News Column

DICERNA PHARMACEUTICALS INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 7, 2014

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section as well as factors described in "Part II, Item 1A-Risk Factors."

Overview

We are a biopharmaceutical company focused on the discovery and development of innovative treatments for rare inherited diseases involving the liver and for cancers that are genetically defined. We are using our RNA interference (RNAi) technology platform to build a broad pipeline in these therapeutic areas. In both rare diseases and oncology, we are pursuing targets that have historically been difficult to inhibit using conventional approaches, but where we believe connections between targets and diseases are well understood and documented. We aim to discover, develop and commercialize these novel therapeutics either on our own or in collaboration with pharmaceutical partners. In indications such as rare diseases in which a small sales force will suffice, we seek to retain substantially all commercial rights in key markets. In oncology and other more prevalent disease areas, we may partner our products while seeking to retain significant portions of the commercial rights in North America. In the rare disease field, we are developing a proprietary treatment, DCR-PH1, for the rare and serious inherited disorder Primary Hyperoxaluria 1 (PH1). We seek to begin clinical trials of DCR-PH1 in 2015. We also have discovery and early development programs against a series of additional disease targets in the liver. In oncology, we are currently directing our development efforts towards our proprietary product candidate DCR-MYC for the treatment of MYC-related cancers, including hepatocellular carcinoma (HCC), which we believe to be the third leading cause of cancer deaths worldwide. We submitted an Investigational New Drug application for DCR-MYC for the treatment of solid tumors, lymphoma and multiple myeloma to the U.S. Food and Drug Administration in the first quarter of 2014 and began our clinical trials of DCR-MYC in the second quarter of 2014. As part of our collaboration with Kyowa Hakko Kirin Co., Ltd. (KHK), a global pharmaceutical company, we are developing a product candidate that targets the oncogene KRAS, which is frequently mutated in numerous major cancers, including non-small cell lung cancer, colorectal cancer and pancreatic cancer. KHK is responsible for global development of the KRAS program, including all development expenses. For the KRAS product candidate, we retain an option to co-promote in the U.S. for an equal share of the profits from U.S. net sales. We are also developing a product candidate targeting another oncogene in collaboration with KHK. For each product candidate in our collaboration with KHK, we have the potential to receive clinical, regulatory and commercialization milestone payments of up to $110.0 million and royalties on net sales of each such product candidate. We expect that our strategy to partner the development of product candidates will help us fund the costs of clinical development and enable us to diversify risk across a number of programs. Since our inception in October 2006, we have devoted substantial resources to the research and development of DsiRNA molecules and drug delivery technologies and the protection and enhancement of our intellectual property estate. We have no products approved for sale and all of our revenue to date has been collaboration revenue or government grant revenue. To date, we have funded our operations primarily through the initial public offering of our common stock, previous private placements of preferred stock and convertible debt securities, from research funding, license fees, option exercise fees and preclinical payments under our research collaboration and license agreement with KHK and from a government grant. In addition, we have borrowed under a secured term loan from Hercules (Hercules loan) to fund our operations. More particularly, since our inception and through June 30, 2014, we have raised an aggregate of $233.2 million to fund our operations, of which $92.7 million of net proceeds was from the initial public offering of our common stock as described below, $110.5 million was from the sale of preferred stock and convertible debt securities (including $3.0 million from a bridge loan financing that closed in June 2013 (2013 bridge note financing), $17.5 million was through our collaboration and license agreement with KHK, $0.5 million was from a federal government grant for our Qualifying Therapeutic Discovery Project in November 2010 and $12.0 million was from borrowings under the Hercules loan. As of June 30, 2014, our cash and cash equivalents and held-to-maturity investments were $120.3 million and we also had $1.4 million in assets held in restriction. On April 7, 2014, we repaid the remaining amount of the Hercules loan of approximately $3.6 million. On February 4, 2014, we completed the initial public offering of our common stock, in which we issued and sold a total of 6,900,000 shares of common stock, including 900,000 shares sold pursuant to the exercise in full by the underwriters of an option to purchase additional shares, at a public offering price of $15.00 per share. We received net proceeds of $92.7 million after deducting the underwriting commissions and discounts and offering expenses paid by us. All of the shares of our preferred stock were converted into shares of common stock and our warrants to purchase preferred stock became exercisable to purchase common stock immediately prior to the completion of our initial public offering. Since inception, we have incurred significant operating losses. Our net loss was $22.2 million and $7.6 million for the six months ended June 30, 2014 and 2013, respectively. Substantially all of our operating losses resulted from expenses incurred in connection with our research programs and from general and administrative costs associated with our operations. No revenue was recognized for the three and six months 13



--------------------------------------------------------------------------------

Table of Contents

ended June 30, 2014 or 2013. Our revenue to date has been generated through our research collaboration and license agreement with KHK and a government grant. We have not generated any commercial product revenue. As of June 30, 2014, we had an accumulated deficit of $107.8 million. We expect to continue to incur significant and increasing losses in the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially as we: advance our product candidates into preclinical development; conduct the clinical trial of DCR-MYC and any future clinical trials of

DCR-PH1 and other potential product candidates;



continue our research and development efforts, including to expand our

pipeline and to enhance our technology platform;



increase research and development related activities for the discovery and

development of additional product candidates;



manufacture clinical study materials and develop large-scale manufacturing

capabilities;



seek regulatory approval for our product candidates that successfully

complete clinical trials; maintain, expand and protect our intellectual property portfolio; add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and operate as a public company. We do not expect to generate substantial revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which is subject to significant uncertainty and which we expect will take at least seven years. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Until such time, if ever, that we generate product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings and research collaboration and license agreements. We may be unable to raise capital or enter into such other arrangements when needed or on favorable terms. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates.



Collaboration agreement

In December 2009, we entered into a research collaboration and license agreement with KHK for the research, development and commercialization of DsiRNA molecules and drug delivery technologies for therapeutic targets in oncology. We have granted KHK an exclusive, worldwide, royalty-bearing and sub-licensable license to our DsiRNA molecules and drug delivery technologies and intellectual property for certain selected DsiRNA-based compounds. Under the research collaboration and license agreement, KHK is responsible for activities to develop, manufacture and commercialize the selected DsiRNA-based compounds and pharmaceutical products containing such compounds. For the KRAS product candidate, we have an option to co-promote in the U.S. for an equal share of the profits from U.S. net sales. In addition, for each product candidate under the research collaboration and license agreement, we have the potential to receive clinical, regulatory and commercialization milestone payments of up to $110.0 million and royalties on net sales of such product candidate. Since the initiation of the research collaboration and license agreement, of the various targets in the collaboration, two target programs, including the initial target KRAS, have been nominated by KHK for formal development studies. Both programs utilize our specific RNAi-inducing double-stranded DsiRNA molecules and a lipid nanoparticle drug delivery technology proprietary to KHK. We received no additional payments from KHK under the research collaboration and license agreement during the three and six month periods ended June 30, 2014.



License agreement

In September 2007, we entered into a license agreement with City of Hope (COH), an independent academic research and medical center, pursuant to which COH has granted to us an exclusive (subject to certain exceptions described below), royalty-bearing, worldwide license under certain patent rights in relation to DsiRNA, including the core DsiRNA patent (U.S. 8,084,599), to manufacture, use, offer for sale, sell and import products covered by the licensed patent rights for the prevention and treatment of any disease in humans. COH is restricted from granting any additional rights to develop, manufacture, use, offer to sell, sell or import products covered by the licensed patent rights for the prevention and treatment of any disease in humans. In addition, COH has granted to us an exclusive, royalty-bearing, worldwide license under the licensed patent rights providing certain rights for up to 20 licensed products selected by us for human diagnostic uses, provided that COH has not granted or is not negotiating a license of rights to diagnostic uses for such licensed products to a third party. The core DsiRNA patent (U.S. 8,084,599), titled "methods and compositions for the specific inhibition of gene expression by double-stranded RNA," describes RNA structures having a 25 to 30 nucleotides sense strand, a blunt end at the 3' end of the sense strand and a one to four nucleotides overhang at the 3' end of the antisense strand. The expiration date of this patent is July 17, 2027. 14



--------------------------------------------------------------------------------

Table of Contents

Pursuant to the terms of the agreement, we paid COH a one-time, non-refundable license fee and issued shares of our common stock to COH and a co-inventor of the core DsiRNA patent. COH is entitled to receive milestone payments in an aggregate amount within the range of $5.0 million to $10.0 million upon achievement of certain clinical and regulatory milestones. COH is further entitled to receive royalties at a low single-digit percentage of any net sale revenue of the licensed products sold by us and our sublicensees. If we sublicense the licensed patent rights to a third party, COH has the right to receive a double digit percentage of sublicense income, the percentage of which decreases after we have expended $12.5 million in development and commercialization costs. We are also obligated to pay COH an annual license maintenance fee, which may be credited against any royalties due to COH in the same year, and reimburse COH for expenses associated with the prosecution and maintenance of the license patent rights. The license agreement will remain in effect until the expiration of the last to expire of the patents or copyrights licensed under the agreement. We have not included our obligations to make future milestone payments on our balance sheet because the achievement and timing of the related milestones is not probable and estimable. In September 2013, we entered into a commercial license agreement with Plant Bioscience Limited (PBL), pursuant to which PBL has granted a license to us for certain of its U.S. patents and patent applications to research, discover, develop, manufacture, sell, import and export, products incorporating one or more short RNA molecules (SRMs). We have paid PBL a one-time, non-refundable signature fee and will pay PBL a nomination fee for any additional SRMs nominated by us under the agreement. We are further obligated to pay PBL milestone payments upon achievement of certain clinical and regulatory milestones. In addition, PBL is entitled to receive royalties on any net sale revenue of any licensed product candidates sold by us. We paid PBL $100,000 upon commencement of our MYC clinical trial.



Financial Operations Overview

Revenue

Our revenue to date has been generated primarily through research funding, license fees, option exercise fees and preclinical development payments under our research collaboration and license agreement with KHK and a government grant. We have not generated any commercial product revenue. For each product candidate under our research collaboration and license agreement with KHK, we are also entitled to receive clinical, regulatory and commercialization milestone payments of up to $110.0 million and royalties on net sales of such product candidate. We did not receive any royalty payments during the three and six month periods ended June 30, 2014 or June 30, 2013.



We did not have revenue for the three or six month periods ended June 30, 2014 or 2013.

In the future, we may generate revenue from a combination of research and development payments, license fees and other upfront payments, milestone payments, product sales and royalties in connection with our collaboration with KHK or future collaborations and licenses. We expect that any revenue we generate will fluctuate in future periods as a result of the timing of our or a collaborator's achievement of preclinical, clinical, regulatory and commercialization milestones, if at all, the timing and amount of any payments to us relating to such milestones and the extent to which any of our product candidates are approved and successfully commercialized by us or a collaborator. If we, KHK or any future collaborator fails to develop product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.



Research and development expenses

Research and development expenses consist of costs associated with our research activities, including discovery and development of our DsiRNA molecules and drug delivery technologies and our research activities under our research collaboration and license agreement with KHK. Our research and development expenses include:



direct research and development expenses incurred under arrangements with

third parties, such as contract research organizations, contract manufacturing organizations, and consultants;



platform-related lab expenses, including lab supplies, license fees,

consultants, and our scientific advisory board;



employee-related expenses, including salaries, benefits and stock-based

compensation expense; and facilities, depreciation and other allocated expenses, which include



direct and allocated expenses for rent and maintenance of facilities,

depreciation of leasehold improvements and equipment and laboratory and other supplies. 15



--------------------------------------------------------------------------------

Table of Contents

We expense research and development costs as they are incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expense when the service has been performed or when the goods have been received. A significant portion of our research and development costs are not tracked by project as they benefit multiple projects or our technology platform. In the second quarter of 2014, we initiated a multi-center, dose-escalating Phase 1 clinical study of DCR-MYC to assess the safety and tolerability of DCR-MYC in patients with solid tumors, multiple myeloma, or lymphoma who are refractory or unresponsive to standard therapies. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. We, KHK or any future collaborator may never succeed in obtaining marketing approval for any of our product candidates. The probability of success for each product candidate may be affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability. All of our research and development programs are at an early stage and successful development of future product candidates from these programs is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each future product candidate and are difficult to predict. We anticipate we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to our ability to maintain or enter into collaborations with respect to each product candidate, the scientific and clinical success of each product candidate as well as ongoing assessments as to the commercial potential of product candidates. We will need to raise additional capital and may seek additional collaborations in the future in order to advance our various product candidates. Additional private or public financings may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy.



General and administrative expenses

General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, legal, business development and support functions. Other general and administrative expenses include travel expenses, professional fees for auditing, tax and legal services and allocated facility-related costs not otherwise included in research and development expenses.



Interest income

Interest income consists of interest income earned on our cash and cash equivalents, held-to-maturity investments and assets held in restriction.

Interest expense

Interest expense consists of interest expense on the Hercules loan, which was repaid in full in April 2014.

Preferred stock warrant re-measurement

Preferred stock warrant re-measurement is associated with warrants to purchase preferred stock issued to lenders under our convertible notes and the Hercules loan. The re-measurement consists of the change in value calculated using the Black-Scholes option pricing model to estimate the fair value of the warrants. We base the estimates in the Black-Scholes option pricing model, in part, on subjective assumptions, including stock price volatility, risk-free interest rate, dividend yield and the fair value of the preferred stock underlying the warrants. The re-measurement gain or loss associated with the change in the fair value of the preferred stock warrant liability each reporting period is recognized as a component of other income (expense). Upon the completion of the initial public offering of our common stock on February 4, 2014, the preferred stock warrant liability was reclassified as a component of equity and is no longer subject to re-measurement. The fair value of the preferred stock warrants as of the closing date of the initial public offering was $3.1 million.



Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the revenue and expenses incurred during the reported periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, revenue recognition, deferred revenue and stock-based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions. 16



--------------------------------------------------------------------------------

Table of Contents

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our financial statements presented in this report are described in our Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K filed with the SEC on March 27, 2014. There have been no material changes to our critical accounting policies during the three and six month periods ended June 30, 2014 from those discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report on Form 10-K filed with the SEC on March 27, 2014, other than the held-to-maturity investments policy noted below.



Held-to-Maturity Investments

We account for our investment in marketable securities in accordance with FASB ASC 320, Investments - Debt and Equity Securities. We determine the appropriate classification of investments at the time of purchase and re-evaluate such designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when we have the positive intent and ability to hold the securities to maturity. At June 30, 2014, all of our investments are classified as held-to-maturity.



Recent Accounting Pronouncements

There are no recent accounting standards that would impact our results reported in the unaudited condensed consolidated interim financial statements included in this report.



Comparison of Three and Six Month Periods Ended June 30, 2014 and 2013

The following table summarizes the results of our operations for the periods indicated (in thousands): THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, Increase Increase 2014 2013 (Decrease) 2014 2013 (Decrease) Revenue: $ - $ - $ - $ - $ - $ - Expenses: Research and development 6,806 2,513 4,293 12,057 4,931 7,126 General and administrative 4,372 1,142 3,230 7,213 2,278 4,935 Total expenses 11,178 3,655 7,523 19,270 7,209 12,061 Loss from operations (11,178 ) (3,655 ) (7,523 ) (19,270 ) (7,209 ) (12,061 ) Other expense 177 131 46 2,889 396 2,493 Net loss $ (11,355 )$ (3,786 )$ (7,569 )$ (22,159 )$ (7,605 )$ (14,554 ) Revenue



We did not recognize any revenue for the three or six month periods ended June 30, 2014 or 2013. We do not expect to generate any product revenue for the foreseeable future.

Research and development expenses

The following table summarizes our research and development expenses incurred during the periods indicated (in thousands):

THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, Increase Increase 2014 2013 (Decrease) 2014 2013 (Decrease) Direct research and development expenses $ 2,078$ 1,224$ 854$ 2,748$ 2,140$ 608 Platform-related expenses 2,350 411 1,939 5,561 977 4,584 Employee-related expenses 2,287 617 1,670 3,469 1,286 2,183 Facilities, depreciation and other expenses 91 261 (170 ) 279 528 (249 ) Total $ 6,806$ 2,513$ 4,293$ 12,057$ 4,931$ 7,126 17



--------------------------------------------------------------------------------

Table of Contents

Research and development expenses were $6.8 million and $12.1 million for the three and six months ended June 30, 2014, respectively, compared to $2.5 million and $4.9 million for the three and six month periods ended June 30, 2013, respectively. On a year-to-date basis, direct research and development expenses increased by $0.6 million for the six month period ended June 30, 2014 compared to the same period in the prior year as a result of the initiation of the clinical trial related to DCR-MYC and an increase in research activities related to DCR-PH1. Platform-related expenses increased by $ $4.6 million for the six month period ended June 30, 2014 compared to the same period in the prior year primarily due to stock-based compensation of 1.6 million and an increase in expenses related to discovery and early development of future programs. Employee-related expenses increased by $2.2 million for the six months ended June 30, 2014 compared to the six months ended June 30, 2013, primarily due to stock-based compensation of $1.0 million and additional hiring during the period. Facilities, depreciation and other expenses have decreased by $0.2 million for the three and six month periods ended June 30, 2014 due to reduction in occupancy costs. We expect our research and development expenses to increase in 2014 as we continue spending on our development programs and clinical trial.



General and administrative expenses

General and administrative expenses were $4.4 million and $7.2 million for the three and six month periods ended June 30, 2014, respectively, compared to $1.1 million and $2.3 million for the three and six month periods ended June 30, 2013, respectively. Employee related expenses were $2.0 million and $3.0 million for the three and six month periods ended June 30, 2014, compared to $0.4 million and $0.9 million in the comparable period in 2013. The increase in these costs related to stock based compensation and an increase in head count. Professional fees were $1.4 million and $2.6 million for the three and six month periods ended June 30, 2014, compared to $0.4 million and $0.7 million in the comparable period in 2013. Other expense were $1.0 million and $1.6 million for the three and six month periods ended June 30, 2014, compared to $0.3 million and $0.7 million in the comparable period in 2013.These increases were primarily due to the transition and increased costs associated with operating as a public company. We expect general and administrative expenses to increase in the future as we continue to expand our operating activities and incur additional costs associated with being a publicly-traded company. These increases will likely include legal, accounting and other professional services costs, directors' and officers' liability insurance premiums and costs associated with investor relations.



Other expense

Other expense was $0.2 and $2.9 million for the three and six month periods ended June 30, 2014, respectively, compared to $0.1 million and $0.4 million for the three and six month periods ended June 30, 2013, respectively. On a year-to-date basis, the increase of $2.5 million was primarily due to an increase in expense related to the re-measurement of the preferred stock warrant liability of $2.7 million, which was partially offset by a decrease in interest expense of $0.2 million. The decrease in interest expense was due to the Hercules loan being repaid in full, in April 2014.



Liquidity and Capital Resources

Since our inception and through June 30, 2014, we have raised an aggregate of $233.2 million to fund our operations, of which $92.7 million was from the initial public offering of our common stock, which closed on February 4, 2014, $110.5 million was from the sale of preferred stock and convertible debt securities (including $3.0 million from the 2013 bridge note financing), $17.5 million was through our collaboration and license agreement with KHK, $0.5 million was from a federal government grant for our Qualifying Therapeutic Discovery Project in November 2010 and $12.0 million was from borrowings under the Hercules loan. As of June 30, 2014, our cash and cash equivalents and held-to-maturity investments were $120.3 million and we also had $1.4 million in assets held in restriction. On February 4, 2014, we closed our initial public offering, in which we issued and sold a total of 6,900,000 shares of our common stock, including 900,000 shares sold pursuant to the exercise in full by the underwriters of their option to purchase additional shares, at a public offering price of $15.00 per share, and received net proceeds of $92.7 million after deducting underwriting commissions and discounts and offering expenses payable by us. In June 2011, we entered into an amendment to our original loan and security agreement with Hercules, pursuant to which we were entitled to borrow a term loan in the principal amount of up to $12.0 million with a floating interest rate equal to the greater of (1) 10.15 percent or (2) the sum of 10.15 percent plus the prime rate published on The Wall Street Journal minus 5.75 percent, not to exceed 12.75 percent per annum, which interest was computed daily based on the actual number of days elapsed. On April 7, 2014, we repaid the remaining amount of the Hercules loan in full for a total payment of $3.6 million. We granted Hercules a security interest in certain of our assets. In connection with the loan and security agreement, as amended, we issued to Hercules warrants to purchase 21,000 shares of Series A preferred stock and 26,400 shares of Series B preferred stock, respectively, each at an exercise price of $25.00 per share. The warrants became exercisable to purchase our common stock immediately prior to the closing of our initial public offering. On February 11, 2014, Hercules net exercised these warrants in exchange for a total of 12,702 shares of our common stock. In addition to our existing cash and cash equivalents, for each product candidate under our research collaboration and license agreement with KHK, we are entitled to receive clinical, regulatory and commercialization milestone payments of up to $110.0 million and royalties on net sales of such product candidate. Our ability to earn these milestone payments and the timing of achieving these milestones is dependent upon the outcome of our research and development and regulatory activities and is uncertain at this time. Our right to receive the payment of certain milestones under our agreement with KHK is our only committed external source of funds. 18



--------------------------------------------------------------------------------

Table of Contents

Cash flows

As of June 30, 2014, we had $120.3 million in cash and cash equivalents and held-to-maturity investments and $1.4 million in assets held in restriction.

The following table shows a summary of our cash flows for the periods indicated (in thousands): SIX MONTHS ENDED JUNE 30, 2014 2013 Difference



Net cash used in operating activities $ (14,271 )$ (2,721 )$ (11,550 )

Net cash used in investing activities (44,476 ) (3 )

(44,473 )

Net cash provided by financing activities 89,884 895



88,989

Increase in cash and cash equivalents $ 31,137$ (1,829 )$ 32,966

Operating activities Net cash used in operating activities for the six month periods ended June 30, 2014 and 2013 was $14.3 million and $2.7 million, respectively. The increase in cash used in operating activities of $11.6 million for the six months ended June 30, 2014 was primarily due to an increase in our net loss of $14.6 million for the six months ended June 30, 2014, which was partially offset by the change in working capital and other non-cash items of $3.0 million, including a payment of $5.0 million received in 2013 under a license agreement related to an option exercise fee and preclinical payments earned in December 2012.



Investing activities

Net cash used in investing activities for the six month periods ended June 30, 2014 and 2013 was $44.5 million and $0, respectively. Net cash used in investing activities for the periods presented relates to purchases of investments in held-to-maturity investments, purchases of property and equipment, primarily laboratory equipment, and an increase in assets held in restriction.



Financing activities

Net cash provided by financing activities for the six month periods ended June 30, 2014 and 2013 was $89.9 million and $0.9 million, respectively. In 2014, net proceeds from our initial public offering was $94.1 million and proceeds from other issuance of common stock was $0.8 million, partially offset by the repayment and principal payments related to the Hercules loan for $5.0 million. In 2013, we had net proceeds of $3.0 million from a bridge loan financing, offset by $2.0 million of repayments on long-term debt.



Funding requirements

We expect that our primary uses of capital will continue to be third-party clinical research and development services, compensation and related expenses, laboratory and related supplies, legal and other regulatory expenses and general overhead costs. We believe that our cash and cash equivalents as of June 30, 2014, but excluding any potential option exercise fees or milestone payments, will be sufficient to meet our anticipated cash requirements through 2016. However, we may require additional capital for the further development of our existing product candidates and may also need to raise additional funds sooner to pursue other development activities related to additional product candidates. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future capital requirements are difficult to forecast and will depend on many factors, including:



the receipt of milestone payments under our research collaboration and

license agreement with KHK; the terms and timing of any other collaboration, licensing and other

arrangements that we may establish;



the initiation, progress, timing and completion of preclinical studies and

clinical trials for our potential product candidates;



the number and characteristics of product candidates that we pursue;

19



--------------------------------------------------------------------------------

Table of Contents

the progress, costs and results of our preclinical studies and clinical

trials; the outcome, timing and cost of regulatory approvals; delays that may be caused by changing regulatory requirements;



the cost and timing of hiring new employees to support our continued growth;

the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims; the costs of filing and prosecuting intellectual property rights and enforcing and defending any intellectual property-related claims;



the costs and timing of procuring clinical and commercial supplies of our

product candidates;



the extent to which we acquire or in-license other product candidates and

technologies; and the extent to which we acquire or invest in other businesses, product



candidates or technologies.

Please see the risk factors set forth in Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q for additional risks associated with our substantial capital requirements.

Until such time, if ever, we generate product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings and research collaboration and license agreements. We may be unable to raise capital or enter into such other arrangements when needed or on favorable terms, or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates.



Contractual Obligations and Commitments

The following is a summary of our significant contractual obligations as of June 30, 2014 (in thousands).

PAYMENTS DUE BY PERIOD MORE THAN MORE THAN MORE LESS THAN 1 YEAR AND 3 YEARS AND THAN CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR LESS THAN 3 LESS THAN 5 5 YEARS Existing operating lease obligations (1) $ 1,484$ 594$ 890 - - Future operating lease obligations (2) 9,625 868 3,076 3,259 2,422 Total $ 11,109$ 1,462$ 3,966$ 3,259$ 2,422



(1) Future minimum lease payments under our existing non-cancelable operating

lease for our current office and laboratory space in Watertown,

Massachusetts, as amended on July 3, 2013, that expires on November 30, 2016

with an average rent of approximately $51 per month.

(2) Future minimum lease payments under a non-cancelable operating lease for our

future office and laboratory space in Cambridge, Massachusetts, as executed

on July 11, 2014 with an average rent of approximately $134 per month.

We also have obligations to make future payments to COH, PBL and Carnegie Institution of Washington that become due and payable on the achievement of certain development, regulatory and commercial milestones. We have not included these commitments on our balance sheet or in the table above because the achievement and timing of these milestones is not probable and estimable.

Off-balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission. 20



--------------------------------------------------------------------------------

Table of Contents

Segment Reporting

We view our operations and manage our business as one segment, which is the discovery, research and development of treatments based on our RNAi technology platform.


For more stories covering the world of technology, please see HispanicBusiness' Tech Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters