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MARINA BIOTECH, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 7, 2014

Overview

Statements contained herein that are not historical fact may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are subject to a variety of risks and uncertainties. There are a number of important factors that could cause actual results to differ materially from those projected or suggested in any forward-looking statement made by us. These factors include, but are not limited to: (i) the ability of our company to obtain additional and substantial funding in the future; (ii) the ability of our company to attract and/or maintain research, development, commercialization and manufacturing partners; (iii) the ability of our company and/or a partner to successfully complete product research and development, including pre-clinical and clinical studies and commercialization; (iv) the ability of our company and/or a partner to obtain required governmental approvals, including product and patent approvals; and (v) the ability of our company and/or a partner to develop and commercialize products that can compete favorably with those of competitors. In addition, significant fluctuations in quarterly results may occur as a result of the timing of milestone payments, the recognition of revenue from milestone payments and other sources, and the timing of costs and expenses related to our research and development programs. Additional factors that could cause actual results to differ materially from those projected or suggested in any forward-looking statements are contained in our filings with the Securities and Exchange Commission, including those factors discussed under the captions "Risk Factors" and "Forward-Looking Statements" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as may be supplemented or amended from time to time, which we urge investors to consider. We undertake no obligation to publicly release revisions in such forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events or circumstances, except as otherwise required by securities and other applicable laws.

Background



We are a biotechnology company focused on the discovery, development and commercialization of nucleic acid-based therapies to treat orphan diseases. Since 2010, we have strategically acquired/in-licensed and further developed nucleic acid chemistry and delivery-related technologies to form an integrated drug discovery platform. We distinguish ourselves from others in the nucleic acid therapeutics area through this unique platform that enables the development of a variety of therapeutics targeting coding and non-coding RNA via multiple mechanisms of action such as RNA interference ("RNAi"), messenger RNA ("mRNA") translational inhibition, exon skipping, miRNA ("miRNA") replacement, miRNA inhibition, and steric blocking in order to modulate gene expression either up or down depending on the specific mechanism of action. Our goal is to dramatically improve the lives of the patients and families affected by orphan diseases through either our own efforts or those of our collaborators and licensees.

We plan to focus our efforts and resources on the discovery and development of our own pipeline of nucleic acid-based compounds in order to commercialize drug therapies to treat orphan diseases. In addition, we will seek to establish collaborations and strategic partnerships with pharmaceutical and biotechnology companies to generate revenue through up-front, milestone and royalty payments related to our technology and/or the products that are developed using such technology.

Cash Position and Liquidity



The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. As of March 31, 2013, we had an accumulated deficit of approximately $328.4 million. To the extent that sufficient funding is available, we will in the future continue to incur losses as we continue our research and development activities. In addition, we have had and will continue to have negative cash flows from operations. We have funded our losses primarily through the sale of common stock, preferred stock and warrants, revenue provided by our license agreements with other parties, and, to a lesser extent, equipment financing facilities and secured loans. We have recently funded operations with a combination of sales of equity, issuances of debt, license-related receipts, sales of reagents and services, and sales of property and equipment. At March 31, 2013, we had a working capital deficit of $5.2 million and $0.1 million in cash.

In February 2014, certain debt holders exchanged secured promissory notes in the aggregate principal and interest amount of approximately $1.5 million for approximately 2.0 million shares of our common stock. In March 2014, we sold 1,200 shares of our Series C Convertible Preferred Stock and 6 million warrants to purchase one share of common stock for $0.75 per share,

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resulting in net proceeds of $6.0 million. We believe that our existing cash resources, which include the proceeds of the March 2014 offering, will enable us to fund our intended operations through May 2015.

Funding of Operations



Notes and Price Adjustable Warrants

Original Issuance and amendments- In February 2012, we issued $1.5 million of notes payable at 15% interest to two investors. The notes were secured by the assets of the Company. In 2012, we executed a series of four amendments which modified the maturity dates and cash claims of the notes, as well as including additional conversion features. We issued warrants to purchase up to 6.9 million shares of the company before August 2018. These warrants were issued or reset to a $0.28 exercise price and may be subject to further downward exercise price adjustment.

Amendment Five- In February 2013, we amended the notes to a) extend the maturity date to April 2013 and b) in the event that the company was merged or consolidated, the company would repay the entire unpaid principal balance and all accrued and unpaid interest through the issuance of an aggregate number of shares of common stock calculated by converting the then total outstanding principal and interest at a value of $0.28 per share of common stock. We issued warrants to purchase up to 1.0 million shares of the company before August 2018. These warrants were price adjusted at a $0.28 exercise price.

Amendment Six - In August 2013, we amended the notes to a) extend the maturity date to March 2014, b) release our UNA technology from the collateral securing our obligations under the notes, and c) provide that we would pay a portion of any payments that we receive from the licensing, partnering or disposition of our technology, or from the sale of our debt or equity securities in a bona fide capital raising transaction, to the note holders. We issued Price Adjustable Warrants to purchase up to 4.0 million shares of the company before February 2019 at an exercise price of $0.28 per share.

Licensing and Sale of Property and Equipment

During the three months ended March 31, 2013, we received an aggregate of $.03 million in cash payments from licensing and the sale of property and equipment.

Restructuring/Expense Reduction

In June 2012, because of our financial condition, we furloughed approximately 90% of our employees and ceased substantially all daily operations of our Company. By October 2012, substantially all of the furloughed employees were terminated. Since October 2012, we had 11 employees, including all of our executive officers, most of whom have remained on furlough or have worked for a reduced or accrued salary. The effective terms of the furlough program include cancellation of employee benefits plans; elimination of salary and payroll tax accrual for unpaid periods, unless under employment contract; maintenance of, but no further addition to, previously accrued paid time with employee release of the Company's obligation to pay the balance on formal termination; and continuation of option vesting per original grant terms. As of July 14, 2014, only the CEO remains an employee. All other employees have either resigned or been terminated.

In addition to the furlough program, we terminated all lease arrangements and sold substantially all of our property and equipment. As a result of these restructuring activities, our business efforts had been minimal since October 2012. However, through 2012, 2013 and into 2014, we continued to seek collaboration and licensing agreements with biotechnology and pharmaceutical companies; and pursued public and private sources of financing to raise cash. Through licensing agreements with several biotechnology companies, we maintained our minimal business operations until we executed a substantial financing of $6.0 million in March 2014.

Cash flows



Our operating activities used cash of approximately $0.5 million in the three months ended March 31, 2013, compared to approximately $3.2 million in the quarter ended March 31, 2012. In the three months ended March 31, 2013, cash used in operating activities related primarily to funding our net loss, adjusted for non-cash gains totaling $2.7 million related to changes in the fair value of the liability for price adjustable warrants, stock reserved to settle liabilities and embedded derivatives. Non-cash expenses totaling $1.0 million included the loss on debt extinguishment, interest expense and stock compensation. Changes in operating assets and liabilities used $0.2 million mostly from changes in the accrued restructuring. During the three months ended March 31, 2012, cash used in operating activities related primarily to funding our net loss, adjusted for changes in the liability for fair value of price adjustable warrants and subscription investment units, offset in part by non-cash

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amortization of the discount on notes payable, stock-based compensation, depreciation and amortization, changes in accounts payable and changes in prepaid and other assets. Throughout the remainder of 2013, we raised funds to support our minimized business operations. The March 2014 funding of $6.0 million is being used to resume business and R&D activities.

Our investing activities provided cash of approximately $0.38 million in the three months ended March 31, 2013, compared to providing cash in the amount of approximately $0.03 million in the three months ended March 31, 2012. In the three months ended March 31, 2013, cash was drawn from our letter of credit associated with our lease termination. In the three months ended March 31, 2012, cash provided by investing activities was cash received from sales of property and equipment.

Our financing activities used approximately $0.002 million in the three months ended March 31, 2013, compared to approximately $2.6 million provided in the three months ended March 31, 2012. Changes in cash from financing activities are primarily due to note re-financings. In February 2012, we received net proceeds of $1.5 million from the issuance of notes payable and warrants to purchase shares of common stock. In March 2012, we raised net proceeds of approximately $1.1 million through an offering of shares of common stock and warrants to purchase shares of common stock.

Summary



We believe that our existing cash resources, which include the proceeds of the March 2014 offering, will enable us to fund our intended operations through May 2015. The market value and the volatility of our stock price, as well as our historical financial situation and general market conditions, could make it difficult for us to complete a financing or collaboration transaction on favorable terms, or at all. Any financing we obtain may further, and substantially, dilute or otherwise impair the ownership interests of our current stockholders. If we fail to obtain significant additional capital in the future, we will be forced to further delay, reduce or eliminate some or all of our planned activities.


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Source: Edgar Glimpses


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