prtk-10q_20150930.htm

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

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

As of November 6, 2015 there were 17,608,615 shares of the registrant's common stock outstanding.

	September 30, 2015			December 31, 2014
	(unaudited)			(See Note 2)
Assets
Current assets
Cash and cash equivalents	$	146,428		$	95,856
Accounts receivable		270			4,434
Other current assets		8,289			1,039
Total current assets		154,987			101,329
Restricted cash		2,735			2,946
Fixed assets, net		672			49
Intangible assets, net		1,562			4,814
Goodwill		829			829
Other long-term assets		28			—
Total assets	$	160,813		$	109,967
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable and other accrued expenses	$	6,737		$	2,915
Accrued contract research		6,709			826
Current portion of Intermezzo reserve		160			—
Total current liabilities		13,606			3,741
Long-term debt		19,536			—
Intermezzo reserve, net of current portion		2,310			2,850
Contingent obligations		1,580			4,560
Other liabilities		3,557			3,592
Total liabilities		40,589			14,743
Commitments and contingencies (Note 13)
Stockholders’ equity
Preferred stock:
Undesignated preferred stock: $0.001 par value; 5,000,000 shares authorized, no shares issued and outstanding at September 30, 2015; and 4,000,000 shares authorized, no shares issued and outstanding at December 31, 2014		—			—
Series A Junior participating preferred stock: $0.001 par value; no shares issued and outstanding at September 30, 2015; and 1,000,000 shares authorized, no shares issued and outstanding at December 31, 2014		—			—
Common stock, $0.001 par value, 100,000,000 shares authorized, 17,608,615 and 14,417,936 issued and outstanding at September 30, 2015 and December 31, 2014, respectively		18			14
Additional paid-in capital		367,826			293,076
Accumulated deficit		(247,620	)		(197,866	)
Total stockholders’ equity		120,224			95,224
Total liabilities and stockholders’ equity	$	160,813		$	109,967

See accompanying notes to unaudited condensed consolidated financial statements.

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Revenue
Research and development collaborations	$	-		$	-		$	-		$	342
Operating expenses:
Research and development		17,817			1,001			35,556			2,364
General and administrative		5,795			2,074			14,347			3,865
Impairment of intangible asset		-			-			2,761			-
Changes in fair value of contingent consideration		(240	)		-			(2,980	)		-
Total operating expenses		23,372			3,075			49,684			6,229
Loss from operations		(23,372	)		(3,075	)		(49,684	)		(5,887	)
Other income and expenses:
Interest expense, net		(47	)		(158	)		(73	)		(714	)
Loss on mark-to-market of notes and warrants		-			-			-			(119	)
Other income (expense), net		(2	)		-			3			6
Net loss		(23,421	)		(3,233	)		(49,754	)		(6,714	)
Unaccreted dividends on convertible preferred stock		-			(745	)		-			(1,684	)
Net loss attributable to common stockholders	$	(23,421	)	$	(3,978	)	$	(49,754	)	$	(8,398	)
Basic and diluted net loss per common share	$	(1.33	)	$	(29.48	)	$	(3.08	)	$	(91.81	)
Weighted average common shares outstanding
Basic and diluted		17,561,708			135,000			16,129,031			91,484

See accompanying notes to unaudited condensed consolidated financial statements.

	Nine months ended September 30,
	2015			2014
Net loss	$	(49,754	)	$	(6,714	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		544			-
Stock-based compensation expense		2,940			507
Noncash interest expense		-			577
Impairment of intangible asset		2,761			-
Change in fair value of contingent consideration		(2,980	)		-
Loss on mark-to-market on convertible notes and preferred stock warrants		-			119
Other gains, net		10			37
Changes in operating assets and liabilities, net of effects of merger
Accounts receivable and other current assets		(1,466	)		6
Accounts payable and accrued expenses		9,524			(2,324	)
Other liabilities and other assets		(569	)		(342	)
Net cash used in operating activities		(38,990	)		(8,134	)
Investing activities
(Purchase) sale of fixed assets		(686	)		15
Other investing activities		-			(9	)
Decrease in restricted cash		211			-
Net cash provided by (used in) investing activities		(475	)		6
Financing activities
Proceeds from exercise of stock options		245			-
Proceeds from issuance of long-term debt, net of costs and debt discount		19,357			-
Proceeds from issuance of common stock		70,435			-
Proceeds from non-convertible note financing		-			5,480
Proceeds from bridge loan-related party		-			4,300
Deferred financing costs		-			(499	)
Refund of financing		-			(831	)
Net cash provided by financing activities		90,037			8,450
Net increase in cash and cash equivalents		50,572			322
Cash and cash equivalents at beginning of period		95,856			1,212
Cash and cash equivalents at end of period	$	146,428		$	1,534
Supplemental disclosure of noncash financing activities
Fair value of warrants issued	$	289		$	-
Receivable from sale of stock	$	1,000		$	-
Issuance of new Series A convertible preferred stock in exchange for previously issued preferred stock and convertible notes	$	-		$	520
Conversion of prefunding to non-convertible note	$	-		$	21,140

See accompanying notes to unaudited condensed consolidated financial statements.

Paratek Pharmaceuticals, Inc. (the “Company” or “Paratek”) is a Delaware corporation with its corporate office in Boston, Massachusetts and an office in King of Prussia, Pennsylvania. The Company is a clinical stage biopharmaceutical company focused on the development and commercialization of innovative therapeutics based upon tetracycline chemistry. The Company has used its expertise in biology and tetracycline chemistry to create chemically diverse and biologically distinct small molecules derived from the minocycline core structure. The Company’s two lead product candidates are the antibacterials omadacycline and sarecycline. Omadacycline entered into Phase 3 clinical development in June 2015. Sarecycline entered Phase 3 clinical development in December 2014.

Prior to October 30, 2014, the name of the Company was Transcept Pharmaceuticals, Inc. (“Transcept”). On October 30, 2014, Transcept completed its business combination with Paratek Pharmaceuticals, Inc. (“Old Paratek”) in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 30, 2014, by and among Transcept, Tigris Merger Sub, Inc. (“Merger Sub”), Tigris Acquisition Sub, LLC (“Merger LLC”) and Paratek (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Paratek, with Paratek surviving as a wholly-owned subsidiary of Transcept (the “Merger”), followed by the merger of Paratek with and into Merger LLC, with Merger LLC surviving as a wholly-owned subsidiary of Transcept. Also on October 30, 2014, in connection with, and prior to the completion of, the Merger, Transcept effected a 1-for-12 reverse stock split of its common stock (the “Reverse Stock Split”), and immediately following the Merger, Transcept changed its name to “Paratek Pharmaceuticals, Inc.”, and Merger LLC changed its name to “Paratek Pharma, LLC.” Following the completion of the Merger, the business conducted by Paratek Pharmaceuticals Inc. became primarily the business conducted by Paratek. These condensed consolidated financial statements reflect the historical results of Paratek prior to the Merger, and do not include the historical results of Transcept prior to the completion of the Merger. All 2014 share and per share disclosures have been adjusted to reflect the exchange of shares in the Merger, and the 1-for-12 reverse stock split of the common stock on October 30, 2014.

Immediately prior to the Merger, Old Paratek sold 8,068,766 shares of its common stock for an aggregate purchase price of $93.0 million to certain existing Paratek stockholders and certain new investors in Paratek (the “Financing”). Immediately prior to the closing of the Financing, the $6.0 million in aggregate principal amount outstanding under, and all accrued interest on, the 2014 Notes (as defined in Note 11 below) converted into 1,335,632 shares of Old Paratek’s common stock based on a conversion price of $0.778 per share. Further, and also immediately prior to the closing of the Financing, each share of Old Paratek’s preferred stock outstanding at that time was converted into shares of Old Paratek’s common stock at a ratio determined in accordance with Paratek’s certificate of incorporation then in effect. The parties to the Financing and to the conversion of the 2014 Notes include officers, employees and directors of Paratek, making these transactions related party in nature.

Under the terms of the Merger Agreement, Transcept issued shares of its common stock to Old Paratek’s stockholders, at an exchange rate of 0.0675 shares of common stock, after taking into account the Reverse Stock Split, in exchange for each share of Old Paratek common stock outstanding immediately prior to the Merger. Transcept also assumed all of the stock options outstanding under the Old Paratek 2014 Equity Incentive Plan, as amended (the “Paratek Plan”), and stock warrants of Old Paratek outstanding immediately prior to the Merger, with such stock options and warrants henceforth representing the right to purchase a number of shares of Transcept common stock equal to 0.0675 multiplied by the number of shares of Old Paratek common stock previously represented by such options and warrants. Transcept also assumed the Paratek Plan.

After consummation of the Merger, the Old Paratek stockholders, warrant holders and option holders owned approximately 89.6% of the fully-diluted common stock of Paratek, with Transcept’s stockholders and optionholders immediately prior to the Merger, whose shares of Paratek common stock (including shares received upon the cancellation of existing options) remain outstanding after the Merger, owning approximately 10.4% of the fully-diluted common stock of Paratek. Under generally accepted accounting principles in the United States of America (“U.S. GAAP”), the Merger was treated as a “reverse merger” under the purchase method of accounting. For accounting purposes, Old Paratek is considered to have acquired Transcept.

The significant accounting policies described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2014, and the notes thereto, which are included in the Annual Report on Form 10-K/A, have had no material changes during the nine months ended September 30, 2015.

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”), and pursuant to the rules and regulations of the Securities and Exchange Commission.

The accompanying condensed consolidated financial statements are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2014, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods ended September 30, 2015 and 2014.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2015. The accompanying consolidated balance sheet as of December 31, 2014, was derived from the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K/A. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2014, and notes thereto, which are included in the Company’s Annual Report on Form 10-K/A.

The accompanying unaudited condensed consolidated financial statements include the results of operations of Paratek Pharmaceuticals, Inc. and its wholly-owned subsidiaries, Paratek Pharma, LLC, Paratek Securities Corporation, Transcept Pharma, Inc., and Paratek UK, Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation.

The preparation of the accompanying unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reported period. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, intangible assets, goodwill, contingent liabilities, stock-based compensation arrangements, useful lives for depreciation and amortization of long-lived assets and valuation allowances on deferred tax assets. Actual results could differ from those estimates.

Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment.

As described in Note 1, the Company completed the Merger with Transcept on October 30, 2014 for the principal purposes of utilizing the cash resources held by Transcept to continue the development of the late-stage product candidate held by Paratek and for the access to capital markets afforded by Transcept’s public listing.

The following unaudited pro forma information presents a summary of the Company’s condensed consolidated results of operations as if the Merger had taken place as of January 1, 2014 (in thousands):

Intermezzo and TO-2070 product rights were acquired through the Merger with Transcept on October 30, 2014. Refer to Note 6, License and Collaboration Agreements, for further detail concerning the Intermezzo and TO-2070 products. Intangible assets are reviewed for impairment at least annually and when events or circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. On March 27, 2015, a decision was made by the United States District Court for the District of New Jersey, or the District Court, concerning Intermezzo patent infringement claims the Company made in response to the filing of an Abbreviated New Drug Application with the Federal Drug Administration. The decision made by the District Court invalidated several Intermezzo patents as obvious and triggered an evaluation of the carrying value of the Intermezzo product rights and related contingent obligations in light of an expected decline in Intermezzo sales. Refer to Note 13 Commitments and Contingencies for further information concerning the litigation.

As a result of the District Court’s ruling, the Company performed an interim impairment test of the Intermezzo product rights in connection with the preparation of its unaudited condensed consolidated financial statements for the first quarter of 2015. This impairment test utilized probability-weighted cash flow estimation and sale proceeds income approaches with consideration to the timing of payments of associated contingent obligations to former Transcept stockholders. Based on the intangible asset impairment test performed, the Company recorded a non-cash impairment charge of $2.8 million.

The Company appealed the District Court’s ruling during the second quarter of 2015 and the appeal is still pending as of September 30, 2015. The Company performed another interim impairment test of the Intermezzo product rights in connection with the preparation of its unaudited condensed consolidated financial statements for the third quarter of 2015. Given the significant uncertainty concerning the ultimate disposition of the Intermezzo product, the fair value of the Intermezzo product rights was evaluated using probability-weighted cash flow estimation and sale proceeds income approaches with consideration to the timing of payments of associated contingent obligations to former Transcept stockholders. Based on the intangible asset impairment test performed, it was determined that the projected undiscounted future cash flows exceeded the book value of the intangible asset and no additional impairment charge was recorded.

The adjusted carrying value of the Intermezzo product rights are being amortized over a remaining useful life of four years. After the impairment charge, accumulated amortization of the Intermezzo product rights at September 30, 2015 was $154,000, and amortization expense for the three and nine months ended September 30, 2015 was $77,000 and $154,000, respectively.

The TO-2070 product rights are being amortized over an estimated three-year useful life. Accumulated amortization of the TO-2070 product rights at September 30, 2015 was $134,000, and amortization expense for the three and nine months ended September 30, 2015 was $36,667 and $110,000, respectively.

Basic net loss per share available to common stockholders is calculated by dividing the net loss available to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share available to common stockholders is computed by dividing the net loss available to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method or the as if-converted method, as applicable. For purposes of this calculation, convertible preferred stock, stock options, convertible preferred stock warrants and common stock warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share available to common stockholders when their effect is dilutive.

The following table presents the computation of basic and diluted net loss per share reflecting the effect of the Reverse Stock Split in connection with the Merger (in thousands, except share and per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Numerator
Net loss	$	(23,421	)	$	(3,233	)	$	(49,754	)	$	(6,714	)
Less: Unaccreted dividends on convertible preferred stock		—			(745	)		—			(1,684	)
Net loss attributable to common stockholders	$	(23,421	)	$	(3,978	)	$	(49,754	)	$	(8,398	)
Denominator
Weighted-average common shares outstanding		17,561,708			135,000			16,129,031			91,484
Net loss per share—basic and diluted	$	(1.33	)	$	(29.48	)	$	(3.08	)	$	(91.81	)

The following outstanding shares subject to options and warrants to purchase common stock were antidilutive due to a net loss in the periods presented and, therefore, were excluded from the dilutive securities computation as of the dates indicated below:

In July 2007, the Company and Allergan plc, or Allergan, entered into a collaborative research and license agreement, or the Allergan Collaboration Agreement, under which the Company granted Allergan an exclusive license to research, develop and commercialize tetracycline products for use in the United States for the treatment of acne and rosacea. Since Allergan did not exercise its development option with respect to the treatment of rosacea prior to initiation of a Phase 3 trial for the product, the license grant to Allergan converted to a non-exclusive license for the treatment of rosacea as of December 2014. Under the terms of the Allergan Collaboration Agreement, the Company and Allergan are responsible for, and are obligated to use, commercially reasonable efforts to conduct specified development activities for the treatment of acne and, if requested by Allergan, the Company may conduct certain additional development activities to the extent the Company determines in good faith that the Company has the necessary resources available for such activities. Allergan has agreed to reimburse the Company for our costs and expenses, including third-party costs, incurred in conducting any such development activities.

Under the terms of the Allergan Collaboration Agreement, Allergan is responsible for and is obligated to use commercially reasonable efforts to develop and commercialize tetracycline compounds that are specified in the agreement for the treatment of acne. Allergan failed to elect to advance the development of sarecycline for the treatment of rosacea in accordance with the terms of the agreement so the license granted to Allergan was converted to a non-exclusive license for the treatment of rosacea. The Company has agreed during the term of the Allergan Collaboration Agreement not to directly or indirectly develop or commercialize any tetracycline compounds in the United States for the treatment of acne and rosacea, and Allergan has agreed during the term of the Allergan Collaboration Agreement not to directly or indirectly develop or commercialize any tetracycline compound included as part of the agreement for any use other than as provided in the agreement.

The Company earned an upfront fee in the amount of $4.0 million upon the execution of the Allergan Collaboration Agreement, $1.0 million upon filing of an Investigational New Drug Application in 2010, and $2.5 million upon initiation of Phase 2 trials in 2012. In December 2014, the Company also earned $4.0 million upon initiation of Phase 3 trials associated with the Allergan Collaboration Agreement. In addition, Allergan may be required to pay the Company an aggregate of approximately $17.0 million upon the achievement of specified future regulatory milestones, the next being $5.0 million upon acceptance by the U.S. Food and Drug Administration, or FDA, of a New Drug Application, or NDA, submission. Allergan is also obligated to pay the Company tiered royalties, ranging from the mid-single digits to the low double digits, based on net sales of tetracycline compounds developed under the Allergan Collaboration Agreement, with a standard royalty reduction post patent expiration for such product for the remainder of the royalty term. Allergan’s obligation to pay the Company royalties for each tetracycline compound it commercializes under the Allergan Collaboration Agreement expires on the later of the expiration of the last to expire patent that covers the tetracycline compound in the United States and the date on which generic drugs that compete with the tetracycline compound reach a certain threshold market share in the United States.

Either the Company or Allergan may terminate the Allergan Collaboration Agreement for certain specified reasons at any time after Allergan has commenced development of any tetracycline compound, including if Allergan determines that it would not be commercially viable to continue to develop or commercialize the tetracycline compound and/or that it is unlikely to obtain regulatory approval of the tetracycline compound, and, in any case, no backup tetracycline compound is in development or ready to be developed and the parties are unable to agree on an extension of the development program or an alternative course of action. Either the Company or Allergan may terminate the Allergan Collaboration Agreement for the other party’s uncured breach of a material term of the agreement on 60 days’ notice (unless the breach relates to a payment term, which requires a 30-day notice) or upon the bankruptcy of the other party that is not discharged within 60 days. Upon the termination of the Allergan Collaboration Agreement by Allergan for the Company’s breach, Allergan’s license will continue following the effective date of termination, subject to the payment by Allergan of the applicable milestone and royalty payments specified in the agreement unless our breach was with respect to certain specified obligations, in which event the obligation of Allergan to pay us any further royalty or milestone payments will terminate. Upon the termination of the Allergan Collaboration Agreement by us for Allergan’s breach or the voluntary termination of the agreement by Allergan, Allergan’s license under the agreement will terminate.

The Company determined whether the performance obligations under this collaboration could be accounted for separately or as a single unit of accounting. The Company determined that the license, participation on steering committees and research and development services performance obligations during the research period of the CRL Agreement represented a single unit of accounting. As the Company could not reasonably estimate its level of effort, the Company recognized revenue from the upfront payment, milestone payment and research and development services payments using the contingency-adjusted performance model over the expected development period. The development period was completed in June 2010. Under this model, when a milestone was earned or research and development services were rendered, revenue was immediately recognized on a pro-rata basis in the period the milestone was achieved or services were delivered based on the time elapsed from the effective date of the agreement. Thereafter, the remaining portion was recognized on a straight-line basis over the remaining development period. The Company has determined that each potential future clinical, regulatory and commercialization milestone is substantive. In making this determination, pursuant to the accounting guidance on revenue recognition for milestone payments, the Company considered and concluded that each individual milestone: (i) relates solely to the past performance of the intellectual property to achieve the milestone; (ii) is reasonable relative to all of the deliverables and payment terms in the arrangement; and (iii) is commensurate with the enhanced value of the intellectual property as a result of the milestone achievement. As the Company’s obligations under this arrangement have been completed, all future milestones, which are all considered substantive, will be recognized as revenue when achieved.

Also, the Company, at its discretion, may provide manufacturing process development services to Allergan in exchange for full-time equivalent based cost reimbursements. The Company determined that the manufacturing process development services are considered a separate unit of accounting as (i) they are set at the Company’s discretion, (ii) they have stand-alone value, as these services could be performed by third parties, and (iii) the full-time equivalent rate paid for such services rendered is considered fair value. Therefore, the Company recognizes cost reimbursements for manufacturing process development services as revenue as the services are performed.

In February 1997, the Company and Tufts University, or Tufts, entered into a license agreement under which the Company acquired an exclusive license to certain patent applications and other intellectual property of Tufts related to the drug resistance field to develop and commercialize products for the treatment or prevention of bacterial or microbial diseases or medical conditions in humans or animals or for agriculture. The Company subsequently entered into nine amendments to that agreement, collectively the Tufts License Agreement, to include patent applications filed after the effective date of the original license agreement, to exclusively license additional technology from Tufts, to expand the field of the agreement to include disinfectant applications, and to change the royalty rate and percentage of sublicense income paid by the Company to Tufts under sublicense agreements with specified sublicensees. The Company is obligated under the Tufts License Agreement to provide Tufts with annual diligence reports and a business plan and to meet certain other diligence milestones. The Company has the right to grant sublicenses of the licensed rights to third parties, which will be subject to the prior approval of Tufts unless the proposed sublicensee meets a certain net worth or market capitalization threshold. The Company is primarily responsible for the preparation, filing, prosecution and maintenance of all patent applications and patents covering the intellectual property licensed under the Tufts License Agreement at its sole expense. The Company has the first right, but not the obligation, to enforce the licensed intellectual property against infringement by third parties.

The Company issued Tufts 1,024 shares of the Company’s common stock on the date of execution of the original license agreement, and the Company may be required to make certain payments of up to $0.3 million to Tufts upon the achievement by products developed under the agreement of specified development and regulatory approval milestones. The Company has already made a payment of $50,000 to Tufts for achieving the first milestone following commencement of the Phase 3 non-registration clinical trial for omadacycline. The Company is also obligated to pay Tufts a minimum royalty payment in the amount of $25,000 per year, if the Company does not sponsor at least $100,000 of research at Tufts in such year. In the past, the Company has opted to satisfy its minimum royalty obligations to Tufts by providing an equivalent amount of sponsored research or receiving a waiver from Tufts with respect to such obligations. The Company expects that it will satisfy its future minimum royalty obligations to Tufts by making an annual royalty payment of $25,000 to Tufts. In addition, the Company is obligated to pay Tufts royalties based on gross sales of products, as defined in the agreement, ranging in the low single digits depending on the applicable field of use for such product sale. If the Company enters into a sublicense under the Tufts License Agreement, the Company will be obligated to pay Tufts a percentage, ranging from the low-to-mid teens based on the applicable field of use for such product, of the license maintenance fees or sublicense issue fees paid to the Company by the sublicensee and the lesser of a percentage, ranging from the low tens to the high twenties based on the applicable field of use for such product, of the royalty payments made to the Company by the sublicensee or the amount of royalty payments that would have been paid by the Company to Tufts if the Company had sold the products.

Unless terminated earlier, the Tufts License Agreement will expire at the same time as the last-to-expire patent in the patent rights licensed to the Company under the agreement and after any such expiration the Company will continue to have an exclusive, fully-paid-up license to such intellectual property licensed from Tufts. Tufts has the right to terminate the agreement upon 30 days’ notice should the Company fail to make a material payment under the Tufts License Agreement or commit a material breach of the agreement and not cure such failure or breach within such 30 day period, or if, after the Company has started to commercialize a product under the Tufts License Agreement, the Company ceases to carry on its business for a period of 90 consecutive days. The Company has the right to terminate the Tufts License Agreement at any time upon 180 days’ notice. Tufts has the right to convert the Company’s exclusive license to a non-exclusive license if the Company does not commercialize a product licensed under the agreement within a specified time period.

The Company also agreed to pay Tufts royalties based on gross sales of products, as defined in the Tufts License Agreement, ranging in the low single digits depending on the applicable field of use for such product sale. If the Company enters into a sublicense under the Tufts License Agreement, it will be obligated to pay Tufts a percentage, ranging from the low-to-mid teens based on the applicable field of use for such product, of the license maintenance fees or sublicense issue fees paid to the Company by the sublicensee and the lesser of a percentage, ranging from the low teens to the high twenties based on the applicable field of use for such product, of the royalty payments made to the Company by the sublicensee or the amount of royalty payments that would have been paid by us to Tufts if the Company had sold the products.

In July 2009, the Company and Purdue Pharma L.P., or Purdue Pharma, entered into a collaboration agreement, or the Purdue Collaboration Agreement, that grants an exclusive license to Purdue Pharma to commercialize Intermezzo in the United States and pursuant to which:

The Company had an option to co-promote Intermezzo to psychiatrists in the United States and such option was terminated as a result of the Merger.

The Purdue Collaboration Agreement expires on the expiration of Purdue Pharma’s royalty obligations. Purdue Pharma has the right to terminate the Purdue Collaboration Agreement at any time upon advance notice of 180 days. The Purdue Collaboration Agreement is also subject to termination by Purdue Pharma in the event of FDA or governmental action that materially impairs Purdue Pharma’s ability to commercialize Intermezzo or the occurrence of a serious event with respect to the safety of Intermezzo. The Purdue Collaboration Agreement may also be terminated by the Company upon Purdue Pharma commencing an action that challenges the validity of Intermezzo related patents. The Company also has the right to terminate the Purdue Collaboration Agreement immediately if Purdue Pharma is excluded from participation in federal healthcare programs. The Purdue Collaboration Agreement may also be terminated by either party in the event of a material breach by or insolvency of the other party.

The Company also granted Purdue Pharma and an associated company the right to negotiate for the commercialization of Intermezzo in Mexico in 2013 but retained the rights to commercialize Intermezzo in the rest of the world.

In December 2013, Purdue Pharma notified the Company that it intended to discontinue use of the Purdue Pharma sales force to actively market Intermezzo to healthcare professionals during the first quarter of 2014.

In October 2014, the Company announced that its board of directors had approved a special dividend of, among other things, the right to receive, on a pro rata basis, 100% of any royalty income received by the Company pursuant to the Purdue License Agreement and 90% of any cash proceeds from a sale or disposition of Intermezzo, less fees and expenses incurred in connection with such activity, to the extent that either occurs prior to the second anniversary of the closing date of the Merger.

In September 2013, the Company and Shin Nippon Biomedical Laboratories Ltd., or SNBL, entered into a License Agreement, or SNBL License Agreement, pursuant to which SNBL granted the Company an exclusive worldwide license to commercialize SNBL’s proprietary nasal drug delivery technology to develop TO-2070. The Company was developing TO-2070 as a treatment for acute migraine using SNBL’s proprietary nasal powder drug delivery system. Under the SNBL License Agreement, the Company was required to fund all development and regulatory approval with respect to TO-2070. Pursuant to the SNBL License Agreement, the Company paid an upfront nonrefundable technology license fee of $1.0 million, and the Company was also obligated to pay up to an aggregate of $41.5 million upon the achievement of certain development, regulatory and sales milestones, and tiered, low double-digit royalties on annual net sales of TO-2070.

In September 2014, the Company and SNBL entered into a Termination Agreement and Release, or the SNBL Termination Agreement, pursuant to which, among other things, the SNBL License Agreement was terminated and the Company assigned all of its rights, interest and title to the TO-2070 assets to SNBL in exchange for a portion of certain future net revenue received by SNBL as set forth in the SNBL Termination Agreement, up to an aggregate of $2.0 million.

On January 12, 2015, the Company filed a registration statement on Form S-3 with the Securities and Exchange Commission to sell shares of Company common stock, par value $0.001 per share, in an aggregate amount of up to $200.0 million to the public in a registered offering or offerings. Under this shelf registration, the Company completed an underwritten offering on May 5, 2015 of 3,089,000 shares of common stock at a public offering price of $24.50 per share, which includes 229,000 shares of common stock issued upon the exercise, in part, by the underwriters of an option to purchase additional shares from the Company. The aggregate proceeds received by the Company, after underwriting discounts and commissions and other offering expenses, were $70.4 million.

As described in Note 11, the Company entered into a Loan and Security Agreement with Hercules Technology Growth Capital (“Hercules”), under which the Company may borrow up to $40.0 million in multiple tranches. The Company borrowed the first tranche of $20.0 million upon closing of the transaction on September 30, 2015. Subject to certain terms, Hercules was also granted the right to participate, in an amount of up to $2.0 million, in subsequent sales and issuances of the Company's equity securities to one or more investors for cash for financing purposes in an offering that is broadly marketed to multiple investors and at the same terms as the other investors. On September 30, 2015, Hercules entered into a Stock Purchase Agreement with the Company to purchase 44,782 shares of common stock resulting in proceeds to the Company of $1.0 million. The excess of proceeds received by the Company over the fair value of the common stock issued was allocated as a reduction of the fees paid to Hercules in conjunction with obtaining the initial $20.0 million draw of Term Loan.

As described in Note 11, as consideration for the Loan Agreement, the Company issued Hercules a warrant to purchase 32,692 shares of its common stock at an exercise price of $24.47 per share (the "Warrant") on September 30, 2015, which expires five years from issuance or at the consummation of a Public Acquisition, as defined in the Warrant agreement. The Warrant's relative fair value of $290,000 was determined using a Black-Scholes option-pricing model with the following assumptions:

Financial instruments, including cash, restricted cash, accounts receivable, accounts payable, accrued expenses and the Intermezzo reserve are carried on the condensed consolidated financial statements at amounts that approximate fair value. The fair value of the Company’s long-term debt is determined using current applicable rates for similar instruments as of the balance sheet date. The carrying value of the long-term debt approximates its fair value as the interest rate is near current market rates. The fair value of the Company’s long-term debt was determined using Level 3 inputs. Fair values are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.

The following tables present information about the Company’s financial liabilities that have been measured at fair value as of September 30, 2015 and December 31, 2014, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities or other inputs that are observable market data. Fair values determined by Level 3 inputs utilize unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability (in thousands):

Contingent obligations represent the right for former Transcept shareholders to receive certain contingent amounts, in the future, consisting of:

As of September 30, 2015, the fair value of the contingent obligations to former Transcept stockholders was determined using probability-weighted scenario methodologies, employing cash-flow and sale proceeds income approaches with consideration to the potential timing of possible payments to former Transcept stockholders. During the quarter ended March 31, 2015, the outcome of an Intermezzo patent infringement trial triggered an evaluation of the carrying value of the Intermezzo product rights and related contingent liability in light of an expected decline in Intermezzo sales. As a result of the evaluation, the Company recorded a reduction in contingent obligations to former Transcept shareholders of $3.1 million during the quarter ended March 31, 2015. The Company appealed the outcome of the trial during the second quarter of 2015 and the appeal is still pending as of September 30, 2015. Based on estimated probability of success of the appeal combined with fair value remeasurements, we recorded a net increase in contingent obligations to former Transcept shareholders of $0.2 million during the second and third quarters of 2015. Material assumptions used to value contingent obligations to former Transcept stockholders with respect to Intermezzo product rights include:

Material assumptions used to value contingent obligations to former Transcept stockholders with respect to the TO-2070 product rights include:

The following table provides a roll forward of the fair value of contingent obligations categorized as Level 3 instruments, for the nine months ended September 30, 2015 (in thousands):

The Company recognizes compensation expense of stock-based awards over the vesting periods of the awards, net of estimated forfeitures. The following table presents stock-based compensation expense included in the Company’s condensed consolidated statements of operations (in thousands):

Stock-based compensation expense is estimated as of the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period. The Company estimates the fair value of its stock options using the Black-Scholes option-pricing model. The weighted-average assumptions used to determine the value of the stock option grants is as follows:

An evergreen provision in the Company’s 2006 Stock Option Plan resulted in an additional 125,000 shares of the Company’s common stock becoming available for issuance on January 1, 2015.

During the nine months ended September 30, 2015, the Company’s Board of Directors granted 102,000 restricted stock units to executives and employees of the Company and 425,769 stock options to directors, officers, employees and consultants to the Company under the Transcept Pharmaceuticals, Inc. 2006 Incentive Award Plan, or 2006 Plan, and the Paratek Pharmaceuticals. Inc. 2014 Equity Incentive Plan, or 2014 Plan, with time vesting provisions ranging from one to four years. The Company’s Board of Directors adopted a 2015 Inducement Plan in accordance with NASDAQ Rule 5635(c)(4), reserving 360,000 shares of common stock solely for the grant of inducement stock options to new employees, and granting 260,000 options under the plan to two executives of the Company with four-year time vesting provisions.

The Company’s Board of Directors also adopted a 2015 Equity Incentive Plan, or 2015 Plan, that was ratified by Company stockholders at the Annual Meeting held on June 9, 2015. The 2015 Plan is intended to be the successor to and continuation of the 2006 Plan and the 2014 Plan, and collectively, the Prior Plans. When the 2015 Plan became effective, no additional stock awards were granted under the Prior Plans, although all outstanding stock awards granted under the Prior Plans will continue to be subject to the terms and conditions as set forth in the agreements evidencing such stock awards and the terms of the Prior Plans. During the nine months ended September 30, 2015, the Company’s Board of Directors granted 160,000 restricted stock units to executives and employees of the Company and 697,000 stock options to directors, officers, employees and consultants to the Company under the 2015 Plan with time vesting provisions ranging from one to four years.

Further, in February 2015 the Company’s Board of Directors modified the vesting terms attendant to eight grants to four executives of the Company aggregating 483,114 options previously granted under its 2014 Equity Incentive Plan from strictly time- based vesting to include certain performance-based vesting terms associated with completion of data lock in the Company’s Phase 3 clinical trials of omadacycline for the treatment of acute bacterial skin and skin structure infections, or ABSSSI, and community- acquired bacterial pneumonia, or CABP. The Company recognizes compensation cost for awards with performance conditions if and when the Company concludes that it is probable that the performance condition will be achieved over the requisite service period. Since the Company believes it is more likely than not that data lock will be reached on the Phase 3 ABSSSI and CABP clinical trials, the sum of the incremental compensation cost and any remaining unrecognized compensation cost for the original award on the modification date will be recognized, on a prospective basis, through the projected date of data lock on the Phase 3 ABSSSI and CABP clinical trials.

Total shares available for future issuance under the 2015 Inducement Plan and the 2015 Equity Incentive Plan are 443,000 shares as of September 30, 2015.

A summary of stock option activity for the nine months ended September 30, 2015 is as follows:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value
Outstanding
Balances at December 31, 2014		781,568		$	4.30
Granted		1,382,769			20.92
Exercised		(56,897	)		4.30
Forfeited		(4,050	)		24.07
Balances at September 30, 2015		2,103,390		$	15.82		9.36	$	15,631
Exercisable
September 30, 2015		97,479		$	16.42		9.17	$	592
Vested and expected to vest
September 30, 2015		2,026,145		$	15.93		9.35	$	13,231

Total unrecognized compensation expense for all stock-based awards was $19.4 million as of September 30, 2015. This amount will be recognized over a weighted average period of 3.1 years.

A summary of restricted stock activity for the nine months ended September 30, 2015 is as follows:

In March 2014, the Company issued nonconvertible senior secured promissory notes (the “2014 Notes”) to certain individuals and entities in the original aggregate principal amount of $6.0 million in connection with a concurrent recapitalization of the Company’s capital stock. The 2014 Notes were collateralized by substantially all of the assets of the Company and accrued interest at a rate of 10% per annum. The holders of the 2014 Notes included officers, employees and directors of the Company, making the 2014 Notes related party in nature. Pursuant to the terms of the 2014 Notes, the aggregate amount of principal outstanding was to have become due and payable upon the first to occur of June 30, 2014 or a number of other defined events that had not transpired and, as a result, an event of default existed that the lenders agreed to forbear subject to a Debt Conversion Agreement (the “Debt Conversion Agreement”) entered into in June 2014.

The lead lenders committed to a minimum investment of $3.3 million in the March 2014 secured debt financing. The terms of the March 2014 secured debt financing included a provision that required the other existing holders of the Company’s outstanding convertible notes to participate in the offering of the 2014 Notes based on their pro rata share of the remaining $2.8 million offering amount. The convertible note holders who contributed their pro rata share to the March 2014 secured debt financing converted their existing principal amount of convertible notes outstanding into 2.25 shares of newly designated Series A Convertible Preferred Stock (“New Series A Convertible Preferred Stock”) for every $1.00 of principal outstanding. The convertible note holders who did not contribute their pro rata share to the March 2014 secured debt financing converted their existing principal amount of convertible notes

outstanding into 1.00 share of New Series A Convertible Preferred Stock for every $1.00 of principal outstanding. Moreover, all accrued interest as of February 28, 2014 was converted into New Series A Convertible Preferred Stock on a dollar-for-dollar basis. Upon the closing of the March 2014 transactions, $15.6 million of principal and $2.2 million of accrued interest related to the existing convertible notes converted into 2,256,674 shares of New Series A Convertible Preferred Stock.

Pursuant to the terms of the March 2014 secured debt financing, in April 2014, the lead lenders invested the difference between $2.8 million and the amount invested by other holders of the existing convertible notes to bring the total financing proceeds to $6.0 million. The amount of this additional investment by the lead lenders was $0.7 million. In connection with this additional investment, the lead lenders received warrants exercisable for 9,614 shares of New Series A Convertible Preferred Stock with an exercise price of $0.15 per share (the “New Series A Warrants”). The New Series A Warrants have a term of seven years. The New Series A Warrants were recorded at an initial fair value of approximately $40,000 and became warrants to purchase common stock at the closing of the Merger on October 30, 2014.

On September 30, 2015, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with Hercules. Under the Loan Agreement, Hercules will provide the Company with access to term loans with an aggregate principal amount of up to $40.0 million (collectively, the "Term Loan"). The Company initially drew a principal amount of $20.0 million, which was funded on September 30, 2015. The remaining $20.0 million available under the Loan Agreement can be drawn at the Company’s option in minimum increments of $10.0 million through December 31, 2016 (the “Draw Period”). The Term Loan is repayable in monthly installments commencing on April 1, 2018 through maturity on September 1, 2020. The interest rate is equal to the greater of (i) 8.5%, or (ii) the sum of 8.5%, plus the Prime Rate minus 5.75% per annum. An end of term charge equal to 4.5% of the issued principal balance of the Term Loan is payable at maturity, including in the event of any prepayment, and is being accrued as interest expense over the term of the loan using the effective interest method. Borrowings under the Loan Agreement are collateralized by substantially all of the assets of the Company.

If the Company repays all or a portion of the term loans prior to maturity, in addition to the end of term charge, the Company will pay Hercules a prepayment fee as follows: (i) 2.0% of the then outstanding principal amount if the prepayment occurs prior to April 1, 2018 or (ii) no fee if the prepayment occurs on or after April 1, 2018.

Upon an Event of Default, an additional 5.0% interest will be applied and Hercules may, at its option, accelerate and demand payment of all or any part of the loan together with the prepayment and end of term charges. An Event of Default is defined in the Loan Agreement as (i) failure to make required payments; (ii) failure to adhere to financial, operating and reporting loan covenants; (iii) an event or development occurs that has a material adverse effect; (iv) false representations in the Loan Agreement; (v) insolvency, as described in the Loan Agreement; (vi) levy or attachments on any of the Company's assets; and (vii) default of any other agreement or subordinated debt greater than $1.0 million. In the event of insolvency, this acceleration and declaration would be automatic. In addition, in connection with the Loan Agreement, the Company agreed to provide Hercules with a contingent security interest in the Company's bank accounts. The Company's control of its bank accounts is not adversely affected unless Hercules elects to obtain unilateral control of the Company's bank accounts by declaring that an Event of Default has occurred. The principal of the Term Loan, which is not due within 12 months of September 30, 2015, has been classified as long-term as the Company determined that a material adverse effect resulting in Hercules exercising its rights under the subjective acceleration clause is remote.

Subject to certain terms, Hercules was also granted the right to participate in an amount of up to $2.0 million in subsequent sales and issuances of the Company's equity securities to one or more investors for cash for financing purposes in an offering that is broadly marketed to multiple investors and at the same terms as the other investors. On the September 30, 2015, Hercules entered into a Stock Purchase Agreement with the Company to purchase 44,782 shares of common stock resulting in proceeds to the Company of $1.0 million. The excess of proceeds received by the Company over the fair value of the common stock issued was allocated as a reduction of the fees paid to Hercules in conjunction with obtaining the initial $20.0 million draw of the Term Loan.

Debt issuance costs of $511,000 have been ratably allocated to the initial $20.0 million draw and the remaining unfunded $20.0 million. Debt issuance costs related to the initial $20.0 million draw are presented on the condensed consolidated balance sheet as a direct deduction from the related debt liability rather than capitalized as an asset in accordance with the Company’s early adoption of ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). Issuance costs related to the unfunded amount have been capitalized as prepaid asset and will be amortized ratably through the end of the Draw Period. In the event the Company exercises its option to borrow additional funds, the remaining unamortized prepaid asset balance would be reclassified and recorded as a deduction from the face amount of the funds borrowed based upon a ratable allocation of the amount drawn compared to the remaining unfunded amount available to the Company and will be amortized over the remaining life of the term loan using the effective interest method.

In connection with the Loan Agreement, the Company issued to Hercules a Warrant to purchase 32,692 shares of the Company’s common stock at an exercise price of $24.47 per share. The Warrant's relative fair value of $290,000 at September 30, 2015 was determined using a Black-Scholes option-pricing model. The relative fair value of the Warrant was included as a discount to the Term Loan and also as a component of additional paid-in capital. See Note 7, “Capital Stock,” for further description of the Warrant.

In addition to the Warrant, the Company paid fees to Hercules in conjunction with obtaining the Term Loan. The Warrant fair value and fees paid to Hercules, an aggregate of $572,000, were ratably allocated to the initial $20.0 million draw and the remaining unfunded $20.0 million. The $208,000 of costs allocated to the initial $20.0 million draw were recorded as a debt discount and are being amortized as additional interest expense over the term of the loan using the effective interest method. The $364,000 of costs allocated to the unfunded $20.0 million was recorded as prepaid expenses and are being amortized ratably through the end of the Draw Period. In the event the Company exercises its option to borrow additional funds, the remaining unamortized prepaid asset balance related would be reclassified and recorded as debt discount based upon a ratable allocation of the amount drawn compared to the remaining unfunded amount available to the Company and will be amortized over the remaining life of the term loan using the effective interest method.

As of September 30, 2015, on the Company's balance sheet, the Company has recorded a long-term debt obligation of $19.5 million, net of debt discount of $463,000, and prepaid expenses of $619,000.

Future principal payments, which exclude the 4.5% end of term charge, in connection with the Loan Agreement, as of September 30, 2015 are as follows (in thousands):

There is no provision for federal and state income taxes since the Company has historically incurred operating losses. Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax bases of assets and liabilities using statutory rates. Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating loss carryforwards and research and development credits. Under the applicable accounting standards, management has considered the Company’s history of losses and concluded that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets. Accordingly, a full valuation allowance has been established against the Company’s otherwise recognizable net deferred tax assets.

The Company leases its Boston, Massachusetts and King of Prussia, Pennsylvania office spaces under non-cancelable operating leases expiring in 2019 and 2021, respectively. The Company entered into the King of Prussia and Boston leases in January 2015 and April 2015, respectively, and the lease terms are for six and four years, respectively, each with one renewal option for an extended term. The King of Prussia and Boston lease terms began in June 2015 and July 2015, respectively. The Company is required to make additional payments under the facility operating leases for taxes, insurance, and other operating expenses incurred during the operating lease period. The leases contain rent escalation and rent holiday, which are being accounted for as rent expense under the straight-line method. Deferred rent is included in accounts payable and other accrued expenses and other liabilities in the condensed consolidated balance sheet as of September 30, 2015. The Company will record monthly rent expense of approximately $35,000 and $12,000 for the Boston and King of Prussia offices, respectively, on a straight-line basis over the effective lease terms.

Rent expense for the two new leases, exclusive of related taxes, insurance, and maintenance costs, for continuing operations totaled approximately $139,000 and $151,000 for three and nine months ended September 30, 2015, respectively, and is reflected in operating expenses.

As of September 30, 2015, future minimum lease payments under operating leases are as follows:

In July 2012, the Company received notifications from three companies, Allergan Elizabeth LLC, or Allergan Elizabeth, Watson Laboratories, Inc.—Florida, or Watson, and Novel Laboratories, Inc. (Novel), in September 2012, from each of Par Pharmaceutical, Inc. and Par Formulations Private Ltd., together, the Par Entities, in February 2013 from Dr. Reddy’s Laboratories, Inc. and Dr. Reddy’s Laboratories, Ltd., together, Dr. Reddy’s, and in July 2013 from TWi Pharmaceuticals, Inc., or Twi, stating that each has filed with the FDA an Abbreviated New Drug Application, or ANDA, that references Intermezzo. Refer to Item 3 Legal Proceedings as filed in the Company’s Annual Report on Form 10-K/A dated December 31, 2014 for a full description of the history of this litigation.

The United States District Court for the District of New Jersey, or the District Court, held a consolidated trial between December 1, 2014 and December 15, 2014 involving Paratek, Purdue, and their patent infringement claims against Allergan Elizabeth, Novel, and Dr. Reddy’s. The District Court then received post-trial briefing and held a February 13, 2015 post-trial hearing. On March 27, 2015, the District Court issued an order and accompanying opinion finding that: (a) the asserted claims of U.S. Patent Nos. 7,682,628, 8,242,131, and 8,252,809, together, the “’628, ‘131, and ‘809 patents, are invalid as obvious; (b) Allergan Elizabeth, Novel, and Dr. Reddy’s infringe the ‘131 patent; (c) Novel infringes the ‘628 patent; and (d) Novel and Dr. Reddy’s infringe the ‘809 patent. On April 9, 2015, the District Court entered final judgment consistent with the March 27, 2015 opinion and order referenced

above. As a result of the District Court’s findings, the intangible assets representing Intermezzo product rights have been impaired and the related contingent obligation has been reduced in light of an expected decline in Intermezzo sales. Refer to Note 4 Intangible Assets, Net and Note 9 Fair Value Measurements for discussion of impairment and reduction in contingent obligations, respectively.

The Company and Purdue jointly appealed the District Court’s final judgment as to the '131 patent to the United States Court of Appeals for the Federal Circuit on May 6, 2015. The appeal is pending.

On October 2, 2014, Continuum Capital, on behalf of itself and a putative class of similarly situated stockholders of the Company, filed a lawsuit in the California Superior Court for Contra Costa County, or the Superior Court, against the Company and its then current board members (only one of whom remains as a director) as well as against the entity then known as Paratek Pharmaceuticals, Inc., or Old Paratek, which merged with a wholly-owned subsidiary of the Company on October 30, 2014. The complaint alleges that the Company’s board members breached fiduciary duties to stockholders in connection with the Company’s merger transaction with Old Paratek announced on June 30, 2014, and that the Company and its board of directors failed to make adequate disclosures in soliciting stockholder approval of the merger transaction, and that Old Paratek aided and abetted the alleged breaches. After expedited discovery, the parties agreed in principal to a settlement and release of all claims by a defined class of pre-merger stockholders of the Company. In furtherance of the settlement, the Company supplemented its disclosures regarding the merger transaction and paid negotiated plaintiffs’ attorneys’ fee of $0.6 million. The settlement was approved by the Superior Court on May 21, 2015. The case has been dismissed, final judgement has been entered, and the time for appeal has expired. Defendants deny any wrongdoing and agreed to settle the action to eliminate the burden and expense of further litigation.

From time to time the Company is involved in legal proceedings arising in the ordinary course of business. The Company believes there is no other litigation pending that could have, individually or in the aggregate, a material adverse effect on its results of operations or financial condition. The Company does not believe that any of the above matters will result in a liability that is probable or estimable at September 30, 2015.

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The new standard will be effective for the Company on January 1, 2018. The Company is currently evaluating the method of adoption and the potential impact that Topic 606 may have on its financial position and results of operations.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40). The ASU requires all entities to evaluate for the existence of conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the issuance date of the financial statements. The accounting standard is effective for interim and annual periods ending after December 15, 2016, and will not have a material impact on the consolidated financial statements, but may impact the Company’s footnote disclosures.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810)-Amendments to the Consolidation Analysis, which amends the criteria for determining which entities are considered variable interest entities, or VIEs, amends the criteria for determining if a service provider possesses a variable interest in a VIE and ends the deferral granted to investment companies for application of the VIE consolidation model. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2015. The Company is currently evaluating the impact the adoption of the ASU will have on our financial statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. For public business entities, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company elected to adopt this guidance effective for the nine months ended September 30, 2015.

In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, which amends Accounting Standards Codification, or ASC, 350, Intangibles - Goodwill and Other. The amendments provide guidance as to whether a cloud computing arrangement (e.g., software as a service, platform as a service, infrastructure as a service, and other similar arrangements) includes a software license, and based on that determination, how to account for such arrangements. The ASU is effective for fiscal years, and interim periods therein, beginning after December 15, 2015 and may be applied on either a prospective or retrospective basis. Early adoption is permitted. The Company elected to adopt this guidance effective for the nine months ended September 30, 2015.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this quarterly report. All references to “Paratek,” “we,” “us,” “our” or the “Company” in this Quarterly Report on Form 10-Q mean Paratek Pharmaceuticals, Inc. and our subsidiaries.

This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward- looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A — “Risk Factors,” and elsewhere in this report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

We are a biopharmaceutical company focused on the development and commercialization of innovative therapeutics based upon tetracycline chemistry. We have used our expertise in biology and tetracycline chemistry to create chemically diverse and biologically distinct small molecules derived from the minocycline core structure. Our two phase 3 product candidates are the antibacterials omadacycline and sarecycline.

Omadacycline is the first in a new class of aminomethycycline antibiotics. Omadacycline is a broad-spectrum, well-tolerated once-daily IV and oral antibiotic being developed for potential use as a monotherapy for serious community-acquired bacterial infections where antibiotic resistance is of concern. We believe omadacycline, if approved, will be used in the emergency room, hospital and community care settings. We have designed omadacycline to provide potential advantages over existing antibiotics, including activity against resistant bacteria, broad spectrum antibacterial activity, IV and oral formulations with once-daily dosing, no known drug interactions, and a favorable safety and tolerability profile. We believe that omadacycline has the potential to become the primary antibiotic choice of physicians for use as a monotherapy antibiotic for acute bacterial skin and skin structure infections, or ABSSSI, community-acquired bacterial pneumonia, or CABP, urinary tract infections, UTI, and other serious community-acquired bacterial infections, where resistance is of concern. Omadacycline entered Phase 3 clinical development for the treatment of ABSSSI in June 2015. On November 9, 2015, we announced that the first patient was dosed in a Phase 3 clinical study for the treatment of CABP. We also plan to initiate Phase 1 clinical studies in UTI and sinusitis in the first half of 2016.

In the fall of 2013, the FDA accepted the design of our omadacycline Phase 3 studies for ABSSSI and CABP through the Special Protocol Assessment, or SPA, process. In addition, the FDA confirmed that positive data from the individual studies for ABSSSI and CABP would be sufficient to support approval of omadacycline for each indication in the United States. On November 4, 2015, the FDA granted omadacycline Fast Track Designation for the development of omadacycline in ABSSSI, CABP, and Complicated Urinary Tract Infections (cUTI). Fast track designation facilitates the development, and expedites the review of drugs which treat serious or life-threatening conditions and fill an unmet medical need.

Recent scientific advice received through the centralized procedure in Europe confirmed general agreement on the design and choice of comparators of the Phase 3 trials for ABSSSI and CABP and noted that approval based on a single study in each indication could be possible but would be subject to more stringent standards than programs that conduct two studies per indication. We are continuing to execute on our current strategy Phase 3 development strategy while evaluating this guidance and the potential for including additional data in support of an EU submission within the context of its broader clinical development strategy.

Our second phase 3 antibacterial product candidate, sarecycline, previously known as WC3035, is a new, once- daily, tetracycline-derived compound designed for use in the treatment of acne and rosacea. We believe that, based upon the data generated to-date, sarecycline possesses favorable anti-inflammatory activity, plus narrow-spectrum antibacterial activity relative to other tetracycline-derived molecules, oral bioavailability, does not cross the blood-brain barrier, and favorable pharmacokinetic, or PK, properties that we believe make it particularly well-suited for the treatment of inflammatory acne in the community setting. We have exclusively licensed U.S. development and commercialization rights to sarecycline for the treatment of acne to Allergan plc, or Allergan while retaining development and commercialization rights in the rest of the world. Allergan has informed us that sarecycline entered Phase 3 clinical trials in December 2014 for acne vulgaris. We have also granted Allergan an exclusive license to develop and commercialize sarecycline for the treatment of rosacea in the United States which converted to a non-exclusive license in December 2014 after Allergan did not exercise its development option with respect to rosacea. There are currently no clinical trials with sarecycline in rosacea underway.

To date, we have devoted substantially all of our resources to research and development efforts, including conducting clinical trials for our product candidates, protecting our intellectual property and providing general and administrative support for these operations. We have not yet submitted any product candidates for approval by regulatory authorities, and we do not currently have rights to any products that have been approved for marketing in any territory. We have not generated any revenue from product sales and to date have financed our operations primarily through private placements of our common and convertible preferred stock, note financings, research and development collaborations, our public offering of our common stock and, to a lesser extent, through government grants, foundation support, line of credit financings, and equipment lease financings.

We have incurred significant losses since our inception in 1996. Our accumulated deficit at September 30, 2015 was $247.6 million and our net loss for the nine months ended September 30, 2015 was $49.8 million. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs, general and administrative costs associated with our operations and noncash items primarily associated with our note financings. The net losses and negative operating cash flows incurred to date, together with expected future losses, have had, and likely will continue to have, an adverse effect on our stockholders’ equity and working capital. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate offsetting revenue, if any.

We expect to continue to incur significant expenses and operating losses for the foreseeable future. We expect our clinical development expenses to increase in connection with our ongoing activities, particularly as we continue our clinical development of, and seek regulatory approvals for, our product candidates, prepare for and begin commercialization of any approved products, and add infrastructure and personnel to support our product development efforts.

We do not expect to generate revenue from product sales unless and until we or our partner Allergan successfully complete development and obtain marketing approval for one or more of our product candidates. Accordingly, we anticipate that we will need to raise additional capital in order to complete the development and commercialization of omadacycline and to advance the development of our other product candidates. Until we can generate a sufficient amount of product revenue to finance our cash requirements, we expect to finance our future cash needs primarily through a combination of equity offerings, debt financings and strategic collaborations. We may be unable to raise capital when needed or on attractive terms, which would force us to delay, limit, reduce or terminate our research and development programs or commercialization efforts. We will need to generate significant revenue to achieve and sustain profitability, and we may never be able to do so.

On September 30, 2015, we entered into a Loan Agreement with Hercules. Under the Loan Agreement, Hercules will provide access to term loans with an aggregate principal amount of up to $40.0 million (collectively, the "Term Loan"). We initially drew a principal amount of $20.0 million, which was funded on September 30, 2015. Also on September 30, 2015, Hercules exercised its right to purchase shares of common stock by entering into a Stock Purchase Agreement with us to purchase 44,782 shares of common stock resulting in proceeds of $1.0 million.

We intend to use the net proceeds from the Loan Agreement and sale of common stock to Hercules for general corporate purposes, including support of late-stage clinical development opportunities for oral omadacycline.

We have not yet generated any revenue from product sales. All of our revenue to date has been derived from license fees, milestone payments, reimbursements for research, development and manufacturing activities under licenses and collaborations, and grant payments received from the National Institutes of Health, or NIH, and other non-profit organizations. We do not expect to generate revenue from product sales prior to 2018.

Research and development expenses consisted primarily of costs directly incurred by us for the development of our product candidates, which include:

Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.

We cannot determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our product candidates for which we or any partner obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that therapeutic candidate. For example, if the FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of the clinical development of product candidates, or if we experience significant delays in the enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

Our research and development activities in 2014 were significantly curtailed as we worked within liquidity constraints. In particular, over the years we have decreased:

However, with available cash resources subsequent to closing of the Merger in October 2014, follow-on offering of shares of common stock in May 2015, and most recently our Loan Agreement, we have commenced activities to support our two Phase 3

registration trials of omadacycline, one each for the treatment of ABSSSI and CABP, and a Phase 1b study in UTI. We expect our research and development expenditures to increase significantly compared to 2014.

We manage certain activities such as clinical trial operations, manufacture of therapeutic candidates, and preclinical animal toxicology studies through third-party CROs. The only costs we track by each product candidate are external costs such as services provided to us by CROs, manufacturing of preclinical and clinical drug product, and other outsourced research and development expenses. We do not assign or allocate to individual development programs internal costs such as salaries and benefits, facilities costs, and the costs of preclinical research and studies. Our external research and development expenses for omadacycline, sarecycline, and other projects during the three and nine months ended September 30, 2015 and 2014, are as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Omadacycline	$	11,415	$	402	$	23,910	$	447
Other external research		90		-		100		20
Total external costs		11,505		402		24,010		467
Other research and development costs		6,711		257		11,945		1,555
Total	$	18,216	$	659	$	35,955	$	2,022

General and administrative expense consists primarily of salaries and other related costs for personnel, including benefits, and stock-based compensation in our executive, legal, patent-related, finance, business development, information technology, general operations and human resources departments.

Our general and administrative activities in 2014 were deliberately reduced given our limited financial resources. We expect, however, that our general and administrative expenses will continue to increase throughout 2015 as a result of expanded infrastructure, increased payroll, consulting, legal, accounting and investor relations expenses associated with being a public company and costs incurred to seek and establish collaborations with respect to our product candidates.

We did not earn research and development collaboration revenue during the three and nine months ended September 30, 2015 as a result of the termination of a collaborative research, license and commercialization agreement with a leading global animal health provider in September 2014.

Research and development expenses were $17.8 million and $35.6 million during the three and nine months ended September 30, 2015, respectively, compared to $1.0 million and $2.4 million during the same periods in 2014.

The increase in research and development expense for the three months ended September 30, 2015 was primarily the result of initiation of our planned Phase 3 clinical trials of omadacycline and comprises higher costs incurred for CRO fees, investigator fees and costs associated with clinical sites and laboratories of $12.1 million, manufacturing of clinical material and registration batches of $3.8 million, and personnel-related costs of $1.1 million.

The increase in research and development expense for the nine months ended September 30, 2015 was primarily the result of initiation of our planned Phase 3 clinical trials of omadacycline and is comprised of higher costs incurred for CRO fees, investigator fees and costs associated with clinical sites and laboratories of $22.0 million, manufacturing of clinical material and registration batches of $9.2 million, and personnel-related costs of $2.2 million.

General and administrative expenses were $5.8 million and $14.3 million during the three and nine months ended September 30, 2015, respectively, compared to $2.1 million and $3.9 million during the same periods in 2014.

The increase in general and administrative costs for the three months ended September 30, 2015 was primarily due to growth in our corporate infrastructure to support a public company. Salaries and benefits, including stock-based compensation, increased $1.5 million for the three months ended September 30, 2015. Professional and consulting fees increased $0.4 million for the period compared to the prior year primarily due to higher legal, finance and accounting, and market research costs. Other general and administrative expenses including insurance, facility and office expenses, and travel increased for the three months ended September 30, 2015 compared to the prior year due to our overall growth.

The increase in general and administrative costs for the nine months ended September 30, 2015 was primarily due to growth in our corporate infrastructure to support a public company. Professional and consulting fees increased $4.4 million for the period compared to the prior year primarily due to higher legal, finance and accounting, business development, and market research costs. Salaries and benefits, including stock-based compensation, increased $3.7 million for the nine months ended September 30, 2015. Other general and administrative expenses, including insurance, facility and office expenses, and travel increased for the nine months ended September 30, 2015 compared to the prior year due to our overall growth.

We recorded an impairment charge of $2.8 million during the three months ended March 31, 2015, in conjunction with the outcome of litigation that invalidated several Intermezzo patents as obvious and triggered an evaluation of the carrying value of the Intermezzo product rights and related contingent liability in light of an expected decline in Intermezzo sales. Refer to Note 4,

Intangible Assets, Net, of our unaudited condensed consolidated financial statements for further information.

During the three months ended March 31, 2015, we recorded a $3.1 million reduction in the fair value of our contingent obligations to former Transcept shareholders in conjunction with the outcome of litigation that invalidated several Intermezzo patents as obvious and triggered an evaluation of the carrying value of the Intermezzo product rights and related contingent obligations in light of an expected decline in Intermezzo sales. We appealed the outcome of the trial during the second quarter of 2015 and the appeal is still pending as of September 30, 2015. Based on estimated probability of success of the appeal combined with fair value remeasurements, we recorded a net increase in contingent obligations to former Transcept shareholders of $0.2 million during the

second and third quarters of 2015. Refer to Note 9, Fair Value Measurements, of our unaudited condensed consolidated financial statements for further information.

	Three Months Ended September 30,									Nine Months Ended September 30,
	2015			2014			$ Change			2015			2014			$ Change
Other income and expense:
Interest expense, net	$	(47	)	$	(158	)	$	111		$	(73	)	$	(714	)	$	641
Loss on mark-to-market of notes and warrants		-			-			-			-			(119	)		119
Other income (expense), net		(2	)		-			(2	)		3			6			(3	)
Total	$	(49	)	$	(158	)	$	109		$	(70	)	$	(827	)	$	757

Interest expense represents the accretion of interest expense on the Intermezzo Reserve in 2015 as compared to non-cash interest accruing on our non-convertible notes outstanding during 2014. No interest expense was recorded in connection with the initial draw on the Term Loan from Hercules since the funds were received on September 30, 2015. In connection with the Merger in October 2014, the non-convertible notes were all exchanged for common stock and interest will no longer accrue on them. Our obligation to the former collaborative partner was also re- negotiated in June 2014 and interest no longer accrues on it.

In 2014 and 2013, we engaged in several fundraising and re-capitalization transactions which gave rise to substantial non- operating gains and losses. With the completion of the October 2014 re-capitalization in connection with the Merger, we do not expect these non-cash gains and losses to continue.

Prior to the merger with Transcript Pharmaceuticals, Inc. and recapitalization in October 2014 we were subject to significant liquidity constraints. During 2014, we curtailed our research and development and other operating activities as we worked within financial constraints. We had financed our operations primarily through private placements of convertible preferred stock, note financings, research and development collaborations and, to a lesser extent, through government grants, foundation support, lines of credit and equipment lease financing.

As of September 30, 2015, we had cash and cash equivalents of $146.4 million. We completed an underwritten offering of 3,089,000 shares of common stock at a public offering price of $24.50 per share on May 5, 2015 that yielded $70.4 million in aggregate proceeds, after underwriting discounts and commissions and other offering expenses. We borrowed $20.0 million under a Loan Agreement executed with Hercules on September 30, 2015, and have access to an additional $20.0 million through December 31, 2016 under the same agreement. We intend to use the net proceeds from the offering and Loan Agreement, together with our existing cash, to fund our ongoing and planned clinical trials of omadacycline, to fund development to advance our pipeline of preclinical candidates, and for working capital and other general corporate purposes.

The following table summarizes our cash provided by and (used in) operating, investing and financing activities (in thousands):

Cash used in operating activities for the nine months ended September 30, 2015 of $39.0 million is primarily the result of our $49.8 million net loss offset in part by a $9.5 million increase in accounts payable and accrued expenses associated with the clinical development of omadacycline. The remainder of the increase represents the net impact of $3.3 million in non-cash items including the $2.8 million impairment of Intermezzo product rights and $3.5 million in depreciation, amortization and stock-based compensation expense offset by a $2.7 million reduction in contingent obligations to former Transcept shareholders. Our $39.0 million use of cash in operating activities during the nine months ended September 30, 2015 compares to $8.1 million of cash used in operating activities in the same period in 2014.

Net cash used in investing activities for the nine months ended September 30, 2015 is the result of purchases of fixed assets and an increase in restricted cash. Cash provided by investing activities for the nine months ended September 30, 2014 was principally from the sale of fixed assets.

Net cash provided by financing activities for the nine months ended September 30, 2015 is the result of proceeds of $70.4 million from an underwritten offering of 3,089,000 shares of common stock, the draw of $19.4 million, net of issuance costs, on the Hercules Term Loan, as well as exercise of stock options. Net cash provided by financing activities of $90.0 million during the nine months ended September 30, 2015 compares to $8.5 million for the same period in 2014. Cash provided by financing activities during the nine months ended September 30, 2014 was principally from the issuance of nonconvertible senior secured notes.

We have not generated any revenue from product sales. We do not know when, if ever, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we or our partner Allergan obtain regulatory approval of and commercialize omadacycline, sarecycline or any of our other product candidates. At the same time, we expect our expenses to increase in connection with ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. We also expect to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our product candidates, we anticipate that we will need substantial additional funding in connection with our continuing operations to support commercial activities associated with our lead product candidate, omadacycline.

We have not completed clinical development nor submitted an NDA for regulatory approval of any product candidate. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase substantially as we:

Based upon our current operating plan, we anticipate that our cash and cash equivalents, including the proceeds from the follow-on offering of shares of common stock in May 2015 and the initial draw on the Hercules Term Loan in September 2015 will enable us to fund our operating expenses and capital expenditure requirements through the timing of the un-blinding of top line results in the phase 3 CABP clinical trial, which we currently expect to occur in the second half of 2017. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, and the extent to which we enter into collaborations with third parties to participate in the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future capital requirements will depend on many factors, including:

Until we can generate a sufficient amount of product revenue to finance our cash requirements, we expect to finance our future cash needs primarily through a combination of equity offerings, debt financings, strategic collaborations and grant funding. We do not have any committed external sources of funds other than our collaboration with Allergan. Any additional revenue is contingent on milestone achievement and the collaboration is terminable by Allergan upon prior written notice. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect stockholders’ rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

There have been no material changes in our critical accounting policies during the three months ended September 30, 2015, as compared to those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Form 10-K/A dated December 31, 2014, filed with the SEC.

Refer to Note 14, Recent Accounting Pronouncements, in the accompanying notes to condensed consolidated financial statements.

During the nine months ended September 30, 2015 and the year ended December 31, 2014 we did not engage in any off-balance sheet financing activities, including the use of structured finance, special purpose entities or variable interest entities.

We began an operating lease agreement in Boston during the three months ended September 30, 2015. The lease is for a four-year term with an option to extend the lease an additional two years at its completion. Refer to Note 13, Commitments and Contingencies, in the accompanying notes to condensed consolidated financial statements for additional information. Other than this new operating lease, there have been no material changes in our contractual obligations and commitments as of September 30, 2015, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Contractual Obligations and Commitments” in our Form 10-K/A dated December 31, 2014, filed with the SEC.

Our cash balance as of September 30, 2015 consisted of cash and cash equivalents. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of United States interest rates. However, a sudden change in market interest rates would not be expected to have a material impact on the fair market value of our cash and cash equivalents. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our current cash and cash equivalents balance. We intend to invest our existing cash into an investment portfolio in 2015 and we intend to develop that portfolio according to our investment policy such that our operating results or cash flows will not be affected to any significant degree by the effect of a sudden change in market interest rates on that investment portfolio.

We contract with contract research organizations and contract manufacturers globally. We may be subject to fluctuations in foreign currency rates in connection with certain of these agreements. We currently do not hedge any such foreign currency exchange rate risk. Transactions denominated in currencies other than U.S. dollars are recorded based on exchange rates at the time such transactions arise. As of September 30, 2015, substantially all of our total liabilities were denominated in U.S. dollars.

Our management evaluated, with the participation and under the supervision of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of September 30, 2015, our disclosure controls and procedures are effective at a reasonable assurance level to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission, or SEC, rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.

There have not been any changes in our internal controls over financial reporting (as such item is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our control system are met.

In July 2012, we received notifications from three companies, Allergan Elizabeth LLC, or Allergan Elizabeth, Watson Laboratories, Inc.—Florida, or Watson, and Novel Laboratories, Inc., or Novel, in September 2012 from each of Par Pharmaceutical, Inc. and Par Formulations Private Ltd., together, the Par Entities, in February 2013 from Dr. Reddy’s Laboratories, Inc. and Dr. Reddy’s Laboratories, Ltd., together, Dr. Reddy’s, and in July 2013 from TWi Pharmaceuticals, Inc., or Twi, stating that each has filed with the FDA an Abbreviated New Drug Application, or ANDA, that references Intermezzo. Refer to Item 3 Legal Proceedings as filed in our Annual Report on Form 10-K/A dated December 31, 2014 for a full description of the history of this litigation.

The United States District Court for the District of New Jersey, or the District Court, held a consolidated trial between December 1, 2014 and December 15, 2014 involving Paratek, Purdue, and their patent infringement claims against Allergan Elizabeth, Novel, and Dr. Reddy’s. The District Court then received post-trial briefing and held a February 13, 2015 post-trial hearing. On March 27, 2015, the District Court issued an order and accompanying opinion finding that: (a) the asserted claims of U.S. Patent Nos.7,682,628, 8,242,131, and 8,252,809, together, the “’628, ‘131, and ‘809 patents, are invalid as obvious; (b) Allergan Elizabeth,

Novel, and Dr. Reddy’s infringe the ‘131 patent; (c) Novel infringes the ‘628 patent; and (d) Novel and Dr. Reddy’s infringe the ‘809 patent. On April 9, 2015, the District Court entered final judgment consistent with the March 27, 2015 opinion and order referenced above.

As a result of the District Court’s findings, the intangible assets representing Intermezzo product rights have been impaired and the related contingent obligation has been reduced in light of an expected decline in Intermezzo sales. Refer to Note 4 Intangible Assets for discussion of the impairment analysis and Note 9 Fair Value Measurements for discussion of reduction in related contingent obligations.

We and Purdue jointly appealed the District Court’s final judgment as to the '131 patent to the United States Court of Appeals for the Federal Circuit on May 6, 2015. The appeal is pending.

On October 2, 2014, Continuum Capital, on behalf of itself and a putative class of similarly situated stockholders of the Company, filed a lawsuit in the California Superior Court for Contra Costa County, or the Superior Court, against us and our then current board members (only one of whom remains as a director) as well as against the entity then known as Paratek Pharmaceuticals, Inc., or Old Paratek. The complaint alleges that the then Transcept board members breached fiduciary duties to Transcept stockholders in connection with the Merger announced on June 30, 2014, and that Transcept and its then board of directors failed to make adequate disclosures in soliciting stockholder approval of the Merger, and that Old Paratek aided and abetted the alleged breaches. After expedited discovery, the parties agreed in principal to a settlement and release of all claims by a defined class of pre- merger stockholders of Transcept. In furtherance of the settlement, we supplemented our disclosures regarding the Merger and paid a negotiated plaintiffs’ attorneys’ fee of $0.6 million. The settlement was approved by the Superior Court on May 21, 2015. The case has been dismissed, final judgement has been entered, and the time for appeal has expired. Defendants deny any wrongdoing and agreed to settle the action to eliminate the burden and expense of further litigation.

From time to time we are involved in legal proceedings arising in the ordinary course of business. We believe there is no other litigation pending that could have, individually or in the aggregate, a material adverse effect on our results of operations or financial condition.

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below and all information contained in this report before you decide to purchase our common stock. If any of the possible adverse events described below actually occurs, we may be unable to conduct our business as currently planned and our financial condition and operating results could be harmed. In addition, the trading price of our common stock could decline due to the occurrence of any of the events described below, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business.

Those risk factors below denoted with a “*” are newly added or have been materially updated from our Annual Report on Form 10- K/A for the year ended December 31, 2014 filed with the SEC on April 24, 2015.

* We have incurred significant losses since inception and anticipate that we will incur losses for the foreseeable future. We have no products approved for commercial sale, and to date we have not generated any revenue or profit from product sales. We may never achieve or sustain profitability.

In connection with our current primary business, we have not yet submitted any product candidates for approval by regulatory authorities, and we do not currently have rights to any products that have been approved for marketing in any territory. Our net loss for the nine months ended September 30, 2015 was $49.8 million. As of September 30, 2015, our accumulated deficit was $247.6 million. We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our clinical development of, and seek regulatory approvals for, our product candidates, prepare to commercialize any approved products and add infrastructure and personnel to support our product development efforts and operations. The net losses and negative operating cash flows incurred to date, together with expected future losses, have had, and likely will continue to have, an adverse effect on our stockholders’ equity and working capital. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to generate any revenues or achieve profitability. For example, our expenses could increase if we are required by the FDA, or other regulatory agencies outside the United States, to perform studies in addition to those that we currently expect to perform, or if there are any delays in completing our currently planned clinical trials or in the development of any of our product candidates.

To become and remain profitable, we must succeed in developing and commercializing products with significant market potential. This will require us to be successful in a range of challenging activities for which we are only in the pre-registration, pre-clinical and clinical stages, including developing product candidates, obtaining regulatory approval for them and manufacturing, marketing and commercializing approved products. We may never succeed in these activities and may never generate revenue from product sales that is significant enough to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable would depress the market value of our common stock and could impair our ability to raise capital, expand our business, develop other product candidates or continue our operations.

* We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available, may require us to delay, scale back or cease our product development programs or operations.

We are advancing our lead product candidate, omadacycline, through clinical development, and we may, in the future, advance other product candidates into clinical development. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. We currently plan to seek regulatory approval of omadacycline in two indications, and in order to obtain such regulatory approval, we will be required to conduct clinical trials for each indication. We will require additional funding to complete the development of these two indications following the un-blinding of top-line results in the CABP clinical trial, fund the development of omadacycline in other indications, initiate commercialization of omadacycline, and to continue to advance the development of our other product candidates, and such funding may not be available on acceptable terms or at all. Although it is difficult to predict our liquidity requirements, based upon our current operating plan, we anticipate that our existing cash will enable us to fund our operating expenses and capital expenditure requirements through to the un-blinding of the top line results of the Phase 3 CABP clinical trial, which we currently expect to occur in the second half of 2017. Because successful development of our product candidates is uncertain, we are unable to estimate the actual funds we will require to complete research and development and to commercialize our product candidates.

Our future funding requirements will depend on many factors, including but not limited to:

As of September 30, 2015, we had cash and cash equivalents of $146.4 million and an accumulated deficit of $247.6 million. Our net loss attributable to common stockholders for the nine months ended September 30, 2015 and 2014 was $49.8 million and $8.4 million, respectively. Until we generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through a combination of public or private equity offerings, debt financings, strategic collaborations and grant funding. There can be no assurance that we would be successful in securing additional funds on acceptable terms. If additional funds are not available, we may be forced to cease operations, significantly reduce operating expenses or delay, curtail or eliminate one or more of our development programs or our business operations.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, shareholders’ ownership interest will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect shareholders’ rights as a common stockholder. Debt financing, if available at all, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, product candidates or future revenue streams or grant licenses on terms that are not favorable to us. We cannot assure you that we will be able to obtain additional funding if and when necessary. If we are unable to obtain adequate financing on a timely basis, we could be required to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Our term loans include certain covenants and other events of default. Should we not comply with these covenants or incur an event of default, we may be required to repay our obligation in cash, which could have an adverse effect on our liquidity.

Our term loans from Hercules Technology Growth Capital, Inc. include certain customary covenants, including limitations on other indebtedness, liens, acquisitions, investments and dividends.

If we fail to stay in compliance with our covenants or suffer some other event of default under the term loans, we may be required to repay the outstanding principal. Should this occur, our liquidity would be adversely impacted.

If we fail to obtain FDA approval of and to commercialize our most advanced product candidate, omadacycline, our business would be materially harmed.

We have invested a significant portion of our time, financial resources and collaboration efforts in the development of our most advanced product candidate, omadacycline. Accordingly, our ability to generate revenue and our future success depend substantially on our ability to successfully obtain regulatory approval for and commercialize omadacycline. We have completed one Phase 2 clinical trial and one Phase 3 non-registration clinical trial of the IV and oral formulations of omadacycline in cSSSI. As is typical for Phase 2 clinical trial designs, and the limited number of patients enrolled in the Phase 3 non-registration clinical trial, neither of these studies were designed to have, nor have had, a sufficient number of patients to establish statistical non-inferiority compared to linezolid. In order to successfully obtain regulatory approval for omadacycline, we are currently planning to conduct two Phase 3 clinical trials, one in ABSSSI, which we initiated dosing in June 2015, and one in moderate to severe CABP. Prior to the FDA’s issuance of guidance in March 2010 for clinical trials of antibiotics for the treatment of serious bacterial skin infections, the initial disease indication we were targeting was cSSSI, which was revised as a result of the FDA’s guidance to be ABSSSI. We have written agreements with the FDA in the form of two separate SPA agreements, one for ABSSSI and one for CABP, covering our planned Phase 3 clinical trial designs. An SPA agreement documents the FDA’s general agreement that the design and planned analysis of the Phase 3 clinical trial reviewed under the SPA process, if the clinical trial is successfully completed, will support an NDA submission. An SPA agreement is intended to provide assurance that if the agreed upon clinical trial protocols are followed, the clinical trial endpoints are achieved and there is a favorable benefit-risk profile, the data may serve as the primary basis for an efficacy claim in support of an NDA. However, SPA agreements are not a guarantee of approval of a product candidate or any permissible claims about the product candidate, and final determinations of approvability will not be made until the FDA completes its review of the entire NDA. Therefore, even if all the conditions of our SPA agreements appear to be met, we cannot predict whether the FDA will interpret the data and results in the same way that we do, nor whether it will ultimately approve omadacycline for the treatment of ABSSSI and/or CABP. In addition, the FDA is afforded the ability to modify and ignore a SPA agreement, in light of other factors not necessarily related to omadacycline.

Except for our collaboration with Allergan for our product candidate, sarecycline, we are not currently developing any other product candidates.

If we are unable to obtain FDA approval for and successfully commercialize omadacycline for ABSSSI, CABP or any other indication, we may never realize revenue from this product candidate. As a result, our business, financial condition and results of operations would be materially harmed.

If clinical trials for our product candidate, omadacycline, are prolonged, delayed or stopped, we may be unable to obtain regulatory approval and commercialize omadacycline on a timely basis, which would require us to incur additional costs, raise additional capital and delay our receipt of any product revenue.

We have initiated dosing of Phase 3 clinical trials of omadacycline for the treatment of ABSSSI and CABP in June and November 2015, respectively. Based on our current expectations, we anticipate completing these two registration trials in 2016 and 2017, respectively. Should both clinical trials successfully meet their endpoints, we plan on submitting an NDA for the treatment of ABSSSI and CABP in 2018. However, we do not know whether these clinical trials will be completed on schedule, if at all. The commencement of these planned clinical trials could be substantially delayed or prevented by several factors, including:

The completion of our clinical trials could also be substantially delayed or prevented by several factors, including:

In particular, our ability to enroll patients in our clinical trials in sufficient numbers and on a timely basis will be subject to a number of factors, including the size of the patient population needed, the nature of the protocol, the proximity of patients to clinical sites, the availability of effective treatments for the relevant indication and the eligibility criteria for the clinical trial. For example, in the Phase 3 clinical trials of omadacycline in ABSSSI and CABP patients who have previously taken potentially effective antibiotics for the treatment of an infection within 72 hours of receiving the first dose of study medication will be excluded from the ABSSSI clinical trial and limited to no more than 25% of the total enrollment for the CABP clinical trial. Depending upon a region’s or a clinical site’s standard of care for the administration of antibiotics, this could affect our ability to enroll patients in these clinical trials in a timely fashion.

Changes in regulatory requirements and guidance may also occur, and we may need to amend clinical trial protocols to reflect these changes with appropriate regulatory authorities. Amendments may require us to resubmit clinical trial protocols to regulatory agencies/IRBs/ethics committees for re-examination, which may impact the costs, timing or successful completion of a clinical trial. For example, we stopped our previous Phase 3 clinical trial of omadacycline after the FDA notified us that its guidance relating to the conduct of studies in cSSSI would be modified to change the eligibility criteria, revise the disease indication from cSSSI to ABSSSI

and change the primary efficacy endpoint for clinical trials in this indication from a TOC assessment to an ECR assessment. As a result of these changes, we chose to terminate enrollment in the previous Phase 3 clinical trial and, following discussion with the FDA, design two new Phase 3 clinical trials, one for ABSSSI and one for CABP, taking into account the revised FDA regulatory guidance. Our clinical trials may be suspended or terminated at any time by the FDA, other regulatory authorities, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site or us due to a number of factors, including:

Any failure or significant delay in completing clinical trials for our product candidates would adversely affect our ability to obtain regulatory approval and our commercial prospects and ability to generate product revenue will be diminished.

The results of previous clinical trials may not be predictive of future results, and the results of our current and planned clinical trials may not satisfy the requirements of the FDA or non-U.S. regulatory authorities.

We currently have no products approved for sale, and we cannot guarantee that we will ever have marketable products. Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any future partners may decide, or regulators may require us, to conduct additional clinical or preclinical testing which would delay submission of an NDA and regulatory approval. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale. Success in early stage clinical trials does not mean that future larger registration clinical trials will be successful, because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and non-U.S. regulatory authorities despite having progressed through early stage clinical trials. Product candidates that have shown promising results in early-stage (pre-Phase 3) clinical trials may still suffer significant setbacks in subsequent registration clinical trials.

In addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is underway, well advanced or completed. Further, if omadacycline or our other product candidates are found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for them and our business would be harmed. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier stage clinical trials.

Our randomized Phase 2 and Phase 3 non-registration clinical trials of omadacycline were completed prior to the FDA’s change in its guidance regarding the endpoints for clinical trials in serious skin infections from a TOC endpoint to an ECR endpoint. Our results in our randomized Phase 2 and Phase 3 non-registration clinical trials of omadacycline in cSSSI, which evaluated the response of serious skin infections to omadacycline at the TOC, may not be predictive of the results to be obtained in our proposed Phase 3 clinical trials of omadacycline in ABSSSI or in other indications such as CABP, which will evaluate the response of serious skin infections and moderate-to-severe CABP to omadacycline using the ECR endpoint. Because these earlier clinical trials did not enroll a sufficient number of patients to achieve statistical significance, the retrospective analyses of ECR endpoints for these clinical trials may not be indicative of the performance or success of omadacycline in larger registration studies in ABSSSI or in CABP. In some instances, there can be significant variability in safety and/or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in clinical trial protocols, differences in size, type and geographic distribution of the patient populations, adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. We do not know whether any Phase 2, Phase 3 or other clinical trials we or any of our collaborators may conduct, or have conducted in the past, will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates.

Further, our and our partners’ product candidates may not be approved even if they achieve their primary endpoints in Phase 3 clinical trials or registration trials. The FDA or other non-U.S. regulatory authorities may disagree with our clinical trial design and our interpretation of data from preclinical studies and clinical trials even when we have SPA agreements. In addition, any of these regulatory authorities may change requirements for the approval of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal Phase 3 clinical trial that has the potential to result in FDA or other agencies’ approval. In addition, any of these regulatory authorities may also approve a product candidate for fewer or more limited indications than we

request or may grant approval contingent on the performance of costly post-marketing clinical trials. In addition, the FDA or other non-U.S. regulatory authorities may not approve the labeling claims that we believe would be supported by the clinical data, or be necessary or desirable for the successful commercialization of our product candidates.

The regulatory approval process is expensive, time consuming and uncertain and may prevent us or our partners from obtaining approvals for the commercialization of our product candidates.

The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to extensive regulation by the FDA and other U.S. and non-U.S. regulatory authorities. Regulations differ from country to country, which will require us to expend additional resources in each market for which a separate regulatory approval is required. We are not permitted to market our product candidates in the United States or in other countries until we receive approval of an NDA from the FDA or marketing approval from applicable regulatory authorities outside the United States. Our primary product candidates, omadacycline and sarecycline, are still in development and are subject to the risks of failure inherent in drug development. Neither we nor our partners have submitted an application for or received marketing approval for any of our product candidates. Obtaining approval of an NDA can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA and non-U.S. regulatory requirements may, either before or after product approval, if any, subject us to administrative or judicially imposed sanctions, including:

The FDA and foreign regulatory authorities also have substantial discretion in the drug approval process. The number of preclinical studies and clinical trials that will be required for regulatory approval varies depending on the product candidate, the disease or condition that the product candidate is designed to address and the regulations applicable to any particular drug candidate. Regulatory agencies can delay, limit or deny approval of a product candidate for many reasons, including:

Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability to generate revenue from omadacycline or any other particular product candidate, which likely would result in significant harm to our financial position. Furthermore, any regulatory approval to market a product may be subject to limitations on the indicated uses for which we may market the product. These limitations may limit the size of the market opportunity for the product.

Even if we or our partners obtain regulatory approvals for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we manufacture and market our product candidates, which could materially impair our ability to generate revenue.

Once regulatory approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and regulation. Any approved product may only be promoted for its approved uses. In addition, if the FDA and/or non-U.S. regulatory authorities approve any of our product candidates, among other things, the labeling, packaging, adverse event reporting,

storage, advertising and promotion for the product will be subject to extensive regulatory requirements. In addition, approved products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMP regulations, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. As such, we and our contract manufacturers will be subject to ongoing review and periodic inspections to assess compliance with cGMPs. Accordingly, assuming regulatory approval for one or more of our product candidates, we and others with whom we work will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. Further, regulatory agencies must approve these manufacturing facilities before they can be used to manufacture our products. We and our partners will also be required to report adverse reactions and production problems, if any, to the FDA and to comply with requirements concerning, among other things, advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. Accordingly, we will not be able to promote our products for indications or uses for which they are not approved. If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, it may impose restrictions on that product, us or our partners, including requiring withdrawal of the product from the market. If we fail to comply with the regulatory requirements of the FDA and other U.S. and non-U.S. regulatory authorities, or if previously unknown problems with our products, manufacturers or manufacturing processes are discovered, we could be subject to significant penalties.

If we are not able to maintain regulatory compliance, we would likely not be permitted to manufacture and market any future product candidates and may not achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.

Our product candidates may have undesirable side effects that may delay or prevent marketing approval, or, if approval is received, require them to be taken off the market, include safety warnings or otherwise limit their sales.

Although our product candidates, omadacycline and sarecycline, have undergone or will undergo safety testing in laboratory animals, not all adverse effects of drugs can be predicted or anticipated from these preclinical safety and toxicology studies. Unforeseen side effects from either of our product candidates could arise either during clinical development or, if approved by regulatory authorities, after the approved product has been marketed. Each of omadacycline and sarecycline are still in clinical development, and our other product candidates, which are in the pre-clinical phase, are not currently being further developed. Many of the most widely used antibiotics are associated with treatment-limiting adverse events, including in some instances, kidney damage, allergic reactions or sudden cardiovascular death due to cardiac arrhythmia. While clinical trials to date for omadacycline and sarecycline appear to have shown a favorable safety profile, the results from the Phase 3 registration clinical trials may not confirm these preliminary observations. The results of future clinical trials may show that our product candidates, including omadacycline and sarecycline, cause undesirable or unacceptable side effects, which could interrupt, delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, or result in marketing approval from the FDA and other regulatory authorities with restrictive label warnings or potential product liability claims. If any of our product candidates receive marketing approval and we or others later identify undesirable or unacceptable side effects caused by such products:

Any of these events could prevent us, our current partners or our potential future partners from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenue from the sale of our products.

Coverage and reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement for our products, it is less likely that out products will be widely used.

Even if our product candidates are approved for sale by the appropriate regulatory authorities, market acceptance and sales of these products and our partners’ products will depend on coverage and reimbursement policies. Government authorities and third- party payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and establish reimbursement levels. We cannot be certain that coverage will be available and reimbursement will be adequate for any products that we or our partners develop and commercialize. Also, we cannot be certain that coverage and reimbursement policies will not reduce the demand for, or the price paid for, our or our partners’ products. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all of part of the costs associated with their prescription drugs. Patients are unlikely to use our or our partners’ products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of such products. Therefore, if coverage is not available or reimbursement is limited, we and our partners may not be able to successfully commercialize any of our approved products.

The process for determining whether a third-party payor will provide coverage for a drug product typically is separate from the process for setting the price of a drug product or for establishing the reimbursement rate that the payor will pay for the drug product once coverage is approved. Third-party payors may limit coverage to specific drug products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. A decision by a third-party payor not to cover our product candidates could reduce physician utilization of our products once approved. Moreover, a third-party payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor. One third-party payor’s decision to cover a particular drug product or service does not ensure that other payors will also provide coverage for the medical product or service, or will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our products to each payor separately and will be a time-consuming process.

Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.

The United States and several foreign jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our or our partners’ ability to sell any of our future approved products profitably. Among policymakers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. We expect to experience pricing pressures in connection with the sale of any products that we or our partners develop due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals.

In March 2010, the ACA became law in the United States. The stated goal of the ACA is to reduce the cost of healthcare and substantially change the way healthcare is financed by both governmental and private insurers. The ACA, among other things, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription drugs. The ACA also established a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. While we cannot predict what impact on federal reimbursement policies this legislation will have in general or on our business specifically, the ACA may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of, and the price we may charge for, any products that we or our partners develop that receive regulatory approval. We also cannot predict the impact of the ACA on us as many of the ACA’s reforms require the promulgation of detailed regulations implementing the statutory provisions, some of which have not yet been finalized.

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and, due to legislative amendments, will remain in effect through 2024 unless additional Congressional action is taken. In addition, in January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced

Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. If we or our partner Allergan ever obtain regulatory approval and commercialize omadacycline or sarecycline these new laws may result in additional reductions in Medicare and other healthcare funding, which could harm our customers and accordingly, our financial operations.

If we do not obtain protection under the Hatch-Waxman Amendments and similar foreign legislation by extending the term of patents covering each of our product candidates, our business may be materially harmed.

Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than our request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product may not extend beyond the current patent expiration dates and our competitors may obtain approval to market competing products sooner. As a result, our revenue could be reduced, possibly materially.

If we or our partners market products in a manner that violates fraud and abuse and other healthcare laws, or if we or our partners violate government price reporting laws, we or our partners may be subject to administrative civil and/or criminal penalties.

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws, including those commonly referred to as “fraud and abuse” laws have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. These laws include, among others, false claims and anti-kickback statutes. At such time, if ever, as we or any of our partners market any of our future approved products, it is possible that some of our or our partner’s business activities could be subject to challenge under one or more of these laws. The laws that may affect our ability to operate include:

Efforts to ensure that our and our partners’ business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our or our partners’ business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws.

Pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of promotional and marketing activities, such as: providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates. If our or our partners’ operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we or our partners may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which could significantly harm our business.

We face significant competition and if our competitors develop and market products that are more effective, safer or less expensive than our product candidates, our commercial opportunities will be negatively impacted.

The life sciences industry is highly competitive and subject to rapid and significant technological change. We are currently developing products that will compete with other drugs and therapies that currently exist or are being developed. Products that we may develop in the future are also likely to face competition from other drugs and therapies, some of which we may not currently be aware. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities and other research institutions. Many of our competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research, development and marketing capabilities than we do and may also have products that have been approved or are in late stages of development, and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete or less competitive. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or FDA approval or discovering, developing and commercializing antibiotics before we do so for any of our product candidates.

The GAIN Act is intended to provide incentives for the development of new QIDPs. These incentives may result in more competition in the market for new antibiotics and may cause pharmaceutical and biotechnology companies with more resources than we have to shift their efforts toward the development of products that could be competitive with our product candidates.

The competition in the market for antibiotics such as omadacycline is intense. If approved, omadacycline will face competition from commercially available antibiotics such as vancomycin, marketed as a generic by Abbott Laboratories and others; linezolid, sold under the brand name Zyvox by Pfizer Inc.; daptomycin, sold under the brand name Cubicin by Merck; dalbavancin, approved in May 2014 and marketed by Allergan as Dalvance; tedizolid, marketed as Sivextro by Merck; oritavancin, approved in August 2014 and marketed by The Medicines Company as Orbactiv; quinupristin/dalfopristin, sold under the brand name Synercid by Pfizer, Inc.; tigecycline, sold under the brand name Tygacil by Pfizer Inc.; telavancin, sold as Vibativ by Theravance, Inc.; ceftaroline, sold under the brand name Teflaro by Allergan; and generic trimethoprim/sulfamethoxazole.

Vancomycin has been a widely used and well known antibiotic for over 40 years and is sold in a relatively inexpensive generic IV form. Vancomycin, daptomycin, quinupristin/dalfopristin, trimethoprim/sulfamethoxazole, ceftaroline, tigecycline, linezolid and telavancin are all approved treatments for serious gram-positive infections such as ABSSSI. Additionally, ceftaroline is approved for CABP; moxifloxacin is approved for CABP, intra-abdominal infections, acute exacerbations of chronic bronchitis and acute bacterial sinusitis; levofloxacin and ceftriaxone are approved for many of the same uses as moxifloxacin as well as for urinary tract infections; azithromycin and clarithromycin are primarily approved for upper and lower respiratory tract infections, including CABP; daptomycin is an approved treatment for cSSSI and bacteremia; tigecycline is an approved treatment for cSSSI, CABP and intra-abdominal infections; linezolid is an approved treatment for pneumonia; and vancomycin is an approved treatment for both bacteremia and pneumonia. If we are unable to obtain regulatory approval of omadacycline for some or all of the indications for which our competitors are approved, we may not be able to compete effectively with such antibiotics.

In addition, if approved, omadacycline may face additional competition from antibiotics currently in clinical development. Other antibiotics currently in development include ceftobiprole, under development by Basilea Pharmaceutica AG and approved in 13 European countries; solithromycin, under development by Cempra, Inc.; eravacycline, under development by Tetraphase Pharmaceuticals, Inc.; delafloxacin and radezolid, under development by Melinta Pharmaceuticals, Inc.;; and Lefamulin under development by Nabriva Therapeutics AG, which, if approved, would compete in the antibiotic market. In addition, our product candidates may each face competition from product candidates that could receive regulatory approval before our product candidates in countries outside the United States and the European Union. If we are unable to demonstrate points of differentiation between our product candidates and competing products, we may not be able to successfully commercialize our product candidates, our commercial opportunities will be negatively impacted and our results of operations will suffer.

We and our partner, Allergan, will also face competition in the acne markets where generic tetracyclines such as doxycycline and minocycline are available in every market around the world. Branded generic versions of tetracycline derivatives are sold by several companies.

In addition, many universities and private and public research institutes may become active in our target indications. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies.

We believe that our ability to successfully compete will depend on, among other things:

If our competitors market products that are more effective, safer or less expensive than, or that reach the market sooner than, our or any of our partners’ future products, if any, we may not achieve commercial success. In addition, the biopharmaceutical industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical.

In addition, in the event that our or any of our partners’ products receives regulatory approval, price competition may inhibit the acceptance of our products, physicians may be reluctant to switch from existing products to our products, physicians may switch to other newly approved drug products, or physicians may choose to reserve our products for use in limited circumstances.

We rely and will continue to rely on outsourcing arrangements for manufacturing of our product candidates. Reliance on third- party manufacturers could delay approval or commercialization of our products.

We do not currently own or operate manufacturing facilities for the production of any of our product candidates, nor do we intend to manufacture the pharmaceutical products that we plan to sell. We currently depend on third-party contract manufacturers for the supply of the active pharmaceutical ingredients for our product candidates, including drug substance for our preclinical research and clinical trials. To date, we have obtained starting materials for our supply of omadacycline from a limited number of third-party manufacturers and have purchased all of our drug supplies on a purchase order basis. We intend to enter into long-term supply agreements with these manufacturers for commercial supplies. We are currently in discussions with these and other third-party manufacturers for clinical trial and commercial supplies. We may not be able to reach agreement with any of these contract manufacturers, or to identify and reach arrangement on satisfactory terms with other contract manufacturers, to manufacture omadacycline or any of our other product candidates. Additionally, we anticipate that the facilities used by any contract manufacturer to manufacture any of our product candidates will be the subject of inspections by regulatory agencies before the FDA and other regulatory authorities approve an NDA or marketing authorization for the product candidate manufactured at that facility. We will depend on these third-party manufacturing partners for compliance with the FDA’s manufacturing requirements for finished products. If our manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA and other regulatory authorities’ cGMP requirements, our product candidates will not be approved or, if already approved, may be subject to delays in release and/or product recalls. While third-party manufacturers of our product candidates, including omadacycline, have previously passed FDA and other regulatory agency inspections, we cannot provide assurance that they will pass such inspections in the future.

Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product candidates itself, including:

Any of these factors could cause the delay of approval or commercialization of our products, cause us to incur higher costs or prevent us from commercializing our product candidates successfully. Furthermore, if any of our product candidates are approved and contract manufacturers fail to continuously meet FDA compliance standards or fail to deliver the required commercial quantities of finished product on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for our products and could lose potential revenue. It may take one or more years to establish an alternative source of supply for our product candidates and to have any such new source approved by the FDA or any other relevant regulatory authorities.

If the FDA or other applicable regulatory authorities approve generic products that compete with any of our or any of our partners’ product candidates, or if existing generic antibiotics are viewed as being equally effective to our or any of our partners’ product candidates, the sales of our product candidates would be adversely affected.

Once an NDA or marketing authorization application outside the United States is approved, the product covered thereby becomes a “listed drug” that can, in turn, be cited by potential competitors in support of approval of an ANDA in the United States. Agency regulations and other applicable regulations and policies provide incentives to manufacturers to create modified, non-

infringing versions of a drug to facilitate the approval of an ANDA or other application for generic substitutes in the United States and in nearly every pharmaceutical market around the world. These manufacturers might only be required to conduct a relatively inexpensive study to show that their product has the same active ingredient(s), dosage form, strength, route of administration and conditions of use, or labeling, as our product candidate and that the generic product is bioequivalent to ours, meaning it is absorbed in the body at the same rate and to the same extent as our product candidate. These generic equivalents, which must meet the same quality standards as branded pharmaceuticals, would be significantly less costly than ours to bring to market, and companies that produce generic equivalents are generally able to offer their products at lower prices. Thus, after the introduction of a generic competitor, a significant percentage of the sales of any branded product is typically lost to the generic product. Accordingly, competition from generic equivalents to ours or any of our partners’ future products, if any, would materially adversely impact our future revenue, profitability and cash flows and substantially limit our ability to obtain a return on the investments we have made in our or any of our partners’ product candidates, including omadacycline. For example, vancomycin has been available in generic form for many years, and Zyvox (linezolid) is expected to become available in generic form when certain patents covering it expire in 2015. We cannot yet ascertain what impact these generic products and any future approved generic products will have on any sales of our products, if approved.

The success of our business may be dependent on the actions of our collaborative partners.

An element of our business and funding strategy is to enter into collaborative arrangements with established pharmaceutical and biotechnology companies who will finance or otherwise assist in the development, manufacture and marketing of products incorporating our technology, and who also provide us with funding in the form of milestone payments for progress in clinical development or regulatory approval. For example, we have exclusively licensed rights to sarecycline for the treatment of acne in the United States to Allergan, and Allergan is responsible for all clinical development, registration and commercialization in the United States of sarecycline for the treatment of acne. In addition, we have granted Allergan an exclusive license to develop and commercialize sarecycline for the treatment of rosacea in the United States, which converted to a non-exclusive license in December 2014 after Allergan did not exercise its development option with respect to rosacea. There are currently no clinical trials in rosacea underway.

Accordingly, our prospects will depend in part upon our ability to attract and retain collaborative partners and to develop technologies and products that achieve the criteria for milestone payments. When we collaborate with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party. In addition, our collaborative partners may have the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms. We cannot assure you that we will be successful in establishing or maintaining collaborative arrangements on acceptable terms or at all, that collaborative partners will not terminate funding before completion of projects, that our product candidates will achieve the criteria for milestone payments, that our collaborative arrangements will result in successful product commercialization, or that we will derive any revenue from such arrangements. For example, we previously entered into a license and collaboration agreement with Novartis for the development of omadacycline, which was terminated. To the extent that we are not able to develop and maintain collaborative arrangements, we would need substantial additional capital to undertake research, development and commercialization activities on our own, we may be forced to limit the number of our product candidates we can commercially develop or the territories in which we commercialize them, and we might fail to commercialize products or programs for which a suitable collaborator cannot be found.

Reliance on collaborative relationships poses a number of risks, including the following:

If we are not able to establish and sustain additional partnerships, we may have to alter our development and commercialization plans, which could harm our business.

We anticipate that we will require additional funding to complete the NDA and the EMA Market Authorization Application registration filings and commercialization of omadacycline and to continue the development of any of our other product candidates. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates, as we have done with Allergan for sarecycline.

We face significant competition in seeking appropriate collaborators. Whether or not we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the patent position protecting the product candidate, the potential of competing products, the need to seek licenses or sub-licenses to third-party intellectual property and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies and whether collaboration on an alternative product could be more attractive than a collaboration with us. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

We may not be able to negotiate collaborations on a timely basis, on acceptable terms or at all. If we are unable to do so, it may delay completion of development and potential commercialization of our products. If we elect to increase our expenditures to fund development, registration or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.

Further, even if we are able to enter into collaborations, we must be able to sustain a mutually beneficial working relationship with our collaborators in order to achieve the intended benefits of those collaborations. In the past, certain of our collaborators, including Novartis, have terminated their partnering relationships with us due to delays and uncertainties in connection with the FDA regulatory pathway for approval of omadacycline for the ABSSSI and CABP indications. This past history may affect our ability to attract and enter into collaboration arrangements with future partners or collaborators for the development of omadacycline.

We currently have no sales or distribution infrastructure with respect to our product candidates. If we are unable to develop our sales, marketing and distribution capability on our own or through collaborations with marketing partners, we will not be successful in commercializing our product candidates.

We currently have no sales or distribution capabilities within our organization. If our product candidate omadacycline is approved, we intend either to establish a sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize omadacycline, or to outsource this function to a third party. Either of these options would be expensive and time consuming. Some or all of these costs may be incurred in advance of any approval of omadacycline. In addition, we may not be able to hire a sales force in the United States that is large enough or has adequate expertise in the medical markets that we intend to target. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of omadacycline.

With respect to our existing and future product candidates, we may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or as an alternative to our own sales force and distribution systems. To the extent that we enter into co-promotion or other licensing arrangements, our product revenue may be lower than if we directly marketed or sold any approved products. In addition, any revenue we receive will depend in whole or in part upon the efforts of these third parties, which may not be successful and are generally not within our control. If we are unable to enter into these arrangements on acceptable terms or at all, we may not be able to successfully commercialize any approved

products. If we are not successful in commercializing any approved products, either on our own or through collaborations with one or more third parties, our future product revenue will suffer, and we may incur significant additional losses.

Independent clinical investigators and CROs that we engage to conduct our clinical trials may not devote sufficient time or attention to our and our partners’ clinical trials or be able to repeat their past success.

We expect to depend on independent clinical investigators and CROs to participate in and conduct our clinical trials, including our initiated and planned Phase 3 clinical trials of omadacycline in ABSSSI and CABP, respectively. CROs may also assist us and our partners in the collection and analysis of data. There is a limited number of third-party service providers that specialize or have the expertise required to achieve our business objectives. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming and cause delays in our or our partners’ development programs. These investigators and CROs will not be our employees, and we will not be able to control, other than by contract, the amount of resources, including time, that they devote to our product candidates and clinical trials. If independent investigators fail to devote sufficient resources to the development of our product candidates, or if their performance is substandard, it may delay or compromise the prospects for approval and commercialization of any product candidates that we and our partners develop. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. Further, the FDA requires that we and our partners comply with standards, commonly referred to as current Good Clinical Practice, for conducting, recording and reporting clinical trials to assure that data and reported results are credible and accurate and that the rights, safety, integrity and confidentiality of clinical trial subjects are protected. Failure of clinical investigators or CROs to meet their obligations to us or comply with current Good Clinical Practices could adversely affect the clinical development of our product candidates and harm our business.

Our success is currently dependent on the successful development and commercialization of our most advanced product candidates, omadacycline and sarecycline.

Our success is currently dependent on the successful development and commercialization of our most advanced product candidates, omadacycline and sarecycline, which is currently being developed by Allergan. We are not currently developing any of our other product candidates that are in the pre-clinical phase. If omadacycline and sarecycline are not successfully developed and commercialized, we will not have any product candidates under development from which we might generate revenue. We currently have no such plans to develop any other product candidates and will need additional financing to fund such development should we decide to do so in the future.

Even if approved, if omadacycline or sarecycline does not achieve broad market acceptance among physicians, patients, the medical community and third-party payors, our revenue generated from their sales will be limited.

The commercial success of our product candidates will depend upon their acceptance among physicians, patients and the medical community. The degree of market acceptance of our product candidates will depend on a number of factors, including:

If our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients and the medical community, we and our partners may not generate sufficient revenue from these products, and we may not become or remain profitable. In addition, efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful

Even if we obtain FDA approval of our current or any future product candidates, we or our partners may never obtain approval or commercialize our products outside of the United States, which would limit our ability to realize their full market potential.

In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding clinical trial design, safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and may require additional preclinical studies or clinical trials. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. We and our partners do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we or our partners fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our target market will be reduced and our ability to realize the full market potential of our products will be harmed. Further, while we have obtained SPA agreements with the FDA for our Phase 3 registration clinical trial designs for omadacycline in ABSSSI and CABP, these agreements are not binding with any international regulatory authorities.

Bacteria might develop resistance to any of our antibiotic product candidates, which would decrease the efficacy and commercial viability of those product candidates.

Antibiotic resistance is primarily caused by the genetic mutation of bacteria resulting from suboptimal exposure to antibiotics where the drug does not eradicate all of the bacteria. While antibiotics have been developed to treat many of the most common infections, the extent and duration of their use worldwide has resulted in new mutated strains of bacteria resistant to current treatments. Our product candidate omadacycline is being developed to treat patients infected with drug-resistant bacteria. If physicians, rightly or wrongly, associate the resistance issues of older generations of tetracyclines with omadacycline, physicians might not prescribe omadacycline for treating a broad range of infections. In addition, bacteria might develop resistance to omadacycline if such bacteria are improperly dosed or treated repeatedly with omadacycline over multiple years, causing the efficacy of omadacycline to decline, which would negatively affect our potential to generate revenue from omadacycline.

Our business and operations would suffer in the event of computer system failures.

Despite the implementation of security measures, our internal computer systems, and those of our CROs, our partners and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, fire, terrorism, war and telecommunication and electrical failures. In addition, our systems safeguard important confidential personal data regarding our subjects. If a computer failure were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of omadacycline and other product candidates could be delayed.

If any product liability lawsuits are successfully brought against us or any of our collaborative partners, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

We face an inherent risk of product liability lawsuits related to the testing of our product candidates in seriously ill patients and will face an even greater risk if product candidates are approved by regulatory authorities and introduced commercially. Product liability claims may be brought against us or our partners by participants enrolled in our clinical trials, patients, healthcare providers or

others using, administering or selling any of our future approved products. If we cannot successfully defend ourselves against any such claims, we may incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

If any of our product candidates are approved for commercial sale, we will be highly dependent upon consumer perceptions of us and the safety and quality of our products. We could be adversely affected if we are subject to negative publicity. We could also be adversely affected if any of our products or any similar products distributed by other companies prove to be, or are asserted to be, harmful to patients. Also, because of our dependence upon consumer perceptions, any adverse publicity associated with illness or other adverse effects resulting from patients’ use or misuse of our products or any similar products distributed by other companies could have a material adverse impact on our results of operations.

We currently hold $10.0 million in product liability insurance coverage in the aggregate annually, with a per incident limit of $10.0 million, which may not be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage when we begin the commercialization of our product candidates. Insurance coverage is becoming increasingly expensive. As a result, we may be unable to maintain or obtain sufficient insurance at a reasonable cost to protect us against losses that could have a material adverse effect on its business. These liabilities could prevent or interfere with our product development and commercialization efforts. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash resources and adversely affect our business, financial condition and results of operation.

If we fail to attract and retain key management and scientific personnel, we may be unable to successfully develop or commercialize our product candidates.

Our industry has experienced a high rate of turnover of management personnel in recent years. We are to a certain extent dependent on the members of our senior management team, such as Michael F. Bigham, our Chief Executive Officer and the Chairman of our board of directors, and Evan Loh, M.D., our President and Chief Medical Officer, for our business success. The employment agreements with our senior management team can be terminated by us or them at any time, with notice. The departure of any of our executive officers could result in a significant loss in the knowledge and experience that we, as an organization, possesses and could cause significant delays, or outright failure, in the execution of our strategies and development and approval of our product candidates.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, development and clinical personnel. We may not be able to attract or retain such qualified personnel due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience constraints that will impede significantly our development objectives and timelines, our ability to raise additional capital and our ability to implement our business strategy.

We consult with scientific and clinical advisors who assist us in formulating our development and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. Typically, these advisors will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with our own products or technologies.

We depend on various consultants and advisors for the success and continuation of our development efforts.

We work extensively with various consultants and advisors, who provide advice and/or services in various business and development functions, including clinical development, operations and strategy, regulatory matters, legal and finance. The potential success of our drug development programs depends, in part, on continued collaborations with certain of these consultants and advisors. Our consultants and advisors are not our employees and may have commitments and obligations to other entities that may limit their availability to us. We do not know if we will be able to maintain such relationships or that such consultants and advisors will not enter into other arrangements with competitors, any of which could have a detrimental impact on our development objectives and our business.

We will need to grow our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.

As of October 31, 2015, we had 34 full-time employees. Assuming our development and commercialization plans and strategies develop, we expect to expand our employee base for managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our management may need to divert a disproportionate amount of their attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations that may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of existing and additional product candidates. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize omadacycline and our other product candidates and compete effectively with others in our industry will depend, in part, on our ability to effectively manage any future growth.

Our and our partners’ business may become subject to economic, political, regulatory and other risks associated with international operations.

Our business is subject to risks associated with conducting business internationally, in part due to a number of our suppliers and collaborative and clinical trial relationships being located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:

These risks may materially adversely affect our ability to attain or sustain profitable operations.

If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.

Our research and development involves the use of potentially hazardous materials and chemicals. Our operations may have produced hazardous waste products. Although we believe that our safety procedures for handling and disposing of these materials complied with the standards mandated by local, state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. We are also subject to numerous environmental, health and workplace safety laws and regulations and fire and building codes, including those governing laboratory procedures, exposure to blood-borne pathogens, use and storage of flammable agents and the handling of biohazardous materials. Although we have always maintained workers’ compensation insurance as prescribed by the Commonwealth of Massachusetts to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.

Our employees, contractors, partners, principal investigators, CROs, consultants and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk that our employees, contractors, partners, principal investigators, CROs, consultants and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: FDA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA, federal and state healthcare fraud and abuse laws and regulations, laws that require the reporting of financial information or data timely, completely or accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Third-party misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us resulting from this misconduct, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which could significantly harm our business.

We enter into various contracts in the normal course of our business in which we indemnify the other party to the contract. In the event we have to perform under these indemnification provisions, it could have a material adverse effect on our business, financial condition and results of operations.

In the normal course of business, we periodically enter into academic, commercial, service, collaboration, licensing, consulting and other agreements that contain indemnification provisions. With respect to our academic and other research agreements, we typically indemnify the institution and related parties from losses arising from claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for which we have secured licenses, and from claims arising from our or our sub licensees’ exercise of rights under the agreement. With respect to our commercial agreements, we indemnify our vendors from any third-party product liability claims that could result from the production, use or consumption of the product, as well as for alleged infringements of any patent or other intellectual property right by a third party. With respect to consultants, we indemnify them from claims arising from the good faith performance of their services.

Should our obligation under an indemnification provision exceed applicable insurance coverage or if we were denied insurance coverage, our business, financial condition and results of operations could be adversely affected. Similarly, if we are relying on a collaborator to indemnify us and the collaborator is denied insurance coverage or does not have assets available to indemnify us, our business, financial condition and results of operations could be adversely affected.

We may be unable to sell Intermezzo and may not receive revenue from the assignment of the TO-2070 product rights pursuant to the SNBL Termination Agreement.

The success of sales of Intermezzo in the United States is dependent on the ability of Purdue Pharma to successfully commercialize Intermezzo pursuant to the Purdue License Agreement. The terms of the Purdue License Agreement provide that Purdue Pharma can terminate the agreement for any reason at any time upon advance notice of 180 days. If the Purdue License Agreement is terminated, our ability to generate revenue from sales of Intermezzo will be harmed. We do not intend to develop or commercialize Intermezzo ourselves. If the Purdue License Agreement is terminated and we decide to commercialize Intermezzo, we will be required to develop our own sales and marketing organization, fund any future clinical studies or other required regulatory activities (including any post-approval studies), and bear increased litigation expenses due to ANDA proceedings. We do not currently have the infrastructure in place or adequate resources to launch a commercial product and implementing such infrastructure would require substantial time and resources. The value of Intermezzo, including the royalty stream, has been significantly impaired by the recent unfavorable ruling in the ANDA litigation (see the section titled “Legal Proceedings—Intermezzo Patent Litigation”). Alternatively, we may enter into another strategic collaboration in order to commercialize Intermezzo in the United States.

The manner in which Purdue Pharma commercializes Intermezzo, including the amount and timing of Purdue Pharma’s investment in commercial activities and pricing of Intermezzo, will have a significant impact on the ultimate success of Intermezzo in the United States, and the success of the overall commercial arrangement with Purdue Pharma. If Purdue Pharma deems Intermezzo to have insufficient market potential, it may continue to decrease its commercialization efforts, which would likely result in decreased sales of Intermezzo and negatively impact our business and operating results. During the first quarter of 2014, Purdue Pharma discontinued use of the Purdue Pharma sales force to actively market Intermezzo to healthcare professionals. Consequently, sales of the product have since declined.

Although we assigned all of our rights, interest and title to the TO-2070 product rights to SNBL in exchange for a portion of certain future net revenue received by SNBL, up to an aggregate of $2.0 million, we are dependent upon the ability of SNBL to successfully license the TO-2070 product rights. The manner in which SNBL licenses the TO-2070 assets, including the amount and timing of SNBL’s investment in marketing and licensing activities, will have a significant impact on our ability to receive revenue pursuant to the SNBL Termination Agreement. If SNBL deems TO-2070 to have insufficient licensing potential, SNBL may decrease efforts to seek a licensing partner, which would likely decrease any future revenue that we would receive pursuant to the SNBL Termination Agreement.

If we are unable to obtain and enforce patent protection for our product candidates and related technology, our business could be materially harmed.

Issued patents may be challenged, invalidated or circumvented. In addition, court decisions may introduce uncertainty in the enforceability or scope of patents owned by biotechnology companies. The legal systems of certain countries do not favor the aggressive enforcement of patents, and the laws of foreign countries may not allow us to protect our inventions with patents to the same extent as the laws of the United States. Because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the inventions claimed in issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for certain inventions. If such inventions or related inventions are successfully patented by others, we may be required to obtain licenses under third- party patents to market our product candidates, as described in greater detail below. Therefore, enforceability and scope of our patents in the United States and in foreign countries cannot be predicted with certainty, and, as a result, any patents that we own or license may not provide sufficient protection against competitors. We may not be able to obtain or maintain patent protection from our pending patent applications, from those we may file in the future, or from those we may license from third parties. Moreover, even if we are able to obtain patent protection, such patent protection may be of insufficient scope to achieve our business objectives.

Our strategy depends on our ability to identify and seek patent protection for our discoveries. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information that we regard as proprietary. The issuance of a patent does not ensure that it is valid or enforceable, so even if we obtain patents, they may not be valid or enforceable against third parties. In addition, the issuance of a patent does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from marketing our own patented product and practicing our own patented technology. Third parties may also seek to market generic versions of any approved products by submitting ANDAs to the FDA in which they claim that

patents owned or licensed by us are invalid, unenforceable and/or not infringed. Alternatively, third parties may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid and/or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.

The patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards that the USPTO and its foreign counterparts use to grant patents are not always applied predictably or uniformly and can change. There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical or biotechnology patents. The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries. Outside of the United States, patent protection must be sought in individual jurisdictions, further adding to the cost and uncertainty of obtaining adequate patent protection outside of the United States. Accordingly, we cannot predict whether additional patents protecting our technology will issue in the United States or in foreign jurisdictions, or whether any patents that do issue will have claims of adequate scope to provide competitive advantage. Moreover, we cannot predict whether third parties will be able to successfully obtain claims or the breadth of such claims. The allowance of broader claims may increase the incidence and cost of patent interference proceedings, opposition proceedings and/or reexamination proceedings, the risk of infringement litigation and the vulnerability of the claims to challenge. On the other hand, the allowance of narrower claims does not eliminate the potential for adversarial proceedings and may fail to provide a competitive advantage. Our issued patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products or provide us with any competitive advantage. Moreover, even after they have issued, our patents and any patent for which we have licensed or may license rights may be challenged, narrowed, invalidated or circumvented. If our patents are invalidated or otherwise limited or will expire prior to the commercialization of our product candidates, other companies may be better able to develop products that compete with our products which could adversely affect our competitive business position, business prospects and financial condition. The following are examples of litigation and other adversarial proceedings or disputes that we could become a party to involving our patents or patents licensed to us:

These lawsuits and proceedings would be costly and could affect our results of operations and divert the attention of our managerial and scientific personnel. There is a risk that a court or administrative body would decide that our patents are invalid or not infringed by a third party’s activities or that the scope of certain issued claims must be further limited. An adverse outcome in a litigation or proceeding involving our own patents could limit our ability to assert our patents against these or other competitors and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. An adverse outcome in a dispute involving inventorship or ownership of our patents could, for example, subject us to additional royalty obligations and expand the number of product candidates that are subject to the royalty and other obligations of our license agreement with Tufts.

The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.

Our and our partners’ success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have or obtain patents or proprietary rights that could limit our ability to manufacture, use, sell, offer for sale or import our future approved products or impair our competitive position. Patents that we believe we do not infringe, but that we may ultimately be found to infringe, could be issued to third parties. In addition, to the extent that a third party develops new technology that covers our product candidates, we and our partners may be required to obtain licenses to that technology, which licenses may not be available or may not be available on commercially reasonable terms. Third parties may have or obtain valid and enforceable patents or proprietary rights that could block us from developing product candidates using our technology. Our failure to obtain a license to any technology that we require may materially harm our business, financial condition and results of operations. Moreover, our or our partners’ failure to maintain a license to any technology that we requires may also materially harm our business, financial condition and results of operations. Furthermore, we would be exposed to a threat of litigation.

In the pharmaceutical industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and other intellectual property rights have become commonplace. The types of situations in which we may become a party to such litigation or proceedings include:

These lawsuits would be costly and could affect our results of operations and divert the attention of our managerial and scientific personnel. There is a risk that a court would decide that we or our partners are infringing the third party’s patents and would order us or our collaborators to stop the activities covered by the patents. In that event, we or our partners may not have a viable alternative to the technology protected by the patent and may need to halt work on the affected product candidate. In addition, there is a risk that a court will order us or our partners to pay the other party damages. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. Any of these outcomes could have a material adverse effect on our business.

The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is

subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, do not develop or obtain non-infringing technology, fail to defend an infringement action successfully or has infringed patents declared invalid, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates.

The cost of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.

If we or our partners fail to comply with our obligations under our intellectual property licenses with third parties, we could lose license rights that are important to our business.

We are currently party to an intellectual property license agreement with Tufts. The license agreement imposes, and we expect that future license agreements may impose, various diligence, milestone payment, royalty, insurance and other obligations on us. For example, we are required to use our best efforts to develop and commercialize licensed products under the agreement. If we fail to comply with our obligations under the license, Tufts may have the right to terminate the license agreement, in which event we might not be able to market any product that is covered by the agreement, such as omadacycline. Termination of the license agreement or reduction or elimination of our licensed rights may result in us having to negotiate a new or reinstated license with less favorable terms. If Tufts were to terminate its license agreement with us for any reason, our business could be materially harmed. In the event that we are unable to maintain the Tufts license, we may lose the ability to exclude third parties from offering substantially identical products for sale and may even risk the threat of a patent infringement lawsuit from our former licensor based on our continued use of its intellectual property. Either of these events could adversely affect our competitive business position and harm our business.

Under our license agreement with Tufts, we are responsible for prosecution and maintenance of the licensed patents and patent applications, including payment of necessary government fees. In the event that any of the licensed patents or patent applications unintentionally lapse or are otherwise materially diminished in value, our relationship with Tufts could be harmed. This could result in termination of the license, loss of the rights to control prosecution of the licensed patents and patent applications and/or liability to Tufts for any loss.

If we or our partners are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.

In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, know-how and confidential and proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants, collaborators and others upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees and our personnel policies also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual. Such assignment or license may not be available on commercially reasonable terms or at all.

Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and

failure to obtain or maintain trade secret protection could adversely affect our competitive business position. In addition, others may independently discover trade secrets and proprietary information, and the existence of our own trade secrets affords no protection against such independent discovery.

As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously or concurrently employed at research institutions and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product candidates, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the USPTO and various foreign patent offices at various points over the lifetime of the patents and/or applications. We have systems in place to remind us to pay these fees, and we rely on our outside counsel to pay these fees when due. Additionally, the USPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business. In addition, we are responsible for the payment of patent fees for patent rights that we have licensed from other parties. If any licensor of these patents does not itself elect to make these payments, and we fail to do so, we may be liable to the licensor for any costs and consequences of any resulting loss of patent rights.

The trading price of our common stock could be subject to significant fluctuations. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the trading price of our common stock to fluctuate include:

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock.

In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation.

We do not anticipate that we will pay any cash dividends in the foreseeable future.

On May 14, 2014, we announced that our board of directors had approved a special cash dividend of $15.96 per share. Cash was distributed for this dividend to our stockholders of record at the close of business on May 26, 2014. On October 14, 2014, we announced that our board of directors had approved a special dividend of $8.01 per share and the right to receive, on a pro rata basis, 100% of any royalty income received by us prior to the second anniversary of the closing date of the Merger pursuant to the Purdue Collaboration Agreement. Cash was distributed for this dividend to our stockholders of record at the close of business on October 24, 2014.

Other than future special dividends of any royalty income we may receive pursuant to the Purdue Collaboration Agreement, we expect that we will retain our future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain, if any, for the foreseeable future.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our management.

Provisions in our certificate of incorporation and bylaws may delay or prevent an acquisition or a change in management. These provisions include a classified board of directors, a prohibition on actions by written consent of our stockholders and the ability of the board of directors to issue preferred stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the DGCL, which prohibits stockholders owning in excess of 15% of our voting stock from merging or combining with us. Although we believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of management.

Future sales of shares by existing stockholders could cause the trading price of our common to decline.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of the our common stock could decline. As of September 30, 2015, approximately 3.5 million shares of common stock are held by our directors, executive officers and other affiliates and are subject to volume limitations under Rule 144 under the Securities Act, and various vesting agreements. In addition, approximately 2.1 million shares of common stock that are subject to outstanding options as of September 30, 2015 will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements and Rules 144 and 701 under the Securities Act. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Because our recent merger resulted in an ownership change under Section 382 of the Internal Revenue Code for Transcept, Transcept’s pre-merger net operating loss carryforwards and certain other tax attributes are subject to limitations. The net operating loss carryforwards and other tax attributes of the former Paratek entity and us may also be subject to limitations as a result of ownership changes.

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”), the corporation’s net operating loss carryforwards and certain other tax attributes arising from before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Merger resulted in an ownership change for Transcept and, accordingly, Transcept’s net operating loss carryforwards and certain other tax attributes are subject to limitations on their use after

the Merger. Old Paratek’s net operating loss carryforwards may also be subject to limitation as a result of prior shifts in equity ownership and/or the Merger. Additional ownership changes in the future could result in additional limitations on Transcept’s, Old Paratek’s and our net operating loss carryforwards, even if the Tax Benefit Preservation Plan adopted by the Transcept board of directors in September 2013 remains in place. Consequently, even if we achieve profitability, we may not be able to utilize a material portion of Transcept’s, Old Paratek’s or our net operating loss carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of former employers.

Certain of our former employees were previously employed at universities or other biotechnology or pharmaceutical companies, including competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we ourselves inadvertently or otherwise used or disclosed trade secrets or other proprietary information. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper or prevent us or a collaboration partner’s ability to develop or commercialize certain potential products, which could severely harm the business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

If we fail to continue to meet all applicable NASDAQ Global Market requirements and NASDAQ determines to delist our common stock, the delisting could adversely affect the market liquidity of our common stock and the market price of our common stock could decrease.

Our common stock is listed on The NASDAQ Global Market. In order to maintain our listing, we must meet minimum financial, operating and other requirements, including requirements for a minimum amount of capital, a minimum price per share and active operations. If we are unable to comply with NASDAQ’s listing standards, NASDAQ may delist our common stock. If our common stock is delisted for any reason, it could reduce the value of our common stock and our liquidity. Delisting could also adversely affect our ability to obtain financing for the continuation of our operations or to use our common stock in acquisitions.

If securities or industry analysts do not publish research or reports or publish inaccurate or unfavorable research about us, the trading price and trading volume of our common stock could decline.

The trading market for our common stock is influenced by the research and reports that securities or industry analysts publish about us, our business and our common stock. As of September 30, 2015, we had research coverage by six securities analysts. If the analysts who cover us downgrades our common stock or publishes inaccurate or unfavorable research regarding us or our business model, technology or stock performance, the trading price of our common stock would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the trading price or trading volume of our common stock to decline. Moreover, the unpredictability of our financial results likely reduces the certainty, and therefore reliability, of the forecasts by securities or industry analysts of our future financial results, adding to the potential volatility of the trading price of our common stock.

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on the trading price of our common stock.

Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC require an annual management assessment of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm attesting to the effectiveness of our internal control over financial reporting at the end of the fiscal year. We will conduct our first annual management assessment of the effectiveness of our internal control over financial reporting as of December 31, 2015, and our independent registered public accounting firm will attest to the effectiveness of our internal control over financial reporting as of that date. If we fail to maintain the adequacy of our internal control over financial reporting as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC. If we cannot in the future favorably assess, or, if required, our independent registered public accounting firm is unable to provide an unqualified attestation report on, the effectiveness of our internal control over financial reporting, investor confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on the trading price of our common stock.

Reference is made to the Exhibit Index attached to this Report, which is incorporated by reference here.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 12^th day of November, 2015.

		Incorporated by Reference
Exhibit No.	Exhibit Description	Schedule/ Form	File Number	Exhibit		Filing Date

3.1	Amended and Restated Certificate of Incorporation.	Form 8-K	001-36066		3.1	October 31, 2014

3.2	Certificate of Amendment of Restated Certificate of Incorporation.	Form 8-K	001-36066		3.2	October 31, 2014

3.3	Amended and Restated Bylaws.	Form 8-K	001-36066		3.1	April 16, 2015

3.4	Certificate of Designation of Series A Junior Participating Preferred Stock.	Form 8-K	001-51967		3.1	September 13, 2013

3.5	Certificate of Elimination of Series A Junior Participating Preferred Stock.	Form 8-K	001-36066		4.1	July 24, 2015


4.1	Form of Warrant issued to Hercules Technology II, L.P. and Hercules Technology III, L.P.	Form 8-K	001-36066		4.1	October 5, 2015

10.1	2015 Equity Incentive Plan.	Form S-8	333-205482		99.5	July 2, 2015

10.2	Form of Stock Option Grant Notice under the 2015 Equity Incentive Plan.	Form S-8	333-205482		99.6	July 2, 2015

10.3	Form of Restricted Stock Unit Grant Notice under the 2015 Equity Incentive Plan	Form S-8	333-205482		99.7	July 2, 2015

10.4	Stock Purchase Agreement dated October 1, 2015, by and between Paratek Pharmaceuticals, Inc. and Hercules Technology Growth Capital, Inc.	Form 8-K	001-36066		10.1	October 5, 2015

10.5	Loan and Security Agreement, dated September 30, 2015, between the Company and Hercules Technology II, L.P., Hercules Technology III, L.P., certain other lenders and Hercules Technology Growth Capital, Inc.

31.1*	Certification of the Company’s Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*	Certification of the Company’s Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*#	Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*#	Certification of the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*	XBRL Instance Document.

101.SCH*	XBRL Taxonomy Extension Schema Document.

101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.

Large accelerated filer	o	Accelerated filer	o

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

		Page
PART I FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	2

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014	3

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014	4

	Notes to Unaudited Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	30


Item 6.	Exhibits	56

	SIGNATURES	57

	Three Months Ended September 30, 2014			Nine Months Ended September 30, 2014
Pro forma combined revenues	$	182		$	1,304
Pro forma combined net loss attributable to common stockholders	$	(12,180	)	$	(22,730	)
Pro forma basic and diluted net loss per share	$	(79.01	)	$	(205.74	)

	September 30, 2015			December 31, 2014
Intermezzo product rights	$	1,410		$	4,550
TO-2070 product rights		440			440
Gross intangible assets		1,850			4,990
Less: Accumulated amortization		(288	)		(176	)
Net intangible assets	$	1,562		$	4,814

	As of September 30,
	2015		2014
Excluded potentially dilutive securities⁽¹⁾:
Shares subject to options to purchase common stock		2,103,390		812,903
Unvested restricted stock		262,000		—
Shares subject to warrants to purchase common stock		47,423		—
Convertible preferred stock		—		236,250
Shares subject to warrants to purchase preferred stock		—		11,858
Totals		2,412,813		1,061,011

	September 30, 2015
Volatility		62.4	%
Weighted average risk-free interest rate		1.4	%
Expected dividend yield		0.0	%
Expected term	5 years

	September 30, 2015		December 31, 2014
Accounts payable	$	4	$	489
Accrued legal costs		1,231		876
Intermezzo payable		1,175		399
Accrued compensation		1,108		544
Accrued contract manufacturing		2,263		70
Accrued professional fees		795		322
Accrued other		161		215
Total	$	6,737	$	2,915

Description	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value at September 30, 2015
Liabilities
Contingent obligations	$	—	$	—	$	1,580	$	1,580
	$	—	$	—	$	1,580	$	1,580

	Contingent liability— former Transcept stockholders
Balances at December 31, 2014	$	4,560
Change in fair value		(2,980	)
Balances at September 30, 2015	$	1,580

	Nine months ended September 30, 2015
	2015		2014
Volatility	55.9-62.4%			72.0	%
Weighted average risk-free interest rate	1.3-1.9%			1.9	%
Expected dividend yield		—		—
Expected life of options (in years)	5.3-6.3			5.8

	Number of Shares		Weighted Average Grant Date Fair Value

Unvested balance at December 31, 2014		-	$	-
Granted		262,000		24.63
Unvested balance at September 30, 2015		262,000	$	24.63


2015	$	-
2016		-
2017		-
2018		5,540
2019 and thereafter		14,460
Total	$	20,000


Fiscal Year
Remainder of 2015	$	140,000
2016		565,000
2017		576,000
2018		587,000
2019		446,000
2020		152,000
2021 and thereafter		128,000
Total	$	2,594,000

Paratek Pharmaceuticals, Inc.

By:		/s/ Michael F. Bigham
		Michael F. Bigham
		Chairman and Chief Executive Officer
By:		/s/ Douglas W. Pagán
		Douglas W. Pagán
		Chief Financial Officer

101.LAB*		XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.