Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
TTPH > SEC Filings for TTPH > Form 10-Q on 14-Nov-2013All Recent SEC Filings

Show all filings for TETRAPHASE PHARMACEUTICALS INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for TETRAPHASE PHARMACEUTICALS INC


14-Nov-2013

Quarterly Report


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

The interim financial statements included in this Quarterly Report on Form 10-Q and this Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2012, and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our prospectus filed with the United States Securities and Exchange Commission, or the SEC, pursuant to Rule 424(b)(4) on November 7, 2013, which we refer to as the Prospectus. 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, or the Exchange Act. These forward-looking statements are subject to risks and uncertainties, including those set forth in Part II - Other Information, Item 1A. Risk Factors below and elsewhere in this report, that could cause actual results to differ materially from historical results or anticipated results.

Overview

We are a clinical stage biopharmaceutical company using our proprietary chemistry technology to create novel antibiotics for serious and life-threatening multi-drug resistant infections. Our lead product candidate, eravacycline, is a fully synthetic tetracycline derivative that we are developing as a broad-spectrum intravenous and oral antibiotic for use as a first-line empiric monotherapy for the treatment of multi-drug resistant infections, including multi-drug resistant Gram-negative infections. We are conducting a Phase 3 clinical trial of eravacycline with intravenous administration for the treatment of complicated intra-abdominal infections, or cIAI, and are planning to initiate a second Phase 3 clinical trial of eravacycline for the treatment of complicated urinary tract infections, or cUTI, with intravenous-to-oral step-down therapy by the end of 2013. We expect to have top-line data from the Phase 3 cIAI clinical trial in the first quarter of 2015, data from a lead-in portion of the Phase 3 cUTI clinical trial in mid-2014 and top-line data from the Phase 3 cUTI clinical trial in the first half of 2015. Consistent with draft guidance issued by the United States Food and Drug Administration, or FDA, with respect to the development of antibiotics for cIAI and our discussions with the FDA, we expect that positive results from these two Phase 3 clinical trials would be sufficient to support submission of a new drug application, or NDA, for eravacycline in the treatment of cIAI and cUTI. Subject to obtaining additional financing, we intend to pursue development of eravacycline for the treatment of additional indications, including hospital-acquired bacterial pneumonias and other serious and life-threatening infections following our development of eravacycline for the treatment of cIAI and cUTI. We are also pursuing the discovery and development of additional antibiotics to target unmet medical needs.

We commenced business operations in July 2006. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our proprietary chemistry technology, identifying potential product candidates and undertaking preclinical studies and clinical trials of our product candidates. To date, we have not generated any product revenue and have primarily financed our operations through the public offering and private placement of our equity securities, debt financings and revenue from U.S. government awards. As of September 30, 2013, we had received an aggregate of $171.8 million in net proceeds from the issuance of equity securities and borrowings under debt facilities and an aggregate of $14.5 million from government grants and contracts. As of September 30, 2013, our principal source of liquidity was cash and cash equivalents, which totaled $67.8 million.

As of September 30, 2013, we had a deficit accumulated during the development stage of $108.4 million. Our net losses were $10.1 million and $18.3 million for the three and nine months ended September 30, 2013, respectively. Our net losses were $3.1 million and $12.0 million for the three and nine months ended September 30, 2012, respectively. We expect that our expenses will increase substantially as we continue our ongoing Phase 3 clinical trial of eravacycline for the treatment of cIAI and commence our planned Phase 3 clinical trial of eravacycline for the treatment of patients with cUTI, seek marketing approval for eravacycline, pursue development of eravacycline for additional indications, including hospital-acquired bacterial pneumonias and other serious and life-threatening infections, advance our other product candidates and satisfy our obligations under our license agreement with Harvard University. If we obtain marketing approval of eravacycline, we also expect to incur significant sales, marketing, distribution and manufacturing expenses. Furthermore, we expect to incur ongoing research and development expenses relating to our product candidates other than eravacycline and that our general and administrative costs will increase as we grow and continue to operate as a public company. We will need to generate significant revenue to achieve profitability, and we may never do so.

We believe that our available funds, together with the net proceeds of the follow-on public offering we completed in November 2013, will be sufficient to enable us to obtain top-line data from our ongoing Phase 3 clinical trial of eravacycline for the treatment of cIAI and our planned Phase 3 clinical trial of eravacycline for the treatment of cUTI and to submit an NDA to the FDA for eravacycline. We expect that these funds will not, however, be sufficient to enable us to commercially launch eravacycline. It is also possible that we will not achieve the progress that we expect with respect to eravacycline


Table of Contents

because the actual costs and timing of clinical development activities are difficult to predict and are subject to substantial risks and delays. We will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

Financial overview

Contract and Grant Revenue

We have derived all of our revenue to date from funding provided under three U.S. government awards for the development of our compounds as potential counter measures for the treatment of disease caused by bacterial biothreat pathogens through our collaborator CUBRC Inc., or CUBRC, an independent, not-for-profit, research corporation that specializes in U.S. government-based contracts:

We have received funding for our lead product candidate, eravacycline, under an award from the Biomedical Advanced Research and Development Authority, or BARDA, an agency of the U.S. Department of Health and Human Services. In January 2012, BARDA awarded CUBRC a five-year contract that provides for up to a total of $67.0 million in funding for the development, manufacturing and clinical evaluation of eravacycline for the treatment of disease caused by bacterial biothreat pathogens. We refer to this contract as the BARDA Contract.

We have received funding for our preclinical compound TP-271 under two awards from the National Institute of Allergy and Infectious Diseases, or NIAID, a division of National Institutes of Health, for the development, manufacturing and clinical evaluation of TP-271 for respiratory diseases caused by biothreat and antibiotic-resistant public health pathogens, as well as bacterial pathogens associated with community-acquired bacterial pneumonia:

a grant awarded to CUBRC in July 2011 that provides up to a total of approximately $2.8 million over five years, which we refer to as the NIAID Grant, and

a contract awarded to CUBRC in September 2011 that provides up to a total of approximately $35.8 million in funding over five years, which we refer to as the NIAID Contract.

We are collaborating with CUBRC, because when we initially decided to seek government funding, we recognized that we did not have any expertise in bidding for, administrating or managing government-funded contracts. CUBRC serves as the prime contractor under the BARDA Contract, the NIAID Grant and the NIAID Contract, primarily carrying out a program management and administrative role with additional responsibility for the management of preclinical studies. We serve as lead technical expert on all aspects of these awards and also serve as a subcontractor responsible for management of chemistry, manufacturing and control activities and clinical studies. We derive all of our revenue under these collaborations through subcontracts with, and a subaward from, CUBRC, with the flow of funds following the respective activities being conducted by us and by CUBRC.

In connection with the BARDA Contract, in February 2012, we entered into a five-year cost-plus-fixed-fee subcontract with CUBRC under which we may receive funding of up to approximately $39.8 million, reflecting the portion of the BARDA Contract funding that may be paid to us for our activities.

In connection with the NIAID Contract, in October 2011, we entered into a five-year cost-plus-fixed-fee subcontract with CUBRC under which we may receive funding of up to approximately $13.3 million, reflecting the portion of the NIAID Contract funding that may be paid to us for our activities.

In connection with the NIAID Grant, in November 2011, CUBRC awarded us a 55-month, no-fee subaward of approximately $980,000, reflecting the portion of the NIAID Grant funding that may be paid to us for our activities.

Although the BARDA Contract, and our subcontract with CUBRC under the BARDA Contract, have five-year terms, BARDA is entitled to terminate the project for convenience at any time, and is not obligated to provide continued funding beyond current-year amounts from Congressionally approved annual appropriations. To the extent that BARDA ceases to provide funding of the program to CUBRC, CUBRC has the right to cease providing funding to us. As of September 30, 2013, committed funding from CUBRC under the BARDA subcontract has increased by $9.4 million from $6.3 million during the original twelve-month base period ended January 31, 2013 to $15.7 million through the current contract end date, which has been extended to April 30, 2015 as a result of the exercise of several options by BARDA under the BARDA Contract. Total funds of $10.1 million had been received through September 30, 2013 under this contract.

Similarly, although the NIAID Contract, the NIAID Grant and our subcontract with CUBRC under the NIAID Contract have terms of five years, and our subaward under the NIAID Grant has a term of 55 months, NIAID is entitled to terminate


Table of Contents

the project for convenience at any time, and is not obligated to provide continued funding beyond the original 25-month base period ended September 30, 2016. To the extent NIAID ceases to provide funding of the programs to CUBRC, CUBRC has the right to cease providing funding to us. As of September 30, 2013, committed funding from CUBRC under our subcontract with respect to the NIAID Contract has increased by $1.6 million from $5.9 million during the original 25-month base period ended October 31, 2013 to $7.5 million through the current contract end date, which has been extended to September 30, 2016. Total funds of $3.8 million had been received through September 30, 2013. Committed funding from CUBRC under our subaward with respect to the NIAID Grant increased by $0.1 million during the nine months ended September 30, 2013 from $0.6 million to $0.7 million through the current contract end date, which has been extended from May 31, 2013 to May 31, 2016. Total funds of $0.5 million had been received through September 30, 2013.

We have no products approved for sale. Other than the government funding described above, we do not expect to receive any revenue from any product candidates that we develop, including eravacycline, until we obtain regulatory approval and commercialize such products, which we do not expect will occur before 2016, or until we potentially enter into collaborative agreements with third parties for the development and commercialization of such product candidates. We continue to pursue government funding for other preclinical and clinical programs. If our development efforts for any of our product candidates result in clinical success and regulatory approval, or collaboration agreements with third parties, we may generate revenue from those product candidates.

We expect that our revenue will be less than our expenses for the foreseeable future and that we will experience increasing losses as we continue our development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. Even if we are able to generate revenue from the sale of one or more products, we may not become profitable.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical candidates, and include:

employee-related expenses, including salaries, benefits and stock-based compensation expense;

expenses incurred under agreements with contract research organizations, contract manufacturing organizations, and consultants that conduct our clinical trials and preclinical activities;

payments made under our license agreement with Harvard University;

the cost of acquiring, developing and manufacturing clinical trial materials and lab supplies;

facility, depreciation and other expenses, which include direct and allocated expenses for rent, maintenance of our facility, insurance and other supplies; and

costs associated with preclinical activities and regulatory operations.

We expense research and development costs to operations as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors.

The following table identifies research and development expenses on a program-specific basis for our product candidates for the three and nine months ended September 30, 2013, and 2012. Expenses related to facilities, consulting, travel, conferences, stock-based compensation and depreciation are not allocated to a program and are separately classified as other research and development expenses in the table below.

                                                                                                     The Period from
                                                                                                      July 7, 2006
                                                                                                     (inception) to
                                                Three Months                 Nine Months              September 30,
                                            Ended September 30,          Ended September 30,              2013
                                             2013           2012          2013           2012
                                                                            (in thousands)
Eravacycline                              $    6,835       $ 1,482     $    10,616     $  5,893     $          41,341
BARDA Contract                                 1,167         1,117           5,888        1,743                10,167
NIAID Contract and NIAID Grant                   868         1,198           2,259        1,992                 4,969
Other development programs                       308           274             702          920                21,150
Other research and development                   814           348           1,549        2,133                18,494

Total research and development expenses   $    9,992       $ 4,419     $    21,014     $ 12,681     $          96,121


Table of Contents

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

As of September 30, 2013, we had incurred an aggregate of $41.3 million in research and development expenses related to the development of eravacycline, excluding $10.2 million of expenses that were funded under the BARDA Contract. We expect that our research and development expenses will increase substantially as we continue our ongoing Phase 3 clinical trial of eravacycline for the treatment of cIAI and commence our planned Phase 3 clinical trial of eravacycline for the treatment of patients with cUTI, pursue development of eravacycline for additional indications, including hospital-acquired bacterial pneumonias and other serious and life-threatening infections, advance our other product candidates and satisfy our obligations under our license agreement with Harvard University. We expect that the total external costs of the Phase 3 clinical trials of eravacycline will be approximately $55.0 million, including approximately $15.0 million in 2013, of which $7.2 million had been incurred during the first nine months of 2013.

Because of the numerous risks and uncertainties associated with product development, however, we cannot determine with certainty the duration and completion costs of these or other current or future clinical trials of eravacycline or our other product candidates. We may never succeed in achieving regulatory approval for eravacycline or any of our other product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of future clinical and preclinical studies, uncertainties in clinical trial enrollment rate and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability.

We have licensed our proprietary chemistry technology from Harvard University on an exclusive worldwide basis under a license agreement that we entered into in August 2006. Under our license agreement, we have paid Harvard an aggregate of $3.7 million in upfront license fees and development milestone payments, including a $2.0 million milestone fee that we paid in October 2013 in connection with the dosing of the first patient in our Phase 3 clinical trial of eravacycline for the treatment of patients with cIAI. We have also issued 31,379 shares of our common stock to Harvard under the license agreement. In addition, we have agreed to make payments to Harvard upon the achievement of specified future development and regulatory milestones totaling up to $15.1 million per licensed product ($3.1 million of which has already been paid with respect to eravacycline), and to pay tiered royalties in the single digits based on annual worldwide net sales, if any, of products licensed by us, our affiliates or our sublicensees. We are also obligated to pay Harvard a specified share of non-royalty sublicensing revenues that we receive from sublicensees for the grant of sublicenses under the license and to reimburse Harvard for specified patent prosecution and maintenance costs. The next milestone payment that would come due under the license agreement with respect to eravacycline is a $3.0 million payment that would become due to Harvard if we obtained marketing authorization from the FDA for eravacycline.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs such as stock-based compensation for personnel in executive, finance, business development, corporate communications and human resource functions, facility costs not otherwise included in research and development expenses, patent filing fees and professional legal fees. Other general and administrative expenses include travel expenses and professional fees for consulting, auditing and tax services.

We anticipate that our general and administrative expenses will increase for a number of reasons, including:

support of the anticipated expansion of our research and development activities as we continue the development of our product candidates;

increases in payroll, expansion of infrastructure and higher consulting, legal, accounting and investor relations costs, and directors and officers insurance premiums, all associated with operating as a public company; and

if and when we believe a regulatory approval of our first product candidate appears likely, anticipated increases in our payroll and expense as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

Interest Income

Interest income consists of interest earned on our cash and cash equivalents. The primary objective of our investment policy is capital preservation.


Table of Contents

Interest Expense

Interest expense consists primarily of interest accrued on our outstanding indebtedness and non-cash interest related to the amortization of debt discount costs associated with our term loan facility with Silicon Valley Bank and Oxford Finance. We expect that our interest expense will remain consistent in future periods in connection with payments related to indebtedness of $6.2 million that we borrowed in December 2012 under an amendment to our loan and security agreement with Silicon Valley Bank and Oxford Finance and $3.0 million of indebtedness we borrowed in February 2013 under this debt facility.

Other Income (Expense)

Other income (expense) consists of fair value adjustments on warrants for the purchase of our preferred stock. We do not anticipate that we will recognize any further amounts with respect to these fair value adjustments as a result of the conversion of all outstanding warrants to purchase our preferred stock into warrants to purchase our common stock in connection with the completion of our initial public offering, or the IPO.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no significant changes to our critical accounting policies since the beginning of this fiscal year. Our critical accounting policies are described under Management's Discussion and Analysis of Financial Condition and Results of Operations in the Prospectus, which was filed with the SEC on November 7, 2013 pursuant to Rule 424(b) under the Exchange Act.

Results of Operations

Comparison of the Three Months Ended September 30, 2013 and 2012

The following table summarizes the results of our operations for each of the
three months ended September 30, 2013 and 2012, together with the changes in
those items in dollars and as a percentage:



                                    Three Months Ended
                                       September 30,            Increase/
                                    2013           2012         (decrease)         %
                                                     (in thousands)
     Revenues                     $   2,166      $  2,537      $       (371 )       (15 )%
     Operating expenses:
     Research and development         9,992         4,419             5,573         126 %
     General and administrative       1,860         1,017               843          83 %

     Total operating expenses        11,852         5,436             6,416         118 %

     Loss from operations            (9,686 )      (2,899 )          (6,787 )       234 %
     Interest income                      3            -                  3         100 %
     Interest expense                  (433 )        (202 )            (231 )       114 %
     Other income                        -             23               (23 )      (100 )%

     Net loss                     $ (10,116 )    $ (3,078 )    $     (7,038 )       229 %

The following table sets forth our contract and grant revenue for the three months ended September 30, 2013 and 2012:

                               Three Months Ended
                                  September 30,           Increase/
            Revenue             2013          2012       (decrease)         %
                                               (in thousands)
            BARDA            $    1,242      $ 1,230     $        12          1 %
            NIAID Contract          914        1,251            (337 )      (27 )%
            NIAID Grant              10           56             (46 )      (82 )%

                             $    2,166      $ 2,537     $      (371 )      (15 )%

Contract and grant revenue was $2.2 million for the three months ended September 30, 2013 compared to $2.5 million for the three months ended September 30, 2012, a decrease of approximately $0.4 million, or 15%. This decrease was primarily due to the timing and scope of preclinical activities under our subcontract with respect to the NIAID Contract conducted during the period.


Table of Contents

Research and Development Expenses

Research and development expenses for the three months ended September 30, 2013 were $10.0 million compared to $4.4 million for the three months ended September 30, 2012, an increase of $5.6 million or 126%. This increase was primarily due to an increase of $2.4 million in clinical and drug manufacturing costs associated with our ongoing Phase 3 clinical trial for cIAI; a $2.0 million milestone fee under our license agreement with Harvard University that we incurred during the three months ended September 30, 2013 in connection with the dosing of the first patient in our Phase 3 cIAI clinical trial; an increase of $0.8 million in clinical and drug manufacturing costs associated with the preparation for our Phase 3 cUTI clinical trial; and an increase of $0.7 million in development costs associated with the Phase 1 clinical trials of the oral formulation of eravacycline. These increases were offset in part by a decrease in clinical costs of $0.8 million attributable to wind-down costs incurred during the three months ended September 30, 2012 following the completion of our Phase 2 clinical trial of eravacycline in the first half of 2012.

General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2013 were $1.9 million compared to $1.0 million for the three months ended September 30, 2012, an increase of $0.8 million or 83%. This increase was primarily due to an increase of $0.3 million in audit, legal, insurance and consulting costs primarily due to operating as a public company; and an increase in personnel-related costs of $0.2 million.

Interest Income

Interest income for the three months ended September 30, 2013 and September 30, 2012 was immaterial.

Interest Expense

Interest expense for the three months ended September 30, 2013 was $0.4 million . . .

  Add TTPH to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for TTPH - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.