~~variable consideration is estimated by using either of the following methods, depending on which method better predicts the amount of consideration~~these notes to ~~which we are entitled:~~

~~Variable consideration is only included in the transaction price to the extent that it is probable that a significant reversal~~Deerfield in the amount of ~~cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved (i.e., constraint).~~$5.0 million. We drew $75.0 million under this facility in February 2019. In assessing whether a constraint is necessary, we consider both the likelihood and the magnitude of the revenue reversal. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which will affect net product revenue and earnings in the period such variances become known. The specific considerations we use in estimating these amounts related to variable consideration associated with our products are as follows:

~~Prompt Pay Discounts~~ – We provide wholesale customers with certain discounts if the wholesaler pays within the payment term. The discount percentage is reserved as a reduction of revenue in the period the related product revenue is recognized. The most likely amount methodology is used to determine the appropriate reserve that is applied, as there are only two outcomes: whether the

wholesale customer takes the discount, or they do not. Based on historical experience in the industry, we assume that all wholesale customers will take the prompt pay discount; therefore, the entire amount is reserved. Given that the prompt pay discount cannot exceed the percentage in the contract, there would be no possibility for an additional revenue reversal and thus a constraint is not required.

~~Product Returns~~ – In our assessment of the potential for the reversal of significant revenue for product sales, a significant judgment inherent in product sales relates to our estimation of future product returns. Generally, our customers have the right to return any unopened product during the 18-month period beginning six months prior to the labeled expiration date and ending 12 months after the labeled expiration date. Where historical rates of return exist, we use those rates as a basis to establish a returns reserve for product shipped to wholesalers. For our newly launched products, for which we currently do not have history of product returns, we estimate returns based on third-party industry data for comparable products in the market and our other products’ returns history. As we distribute our products and establish historical sales over a longer period of time (i.e., two years), we will be able to place more reliance on historical purchasing and return patterns of our customers when evaluating our reserves for product return. While we believe that our returns reserve is sufficient to avoid a significant reversal of revenue in future periods, ifJune 2019, we were unable to ~~increase or decrease~~meet the ~~rate by 1%, it would have impacted revenue by $0.1~~conditions to draw the remaining $60.0 million, and ~~$0.3~~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 inand extended the ~~three and six months ended June 30, 2018, respectively.~~

~~At the end of each reporting period, for any of our products, we may decide~~time frame over which it is available to constrain revenue for product returns based on information from various sources, including channel inventory levels, product dating, sell-through data, price changes of competitive products and introductions of generic products. At MarchOctober 31, ~~2018, incremental~~2019, subject to the historical returns rate, we increased our returns reserve by approximately $0.3 million due to risk factors that were present in connection with the initial stocking of inventory for the launch of our new products. We considered these factors again ascertain conditions.

As of June 30, ~~2018,~~2019, we held cash and ~~maintained the reserve~~cash equivalents of ~~$0.3 million.~~

~~Chargebacks and Rebates~~ ~~– Although we primarily sell products~~$90.3 million to wholesalers in the United States, we typically enter into agreements with medical centers, either directly or through GPOs acting on behalf of their hospital members, in connection with the hospitals’ purchases of products. Based on these agreements, most of our hospital customers have the right to receive a discounted price for products and volume-based rebates on product purchases. In the case of discounted pricing, we typically provide a credit to our wholesale customers (i.e., chargeback), representing the difference between the customer’s acquisition list price and the discounted price. In the case of the volume-based rebates, we typically pay the rebate directly to the hospitals and medical centers.

Because of these agreements, at the time of product shipment, we estimate the likelihood that product sold to our customers might be ultimately sold to a GPO or medical center. We also estimate the contracting GPO’s or medical center’s volume of purchases. We base our estimate on industry data, hospital purchases and the historic chargeback data we receive from our customers, most of which they receive from wholesalers, which details historic buying patterns and sales mix for GPOs and medical centers, and the applicable customer chargeback rates and rebate thresholds.

Given that there is a range of possible consideration amounts, we use the expected value method as this is an appropriate estimate of the amount of variable consideration. In assessing whether we need to constrain the revenue for chargebacks and rebates, we consider both the likelihood and the magnitude of revenue reversals.

~~Fees-for-service~~ – We offer discounts and pay certain wholesalers service fees for sales order management, data, and distribution services which are explicitly stated at contractually determined rates in the customer’s contracts. In assessing if the consideration paid to the customer should be recorded as a reduction in the transaction price, we determine whether the payment is for a distinct good or service or a combination of both. Since our wholesaler fees are not specifically identifiable, we do not consider the fees separate from the wholesaler's purchase of the product. Additionally, wholesaler services generally cannot be provided by a third party. Because of these factors, the consideration paid is considered a deduction of revenue. We estimate our fee-for-service accruals and allowances based on historical sales, wholesaler and distributor inventory levels and the applicable discount rate. Our discounts are accrued at the time of sale and are typically settled within 60 days after the end of each respective quarter. There is little judgment involved or variation of outcomes for our fee-for-service accruals.

~~Government Rebates~~

~~There are three government rebate programs that we participate in: Medicaid, TRICARE and Medicare Part D.~~

~~Medicaid~~ – The Medicaid Drug Rebate Program is a program that includes The Centers for Medicare and Medicaid Services, State Medicaid agencies, and participating drug manufacturers that helps to offset the federal and state costs of most outpatient prescription drugs dispensed to Medicaid patients. The program requires a drug manufacturer to enter into, and have in effect, a national rebate agreement with the Secretary of the Department of Health and Human Services (‘HHS’) in exchange for state Medicaid coverage of most of the manufacturer’s drugs. The Medicaid Drug Rebate Program is jointly funded by the states and the federal government. The program reimburses hospitals, physicians, and pharmacies for providing care to qualifying recipients who cannot finance their own medical expenses.

Contracts are entered into with, and Medicaid rebates are paid to, individual states; each state will establish and administer their own Medicaid programs and determine the type, amount, duration, and scope of services within broad federal guidelines. Participation in the program requires complex pricing calculations and stringent reporting and certification procedures.

The amount of consideration we are entitled to upon the sale of our products is dependent upon the Medicaid rebate owed. The Medicaid rebate rates are governed by the federally-mandated Medicaid Drug Rebate Program and are owed to each state government (a third party rather than a direct customer). At the time of the sale it is not known what the Medicaid rebate rate will be, but historical Medicaid rates are used to estimate the current period accrual.

Given that there is a range of possible consideration amounts, we use the expected value method as this is an appropriate estimate of the amount of variable consideration. In assessing whether to constrain revenue, we consider both the likelihood and the magnitude of revenue reversals.

~~Medicare Part D~~ – We maintain contracts with Managed Care Organizations (“MCOs”) that administer prescription benefits for Medicare Part D. MCOs either own Pharmacy Benefit Managers (“PBMs”) or contract with several PBMs to fulfill prescriptions for patients enrolled under their plans. As patients obtain their prescriptions, utilization data are reported to the MCOs, who generally submit claims for rebates quarterly.

We estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. Our liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received.

Given that there is a range of possible consideration amounts, we use the expected value method as this is an appropriate estimate of the amount of variable consideration. In assessing whether to constrain revenue, we consider both the likelihood and the magnitude of revenue reversals.

~~Commercial Payer and Other Rebates~~ – We contract with certain private payer organizations, primarily insurance companies and PBMs, for the payment of rebates with respect to utilization of Baxdela and contracted formulary status. We estimate these rebates and record reserves for such estimates in the same period the related revenue is recognized. Currently, the reserve for customer payer rebates considers future utilization, based on third party studies of payer prescription data, for product that remains in the distribution and retail pharmacy channel inventories at the end of each reporting period. As we distribute our products and establish historical sales over a longer period of time (i.e., more than two years), we will be able to place more reliance on historical data related to commercial payer rebates (i.e., actual utilization units) while continuing to rely on third party data related to payer prescriptions and utilization. In addition, we offer rebates to certain customers based on the volume of product purchased over fixed periods of time.

The amount of consideration to which we will be entitled is based on a range of possible consideration outcomes and, therefore, we use the expected value method, as this is an appropriate estimate of the amount of variable consideration. In assessing whether to constrain revenue for these rebates, we consider both the likelihood and the magnitude of revenue reversals related to commercial payer rebates.

~~GPO Administration Fees~~ – We contract with GPOs and pay administration fees related to contracting and membership management services. In assessing if the consideration paid to the GPO should be recorded as a reduction in the transaction price, we determine whether the payment is for a distinct good or service or a combination of both. Since our GPO fees are not specifically identifiable, we do not consider the fees separate from the purchase of the product. Additionally, the GPO services generally cannot be provided by a third party. Because of these factors, the consideration paid is considered a reduction of revenue.

When assessing our reserves for GPO administration fees, we review various data including, but not limited to, product remaining in wholesaler channel inventories using third party data. The amount of reserve that we will record is based on a range of possible consideration outcomes and, therefore, we use the expected value method as this is an appropriate estimate of the amount of variable consideration. In assessing whether to constrain revenue for GPO administration fees, we consider both the likelihood and the magnitude of revenue reversals related to GPO administration fees.

~~MelintAssist~~ – We offer voluntary patient assistance programs for oral prescriptions, such as savings/co-pay cards, which are intended to provide financial assistance to qualified patients with full or partial prescription drug co-payments required by payers. The

calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue but remains in the distribution and pharmacy channel inventories at the end of each reporting period.

Given that there is a range of possible consideration amounts, we use the expected value method, as this is an appropriate estimate of the amount of variable consideration. In assessing whether to constrain the related revenue, we consider both the likelihood and the magnitude of revenue reversals.

~~Product Sales Sensitivity Related to Variable Consideration~~

In assessing whether to constrain revenue for our various discounts, product returns, chargebacks, fees-for-services and other rebate and discount programs, we considered both the likelihood and the magnitude of the revenue reversal, as discussed above. The total transaction price and consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. As a sensitivity measure, the effect of constraining all variable consideration, in a manner that would result in the highest amount of revenue reversal, would have the effect of increasing our sales allowance reserves by $0.3 million at June 30, 2018.

~~Liquidity and Capital Resources~~

~~Sources of Liquidity~~

We have incurred losses from operations since our inception. and had an accumulated deficit of $647.9 million as of June 30, 201 8, and we expect to incur substantial expenses and further losses in the short term for the research, development and commercialization of our product candidates and approved products.fund operations. Our future cash flows are dependent on key variables such as ~~level of sales achievement, our success with out-licensing products in our portfolio and~~ our ability to access additional ~~debt~~ capital under our Deerfield Facility ~~or the~~and Amended Loan Agreement, our ability to secure a working capital revolver, which is allowed under the Deerfield ~~Facility.~~

~~In May 2018,~~Facility and required in order to access the ~~Company successfully completed a follow-on offering~~remaining commitments under the Amended Loan Agreement, our ability to raise additional capital from the equity markets, and most importantly, the level of sales achievement of our four marketed products. As discussed in ~~which~~Note 1 and the Overview of Management's Discussion and Analysis, we raised proceeds, net of issuance costs, of $115.3 million, strengthening the financial position of the Company. We plan to further strengthen our cash position by achieving our revenue targets from our lead product, Baxdela as well as the assets we acquired the Infectious Disease assets from Medicines, where we now have four on market products generating revenue. In addition, Melinta has, and will continue to undertake, a robust process to identify partners to which we intend to out-license productsbelieve there is risk in our ~~portfolio outside~~ability to draw the United States. We are currently in discussions with several parties to out-license certain products which would increase our license revenues. Also, if needed, we plan to access additional capacity under our existing Deerfield Facility, where we can draw an additional $50.0 million ~~dependent on the achievement of certain sales milestones. We also plan to put a working capital revolver in place for up to $20.0 million, that would provide additional funding to Melinta~~ under the Deerfield Facility and the $27.0 million under the Loan Agreement Amendment, as well as 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 and exit fees, under these credit facilities.

Also, as discussed in Note 1 and in the 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 respective agreements, and we are continuing our evaluation of strategic alternatives, which ~~is subject~~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 unsuccessful, the Company may be forced to ~~certain conditions.~~

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 ~~as a company,~~ 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 ~~in recent~~within the last 18 months, and Orbactiv and Minocin for injection launching in 2014 and 2015, respectively. As such, even if we obtain sufficient capital to support our operating plan, it is possible that we may fail to appropriately estimate the timing and amount of our funding requirements and we may need to seek additional funding sooner, and in larger amounts, than we currently anticipate.

~~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):

Six Months Ended June 30, 2018

2018

2017

(In thousands)

Net cash provided by (used in):

Operating activities

$
(105,749
)

$
(14,435
)
Investing activities

(169,310
)

(2,593
)
Financing activities

296,759

28,878

Net increase in cash and equivalents

$
21,700

$
11,850



	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. Net cash used in operating activities for the six months ended June 30, 2019 and 2018, ~~and 2017,~~ was ~~$105.7~~$63.0 million and ~~$14.4~~$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 ~~$91.3~~$42.8 million ~~more~~less in operations during ~~2018~~2019 due primarily to ~~higher~~lower operating expenses, excluding non-cash and debt extinguishment expenses, of ~~$70.3~~$32.8 million, ~~driven~~due primarily to a reduction in R&D expenses because of the conclusion of our CAPB study and the wind-down of our early-stage research activities, which was substantially completed by ~~the IDB acquisition and launch of Baxdela during the year.~~March 31, 2019. The ~~increase in~~ cash used in operations year-over-year was driven slightly higher by changes in working capital accounts totaling ~~$21.0~~$9.9 million.

Investing Activities.Net cash used in investing activities for the six months ended June 30, 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, ~~of $169.3 million was~~ related ~~principally~~ to the purchase of ~~the~~ IDB ~~assets of $166.4 million, as well as a $2.0 million installment payment for intellectual property~~ and ~~$0.9 million for~~the purchases of equipment.

Financing Activities. Net cash ~~used in investing~~provided by financing activities of $72.8 million for the six months ended June 30, ~~2017, related to~~2019, consisted primarily of $73.7 million provided by the ~~purchases~~issuance of ~~equipment.~~convertible notes (net of $1.3 million of debt issuance costs).

~~Financing Activities.~~

Net cash provided by financing activities of $296.8 million for the 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 notes payable, as well as $2.2 million for debt ~~extinguishment;~~extinguishment.

Funding Sources and

Requirements

~~$155.8 million provided by additional equity funding.~~

~~Net cash provided by financing activities~~Our principal operating source of ~~$28.9 million for~~funds is product sales, although we also generate significant amounts of funds through licensing our products in markets outside the ~~six months ended June 30, 2017, consisted principally of proceeds from the issuance of notes payable of $30.0 million, proceeds from the issuance of convertible notes payable of $24.5 million~~U.S. and ~~proceeds from stock option exercises of $0.1 million, partially offset by principal payments on our notes payable of $24.5 million and debt extinguishment costs of $1.2 million.~~

~~Funding Requirements~~

~~We receive reimbursement from Menarini under our license agreement for~~through grants which reimburse a portion of our ~~ongoing Phase 3 CABP clinical trial~~research and development expenses, generally within one quarter of the recognition of the expenses. In the three and six months ended June 30, 2018, we engaged in reimbursable activities worth $2.9 million and $5.8 million, respectively; we also received $3.4 million from Menarini early in the second quarter of 2018 for expenses incurred in the fourth quarter of 2017. We recently completed a follow-on public offering in which we raised proceeds, net of issuance costs, of $115.3 million, significantly strengthening the financial position of the company. In addition, we have an incremental $50.0 million of debt financing available under the Facility Agreement with Deerfield (after we meet the conditions set by Deerfield), as well as the option of pursuing a $20.0 million revolving credit agreement.

Beginning in the first quarter of 2018, we have generated revenue from the launch of Baxdela as well as from the sale of three newly acquired products, Vabomere, Minocin and Orbactiv. We do not expect to generate revenue from any other product candidates under development unless and until we successfully commercialize our products or enter into additional collaborative agreements with third parties.

~~In addition, we are exploring other partnerships and collaborations to assist with the funding of the operations of the Company.~~ activities.

In connection with the IDB ~~transaction,~~Transaction in January 2018, we entered into the Deerfield Facility. The Deerfield Facility, ~~Agreement. The Facility Agreement provides~~as amended in January 2019, provided up to $240.0 million in debt and equity financing, with a term of six years. ~~Under~~We have approximately $145.0 million principal outstanding under the ~~form~~Deerfield Facility as of June 30, 2019 (see Liquidity and Capital Resources above for further details.)

To provide additional operating capital, in December 2018, the ~~agreement, Deerfield made an initial disbursement~~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 ~~$147.8 million in loan financing. The lender also purchased 3,127,846 shares~~five months, subject to the satisfaction of ~~Melinta common stock for $42.2~~certain conditions. We drew $75.0 million under the ~~Facility~~Loan Agreement for a total initial financing of $190.0 million. The interest rate on the debt portion of this initial financing is 11.75%. The additional $50.0 million of debt financing is available, at our discretion, afterin February 2019, and in June 2019, we ~~have achieved certain revenue thresholds,~~ and if drawn, will bear an interest rate of 14.75%. Pursuant to the Facility Agreement, Deerfield also acquired warrants (held by certain funds managed by Deerfield) for the purchase of 3,792,868 shares of Melinta common stock at a purchase price per share of $16.50. UnderVatera amended the terms of the ~~Facility~~Loan Agreement ~~we are able~~(as amended, the "Loan Agreement Amendment") to ~~secure a revolver credit line of up~~reduce the additional availability from $60.0 million to $20.0 million. Deerfield holds a first lien on all of our assets, including our intellectual property, but would hold a second lien behind a revolver for working capital accounts. The Facility Agreement allows for prepayment beginning in January 2021, with prepayment penalties equal to 2% plus a percentage of annual interest at the time of prepayment ranging between 25% and 75%. The Facility Agreement, while it is outstanding, will limit our ability to raise debt financing in future periods outside of the $20.0 million revolver permitted under the arrangement. The Facility Agreement has a financial maintenance covenant requiring us to maintain a minimum cash balance of $25.0$27.0 million and ~~a requirement that we achieve product sales of at least $45.0 million during 2018. (See Note 4 for the accounting treatment of the Facility Agreement.)~~

extend its availability to October 31, 2019, subject to certain conditions (see Notes 1 and 4).

We expect to continue to incur significant losses ~~for the foreseeable future,~~into 2020, as we continue the development of, and seek regulatory approvals for, our product candidates, ~~continue to advance products generated from our ESKAPE Pathogen Program platform~~ and commercialize our approved products. We are also subject to the risks associated with the development of new therapeutic products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business operations. Additionally, we expect to incur additional costs associated with operating as a public company and may need substantial additional funding in connection with our continuing operations, commercial ~~discovery~~ and product development activities.

As discussed above, we expect our operating ~~expenses~~losses to continue to increase for the foreseeable future and, as a result, we will need additional capital to support the working capital requirements of commercialized products and to fund further development of Melinta’s other product candidates.

We intend to use our cash and cash equivalents as follows:

to fund the activities supporting the commercialization efforts for our marketed products;

to pursue additional indications and regional approvals, leveraging our robust product portfolio and minimum 10-year market exclusivity period in the United States, including ~~our Phase 3 trial for~~ Baxdela for the treatment of ~~hospital treated CABP;~~

CABP and a reformulation for Orbactiv; and

~~to fund the scale-up of manufacturing operations and manufacture our commercial products to meet both commercial and clinical demand;~~

~~to fund research activities for preclinical product candidates, IND-enabling studies and development activities for our ESKAPE Pathogen Program; and~~

the remainder for working capital, selling, general and administrative expenses, ~~future internal research and development expenses~~ and other general corporate purposes.

~~In addition, we may also use a portion of our cash~~

As discussed in Note 1 and ~~cash equivalents for~~ the ~~acquisition of, or investment~~Overview in companies, technologies, products or assets that complement our business. In December 2014, we entered into a license agreement with a CRO to develop a Melinta molecule, radezolid, for dermatological applications. Under the terms of the agreement, development of the product is funded by the CRO. We, however, retain the right, at certain agreed-upon milestones, to co-develop or take full responsibility for the development program based on pre-determined payments to the CRO.

~~With the Cempra~~Management's Discussion and ~~IDB transactions recently completed,~~Analysis, we believe there is substantial doubt about our ability to continue as a going concern, and we are ~~now well positioned to add both internally-~~seeking alternative sources of liquidity and ~~externally-developed products to~~are continuing our ~~portfolio while adding minimal new costs, given our infrastructure that is now in place. As such, we may selectively pursue the addition~~evaluation of ~~externally-developed products to our portfolio, adding to our existing marketed products and pipeline.~~

Until we can generate a sufficient amount of revenue from our products, we expect to finance our future cash needs through public or private equity or debt financings, or through other sources such as potential collaboration and license agreements.

strategic alternatives.

Contractual Obligations and Commitments

~~We enter into contracts~~

There have been no significant changes in our contractual obligations and commitments since the ~~normal course~~filing of ~~business with clinical research organizations for clinical trials, contract manufacturers for product~~ and clinical supply manufacturing, and with vendors for marketing activities, pre-clinical research studies, research supplies and other services and products for operating purposes. The majority of these contracts generally provide for terminationas disclosed in our 2018 Annual Report on notice and therefore we believe that our non-cancelable obligations under these agreements are not material. However, in connection with the IDB acquisition, we assumed manufacturing contracts under which, as of June 30, 2018, we have non-cancelable purchase obligations totaling $89.1 million over the next 5 years, $38.7 million of which is payable in the next 12 months.

In addition, in March 2018, we signed a lease for 21,681 square feet of office space in Morristown, New Jersey. The lease commenced in June 2018 and has an approximately six-year term, with the option to extend the lease for an additional five years. Rent payments will average approximately $0.6 million per year and will commence in early 2019.

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

See Note 2 to the Condensed Consolidated Financial Statements for discussion of 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 June 30, ~~2018.~~2019. For additional information regarding market risk, refer to “Item 7A. Quantitative and Qualitative Disclosure About Market Risk” of our ~~2017~~2018 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange ~~Act~~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, management, including our 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 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, ~~2017. Certain of these~~2018. In addition to the risk factor below, you should carefully consider the risk factors ~~were updated~~discussed in our ~~prospectus supplement filed~~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 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 2019, currently there is risk in our ability to reach these minimum product sales requirements, as well as remaining in compliance with the ~~SEC~~covenants thereunder, which are a condition to draw the $50.0 million.

Our failure to comply with the 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 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 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 agreement could proceed against the collateral granted to them to secure that debt. In the event our lenders accelerate the repayment of any of our borrowings, we and our subsidiaries would not have sufficient assets to repay that debt. If an event of default occurs, or we believe that such an event may occur, under either the Deerfield Facility Agreement or the Vatera Loan Agreement, and we are not able to reach an agreement with the lenders for a waiver or other relief, we may be required to 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 debt and operations, which actions could have a material adverse effect on ~~May 25, 2018.~~

our business, results of operations and financial condition and on our common stockholders and other stakeholders. Any of the forgoing could materially adversely affect the relationships between us and our existing and potential customers, employees, suppliers, partners and others.

In addition, as previously disclosed, we believe there currently is substantial doubt about our ability to 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 terms of certain assumed liabilities and commitments with various stakeholders and claimants, including, as previously disclosed, potential payments relating to the IDB acquisition and payments potentially due to The Medicines Company, all of which potential payments could total up to $80.0 million if required to be made. In addition, 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

~~10.1~~

~~2018 Stock Incentive Plan +~~

~~DEF 14A~~

~~05/11/18~~

~~10.2~~

~~Amendment No. 1 to D. Wechsler Employment Agreement, dated May 17, 2018 +~~

~~10.3~~

~~Form of Option Agreement~~

~~8-K~~

~~06/14/18~~

~~10.4~~

~~Form of Option Agreement~~

~~8-K~~

~~06/14/18~~

~~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.



	MELINTA THERAPEUTICS, INC.

Dated:	By:	/s/ John H. Johnson
August 9, ~~2018~~ 2019		~~By:~~	~~/s/ Daniel M. Wechsler~~ John H. Johnson
		~~Daniel M. Wechsler~~
		Interim Chief Executive Officer and Director

Dated:	By:	/s/ Peter J. Milligan
August 9, ~~2018~~ 2019		~~By:~~	~~/s/ Paul Estrem~~ Peter J. Milligan
		~~Paul Estrem~~
		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		25 24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		36 30

Item 4.	Controls and Procedures		36 30

PART II—OTHER INFORMATION			37 31

Item 1A.	Risk Factors		37 31

Item 6.	Exhibits		38 32

	June 30,			December 31,
	2018			2017
Assets
Current assets
Cash and equivalents	$	150,087		$	128,387
Trade receivables		8,064			-
Other receivables		12,546			7,564
Inventory		33,960			10,825
Prepaid expenses and other current assets		5,510			2,988
Total current assets		210,167			149,764
Property and equipment, net		2,459			1,596
In-process research and development		19,859			-
Other intangible assets		221,877			7,500
Goodwill		17,614			-
Other assets		42,671			1,413
Total assets	$	514,647		$	160,273
Liabilities
Current liabilities
Accounts payable	$	13,352		$	7,405
Accrued expenses		31,386			24,041
Warrant liability		6,790			-
Current deferred purchase price and contingent consideration		23,925			-
Contingent milestone payments		27,052			-
Accrued interest on notes payable		4,389			284
Total current liabilities		106,894			31,730
Long-term liabilities
Notes payable, net of debt discount		107,463			39,555
Deferred revenues		-			10,008
Deferred purchase price and contingent consideration		31,289
Other long-term liabilities		8,027			6,644
Total long-term liabilities		146,779			56,207
Total liabilities		253,673			87,937
Commitments and contingencies
Shareholders' Equity
Preferred stock; $.001 par value; 5,000,000 shares authorized; no shares issued or outstanding at June 30, 2018, and December 31, 2017, respectively		-			-
Common stock; $.001 par value; 80,000,000 shares authorized; 56,010,254 and 21,998,942 issued and outstanding at June 30, 2018, and December 31, 2017, respectively		56			22
Additional paid-in capital		908,781			644,973
Accumulated deficit		(647,863	)		(572,659	)
Total shareholders’ equity		260,974			72,336
Total liabilities and shareholders’ equity	$	514,647		$	160,273

	Balance at December 31, 2017			Adjustments Due to Topic 606			Balance at January 1, 2018
Liabilities:
Deferred revenue	$	10,008		$	(10,008	)	$	-
Shareholders’ equity:
Accumulated deficit	$	(572,659	)	$	10,008		$	(562,651	)

	Three Months Ended June 30, 2018
	Revenue Recognized			Adjustments Due to Topic 606			Pro Forma Balance Under ASC 605
Revenue:
Product sales, net	$	9,152		$	(442	)	$	8,710
Cost of goods sold	$	10,989		$	(394	)	$	10,595
Net loss	$	(55,780	)	$	(48	)	$	(55,828	)
Net loss per share	$	(1.38	)				$	(1.39	)

	Six Months Ended June 30, 2018
	Revenue Recognized			Adjustments Due to Topic 606			Pro Forma Balance Under ASC 605
Revenue:
Product sales, net	$	20,998		$	(2,660	)	$	18,338
Cost of goods sold	$	18,675		$	(1,448	)	$	17,227
Net loss	$	(85,212	)	$	(1,212	)	$	(86,424	)
Net loss per share	$	(2.39	)				$	(2.43	)

	Balance at June 30, 2018			Adjustments Due to Topic 606			Pro Forma Balance Under ASC 605
Assets:
Prepaid and other current assets	$	5,510		$	1,448		$	6,958
Liabilities:
Deferred revenue	$	-		$	10,008		$	10,008
Shareholders' equity:
Accumulated deficit	$	(647,863	)	$	(1,212	)	$	(649,075	)

Term Loan	$	111,421
Warrants		33,264
Royalty Agreement		1,472
Disbursement Option		(7,609	)
Common Stock Consideration		51,452
Total Consideration	$	190,000

	Beginning Balance		Accretion of Interest Expense		Principal Payments and Exit Fee			Ending Balance
January 5 - June 30, 2018	$	104,966	$	2,496	$	-		$	107,462
July 1 - December 31, 2018		107,462		3,112		-			110,574
Year Ending December 31, 2019		110,574		7,040		-			117,614
Year Ending December 31, 2020		117,614		8,637		-			126,251
Year Ending December 31, 2021		126,251		10,798		-			137,049
Year Ending December 31, 2022		137,049		9,826		(69,085	)		77,790
Year Ending December 31, 2023		77,790		3,846		(75,365	)		6,271
Year Ending December 31, 2024		6,271		9		(6,280	)		-
Total			$	45,764	$	(150,730	)

	As of June 30, 2018
	Level 1		Level 2		Level 3			Total
Assets:
Money market fund	$	22,432	$	-	$	-		$	22,432
Total assets at fair value	$	22,432	$	-	$	-		$	22,432

Liabilities:
Royalty liability in current deferred purchase price	$	-	$	-	$	(1,488	)	$	(1,488	)
Royalty liability in noncurrent deferred purchase price		-		-		(11,086	)		(11,086	)
Contingent milestone payments		-		-		(27,052	)		(27,052	)
Common stock warrants		-		-		(6,790	)		(6,790	)
Total liabilities at fair value	$	-	$	-	$	(46,416	)	$	(46,416	)

	As of December 31, 2017
	Level 1		Level 2		Level 3			Total
Assets:
Money market fund	$	76,777	$	-	$	-		$	76,777
Total assets at fair value	$	76,777	$	-	$	-		$	76,777

Level 3 Liabilities	Fair Value at December 31, 2017		Realized Gains (Losses)		Change in Unrealized Gains (Losses)			(Issuances) Settlements			Net Transfer (In) Out of Level 3		Fair Value at June 30, 2018
Royalty liability in current deferred purchase price	$	-	$	-	$	(291	)	$	(1,197	)	$	-	$	(1,488	)
Royalty liability in noncurrent deferred purchase price		-		-		(2,440	)		(8,646	)		-		(11,086	)
Contingent milestone payments		-		-		(2,567	)		(24,485	)		-		(27,052	)
Common stock warrants		-		-		26,474			(33,264	)		-		(6,790	)
Total liabilities at fair value	$	-	$	-	$	21,176		$	(67,592	)	$	-	$	(46,416	)

Issued	Warrants Outstanding		Exercise Price		Expiration
August 2011		18,979	$	30.00	August 2018
February 2012		42	$	17,334.07	February 2022
December 2014		33,788	$	33.30	December 2024
December 2015		6,757	$	33.30	December 2024
January 2018		3,792,868	$	16.50	January 2025

				Weighted		Weighted
				Average		Average		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price		Term (in years)		Value
Outstanding - January 1, 2018		2,060,809		$	33.63
Granted		2,694,334		$	7.52
Exercised		(203	)	$	15.61
Forfeited		(156,124	)	$	20.20
Expired		(100,967	)	$	47.68
Outstanding - June 30, 2018		4,497,849		$	18.14		8.3	$	-
Exercisable - June 30, 2018		1,078,268		$	45.78		3.8	$	-
Vested and expected to vest at June 30, 2018		4,497,849		$	18.14		8.3	$	-

	March 31, 2018			June 30, 2018
Current assets	$	28,299		$	33,726
Goodwill		13,059			17,614
Intangible assets		258,000			242,454
Non-current assets		12,278			12,278
Current liabilities		(37,000	)		(35,492	)
Non-current liabilities		(576	)		(576	)
Total purchase price	$	274,060		$	270,004

	Average useful life	Fair value
Developed product rights	13 to 17 years	$	222,595
In-process research and development	Indefinite		19,859
Total intangible assets		$	242,454

	Three Months Ended June 30, 2017			Six Months Ended June 30, 2017
Pro forma revenue	$	11,861		$	41,075
Pro forma net loss	$	(81,158	)	$	(144,852	)

Balance - December 31, 2017	$	6,721
Additional severance accruals (recorded in SG&A)		1,427
Bonus to be paid as severance		223
Severance payments		(4,696	)
Balance - June 30, 2018	$	3,675

Balance - December 31, 2017	$	-
Fair value of lease liability recognized		556
Amortization (recorded in SG&A)		(120	)
Balance - June 30, 2018	$	436