Kythera Biopharmaceuticals (KYTH) 10-Q/A 2013 Q2 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

(Amendment No. 1)

(Mark One)

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

For the quarterly period ended June 30, 2013

OR

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

For the transition period from                      to                     

Commission file number: 001-35663

KYTHERA Biopharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	03-0552903
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

27200 West Agoura Road, Suite 200
Calabasas, California	91301
(Address of Principal Executive Offices)	(Zip Code)

(818) 587-4500

(Registrant’s Telephone Number, Including Area Code)

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 o

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 o

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o
(Do not check if a smaller reporting company)

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

As of July 15, 2013, the number of outstanding shares of the registrant’s common stock, par value $0.00001 per share, was 18,641,312.

EXPLANATORY NOTE

We are filing this Amendment No. 1 on Form 10-Q/A (the “Amended Filing”) to our Quarterly Report on Form 10-Q for the three and six months ended June 30, 2013 originally filed with the Securities and Exchange Commission (“SEC”) on August 6, 2013 (the “Original Filing”) to correct the presentation of basic and diluted weighted average shares outstanding and the related net income (loss) per share for the three and six months ended June 30, 2012, and to update the related disclosures found in the financial statements.

Description of the Restatement

We are filing this amendment to correct the previously reported basic and diluted net income (loss) per share amounts for the three and six months ended June 30, 2012.  Although net income (loss) was correct as reported, basic and diluted net income (loss) per share was incorrectly computed.  Basic and diluted net income (loss) per share is calculated by dividing net income (loss) for the period by the basic and diluted weighted average number of shares outstanding during that period.  In the restated periods, preferred shares issued prior to the Company’s initial public offering in October 2012 were inappropriately included in the weighted average shares outstanding used to calculate basic and diluted net income (loss) per share from their date of issuance and should not have been included in the calculation of the weighted average shares outstanding as the shares did not actually convert to common shares until the Company’s initial public offering.  Similarly, the effects of the assumed conversion of the preferred shares should have only been included in the diluted net income per share prior to actual conversion to the extent that the impact would have been dilutive, which only occurred for the three month period ended June 30, 2012. In addition, options to purchase common stock should have been included in the calculation of diluted net income per share for the three month period ended June 30, 2012 as the effect was dilutive.

For more information regarding the calculation of net (loss) income per common share, please refer to Note 10, “Basic and Dilutive Net (Loss) Income per Common Share.”

The corrections have no impact on the Company’s net (loss) income reported in the statement of operations and comprehensive loss, balance sheets, or the statements of cash flows for any of the above mentioned periods.  The basic and diluted net loss per share presented for the three and six months ended June 30, 2013 is correct and is not being restated.

Items Amended in This Filing

For the convenience of the reader, this Amended Filing sets forth the Original Filing, as modified and superseded where necessary to reflect the restatement. The following items have been amended as a result of, and to reflect, the restatement:

·Part I — Item 1. Financial Statements (unaudited); and

·Part II — Item 6. Exhibits.

In accordance with applicable SEC rules, this Amended Filing includes new certifications as required by Rule 12b-15 under the Securities and Exchange Act of 1934 (“Exchange Act”) from our Chief Executive Officer and Chief Financial Officer dated as of the date of filing of this Amended Filing.

Except for the items noted above, no other information included in the Original Filing is being amended or updated by this Amended Filing. This Amended Filing continues to describe the conditions as of the date of the Original Filing and, except as contained herein, we have not updated or modified the disclosures contained in the Original Filing. Accordingly, this Amended Filing should be read in conjunction with our filings made with the SEC subsequent to the filing of the Original Filing, including any amendment to those filings.

Page 2 of 16

KYTHERA BIOPHARMACEUTICALS, INC.

Index

PART I	FINANCIAL INFORMATION	4
ITEM1:	Financial Statements (unaudited)	4
	Condensed Balance Sheets	4
	Condensed Statements of Operations and Comprehensive Loss	5
	Condensed Statements of Cash Flows	6
	Notes to Condensed Financial Statements	7
PART II	OTHER INFORMATION	15
ITEM 6:	Exhibits	15
Signatures		16

Page 3 of 16

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

KYTHERA BIOPHARMACEUTICALS, INC.

Condensed Balance Sheets

	June 30, 2013			December 31, 2012
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	32,586,000		$	79,311,000
Restricted cash, current portion	11,133,000			7,657,000
Marketable securities	31,956,000			—
Prepaid expenses and other current assets	521,000			621,000
Total current assets	76,196,000			87,589,000
Property and equipment, net	150,000			275,000
Restricted cash—net of current portion	—			8,321,000
Other assets	37,000			37,000
Total assets	$	76,383,000		$	96,222,000
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,745,000		$	2,152,000
Accrued personnel costs	1,652,000			2,173,000
Accrued costs for services	4,288,000			4,862,000
Accrued interest	120,000			22,000
Note payable, current portion	4,836,000			1,160,000
Deferred development funds, current portion	9,063,000			5,853,000
Total current liabilities	21,704,000			16,222,000
Deferred rent	11,000			9,000
Deferred development funds—net of current portion	—			8,321,000
Note payable—net of current portion	8,804,000			2,764,000
Total liabilities	30,519,000			27,316,000
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.00001 par value, 300,000,000 shares authorized, 18,625,000 and 18,325,000 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively	—			—
Additional paid in capital	192,585,000			189,212,000
Accumulated other comprehensive loss	(31,000		)	—
Accumulated deficit	(146,690,000		)	(120,306,000		)
Total stockholders’ equity	45,864,000			68,906,000
Total liabilities and stockholders’ equity	$	76,383,000		$	96,222,000

See accompanying notes.

Page 4 of 16

KYTHERA BIOPHARMACEUTICALS, INC.

Condensed Statements of Operations and Comprehensive Loss

(unaudited)

	Three Months EndedJune 30,						Six Months EndedJune 30,
	2013			2012			2013			2012
License income	$	—		$	17,763,000		$	—		$	19,687,000
Sublicense expense	—			1,760,000			—			1,936,000
Gross margin	—			16,003,000			—			17,751,000
Operating expenses:
Research and development	7,767,000			8,399,000			17,801,000			14,884,000
General and administrative	3,973,000			2,469,000			7,698,000			4,661,000
Total operating expenses	11,740,000			10,868,000			25,499,000			19,545,000
(Loss) income from operations	(11,740,000		)	5,135,000			(25,499,000		)	(1,794,000		)
Interest income	35,000			—			63,000			—
Interest expense	(553,000		)	(52,000		)	(948,000		)	(104,000		)
Warrant and other income (expense), net	—			(577,000		)	—			(476,000		)
Net (loss) income	$	(12,258,000	)	$	4,506,000		$	(26,384,000	)	$	(2,374,000	)
Other comprehensive (loss) income:
Unrealized loss on marketable securities	(23,000		)	—			(31,000		)	—
Comprehensive (loss) income	$	(12,281,000	)	$	4,506,000		$	(26,415,000	)	$	(2,374,000	)
Per share information:
Net (loss) income, basic—restated (1)	$	(0.67	)	$	3.17		$	(1.44	)	$	(1.68	)
Net (loss) income, diluted—restated (1)	$	(0.67	)	$	0.32		$	(1.44	)	$	(1.68	)
Basic weighted average shares outstanding—restated (1)	18,423,000			1,422,000			18,379,000			1,412,000
Diluted weighted average shares outstanding—restated (1)	18,423,000			14,009,000			18,379,000			1,412,000

(1) 2012 Restated

See accompanying notes.

Page 5 of 16

KYTHERA BIOPHARMACEUTICALS, INC.

Condensed Statements of Cash Flows

(unaudited)

	Six Months Ended June 30,
	2013			2012
Operating activities
Net loss	$	(26,384,000	)	$	(2,374,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of premium on marketable securities	237,000			—
Amortization of debt issuance cost	170,000			104,000
Depreciation	167,000			252,000
Revaluation of redeemable convertible preferred stock warrants	—			476,000
Stock-based compensation	2,732,000			809,000
Changes in assets and liabilities:
Prepaid expenses and other current assets	262,000			(3,595,000		)
Restricted cash	4,845,000			(11,413,000		)
Deferred licensor payment	—			352,000
Other assets	—			(6,000		)
Accounts payable and other accrued liabilities	(1,404,000		)	(1,384,000		)
Deferred revenue	—			(3,847,000		)
Deferred development funds	(5,111,000		)	12,329,000
Deferred long term payable to licensor	—			1,268,000
Deferred rent	2,000			1,000
Net cash used in operating activities	(24,484,000		)	(7,028,000		)
Investing activities
Purchases of marketable securities	(32,386,000		)	—
Investment in property and equipment	(42,000		)	(131,000		)
Net cash used in investing activities	(32,428,000		)	(131,000		)
Financing activities
Proceeds from common stock option exercises	641,000			48,000
Borrowings on credit facility	10,000,000			—
Repayment on credit facility	(454,000		)	—
Net cash provided by financing activities	10,187,000			48,000
Net decrease in cash and cash equivalents	(46,725,000		)	(7,111,000		)
Cash and cash equivalents at beginning of period	79,311,000			34,577,000
Cash and cash equivalents at end of period	$	32,586,000		$	27,466,000
Supplemental disclosures
Issuance of common stock for services rendered	$	101,000		$	43,000
Interest expense paid in cash	$	681,000		$	—

See accompanying notes.

Page 6 of 16

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Condensed Financial Statements

June 30, 2013

(unaudited)

1. Organization and Basis of Presentation

KYTHERA Biopharmaceuticals, Inc. (“KYTHERA” or the “Company”) is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market. The Company’s objective is to develop first-in-class, prescription aesthetic products using an approach that relies on the scientific rigor of biotechnology to address unmet needs in the rapidly-growing market for aesthetic medicine. The Company’s initial focus is on the facial aesthetics market, which comprises the majority of the aesthetics medicine market. The Company’s product candidate, ATX-101, is a potential first-in-class, injectable drug currently in Phase III clinical development for the reduction of submental fat, which commonly presents as an undesirable “double chin.”

KYTHERA was originally incorporated in Delaware in June 2004 under the name Dermion, Inc. It commenced operations in August 2005 and its name was changed to AESTHERx, Inc. In July 2006, the Company changed its name to KYTHERA Biopharmaceuticals, Inc.

Since commencement of operations in August 2005, the Company has devoted substantially all its efforts to the development of ATX-101, recruiting personnel and raising capital. In 2010, the Company entered into a License Agreement with Bayer Consumer Care AG and a Services, Research, Development and Collaboration Agreement with Bayer’s Affiliate, Intendis GmbH, collectively referred to as the collaboration arrangement with Bayer. Bayer Consumer Care AG and Intendis GmbH are referred to jointly as Bayer.

The information included in this quarterly report on Form 10-Q/A should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K/A filed with the SEC for the year ended December 31, 2012 and in the Company’s Quarterly Report on Form 10-Q/A for the period ended March 31, 2013.

2. Summary of Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2013 as compared to the significant accounting policies described in the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K/A filed with the SEC for the year ended December 31, 2012.

The accompanying financial information for the three and six months ended June 30, 2013 and 2012 are unaudited. These unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP and applicable rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, the unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2012, and include all adjustments, which include only normal recurring adjustments necessary for the fair presentation of our statement of financial position as of June 30, 2013, our statement of operations and comprehensive loss for the three and six months ended June 30, 3013 and 2012 and our cash flows for the six months ended June 30, 2013 and 2012. The results for the three and six months ended June 30, 2013 are not necessarily indicative of the results expected for the full fiscal year or any other period(s).

Restatement

The Company has determined that restatements are required to previously reported basic and diluted net income (loss) per share for the three and six months ended June 30, 2012 due to an error in the computation. Basic and diluted net income (loss) per share is calculated by dividing net income (loss) for the period by the basic and diluted weighted average number of shares outstanding during that period.  In the restated periods, preferred shares issued prior to the Company’s initial public offering in October 2012 were inappropriately included in the weighted average shares outstanding used to calculate basic and diluted net income (loss) per share from their date of issuance and should not have been included in the calculation of the weighted average shares outstanding as the shares did not actually convert to common shares until the Company’s initial public offering.  Similarly, the effects of the assumed conversion of the preferred shares should have only been included in the diluted net income per share prior to actual conversion to the extent that the impact was dilutive, which occurred only for the three month period ended June 30, 2012. In addition, options to purchase common stock should have been included in the calculation of diluted net income per share for the three month period ended June 30, 2012 as the effect was dilutive.

A summary of the impact of the correction of the errors on the net income (loss) per share, basic and diluted, is as follows:

	Three Months EndedJune 30,  2012			Six Months EndedJune 30,  2012
Net income (loss) per share, basic and diluted—originally reported	$	0.35		$	(0.18	)
Difference in net income (loss) per share, basic	2.82			(1.50		)
Net income (loss) per share, basic—restated	$	3.17		$	(1.68	)
Difference in net income (loss) per share, diluted	(0.03		)	(1.50		)
Net income (loss) per share, diluted—restated	$	0.32		$	(1.68	)

Reconciliation of net income (loss) per share, basic and diluted	Three Months  Ended June 30,  2012			Six MonthsEnded June 30,  2012
Numerator
Net income (loss)	$	4,506,000		$	(2,374,000	)
Denominator
Weighted average shares, basic—originally reported	12,955,000			12,945,000
Remove previously reported effect:
Redeemable convertible preferred stock (assumed conversion from issuance)	(11,533,000		)	(11,533,000		)
Weighted average shares, basic—restated	1,422,000			1,412,000
Net income (loss) per share, basic—restated	$	3.17		$	(1.68	)
Weighted average shares, diluted—originally reported	12,955,000			12,945,000
Remove previously reported effect:
Redeemable convertible preferred stock (incorrectly included from issuance)	—			(11,533,000		)
Add correct effect of dilutive securities:
Stock options (1)	1,054,000			—
Warrants (1)	—			—
Weighted average shares, diluted—restated	14,009,000			1,412,000
Net income (loss) per share, diluted—restated	$	0.32		$	(1.68	)

(1)Since the numerator was a loss for the six months ended June 30, 2012, the dilutive effects of stock options, warrants and redeemable convertible preferred stock were not included since the effect was anti-dilutive.

The corrections have no impact on the Company’s balance sheets, net loss, or the statements of cash flows for any of the above mentioned periods.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements.

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Cash, Cash Equivalents and Marketable Securities

All highly liquid securities with original final maturities of 90 days or less from the date of purchase are considered to be cash equivalents. As of June 30, 2013 and December 31, 2012, cash and cash equivalents were comprised of funds in cash and money market accounts. The Company maintains cash balances in excess of amounts insured by the FDIC. The accounts are monitored by management to mitigate the risk.

Investments with an original maturity of more than 90 days are considered marketable securities. Marketable securities are stated at fair value as determined by quoted market prices. The Company has classified the entire investment portfolio as available-for-sale securities. Accordingly, any unrealized gain or loss on the investments is reported as a component of accumulated other comprehensive loss. The amortized cost of these securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortizations as well as realized gains and losses determined on a specific identification basis are included in interest income or expense. The entire investment portfolio, except for restricted investments, is considered available for use in current operations and, accordingly, all such investments are considered current assets although the stated maturity of individual investments may be one year or more beyond the balance sheet date.

Realized gains and losses and declines in value, if any, judged to be other-than-temporary on available-for-sale securities are reported in interest income or expense. When securities are sold, any associated unrealized gain or loss previously reported as a separate component of stockholders’ equity is reclassified out of stockholders’ equity and recorded in the statement of operations for the period. Accrued interest and dividends are included in interest income.

The Company periodically reviews the available-for-sale securities for other-than-temporary declines in fair value below the cost basis whenever events or changes in the circumstances indicate that the carrying amount of an asset may not be recoverable. If the Company concludes that an other-than-temporary impairment exists, it recognizes an impairment charge to reduce the investment to fair value and record the related charge as a reduction of interest income. No impairment was recognized for the three and six months ended June 30, 2013 and 2012.

Property and Equipment

Property and equipment are recorded at historical cost and consisted of the following:

	June 30, 2013			December 31, 2012
Cameras	$	923,000		$	923,000
Computer hardware and electronics	182,000			147,000
Furniture and fixtures	234,000			227,000
Software	21,000			21,000
	1,360,000			1,318,000
Less accumulated depreciation	(1,210,000		)	(1,043,000		)
	$	150,000		$	275,000

Depreciation is recorded using the straight-line method over the estimated useful lives of the assets (one to five years). The Company reviews its property and equipment assets for impairment in value whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company had no disposals during the six months ended June 30, 2013 and 2012.

Comprehensive (Loss) Income

Comprehensive (loss) income is comprised of net (loss) income and other comprehensive income or loss. The only component of other comprehensive income or loss is unrealized gains and losses on marketable securities. There were no reclassifications out of accumulated other comprehensive loss during the three and six months ended June 30, 2013 and 2012.

Fair Value of Financial Instruments

The carrying amounts reported in the accompanying financial statements for cash and cash equivalents, accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these accounts. The fair value of marketable securities and notes payable are discussed in Note 8, “Fair Value Measurements.”

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Recent Accounting Pronouncements

In February 2013, a new accounting standard was issued that requires increased disclosure requirements regarding amounts that are reclassified out of accumulated other comprehensive income. The standard is required to be adopted prospectively beginning on January 1, 2013. Adoption of this standard did not have a material impact on the Company’s financial statements.

3. Marketable Securities

Our marketable securities held as of June 30, 2013 are summarized below:

	AmortizedCost		GrossUnrealizedGains		GrossUnrealizedLosses			EstimatedFairValue
U.S. government agency securities	$	3,999,000	$	—	$	(3,000	)	$	3,996,000
Corporate debt securities:
Financial	21,944,000		—		(21,000		)	21,923,000
Industrial	4,017,000		—		(4,000		)	4,013,000
Other	2,027,000		—		(3,000		)	2,024,000
Total available-for-sale securities	$	31,987,000	$	—	$	(31,000	)	$	31,956,000

There were no realized gains or losses from the sale of marketable securities during the three and six months ended June 30, 2013 or 2012.

The maturities of our marketable securities available-for-sale as of June 30, 2013 are as follows:

	AmortizedCost		Estimated Fair Value
Mature in one year or less	$	21,749,000	$	21,734,000
Mature after one year through two years	10,238,000		10,222,000
	$	31,987,000	$	31,956,000

4. Bridge Financing

In connection with a Bridge financing in 2006, the Company issued warrants exercisable for approximately 243,000 shares of Series B redeemable convertible preferred stock (“Series B Preferred”) at an exercise price of $7.6055 per share.

Prior to the Company’s initial public offering (“IPO”) in October 2012, the Company classified the warrants as a liability and re-measured the liability to estimated fair value at June 30, 2012 using the Black-Scholes option pricing model under the following assumptions: contractual life according to the remaining terms of the warrants, no dividend yield, risk-free interest rate of 0.17%, and volatility of 58%.

The increase in the fair value of the warrants from issuance through our IPO in October of 2012, totaled $1,205,000 and was recorded in warrant and other income (expense), net, and included $467,000 and $381,000 of interest expense in the statement of operations and comprehensive loss for the three and six months ended June 30, 2012, respectively. Effective immediately prior to the closing of the Company’s IPO in October of 2012, the warrants for convertible preferred stock became warrants for common stock and were reclassified to equity. All but 178 warrants were exercised during 2012, with the remaining warrants being exercised in January 2013, resulting in the net issuance of 153,000 shares of common stock.

5. Note Payable

On March 21, 2011, the Company executed a debt financing agreement whereby the Company had access to borrow up to $15,000,000 of senior loan financing through January 1, 2012. On December 30, 2011, the Company amended its credit facility to provide for an extension of its drawdown period through December 1, 2012, provided that it had drawn down at least $5,000,000 as of August 1, 2012. On July 23, 2012, the Company obtained an additional 60 day extension to the initial drawdown date from August 1, 2012 to October 1, 2012. For each draw, the Company shall make six months of interest only payments at a fixed rate of 11.5% followed by 30 months of interest and principal payments at a fixed rate of 8.5% and a final payment of 6% of the amount drawn. The debt is secured by all the Company’s assets, except for the Company’s intellectual property, which is subject to a negative pledge agreement.

Page 9 of 16

Upon entry into the agreement, the Company issued warrants to purchase 34,000 shares of Series C redeemable convertible preferred stock (“Series C Preferred”) at an exercise price of $13.3530. The estimated fair value of the warrants at issuance of approximately $345,000 was recorded as a deferred financing cost offsetting the note payable liability and is being amortized to interest expense over the expected term of the loan.

Upon extension of the credit facility in December 2011, the Company issued a warrant to purchase up to an additional 86,000 shares of its Series D redeemable convertible preferred stock (“Series D Preferred”) at an exercise price of $13.9040. The estimated fair value of the warrant at issuance of approximately $1,074,000 was recorded as a deferred financing cost offsetting the note payable liability and is being amortized to interest expense over the expected term of the loan. As of June 30, 2013 and December 31, 2012, $15,000,000 and $5,000,000 respectively had been drawn. There is no further borrowing capacity under this facility as of June 30, 2013.

Effective immediately prior to the closing of the Company’s IPO, the warrants for convertible preferred stock became warrants for common stock and were reclassified to stockholders’ equity. Prior to the IPO, the Company had classified the warrants as a liability and re-measured the liability to estimated fair value using the Black-Scholes option pricing model. Assumptions used to revalue the Series C Preferred warrants at June 30, 2012 were as follows: contractual life according to the remaining terms of the warrants, no dividend yield, risk-free interest rate of 1.43% and volatility of 76%. Assumptions used to revalue the Series D Preferred warrants at June 30, 2012 were as follows: contractual life according to the remaining terms of the warrants, no dividend yield, risk-free interest rate of 1.58% and volatility of 77%.

The increase in the fair value of the Series C Preferred warrants from issuance in March 2011 through the IPO in October of 2012, totaled $55,000 and was recorded in warrant and other income (expense), net, in the statement of operations and comprehensive loss, and included expense of $105,000 and $97,000 for the three and six months ended June 30, 2012. The decrease in value of the Series D Preferred warrants from issuance in December 2011 through the IPO in October of 2012 totaled $18,000 and was recorded in warrant and other income (expense), net, in the statement of operations and comprehensive loss, including expense of $5,000 and income of $2,000 for the three and six months ended June 30, 2012.

All warrants were exercised on a cashless basis in December of 2012 resulting in the net issuance of 49,000 shares of common stock and no warrants are outstanding as of June 30, 2013.

Included in interest expense for the three and six months ended June 30, 2013 and 2012 was amortization of debt issuance costs of $85,000, $170,000, $52,000 and $104,000, respectively, and interest expense of $469,000 and $779,000 related to the note payable for the three and six months ended June 30, 2013. No interest expense was recorded for the three and six months ended June 30, 2012 as no amounts had yet been drawn under the credit facility. The balance of accrued interest expense at June 30, 2013 was $120,000. The remaining unamortized debt issuance cost at June 30, 2013 was $906,000.

6. Stockholders’ Equity

Shares Reserved for Future Issuance

Shares of the Company’s common stock reserved for future issuance are as follows:

	June 30, 2013
Common stock awards outstanding	2,308,000
Common stock awards available for grant	524,000
Total common shares reserved for future issuance	2,832,000

Page 10 of 16

Stock Awards

In September 2012, the Company’s board of directors approved the 2012 Equity Incentive Award Plan (“the Plan”), which became effective upon completion of our IPO. The Plan provides for the granting of incentive and nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, deferred stock, dividend equivalents, performance awards, stock payments and other stock-based and cash-based awards to its employees, directors, and consultants at the discretion of the compensation committee of the board of directors. The Plan is the successor to the Amended and Restated 2004 Stock Plan. Any remaining shares available for future issuance under the 2004 Stock Plan are available for issuance under the Plan. In addition, the plan reserve will automatically increase annually from January 1, 2013 through January 1, 2022 by an amount equal to the smaller of: (a) 1,512,687 shares, (b) four percent of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (c) an amount determined by the Company’s board of directors. As of June 30, 2013 and December 31, 2012, a total of 3,224,000 and 2,491,000 shares, respectively were authorized for grant under the Plan.

Stock options may be granted with exercise prices not less than the fair market value of the Company’s common stock. Incentive stock options granted to individuals owning more than 10% of the total combined voting power of all classes of stock are exercisable up to five years from the date of grant. The Plan provides that the exercise price of any incentive stock option granted to a 10% stockholder cannot be less than 110% of the estimated fair value of the common stock on the date of grant. Except as set forth above, options granted under the Plan expire no later than ten years from the date of grant. Options granted to employees under the Plan vest over periods determined by the board of directors, generally over a period of one to four years. The Company has granted certain performance-based incentive stock option awards that vest based on the achievement of certain predetermined milestones. Prior to our IPO, the board of directors determined the estimated fair value of its common stock based on assistance from an independent third-party valuation. Since our IPO, the fair market value of our common stock is the closing share price as reported on the NASDAQ Global Select Market on the date of grant. The fair market value of the Company’s common stock was $27.05 and $30.34 at June 30, 2013 and December 31, 2012, respectively.

The Company estimates the fair value of its share-based awards to employees and directors using the Black-Scholes option pricing model. The Black-Scholes model requires the input of complex and subjective assumptions, including (a) the expected stock price volatility, (b) the calculation of expected term of the award, (c) the risk free interest rate and (d) expected dividends. Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. When selecting these public companies on which it has based its expected stock price volatility, the Company selected companies with comparable characteristics to it, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. The Company has estimated the expected life of its employee stock options using the “simplified” method, whereby, the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to its lack of sufficient historical data. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during the period the options were granted. The Company has never paid, and does not expect to pay dividends in the foreseeable future.

The Company is also required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from its estimates. The Company uses historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from the Company’s estimates, the difference is recorded as a cumulative adjustment in the period the estimates were revised. For the three and six months ended June 30, 2013 and 2012, the Company applied forfeiture rates based on the Company’s historical forfeitures.

Total compensation cost recorded in the statements of operations and comprehensive loss, which includes stock-based compensation expense and the value of stock and options issued to nonemployees for services is allocated as follows:

	Three Months Ended June 30,				Six Months EndedJune 30,
	2013		2012		2013		2012
Research and development	$	1,046,000	$	210,000	$	1,476,000	$	366,000
General and administrative	750,000		243,000		1,256,000		443,000
	$	1,796,000	$	453,000	$	2,732,000	$	809,000

As of June 30, 2013, there was $11,933,000 of unrecognized compensation expense related to unvested employee stock award agreements, which is expected to be recognized over a weighted-average period of approximately 2.51 years. For stock option awards subject to graded vesting, the Company recognizes compensation cost on a straight-line basis over the service period for the entire award.

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A summary of stock award activity for the six months ended June 30, 2013 is as follows:

	Number ofShares		Weighted- AverageExercise Price
Outstanding at December 31, 2012	1,956,000		$	5.86
Granted	731,000		23.63
Exercised	(295,000	)	2.17
Cancelled	(84,000	)	15.52
Outstanding at June 30, 2013	2,308,000		$	11.60

The Company continues to account for stock options issued to nonemployees using a fair value approach. The compensation costs of these arrangements are subject to re-measurement over the vesting terms as earned.

7. Collaborations and Contingencies

Collaboration Arrangements

From time to time, the Company enters into collaborative arrangements for its research and development and manufacturing activities. Each collaboration is unique in nature and the Company’s significant agreements are discussed below.

Bayer

In August 2010, the Company entered into a license agreement with Bayer Consumer Care AG that provides Bayer with an exclusive license to develop, manufacture and commercialize ATX-101 outside of the United States and Canada. In connection with the License Agreement the Company also entered into a related Services, Research, Development and Collaboration Agreement with Bayer’s affiliate, Intendis GmbH. These agreements are referred to jointly as the collaboration arrangement with Bayer, and Bayer Consumer Care AG and Intendis GmbH are referred to jointly as Bayer. In connection with the entry into the collaboration arrangement, Bayer paid the Company an upfront license fee of approximately $21,319,000 and approximately $22,247,000 for research and development to fund a portion of Bayer’s European Phase III clinical trials. The Company is eligible to receive up to approximately $297,000,000 for certain development, manufacturing, regulatory and commercialization contingent payments upon the achievement by Bayer of specified events under our collaborative arrangement, as well as escalating royalties from the mid- to high-teens on Bayer’s net product sales of ATX-101. The first contingent event-based payment of $15,800,000 was received on May 31, 2012, triggered by the completion of Bayer’s European Phase III clinical trials for ATX-101, the receipt of two consecutive validated manufacturing lots and Bayer’s subsequent decision to pursue continued development and seek regulatory approval of ATX-101. This amount was recorded as revenue upon receipt as all revenue recognition criteria had been met. At this time, Bayer also elected to pursue additional research and development activities related to ATX-101, which are distinct from the original development activities, and subsequently funded $17,400,000 for these additional Bayer development activities. This payment was recorded as restricted cash and deferred development funds and will be recognized as an offset to development expense as the restricted cash is utilized to fund Bayer’s development activities. License fees received in connection with the entry into the collaboration agreement of $21,319,000 were deferred and recognized on a straight-line basis over the period of substantial involvement in collaboration activities that were required to be conducted relative to the upfront license fee and development funds received from Bayer. These activities were completed as of May 31, 2012.

Amounts to fund collaboration efforts of $22,247,000 and $17,400,000 were recorded as restricted cash and deferred development funds and are recognized as an offset to research and development expenses as the restricted cash is utilized to fund development activities. Restricted cash and deferred development funds were presented as current and long-term on the condensed balance sheets and are based on the Company’s estimate of amounts that will be spent to fund development activities within the next 12 months. Amounts recognized as offsets to research and development expense were $2,105,000, $5,201,000, $3,483,000 and $6,542,000 for the three and six months ended June 30, 2013 and 2012, respectively.

The next contingent event-based payment is $39,600,000 and is subject to Bayer achieving regulatory approval of ATX-101 in the first of any major European country, which is defined as Germany, United Kingdom, France, Spain or Italy. In addition, the Company is eligible to receive further payments upon the first commercial sales in two defined territories outside of the European Union (“EU”), if approved in those territories. The remaining contingent event payments are based on achieving certain net sales targets in Bayer’s territory in a calendar year.

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Los Angeles Biomedical Research Institute

In August 2005, the Company entered into an exclusive license agreement with Los Angeles Biomedical Research Institute at Harbor/UCLA Medical Center, or LA Biomed, pursuant to which it obtained a worldwide exclusive license to practice, enforce and otherwise exploit certain patent rights related to the use of the active ingredient in ATX-101. The exclusive license requires the Company to pay LA Biomed a milestone payment of $500,000 upon receipt of marketing approval of ATX-101, as well as non-royalty sublicense fees equal to 10% of any sublicense income, up to a total of $5,000,000, 50% of which the Company may elect to satisfy through the issuance of capital stock. Additionally, upon commercialization of a licensed product or service, the Company is obligated to pay low- to mid- single digit royalties on net product sales of ATX-101 by it and Bayer. In August 2010, due to the receipt of the upfront license fee from Bayer, the Company incurred non-royalty sublicense fees of $1,950,000, which was deferred and was recognized as sublicense fee expense on a straight-line basis over the same period as the license income. During 2010, the Company made payments of cash and stock to LA Biomed totaling $390,000 related to the non-royalty sublicense fee incurred. The remainder of $1,560,000 was paid upon our IPO in 50% cash and 50% stock.

Additionally, due to the receipt of the contingent event-based payment of $15,800,000 payable from Bayer on May 31, 2012, the Company incurred an additional non-royalty sublicense fee of $1,580,000 payable to LA Biomed, which was paid in 50% cash and 50% stock.

Contingencies

The Company may be subject to various litigation matters arising in the ordinary course of business from time to time. The Company is not subject to any currently pending legal matters or claims that would have a material adverse effect on its financial position, results of operations or cash flows.

8. Fair Value Measurements

The Company applies various valuation approaches in determining the fair value of its financial assets and liabilities within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.

At June 30, 2013 and December 31, 2012, the Company had cash equivalents comprised of U.S. Treasury securities money market accounts whose value is based using quoted market prices with no adjustments applied. Accordingly, these securities are classified as Level 1. U.S. Government agency securities and corporate debt securities are measured at fair value using Level 2 inputs. The Company reviews trading activity and pricing for these investments as of the measurement date. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs for similar securities obtained from various third party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level 2 of the fair value hierarchy. The Company had no assets or liabilities classified as Level 3. There were no material re-measurements to fair value during the six months ended June 30, 2013 and 2012 of financial assets and liabilities that are not measured at fair value on a recurring basis.  The were no transfers of assets or liabilities between the fair value measurement levels during the six months ended June 30, 2013 and 2012.

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The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012.

	Fair Value Measurement at June 30, 2013 using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of June 30, 2013
Assets
Cash equivalents	$	24,223,000	$	—	$	—	$	24,223,000
U.S. government agency securities	—		3,996,000		—		3,996,000
Corporate debt securities	—		27,960,000		—		$	27,960,000
Total	$	24,223,000	$	31,956,000	$	—	$	56,179,000

	Fair Value Measurement at December 31, 2012 using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2012
Assets:
Cash equivalents	$	71,316,000	$	—	$	—	$	71,316,000
Total	$	71,316,000	$	—	$	—	$	71,316,000

The fair values of cash equivalents, accounts payable and accrued liabilities approximate their carrying values due to the short-term nature of these accounts. Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the note payable approximates its fair value.

9. Income Taxes

There is no provision for income taxes because the Company has incurred operating losses since inception. At June 30, 2013 the Company has concluded that it is more likely than not that the Company may not realize the benefit of its deferred tax assets due to its history of losses. Accordingly, the net deferred tax assets have been fully reserved.

As of June 30, 2013, the Company does not have any accrued interest or penalties related to uncertain tax positions. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company does not have any interest or penalties related to uncertain tax positions in income tax expense for the three and six months ended June 30, 2013 and 2012. The tax years 2005 through 2012 remain open to examination by the major taxing jurisdictions to which the Company is subject.

10. Basic and Dilutive Net (Loss) Income Per Common Share

Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding during the period, excluding the dilutive effects of warrants to purchase redeemable convertible preferred stock and option outstanding. Diluted net (loss) income per common share is computed by dividing the net (loss) income by the sum of the weighted-average number of common shares outstanding during the period plus the potential dilutive effects of warrants to purchase redeemable convertible preferred stock and options outstanding during the period calculated in accordance with the treasury stock method, but are excluded if their effect is anti-dilutive.

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:

	Three and Six Months Ended June 30, 2013	Three Months Ended June 30, 2012	Six Months Ended June 30, 2012
Warrants outstanding	—	365,000	365,000
Stock awards outstanding	2,308,000	1,871,000	1,871,000
Total potential dilutive shares—originally reported	2,308,000	2,236,000	2,236,000
Conversion of preferred shares			11,533,000
Total potential dilutive shares—restated			13,769,000

The following is a reconciliation of the numerator and denominator of basic and diluted net income per share computations for the three months ended June 30, 2012 (restated):

Reconciliation of net income per share, basic and diluted	Three Months  Ended June 30,  2012
Numerator
Net income used to compute net income per share, basic and diluted	$	4,506,000
Denominator
Weighted average common shares outstanding used to compute net income per share:
Basic shares	1,422,000
Conversion of preferred stock	11,533,000
Stock options	1,054,000
Diluted shares	14,009,000
Per share information:
Net income per share, basic- restated	$	3.17
Net income per share, diluted- restated	$	0.32

See Note 2, “Summary of Significant Accounting Policies—Restatement” regarding restatement of 2012 basic and diluted weighted average shares outstanding and per share information.

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PART II. Other Information

ITEM 6.  EXHIBITS

Exhibit		Incorporated by Reference			Filed
Number	Exhibit Description	Form	Date	Number	Herewith
3.1	Seventh Amended and Restated Certificate of Incorporation of KYTHERA Biopharmaceuticals, Inc.	8-K	10/16/2012	3.1
3.2	Amended and Restated Bylaws of KYTHERA Biopharmaceuticals, Inc.	8-K	10/16/2012	3.2
4.1	Reference is made to exhibits 3.1 and 3.2.
4.2	Specimen Common Stock Certificate.	S-1/A	8/31/2012	4.2
10.1	Commercial Development and Supply Agreement by and between KYTHERA Biopharmaceuticals, Inc. and Cambridge Major Laboratories, Inc. †	10-Q	5/13/2013	10.4
10.2	Fourth Amendment, dated March 28, 2013, to that the certain Standard Multi-Tenant Office Lease-Gross, dated December 2009, by and between 27200 Associates, L.L.C. and Kythera Biopharmaceuticals, Inc.	10-Q	5/13/2013	10.5
31.1	Certification of Chief Executive Officer of KYTHERA Biopharmaceuticals, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a).	10-Q	8/06/2013	31.1
31.2	Certification of Chief Financial Officer of KYTHERA Biopharmaceuticals, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a).	10-Q	8/06/2013	31.2
31.3	Certification of Chief Executive Officer of KYTHERA Biopharmaceuticals, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a).				X
31.4	Certification of Chief Financial Officer of KYTHERA Biopharmaceuticals, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a).				X
32.1	Certification by the Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 36 of Title 18 of the United States Code (18 U.S.C. §1350).**	10-Q	8/06/2013	32.1
32.2	Certification by the Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 36 of Title 18 of the United States Code (18 U.S.C. §1350).**				X
101.INS***	XBRL Instance Document				X
101.SCH***	XBRL Taxonomy Extension Schema Document				X
101.CAL***	XBRL Taxonomy Extension Calculation Linkbase Document				X
101.DEF***	XBRL Taxonomy Extension Definition Linkbase Document				X
101.LAB***	XBRL Taxonomy Extension Labels Linkbase Document				X
101.PRE***	XBRL Taxonomy Extension Presentation Linkbase Document				X

†Confidential treatment has been granted with respect to certion portions of this exhibit (indicated by astericks). Omitted portions have been filed separately with the Securities and Exchange Commission.

**The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q/A are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of KYTHERA Biopharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q/A, irrespective of any general incorporation language contained in such filing.

***Pursuant to Rule 406T of Regulation S-T, the XBRL files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

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

	KYTHERA Biopharmaceuticals, Inc.
September 27, 2013	By:	/s/ John W. Smither
		John W. Smither
		Chief Financial Officer (Principal Financial and Accounting Officer)

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