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SRNE
Sorrento Therapeutics, Inc.
false
Smaller Reporting Company
2014
10-Q
2014-06-30
0000850261
--12-31
Q2
12.99
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>New Accounting Standards</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In May 2014, Financial Accounting Standards Board (the
“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-09 “Revenue from Contracts with
Customers” (Topic 606). The guidance of this Update effects
any entities that either issues contracts with customers or
transfer goods or services or enters into contracts for the
transfer of non-financial assets. The core principal of the
guidance is that an entity should recognize revenue to depict the
transfer of promised goods or services to customers in the amount
that reflects the consideration to which the entity expects to be
entitled in exchange for those goods and services. To achieve those
core principals, the ASU specifies steps that the entity should
apply for revenue recognition. The guidance also specifies the
accounting for some costs to obtain or fulfill the contract with
customer and disclosure requirements to enable users of financial
statements to understand the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with
customers. ASU No. 2014-09 is effective for annual reporting period
beginning after December 15, 2016, including interim periods within
that reporting period. Early application is not permitted. The
Company is currently evaluating the potential impact that adoption
may have on its consolidated financial statements.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In May 2014, the FASB issued ASU No. 2014-10 “Development
Stage Entities” (Topic 915). The objective of the ASU is to
improve financial reporting by reducing the cost and complexity of
associated with the incremental reporting requirements for
development stage entities. The ASU removes all incremental
financial reporting requirements from U.S. GAAP for development
stage entities, including the inception-to-date information and
certain other disclosures. The ASU also eliminates an exception
provided to development stage entities in Topic 810
“Consolidation” for determining whether an entity is a
variable interest entity on the basis of amount of investment
equity at risk. For public business entities, those amendments are
effective for annual reporting periods beginning after December 15,
2014, and interim periods therein. Earlier adoption is permitted
for any annual or interim period for which financial statements
have not yet been issued. The Company will adopt Topic 915
effective with the filing of its Form 10-Q as of and for the
three and nine months ended September 30, 2014.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In June 2014, the FASB issued ASU No. 2014-12 “Compensation
– Stock Compensation” (Topic 718). The ASU provides
guidance for accounting for share-based payments when the terms of
an award provide that a performance target could be achieved after
the requisite service period. That is the case when an employee is
eligible to retire or otherwise terminate employment before the end
of the period in which a performance target could be achieved and
still be eligible to vest in the award if and when the performance
target is achieved. The amendment requires a performance target
that affects vesting and that could be achieved after requisite
service period be treated as a performance condition. Compensation
cost should be recognized in the period in which it becomes
probable that such performance condition would be achieved and
should represent the compensation cost attributable to the periods
for which the requisite service has already been rendered. Those
amendments are effective for annual reporting periods beginning
after December 15, 2015, and interim periods therein. The Company
will adopt ASU No. 2014-12 on January 1, 2016. The Company is
currently evaluating the potential impact that adoption may have on
its consolidated financial statements.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>3. Mergers and Acquisitions</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
On September 9, 2013, the Company exercised its option to
acquire IgDraSol whereby IgDraSol became a wholly-owned subsidiary
and the Company acquired all rights to Cynviloq. Pursuant to the
merger agreement, the Company issued 3,006,641 shares of common
stock to IgDraSol stockholders and paid $382 in cash. [Upon the
later achievement of a specified regulatory milestone, the Company
will issue an additional 1,306,272 shares of common stock to
former IgDraSol stockholders. The Company’s lead compound is
Cynviloq, a micellar paclitaxel formulation drug product. Cynviloq
is currently approved and marketed in several countries, including
South Korea for MBC and NSCLC under the trade name
Genexol-PM<sup style="FONT-SIZE: 85%; VERTICAL-ALIGN: top">®</sup>. The Company
licensed exclusive distribution rights for Cynviloq in North
America, the 27 countries of the European Union, and Australia,
from Samyang Biopharmaceuticals Corporation, a South Korean
corporation.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
On October 9, 2013, the Company entered into an Agreement and
Plan of Merger and Reorganization and acquired privately-held
Sherrington in exchange for 200,000 shares of its common stock, for
an aggregate purchase price of $1,698 which was recognized as
acquired in-process research and development expense. Sherrington
is focused on the development of a treatment for intractable pain
in end-stage disease. RTX is a novel, non-opiate, small molecule
that permanently eliminates pain experienced by end-stage cancer
patients when directly interacting with the nerve cells. RTX is
currently being tested in an investigator-sponsored Phase I/II
clinical trial under a Cooperative Research and Development
Agreement. To date, 10 patients with terminal cancer pain have been
treated at the NIH. The Company intends to launch additional trials
to rapidly advance clinical development of the drug in patients
with terminal cancer pain.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
On December 19, 2013, the Company completed its Agreement and
Plan of Merger and acquired privately-held Concortis. Upon closing,
the Company issued an aggregate of 1,331,978 shares of its
common stock to the Concortis shareholders. Certain Concortis
employees and consultants received $1,000 in compensation for the
year ending December 31, 2013, and are to receive annual
deferred compensation payments totaling $1,000 on December 31
for each of the years ending 2014, 2015, and 2016. The net present
value of the deferred compensation payments was calculated using
the effective interest method, and is included in the purchase
price. The total transaction is valued at $14.7 million. Concortis,
now a wholly-owned subsidiary, has proprietary cytotoxic payloads
as well as C-lock<sup style="FONT-SIZE: 85%; VERTICAL-ALIGN: top">®</sup> and
K-lock<sup style="FONT-SIZE: 85%; VERTICAL-ALIGN: top">®</sup>
conjugation technologies that allow for site-specific toxin
conjugation to the antibody. These next generation technologies may
improve the overall stability and potency of the ADCs.
First-generation conjugation technologies lead to inconsistent
drug-antibody ratios, which result in a heterogeneous mixture of
ADCs. This variability has been a constraining factor in unlocking
the full therapeutic potential for current-generation ADCs. The ADC
technology complements the Company’s existing development
programs, particularly its G-MAB<sup style="FONT-SIZE: 85%; VERTICAL-ALIGN: top">®</sup> antibody library
and related monoclonal antibodies. Concortis uses its proprietary
technologies to provide various customized reagents as well as drug
conjugation services to customers in the pharmaceutical
industry.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt; TEXT-INDENT: 4%">
The IgDraSol, Sherrington and Concortis acquisitions have been
accounted for in accordance with the acquisition method of
accounting under FASB ASC Topic 805, “<i>Business
Combinations”</i> (“Topic 805”). Topic 805
requires, among other things, that identifiable assets acquired and
liabilities assumed be recognized at their fair values which are
based in part on third party appraisals as of the Acquisition Date.
Under the acquisition method of accounting, the purchase
consideration was allocated to the assets acquired, including
tangible assets and other identifiable intangible assets and
liabilities assumed, based on their estimated fair market values on
the date of acquisition. Any excess purchase price after the
initial allocation to identifiable net tangible and identifiable
intangible assets was assigned to goodwill. These completed
acquisitions have been accounted for as purchases and the results
of operations have been included in the consolidated financial
statements since their respective dates of acquisition.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The following unaudited pro forma consolidated financial
information summarizes the combined results of operations for the
Company as though the IgDraSol, Sherrington and Concortis
acquisitions occurred as of January 1, 2013. The unaudited pro
forma financial information for all periods presented also includes
the business combination accounting effects resulting from these
acquisitions including amortization charges from acquired
intangible assets. The unaudited pro forma financial information as
presented below is for informational purposes only and does not
purport to be indicative of the results of operations for future
periods or the results what actually would have been realized had
the entities been a single entity during these periods. The
unaudited pro forma combined results are presented in thousands,
except share and per share information.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr>
<td width="62%"></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>Three Months<br />
Ended June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center">
<b>Six Months Ended June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b><br />
<b>As</b><br />
<b>Reported</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b><br />
<b>Pro Forma</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b><br />
<b>As Reported</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b><br />
<b>Pro<br />
Forma</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Total Revenues</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">775</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">961</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,751</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,561</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Loss from operations</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(7,991</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(4,938</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(17,865</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(12,981</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Net loss</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(8,454</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(5,044</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(18,547</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(13,179</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Net loss per share—basic and diluted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.33</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.28</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.77</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.76</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 18pt">
<b><i>Goodwill</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Goodwill represents the excess of purchase price over fair value of
net assets acquired in a business combination accounted for by the
acquisition method of accounting and is not amortized, but subject
to impairment testing at least annually or when a triggering event
is identified that could indicate a potential impairment. We test
our goodwill annually, or quarterly when events or changes in
circumstances warrant, for impairment in the fourth quarter of each
year. We are organized as a single reporting unit and perform
impairment testing by comparing the carrying value of the reporting
unit to the market value of the Company. No impairment to the
carrying value of this goodwill has been identified from Inception
through June 30, 2014.</p>
</div>
P10Y
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 18pt">
<b><i>Stock-based Compensation</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The Company accounts for stock-based compensation in accordance
with FASB ASC Topic 718, which establishes accounting for equity
instruments exchanged for employee services. Under such provisions,
stock-based compensation cost is measured at the grant date, based
on the calculated fair value of the award, and is recognized as an
expense, under the straight-line method, over the employee’s
requisite service period (generally the vesting period of the
equity grant).</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The Company accounts for equity instruments, including restricted
stock or stock options, issued to non-employees in accordance with
authoritative guidance for equity based payments to non-employees.
Stock options issued to non-employees are accounted for at their
estimated fair value determined using the Black-Scholes
option-pricing model. The fair value of options granted to
non-employees is re-measured as they vest, and the resulting
increase in value, if any, is recognized as expense during the
period the related services are rendered. Restricted stock issued
to non-employees is accounted for at their estimated fair value as
they vest.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Revenue Recognition</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company’s inception to date grant revenues are generated
primarily from three NIH and two U.S. Department of Treasury (or
U.S. Treasury) grant awards and a feasibility study agreement, or
the Collaboration Agreement entered into with a third party in July
2010, and from revenues generated from sales and services from the
sale of customized reagents and providing professional services.
The revenue from the NIH and U.S. Treasury grant awards are based
upon subcontractor and internal costs incurred that are
specifically covered by the grant, and where applicable, a
facilities and administrative rate that provides funding for
overhead expenses. These revenues are recognized when expenses have
been incurred by subcontractors or when the Company incurs internal
expenses that are related to the grant.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The revenue from the Collaboration Agreement was derived from the
completion of certain development services and the reimbursement of
certain development costs incurred to provide such development
services. Revenue from upfront, nonrefundable service fees are
recognized when earned, as evidenced by written acknowledgement
from the collaborator, or other persuasive evidence that all
service deliverables have been achieved, provided that the service
deliverables are substantive and their achievability was not
reasonably assured at the inception of the Collaboration Agreement.
Any amounts received prior to satisfying the Company’s
revenue recognition criteria are recorded as deferred revenue.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Revenues from sales and services are generated from the sale of
customized reagents and providing professional services. Reagents
are used for preparing ADCs, these reagents include industrial
standard cytotoxins, linkers, and linker-toxins. The
professional services include providing synthetic expertise to
customer’s synthesis by delivering them proprietary
cytotoxins, linkers and linker-toxins and ADC service using
industry standard toxin and antibodies provided by
customers. Revenue is recognized when, (i) persuasive
evidence of an arrangement exists, (ii) the product has been
shipped or the services have been rendered, (iii) the price is
fixed or determinable, and (iv) collectability is reasonably
assured.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company is obligated to accept from customers the return of
products sold that are damaged or don’t meet certain
specifications. The Company may authorize the return of products
sold in accordance with the terms of its sales contracts, and
estimates allowances for such amounts at the time of sale. The
Company has not experienced any sales returns.</p>
</div>
1.02
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 0pt">
<b><i>Comprehensive Income (Loss)</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Comprehensive income (loss) is defined as the change in equity
during a period from transactions and other events and
circumstances from non-owner sources. The Company is required to
record all components of comprehensive loss in the consolidated
financial statements in the period in which they are recognized.
Net income (loss) and other comprehensive loss, including foreign
currency translation adjustments and unrealized gains and losses on
investments, are reported, net of their related tax effect, to
arrive at comprehensive loss. For the three and six months ended
June 30, 2014 and 2013, the comprehensive loss was equal to
the net loss.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 18pt">
<b><i>Liquidity</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The Company anticipates that it will continue to incur net losses
into the foreseeable future as it: (i) conducts its
bioequivalence, or BE, registration trial relates to Cynviloq and
prepares for its New Drug Application filing anticipated in 2015,
(ii) advances RTX into clinical trials and potentially pursues
other human indications, (iii) funds Ark activities in
anticipation of Ark securing stand-alone financing,
(iv) continues to identify and advance a number of potential
mAb and ADC drug candidates into preclinical and clinical
development activities, (v) continues development of, and
seeks regulatory approvals for, its product candidates, and begin
to commercialize any approved products, and (vi) expands
corporate infrastructure, including the costs associated with being
a NASDAQ listed public company.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In May 2014, the Company closed an underwritten public offering of
4,765,000 shares of common stock, at $5.25 per share, and in June
2014, closed the full exercise of the over-allotment option granted
to the representative of the underwriters to purchase an additional
714,750 shares of its common stock, with total gross proceeds of
$28.8 million, before underwriting discounts and commissions and
other offering expenses payable by the Company.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In March 2014, the Company entered into an amended and restated
loan and security agreement, increasing the September 2013 facility
to $12,500 from $5,000, with the same two banks, which was funded
at closing. The interest rate on the amended and restated loan is
7.95% per annum. The Company will make interest only payments
on the outstanding amount of the loan on a monthly basis until
October 1, 2014, after which equal monthly payments of
principal and interest are due until the Term Loan maturity date of
September 30, 2017. In the event the Company raises $30
million of net equity or proceeds from a collaboration, if any, the
interest only period will be extended by six months. See Note 5.
Management believes the Company has the ability to meet all
obligations due over the course of the next twelve months.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt; TEXT-INDENT: 4%">
The Company plans to continue to fund its operating losses and
capital funding needs through public or private equity or debt
financings, strategic collaborations, licensing arrangements, asset
sales, government grants or other arrangements. The Company filed a
universal shelf registration statement on Form S-3 with the
Securities and Exchange Commission (“SEC”), which was
declared effective by the SEC in July 2013. The Shelf Registration
Statement provides the Company the ability to offer up to $100
million of securities, including equity and other securities as
described in the registration statement. After the May 2014
underwritten offering (see Note 6), the Company has the ability to
offer up to $36.6 million of additional securities. Pursuant to the
Shelf Registration Statement, the Company may offer such securities
from time to time and through one or more methods of distribution,
subject to market conditions and the Company’s capital needs.
Specific terms and prices will be determined at the time of each
offering under a separate prospectus supplement, which will be
filed with the SEC at the time of any offering. However, the
Company cannot be sure that such additional funds will be available
on reasonable terms, or at all. If the Company is unable to secure
adequate additional funding, the Company may be forced to make
reductions in spending, extend payment terms with suppliers,
liquidate assets where possible, and/or suspend or curtail planned
programs. In addition, if the Company does not meet its payment
obligations to third parties as they come due, it may be subject to
litigation claims. Even if the Company is successful in defending
against these claims, litigation could result in substantial costs
and be a distraction to management. Any of these actions could
materially harm the Company’s business, results of
operations, and future prospects.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
If the Company raises additional funds by issuing equity
securities, substantial dilution to existing stockholders would
result. If the Company raises additional funds by incurring debt
financing, the terms of the debt may involve significant cash
payment obligations as well as covenants and specific financial
ratios that may restrict the Company’s ability to operate its
business.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>5. Loan and Security Agreement</b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
In September 2013, the Company entered into a $5,000 loan and
security agreement with two banks pursuant to which: (i) the
lenders provided the Company a term loan which was funded at
closing, (ii) the Company repaid its then outstanding
equipment loan balance of $762, and (iii) the lenders received
a warrant to purchase an aggregate 31,250 shares of the
Company’s common stock at an exercise price of $8.00 per
share exercisable for seven years from the date of issuance. The
value of the warrants, totaling $215, was recorded as debt discount
and additional paid-in capital.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In March 2014, the Company entered into an amended and restated
loan and security agreement, increasing the September 2013 facility
to $12,500 from $5,000, with the same two banks. Such loan was
funded at closing and is secured by a lien covering substantially
all of the Company’s assets, excluding intellectual property,
which is subject to a negative pledge. The Company will make
interest only payments on the outstanding amount of the loan on a
monthly basis until October 1, 2014, after which equal monthly
payments of principal and interest are due until the loan maturity
date of September 30, 2017. In the event the Company raises
$30 million of net equity or proceeds from a collaboration, if
any, the interest only period will be extended by six months. The
amended and restated loan: (i) interest rate is 7.95% per
annum, and (ii) provided the Lenders additional warrants to
purchase an aggregate of 34,642 shares of the Company’s
common stock at an exercise price of $12.99 per share,
exercisable for seven years from the date of issuance. The value of
the warrants, totaling $322, was recorded as debt discount and
additional paid-in capital.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
At the Company’s option, it may prepay all of the outstanding
principal balance, subject to certain pre-payment fees ranging from
1% to 3% of the prepayment amount. In the event of a final payment
of the loans under the loan agreement, either in the event of
repayment of the loan at maturity or upon any prepayment, the
Company is obligated to pay the amortized portion of the final fee
of $781.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The Company is also subject to certain affirmative and negative
covenants under the loan agreement, including limitations on its
ability to: undergo certain change of control events; convey, sell,
lease, license, transfer or otherwise dispose of any equipment
financed by loans under the loan agreement; create, incur, assume,
guarantee or be liable with respect to indebtedness, subject to
certain exceptions; grant liens on any equipment financed under the
loan agreement; and make or permit any payment on specified
subordinated debt. In addition, under the loan agreement, subject
to certain exceptions, the Company is required to maintain with the
lender its primary operating, other deposit and securities
accounts.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 18px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt; TEXT-INDENT: 4%">
Long-term debt and unamortized discount balances are as follows (in
thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0">
<tr>
<td width="88%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Face value of amended and restated loan</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">12,500</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Fair value of all warrants</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(536</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accretion of debt discount</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">86</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Balance at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">12,050</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Future minimum payments under the amended and restated loan and
security agreement are as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0">
<tr>
<td width="88%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<b>Year Ending December 31,</b></p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,347</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
2015</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,697</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
2016</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,697</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
2017</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,304</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Total future minimum payments</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">15,045</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Unamortized interest</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(2,546</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Debt discount</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(449</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Total minimum payment</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">12,050</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Current portion</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(2,608</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Long-term debt</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,442</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
2017-09-30
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Future minimum payments under the amended and restated loan and
security agreement are as follows:</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0">
<tr>
<td width="88%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<b>Year Ending December 31,</b></p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,347</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
2015</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,697</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
2016</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,697</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
2017</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">4,304</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Total future minimum payments</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">15,045</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Unamortized interest</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(2,546</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Debt discount</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(449</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Total minimum payment</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">12,050</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Current portion</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(2,608</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 3em; TEXT-INDENT: -1em">
Long-term debt</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">9,442</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>1. Nature of Operations, Summary of Significant Accounting
Policies and Business Activities</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Nature of Operations and Basis of Presentation</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Sorrento Therapeutics, Inc. (NASDAQ: SRNE), together with its
wholly-owned subsidiaries (collectively, the “Company”)
is a biopharmaceutical company focused on the discovery,
acquisition, development and commercialization of proprietary drug
therapeutics for addressing significant unmet medical needs in the
U.S., Europe and additional international markets. The
Company’s primary therapeutic focus is oncology, including
the treatment of chronic cancer pain, but is also developing
therapeutic products for other indications, including immunology
and infectious diseases. The Company’s pipeline consists of
its lead oncology product candidate Cynviloq™, a micellar
paclitaxel formulation, resiniferatoxin (or RTX), a non-opiate,
ultra potent and selective agonist of the TRPV-1 receptor for
intractable pain in end-stage disease, as well as fully human
therapeutic antibodies derived from its proprietary
G-MAB<sup style="FONT-SIZE: 11px; VERTICAL-ALIGN: top">®</sup> library
platform and antibody drug conjugates, or ADCs, and recombinant
intravenous immunoglobulin, or rIVIG. In addition, the Company
generates revenues from sales and services from the sale of
customized reagents and providing professional services.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
As of June 30, 2014, the Company had devoted substantially all
of its efforts to product development, raising capital and building
infrastructure, and had not realized revenues from its planned
principal operations. Accordingly, the Company is considered to be
in the development stage.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The accompanying interim consolidated financial statements have
been prepared by the Company, without audit, in accordance with the
instructions to Form 10-Q and, therefore, do not necessarily
include all information and footnotes necessary for a fair
statement of its financial position, results of operations and cash
flows in accordance with United States generally accepted
accounting principles (GAAP). The accompanying consolidated
financial statements include the accounts of the Company’s
wholly-owned subsidiaries; IgDraSol, Inc., or IgDraSol; Sherrington
Pharmaceuticals, Inc., or Sherrington; Concortis Biosystems, Corp.,
or Concortis; Ark Animal Health, Inc., or Ark; and Sorrento
Therapeutics, Inc. Hong Kong Limited, or Sorrento Hong Kong, which
was registered effective December 4, 2012. Sherrington and
Sorrento Hong Kong had no operating activity through June 2014. All
intercompany balances and transactions have been eliminated in
consolidation.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The balance sheet at December 31, 2013 is derived from the
audited consolidated balance sheet at that date which is not
presented herein.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In the opinion of management, the unaudited financial information
for the interim periods presented reflects all adjustments, which
are only normal and recurring, necessary for a fair statement of
financial position, results of operations and cash flows. These
consolidated financial statements should be read in conjunction
with the consolidated financial statements included in the
Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2013. Operating results for interim periods
are not expected to be indicative of operating results for the
Company’s 2014 fiscal year.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Liquidity</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company anticipates that it will continue to incur net losses
into the foreseeable future as it: (i) conducts its
bioequivalence, or BE, registration trial relates to Cynviloq and
prepares for its New Drug Application filing anticipated in 2015,
(ii) advances RTX into clinical trials and potentially pursues
other human indications, (iii) funds Ark activities in
anticipation of Ark securing stand-alone financing,
(iv) continues to identify and advance a number of potential
mAb and ADC drug candidates into preclinical and clinical
development activities, (v) continues development of, and
seeks regulatory approvals for, its product candidates, and begin
to commercialize any approved products, and (vi) expands
corporate infrastructure, including the costs associated with being
a NASDAQ listed public company.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In May 2014, the Company closed an underwritten public offering of
4,765,000 shares of common stock, at $5.25 per share, and in June
2014, closed the full exercise of the over-allotment option granted
to the representative of the underwriters to purchase an additional
714,750 shares of its common stock, with total gross proceeds of
$28.8 million, before underwriting discounts and commissions and
other offering expenses payable by the Company.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In March 2014, the Company entered into an amended and restated
loan and security agreement, increasing the September 2013 facility
to $12,500 from $5,000, with the same two banks, which was funded
at closing. The interest rate on the amended and restated loan is
7.95% per annum. The Company will make interest only payments
on the outstanding amount of the loan on a monthly basis until
October 1, 2014, after which equal monthly payments of
principal and interest are due until the Term Loan maturity date of
September 30, 2017. In the event the Company raises $30
million of net equity or proceeds from a collaboration, if any, the
interest only period will be extended by six months. See Note 5.
Management believes the Company has the ability to meet all
obligations due over the course of the next twelve months.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company plans to continue to fund its operating losses and
capital funding needs through public or private equity or debt
financings, strategic collaborations, licensing arrangements, asset
sales, government grants or other arrangements. The Company filed a
universal shelf registration statement on Form S-3 with the
Securities and Exchange Commission (“SEC”), which was
declared effective by the SEC in July 2013. The Shelf Registration
Statement provides the Company the ability to offer up to $100
million of securities, including equity and other securities as
described in the registration statement. After the May 2014
underwritten offering (see Note 6), the Company has the ability to
offer up to $36.6 million of additional securities. Pursuant to the
Shelf Registration Statement, the Company may offer such securities
from time to time and through one or more methods of distribution,
subject to market conditions and the Company’s capital needs.
Specific terms and prices will be determined at the time of each
offering under a separate prospectus supplement, which will be
filed with the SEC at the time of any offering. However, the
Company cannot be sure that such additional funds will be available
on reasonable terms, or at all. If the Company is unable to secure
adequate additional funding, the Company may be forced to make
reductions in spending, extend payment terms with suppliers,
liquidate assets where possible, and/or suspend or curtail planned
programs. In addition, if the Company does not meet its payment
obligations to third parties as they come due, it may be subject to
litigation claims. Even if the Company is successful in defending
against these claims, litigation could result in substantial costs
and be a distraction to management. Any of these actions could
materially harm the Company’s business, results of
operations, and future prospects.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
If the Company raises additional funds by issuing equity
securities, substantial dilution to existing stockholders would
result. If the Company raises additional funds by incurring debt
financing, the terms of the debt may involve significant cash
payment obligations as well as covenants and specific financial
ratios that may restrict the Company’s ability to operate its
business.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Use of Estimates</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The preparation of consolidated financial statements in conformity
with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of expenses during
the reporting period. Management believes that these estimates are
reasonable; however, actual results may differ from these
estimates.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Cash and Cash Equivalents</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
The Company minimizes its credit risk associated with cash and cash
equivalents by periodically evaluating the credit quality of its
primary financial institution. The balance at times may exceed
federally insured limits. The Company has not experienced any
losses on such accounts.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Fair Value of Financial Instruments</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company’s financial instruments consist of cash and cash
equivalents, grants and accounts receivable, prepaid expenses and
other assets, accounts payable and accrued expenses. Fair value
estimates of these instruments are made at a specific point in
time, based on relevant market information. These estimates may be
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision. As of June 30, 2014 and December 31, 2013, the
carrying amount of cash and cash equivalents, grants and accounts
receivable, prepaid expenses and other assets, accounts payable and
accrued liabilities are generally considered to be representative
of their respective fair values because of the short-term nature of
those instruments.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Grants and Accounts Receivable</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Grants receivable at June 30, 2014 and December 31, 2013
represent amounts due under several federal contracts with the
National Institute of Allergy and Infectious Diseases, or NIAID, a
division of the National Institutes of Health, or NIH,
collectively, the NIH Grants. The Company considers the grants
receivable to be fully collectible; accordingly, no allowance for
doubtful amounts has been established. If amounts become
uncollectible, they are charged to operations.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Accounts receivable at June 30, 2014 and December 31,
2013 consists of trade receivables from sales and services provided
to certain customers, which are generally unsecured and due within
30 days. Estimated credit losses related to trade accounts
receivable are recorded as general and administrative expenses and
as an allowance for doubtful accounts within grants and accounts
receivable, net. The Company reviews reserves and makes adjustments
based on historical experience and known collectability issues and
disputes. When internal collection efforts on accounts have been
exhausted, the accounts are written off by reducing the allowance
for doubtful accounts. As of June 30, 2014 and
December 31, 2013, the allowance for doubtful accounts was $9
and $0, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Property and Equipment</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Property and equipment are carried at cost less accumulated
depreciation. Depreciation of property and equipment is computed
using the straight-line method over the estimated useful lives of
the assets, which are generally three to five years. Leasehold
improvements are amortized over the lesser of the life of the lease
or the life of the asset. Repairs and maintenance are charged to
expense as incurred.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; MARGIN-TOP: 18px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Acquisitions and Intangibles</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company has engaged in business combination activity. The
accounting for business combinations requires management to make
judgments and estimates of the fair value of assets acquired,
including the identification and valuation of intangible assets, as
well as liabilities assumed. Such judgments and estimates directly
impact the amount of goodwill recognized in connection with each
acquisition, as goodwill presents the excess of the purchase price
of an acquired business over the fair value of its net tangible and
identifiable intangible assets.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Patent rights are stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the assets, determined to
be approximately nineteen years from the date of transfer of the
rights to the Company in April 2013. Amortization expense for the
three months ended June 30, 2014 and 2013 and for the period
from inception (January 25, 2006) (“Inception”) through
June 30, 2014 was $1, $1 and $6, respectively. Amortization
expense for the six months ended June 30, 2014 and 2013 was $2
and $2, respectively, all such costs have been included in
intangibles amortization.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
License rights are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets,
determined to be approximately fifteen years from the date of
acquisition of the rights in September 2013. Amortization expense
for the three and six months ended June 30, 2014 and for the
period from Inception through June 30, 2014 was $475, $950 and
$1,536, respectively, which has been included in intangibles
amortization.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Acquired technology is stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets,
determined to be approximately nineteen years from the date of
acquisition of the technology in December 2013. Amortization
expense for the three and six months ended June 30, 2014 and
for the period from Inception through June 30, 2014 was $44,
$88 and $94, respectively, which has been included in intangibles
amortization.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Customer relationships are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets,
determined to be approximately five years from the date of
acquisition in December 2013. Amortization expense for the three
and six months ended June 30, 2014 and for the period from
Inception through June 30, 2014 was $66, $132 and $141,
respectively, which has been included in intangibles
amortization.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Impairment of Long-Lived Assets</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company evaluates its long-lived assets with definite lives,
such as property and equipment, acquired technology, customer
relationships, patent and license rights, for impairment by
considering competition by products prescribed for the same
indication, the likelihood and estimated future entry of
non-generic and generic competition with the same or similar
indication and other related factors. The factors that drive the
estimate of the life are often uncertain and are reviewed on a
periodic basis or when events occur that warrant review.
Recoverability is measured by comparison of the assets’ book
value to future net undiscounted cash flows that the assets are
expected to generate. There have not been any impairment losses of
long-lived assets through June 30, 2014.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Goodwill</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Goodwill represents the excess of purchase price over fair value of
net assets acquired in a business combination accounted for by the
acquisition method of accounting and is not amortized, but subject
to impairment testing at least annually or when a triggering event
is identified that could indicate a potential impairment. We test
our goodwill annually, or quarterly when events or changes in
circumstances warrant, for impairment in the fourth quarter of each
year. We are organized as a single reporting unit and perform
impairment testing by comparing the carrying value of the reporting
unit to the market value of the Company. No impairment to the
carrying value of this goodwill has been identified from Inception
through June 30, 2014.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Revenue Recognition</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company’s inception to date grant revenues are generated
primarily from three NIH and two U.S. Department of Treasury (or
U.S. Treasury) grant awards and a feasibility study agreement, or
the Collaboration Agreement entered into with a third party in July
2010, and from revenues generated from sales and services from the
sale of customized reagents and providing professional services.
The revenue from the NIH and U.S. Treasury grant awards are based
upon subcontractor and internal costs incurred that are
specifically covered by the grant, and where applicable, a
facilities and administrative rate that provides funding for
overhead expenses. These revenues are recognized when expenses have
been incurred by subcontractors or when the Company incurs internal
expenses that are related to the grant.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The revenue from the Collaboration Agreement was derived from the
completion of certain development services and the reimbursement of
certain development costs incurred to provide such development
services. Revenue from upfront, nonrefundable service fees are
recognized when earned, as evidenced by written acknowledgement
from the collaborator, or other persuasive evidence that all
service deliverables have been achieved, provided that the service
deliverables are substantive and their achievability was not
reasonably assured at the inception of the Collaboration Agreement.
Any amounts received prior to satisfying the Company’s
revenue recognition criteria are recorded as deferred revenue.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Revenues from sales and services are generated from the sale of
customized reagents and providing professional services. Reagents
are used for preparing ADCs, these reagents include industrial
standard cytotoxins, linkers, and linker-toxins. The
professional services include providing synthetic expertise to
customer’s synthesis by delivering them proprietary
cytotoxins, linkers and linker-toxins and ADC service using
industry standard toxin and antibodies provided by
customers. Revenue is recognized when, (i) persuasive
evidence of an arrangement exists, (ii) the product has been
shipped or the services have been rendered, (iii) the price is
fixed or determinable, and (iv) collectability is reasonably
assured.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company is obligated to accept from customers the return of
products sold that are damaged or don’t meet certain
specifications. The Company may authorize the return of products
sold in accordance with the terms of its sales contracts, and
estimates allowances for such amounts at the time of sale. The
Company has not experienced any sales returns.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Acquired In-Process Research and Development
Expense</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company has acquired and may continue to acquire the rights to
develop and commercialize new drug candidates. The up-front
payments to acquire a new drug compound, as well as future
milestone payments, are immediately expensed as acquired in-process
research and development provided that the drug has not achieved
regulatory approval for marketing and, absent obtaining such
approval, have no alternative future use.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Research and Development Costs and Collaborations</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
All research and development costs are charged to expense as
incurred. Such costs primarily consist of lab supplies, contract
services, stock-based compensation expense, salaries and related
benefits.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Income Taxes</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The provisions of the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification
(“ASC”) 740-10, Uncertainty in Income Taxes, address
the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial
statements. Under ASC 740-10, the Company may recognize the tax
benefit from an uncertain tax position only if it is more likely
than not that the tax position will be sustained on examination by
taxing authorities, based on the technical merits of the position.
The Company has determined that it has no uncertain tax
positions.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company accounts for income taxes using the asset and liability
method to compute the differences between the tax basis of assets
and liabilities and the related financial amounts, using currently
enacted tax rates.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company has deferred tax assets, which are subject to periodic
recoverability assessments. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount that
more likely than not will be realized. The Company evaluates the
recoverability of the deferred tax assets annually. As of
June 30, 2014, the Company maintained a full valuation
allowance against its deferred tax assets.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Stock-based Compensation</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company accounts for stock-based compensation in accordance
with FASB ASC Topic 718, which establishes accounting for equity
instruments exchanged for employee services. Under such provisions,
stock-based compensation cost is measured at the grant date, based
on the calculated fair value of the award, and is recognized as an
expense, under the straight-line method, over the employee’s
requisite service period (generally the vesting period of the
equity grant).</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company accounts for equity instruments, including restricted
stock or stock options, issued to non-employees in accordance with
authoritative guidance for equity based payments to non-employees.
Stock options issued to non-employees are accounted for at their
estimated fair value determined using the Black-Scholes
option-pricing model. The fair value of options granted to
non-employees is re-measured as they vest, and the resulting
increase in value, if any, is recognized as expense during the
period the related services are rendered. Restricted stock issued
to non-employees is accounted for at their estimated fair value as
they vest.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Net Loss per Share</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Net loss per share is presented as both basic and diluted net loss
per share. Basic net loss per share excludes any dilutive effects
of options, shares subject to repurchase and warrants. Diluted net
loss per share includes the impact of potentially dilutive
securities. No dilutive effect was calculated for the three and six
months ended June 30, 2014 and 2013 as the Company reported a
net loss for each respective period and the effect would have been
anti-dilutive. The Company had outstanding common share equivalents
of 1,854,626 and 455,000 at June 30, 2014 and 2013,
respectively.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; MARGIN-TOP: 18px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>Comprehensive Income (Loss)</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Comprehensive income (loss) is defined as the change in equity
during a period from transactions and other events and
circumstances from non-owner sources. The Company is required to
record all components of comprehensive loss in the consolidated
financial statements in the period in which they are recognized.
Net income (loss) and other comprehensive loss, including foreign
currency translation adjustments and unrealized gains and losses on
investments, are reported, net of their related tax effect, to
arrive at comprehensive loss. For the three and six months ended
June 30, 2014 and 2013, the comprehensive loss was equal to
the net loss.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b><i>New Accounting Standards</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In May 2014, Financial Accounting Standards Board (the
“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-09 “Revenue from Contracts with
Customers” (Topic 606). The guidance of this Update effects
any entities that either issues contracts with customers or
transfer goods or services or enters into contracts for the
transfer of non-financial assets. The core principal of the
guidance is that an entity should recognize revenue to depict the
transfer of promised goods or services to customers in the amount
that reflects the consideration to which the entity expects to be
entitled in exchange for those goods and services. To achieve those
core principals, the ASU specifies steps that the entity should
apply for revenue recognition. The guidance also specifies the
accounting for some costs to obtain or fulfill the contract with
customer and disclosure requirements to enable users of financial
statements to understand the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with
customers. ASU No. 2014-09 is effective for annual reporting period
beginning after December 15, 2016, including interim periods within
that reporting period. Early application is not permitted. The
Company is currently evaluating the potential impact that adoption
may have on its consolidated financial statements.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In May 2014, the FASB issued ASU No. 2014-10 “Development
Stage Entities” (Topic 915). The objective of the ASU is to
improve financial reporting by reducing the cost and complexity of
associated with the incremental reporting requirements for
development stage entities. The ASU removes all incremental
financial reporting requirements from U.S. GAAP for development
stage entities, including the inception-to-date information and
certain other disclosures. The ASU also eliminates an exception
provided to development stage entities in Topic 810
“Consolidation” for determining whether an entity is a
variable interest entity on the basis of amount of investment
equity at risk. For public business entities, those amendments are
effective for annual reporting periods beginning after December 15,
2014, and interim periods therein. Earlier adoption is permitted
for any annual or interim period for which financial statements
have not yet been issued. The Company will adopt Topic 915
effective with the filing of its Form 10-Q as of and for the
three and nine months ended September 30, 2014.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In June 2014, the FASB issued ASU No. 2014-12 “Compensation
– Stock Compensation” (Topic 718). The ASU provides
guidance for accounting for share-based payments when the terms of
an award provide that a performance target could be achieved after
the requisite service period. That is the case when an employee is
eligible to retire or otherwise terminate employment before the end
of the period in which a performance target could be achieved and
still be eligible to vest in the award if and when the performance
target is achieved. The amendment requires a performance target
that affects vesting and that could be achieved after requisite
service period be treated as a performance condition. Compensation
cost should be recognized in the period in which it becomes
probable that such performance condition would be achieved and
should represent the compensation cost attributable to the periods
for which the requisite service has already been rendered. Those
amendments are effective for annual reporting periods beginning
after December 15, 2015, and interim periods therein. The Company
will adopt ASU No. 2014-12 on January 1, 2016. The Company is
currently evaluating the potential impact that adoption may have on
its consolidated financial statements.</p>
</div>
24202000
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>6. Stockholders’ Equity</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>Common Stock</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Between February 2006 and March 2009 the Company issued 4,414,423
shares of common stock to founders in conjunction with the founding
of the Company and to certain consultants for total proceeds of
approximately $1.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In June 2009, the Company issued 2,360,611 shares of common stock
at $0.98 per share for aggregate gross proceeds of $2,300 in a
private placement transaction. Related stock issuance costs totaled
$26.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In September 2009, and in connection with the Merger, the Company:
(i) issued 1,785,375 shares of common stock, in a private
placement transaction, at $1.12 per share for aggregate gross
proceeds of $2,000, (ii) issued 442,958 shares of common stock
to the former stockholders of QuikByte, and (iii) incurred
costs associated with the Merger totaling $169.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In December 2010, the Company issued 1,028,686 shares of common
stock, in a private placement transaction, at $3.50 per share for
aggregate gross proceeds of $3.6 million. Related stock issuance
costs were estimated at $160. In 2011, the Company reduced its
stock issuance costs accrued in 2010 by $80.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In December 2011, the Company entered into a Stock Purchase
Agreement and issued 500,000 shares of common stock, in a private
placement transaction, at $4.00 per share for aggregate gross
proceeds of $2,000. In May 2012, pursuant to the Stock Purchase
Agreement, as amended and restated, the Company issued 1,500,000
shares of common stock, in a private placement transaction, at
$4.00 per share for aggregate gross proceeds of $6,000.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In January 2013, the Company entered into the assignment agreement
and issued 10,000 shares of common stock valued at $40.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In March 2013, the Company entered into a Stock Purchase Agreement
and issued 1,426,406 shares of common stock, in a private placement
transaction, at $4.50 per share for aggregate gross proceeds of
$6,418.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
On October 30, 2013, the Company closed an underwritten public
offering of 4,150,000 shares of common stock, at $7.25 per share,
and closed the full exercise of the over-allotment option granted
to the representative of the underwriters to purchase an additional
622,500 shares of its common stock, with total gross proceeds of
$34.6 million, before underwriting discounts and commissions
and other offering expenses of $3,254 payable by the Company. The
common stock began trading on The NASDAQ Capital Market on
October 25, 2013 under the symbol “SRNE”.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In January 2014, the Company entered into a research agreement and
issued 25,000 shares of common stock valued at $209.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In May 2014, the Company closed an underwritten public offering of
4,765,000 shares of common stock, at $5.25 per share, and in June
2014, closed the full exercise of the over-allotment option granted
to the representative of the underwriters to purchase an additional
714,750 shares of its common stock, with total gross proceeds of
$28.8 million, before underwriting discounts and commissions and
other offering expenses of $2,071 payable by the Company.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>Purchase Warrants</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
Concurrent with the October 30, 2013 offering, the Company
agreed to issue and sell to the underwriters a warrant
(“Underwriters Warrant”) for the purchase of an
aggregate of 182,600 shares of common stock, for a nominal amount.
The Underwriters Warrant agreement is exercisable, in whole or in
part, commencing on a date which is one (1) year after the
effective date of the Registration Statement and expiring on the
five-year anniversary of the effective date of the Registration
Statement at an initial exercise price per share of common stock of
$9.0625, which is equal to 125% of the initial public offering
price of $7.25 per share.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>Convertible Promissory Notes</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In October 2013, the Company issued an aggregate $1,850 principal
amount of Notes that bear interest at 7% per annum.
Concurrently with the closing of the public offering, such Notes
and related accrued interest totaling $7 automatically converted
into 256,119 shares of common stock.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>Stock Incentive Plans</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>2009 Equity Incentive Plan</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In February 2009, prior to the Merger, the Company’s Board of
Directors approved the 2009 Equity Incentive Plan, or the EIP,
under which 400,000 shares of common stock were reserved for
issuance to employees, non-employee directors and consultants of
the Company. In March 2009, the Company issued 296,154 restricted
common stock awards to certain consultants for aggregate gross
proceeds of less than $1, of which the Company repurchased 44,166
unvested shares of restricted common stock for a nominal amount in
January 2011. The restricted shares vest monthly over four years
and all remaining shares were fully vested as of June 30,
2014. No further shares are available for grant under the EIP.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>2009 Non-Employee Director Grants</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In September 2009, prior to the adoption of the 2009 Stock
Incentive Plan, the Company’s Board of Directors approved the
reservation and issuance of 8,000 nonstatutory stock options to the
Company’s non-employee directors. The outstanding options
vested on the one year anniversary of the vesting commencement date
in October 2010, and are exercisable for up to 10 years from the
grant date. No further shares may be granted under this plan and,
as of June 30, 2014, 3,200 options were outstanding.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-LEFT: 31px; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<i>2009 Stock Incentive Plan</i></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In October 2009, the Company’s stockholders approved the 2009
Stock Incentive Plan. In June 2014, the Company’s
stockholders approved, among other items, the amendment and
restatement of the 2009 Stock Incentive Plan, or the Stock Plan, to
increase the number of common stock authorized to be issued
pursuant to the Stock Plan to 3,760,000. Such shares of the
Company’s common stock are reserved for issuance to
employees, non-employee directors and consultants of the Company.
The Stock Plan provides for the grant of incentive stock options,
non-incentive stock options, stock appreciation rights, restricted
stock awards, unrestricted stock awards, restricted stock unit
awards and performance awards to eligible recipients. Recipients of
stock options shall be eligible to purchase shares of the
Company’s common stock at an exercise price equal to no less
than the estimated fair market value of such stock on the date of
grant. The maximum term of options granted under the Stock Plan is
ten years. Employee option grants will generally vest 25% on each
anniversary of the original vesting date over four years. The
vesting schedules for grants to non-employee directors and
consultants will be determined by the Company’s Compensation
Committee. Stock options are generally not exercisable prior to the
applicable vesting date, unless otherwise accelerated under the
terms of the applicable stock plan agreement. Unvested shares of
the Company’s common stock issued in connection with an early
exercise however, may be repurchased by the Company upon
termination of the optionee’s service with the Company.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
During the six months ended June 30, 2014 and 2013, the
Company’s Board of Directors awarded 768,000 and 42,800
options to certain employees and consultants, respectively. As of
June 30, 2014 and 2013, 2,142,566 and 899,000 shares were available
for grant under the Stock Plan, respectively. See Note 8.</p>
<p style="MARGIN-BOTTOM: 0px; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 1px 'Times New Roman'; MARGIN-TOP: 12px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company uses the Black-Scholes valuation model to calculate the
fair value of stock options. Stock based compensation expense is
recognized over the vesting period using the straight-line method.
The fair value of employee stock options was estimated at the grant
date using the following assumptions:</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="78%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: 'Times New Roman'">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="3" align="center">
<b>Six months ended June 30,</b></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: 'Times New Roman'">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" align="center"><b>2014</b></td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" align="center"><b>2013</b></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap" align="center">
—  </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap" align="center">
—  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Volatility</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" align="center">   78%</td>
<td valign="bottom">  </td>
<td valign="bottom" align="center"> 109%</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" align="center">1.94%</td>
<td valign="bottom">  </td>
<td valign="bottom" align="center">1.07%</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected life of options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" align="center">6.1 years</td>
<td valign="bottom">  </td>
<td valign="bottom" align="center">6.1 years</td>
</tr>
</table>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The weighted average grant date fair value per share of employee
stock options granted during the six months ended June 30,
2014 and 2013 was $10.82 and $4.25, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The assumed dividend yield was based on the Company’s
expectation of not paying dividends in the foreseeable future. Due
to the Company’s limited historical data, the estimated
volatility incorporates the historical and implied volatility of
comparable companies whose share prices are publicly available. The
risk-free interest rate assumption was based on the United States
Treasury’s rates for U.S. Treasury zero-coupon bonds with
maturities similar to those of the expected term of the award being
valued. The weighted average expected life of options was estimated
using the average of the contractual term and the weighted average
vesting term of the options.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The total employee stock-based compensation recorded as operating
expenses was $286, $153 and $4,094 for the three months ended
June 30, 2014 and 2013 and for the period from Inception
through June 30, 2014, respectively. The total employee
stock-based compensation recorded as operating expenses was $2,130
and $297 for the six months ended June 30, 2014 and 2013,
respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
As of June 30, 2014, unrecognized compensation cost related to
the options was $5,347 which will be recognized over 3.2 years.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The Company records equity instruments issued to non-employees as
expense at their fair value over the related service period as
determined in accordance with the applicable authoritative guidance
and periodically revalues the equity instruments as they vest.
Stock-based compensation expense related to non-employee
consultants recorded as operating expenses was $344, $29 and $1,695
for the three months ended June 30, 2014 and 2013 and for the
period from Inception through June 30, 2014, respectively.
Stock-based compensation expense related to non-employee
consultants recorded as operating expenses was $403 and $133 for
the six months ended June 30, 2014 and 2013, respectively.</p>
</div>
0.0248
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 18pt">
<b><i>Property and Equipment</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Property and equipment are carried at cost less accumulated
depreciation. Depreciation of property and equipment is computed
using the straight-line method over the estimated useful lives of
the assets, which are generally three to five years. Leasehold
improvements are amortized over the lesser of the life of the lease
or the life of the asset. Repairs and maintenance are charged to
expense as incurred.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 18pt">
<b><i>Cash and Cash Equivalents</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
The Company minimizes its credit risk associated with cash and cash
equivalents by periodically evaluating the credit quality of its
primary financial institution. The balance at times may exceed
federally insured limits. The Company has not experienced any
losses on such accounts.</p>
</div>
-15512000
-0.77
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>7. Income Taxes</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
The Company maintains deferred tax assets that reflect the net tax
effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. These deferred tax assets
include net operating loss carryforwards, research credits and
capitalized research and development. The net deferred tax asset
has been fully offset by a valuation allowance because of the
Company’s history of losses. Utilization of operating losses
and credits may be subject to substantial annual limitation due to
ownership change provisions of the Internal Revenue Code of 1986,
as amended, and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before
utilization.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 18pt">
<b><i>Acquired In-Process Research and Development
Expense</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The Company has acquired and may continue to acquire the rights to
develop and commercialize new drug candidates. The up-front
payments to acquire a new drug compound, as well as future
milestone payments, are immediately expensed as acquired in-process
research and development provided that the drug has not achieved
regulatory approval for marketing and, absent obtaining such
approval, have no alternative future use.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 18pt">
<b><i>Research and Development Costs and Collaborations</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
All research and development costs are charged to expense as
incurred. Such costs primarily consist of lab supplies, contract
services, stock-based compensation expense, salaries and related
benefits.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt; TEXT-INDENT: 4%">
Long-term debt and unamortized discount balances are as follows (in
thousands):</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="68%" align="center" border="0">
<tr>
<td width="88%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Face value of amended and restated loan</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">12,500</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Fair value of all warrants</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">(536</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Accretion of debt discount</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom"> </td>
<td valign="bottom" align="right">86</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 1px solid"> </p>
</td>
<td> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Balance at June 30, 2014</p>
</td>
<td valign="bottom"><font style="FONT-SIZE: 8pt">  </font></td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">12,050</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td valign="bottom">
<p style="BORDER-TOP: #000000 3px double"> </p>
</td>
<td> </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The unaudited pro forma combined results are presented in
thousands, except share and per share information.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 12pt; MARGIN-TOP: 0pt">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; BORDER-COLLAPSE: collapse" cellspacing="0" cellpadding="0" width="92%" align="center" border="0">
<tr>
<td width="62%"></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center"><b>Three Months<br />
Ended June 30,</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="6" align="center">
<b>Six Months Ended June 30,</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b><br />
<b>As</b><br />
<b>Reported</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b><br />
<b>Pro Forma</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2014</b><br />
<b>As Reported</b></td>
<td valign="bottom"> </td>
<td valign="bottom"> </td>
<td style="BORDER-BOTTOM: #000000 1pt solid" valign="bottom" colspan="2" align="center"><b>2013</b><br />
<b>Pro<br />
Forma</b></td>
<td valign="bottom"> </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Total Revenues</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">775</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">961</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,751</td>
<td valign="bottom" nowrap="nowrap">  </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">1,561</td>
<td valign="bottom" nowrap="nowrap">  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Loss from operations</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(7,991</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(4,938</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(17,865</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(12,981</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Net loss</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(8,454</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(5,044</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(18,547</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(13,179</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Net loss per share—basic and diluted</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.33</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.28</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.77</td>
<td valign="bottom" nowrap="nowrap">) </td>
<td valign="bottom"> </td>
<td valign="bottom">$</td>
<td valign="bottom" align="right">(0.76</td>
<td valign="bottom" nowrap="nowrap">) </td>
</tr>
</table>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>8. Related Party Agreements and Other – Ark</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>License and Development Agreement</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
On June 18, 2014, the Company and Ark entered into a License and
Development Agreement (LDA) whereby the Company granted Ark a
license to develop and commercialize RTX for animal use only, in
exchange for the issuance to the Company of 10,000,000 shares of
Ark common stock valued at $13,100, representing 100% of the
outstanding shares of Ark common stock. Such intercompany
transactions have been eliminated in consolidation.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>Transition Services Agreement</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
        On June 18,
2014, the Company entered into a Transition Services Agreement
(TSA) with Ark which became effective retroactively to
April 1, 2014. Under the TSA, the Company has provided and/or
has made available to Ark various administrative, financial, legal,
insurance, facility, information technology, laboratory, real
estate and other services to be provided by, or on behalf of, the
Company, together with such other services as reasonably requested
by Ark. In consideration for such services, Ark will pay fees to
the Company for the services provided, and those fees will
generally be in amounts intended to allow the Company to recover
all of its direct and indirect costs incurred in providing such
services. The personnel performing services under the TSA are
employees and/or independent contractors of the Company and are not
under the direction or control of Ark. These personnel costs are
based upon the actual percentages of time spent by Company
personnel performing services for Ark under the TSA. In addition,
Ark will reimburse the Company for direct out-of-pocket costs
incurred by the Company for third party services provided to Ark.
Through June 30, 2014, the Company has recorded $507 of costs
associated with activities contemplated under the TSA.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In order for the Company to be reimbursed by Ark for activities
provided under the TSA, Ark must be successful in raising financing
on a stand-alone basis. There can be no assurance that Ark will be
successful in securing third party financing.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>Loan and Security Agreement</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
On June 18, 2014, the Company and Ark entered into a Loan and
Security Agreement (Loan Agreement) pursuant to which the Company
agreed to lend Ark, as amended in August 2014, up to $1,000 for
working capital purposes. Advances under the Loan Agreement
bear interest at six percent (6%) per annum. Outstanding
advances mature on the earlier of: (i) following the consummation
of any public or private offering of securities in which Ark
receives gross proceeds of at least $5,000, (ii) an event of
default under the Loan Agreement, or (iii) June 18,
2015. In connection with the Loan Agreement, the Company has a
security interest in all of Ark’s assets, including
Ark’s intellectual property, until the loan is repaid in
full. During the period from Ark’s inception in February 2014
through June 30, 2014, the Company paid for certain general,
administrative and research and development expenses totaling $507.
The intercompany balances associated with these transactions have
been eliminated in consolidation.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>2014 Stock Option Plan</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In May 2014, Ark adopted the Ark 2014 Stock Option Plan and
reserved and awarded 600,000 options to certain employees and
consultants under such plan. Stock options granted under such plan
typically vest after four years of continuous service from the
grant date and will have a contractual term of ten years. No
further shares may be granted under this plan and, as of
June 30, 2014, 600,000 options were outstanding.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The total employee and consultant stock-based compensation recorded
as operating expenses for the three months ended June 30, 2014 and
for the period from Ark’s inception (February 27, 2014)
through June 30, 2014 was $289. Total unrecognized stock-based
compensation expense related to unvested stock option grants as of
June 30, 2014 was $41, and the weighted-average period over
which these grants are expected to vest is one year.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 12pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The weighted-average assumptions used in the Black-Scholes option
pricing model used to determine the fair value of stock option
grants were as follows: expected dividend yield – 0%,
risk-free interest rate – 1.94% to 2.60%, expected volatility
– 75% to 78%, and expected term of 6.08 to 10 years.</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 18pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
<b>2014 Equity Incentive Plan</b></p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 6pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
In May 2014, Ark adopted the 2014 Equity Incentive Plan. Under
this plan Ark may grant equity awards which include stock options,
restricted stock units and stock appreciation rights. Ark has
reserved for future issuance 1,000,000 shares of common stock
issuable pursuant to this plan. The plan’s share reserve, as
defined, will automatically increase each year commencing on
January 1, 2015, in an amount equal to 3.0% of the total
number of shares outstanding on the last day of the preceding
calendar year. No equity awards have been issued under the plan as
of June 30, 2014.</p>
</div>
34642
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 18pt">
<b><i>Impairment of Long-Lived Assets</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The Company evaluates its long-lived assets with definite lives,
such as property and equipment, acquired technology, customer
relationships, patent and license rights, for impairment by
considering competition by products prescribed for the same
indication, the likelihood and estimated future entry of
non-generic and generic competition with the same or similar
indication and other related factors. The factors that drive the
estimate of the life are often uncertain and are reviewed on a
periodic basis or when events occur that warrant review.
Recoverability is measured by comparison of the assets’ book
value to future net undiscounted cash flows that the assets are
expected to generate. There have not been any impairment losses of
long-lived assets through June 30, 2014.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 18pt">
<b><i>Use of Estimates</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The preparation of consolidated financial statements in conformity
with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of expenses during
the reporting period. Management believes that these estimates are
reasonable; however, actual results may differ from these
estimates.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 18pt">
<b><i>Net Loss per Share</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Net loss per share is presented as both basic and diluted net loss
per share. Basic net loss per share excludes any dilutive effects
of options, shares subject to repurchase and warrants. Diluted net
loss per share includes the impact of potentially dilutive
securities. No dilutive effect was calculated for the three and six
months ended June 30, 2014 and 2013 as the Company reported a
net loss for each respective period and the effect would have been
anti-dilutive. The Company had outstanding common share equivalents
of 1,854,626 and 455,000 at June 30, 2014 and 2013,
respectively.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 10pt 'Times New Roman'; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 4%; -webkit-text-stroke-width: 0px">
The fair value of employee stock options was estimated at the grant
date using the following assumptions:</p>
<p style="MARGIN-BOTTOM: 0pt; WHITE-SPACE: normal; TEXT-TRANSFORM: none; WORD-SPACING: 0px; COLOR: rgb(0,0,0); FONT: 12pt 'Times New Roman'; MARGIN-TOP: 0pt; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px">
 </p>
<table style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; BORDER-COLLAPSE: collapse; TEXT-TRANSFORM: none; WORD-SPACING: 0px; LETTER-SPACING: normal; TEXT-INDENT: 0px; -webkit-text-stroke-width: 0px" cellspacing="0" cellpadding="0" width="76%" align="center" border="0">
<tr>
<td width="78%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: 'Times New Roman'">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" colspan="3" align="center">
<b>Six months ended June 30,</b></td>
</tr>
<tr style="FONT-SIZE: 8pt; FONT-FAMILY: 'Times New Roman'">
<td valign="bottom"> </td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" align="center"><b>2014</b></td>
<td valign="bottom">  </td>
<td style="BORDER-BOTTOM: rgb(0,0,0) 1pt solid" valign="bottom" align="center"><b>2013</b></td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Dividend yield</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap" align="center">
—  </td>
<td valign="bottom">  </td>
<td valign="bottom" nowrap="nowrap" align="center">
—  </td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Volatility</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" align="center">   78%</td>
<td valign="bottom">  </td>
<td valign="bottom" align="center"> 109%</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'" bgcolor="#CCEEFF">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Risk-free interest rate</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" align="center">1.94%</td>
<td valign="bottom">  </td>
<td valign="bottom" align="center">1.07%</td>
</tr>
<tr style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'">
<td valign="top">
<p style="FONT-SIZE: 10pt; FONT-FAMILY: 'Times New Roman'; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
Expected life of options</p>
</td>
<td valign="bottom">  </td>
<td valign="bottom" align="center">6.1 years</td>
<td valign="bottom">  </td>
<td valign="bottom" align="center">6.1 years</td>
</tr>
</table>
<br class="Apple-interchange-newline" />
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 18pt">
<b><i>Fair Value of Financial Instruments</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The Company’s financial instruments consist of cash and cash
equivalents, grants and accounts receivable, prepaid expenses and
other assets, accounts payable and accrued expenses. Fair value
estimates of these instruments are made at a specific point in
time, based on relevant market information. These estimates may be
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision. As of June 30, 2014 and December 31, 2013, the
carrying amount of cash and cash equivalents, grants and accounts
receivable, prepaid expenses and other assets, accounts payable and
accrued liabilities are generally considered to be representative
of their respective fair values because of the short-term nature of
those instruments.</p>
</div>
0.00
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 18pt">
<b><i>Income Taxes</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The provisions of the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification
(“ASC”) 740-10, Uncertainty in Income Taxes, address
the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial
statements. Under ASC 740-10, the Company may recognize the tax
benefit from an uncertain tax position only if it is more likely
than not that the tax position will be sustained on examination by
taxing authorities, based on the technical merits of the position.
The Company has determined that it has no uncertain tax
positions.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The Company accounts for income taxes using the asset and liability
method to compute the differences between the tax basis of assets
and liabilities and the related financial amounts, using currently
enacted tax rates.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The Company has deferred tax assets, which are subject to periodic
recoverability assessments. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount that
more likely than not will be realized. The Company evaluates the
recoverability of the deferred tax assets annually. As of
June 30, 2014, the Company maintained a full valuation
allowance against its deferred tax assets.</p>
</div>
<div>
<p style="margin-top:18pt; margin-bottom:0pt; font-size:10pt; font-family:Times New Roman">
<b>4. Goodwill</b></p>
<p style="margin-top:6pt; margin-bottom:0pt; text-indent:4%; font-size:10pt; font-family:Times New Roman">
In connection with the acquisitions of IgDraSol, Sherrington and
Concortis, the Company generated goodwill of $24,041.</p>
</div>
1751000
369000
209000
191000
6000
2533000
-17865000
9000
182000
-17865000
-18547000
0
1751000
387000
1569000
2071000
0
-18547000
0
26698000
198000
7500000
507000
0
5746000
208000
34198000
30000000
1172000
0
2533000
19616000
9000
18488000
24000
691000
-955000
26698000
1073000
-198000
11416000
0
1567000
209000
0
86000
P7Y
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 6pt">
<b><i>Nature of Operations and Basis of Presentation</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Sorrento Therapeutics, Inc. (NASDAQ: SRNE), together with its
wholly-owned subsidiaries (collectively, the “Company”)
is a biopharmaceutical company focused on the discovery,
acquisition, development and commercialization of proprietary drug
therapeutics for addressing significant unmet medical needs in the
U.S., Europe and additional international markets. The
Company’s primary therapeutic focus is oncology, including
the treatment of chronic cancer pain, but is also developing
therapeutic products for other indications, including immunology
and infectious diseases. The Company’s pipeline consists of
its lead oncology product candidate Cynviloq™, a micellar
paclitaxel formulation, resiniferatoxin (or RTX), a non-opiate,
ultra potent and selective agonist of the TRPV-1 receptor for
intractable pain in end-stage disease, as well as fully human
therapeutic antibodies derived from its proprietary
G-MAB<sup style="FONT-SIZE: 85%; VERTICAL-ALIGN: top">®</sup>
library platform and antibody drug conjugates, or ADCs, and
recombinant intravenous immunoglobulin, or rIVIG. In addition, the
Company generates revenues from sales and services from the sale of
customized reagents and providing professional services.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
As of June 30, 2014, the Company had devoted substantially all
of its efforts to product development, raising capital and building
infrastructure, and had not realized revenues from its planned
principal operations. Accordingly, the Company is considered to be
in the development stage.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The accompanying interim consolidated financial statements have
been prepared by the Company, without audit, in accordance with the
instructions to Form 10-Q and, therefore, do not necessarily
include all information and footnotes necessary for a fair
statement of its financial position, results of operations and cash
flows in accordance with United States generally accepted
accounting principles (GAAP). The accompanying consolidated
financial statements include the accounts of the Company’s
wholly-owned subsidiaries; IgDraSol, Inc., or IgDraSol; Sherrington
Pharmaceuticals, Inc., or Sherrington; Concortis Biosystems, Corp.,
or Concortis; Ark Animal Health, Inc., or Ark; and Sorrento
Therapeutics, Inc. Hong Kong Limited, or Sorrento Hong Kong, which
was registered effective December 4, 2012. Sherrington and
Sorrento Hong Kong had no operating activity through June 2014. All
intercompany balances and transactions have been eliminated in
consolidation.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The balance sheet at December 31, 2013 is derived from the
audited consolidated balance sheet at that date which is not
presented herein.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In the opinion of management, the unaudited financial information
for the interim periods presented reflects all adjustments, which
are only normal and recurring, necessary for a fair statement of
financial position, results of operations and cash flows. These
consolidated financial statements should be read in conjunction
with the consolidated financial statements included in the
Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2013. Operating results for interim periods
are not expected to be indicative of operating results for the
Company’s 2014 fiscal year.</p>
</div>
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 0pt">
<b><i>Acquisitions and Intangibles</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
The Company has engaged in business combination activity. The
accounting for business combinations requires management to make
judgments and estimates of the fair value of assets acquired,
including the identification and valuation of intangible assets, as
well as liabilities assumed. Such judgments and estimates directly
impact the amount of goodwill recognized in connection with each
acquisition, as goodwill presents the excess of the purchase price
of an acquired business over the fair value of its net tangible and
identifiable intangible assets.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Patent rights are stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the assets, determined to
be approximately nineteen years from the date of transfer of the
rights to the Company in April 2013. Amortization expense for the
three months ended June 30, 2014 and 2013 and for the period
from inception (January 25, 2006) (“Inception”) through
June 30, 2014 was $1, $1 and $6, respectively. Amortization
expense for the six months ended June 30, 2014 and 2013 was $2
and $2, respectively, all such costs have been included in
intangibles amortization.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
License rights are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets,
determined to be approximately fifteen years from the date of
acquisition of the rights in September 2013. Amortization expense
for the three and six months ended June 30, 2014 and for the
period from Inception through June 30, 2014 was $475, $950 and
$1,536, respectively, which has been included in intangibles
amortization.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Acquired technology is stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets,
determined to be approximately nineteen years from the date of
acquisition of the technology in December 2013. Amortization
expense for the three and six months ended June 30, 2014 and
for the period from Inception through June 30, 2014 was $44,
$88 and $94, respectively, which has been included in intangibles
amortization.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Customer relationships are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets,
determined to be approximately five years from the date of
acquisition in December 2013. Amortization expense for the three
and six months ended June 30, 2014 and for the period from
Inception through June 30, 2014 was $66, $132 and $141,
respectively, which has been included in intangibles
amortization.</p>
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<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-LEFT: 2%; MARGIN-TOP: 18pt">
<b><i>Grants and Accounts Receivable</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
Grants receivable at June 30, 2014 and December 31, 2013
represent amounts due under several federal contracts with the
National Institute of Allergy and Infectious Diseases, or NIAID, a
division of the National Institutes of Health, or NIH,
collectively, the NIH Grants. The Company considers the grants
receivable to be fully collectible; accordingly, no allowance for
doubtful amounts has been established. If amounts become
uncollectible, they are charged to operations.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
Accounts receivable at June 30, 2014 and December 31,
2013 consists of trade receivables from sales and services provided
to certain customers, which are generally unsecured and due within
30 days. Estimated credit losses related to trade accounts
receivable are recorded as general and administrative expenses and
as an allowance for doubtful accounts within grants and accounts
receivable, net. The Company reviews reserves and makes adjustments
based on historical experience and known collectability issues and
disputes. When internal collection efforts on accounts have been
exhausted, the accounts are written off by reducing the allowance
for doubtful accounts. As of June 30, 2014 and
December 31, 2013, the allowance for doubtful accounts was $9
and $0, respectively.</p>
</div>
781000
<div>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b>2. Significant Agreements and Contracts</b></p>
<!-- xbrl,body -->
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
<b><i>License Agreement with The Scripps Research
Institute</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt">
        In January 2010,
the Company entered into a license agreement, or the TSRI License,
with The Scripps Research Institute, or TSRI. Under the TSRI
License, TSRI granted the Company an exclusive, worldwide license
to certain TSRI patent rights and materials based on quorum sensing
for the prevention and treatment of Staphylococcus aureus
(“Staph”) infections, including Methicillin-resistant
Staph. In consideration for the license, the Company:
(i) issued TSRI a warrant for the purchase of common stock,
(ii) agreed to pay TSRI a certain annual royalty commencing in
the first year after certain patent filing milestones are achieved,
(iii) agreed to pay a royalty on any sales of licensed
products by the Company or its affiliates and a royalty for any
revenues generated by the Company through its sublicense of patent
rights and materials licensed from TSRI under the TSRI License. The
TSRI License requires the Company to indemnify TSRI for certain
breaches of the agreement and other matters customary for license
agreements. The parties may terminate the TSRI License at any time
by mutual agreement. In addition, the Company may terminate the
TSRI License by giving 60 days’ notice to TSRI and TSRI may
terminate the TSRI License immediately in the event of certain
breaches of the agreement by the Company or upon the
Company’s failure to undertake certain activities in
furtherance of commercial development goals. Unless terminated
earlier by either or both parties, the term of the TSRI License
will continue until the final expiration of all claims covered by
the patent rights licensed under the agreement. For the three
months ended June 30, 2014 and 2013 and for the period from
inception (January 25, 2006)(“Inception”) through
June 30, 2014, the Company recorded $49, $4 and $249 in patent
prosecution and maintenance costs associated with the TSRI License,
respectively. For the six months ended June 30, 2014 and 2013,
the Company recorded $56 and $7 in patent prosecution and
maintenance costs associated with the TSRI License, respectively.
All such costs have been included in general and administrative
expenses.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
The fair value of the warrants to purchase Company common stock,
issued in connection with the TSRI License, of $18 was determined
using the Black-Scholes valuation model with the following
weighted-average assumptions: risk-free interest rate of 2.48%, no
dividend yield, expected term of 10 years, and volatility of 102%.
Such fair value has been included in general and administrative
expenses for the period from Inception through June 30,
2014.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 18pt">
<b><i>NIH Grants</i></b></p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 6pt; TEXT-INDENT: 4%">
In May 2010, the NIAID awarded the Company an Advanced Technology
Small Business Technology Transfer Research grant to support the
Company’s program to generate and develop novel antibody
therapeutics and vaccines to combat Staph infections, including
Methicillin-resistant Staph, or the Staph Grant award. The project
period for the Phase I Staph Grant award covered a two-year period
which commenced in June 2010 and ended in May 2012, with a total
grant award of $600. The Company recorded revenue associated with
the grant as the related costs and expenses were incurred. During
the period from Inception through June 30, 2014, the Company
recorded $600 of revenue associated with the Staph Grant award.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In July 2011, the NIAID awarded the Company a second Advanced
Technology Small Business Technology Transfer Research grant to
support the Company’s program to generate and develop
antibody therapeutics and vaccines to combat C. difficile
infections, or the C. difficile Grant award. The project period for
the Phase I C. difficile Grant award covered a two-year period
which commenced in June 2011 and ended in June 2013, with the total
grant award of $600. During the three months ended June 30,
2014 and 2013 and for the period from Inception through
June 30, 2014, the Company recorded $0, $67 and $593 of
revenue associated with the C. difficile Grant award, respectively.
During the six months ended June 30, 2014 and 2013, the
Company recorded $0 and $144 of revenue associated with the C.
difficile Grant award, respectively.</p>
<p style="MARGIN-BOTTOM: 0px; FONT-SIZE: 1px; MARGIN-TOP: 12px">
 </p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 0pt; TEXT-INDENT: 4%">
In June 2012, the NIAID awarded the Company a third Advanced
Technology Small Business Technology Transfer Research grant to
support the Company’s program to generate and develop novel
human antibody therapeutics to combat Staph infections, including
Methicillin-resistant Staph, or the Staph Grant II award. The
project period for the Phase I grant covers a two-year period which
commenced in June 2012, with a total grant award of $600. During
the three months ended June 30, 2014 and 2013 and for the
period from Inception through June 30, 2014, the Company
recorded $52, $75 and $587 of revenue associated with the Staph
Grant II award, respectively. During the six months ended
June 30, 2014 and 2013 the Company recorded $150 and $132 of
revenue associated with the Staph Grant II award, respectively.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In June 2014, the NIAID awarded the Company a Phase II Small
Business Technology Transfer Research (STTR) grant to support the
advanced preclinical development of human bispecific antibody
therapeutics to prevent and treat <i>Staphylococcus aureus</i>
(<i>S. aureus</i> or Staph) infections, including
methicillin-resistant <i>S. aureus</i> (MRSA), or the Staph Grant
III award. The project period for this Phase II grant covers a
two-year period which commenced in June 2014, with total funds
available of approximately $1 million per year for up to 2 years.
During the three and six months ended June 30, 2014 and for the
period from Inception through June 30, 2014, the Company recorded
$32 of revenue associated with the Staph Grant III award.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In June 2014, the Company was awarded a Phase I STTR grant entitled
“Anti-Pseudomonas Immunotherapy and Targeted Drug
Delivery” from the NIAID. This grant will support the
preclinical development of novel anti-<i>Pseudomonas aeruginosa</i>
mAb immunotherapy or an antibody-mediated targeted antibiotic
delivery vehicle. Each modality may be an effective and safe
stand-alone therapy and/or a component of a “cocktail”
therapeutic option for prevention and treatment of <i>P.
aeruginosa</i> infections. The project period for this Phase I
grant covers a two-year period which commences in July 2014, with
total funds available of approximately $300 per year for up to 2
years.</p>
<p style="MARGIN-BOTTOM: 0pt; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman; MARGIN-TOP: 12pt; TEXT-INDENT: 4%">
In July 2014, the Company was awarded a Phase I Small Business
Technology Transfer Research (STTR) grant from the National Cancer
Institute (NCI), a division of the National Institute of Health
(NIH), entitled “Targeting of Myc-Max Dimerization for the
Treatment of Cancer”. This grant will support the preclinical
development of the Myc inhibitor, which interferes with the
protein-protein interaction (PPI) between Myc and its obligatory
dimerization partner, Max, preventing sequence-specific binding to
DNA and subsequent initiation of oncogenic transformation. The
project period for this Phase I grant covers a one-year period
which commences in August 2014, with total funds available of
approximately $225.</p>
</div>
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