As filed with the Securities and Exchange Commission on October 12, 2012

Registration No. 333-184142

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

AMENDMENT NO. 1

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

PARATEK PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

2834

04-3332190

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(IRS Employer

Identification No.)

75 Kneeland Street

Boston, MA 02111

(617) 275-0040

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

Dennis P. Molnar

President and Chief Executive Officer

Paratek Pharmaceuticals, Inc.

75 Kneeland Street

Boston, MA 02111

(617) 275-0040

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With copies to:

Lewis J. Geffen, Esq.

Megan N. Gates, Esq.

Mintz, Levin, Cohn, Ferris,

Glovsky and Popeo, P.C.

One Financial Center

Boston, MA 02111

(617) 542-6000

Beverly A. Armstrong, Esq.

Vice President, Chief

Compliance Officer,

General Counsel and Secretary

Paratek Pharmaceuticals, Inc.

(617) 275-0040

Patrick O’Brien, Esq.

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

(617) 951-7000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. ¨

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.


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

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion Dated October 12, 2012

Preliminary Prospectus

Shares

LOGO

Common Stock

This is the initial public offering of shares of the common stock of Paratek Pharmaceuticals, Inc. We are offering shares of our common stock. Prior to this offering, there has been no public market for our common stock. We anticipate the initial public offering price will be between $ and $ per share. We have applied to list our common stock on the NASDAQ Global Market under the symbol “PRTK.”

Investing in our common stock involves a high degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common stock in “Risk Factors” beginning on page 10 of this prospectus.

As an “emerging growth company,” we are eligible for reduced public company reporting requirements. See “Summary—Implications of Being an Emerging Growth Company.”

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.


	Per Share	Total
Public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds, before expenses, to us	$	$

Certain of our existing stockholders, including our officers, directors and certain affiliates of our directors, have indicated an interest in purchasing an aggregate of approximately $ million of shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these stockholders, or any of these stockholders may determine to purchase more, less or no shares in this offering.

The underwriters may also purchase up to an additional shares of our common stock at the public offering price, less the underwriting discounts and commissions payable by us, to cover over-allotments, if any, within 30 days from the date of this prospectus. If the underwriters exercise this option in full, the total underwriting discounts and commissions will be $ and our total proceeds, after underwriting discounts and commissions but before expenses, will be $ .

The underwriters expect to deliver the shares on , 2012.


UBS Investment Bank				Leerink Swann
Lazard Capital Markets

The date of this prospectus is , 2012

You should rely only on the information contained in this prospectus or in any free writing prospectus prepared by or on behalf of us. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus or in any free writing prospectus is accurate only as of its date, regardless of its time of delivery or of any sale of shares of our common stock.

Table of Contents


	Page
Prospectus Summary		1
Risk Factors		10
Cautionary Note Regarding Forward-Looking Statements		42
Use of Proceeds		43
Dividend Policy		44
Capitalization		45
Dilution		47
Selected Financial Data		49
Management’s Discussion and Analysis of Financial Condition and Results of Operations		51
Business		75
Management		112
Executive and Director Compensation		119
Certain Relationships and Related Person Transactions		128
Principal Stockholders		133
Description of Capital Stock		135
Shares Eligible for Future Sale		139
Material U.S. Federal Tax Considerations for Non-U.S. Holders		142
Underwriting		146
Legal Matters		152
Experts		152
Where You Can Find Additional Information		152
Index to Financial Statements		F-1

Until , 2012 (25 days after the date of this prospectus), all dealers that buy, sell, or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Industry and Market Data

This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys, and studies conducted by third parties, some of which may not be publicly available.

Trademarks, Trade Names and Service Marks

“PARATEK,” “PARATEK PHARMACEUTICALS & DESIGN,” “PARACYCLINE,” “THE ANTIBIOTIC RESISTANCE COMPANY,” the Paratek logo and other trademarks, service marks, and trade names of Paratek appearing in this prospectus are the property of Paratek Pharmaceuticals, Inc. This prospectus contains additional trade names, trademarks and service marks of other companies, which, to our knowledge, are the property of their respective owners. Solely for convenience, the trademarks, service marks, and trade names referred to in this prospectus are without the ^® and ™ symbols, but these references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, service marks, and trade names.

Prospectus Summary

This summary provides an overview of selected information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our common stock. You should carefully read this prospectus and the registration statement of which this prospectus is a part in their entirety before investing in our common stock, including the information discussed under “Risk Factors” and our financial statements and notes thereto that appear elsewhere in this prospectus. Unless otherwise indicated herein, the terms “we,” “our,” “us,” or “the Company” refer to Paratek Pharmaceuticals, Inc.

Company Overview

We are a pharmaceutical company focused on the discovery, development, and commercialization of innovative medicines that are designed to save lives and alleviate suffering. Our lead product candidate, omadacycline, is a new tetracycline-derived, broad-spectrum antibiotic being developed for use as a first-line monotherapy for serious community-acquired bacterial infections where antibiotic resistance is of concern for treating physicians. We believe omadacycline will be used in the emergency room, hospital, and community settings. We have designed omadacycline to provide significant advantages over existing antibiotics, including activity against resistant bacteria, broad spectrum of coverage, intravenous, or IV, and oral formulations with once-daily dosing, and a favorable safety and tolerability profile. We believe that it will become the primary antibiotic choice of physicians for use as a first-line monotherapy for acute bacterial skin and skin structure infections, or ABSSSI, community-acquired bacterial pneumonia, or CABP, urinary tract infections, or UTI, and other serious community-acquired bacterial infections.

We have successfully completed clinical studies necessary to advance omadacycline into Phase 3 development. We have reached agreement with the U.S. Food and Drug Administration, or FDA, for two separate Special Protocol Assessment, or SPA, agreements, with regard to Phase 3 registration trial designs for omadacycline. The SPA agreement that we received in February 2011 covers our two planned Phase 3 ABSSSI trials and the SPA agreement we received in March 2012 covers a Phase 3 trial in CABP. Our two prior randomized clinical trials of omadacycline to date have compared omadacycline to linezolid, marketed by Pfizer Inc. as Zyvox, which, based on 2011 worldwide sales of $1.3 billion, is a leading antibiotic used for the treatment of serious bacterial skin infections. Our Phase 2 trial results, as well as results from a Phase 3 non-registration trial, demonstrate that omadacycline’s clinical response rates and adverse events were comparable to linezolid in serious bacterial skin infections. We plan to commence a pivotal registration program including two Phase 3 registration trials of omadacycline for the treatment of ABSSSI in the first quarter of 2013.

Combined Data from Phase 2 and Phase 3 Non-Registration Trials


	Omadacycline													Linezolid
Population⁽¹⁾	Clinical Success⁽²⁾ (N)		Total (N)		Clinical Success (%)			Adverse Events (N)			Adverse Events (%)			Clinical Success⁽²⁾ (N)		Total (N)		Clinical Success (%)			Adverse Events (N)			Adverse Events (%)
Intent-to-Treat		156		179		87.2	%		102			57	%		146		180		81.1	%		113			63	%
Clinically Evaluable		156		160		97.5	%		—	⁽³⁾		—			146		155		94.2	%		—	⁽³⁾		—

Note: The table above shows combined data from our Phase 2 and Phase 3 non-registration trials, neither of which had a sufficient number of patients enrolled to determine statistical non-inferiority.

(1)

An Intent-to-Treat, or ITT, population refers to all enrolled subjects, as defined in the protocol, who received at least one dose of study drug. A Clinically Evaluable, or CE, population refers to all ITT subjects who had a qualifying infection, as defined in the protocol, received the study drug for more than five days, had all protocol-defined clinical evaluations, and had not received non-study antibiotics.

(2)

Clinical Success refers to the continued improvement or complete resolution of baseline signs and symptoms in the ITT or CE populations, assessed by the clinical investigator 10 to 17 days after the last dose of the study drug. This assessment is known as the test of cure.

(3)

Adverse events are evaluated for all patients who received more than one dose of study drug, and as such, are based on the ITT population.

We believe the timeline to develop omadacycline, and the risk associated with its development, regulatory approval, and commercialization in ABSSSI and CABP, have been minimized as a result of: our plan to simultaneously conduct two Phase 3 registration trials in ABSSSI; our comprehensive set of preclinical and clinical studies; and our SPA agreements with the FDA. Based on our current expectations, we anticipate completing our two ABSSSI trials in mid-2014 and submitting a new drug application, or NDA, for the treatment of ABSSSI in late 2014. Furthermore, based on published guidance and our discussions with European regulatory authorities, we believe our currently designed ABSSSI trials will also support the filing for marketing authorization in Europe.

The Antibiotics Market and Limitations of Current Therapies

According to The World Market for Anti-Infectives report from Kalorama Information, in 2011, approximately $23 billion was spent on antibiotic drugs worldwide, of which almost $9 billion was spent in the United States. The World Health Organization has identified the development of worldwide resistance to currently available antibacterial agents as being one of the three greatest threats to human health in this decade. Historically, the majority of life-threatening infections resulting from antibiotic resistant bacteria were acquired in the hospital setting. The emergence of multi-drug resistant pathogens in the community setting further emphasizes the need for novel agents capable of overcoming resistance.

Currently available antibiotics to treat ABSSSI, CABP, UTI, and other serious community-acquired bacterial infections have significant limitations for use as a first-line empiric monotherapy, which refers to the use of a single antibacterial agent, to begin treatment of an infection before the specific pathogen causing the infection has been identified. These limitations lead to longer hospital stays, greater healthcare costs, and increased morbidity and mortality due to lower cure rates and increased side effects. These limitations include the following:

lack of both IV and oral formulations of the same drug, which generally requires physicians to either continue IV therapy in a hospital setting or switch the patient to a different oral antibiotic, which carries risks related to side effects and treatment failure;

narrow-spectrum antibacterial activity, which forces physicians to prescribe two or more antibiotics to empirically treat a broad spectrum of potential pathogens;

treatment-limiting adverse events, including in some instances, kidney damage, allergic reactions, or sudden cardiovascular death due to cardiac arrhythmia; and/or

lack of effectiveness due to growing bacterial resistance in pathogens such as methicillin-resistant Staphylococcus aureus, or MRSA, multi-drug resistant Streptococcus pneumoniae, or MDR-SP, and extended spectrum beta-lactamase-, or ESBL-producing Enterobacteriaceae.

Despite the availability of several other drugs for treating patients with ABSSSI and CABP, researchers at the Centers for Disease Control and Prevention estimated that in 2005, approximately 94,300 patients had an invasive MRSA infection in the United States. These researchers further estimated that in 2005, there were more than 18,000 in-hospital patient deaths as a result of invasive MRSA infections in the United States, which represents more deaths each year in the United States than those caused by HIV/AIDS, Parkinson’s Disease, emphysema, or homicide, according to the Infectious Diseases Society of America.

Omadacycline

treating physicians. We believe omadacycline will enable reliable cure rates and shorter hospital stays, reducing overall healthcare costs and allowing for completion of therapy with an oral antibiotic at home, and that it will be the primary antibiotic choice of physicians for the treatment of community-acquired bacterial infections due to its:

availability in both once-daily IV and oral formulations, which enables reliable step-down therapy so that the patient can be discharged from the hospital more quickly to recover at home using an oral formulation of the same antibiotic, thereby reducing overall healthcare costs and the potential for side effects and treatment failure;

broad-spectrum activity against bacteria, which we believe will allow physicians to rely on omadacycline to be effective against nearly every type of community-acquired bacterial infection;

favorable safety and tolerability profile, based on our clinical studies in more than 700 patients and subjects to date; and

ability to overcome bacterial resistance, as our studies have demonstrated that omadacycline is active against common bacterial pathogens resistant to currently used antibiotics.

Our randomized Phase 2 and Phase 3 non-registration clinical trials evaluated both IV and oral forms of omadacycline compared to IV and oral forms of linezolid in a total of 359 patients. After we initiated our Phase 3 trial in complicated skin and skin structure infections, or cSSSI, in March 2010, the FDA notified us that its guidance for the conduct of studies for this indication would be modified. This modification included changes in eligibility criteria, revising the disease indication from cSSSI to ABSSSI and changes in the primary efficacy endpoint for trials in this indication. With these major modifications, our initial Phase 3 trial design did not align with the FDA’s then-evolving guidance for trials aimed at supporting the approval of an antibiotic for the treatment of ABSSSI. As a result, the Phase 3 trial was terminated after having enrolled 140 of the planned 790 subjects.

We have exclusive, worldwide rights to develop and commercialize omadacycline and continue to explore commercial licensing partnerships globally. Our patent estate covers omadacycline’s composition of matter, method of production, multiple method of use indications, and formulations. The earliest of these patents is scheduled to expire in 2023 in the United States and 2021 in areas outside the United States, and we may be eligible for patent term extension with respect to omadacycline, if it receives regulatory approval. If omadacycline is approved by the European Medicines Agency, or EMA, we expect that omadacycline will qualify for eight years of data exclusivity and an additional two years of marketing exclusivity in the European Union.

Additional Product Candidates

Our second most advanced product candidate, PTK-AR01, is a novel tetracycline-derived compound designed for use in the treatment of acne and rosacea. PTK-AR01 has demonstrated favorable anti-inflammatory activity, narrow-spectrum antibacterial activity relative to other tetracycline-derived molecules, oral bioavailability, and favorable pharmacokinetic, or PK, properties which we believe make it particularly well-suited for the treatment of acne and rosacea in the community setting. We have licensed rights to PTK-AR01 for the treatment of acne and rosacea in the United States to a subsidiary of Warner Chilcott plc, or Warner Chilcott, while retaining rights in the rest of the world. Warner Chilcott is responsible for the clinical development of PTK-AR01 for the treatment of acne in the United States and initiated a Phase 2 clinical trial of this product candidate for this indication in June 2012. Warner Chilcott may elect to advance the development of PTK-AR01 for the treatment of rosacea.

date, the potential for these small molecule therapies to treat debilitating neurological and inflammatory diseases such as multiple sclerosis, spinal muscular atrophy, rheumatoid arthritis, and inflammatory bowel disease, is promising. In addition, we have an early-stage program focused on the treatment of Clostridium difficile associated diarrhea, as well as a program focused on important animal health diseases.

Our Strengths

We believe that we have the ability to design, develop, and commercialize innovative therapies that address critical unmet medical needs in a cost effective manner due to our:

lead product candidate, omadacycline, which is in a late stage of clinical development and is supported by a comprehensive preclinical and clinical data set;

focus on tetracycline-derived small molecules, providing a strong foundation for designing novel product candidates;

expertise in chemistry and biology, enabling us to design novel product candidates with desired properties;

strong intellectual property portfolio, providing us with what we believe to be a significant competitive advantage;

early use of animal models, which is designed to increase predictability and reduce research and development costs;

focus on small molecules, allowing us to manufacture our product candidates at a favorable cost; and

experienced management team that has a strong track record in the development and commercialization of new medicines.

Our Strategy

We aim to be a leading company in the discovery, development, and commercialization of innovative medicines that address serious unmet medical needs. Our strategy is to:

complete the Phase 3 clinical development of omadacycline for ABSSSI and CABP and file for marketing approvals in the United States and Europe;

expand the development of omadacycline to address other antibacterial indications where bacterial resistance to current antibiotics is an important unmet clinical need, including UTI;

advance the clinical development of our other product candidates, either alone or with strategic partners;

develop new product candidates to meet key unmet needs in debilitating diseases; and

retain commercialization rights to our product candidates in certain key markets while identifying partners to expand our global reach.

Risk Factors

We are a clinical-stage biopharmaceutical company, and our business and ability to execute our business strategy are subject to a number of risks of which you should be aware before you decide to buy our common stock. In particular, you should consider the following risks, which are discussed more fully in the section entitled “Risk Factors”:

we have incurred significant losses since inception, have no products approved for commercial sale, and have not generated any revenue from product sales;

we will require additional funding beyond this contemplated offering to complete the development and 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;

omadacycline and/or our other product candidates may not receive regulatory approval in a timely manner, or at all;

we may be subject to delays in our clinical trials, which could result in increased costs and delays or limit our ability to obtain regulatory approval for our product candidates;

the results of earlier studies and clinical trials of our product candidates may not be replicated in future clinical trial results, which could delay or limit their future development;

we have never commercialized any of our product candidates and our products, even if approved, may not be accepted by healthcare providers or reimbursed by healthcare payors;

the failure of our collaborators to perform their obligations under our collaboration agreements may delay or otherwise harm the development and commercialization of our product candidates;

we may be unable to maintain and protect our intellectual property assets, which could impair the advancement of our product candidates; and

we have an accumulated deficit of $142.4 million as of June 30, 2012, and expect to incur losses for the foreseeable future, which, among other things, raises substantial doubt about our ability to continue as a going concern.

Corporate Information

We were incorporated in Delaware on July 3, 1996. Our principal executive offices are located at 75 Kneeland Street, Boston, Massachusetts 02111, and our telephone number is (617) 275-0040. Our website address is www.paratekpharm.com. The information contained on, or that can be accessed through, our website is not part of this prospectus.

Implications of Being an Emerging Growth Company

As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

only two years of audited financial statements, in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

reduced disclosure about our executive compensation arrangements;

no non-binding advisory votes on executive compensation or golden parachute arrangements; and

exemption from the auditor attestation requirement in the assessment of our internal controls over financial reporting.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates, or we issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of certain reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

The Offering

Common stock offered by us

Common stock to be outstanding after this offering

Use of proceeds

We estimate that the net proceeds from this offering will be approximately $ million, or $ million if the underwriters exercise their over-allotment in full, assuming an initial public offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting estimated offering expenses and estimated underwriting discounts and commissions. We intend to use the net proceeds from this offering to initiate and fund our Phase 3 registration trials for omadacycline in ABSSSI and for other general corporate purposes. See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.

Over-allotment option

The underwriters have an option for a period of 30 days to purchase up to additional shares of our common stock to cover over-allotments.

Risk factors

You should read the “Risk Factors” section of this prospectus beginning on page 10 for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

Proposed NASDAQ Global Market symbol

PRTK

The number of shares of our common stock to be outstanding after this offering is based on 16,576,912 shares of common stock outstanding as of June 30, 2012, and assumes the conversion of all of our preferred stock outstanding as of June 30, 2012 into 20,572,536 shares of common stock upon the completion of this offering. It does not include:

1,412,938 shares of common stock issuable upon the exercise of stock options outstanding under our 1996 Employee, Director, and Consultant Stock Plan, or the 1996 Stock Plan, and our 2005 Employee, Director, and Consultant Stock Plan, or the 2005 Stock Plan, as of June 30, 2012, at a weighted average exercise price of $1.49 per share;

195,327 shares of common stock issuable upon the exercise of preferred stock warrants outstanding as of June 30, 2012, at an exercise price of $4.10 per share, which will convert into common stock warrants upon the completion of this offering;

2,484,651 shares of common stock reserved for future awards under our 2005 Stock Plan;

shares of common stock reserved for future awards under our 2012 Employee, Director, and Consultant Stock Plan, or the 2012 Stock Plan; and

shares of common stock that will be available for future issuance under our 2012 Employee Stock Purchase Plan.

Unless otherwise indicated, all information contained in this prospectus:

assumes no exercise of the outstanding options or warrants described above;

assumes the underwriters do not exercise their over-allotment option to purchase up to additional shares;

reflects a -for- reverse split of our common stock to be effected prior to the completion of this offering;

reflects 6,666,481 shares of common stock, which we refer to as the upfront bridge shares, issued to certain holders of bridge notes upon the issuance of $5.0 million in principal amount of bridge notes issued in October 2012;

reflects the issuance of 13,333,483 shares of common stock, which we refer to as the deferred bridge shares, to certain holders of bridge notes upon the completion of this offering;

gives effect to the automatic conversion of all of our outstanding shares of preferred stock into 20,572,536 shares of common stock upon completion of this offering; and

gives effect to the adoption of our restated certificate of incorporation and restated bylaws upon the completion of this offering.

In February and March 2012, we entered into a note purchase agreement and issued promissory notes, which we refer to as the March bridge notes, to certain of our existing stockholders in the original aggregate principal amount of $5.8 million. In October 2012, we entered into a note and stock purchase agreement and issued $5.0 million aggregate principal amount of additional promissory notes, which we refer to as the October bridge notes, to certain of our existing stockholders. Additionally, we and the holders of the March bridge notes agreed to exchange all of the March bridge notes for notes with substantially similar terms as the October bridge notes, except that the holders of the March bridge notes are not entitled to receive upfront or deferred bridge shares. Upon completion of this offering, both the March bridge notes and the October bridge notes will be exchanged for notes with revised repurchase and conversion terms, which we refer to as the post-IPO notes. For details related to the March bridge notes, the October bridge notes, and the post-IPO notes, see “Certain Relationships and Related Person Transactions—2012 Promissory Notes and Post-IPO Promissory Notes.”

Summary Financial Data

You should read this summary financial data together with our financial statements and the related notes thereto included elsewhere in this prospectus and the information under “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We derived the statement of operations data for the years ended December 31, 2010 and 2011 from our audited financial statements included elsewhere in this prospectus. We derived the statement of operations data for the six months ended June 30, 2011 and 2012, and the balance sheet data as of June 30, 2012 from our unaudited financial statements, included elsewhere in this prospectus. Our interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, on the same basis as the annual audited financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of our financial position and results of our operations for these periods. The historical results for any period are not necessarily indicative of results to be expected for any future period, and our results for any interim period are not necessarily indicative of results to be expected for a full fiscal year.


	Years Ended December 31,						Six Months Ended June 30,
(in thousands, except per share amounts)	2010			2011			2011			2012

							(unaudited)
Statement of Operations Data:
Revenue:
Research and development revenue	$	24,688		$	52,253		$	9,839		$	2,573
Grant revenue		1,083			1,040			315			248

Total revenue		25,771			53,293			10,154			2,821

Operating expenses:
Research and development		20,801			16,696			9,094			8,282
General and administrative		4,289			3,327			1,691			2,539

Total operating expenses		25,090			20,023			10,785			10,821

Operating income (loss)		681			33,270			(631	)		(8,000	)
Other income (expense):
Interest income		20			5			4			1
Interest expense		—			—			—			(1,365	)
Other income		831			682			667			11
Other expense		(8	)		—			—			(853	)

Total other income (expense)		843			687			671			(2,206	)

Net income (loss)		1,524			33,957			40			(10,206	)
Unaccreted convertible preferred stock dividends		(10,449	)		(10,449	)		(5,181	)		(3,365	)

Net (loss) income attributable to common stockholders	$	(8,925	)	$	23,508		$	(5,141	)	$	(13,571	)

Net (loss) income per share, basic	$	(0.92	)	$	2.37		$	(0.52	)	$	(1.00	)

Net (loss) income per share, diluted	$	(0.92	)	$	0.91		$	(0.52	)	$	(1.00	)

Weighted average shares outstanding, basic		9,725			9,935			9,892			13,619

Weighted average shares outstanding, diluted		9,725			37,423			9,892			13,619

Pro forma information⁽¹⁾
Pro forma net income (loss) per share, basic (unaudited)				$						$

Pro forma net income (loss) per share, diluted (unaudited)				$						$

Weighted average shares used in computing pro forma net income (loss) per share, basic (unaudited)

Weighted average shares used in computing pro forma net income (loss) per share, diluted (unaudited)

(1)

Pro forma net loss and pro forma net loss per share, basic and diluted, have been calculated assuming (i) the conversion of all outstanding shares of our preferred stock into an aggregate of 20,572,536 shares of our common stock; (ii) the reclassification of certain warrants to purchase preferred stock into warrants to purchase common stock upon the completion of this offering; (iii) the issuance of 6,666,481 upfront bridge shares in connection with the issuance of October bridge notes; and (iv) the issuance of 13,333,483 deferred bridge shares upon completion of this offering. For details related to the upfront bridge shares and deferred bridge shares, see “Certain Relationships and Related Person Transactions—2012 Promissory Notes and Post-IPO Promissory Notes.”

The pro forma balance sheet data set forth below gives effect to (i) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 20,572,536 shares of common stock upon completion of this offering; (ii) the reclassification of certain warrants to purchase preferred stock into warrants to purchase common stock upon the completion of this offering; (iii) the issuance of $5.0 million in principal amount of October bridge notes and the simultaneous issuance of 6,666,481 upfront bridge shares in connection with such October bridge notes; and (iv) the issuance of 13,333,483 deferred bridge shares upon completion of this offering.

The pro forma as adjusted balance sheet data set forth below gives further effect to our issuance and sale of shares of common stock in this offering at the assumed initial public offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.


	As of June 30, 2012
(in thousands)	Actual			Pro forma	Pro forma as adjusted

	(unaudited)
Balance Sheet Data:
Cash and cash equivalents	$	3,316		$
Total assets		5,120
Current liabilities		17,369
Long-term obligations, net of current liabilities		1,045
Convertible preferred stock		80,565
Accumulated deficit		(142,391	)
Total stockholders’ deficit	$	(93,859	)	$

Risk Factors

An investment in our common stock involves a high degree of risk. You should carefully read and consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including the financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock. If any of these risks actually occur, our business, future prospects, financial condition, results of operations, or cash flows could be materially harmed. In any such case, the trading price of our common stock could decline, and you could lose all or part of your investment.

Risks Relating to our Financial Position and Need for Additional Capital

We have incurred significant losses since inception and anticipate that we will continue to 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.

We are a clinical-stage biopharmaceutical company that has been in operation since 1996. We have incurred significant losses since that time. 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. As of June 30, 2012, our accumulated deficit was $142.4 million. We have incurred net losses in every year since inception except for the years ended December 31, 2010 and 2011, in which we had net income of $1.5 million and $34.0 million, respectively, due to collaboration, license, and milestone payments. We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates, prepare for and begin to commercialize any approved products, and add infrastructure and personnel to support our product development efforts and operations as a public company. The net losses and negative cash flows incurred to date, together with expected future losses, have had, and likely will continue to have, an adverse effect on our stockholders’ deficit 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 achieve profitability. For example, our expenses could increase if we are required by the United States Food and Drug Administration, or FDA, 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 preliminary stages, including developing product candidates, obtaining regulatory approval for them, and manufacturing, marketing and selling those products for which we may obtain regulatory approval. 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 our market value and could impair our ability to raise capital, expand our business, develop other product candidates, or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

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 plan to 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 continue to require additional funding beyond this contemplated offering to complete the development and 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 the net proceeds from this offering, together with our existing cash and cash equivalents, the proceeds from our October bridge note financing, anticipated grant funding and anticipated milestone payments, plus development and manufacturing funding under our collaboration agreements, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 18 months. 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:

the progress of clinical development of omadacycline;

the number and characteristics of other product candidates that we pursue;

the scope, progress, timing, cost and results of research, preclinical development, and clinical trials;

the costs, timing and outcome of seeking and obtaining FDA and non-U.S. regulatory approvals;

the costs associated with manufacturing and establishing sales, marketing, and distribution capabilities;

our ability to maintain, expand, and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectual property rights;

our need and ability to hire additional management, scientific, and medical personnel;

the effect of competing products that may limit market penetration of our product candidates;

our need to implement additional internal systems and infrastructure, including financial and reporting systems; and

the economic and other terms, timing of and success of our existing licensing arrangements, and any collaboration, licensing, or other arrangements into which we may enter in the future, including the timing of receipt of any milestone or royalty payments under these agreements.

As of June 30, 2012, we had cash and cash equivalents totaling $3.3 million, working capital deficit totaling $13.1 million and a stockholders’ deficit of $93.9 million. We had a net loss of $10.2 million for the six months ended June 30, 2012. As of June 30, 2012, we owed $5.8 million under our promissory notes that we issued in February and March 2012, which we refer to as the March bridge notes. In October 2012, we issued additional promissory notes in an aggregate principal amount of $5.0 million and at this time, we and the holders of the March bridge notes agreed to exchange all of the March bridge notes for notes with substantially similar terms as the October bridge notes, except that the holders of the March bridge notes are not entitled to receive upfront or deferred bridge shares. We collectively refer to the March bridge notes and October bridge notes as the 2012 bridge notes. Upon the completion of this offering, all of the 2012 bridge notes will be exchanged for promissory notes with revised repurchase and conversion terms, which we refer to as the post-IPO notes. We will be required to repurchase all post-IPO notes in an amount equal to the outstanding principal amount of such notes, plus 150% of the outstanding principal amount of each note, together with simple interest at a rate of 10.0% per year upon (i) certain corporate reorganization events or (ii) approval of any of our product candidates, including omadacycline, for any indication by the FDA, the EMA or the equivalent regulatory agencies in at least two European countries. Additionally, we may choose to repurchase the post-IPO notes in an amount equal to the outstanding principal amount of such notes, plus 150% of the outstanding principal amount of each note, together with simple interest at a rate of 10.0% per year prior to the events described in (i) or (ii) above if, after one or more specified liquidity events, such repurchase is permitted under any existing loan documents and our board of directors determines in good faith that (A) none of the proceeds of this offering will be used to effect such

repurchase and (B) we have sufficient cash to fund our general operating needs through the completion of the two planned Phase 3 registration studies for ABSSSI and an additional 12 months thereafter. For details related to the 2012 bridge notes and the post-IPO notes, see “Certain Relationships and Related Person Transactions—2012 Promissory Notes and Post-IPO Promissory Notes.”

Until we can 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. If sufficient funds on acceptable terms are not available when needed, or at all, we could be forced to significantly reduce operating expenses and delay, scaleback or eliminate one or more of our development programs or our business operations.

Raising additional capital may cause dilution to our stockholders, including purchasers of common stock in this offering, 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, your ownership interest will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect your 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 delay, scaleback or eliminate one or more of our development programs or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

If we fail to comply with the covenants in the purchase agreements under which our 2012 bridge notes were issued, or if an event of default otherwise occurs under those agreements, we may be required to repurchase such bridge notes at a time when we may not have adequate funds to do so, which would have a material adverse effect on our liquidity.

The purchase agreements under which our 2012 bridge notes were issued in February, March and October 2012 contain covenants prohibiting the incurrence of other debt and liens, customary affirmative covenants and events of default that include cross-acceleration if we default on our other debt. A failure on our part to comply with these covenants or an acceleration of our other debt may result in an event of default which, if not cured or waived, would result in the acceleration of our obligation to repurchase the 2012 bridge notes. If an event of default occurs, we may not be able to cure it within the applicable cure period, if at all. If our obligation to repurchase the 2012 bridge notes is accelerated, we may not have sufficient funds available at that time to effect such repurchase and/or we may not have the ability to borrow or obtain sufficient funds to effect such repurchase on terms acceptable to us, or at all. If we are required to repurchase the 2012 bridge notes at a time when we have insufficient funds to do so, it would have a material adverse effect on our business. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern.

Based on our cash balances, recurring losses since inception and our existing capital resources to fund our planned operations for a twelve month period, our independent registered public accounting firm has included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2011 expressing substantial doubt about our ability to continue as a going concern. We will, during the remainder of 2012, require significant additional funding to continue operations. If we are unable to continue as a going concern, we may be forced to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.

Risks Relating to Regulatory Review and Approval of Our Product Candidates

If we fail to obtain FDA approval of and to commercialize our most advanced product candidate, omadacycline, we may have to curtail our product development programs, and 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, a novel, broad-spectrum antibiotic. All of our other product candidates are in earlier stages of development. Accordingly, our ability to generate revenue and our future success depends substantially on our ability to successfully obtain regulatory approval for and commercialize omadacycline.

We have completed one Phase 2 trial and one non-registration Phase 3 trial of oral and IV formulations of omadacycline in complicated skin and skin structure infection, or cSSSI, but neither of these studies had a sufficient number of patients to establish non-inferiority compared to linezolid. We are currently planning Phase 3 clinical trials in acute bacterial skin and skin structure infections, or ABSSSI, and in moderate to severe community-acquired bacterial pneumonia, or 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 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 Special Protocol Assessment, or SPA, agreements, with regard to our planned registration Phase 3 trials. A SPA documents the FDA’s agreement that the design and planned analysis of the Phase 3 clinical trial reviewed under the SPA process, if the trial is successfully completed, will support an NDA submission. A SPA 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 risk-benefit 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 an 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, or whether it will ultimately approve omadacycline for the treatment of ABSSSI and/or CABP.

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

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

We plan to commence two Phase 3 trials of omadacycline for the treatment of ABSSSI in the first quarter of 2013 and, upon securing a partnership or grant funding, or obtaining additional funding beyond the proceeds of this offering, to commence a Phase 3 trial of omadacycline for the treatment of CABP. Based on our current expectations, we anticipate completing our two ABSSSI trials in mid-2014 and submitting an NDA for the treatment of ABSSSI in late 2014. However, we do not know whether these planned clinical trials will be initiated or completed on schedule, if at all. The commencement of these planned clinical trials could be substantially delayed or prevented by several factors, including:

further discussions with the FDA or other regulatory agencies regarding the scope or design of our clinical trials;

the limited number of, and competition for, suitable sites to conduct our clinical trials, many of which may already be engaged in other clinical trial programs, including some that may be for the same indication as our product candidates;

any delay or failure to obtain regulatory approval or agreement to commence a clinical trial in any of the countries where enrollment is planned;

inability to obtain sufficient funds required for a clinical trial, including the contemplated Phase 3 trial of omadacycline in CABP;

clinical holds on, or other regulatory objections to, a new or ongoing clinical trial;

delay or failure to obtain sufficient supplies of the product candidate for our clinical trials;

delay or failure to reach agreement on acceptable clinical trial agreement terms or clinical trial protocols with prospective sites or clinical research organizations, or CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different sites or CROs; and

delay or failure to obtain institutional review board, or IRB, approval to conduct a clinical trial at a prospective site.

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

slower than expected rates of patient recruitment and enrollment;

failure of patients to complete the clinical trial;

unforeseen safety issues, including severe or unexpected drug-related adverse effects experienced by patients;

lack of efficacy evidenced during clinical trials;

termination of our clinical trials by one or more clinical trial sites;

inability or unwillingness of patients or clinical investigators to follow our clinical trial protocols;

inability to monitor patients adequately during or after treatment by us and/or our CROs; and

the need to repeat or terminate clinical trials as a result of inconclusive or negative results or unforeseen complications in testing.

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, 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 planned Phase 3 clinical trials of omadacycline in ABSSSI and CABP, patients who have previously taken effective antibiotics for the treatment of an infection within 72 hours of receiving the first dose of study medication will be excluded from enrollment. This could affect our ability to enroll patients in these 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 IRBs for re-examination, which may impact the costs, timing or successful completion of a clinical trial. For example, we stopped our previous Phase 3 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 trials in this indication from a test of cure assessment to an early response assessment. As a result of these changes, we chose to terminate the previous Phase 3 trial and design two new Phase 3 trials taking into account the revised 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:

failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;

unforeseen safety issues or any determination that a clinical trial presents unacceptable health risks;

lack of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions; and

upon a breach or pursuant to the terms of any agreement with, or for any other reason by, current or future collaborators that have responsibility for the clinical development of any of our product candidates.

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. 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 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 initial clinical trials. Product candidates that have shown promising results in early 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 well advanced. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support regulatory approval. 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 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 test of cure, or TOC, endpoint to an early response 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, which will evaluate the response of serious skin infections to omadacycline using the early response endpoint. Because these earlier trials did not enroll a sufficient number of patients to achieve statistical significance, the retrospective analyses of early response endpoints for these trials may not be indicative of the performance or success of omadacycline in larger registration studies in ABSSSI.

In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, adherence to the dosing regimen and other 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 will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates.

Further, our 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 trial design and our interpretation of data from preclinical studies and clinical trials. 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 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 collaborators from obtaining approvals for the commercialization of some or all 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 non-U.S. regulatory authorities, which regulations differ from country to country. 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 product candidates are in various stages of development and are subject to the risks of failure inherent in drug development. We have not submitted an application for or received marketing approval for any of our product candidates. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA. 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 our company to administrative or judicially imposed sanctions, including:

restrictions on the products, manufacturers or manufacturing process;

warning letters;

civil and criminal penalties;

injunctions;

suspension or withdrawal of regulatory approvals;

product seizures, detentions or import bans;

voluntary or mandatory product recalls and publicity requirements;

total or partial suspension of production;

imposition of restrictions on operations, including costly new manufacturing requirements; and

refusal to approve pending NDAs or supplements to approved NDAs.

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:

a product candidate may not be deemed safe or effective;

the results may not confirm the positive results from earlier preclinical studies or clinical trials;

regulatory agencies may not find the data from preclinical studies and clinical trials sufficient;

regulatory agencies might not approve our third-party manufacturer’s processes or facilities; or

regulatory agencies may change their approval policies or adopt new regulations.

Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability to generate revenue from the particular product candidate, which likely would result in significant harm to our financial position and adversely impact our stock price. 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 for the product.

Even if we 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, 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 current Good Manufacturing Practices, or 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 will also be required to report adverse reactions and production problems, if any, to the FDA and to comply with requirements concerning 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 or us, including requiring withdrawal of the product from the market. If we fail to comply with the regulatory requirements of the FDA 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 administrative or judicially imposed sanctions.

If we are not able to maintain regulatory compliance, we would likely not be permitted to market any future product candidates and we 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 which may delay or prevent marketing approval, or, if approval is received, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.

Although all of our product candidates have undergone or will undergo safety testing in laboratory animals and would be advanced into human testing only if such safety testing does not indicate a safety problem, not all adverse effects of drugs can be predicted or anticipated. Unforeseen side effects from any of our product candidates could arise either during clinical development or, if approved by regulatory authorities, after the approved product has been marketed. All of our product candidates are still in clinical or preclinical development. Many of the most widely used current 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 our clinical trials to date for omadacycline have demonstrated a favorable safety profile, the results from the Phase 3 registration trials may not support this conclusion. The results of future clinical trials may show that our product candidates, including omadacycline, 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 receives marketing approval and we or others later identify undesirable or unacceptable side effects caused by such products:

regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;

we may be subject to limitations on how we may promote the product;

sales of the product may decrease significantly;

regulatory authorities may require us to take our approved product off the market;

we may be subject to litigation or product liability claims; and

our reputation may suffer.

Any of these events could prevent us, our collaborators 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.

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 our 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 will depend on reimbursement policies and may be affected by future healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will reimburse and establish payment levels. We cannot be certain that reimbursement will be available for any products that we develop. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, our products. If reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize any of our approved products.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, also called the Medicare Modernization Act, or MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that will be covered in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs.

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 ability to sell any of our future approved products profitably. Among policy makers 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 develop, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively, ACA, became law in the U.S. The goal of ACA is to reduce the cost of health care and substantially change the way health care is financed by both governmental and private insurers. 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 we develop that receive regulatory approval. We also cannot predict the impact of ACA on us as many of the ACA reforms require the promulgation of detailed regulations implementing the statutory provisions, which has not yet occurred.

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 Drug Price Competition and Patent Term Restoration Act of 1984, referred to as 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 we 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 will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue could be reduced, possibly materially.

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

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws 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 false claims and anti-kickback statutes. At such time, if ever, as we market any of our future approved products and these products are paid for by governmental programs, it is possible that some of our business activities could be subject to challenge under one or more of these laws.

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Most states also have statutes or regulations similar to the federal anti-kickback law and federal false claims laws, which may apply to items such as pharmaceutical products and services reimbursed by private insurers. Administrative, civil and criminal sanctions may be imposed under these federal and state laws.

Over the past few years, a number of 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.

Risks Relating to 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 therapeutics that will compete with other drugs and therapies that currently exist or are being developed. Products 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 of. 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 in manufacturing pharmaceutical products. These companies also have significantly greater research 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. 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.

In July 2012, the United States Congress passed, and President Obama signed, the Food and Drug

Administration Safety and Innovation Act, which included the Generating Antibiotic Incentives Now Act, or the GAIN Act. The GAIN Act is intended to provide incentives for the development of new, qualified infectious disease products. 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 towards the development of products that could be competitive with our product candidates.

The competition in the market for antibiotics is intense. If approved, a number of our product candidates, including omadacycline, will face competition from commercially available antibiotics such as vancomycin, marketed as a generic by Abbott Laboratories and others; daptomycin, marketed by Cubist Pharmaceuticals, Inc. as Cubicin; linezolid, marketed by Pfizer Inc. as Zyvox; ceftaroline, marketed by Forest Laboratories, Inc. as Teflaro; tigecycline, marketed as Tygacil by Pfizer; and telavancin, marketed by Theravance, Inc. as Vibativ. 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, ceftaroline, tigecycline, linezolid and telavancin are all approved treatments for serious Gram-positive infections such as ABSSSI. Additionally, daptomycin is an approved treatment for bacteremia, tigecycline is an approved treatment for 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 Canada and Switzerland, CEM-102, under development by Cempra, Inc., dalbavancin, under development by Durata Therapeutics, Inc., tedizolid, under development by Trius Therapeutics, Inc., NXL-103, under development by AstraZeneca PLC, oritavancin, under development by The Medicines Company, and delafloxacin, under development by Rib-X Pharmaceuticals, Inc., 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 the advantages of our product candidates over competing products and product candidates, we will not be able to successfully commercialize our product candidates and our results of operations will suffer.

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:

the results of our clinical registration trials, in particular our two Phase 3 registration trials for omadacycline in ABSSSI;

our ability to recruit and enroll patients for our clinical trials;

the efficacy, safety and reliability of our product candidates;

the speed at which we develop our product candidates;

our ability to commercialize and market, or find partners to help or exclusively commercialize and market, any of our product candidates that receive regulatory approval;

our ability to design and successfully execute appropriate clinical trials;

our ability to maintain a productive relationship with regulatory authorities;

the timing and scope of regulatory approvals;

the effectiveness of our or any future partners’ marketing and sales capabilities;

the price of our products;

adequate levels of reimbursement under private and governmental health insurance plans, including Medicare;

our ability to protect and maintain intellectual property rights related to our product candidates;

our ability to manufacture and sell commercial quantities of any approved products to the market; and

acceptance of any approved products by physicians and other health care providers.

If our competitors market products that are more effective, safer or less expensive than our future products, if any, or that reach the market sooner than our 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 omadacycline receives regulatory approval, price competition may inhibit the acceptance of omadacycline, physicians may be reluctant to switch from existing antibiotics to omadacycline, physicians may switch to other newly approved drug products, or may choose to reserve omadacycline for use in limited circumstances.

If the FDA or other applicable regulatory authorities approve generic products that compete with any of our product candidates, or if existing generic antibiotics are viewed as being equally effective to our antibiotic 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” which can, in turn, be cited by potential competitors in support of approval of an abbreviated new drug application, or 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 our 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 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 the 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 omadacycline, 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. We anticipate deriving revenue from research and development fees, license fees, milestone payments and royalties from collaborative partners. For example, we have licensed rights to our second most advanced product candidate, PTK-AR01, for the treatment of acne and rosacea, in the United States to Warner Chilcott, and Warner Chilcott is responsible for the clinical development of PTK-AR01 for the treatment of acne.

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 and that meet the requirements of prospective collaborative partners. 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 collaboration with Novartis International Pharmaceutical Ltd., or 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:

our collaborators may not perform their obligations as expected;

the prioritization, amount and timing of resources dedicated by our collaborators to their respective collaborations with us is not under our control;

some product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products;

our collaborators may elect not to proceed with the development of product candidates that we believe to be promising;

disagreements with collaborators, including disagreements over proprietary rights, contract interpretation, or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive; and

some of our collaborators might develop independently, or with others, products that could compete with ours.

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

We will require additional funding to complete the development and commercialization of omadacycline and to continue the development 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 Warner Chilcott for PTK-AR01.

We face significant competition in seeking appropriate collaborators. Whether 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 for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. 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, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development 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 regulatory pathway for approval of omadacycline in core indications. This past history may affect our ability to attract and enter into arrangements with future partners or collaborators for the development of omadacycline or other product candidates.

We rely and will continue to rely on outsourcing arrangements for manufacturing of our product candidates.

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 small number of third-party manufacturers and have purchased

all of our drug supplies on a purchase order basis. We plan eventually to enter into a long term supply agreement with several 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, the facilities used by any contract manufacturer to manufacture any of our product candidates must be the subject of a satisfactory inspection 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 requirements for manufacture of our 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 recalls. While third-party manufacturers of our product candidates, including omadacycline, have previously passed FDA and other regulatory agency inspections, we cannot assure you 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 ourselves, including:

the possibility of a breach of the manufacturing agreements by the third parties because of factors beyond our control;

the possibility of termination or nonrenewal of the agreements by the third parties before we are able to arrange for a qualified replacement third-party manufacturer; and

the possibility that we may not be able to secure a manufacturer or manufacturing capacity in a timely manner and on satisfactory terms in order to meet our manufacturing needs.

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 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 several 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.

We currently have no marketing, 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 marketing, sales and distribution capabilities and we have limited sales or marketing experience within our organization. If any of our product candidates are approved, we intend either to establish a sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize our product candidates, or to outsource this function to a third party. Either of these options would be expensive and time consuming. These costs may be incurred in advance of any approval of our product candidates. In addition, we may not be able to hire a sales force in the United States that is sufficient in size 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 these products.

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 clinical trials or be able to repeat their past success.

We expect to depend on independent clinical investigators and CROs to conduct our clinical trials, including our planned Phase 3 trials of omadacycline in ABSSSI. CROs may also assist us in the collection and analysis of data. There are 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 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 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 comply with standards, commonly referred to as current Good Clinical Practice, or cGCP, for conducting, recording and reporting clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial subjects are protected. Failure of clinical investigators or CROs to meet their obligations to us or comply with cGCP procedures could adversely affect the clinical development of our product candidates and harm our business.

If we fail to develop and commercialize product candidates other than omadacycline, we may not be able to grow our business or sustain profitability.

An important part of our strategy is to develop and commercialize, or work with partners to develop and commercialize, a portfolio of product candidates, in addition to omadacycline, that result from our proprietary drug development platform. For example, we have used our drug discovery platform to create PTK-AR01, PTK-MS01, PTK-SMA2 and PTK-RA01, which are currently all in or expected to enter various stages of clinical or preclinical development.

We cannot assure you that we will succeed in our efforts to identify and develop additional product candidates or that any product candidates that we identify, including PTK-AR01, PTK-MS01, PTK-SMA2 and PTK-RA01, will produce commercially viable medicines. All product candidates are susceptible to the risks of failure that are inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and/or effective for approval by regulatory authorities. Although our product candidates are tested in in vitro and animal models, the ability of these models to predict safety and efficacy in treating human disease cannot be assured. In addition, we cannot assure you that any such products that are approved will be manufactured or produced economically, successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. In addition, researching and developing new disease targets and product candidates require substantial technical, financial and human resources whether or not we ultimately identify any candidates. If we are unable to maintain existing funding or secure additional funding for these programs and/or continue to devote the other technical and human resources to them, our ability to continue these programs will be adversely affected.

Even if approved, if any of our product candidates do not achieve broad market acceptance among physicians, patients, the medical community, and third-party payers 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:

limitations or warnings contained in a product candidate’s FDA- or foreign regulatory agencies’-approved labeling;

changes in the standard of care for the targeted indications for any of our product candidates;

limitations in the approved clinical indications for our product candidates;

demonstrated clinical safety and efficacy compared to other products;

lack of significant adverse side effects;

sales, marketing and distribution support;

availability of reimbursement from managed care plans and other third-party payers;

timing of market introduction and perceived effectiveness of competitive products;

the degree of cost-effectiveness of our product candidates;

availability of alternative therapies at similar or lower cost, including generics and over-the-counter products;

the extent to which the product candidate is approved for inclusion on formularies of hospitals and managed care organizations;

whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular infections;

adverse publicity about our product candidates or favorable publicity about competitive products;

convenience and ease of administration of our products; and

potential product liability claims.

If our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients and the medical community, we 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 payers on the benefits of our product candidates may require significant resources and may never be successful.

Even if we obtain FDA approval of omadacycline or any other product candidate we develop, we 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 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 which would be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. 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 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 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, the fact that we have obtained SPA agreements with the FDA for our Phase 3 registration trial designs for omadacycline in both ABSSSI and CABP is not binding on 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.

Drug resistance is primarily caused by the genetic mutation of bacteria resulting from sub-optimal exposure to antibiotics where the drug does not kill 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. We are developing product candidates, including omadacycline, to treat patients infected with drug-resistant bacteria. If physicians, rightly or wrongly, associate the resistance issues of older generations of tetracyclines with our product candidates, physicians might not prescribe our product candidates for treating a broad range of infections. In addition, bacteria might develop resistance to our product candidates if they are improperly dosed or following years of repeated use, causing the efficacy of these product candidates to decline, which would negatively affect our potential to generate revenue from those product candidates.

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, health care 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:

decreased demand for our future approved products;

injury to our reputation;

withdrawal of clinical trial participants;

termination of clinical trial sites or entire trial programs;

significant litigation costs;

substantial monetary awards to or costly settlement with patients or other claimants;

product recalls or a change in the indications for which they may be used;

loss of revenue;

diversion of management and scientific resources from our business operations; and

the inability to commercialize our product candidates.

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 million in product liability insurance coverage in the aggregate, with a per incident limit of $10 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 our 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 any insurance coverage we may have, 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 some extent dependent on the members of our senior management team, such as Evan Loh, M.D., our Chairman of the board and Chief Medical Officer; Dennis Molnar, our President and Chief Executive Officer; and Stuart B. Levy, M.D., our Co-Founder, Vice Chairman of the board and Chief Scientific 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, possess and could cause significant delays, or outright failure, in the execution of our strategies and development and approval of our product candidates.

Replacing key personnel may be difficult and may take an extended period of time. In addition, we will need to expand and effectively manage our managerial, operational, financial, development and other resources in order to successfully pursue our research, development and commercialization efforts for our existing and future product candidates. Our success depends on our continued ability to attract, retain and motivate highly qualified management, research, 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 the achievement of our research and development objectives, our ability to raise additional capital and our ability to implement our business strategy.

We have scientific and clinical advisors who assist us in formulating our research, 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, they 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 ours.

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

As of June 30, 2012, we had 32 full-time employees. As 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 which 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 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:

economic weakness, including inflation, or political instability in particular foreign economies and markets;

differing regulatory requirements for drug approvals in foreign countries;

potentially reduced protection for intellectual property rights;

difficulties in compliance with non-U.S. laws and regulations;

changes in non-U.S. regulations and customs, tariffs and trade barriers;

changes in non-U.S. currency exchange rates and currency controls;

changes in a specific country’s or region’s political or economic environment;

trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments;

negative consequences from changes in tax laws;

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

workforce uncertainty in countries where labor unrest is more common than in the United States;

difficulties associated with staffing and managing foreign operations, including differing labor relations;

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

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, and may in the future involve, the use of potentially hazardous materials and chemicals. Our operations may produce hazardous waste products. Although we believe that our safety procedures for handling and disposing of these materials comply 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. If an accident occurs, we could be held liable for resulting damages, which could be substantial. 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 maintain 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 may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with federal and state health care fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care 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. Employee 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. We intend to adopt a code of conduct prior to the completion of this offering, but it is not always possible to identify and deter employee 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, 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 fines or other sanctions.

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 sublicensees’ 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 the indemnification obligation exceeds the applicable insurance coverage, and if the collaborator does not have other assets available to indemnify us, our business, financial condition and results of operations could be adversely affected.

Risks Relating to our Intellectual Property

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 which the United States Patent and Trademark Office 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 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 ours, 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:

we or our collaborators may initiate litigation or other proceedings against third parties to enforce our patent rights;

third parties may initiate litigation or other proceedings seeking to invalidate patents owned by or licensed to us or to obtain a declaratory judgment that their product or technology does not infringe our patents or patents licensed to us;

third parties may initiate opposition or reexamination proceedings challenging the validity or scope of our patent rights, requiring us or our collaborators to participate in such proceedings to defend the validity and scope of our patents;

there may be a challenge or dispute regarding inventorship or ownership of patents currently identified as being owned by or licensed to us;

the U.S. Patent & Trademark Office may initiate an interference between patents or patent applications owned by or licensed to us and those of our competitors, requiring us or our collaborators to participate in an interference proceeding to determine the priority of invention, which could jeopardize our patent rights; or

third parties may submit ANDAs to the FDA, seeking approval to market generic versions of our future approved products prior to expiration of relevant patents owned by or licensed to us, requiring us to defend our patents, including by filing lawsuits alleging patent infringement.

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 University.

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:

others may be able to develop a platform that is similar to, or better than, ours in a way that is not covered by the claims of our patents;

others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents;

we might not have been the first to make the inventions covered by our pending patent applications;

we might not have been the first to file patent applications for these inventions;

others may independently develop similar or alternative technologies or duplicate any of our technologies;

we may be unable to effectively protect our trade secrets;

any patents that we obtain may not provide us with any competitive advantages or may ultimately be found invalid or unenforceable;

we may not develop additional proprietary technologies that are patentable; or

the patents of others may have an adverse effect on our business.

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

Our 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 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 failure to maintain a license to any technology that we require 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:

we or our collaborators may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our products or processes do not infringe those third parties’ patents;

if our competitors file patent applications that claim technology also claimed by us, we or our collaborators may be required to participate in interference or opposition proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third party with a dominant patent position;

if third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights, we and our collaborators will need to defend against such proceedings;

if third parties initiate litigation claiming that our brand names infringe their trademarks, we and our collaborators will need to defend against such proceedings; and

if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we and our collaborators would need to defend against such proceedings.

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 collaborators 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 collaborators 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 collaborators 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, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have 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 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 University, or 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 our 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 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.

Risks Relating to our Common Stock and this Offering

Our stock price is likely to be volatile and the market price of our common stock after this offering may drop below the price you pay.

You should consider an investment in our common stock as risky and invest only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Prior to this offering, there was not a public market for our common stock. We will negotiate and determine the initial public offering price with the representatives of the underwriters based on several factors. This price may vary from the market price of our common stock after this offering. You may be unable to sell your shares of common stock at or above the initial offering price due to fluctuations in the market price of our common stock arising from changes in our operating performance or prospects. In addition, the stock market has recently experienced significant volatility, particularly with respect to pharmaceutical, biotechnology, and other life sciences company stocks. The volatility of pharmaceutical, biotechnology, and other life sciences company stocks often does not relate to the operating performance of the companies represented by the stock. Some of the factors that may cause the market price of our common stock to fluctuate or decreases below the price paid in this offering include:

results of our clinical trials and clinical trials of our competitors’ products;

failure or discontinuation of any of our development programs;

issues in manufacturing our product candidates or future approved products;

regulatory developments or enforcement in the United States and foreign countries with respect to our product candidates or our competitors’ products;

competition from existing products or new products that may emerge;

developments or disputes concerning patents or other proprietary rights;

introduction of technological innovations or new commercial products by us or our competitors;

announcements by us, our collaborators or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;

changes in estimates or recommendations by securities analysts, if any cover our common stock;

fluctuations in the valuation of companies perceived by investors to be comparable to us;

public concern over our product candidates or any future approved products;

litigation;

future sales of our common stock;

share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

additions or departures of key personnel;

changes in the structure of health care payment systems in the United States or overseas;

failure of any of our product candidates, if approved, to achieve commercial success;

economic and other external factors or other disasters or crises;

period-to-period fluctuations in our financial condition and results of operations, including the timing of receipt of any milestone or other royalty payments under commercialization or licensing agreements;

general market conditions and market conditions for biopharmaceutical stocks; and

overall fluctuations in U.S. equity markets.

In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit and divert the time and attention of our management, which could seriously harm our business.

There may not be an active, liquid trading market for our common stock.

Prior to this offering, there has been no established trading market for our common stock. There is no guarantee that an active trading market for our common stock will develop or, if developed, be maintained after this offering on the Nasdaq Global Market or any other exchange. Certain of our existing stockholders and their affiliates have indicated an interest in purchasing an aggregate of approximately $ million in shares of our common stock in this offering at the initial public offering price, or shares based upon the assumed initial offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus. To the extent these stockholders are allocated and purchase shares in this offering, such purchases would reduce the available public float for our shares because these stockholders will be restricted from selling the shares by restrictions under applicable securities laws and the lock-up agreements described in the “Shares Eligible for Future Sale” and “Underwriting” sections of this prospectus. As a result, the liquidity of our common stock could be significantly reduced from what it would have been if these shares had been purchased by investors that were not affiliated with us. If a trading market does not develop or is not maintained, you may experience difficulty in reselling, or an inability to sell, your shares quickly or at the latest market price. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by suing our shares as consideration.

Insiders will continue to have substantial control over us which could delay or prevent a change in corporate control or result in the entrenchment of management and/or the board of directors.

After this offering, our directors, executive officers and principal stockholders, together with their affiliates and related persons, will beneficially own, in the aggregate, approximately % of our outstanding common stock, excluding any shares of our common stock that our existing stockholders may purchase in this offering. Certain of our existing stockholders have indicated an interest in purchasing an aggregate of approximately $ million of shares of common stock in this offering, or shares based upon the assumed initial offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus. If these existing stockholders purchase all such shares of common stock in this offering, our directors, executive officers and principal stockholders, together with their affiliates and related persons, would beneficially own shares representing approximately % of our outstanding common stock after this offering. As a result, these stockholders, if acting together, may have the ability to determine the outcome of matters submitted to our stockholders for approval, including the election and removal of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, these persons, acting together, may have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership may harm the market price of our common stock by:

delaying, deferring, or preventing a change in control;

entrenching our management and/or the board of directors;

impeding a merger, consolidation, takeover, or other business combination involving us; or

discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Management will retain broad discretion over the use of the net proceeds from this offering. Stockholders may not agree with such uses, and our use of the proceeds may not yield a significant return or any return at all for our stockholders. We intend to use the proceeds from this offering to fund our continued clinical development and other studies and work needed for the anticipated FDA and other regulatory filings for omadacycline as a treatment for ABSSSI. We may also spend a portion of the net proceeds on general corporate purposes, general and administrative expenses, capital expenditures, working capital and maintenance of our intellectual property. Because of the number and variability of factors that will determine our use of the proceeds from this offering,

their ultimate use may vary substantially from their currently intended use. Any failure by our management to apply the proceeds effectively could affect our ability to continue to develop and eventually manufacture and sell our products.

We are an “emerging growth company” and our election to delay adoption of new or revised accounting standards applicable to public companies may result in our financial statements not being comparable to those of other public companies. As a result of this and other reduced disclosure requirements applicable to emerging growth companies, our common stock may be less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are electing to delay such adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result of such election, our financial statements may not be comparable to the financial statements of other public companies. We cannot predict whether investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We could remain an “emerging growth company” until the earliest to occur of the following:

the last day of the fiscal year in which we have total annual gross revenue of $1 billion or more;

the last day of our fiscal year following the fifth anniversary of the date of the first sale of common equity securities pursuant to this prospectus;

the date on which we have issued more than $1 billion in non-convertible debt during the previous three years; or

the date on which we are deemed to be a “large accelerated filer” under SEC rules and regulations.

We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to corporate governance standards.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, our administrative staff will be required to perform additional tasks. For example, in anticipation of becoming a public company, we will need to adopt additional internal controls and disclosure controls and procedures, retain a transfer agent, adopt an insider trading policy and bear all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under the securities laws.

In addition, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act and related regulations implemented by the Securities and Exchange Commission and the NASDAQ Global Market, have increased legal and financial compliance costs and made some compliance activities more time consuming. We are currently evaluating these rules, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. We intend to invest resources to comply

with evolving laws, regulations and standards, and this investment will result in increased general and administrative expenses and may divert management’s time and attention from our other business activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. In connection with this offering, we are increasing our directors’ and officers’ insurance coverage which will increase our insurance cost. In the future, it may be more expensive or more difficult for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

Under the corporate governance standards of the NASDAQ Stock Market, a majority of our board of directors and each member of our audit committee must be an independent director no later than the first anniversary of the completion of this offering. We may encounter difficulty in attracting qualified persons to serve on our board and the audit committee, and our board and management may be required to divert significant time and attention and resources away from our business to identify qualified directors. If we fail to attract and retain the required number of independent directors, we may be subject to the delisting of our common stock from the NASDAQ Global Market.

Provisions of our charter, bylaws, and Delaware law may make an acquisition of us or a change in our management more difficult.

Certain provisions of our restated certificate of incorporation and restated bylaws that will be in effect upon the completion of this offering could discourage, delay, or prevent a merger, acquisition, or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so. Furthermore, since our board of directors is responsible for appointing the members of our management team, these provisions could prevent or frustrate attempts by our stockholders to replace or remove our management by making it more difficult for stockholders to replace members of our board of directors. These provisions:

allow the authorized number of directors to be changed only by resolution of our board of directors;

establish a classified board of directors, providing that not all members of the board be elected at one time;

authorize our board of directors to issue without stockholder approval blank check preferred stock that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by our board of directors;

require that stockholder actions must be effected at a duly called stockholder meeting and prohibit stockholder action by written consent;

establish advance notice requirements for stockholder nominations to our board of directors or for stockholder proposals that can be acted on at stockholder meetings;

limit who may call stockholder meetings; and

require the approval of the holders of 75% of the outstanding shares of our capital stock entitled to vote in order to amend certain provisions of our restated certificate of incorporation and restated bylaws.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a prescribed period of time. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders.

We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.

We currently intend to retain our future earnings, if any, to fund the development and growth of our businesses. As a result, capital appreciation, if any, of our common stock will be your sole source of gain on your investment for the foreseeable future. Investors seeking cash dividends should not invest in our common stock.

Investors in this offering will pay a much higher price than the book value of our common stock and therefore you will incur immediate and substantial dilution of your investment.

The initial public offering price will be substantially higher than the net tangible book value per share of shares of our common stock based on the total value of our tangible assets less our total liabilities immediately following this offering. Therefore, if you purchase common stock in this offering, you will experience immediate and substantial dilution of approximately $ per share, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to this offering at an assumed initial public offering price of $ per share. In the past, we issued options and warrants to acquire common stock at prices below the assumed initial public offering price. To the extent these outstanding options are ultimately exercised, you will experience further dilution.

A significant portion of our total outstanding shares of common stock is restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur in the future. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. After this offering, we will have outstanding shares of common stock based on the number of shares outstanding as of . Of these shares, shares sold in this offering may be resold in the public market immediately and the remaining shares are currently restricted under securities laws or as a result of lock-up agreements but will be able to be resold after the offering as described in the “Shares Eligible for Future Sale” section of this prospectus. Moreover, after this offering, holders of an aggregate of 45,224,974 shares of common stock, which includes 6,666,481 upfront bridge shares and 13,333,483 deferred bridge shares, and 195,327 shares of common stock issuable upon the exercise of outstanding warrants will have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance and once vested, subject to the lock-up agreements described in the “Underwriting” section of this prospectus.

Future issuances of our common stock or rights to purchase common stock pursuant to our equity incentive plans or outstanding warrants could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.

As of June 30, 2012, we have options to purchase 1,412,938 shares outstanding under our equity compensation plans. We are also authorized to grant equity awards, including stock options, to our employees, directors and consultants, covering up to shares of our common stock, pursuant to our equity compensation plans. We plan to register the number of shares available for issuance or subject to outstanding awards under our equity compensation plans after the completion of this offering.

As of June 30, 2012, we also have warrants to purchase 195,327 shares of Series H preferred stock outstanding, which will convert into warrants to purchase common stock upon the completion of this offering. Shares issued pursuant to these outstanding options and warrants may result in material dilution to our existing stockholders, which could cause our share price to fall.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.

The trading market for our common stock will depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. We cannot assure you that analysts will cover us or provide favorable coverage. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

Our ability to use our net operating loss carryforwards and other tax attributes may be limited.

Our ability to utilize our federal net operating losses and federal tax credits is currently limited, and may be limited further, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. The limitations apply if an ownership change, as defined by Section 382, occurs. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period, which is typically three years or since the last ownership change. We are already subject to Section 382 limitations due to previous ownership changes. We conducted a change in control study as of December 31, 2008 that indicated that approximately $5.4 million of our net operating loss carryforwards as of December 31, 2008 were subject to a Section 382 limitation due to previous ownership changes. As of December 31, 2011, we had $93.6 million of net operating loss carryforwards available. Due to the significant complexity and cost associated with a change in control study, and the expectation of continuing to incur losses whereby the net operating losses and federal tax credits are not anticipated to be used in the foreseeable future, we have not assessed whether there have been changes in control since December 31, 2008. If we have experienced changes in control at any time since December 31, 2008, utilization of our net operating losses or federal tax credit carryforwards would be subject to further annual limitations under Section 382. In addition, future changes in stock ownership, including resulting from this offering, may also trigger an ownership change and, consequently, another Section 382 limitation. Any limitation may result in expiration of a portion of the net operating loss or research and development credit carryforwards before utilization which would reduce our gross deferred tax assets and corresponding valuation allowance. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards and federal tax credit carryforwards to reduce United States federal income tax may be subject to limitations, which could potentially result in increased future tax liability to us.

Cautionary Note Regarding Forward-Looking Statements

This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements.

The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

our ability to obtain additional financing;

our use of the net proceeds from this offering;

the accuracy of our estimates regarding future expenses, revenue and capital requirements;

the success and timing of our preclinical studies and clinical trials;

our ability to obtain and maintain regulatory approval of omadacycline and any current or future product candidates, and the labeling under any approval we may obtain;

the ability of our proprietary drug discovery platform to develop new product candidates;

regulatory developments in the United States and foreign countries;

the performance of third-party manufacturers;

our plans to develop and commercialize our product candidates;

our ability to obtain and maintain intellectual property protection for our proprietary drug discovery platform and our product candidates;

the successful development of our sales and marketing capabilities;

the size and growth of the potential markets for our product candidates and our ability to serve those markets;

the rate and degree of market acceptance of any future approved products;

the success of competing drugs that are or become available; and

the loss of any key scientific or management personnel.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our business. However, these forward-looking statements are only predictions and we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, so you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make as a result of known or unknown risks and uncertainties, including the risks, uncertainties and assumptions described in the “Risk Factors” and elsewhere in this prospectus.

These forward-looking statements speak only as of the date of this prospectus, and we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.

Use of Proceeds

We estimate that our net proceeds from the sale of shares of common stock in this offering will be approximately $ million assuming an initial public offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus, and after deducting estimated offering expenses and estimated underwriting discounts and commissions. If the over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $ million.

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the net proceeds to us from this offering by $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares of common stock to be sold in this offering, assuming no change in the assumed initial public offering price, would increase (decrease) our net proceeds from this offering by $ million.

The principal purposes of this offering are to obtain additional capital to support our operations and to create a public market for our common stock. We intend to use the net proceeds from this offering as follows:

approximately $ million to fund the continued clinical development and other studies and work needed for anticipated FDA and other regulatory filings, including the NDA, for the approval of omadacycline as a treatment for ABSSSI; and

the remainder for general corporate purposes, general and administrative expenses, capital expenditures, working capital and maintenance of our intellectual property.

Based on the net proceeds we expect to receive from this offering, we anticipate that we will be able to start our Phase 3 registration trials for omadacycline in ABSSSI in the first quarter of 2013 and complete our two Phase 3 registration trials in ABSSSI and report the results of these studies. We expect that the remainder of the net proceeds from this offering and our existing cash and cash equivalents will be sufficient to fund the continued development of omadacycline through the following events:

the manufacturing of clinical drug supply and materials necessary for the anticipated FDA and other regulatory filings;

the completion of additional Phase 1 clinical trials of omadacycline in support of FDA and other regulatory filings; and

other work required for the preparation of the NDA and other regulatory filings.

Our current estimate for the external costs associated with conducting the two Phase 3 registration trials in ABSSSI is between $ million and $ million. In addition, our current estimate of additional external costs associated with manufacturing and preparing for the NDA submission is approximately $ million. We also intend to seek approval for additional indications for omadacycline, including CABP and UTI, if additional funds are available following this offering or in the future.

The expected use of net proceeds represents our current intentions based upon our present plan and business conditions. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. Accordingly, we will have broad discretion in the -application of the net proceeds, and investors will be relying on our judgment regarding the application of the proceeds of this offering.

The amounts and timing of our actual expenditures will depend on numerous factors, including the progress in, and costs of, our clinical development programs, particularly omadacycline, the amount and timing of revenue, if any, from any collaborations we may enter into, and any unforeseen cash needs. Furthermore, we anticipate that we will need to secure additional funding for the development of omadacycline in other indications and for continued development of our other product candidates. Pending specific utilization of the net proceeds as described above, we intend to invest the net proceeds of the offering in short-term investment grade and U.S. government securities.

Dividend Policy

We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.

Capitalization

The following table presents our cash and cash equivalents and capitalization as of June 30, 2012:

on an actual basis;

on a pro forma basis to give effect to (i) the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 20,572,536 shares of our common stock upon the completion of this offering; (ii) the reclassification of certain warrants to purchase preferred stock into warrants to purchase common stock upon the completion of this offering; (iii) the issuance of $5.0 million in principal amount of October bridge notes and the simultaneous issuance of 6,666,481 upfront bridge shares in connection with such October bridge notes; and (iv) the issuance of 13,333,483 deferred bridge shares upon completion of this offering; and

on a pro forma as adjusted basis to give further effect to our issuance and sale of shares of our common stock in this offering at the assumed initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this table together with our financial statements and the related notes thereto, as well as the information under “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of the offering determined at pricing.


	As of June 30, 2012
(in thousands, except share data)	Actual			Pro forma	Pro forma as adjusted⁽¹⁾

				(unaudited)	(unaudited)
Cash and cash equivalents	$	3,316		$	$

Convertible preferred stock warrants		69				—
Convertible preferred stock, $0.001 par value; 28,472,720 shares authorized; 20,572,536 shares issued and outstanding, actual; shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted		80,565				—

Stockholders’ deficit:
Common stock, $0.001 par value; 70,000,000 shares authorized, 16,576,912 shares issued and outstanding, actual; 70,000,000 shares authorized, shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, pro forma as adjusted		17
Additional paid-in capital		48,515
Accumulated deficit		(142,391	)

Total stockholders’ deficit		(93,859	)

Total capitalization	$	(13,225	)	$	$

(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the range listed on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $ million, assuming that the assumed initial public offering price remains the same.

The table above does not include:

1,412,938 shares of common stock issuable upon the exercise of stock options outstanding under our 1996 Stock Plan and our 2005 Stock Plan as of June 30, 2012 at a weighted average exercise price of $1.49 per share;

2,484,651 shares of common stock reserved for future awards under our 2005 Stock Plan;

shares of common stock reserved for future awards under our 2012 Stock Plan; and

shares of common stock that will be available for future issuance under our 2012 Employee Stock Purchase Plan.

Dilution

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value (deficit) per share of our common stock immediately after the completion of this offering.

Dilution results from the fact that the initial public offering price is substantially in excess of the book value (deficit) per share attributable to the existing stockholders for the presently outstanding stock. As of June 30, 2012, our net tangible book deficit was $93.9 million, or $5.66 per share of common stock. Net tangible book deficit per share represents the amount of our total tangible assets less total liabilities, divided by 16,576,912, the number of common shares outstanding on June 30, 2012.

Our pro forma net tangible book deficit at June 30, 2012, was $ million, or $ per share. Pro forma net tangible book deficit per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of our common stock outstanding, as of June 30, 2012, after giving effect to (i) the conversion of all outstanding shares of our preferred stock into common stock upon the completion of this offering; (ii) the issuance of 6,666,481 upfront bridge shares in connection with the issuance of October bridge notes; and (iii) the issuance of 13,333,483 deferred bridge shares upon completion of this offering. For details related to the upfront bridge shares and deferred bridge shares, see “Certain Relationships and Related Person Transactions—2012 Promissory Notes and Post-IPO Promissory Notes.”

After giving effect to the issuance and sale of shares of our common stock in this offering, assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, less the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value at June 30, 2012, would have been $ million, or $ per share. This amount represents an immediate increase in the pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing shares of our common stock in this offering. Dilution per share to new investors is determined by subtracting the pro forma net tangible book value per share after the offering from the initial public offering price. The following table illustrates this dilution on a per share basis:



Assumed initial public offering price per share ⁽¹⁾				$
Historical net tangible book deficit as of June 30, 2012	$	(5.66	)
Pro forma increase per share attributable to conversion of preferred stock and issuance of the upfront and deferred bridge shares
Pro forma net tangible book deficit per share as of June 30, 2012	$
Increase per share attributable to new investors

Pro forma as adjusted net tangible book value per share after this offering

Dilution per share to new investors				$

(1)

The midpoint of the price range set forth on the cover page of this prospectus.

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value (deficit) per share after giving effect to this offering by $ per share and would increase (decrease) the dilution in pro forma net tangible book value per share to investors in this offering by $ per share. This calculation assumes that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and is after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their over-allotment option in full, pro forma as adjusted net tangible book value will increase to $ per share, representing an increase to existing holders of $ per share, and there will be an immediate dilution of $ per share to new investors.

The following table shows on a pro forma as adjusted basis at June 30, 2012, after giving effect to this offering and the pro forma adjustments referred to above, the total number of shares of common stock purchased from us, the total consideration paid to us and the average price paid per share by existing stockholders and new investors.


	Shares Purchased				Total Consideration				Average Price Per Share
	Number	Percent			Amount	Percent			Average Price Per Share

Existing stockholders				%	$			%	$
New investors									$

Total			100	%	$		100	%

The discussion and tables above assume no exercise of the underwriters’ over-allotment option to purchase additional shares. If the underwriters’ option to purchase additional shares is exercised in full, the number of shares of our common stock held by existing stockholders will be further reduced to % of the total number of shares of our common stock to be outstanding after the offering, and the number of shares of our common stock held by new investors will be further increased to % of the total number of shares of our common stock to be outstanding after the offering.

The tables and calculations above are based on shares of our common stock outstanding as of June 30, 2012 after giving effect to (i) the conversion of 20,572,536 shares of our preferred stock outstanding as of June 30, 2012 into 20,572,536 shares of our common stock at the completion of this offering; (ii) the issuance of 6,666,481 upfront bridge shares in connection with the issuance of October bridge notes; and (iii) the issuance of 13,333,483 deferred bridge shares upon completion of this offering, and excludes:

2,484,651 shares of common stock reserved for future awards under our 2005 Stock Plan;

shares of common stock reserved for future awards under our 2012 Stock Plan; and

shares of common stock that will be available for future issuance under our 2012 Employee Stock Purchase Plan.

To the extent these outstanding options or warrants are exercised, there will be further dilution to the new investors. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities may result in further dilution to our stockholders.

Certain of our existing stockholders and their affiliates have indicated an interest in purchasing an aggregate of approximately $ million in shares of our common stock in this offering at the initial public offering price, or shares based upon the assumed initial offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters may determine to sell more, less or no shares in this offering to any of these stockholders, or any of these stockholders may determine to purchase more, less or no shares in this offering. The foregoing discussion and tables do not reflect any potential purchases by these existing stockholders or their affiliated entities.

Selected Financial Data

You should read the following selected financial data in conjunction with our financial statements and the related notes thereto included elsewhere in this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus.

We derived the statement of operations data for the years ended December 31, 2010 and 2011, and the balance sheet data as of December 31, 2010 and 2011, from our audited financial statements included elsewhere in this prospectus. We derived the statement of operations data for the six months ended June 30, 2011 and 2012, and the balance sheet data as of June 30, 2012, from our unaudited financial statements, included elsewhere in this prospectus. Our interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, on the same basis as the annual audited financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of our financial position and results of our operations for these periods. The historical results for any period are not necessarily indicative of results to be expected for any future period, and our results for any interim period are not necessarily indicative of results to be expected for a full fiscal year.


	Years Ended December 31,						Six Months Ended June 30,
(in thousands, except per share amounts)	2010			2011			2011			2012

							(unaudited)
Statement of Operations Data:
Revenue:
Research and development revenue	$	24,688		$	52,253		$	9,389		$	2,573
Grant revenue		1,083			1,040			315			248

Total revenue		25,771			53,293			10,154			2,821

Operating expenses:
Research and development .		20,801			16,696			9,094			8,282
General and administrative .		4,289			3,327			1,691			2,539

Total operating expenses		25,090			20,023			10,785			10,821

Operating income (loss)		681			33,270			(631	)		(8,000	)
Other income (expense):
Interest income		20			5			4			1
Interest expense		—			—			—			(1,365	)
Other income		831			682			667			11
Other expense		(8	)		—			—			(853	)

Total other income (expense)		843			687			671			(2,206	)

Net income (loss)		1,524			33,957			40			(10,206	)
Unaccreted convertible preferred stock dividends.		(10,449	)		(10,449	)		(5,181	)		(3,365	)

Net (loss) income attributable to common stockholders	$	(8,925	)	$	23,508		$	(5,141	)	$	(13,571	)

Net (loss) income per share, basic	$	(0.92	)	$	2.37		$	(0.52	)	$	(1.00	)

Net (loss) income per share, diluted	$	(0.92	)	$	0.91		$	(0.52	)	$	(1.00	)

Weighted average shares outstanding, basic		9,725			9,935			9,892			13,619

Weighted average shares outstanding, diluted		9,725			37,423			9,892			13,619

Pro forma information⁽¹⁾
Pro forma net income (loss) per share, basic (unaudited)				$						$

Pro forma net income (loss) per share, diluted (unaudited)				$						$

Weighted average shares used in computing pro forma net income (loss) per share, basic (unaudited)

Weighted average shares used in computing pro forma net income (loss) per share, diluted (unaudited)

(1)


	As of December 31,						As of June 30,
(in thousands)	2010			2011			2012

							(unaudited)
Balance Sheet Data:
Cash and cash equivalents	$	19,529		$	2,458		$	3,316
Total assets		22,415			3,804			5,120
Current liabilities		28,279			5,745			17,369
Long-term obligations, net of current liabilities		31,741			1,267			1,045
Convertible preferred stock		125,787			125,787			80,565
Accumulated deficit		(166,142	)		(132,184	)		(142,391	)
Total stockholders’ deficit	$	(163,391	)	$	(128,995	)	$	(93,859	)

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Financial Data” and our financial statements and the related notes included elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those results described in or implied by the forward-looking statements discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this prospectus.

Overview

We are a pharmaceutical company focused on the discovery, development, and commercialization of innovative medicines that are designed to save lives and alleviate suffering. Our lead product candidate, omadacycline, is a new tetracycline-derived broad-spectrum antibiotic being developed for use as a first-line monotherapy for serious community-acquired bacterial infections where antibiotic resistance is of concern for treating physicians. We believe omadacycline will be used in the emergency room, hospital, and community settings. We have designed omadacycline to provide significant advantages over existing antibiotics, including activity against resistant bacteria, broad spectrum of coverage, intravenous, or IV, and oral formulations with once-daily dosing, and a favorable safety and tolerability profile. We believe that it will become the primary antibiotic choice of physicians for use as a first-line monotherapy for acute bacterial skin and skin structure infections, or ABSSSI, community-acquired bacterial pneumonia, or CABP, urinary tract infections, or UTI, and other serious community-acquired bacterial infections.

We have devoted substantially all of our resources to our 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 collaborations, private placements of our convertible preferred stock, and, to a lesser extent, through government grants, foundation support, line of credit and note financings, and equipment lease financings. Through June 30, 2012, we have received $130.6 million from the sale of convertible preferred stock and $172.7 million of upfront license fees, milestone payments, reimbursement of research and development costs, and manufacturing services and other payments from our former and existing collaborations and from government and other grants.

We have incurred significant losses since our inception in 1996, and our accumulated deficit at June 30, 2012 was $142.4 million. We have incurred net losses in every year since inception except for the years ended December 31, 2010 and 2011, in which we had net income of $1.5 million and $34.0 million, respectively, due to collaboration, license, and milestone payments. We had net income for the six months ended June 30, 2011 of $40,296 and a net loss for the six months ended June 30, 2012 of $10.2 million. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. The net losses and negative cash flows incurred to date, together with expected future losses, have had, and likely will continue to have, an adverse effect on our stockholders’ deficit 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 increasing operating losses for the foreseeable future. We expect our research and development expenses to increase in connection with our ongoing activities, particularly as we continue our research and 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 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 addition to the net proceeds of this offering, to complete the development and commercialization of omadacycline and to continue 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 public or private equity offerings, debt financings, strategic collaborations and grant funding. 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.

As of June 30, 2012, we had cash and cash equivalents of $3.3 million. Our present capital resources are not sufficient to fund our planned operations for a 12-month period, and therefore, raise substantial doubt about our ability to continue as a going concern. We will, during the remainder of 2012, require substantial additional funding to continue our operations. Failure to receive additional funding could cause us to cease operations, in part or in full. We are currently pursuing this offering to raise the additional capital needed to continue planned operations and initiate and fund two planned Phase 3 registration trials of our lead product candidate, omadacycline, for the treatment of ABSSSI.

Financial Operations Overview

Revenue

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 Institute of Health, or NIH, and other non-profit organizations. For the years ended December 31, 2010 and 2011, revenue from Novartis International Pharmaceutical Ltd., or Novartis, represented 93% and 99% of our research and development revenue, respectively. For the six months ended June 30, 2011, revenue from Novartis represented 98% of our research and development revenue, and for the six months ended June 30, 2012, revenue from Warner Chilcott represented 96% of our research and development revenue. Grant revenue associated with our five-year grant from the NIH for research related to spinal muscular atrophy, or SMA, represented 100% of our grant revenue for all periods. In the future, we may generate revenue from a combination of product sales, license fees, milestone payments, and research, development and manufacturing payments from collaborations and royalties from the sales of products developed under licenses of our intellectual property. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, research, development, and manufacturing reimbursements, milestone and other payments from collaborations, and the amount and timing of payments that we receive upon the sale of our products, to the extent any are approved by regulatory authorities and successfully commercialized. We do not expect to generate revenue from product sales prior to 2015, at the earliest. If we or our collaborators fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Research and Development Expenses

Research and development expenses generally consist of the costs associated with our research and discovery activities, conducting preclinical studies and clinical trials and manufacturing development efforts. Specifically, our research and development expenses also consist of:

employee salaries and related expenses, which include stock compensation and benefits for the personnel involved in our research and development activities;

external research and development expenses incurred under agreements with third party contract research organizations and investigative sites;

in-house manufacturing expenses, fees to third-party manufacturing organizations, and consultants; and

facilities, depreciation, and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and laboratory and other supplies.

From inception through June 30, 2012, we have incurred $233.8 million in research and development expenses. We expense research and development costs as incurred. Conducting a significant amount of research and development is central to our business model. Product candidates in late stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of Phase 3 registration trials. We plan to increase our research and development expenses for the foreseeable future as we seek to complete Phase 3 development of our most advanced product candidate, omadacycline, and to further advance our preclinical products and earlier stage research projects to clinical stage trials.

We use our employee and infrastructure resources across multiple research and development programs. We track expenses related to our most advanced product candidates that have had external funding support on a per project basis. Accordingly, we allocate internal employee-related and infrastructure costs, as well as third party costs, to each of these programs. We do not allocate stock-based compensation expense to particular development programs. Costs that are not directly attributable to specific clinical programs or early preclinical activities, such as wages related to shared laboratory services, travel and employee training and development are not allocated and are considered general research and development expenses.

The following table sets forth our research and development expenses, including allocations for omadacycline and certain of our other clinical product candidates for which we have or have had external funding support for development. Our collaborator, Warner Chilcott, leads the clinical development of PTK-AR01 with minimal investment by us. Preclinical investment in our product candidate PTK-SMA2, to date, has been largely funded by our ongoing grant with NIH.


	Years Ended December 31,				Six Months Ended June 30,
	2010		2011		2011		2012
					(unaudited)
Omadacycline	$	11,531,921	$	7,136,533	$	3,914,064	$	3,718,081
PTK-AR01		142,811		132,763		62,268		76,197
PTK-MS01		208,274		156,375		118,804		96,087
PTK-SMA2		1,025,744		990,963		347,528		490,067
Other product candidates⁽¹⁾		2,692,621		2,344,443		1,584,072		303,589
General research and development		5,031,640		5,763,363		2,983,179		3,568,322
Stock-based compensation		167,526		170,821		83,857		29,511

Total research and development expense	$	20,800,537	$	16,695,261	$	9,093,772	$	8,281,854

(1)

Includes expenses related to PTK-RA01, a product candidate for the treatment of rheumatoid arthritis/inflammatory bowel disease and PTK-AH01, a product candidate for the treatment of bacterial infections in animals.

The successful development of our clinical and preclinical product candidates remains highly uncertain. Other than as discussed below, we cannot reasonably estimate the nature, timing, or costs of the efforts that will be necessary to complete the remainder of the development of any of our preclinical or clinical product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including:

the scope, rate of progress, and expense of our ongoing, as well as any additional, clinical trials and other research and development activities;

future clinical trial results;

the terms and timing of regulatory approvals;

the potential benefits of our product candidates over other therapies;

our ability to market, commercialize, and achieve market acceptance for any of our product candidates that we are developing or may develop in the future; and

the expense of filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights.

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 product candidate. For example, if the FDA or a non-U.S. regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

Omadacycline

With proceeds from this offering, we plan to commence two Phase 3 registration trials of omadacycline for the treatment of ABSSSI. The timing of our planned Phase 3 registration trial of omadacycline, in CABP, will depend upon securing a partnership, grant funding or obtaining additional funding beyond the proceeds of this offering. Based on our current expectations regarding the use of proceeds from this offering, and subject to the results of the two Phase 3 registration trials in ABSSSI, we anticipate submitting an NDA to the FDA for omadacycline for the treatment of ABSSSI in late 2014. Furthermore, based on published guidance and our discussions with European regulatory authorities, we believe our currently designed ABSSSI trials will also support the filing for marketing authorization in Europe.

PTK-AR01

In July 2007, we entered into a license and collaboration agreement with Warner Chilcott related to PTK-AR01 for the indications of acne and rosacea in the United States. Warner Chilcott is responsible for the clinical development of PTK-AR01 for the treatment of acne, and may elect to advance the development of PTK-AR01 for the treatment of rosacea. Although Warner Chilcott is responsible for manufacturing PTK-AR01 under the license and collaboration agreement, periodically, at our discretion, we provide support for the manufacturing process development for PTK-AR01 for use in ongoing and future clinical trials. All of our expenses related to the manufacturing of PTK-AR01 are required to be reimbursed by Warner Chilcott. We separately record revenue and expenses on a gross basis under this arrangement. Warner Chilcott is responsible for all development and manufacturing costs of PTK-AR01. During the third quarter of 2010, we received a $1.0 million milestone payment from Warner Chilcott related to the submission of an IND filing for PTK-AR01 in acne to the FDA. During the second quarter of 2012, we received a $2.4 million milestone payment from Warner Chilcott for initiating dosing of the first patient in a proof of concept Phase 2 clinical trial of PTK-AR01 in acne.

PTK-SMA2

In 2009, we were awarded a five-year, milestone-driven NIH grant to further our research and development efforts in the area of spinal muscular atrophy, or SMA. We have conducted research studies to enable development of our lead candidate for this indication, PTK-SMA2, using this funding. We plan to advance PTK-SMA2 into IND-enabling studies. Since 2009, we have received approximately $3.1 million in funding under this grant. Additionally, over the past several years, Families of SMA, a patient advocacy group, has supported our development of PTK-SMA2, providing us an aggregate of $1.2 million in funding.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs for personnel, including stock-based compensation expenses and benefits in our executive, legal, finance, business development, information technology, general operations, and human resources departments. Other general and administrative expenses include costs for employee training and development, board of directors costs, depreciation, insurance

expenses, facility-related costs not otherwise included in research and development expense, and professional fees for legal services, consulting costs, accounting services, and information technology services. We expect that our general and administrative expenses will increase in future periods as a result of increased payroll, expanded infrastructure, increased consulting, legal, accounting, and investor relations expenses associated with being a public company and costs incurred to seek and establish collaborations with respect to any of our product candidates.

Interest Income

Interest income consists of interest earned on our cash and cash equivalents. We expect our interest income to increase following the completion of this offering as we invest the net proceeds from the offering pending their use in our operations.

Interest Expense

In February and March of 2012, we issued unsecured promissory notes, referred to as the March bridge notes, in an original aggregate principal amount of $5.8 million, to certain individuals and entities, some of whom are our officers, directors, and principal stockholders. As of June 30, 2012, the holders of the March bridge notes were eligible to receive the following amounts:

cash equal to the aggregate outstanding principal of the March bridge notes;

an additional repurchase premium amount equal to 150% of the aggregate outstanding principal of the March bridge notes; and

any accrued but unpaid interest at a rate of 10% per annum if repurchase of the March bridge notes is made (i) in connection with a reorganization or the approval of our board of directors and the holders of more than 50% of the outstanding March bridge notes, or (ii) as a result of certain liquidity events occurring after August 13, 2013,

all upon the occurrence of specific transactions set forth in the March bridge notes and upon determination by our board of directors that we had sufficient cash to fund the working capital and funding needs for our clinical trials and related research and development activities for at least 180 days. See Note 8 to our financial statements included elsewhere in this prospectus.

In addition, the March bridge notes were entitled to be repurchased at any time after issuance with our consent, including our board of directors and the holders of more than 50% of the then outstanding March bridge notes. The March bridge notes did not have a contractual maturity date.

Certain terms of the March bridge notes, including the redemption features described here, represent embedded derivatives that will be measured at fair value at each reporting date. In accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 815, Accounting for Derivative Instruments and Hedging Activities, we allocated $6.3 million to the fair value of these redemption features, referred to as the embedded derivative, and recorded it as a liability upon closing of issuance of the March bridge notes. The fair value of the derivative in excess of the proceeds from the March bridge notes was recorded as other expense at the closing. At each reporting period, any change in fair value of the incremental value of the embedded derivative will be reported as other expense or income. As the fair value of the derivative liability exceeded the proceeds of the March bridge notes, the March bridge notes were initially recorded at $0. The March bridge notes are being accreted to a face value of $5.8 million over an estimated time period to repurchase. We measured the fair value of the embedded derivative based upon a contemporaneous valuation and utilized a probability-weighted discounted cash flow methodology where probabilities of outcomes were consistent with those used in the contemporaneous valuation of the fair market value of our common stock as of March 31, 2012. In October 2012, we and the holders of the March bridge notes agreed to exchange all of the March bridge notes for notes with substantially similar terms as the October bridge notes. See “—Liquidity and Capital Resources—Contractual Obligations and Commitments.”

Other Income (Expense), Net

Other income (expense) primarily consists of gains and losses on the change in fair value of preferred stock warrants, the recognition of federal tax incentives and other one-time income or expense-related items.

We allocated $6.3 million to the fair value of the embedded derivative associated with the March bridge notes and recorded it as a liability upon closing of the transaction. The fair value of the derivative in excess of the proceeds from the March bridge notes was recorded as other expense at the closing. At each reporting period, any change in the fair value of the incremental value of the embedded derivative will be reported as other expense or income. See the description of the March bridge notes above in “—Interest Expense.”

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. Estimates relate to aspects of our revenue recognition, useful lives with respect to long-lived assets, valuation of stock options, convertible preferred stock warrants, accrued expenses, and tax valuation reserves. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 to our financial statements included elsewhere in this prospectus, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition

We enter into product development agreements with collaborators for the research and development of therapeutic products. The terms of these agreements may include nonrefundable signing and licensing fees, funding for research, development and manufacturing, milestone payments, and royalties on any product sales derived from collaborations. We assess these multiple elements in accordance with FASB ASC 605, Revenue Recognition, in order to determine whether particular components of the arrangement represent separate units of accounting.

In January 2011, we adopted new authoritative guidance on revenue recognition for multiple element arrangements. This guidance, which applies to multiple element arrangements entered into or materially modified on or after January 1, 2011, amends the criteria for separating and allocating consideration in a multiple element arrangement by modifying the fair value requirements for revenue recognition and eliminating the use of the residual method. The fair value of deliverables under the arrangement may be derived using a best estimate of selling price if vendor specific objective evidence and third-party evidence are not available.

Deliverables under the arrangement will be separate units of accounting provided that a delivered item has value to the customer on a stand-alone basis and if the arrangement does not include a general right of return relative to the delivered item and delivery or performance of the undelivered item is considered probable and substantially in the control of the vendor. We also adopted guidance that permits the recognition of revenue contingent upon the achievement of a milestone in its entirety, in the period in which the milestone is achieved, only if the milestone meets certain criteria and is considered to be substantive. As such, we plan to recognize revenue in the period in which the milestone is achieved, only if the milestone is considered to be substantive based on the following criteria:

The milestone is commensurate with either of the following:

The vendor’s performance to achieve the milestone.

ii.

The enhancement of the value of the delivered item or items as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone.

The milestone relates solely to past performance.

The milestone is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement.

We did not enter into any significant multiple element arrangements or materially modify any of our other existing multiple element arrangements during the year ended December 31, 2011.

We recognize upfront license payments as revenue upon delivery of the license only if the license has stand-alone value and the fair value of the undelivered performance obligations can be determined. If the fair value of the undelivered performance obligations could be determined, such obligations are accounted for separately as the obligations are fulfilled. If the license is considered to either not have stand-alone value or have stand-alone value but the fair value of any of the undelivered performance obligations cannot be determined, the arrangement is accounted for as a single unit of accounting, and the license payments and payments for performance obligations are recognized as revenue over the estimated period of when the performance obligations will be performed.

Whenever we determine that an arrangement should be accounted for as a single unit of accounting, we determine the period over which the performance obligations will be performed and revenue will be recognized. If we cannot reasonably estimate the timing and the level of effort to complete our performance obligations under the arrangement, then we recognize revenue under the arrangement on a straight-line basis over the period that we expect to complete our performance obligations, which we reassess at each subsequent reporting period.

Our collaboration agreements also include additional payments upon the achievement of performance-based milestones. As milestones are achieved, a portion of the milestone payment, equal to the percentage of the total time that we have performed the performance obligations to date over the total estimated time to complete the performance obligations, multiplied by the amount of the milestone payment, is recognized as revenue upon achievement of such milestone. The remaining portion of the milestone will be recognized over the remaining performance period. Milestones that are tied to regulatory approval are not considered probable of being achieved until such approval is received. Milestones tied to counterparty performance are not included in our revenue model until the performance conditions are met.

To date, we have not received any royalty payments or recognized any royalty revenue. We will recognize royalty revenue upon the sale of the relevant products, provided we have no remaining performance obligations under the arrangement.

We record deferred revenue when payments are received in advance of the culmination of the earnings process. This revenue is recognized in future periods when the applicable revenue recognition criteria have been met.

Government research grants that provide for payments to us for work performed are recognized as revenue when the related expense is incurred. Our government grant payments are nonrefundable and contain no repayment obligations.

Accrued Expenses

As part of the process of preparing financial statements, we are required to estimate accrued expenses. This process involves identifying services that have been performed on our behalf and estimating the level of services performed and the associated costs incurred for such services where we have not yet been invoiced or otherwise notified of actual cost. We record these estimates in our financial statements as of each balance sheet date. Examples of estimated accrued expenses include:

fees due to collaboration partners for shared development costs related to development of our product candidates;

fees due to contract research organizations in connection with preclinical and toxicology studies and clinical trials;

fees paid to investigative sites in connection with clinical trials;

fees paid to contract manufacturing organizations in connection with the manufacture of drug product, process development, formulation and analytical services, and stability studies of our product candidates; and

professional service fees.

In accruing service fees, we estimate the time period over which services will be provided and the level of effort in each period. If the actual timing of the provision of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. In the event that we do not identify costs that have been incurred or we under- or over-estimate the level of services performed or the costs of such services, our actual expenses could differ from such estimates. The date on which some services commence, the level of services performed on or before a given date and the cost of such services are often subjective determinations. We make estimates based upon the facts and circumstances known to us at the time and in accordance with U.S. GAAP. There have been no material changes in estimates for the periods presented.

Valuation of Financial Instruments

Embedded Derivative Liability

Stock-Based Compensation

In accordance with FASB ASC Topic 718, Stock Compensation, we account for stock-based compensation by measuring and recognizing compensation expense for all stock-based awards made to employees, including stock options, based on the estimated grant date fair values. We use the straight-line method to allocate compensation expense to reporting periods over each optionee’s requisite service period, which is generally the vesting period. When applicable, we account for these equity instruments based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

We estimate the fair value of stock-based awards to employees using the Black-Scholes option valuation model. Determining the fair value of stock-based awards requires the use of highly subjective assumptions, including volatility, the calculation of expected term, risk free interest rate, and the fair value of the underlying common stock on the date of grant, among other inputs. The assumptions used in determining the fair value of stock-based awards represent our best estimates, which involve inherent uncertainties and the application of judgment. As a result, if factors change, and different assumptions are used, our level of stock-based compensation could be materially different in the future.

The expected volatility rate that we use to value stock option grants is based on historical volatilities of a peer group of similar companies whose share prices are publicly available. The peer group includes companies in the pharmaceutical and biotechnology industries at a similar stage of development or with a similar clinical focus. Because we do not have a sufficient history to estimate the expected term, we use the average expected life of options based on comparable companies’ estimates. The risk-free interest rate assumption was based on zero coupon U.S. treasury instruments that had terms consistent with the expected term of the stock option grants. The expected dividend yield is based on our expectation of not paying dividends for the foreseeable future.

We recognize compensation expense for only the portion of options that are expected to vest. Accordingly, expected future forfeiture rates of stock options have been estimated based on our historical forfeiture rate, as adjusted for known trends. Forfeitures are estimated at the time of grant. If actual forfeiture rates vary from historical rates and estimates, additional adjustments to compensation expense may be required in future periods.

Stock-based compensation expense includes options granted to employees and has been reported in our statements of operations as follows:


	Years Ended December 31,				Six Months Ended June 30,
(in thousands)	2010		2011		2011		2012
					(unaudited)
Research and development	$	168	$	171	$	84	$	30
General and administrative		287		135		68		28

Total	$	455	$	306	$	152	$	58

The assumptions used in the Black-Scholes option-pricing model for the years ended December 31, 2010 and 2011 are set forth below:


	Years Ended December 31,
	2010			2011
Volatility		74	%		72	%
Risk-free interest rate		1.7	%		2.1	%
Expected dividend yield		0.0	%		0.0	%
Expected life of options (in years)		5.4			5.9

The following table presents the grant dates, number of underlying shares and related exercise prices of options granted to employees and non-employee directors, from January 1, 2010 through the date of this prospectus, as well as the estimated fair value of the options on the grant date.


Date of issuance	Number of shares		Exercise price per share		Per share estimated fair value of common stock		Per share estimated fair value of options
February 1, 2010		80,000	$	2.00	$	2.00	$	1.27
March 1, 2010		500		2.00		2.00		1.27
June 28, 2010		5,000		2.00		2.00		1.26
June 29, 2010		2,000		2.00		2.00		1.26
July 7, 2010		3,000		2.00		2.00		1.26
July 26, 2010		3,000		2.00		2.00		1.26
September 10, 2010		150,000		2.00		2.00		1.25
September 29, 2010		70,000		2.00		2.00		1.25
February 28, 2011		3,000		2.00		2.00		1.29
June 5, 2011		500		2.00		2.00		1.27
July 25, 2012		1,500,000		0.73		0.73		0.41
September 26, 2012		100,000		0.73		0.73		0.41

Common Stock Fair Value

The per share estimated fair value of common stock in the table above represents the determination by our board of directors of the fair value of our common stock as of the date of grant, taking into consideration various objective and subjective factors, including those discussed below. We computed the per share estimated fair value for stock option grants based on the Black-Scholes option valuation model.

Historically, we have granted stock options at exercise prices equal to the estimated fair value of our common stock. Due to the absence of an active market for our common stock, the fair value for purposes of determining the exercise price for stock option grants was determined by our board of directors, with the assistance and upon the recommendation of management, in good faith based on a number of objective and subjective factors including:

the prices of our convertible preferred stock sold to or exchanged between outside investors in arm’s length transactions, and the rights, preferences, and privileges of the convertible preferred stock as compared to those of our common stock, including the liquidation preferences of the convertible preferred stock;

our results of operations, financial position, and the status of research and development efforts, including clinical trial data for our various compounds under development;

the composition of, and changes to, our management team and board of directors;

the likelihood of achieving a liquidity event for the holders of our common stock and stock options, such as an initial public offering, given prevailing market conditions, or a strategic merger or sale of the company;

the lack of liquidity of our common stock as a private company;

the material risks related to our business;

achievement of enterprise milestones, including results of clinical trials and entering into or terminating collaboration and license agreements;

the market performance of publicly-traded companies in the life sciences and biotechnology sectors, and recently completed mergers and acquisitions of companies comparable to us;

external market conditions affecting the life sciences and biotechnology industry sectors; and

contemporaneous valuations prepared in accordance with methodologies outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid.

Stock Option Grants from February 1, 2010 to March 1, 2010

Our board of directors granted options on February 1, 2010 and March 1, 2010, with each option having an exercise price of $2.00 per share. In establishing this exercise price, in addition to the objective and subjective factors discussed above, our board of directors also considered input from management, including an analysis as of December 31, 2009. Pursuant to the December 31, 2009 management analysis, the fair value of our common stock was determined to be $2.00 per share.

The management analysis as of December 31, 2009 utilized a market approach, specifically considering guideline public companies and transactions, to estimate the enterprise value of our company by comparing it to similar publicly-traded companies and acquisition transactions. In addition, we considered our net asset value, our net worth, and our capitalization structure. The analysis also considered the price paid for our preferred stock in our most recent financing transaction, and our best judgment as to the price at which we would be able to issue additional preferred stock in the then-current macroeconomic environment. Management’s analysis did not attribute a high likelihood to an IPO in the near future as of December 31, 2009. Given the complex capital structure of our company, it was also necessary to consider the aggregate significant liquidation preferences held by the various classes of our outstanding capital stock, including several series of convertible preferred stock and our common stock. We used our judgment and best estimate based on these approaches to valuation to determine the fair market value of $2.00 per share as of December 31, 2009.

We also considered the following significant events:

in April 2009, we began our first Phase 3 registration clinical trial of omadacycline for the treatment of complicated skin and skin structure infections, or cSSSI;

in June 2009, we paused enrollment of our Phase 3 registration clinical trial to allow time for us to secure a partnership, and later to allow our partner Novartis to agree on a development plan budget and timeline; and

in September 2009, we entered into a license and collaboration agreement with Novartis for the co-development and commercialization of omadacycline, which included a $70.0 million upfront license fee, future development and sales milestone payments, and future royalty payments, depending on the success of omadacycline. The agreement also provided that Novartis would reimburse us for a majority of all direct development costs incurred in connection with omadacycline and would assume all responsibility for manufacturing of omadacycline.

Based on all of these factors, our board of directors determined that the fair value of our common shares at each of February 1, 2010 and March 1, 2010 was $2.00 per share. In connection with the preparation of our financial statements included in this prospectus, we reassessed the fair value of our common stock for financial reporting purposes at February 1, 2010 and March 1, 2010, and determined that no adjustment was necessary.

Stock Option Grants from June 28, 2010 to September 29, 2010

Our board of directors granted options on June 28, 2010, June 29, 2010, July 7, 2010, July 26, 2010, September 10, 2010, and September 29, 2010, with each option having an exercise price of $2.00 per share. In establishing this exercise price, in addition to the objective and subjective factors discussed above, our board of directors also considered input from management, including the analysis as of December 31, 2009, and the most recent valuations set by our board of directors in February and March, 2010. The board of directors then determined that there were events and circumstances that occurred between March 1, 2010 and June 28, 2010 that indicated the fair value of our common stock should remain at $2.00 per share as had been determined by the board of directors in February and March, 2010. The additional specific facts and circumstances considered by our board of directors during this period included:

our having restarted enrollment in a Phase 3 clinical trial of omadacycline in cSSSI in March 2010;

our subsequent receipt of a letter from the FDA notifying us that its guidance for the conduct of studies for cSSSI would be modified; and

our decision to terminate the Phase 3 clinical trial of omadacycline in this indication while we discussed with the FDA a new Phase 3 protocol that would support registration of omadacycline for serious skin infections.

Based on all of these factors, our board of directors determined that the fair value of our common stock at each of June 28, 2010, June 29, 2010, July 7, 2010, July 26, 2010, September 10, 2010, and September 29, 2010 remained $2.00 per share. In connection with the preparation of our financial statements included in this prospectus, we reassessed the fair value of our common stock for financial reporting purposes at June 28, 2010, June 29, 2010, July 7, 2010, July 26, 2010, September 10, 2010, and September 29, 2010 and determined that no adjustment was necessary.

Stock Option Grants from February 28, 2011 to June 5, 2011

Our board of directors granted options on February 28, 2011 and June 5, 2011, with each option having an exercise price of $2.00 per share. In establishing this exercise price, in addition to the objective and subjective factors discussed above, our board of directors also considered input from management, including an analysis as of December 31, 2010, which was conducted in a manner similar to the analysis performed as of December 31, 2009, considering comparable company transactions, our asset value and net worth, and a liquidation preference analysis taking into account the significant aggregate liquidation preference of our various series of convertible preferred stock. Pursuant to the December 31, 2010 management analysis, the fair value of our common stock was determined to be $2.00 per share.

The board of directors then determined that there were events and circumstances that occurred between September 2010 and February 2011 that indicated the fair value of our common stock should remain at $2.00 per share as had been determined by the board of directors throughout 2010. The additional specific facts and circumstances considered by our board of directors during this period included:

the fact that we had not yet resumed clinical development of omadacycline while we continued our discussions with the FDA regarding a new Phase 3 protocol that would support registration of omadacycline for serious skin infections;

our declining cash balance and increasing need for funding due to delayed development plan timelines and expected delay of milestones; and

the length of time it took to arrive at an agreement with the FDA for new trial protocols and our first Special Protocol Assessment, or SPA, for omadacycline in ABSSSI, which we received in February 2011.

In addition, with respect to the June 5, 2011 option grants, the board of directors considered the non-agreement notice we received from the FDA in March 2011 on our proposed SPA for our Phase 3 CABP program.

Based on all of these factors, our board of directors determined that the fair value of our common stock at each of February 28, 2011 and June 5, 2011 remained $2.00 per share. In connection with the preparation of our financial statements included in this prospectus, we reassessed the fair value of our common stock for financial reporting purposes at February 28, 2011 and June 5, 2011, and determined that no adjustment was necessary.

Common Stock Valuation from June 30, 2011 to July 25, 2012

We, through a third-party consultant, performed a contemporaneous valuation of the fair market value of our common stock at March 31, 2012, which indicated a fair market value of $0.73 per common share.

In the March 31, 2012 contemporaneous valuation, the discounted cash flow, or DCF, method was consistently applied to determine the fair market value of our equity or enterprise value. Once the fair market value for the equity was determined, it was allocated among our preferred and common stock using the probability weighted return method, or PWERM. The fair value of our common stock was estimated using a probability-weighted analysis of the present value of the returns that would be afforded to common stockholders under five future exit or liquidity event scenarios, including: an initial public offering, or IPO, in the short term, which we considered to be within three to six months; an IPO in the mid-term, which we considered to be within six to 15 months; an IPO in the long term, which we considered to be within 15 to 33 months; a trade sale to another company; and a dissolution of the company—each with different timelines and valuations. We discounted the probability-weighted cash flows from each exit date to the valuation date using a risk-adjusted cost of capital of 25% based on the company’s stage of development and estimated range of returns for companies at this stage of development. In addition, the other qualitative factors considered in the March 31, 2012 contemporaneous valuation included:

in late June 2011, we were notified by our then-partner, Novartis, of their intent to terminate our collaborative development agreement for omadacycline. Novartis indicated that it elected to terminate the agreement due to the then-existing delays and uncertainties we were experiencing at that time in connection with the regulatory pathway for approval of omadacycline in two core indications, ABSSSI and CABP;

in late 2011, we continued to experience a declining cash balance and increasing need for funding due to delayed development plan timelines, determined there was still a low likelihood of an IPO in the near future, and were unable to enter into an attractive partnership for omadacycline;

in February 2012, our then-CEO resigned from the company; and

in March 2012, we agreed upon our second SPA with the FDA for omadacycline, with regard to CABP.

In the March 31, 2012 contemporaneous valuation, the short-term IPO scenario assumed an exit event in September 2012, the mid-term IPO scenario assumed an additional private financing and an exit event in the form of an IPO in June 2013, and the long-term IPO scenario assumed additional private financings and an exit event in the form of an IPO in December 2014. In applying the market approach under all three IPO scenarios, it was assumed that all development programs, including omadacycline and PTK-AR01, would continue to advance in the clinic through the time of an exit event. The guideline public company method as described in the Practice Aid was used to apply the market approach to all three IPO scenarios. Market data on pre-money IPO valuations for biotechnology companies that went public in the period from 2007 to the first quarter of 2012 was analyzed under this method. From this set of data, a narrower sub-set of comparable companies was selected which had product candidates in various stages of development ranging from discovery stage to Phase 3 clinical trials. The selected enterprise value for the short-term IPO scenario was marginally higher than the pre-money valuation of the biotechnology companies that were considered to be the closest comparisons to us. The selected enterprise value for the mid-term IPO scenario was close to the first-quartile pre-money valuations of all biotechnology IPOs used in the analysis and was 50% higher than the short-term IPO selected enterprise value.

The selected enterprise value for the long-term IPO scenario was close to the average of the median and first quartile pre-money valuation range of all biotechnology IPOs used in the analysis, and was 88% and 25% higher than the short-term and mid-term IPO scenarios, respectively. In determining the value of the common stock in all three IPO scenarios, we assumed that the preferred stock then outstanding would be converted into common stock. This was due to the fact that the assumed enterprise values in these scenarios would have resulted in the automatic conversion of the preferred stock into common stock in accordance with our certificate of incorporation or, alternately, we assumed that we would obtain the requisite consent from the preferred stockholders required to convert all shares of preferred stock into common stock in an IPO. Therefore no value was assigned to the preferred stock preferences in the three IPO scenarios.

In applying the market approach to estimate our aggregate future enterprise values under the trade sale and dissolution scenarios, the trade sale scenario assumed all development programs, including omadacycline and PTK-AR01, would advance in the clinic until the time of a trade sale, while the dissolution scenario assumed one or more programs would experience a clinical delay or setback prior to an exit event. In the trade sale scenario, the exit event was assumed to occur in June 2013, and in the dissolution scenario, the exit event was assumed to occur in September 2012. In applying the market approach to the trade sale and dissolution scenarios, the guideline transaction method was utilized. Under this method, sale transactions of similar private biotechnology companies were analyzed. The values utilized were supported by published transaction values between 2008 and 2011 involving comparable companies with product candidates in various stages of drug development, ranging from discovery stage to Phase 3 clinical trials. In estimating our enterprise value, consideration was given to those transactions for companies that were in a comparable stage of development as we were expected to be in as of September 2012 and June 2013. The selected enterprise values for the trade sale and dissolution scenarios were based on the consideration of the comparable transaction values in biotechnology companies. In the trade sale and dissolution scenarios, the preferred stock was not assumed to convert to common stock as the enterprise values assumed in each of these scenarios were less than the aggregate liquidation preference of the preferred stock.

In the trade sale scenario, an additional round of private financing was assumed in 2012, and a sale of our existing research and intellectual property was assumed as of June 2013, at a value that would not allow preferred stockholders to realize their full liquidation preference. The fair value of our common stock under this exit scenario was determined by reducing the total estimated enterprise value by the liquidation preferences of the preferred stock, all of which would receive more value based on their liquidation preferences plus accrued dividends, as opposed to converting to common stock. Therefore no value was available to be distributed to common stockholders given the accumulated liquidation preferences of our preferred stock in the trade sale scenario.

In the dissolution scenario, a sale of our existing research and intellectual property was assumed as of September 2012, at a value that would also not allow preferred stockholders to realize their full liquidation preference. The fair value of our common stock under this exit scenario was determined by reducing the total estimated enterprise value by the liquidation preferences of the preferred stock, all of which would receive more value based on their liquidation preferences plus accrued dividends, as opposed to converting to common stock. Therefore, no value was available to be distributed to common stockholders given the accumulated liquidation preferences of our preferred stock in the dissolution scenario.

In the March 31, 2012 contemporaneous valuation, we applied a discount for lack of marketability of 20%. The valuation relied on the Finnerty model, which relates discount for lack of marketability to the length of the holding period for unregistered equity in a publicly-traded corporation’s stock, and the volatility of the underlying publicly-traded equity, as well as on an at-the-money put option analysis. Using assumptions previously determined for the application of the option pricing model at the valuation date, the Finnerty model indicated a discount for lack of marketability of approximately 19% for the common stock. Using a Black-Scholes option pricing framework, the at–the-money put option analysis calculated a 35% discount to the value of the common stock. As a result of these two approaches, a discount for lack of marketability of 20% was applied.

In the March 31, 2012 contemporaneous valuation, probability weightings of 20%, 30% and 10% were used for the short-term, mid-term and long-term IPO scenarios, respectively, and 30% and 10% were used for the trade sale and dissolution scenarios, respectively. The probability weightings assigned to the respective exit scenarios were primarily based on consideration of our product candidates programs, industry clinical success rates, our expected near-term and long-term funding requirements, and an assessment of the current financing and biotechnology industry environments at the time of the valuation. The resulting value, which represented the estimated fair value of our common stock as of March 31, 2012, was $0.73 per share.

The decrease in the fair market value of common stock from $2.00 per share in June 2011 to $0.73 per share at March 31, 2012 was primarily driven by the timing of the exit scenarios, all of which were adjusted primarily based upon the value modifying events above, and, in particular, the termination of our development partnership with Novartis. Given that the primary event causing the decrease in the fair value of our common stock was associated with the Novartis termination, we determined that the fair value of our common stock was $0.73 per share at the time we were notified by Novartis of their intention to terminate the collaboration agreement for omadacycline, which was in late June 2011.

Stock Option Grants from July 25, 2012 to September 26, 2012

Our board of directors granted options on July 25, 2012 and September 26, 2012 with each option having an exercise price of $0.73 per share. In establishing this exercise price, in addition to the objective and subjective factors discussed above, our board of directors also considered input from management, as well as the most recent available contemporaneous common stock valuation performed as of March 31, 2012, pursuant to which the fair value of our common stock was determined to be $0.73 per share.

The contemporaneous valuation as of March 31, 2012 incorporated our intention to pursue an IPO, including our ongoing discussions with potential underwriters at this date and a schedule for selecting a syndicate, holding an organizational meeting and preparing a registration statement on Form S-1. However, while we confidentially submitted a registration statement on Form S-1 to the Securities and Exchange Commission on August 10, 2012, between March 31, 2012 and September 26, 2012, our cash reserves were steadily decreasing and prospects for successful completion of IPOs by emerging growth companies in the biotechnology area remained uncertain. Other than these factors, our board of directors and management determined that no significant events or other circumstances that had not been taken into consideration in the March 31, 2012 valuation had occurred between March 31, 2012 and September 26, 2012 that would indicate there was a change in the fair value of our common stock during that period.

Based on all of these factors, our board of directors determined that the fair value of our common stock at July 25, 2012 and September 26, 2012 was $0.73 per share.

There are significant judgments and estimates inherent in the determination of these valuations. These judgments and estimates include assumptions regarding our future performance, including the successful completion of our clinical trials and the time to completing an IPO or sale, as well as the determination of the appropriate valuation methods at each valuation date. If we had made different assumptions, our valuation could have been different. The foregoing valuation methodologies are not the only methodologies available and they will not be used to value our common stock once this offering is complete. Accordingly, investors are cautioned not to place undue reliance on the foregoing valuation methodologies as an indicator of our future stock price.

Preferred Stock Warrants Fair Value

As part of prior loan agreements we entered into in 2005 and 2009, we issued warrants for the purchase of two series of our convertible preferred stock—the Series F and Series H warrants. Upon issuance, we estimated the fair value of each issuance of these warrants using the Black-Scholes option valuation model with the following inputs: the estimated fair value of the underlying preferred stock at the valuation measurement date; the risk-free interest rates; the expected dividend rates; the remaining contractual terms of the warrants; and the expected volatility of the price of the underlying stock. Our estimates are based, in part, on subjective assumptions and could differ materially in the future. The fair values of these warrants were recorded as liabilities on the balance sheets.

At the end of each reporting period, the fair values of the warrants are determined by management using the Black-Scholes option pricing model, with any changes in value during the period recorded as a component of other income. We will continue to adjust the fair values of the warrants at each period end for changes in fair value until the earlier of the exercise or expiration of the applicable preferred stock warrants or the completion of this offering.

Subsequent to the completion of an IPO, the Series H warrants, if not yet exercised, will convert to common stock warrants. On June 30, 2012, the Series F warrants expired unexercised.

Jumpstart Our Business Startups Act of 2012

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. An “emerging growth company,” as defined in the JOBS Act, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are electing to delay such adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the dates on which adoption of such standards is required for non-emerging growth companies.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain other exemptions provided therein, including without limitation, that we will not be required to provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and that we will not be required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an emerging growth company, whichever is earlier.

Results of Operations

Comparison of the Six Months Ended June 30, 2011 (unaudited) and the Six Months Ended June 30, 2012 (unaudited)

The following table summarizes the results of our operations for each of the six months ended June 30, 2011 and 2012:


	Six Months Ended June 30,
(in thousands)	2011			2012
	(unaudited)
Research and development revenue	$	9,839		$	2,573
Grant revenue		315			248

Total revenue		10,154			2,821

Research and development expenses		9,094			8,282
General and administrative expenses		1,691			2,539

Total operating expenses		10,785			10,821

Operating (loss)		(631	)		(8,000	)
Interest income		4			1
Interest expense		—			(1,365	)
Other income		667			11
Other expense		—			(853	)

Income (loss) from operations before income taxes		40			(10,206	)
Provision for income taxes		—			—

Net income (loss)	$	40		$	(10,206	)

Research and Development Revenue

Research and development revenue for the six months ended June 30, 2012 was $2.6 million, compared to $9.8 million for the six months ended June 30, 2011, a decrease of $7.2 million, or 74%. This decrease resulted from the termination of our collaboration and license agreement with Novartis during the third quarter of 2011. All remaining deferred revenue related to the upfront payments, milestone payments, and manufacturing and research and development revenue recognized under the collaboration and license agreement was recognized upon the termination of the agreement. No additional revenue was available to be recognized in the six months ended June 30, 2012.

Grant Revenue

Grant revenue for the six months ended June 30, 2012 was $248,124, compared to $315,447 for the six months ended June 30, 2011, a decrease of $67,323, or 21%. This decrease resulted from decreased research and development activity related to our PTK-SMA2 research program under our five-year NIH grant.

Research and Development Expenses

Research and development expenses for the six months ended June 30, 2012 were $8.3 million, compared to $9.1 million for the six months ended June 30, 2011, a decrease of $0.8 million, or 9%. This decrease was primarily attributable to:

$0.8 million of decreased external spending related to the development of omadacycline due to the delay in Phase 3 development and the termination of our collaboration and license agreement with Novartis;

$0.9 million of decreased payroll and benefits costs due to decreased headcount;

$0.6 million of decreased facilities-related spending as a result of our transition to a smaller laboratory space;

and partially offset by

$1.3 million of increased rent as a result of the early termination of one of our operating leases; and

$0.2 million of increased travel and other expenses related to research personnel.

General and Administrative Expenses

General and administrative expenses for the six months ended June 30, 2012 were $2.5 million, compared to $1.7 million for the six months ended June 30, 2011, an increase of $0.8 million, or 50%. This increase was primarily attributable to the resignation of an executive officer and the resulting one-time charge for his accrued severance payments and increased legal and accounting fees, but was partially offset by decreases in investor relations activities, recruiting, and stock option expenses.

Interest Income

Interest income for the six months ended June 30, 2012 and 2011 was minimal. Interest income was related to interest earned on our cash and cash equivalent investments.

Other Income

Other income for the six months ended June 30, 2012 was $10,582, compared to $666,862 for the six months ended June 30, 2011, a decrease of $656,280, or 98%. This decrease was primarily due to the change in fair value of preferred stock warrants.

Interest Expense

As a result of the accretion in value of the underlying March bridge notes between the closing date and June 30, 2012, we recorded $1,337,422 of non-cash interest expense. We also recorded $27,765 of non-cash interest expense in the six months ended June 30, 2012 representing amortized debt issuance costs associated with the March bridge notes financing. There was no interest expense during the comparable 2011 period.

Other Expense

Other expense for the six months ended June 30, 2012 was $0.8 million, compared to $0.0 million for the six months ended June 30, 2011, an increase of $0.8 million. This increase was due to the recording of $492,957 as other expense associated with the March bridge note transaction during the six months ended June 30, 2012, which represents the difference between the fair value of the derivative liability and the cash proceeds from the March bridge notes, as well as the recording of $359,652 as other expense associated with the remeasurements of the fair value of the derivative liability as of June 30, 2012.

Comparison of the Years Ended December 31, 2010 and 2011

The following table summarizes the results of our operations for each of the years ended December 31, 2010 and 2011:


	Years Ended December 31,
(in thousands)	2010			2011
Research and development revenue	$	24,688		$	52,253
Grant revenue		1,083			1,040

Total revenue		25,771			53,293

Research and development expenses		20,801			16,696
General and administrative expenses		4,289			3,327

Total operating expenses		25,090			20,023

Operating income		681			33,270
Interest income		20			5
Other income		831			682
Other expense		(8	)		—

Income from operations before income taxes		1,524			33,957
Provision for income taxes		—			—

Net income	$	1,524		$	33,957

Research and Development Revenue

Research and development revenue for 2011 was $52.3 million, compared to $24.7 million for 2010, an increase of $27.6 million, or 112%. This increase primarily resulted from the termination of our development partnership with Novartis in the third quarter of 2011. All remaining deferred revenue related to the upfront payments, milestone payments, and manufacturing and research and development revenue recognized under the collaboration agreement was recognized upon the termination of the agreement. The increase was partially offset by a $1.0 million decrease in revenue from our Warner Chilcott collaboration, where we received and recognized a $1.0 million milestone payment in 2010, but did not receive similar milestone payments in 2011.

Grant Revenue

Grant revenue for 2011 was $1.0 million, compared to $1.1 million for 2010, a decrease of $0.1 million, or 4%. This decrease resulted from the decreased budget for our PTK-SMA2 research program under our five-year NIH grant.

Research and Development Expenses

Research and development expenses for 2011 were $16.7 million, compared to $20.8 million for 2010, a decrease of $4.1 million, or 20%. This decrease was primarily attributable to:

$4.8 million of decreased external spending related to the development of omadacycline due to the delay in our Phase 3 non-registration trial for the treatment of cSSSI following our receipt of a letter from the FDA notifying us that its guidance for the conduct of studies for cSSSI would be modified; and

$0.5 million of decreased external spending on preclinical product candidates and other general unallocated research and development expenses due to a decrease in the allocation of resources for preclinical programs.

These decreases were partially offset by an increase of $0.8 million of spending for increased payroll and internal costs in our clinical group, including a full year of compensation for our former Chief Medical Officer who was hired in 2010.

General and Administrative Expenses

General and administrative expenses for 2011 were $3.3 million, compared to $4.3 million for 2010, a decrease of $1.0 million, or 22%. This decrease was primarily attributable to decreased payroll and internal costs and stock option expenses due to a decrease in headcount, as well as a reduction in recruiting fees after the hiring of our former Chief Medical Officer in 2010 and the elimination of personal property tax expense after receiving manufacturing classification in the Commonwealth of Massachusetts.

Interest Income

Interest income for 2011 was $4,956, compared to $19,696 for 2010. Interest income was related to interest earned on our cash and cash equivalent investments.

Other Income

Other income for 2011 was $0.7 million, compared to $0.8 million for 2010, a decrease of $0.1 million, or 18%. This change was a result of the receipt of a $733,438 grant awarded under the federal Qualifying Therapeutic Discovery Project program pursuant to Section 48D of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, which was recognized as other income in 2010 and did not recur in 2011, and which was offset by $581,303 of additional income from the change in fair value of preferred stock warrants during 2011.

Other Expense

Other expense for 2011 was $0, compared to $7,767 for 2010. Other expense in 2010 was related to a loss incurred on retirement of a fixed asset.

Liquidity and Capital Resources

Sources of Liquidity

We have incurred significant losses and cumulative negative cash flows from operations since our inception in 1996 and, as of June 30, 2012 we had an accumulated deficit of $142.4 million. We anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development and general and administrative expenses will continue to increase, and, as a result, we anticipate that we will need to raise additional capital to fund our operations, which we may seek to obtain through a combination of public or private equity offerings, debt financings, strategic collaborations, and grant funding. Since our inception, through June 30, 2012, we have financed our operations primarily through collaborations, private placements of our convertible preferred stock, and, to a lesser extent, through government grants, foundation support, line of credit and note financings and equipment lease financings. Through June 30, 2012, we have received $130.6 million from the sale of convertible preferred stock and $172.7 million of upfront license fees, milestone payments, reimbursement of research and development costs, manufacturing services, and other payments from our former and existing collaborations, and from government and other grants.

As of June 30, 2012, we had cash and cash equivalents of $3.3 million. In February and March 2012, we raised $5.8 million through the issuance of the March bridge notes. In October 2012, we raised an additional $5.0 million through the issuance of the October bridge notes. See “—Contractual Obligations and Commitments” below.

We earned and received payment of a $2.4 million milestone payment in the second quarter of 2012 under our collaboration agreement with Warner Chilcott.

We primarily invest cash and cash equivalents in money market funds backed by the U.S. treasury and U.S. federal agencies.

Cash Flows

The following table provides information regarding our cash flows for the years ended December 31, 2010 and 2011, and the six months ended June 30, 2011 and 2012.


	Years Ended December 31,						Six Months Ended June 30,
(in thousands)	2010			2011			2011			2012
							(unaudited)
Cash used in operating activities	$	(10,846	)	$	(17,093	)	$	(9,700	)	$	(5,050	)
Cash (used in) provided by investing activities		(597	)		(110	)		(107	)		96
Cash provided by financing activities		127			131			131			5,812

Net (decrease) increase in cash and cash equivalents	$	(11,316	)	$	(17,072	)	$	(9,676	)	$	858

Operating Activities

Cash used in operating activities of $10.8 million for the year ended December 31, 2010 was primarily a result of our $1.5 million of net income and non-cash items of $1.0 million, partially offset by changes in operating assets and liabilities of $13.4 million, including receipt of a $10.0 million milestone payment under the collaboration and license agreement with Novartis. Cash used in operating activities of $17.1 million for the year ended December 31, 2011 was primarily a result of our $34.0 million in net income offset by changes in operating assets and liabilities of $51.0 million and by net non-cash items of $62,994. Cash used in operating activities of $9.7 million for the six months ended June 30, 2011 was primarily a result of our $9.4 million of changes in operating assets and liabilities and $341,921 in non-cash items, and was partially offset by $40,296 of net income. Cash used in operating activities of $5.0 million for the six months ended June 30, 2012 was primarily a result of our $10.2 million net loss, partially offset by $2.8 million as a result of changes in operating assets and liabilities and $2.4 million of non-cash items, including the issuance of the March bridge notes and resulting non-cash interest expense.

Investing Activities

Cash used in investing activities was $0.6 million for the year ended December 31, 2010 and $0.1 million for the year ended December 31, 2011. Net cash used in investing activities was $0.1 million for the six months ended June 30, 2011, and net cash provided by investing activities was $0.1 million for the six months ended June 30, 2012. Cash used in investing activities during the years ended December 31, 2010 and 2011, and the six months ended June 30, 2011 was primarily due to the purchase of plant, property and equipment, partially offset by modest sales of equipment items. Cash provided by investing activities during the six months ended June 30, 2012 was the result of a returned security deposit associated with one of our operating leases, partially offset by the purchase of property, plant and equipment.

Financing Activities

Cash provided by financing activities was $0.1 million for both the years ended December 31, 2010 and 2011. Net cash provided by financing activities was $0.1 million for the six months ended June 30, 2011 and $5.8 million for the six months ended June 30, 2012. Cash provided by financing activities during 2010 and 2011 was due to the exercise of stock options. Cash provided by financing activities during the six months ended June 30, 2011 was also due to the exercise of stock options. Cash provided by financing activities during the six months ended June 30, 2012 was primarily related to the issuance of $5.8 million of the March bridge notes.

Future Funding Requirements

We have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval of and commercialize omadacycline or any of our other product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our

product candidates. Upon the closing of this offering, we 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 expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations.

As of June 30, 2012, we had cash and cash equivalents of $3.3 million and in October 2012, we raised an additional $5.0 million through the issuance of the October bridge notes. Our present capital resources are not sufficient to fund our planned operations for a twelve month period, and therefore, raise substantial doubt about our ability to continue as a going concern. We will, during the remainder of 2012, require significant additional funding to continue our operations. Failure to receive additional funding could cause us to cease operations, in part or in full. We are currently pursuing this offering to raise the additional capital needed to continue planned operations.

We have not completed development of any therapeutic products. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially as we:

initiate and conduct our Phase 3 registration trials of omadacycline;

continue the research and development of our other product candidates, including initiating or continuing animal and in vitro studies of our preclinical candidates;

seek to discover additional product candidates;

seek regulatory approvals for any of our product candidates that successfully complete registration trials;

establish a sales, marketing and distribution infrastructure and fund scale up manufacturing capabilities to commercialize any products for which we may obtain regulatory approval; and

add operational, financial and management information systems and personnel, including personnel to support our product development and planned commercialization efforts.

Based upon our current operating plan, we anticipate that the net proceeds from this offering, together with our existing cash and cash equivalents, the proceeds from our October bridge note financing, anticipated grant funding and anticipated milestone payments plus development and manufacturing funding under our collaboration agreement with Warner Chilcott will enable us to fund our operating expenses and capital expenditure requirements for at least the next 18 months. See “Use of Proceeds” for a more detailed discussion. 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 their development and commercialization, 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:

the progress of clinical development of omadacycline;

the number and characteristics of other product candidates that we pursue;

the scope, progress, timing, cost and results of research, preclinical development and clinical trials;

the costs, timing and outcome of seeking and obtaining FDA and non-U.S. regulatory approvals;

the costs associated with manufacturing and establishing sales, marketing and distribution capabilities;

our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make in connection with the licensing, filing, defense and enforcement of any patents or other intellectual property rights;

our need and ability to hire additional management, scientific and medical personnel;

the effect of competing products that may limit market penetration of our product candidates;

our need to implement additional internal systems and infrastructure, including financial and reporting systems; and

the economic and other terms, timing of and success of our existing licensing arrangements and any collaboration, licensing or other arrangements into which we may enter in the future, including the timing of receipt of any milestone or royalty payments under these arrangements.

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 public or private equity offerings, debt financings, strategic collaborations and grant funding. We do not have any committed external sources of funds other than our NIH grant, which is terminable by NIH if milestones are not achieved, and our collaboration with Warner Chilcott, which is terminable by Warner Chilcott 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 your rights as a stockholder. 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 to 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.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2011 and the effect such obligations are expected to have on our liquidity and cash flow in future years:


(in thousands)	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years
Operating lease obligations⁽¹⁾	$	8,957	$	2,675	$	3,899	$	2,125	$	258
Total contractual cash obligations	$	8,957	$	2,675	$	3,899	$	2,125	$	258

(1)

Operating lease obligations do not include the savings associated with the termination of one of our existing office, laboratory and manufacturing space leases, which was executed during the second quarter of 2012. This amendment decreases operating lease obligations by approximately $0.9 million in the aggregate over the next two years.

Leases

In January 2012, we entered into a new operating lease agreement for additional laboratory and office space in Cambridge, Massachusetts. The new lease term is 60 months, with an expiration date of June 30, 2017. Aggregate lease payments over the term will be $2,655,550.

In June 2012, we terminated one of our operating lease agreements prior to the contractual termination date. As a result of the early termination, we will be required to pay the landlord an aggregate early termination fee of $1,615,357 through monthly payments until May 2013, representing a savings of approximately $0.9 million over the next two years. As of June 30, 2012, our remaining obligation related to this lease termination was $1,343,344.

Licenses

Under a license agreement with Tufts University, we are required to make aggregate regulatory milestone payments of up to $300,000 associated with the filing of an NDA and approval of our first product candidate, $50,000 of which has been paid. We are also obligated to pay Tufts a minimum royalty in the amount of $25,000 per year if we do not sponsor at least $100,000 of research at Tufts in such year. We also agreed to pay Tufts

either low single digit royalties based on gross sales or low double digit royalties based on sublicensed product royalties for certain of our products when and if they are commercialized.

In September 2009, we entered into a Collaborative Development, Manufacture and Commercialization License Agreement with Novartis, which we refer to as the Novartis Agreement, which provided Novartis with a global, exclusive patent license for the development, manufacturing and marketing of omadacycline. Under the terms of the agreement, Novartis was to have led development activities for omadacycline, and we were to have co-developed and contributed a share of the development expenses. The Novartis Agreement was terminated effective August 2011. In January 2012, we and Novartis entered into a letter agreement, which we refer to as the Novartis Letter Agreement, in which we reconciled shared development costs and expenses and granted Novartis a right of first negotiation with respect to commercialization rights of omadacycline following approval of omadacycline from the FDA, EMA or any regulatory agency, but only to the extent we have not previously granted such commercialization rights related to omadacycline to another third party as of any such approval. Pursuant to the reconciliation of development costs and expenses, we agreed to pay Novartis approximately $2.9 million on June 30, 2012, and as of the date hereof, this amount remains outstanding.

In October 2012, we agreed with Novartis that we would accrue interest on the amount owed at a rate of 9.5% per year, compounded quarterly, until repaid. We agreed that we would repay the amount owed from any cash upfront and milestone payments that we receive pursuant to a licensing or other strategic transaction, except for reimbursements of certain development costs. Additionally, we agreed to repay the amount owed from any equity, debt or other financing or funding proceeds, provided that, prior to March 31, 2013, we will not be required to repay the amount owed out of financing or funding proceeds until we have received in excess of $95 million from these sources. The interest rate payable on the amount owed will increase to 15% per year, compounded quarterly, if we do not pay Novartis in full by January 1, 2014. Subject to the exception noted above relating to financing or funding proceeds in excess of $95 million prior to March 31, 2013, Novartis has waived its right to take legal action to collect the amount owed until the earlier of January 1, 2015 and 15 days after our receipt of funds in a strategic transaction or financing, from which we have not paid Novartis the lesser of (1) at least 75% of the amount of such funds and (2) the remaining amount we owe Novartis at that time.

Employee Arrangements

We have employment agreements with certain employees which require the funding of a specific level of payments, if certain events, such as a change in control or termination without cause, occur.

In April 2012, the board of directors approved a $500,000 pool for a cash retention plan in order to retain our key employees. The terms of the plan stated that eligible employees will receive 50% of their bonus on the earlier of August 31, 2012 and the completion of a successful aggregate capital raise of at least $10,000,000 and the remaining 50% on the completion of a successful aggregate capital raise of at least $10,000,000. In August 2012, the plan was amended to state that each eligible employee would earn the first 50% of their bonus on the earlier of August 31, 2012 or the completion of a successful aggregate capital raise of at least $10,000,000, but that this amount would be paid on October 1, 2012. On October 1, 2012, we paid these key employees an aggregate of $250,000 under this program. See “Executive and Director Compensation—Additional Narrative Disclosure” for further details.

Note Financings

In February and March 2012, we issued the March bridge notes in an original aggregate principal amount of $5.8 million. See the description of the March bridge notes above in “—Financial Operations Overview—Interest Expense.”

On October 2, 2012, we entered into a note and stock purchase agreement and issued $5.0 million aggregate principal amount of additional promissory notes, which we refer to as the October bridge notes, to certain of our existing stockholders. We refer to this financing as our October bridge note financing.

As part of the October bridge note financing, we and the holders of the March bridge notes agreed to exchange all March bridge notes for notes with substantially similar terms as the October bridge notes, except that the holders of the March bridge notes are not entitled to receive upfront or deferred bridge shares. We collectively refer to the March bridge notes and October bridge notes as the 2012 bridge notes. Upon the completion of this offering, all of the 2012 bridge notes will be exchanged for notes with revised repurchase and conversion terms, which we refer to as the post-IPO notes. Pursuant to the terms of the post-IPO notes, we will be obligated to repurchase all post-IPO notes in an amount equal to the outstanding principal amount of such notes, plus 150% of the outstanding principal amount of each note, together with simple interest at a rate of 10.0% per year upon the earlier to occur of (i) a reorganization, which is defined as a capital reorganization of the common stock (other than a subdivision, combination, recapitalization, reclassification or exchange of shares), a consolidation or merger of us, (other than a merger or consolidation of us in a transaction in which our shareholders immediately prior to the transaction possess more than 50% of the voting securities of the surviving entity (or parent, if any) immediately after the transaction) or a sale of all or substantially all of our assets, or (ii) approval of any of our product candidates, including omadacycline, for any indication by the FDA, the EMA or the equivalent regulatory agencies in at least two European countries. Additionally, we may choose to repurchase the post-IPO notes in an amount equal to the outstanding principal amount of such notes, plus 150% of the outstanding principal amount of each note, together with simple interest at a rate of 10.0% per year prior to the events described in (i) or (ii) above if, after one or more specified liquidity events as described below, such repurchase is permitted under any existing loan documents and our board of directors determines in good faith that (A) none of the proceeds of this offering will be used to effect such repurchase and (B) we have sufficient cash to fund our general operating needs through the completion of the two planned Phase 3 registration studies for ABSSSI and an additional 12 months thereafter. To effect this early repurchase, one or more liquidity events must have occurred, which include, among other things, a license or a public offering other than this offering. In addition, any holder of post-IPO notes may convert all or a portion of the then outstanding principal amount and any unpaid accrued interest of the post-IPO notes into shares of common stock in an amount equal to 150% of the principal amount of the post-IPO note elected to be converted, plus accrued and unpaid interest, at a conversion price equal to 115% of the price set forth on the cover page of this prospectus.

We are in the process of assessing the exchange of the March bridge notes for notes with substantially similar terms as the October bridge notes following the guidance in ASC 470-50-40 in order to evaluate whether a debt modification or extinguishment has occurred. Upon completion of this assessment, we will disclose whether an extinguishment or modification has occurred and the resulting impact on the statement of operations. With respect to the issuance of the October bridge notes in exchange for cash proceeds, we will assess the accounting treatment of these notes under the guidance in ASC 815, allocating value to the debt host and the embedded features.

For additional details related to the terms of the 2012 bridge notes and post-IPO notes, see “Certain Relationships and Related Person Transactions—2012 Promissory Notes and Post-IPO Promissory Notes.”

Contract Service Providers

In the course of normal business operations, we also have agreements with contract service providers to assist in the performance of our research and development and manufacturing activities. We can elect to discontinue the work under these agreements at any time. We could also enter into additional collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require upfront payments and/or long-term commitments of cash.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

Net Operating Losses

As of December 31, 2011, we had federal net operating loss, or NOL, carryforwards of $93.6 million and state net operating loss carryforwards of $40.7 million, which begin to expire in 2025 and 2013, respectively. As of December 31, 2011, we had federal research and development carryforwards of $4.0 million and state research and development carryforwards of $3.1 million, which began to expire in 2012. Management has evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets, which are comprised principally of NOL carryforwards and research and development credits, and determined that it is more likely than not we will not recognize the benefits of federal and state deferred tax assets. As a result, we have established a valuation allowance of $64.2 million as of December 31, 2010 and $51.9 million as December 31, 2011.

Our ability to utilize our federal NOLs and federal tax credits is currently limited, and may be limited further, under Section 382 of the Internal Revenue Code. Ownership changes, as defined in Section 382 of the Internal Revenue Code, limit the amount of NOL carryforwards and research and development credit carryforwards we can use each year to offset future taxable income and taxes payable.

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,” or ASU 2011-04. This accounting standard clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 is effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011, which for us is January 1, 2012. As this accounting standard only requires enhanced disclosure, the adoption of this standard did not impact our financial position or results of operations.

Quantitative and Qualitative Disclosures About Market Risk

Our cash and cash equivalents as of December 31, 2011 and June 30, 2012 consisted primarily of cash and money market accounts. 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, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on the fair market value of our investment portfolios. 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 investment portfolio. The interest rate on our 2012 bridge notes is fixed and therefore not subject to interest rate risk. We do not have any foreign currency or other derivative financial instruments.

We contract with CROs 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 our 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 June 30, 2012 and December 31, 2011 and 2010, substantially all of our total liabilities were denominated in U.S. dollars.

Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations during 2010 or 2011 or through the six months ended June 30, 2012.

Business

Overview

We are a pharmaceutical company focused on the discovery, development, and commercialization of innovative medicines that are designed to save lives and alleviate suffering. Our lead product candidate, omadacycline, is a new broad-spectrum antibiotic being developed for use as a first-line monotherapy for serious community-acquired bacterial infections where antibiotic resistance is of concern for treating physicians. We believe omadacycline will be used in the emergency room, hospital, and community settings. We have designed omadacycline to provide significant advantages over existing antibiotics, including activity against resistant bacteria, broad spectrum of coverage, intravenous, or IV, and oral formulations with once-daily dosing, and a favorable safety and tolerability profile. We believe that it will become the primary antibiotic choice of physicians for use as a first-line monotherapy for acute bacterial skin and skin structure infections, or ABSSSI, community-acquired bacterial pneumonia, or CABP, urinary tract infections, or UTI, and other serious community-acquired bacterial infections.

As with all of our product candidates, omadacycline is a patented new molecular entity that we designed based on our proprietary drug development platform. Using this platform to create chemically diverse and biologically distinct small molecules derived from the tetracycline class of molecules, we have also designed two additional antibacterial product candidates that are in later stage clinical development, and three other product candidates, for multiple sclerosis, or MS, spinal muscular atrophy, or SMA, and rheumatoid arthritis, or RA, that are in preclinical development.

We have successfully completed clinical studies necessary to advance omadacycline into Phase 3 development. We have reached agreement with the U.S. Food and Drug Administration, or FDA, for two separate Special Protocol Assessment, or SPA, agreements, with regard to Phase 3 registration trial designs for omadacycline in both ABSSSI and CABP. A SPA documents the FDA’s agreement that the design and planned analysis of the Phase 3 clinical trial reviewed under the SPA process, if the trial is successfully completed, will support a new drug application, or NDA, submission. A SPA 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 risk-benefit 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 an 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.

Under our SPA agreement, we plan to commence a pivotal registration program including two Phase 3 registration trials of omadacycline for the treatment of ABSSSI in the first quarter of 2013. Our two prior randomized clinical trials of omadacycline to date have compared omadacycline to linezolid, marketed by Pfizer Inc. as Zyvox, which, based on 2011 worldwide sales of $1.3 billion, is a leading antibiotic used for the treatment of serious bacterial skin infections. Our Phase 2 trial results, as well as results from a Phase 3 non-registration trial, demonstrate that omadacycline’s clinical response rates and adverse events were comparable to linezolid in serious bacterial skin infections. These clinical trials evaluated both IV and oral forms of omadacycline compared to IV and oral forms of linezolid in 359 patients.

Combined Data from Phase 2 and Phase 3 Non-Registration Trials


	Omadacycline													Linezolid
Population⁽¹⁾	Clinical Success⁽²⁾ (N)		Total (N)		Clinical Success (%)			Adverse Events (N)			Adverse Events (%)			Clinical Success⁽²⁾ (N)		Total (N)		Clinical Success (%)			Adverse Events (N)			Adverse Events (%)
Intent-to-Treat		156		179		87.2	%		102			57	%		146		180		81.1	%		113			63	%
Clinically Evaluable		156		160		97.5	%		—	⁽³⁾		—			146		155		94.2	%		—	⁽³⁾		—

(1)

(2)

(3)

Adverse events are evaluated for all patients who received more than one dose of study drug, and as such, are based on the ITT population.

We believe the timeline to develop omadacycline, and the risk associated with its development, regulatory approval, and commercialization in ABSSSI and CABP, have been minimized as a result of: our plan to simultaneously conduct two Phase 3 registration trials in ABSSSI; our comprehensive set of preclinical and clinical studies; and our SPA agreements with the FDA. Based on our current expectations, we anticipate completing our two ABSSSI trials in mid-2014 and submitting an NDA for the treatment of ABSSSI in late 2014. Furthermore, based on published guidance and our discussions with European regulatory authorities, we believe our currently designed ABSSSI trials will also support the filing for marketing authorization in Europe.

According to The World Market for Anti-Infectives from Kalorama Information, or the Kalorama Report, in 2011, approximately $23 billion was spent on antibiotic drugs worldwide, of which almost $9 billion was spent in the United States. According to the Centers for Disease Control and Prevention, approximately 12 million patients develop bacterial infections that are severe enough to require hospitalization in the United States every year, and the World Health Organization has identified the development of worldwide resistance to currently available antibacterial agents as being one of the three greatest threats to human health in this decade.

Currently available antibiotics to treat ABSSSI, CABP, UTI, and other serious community-acquired bacterial infections have significant limitations for use as a first-line empiric monotherapy, which refers to the use of a single antibacterial agent to begin treatment of an infection before the specific pathogen causing the infection has been identified. These limitations lead to longer hospital stays, greater healthcare costs, and increased morbidity and mortality due to lower cure rates and increased side effects. These limitations include the following:

lack of both IV and oral formulations of the same drug, which generally requires physicians to either continue IV therapy in a hospital setting or switch the patient to a different oral antibiotic, which carries risks related to side effects and treatment failure;

narrow-spectrum antibacterial activity, which forces physicians to prescribe two or more antibiotics to empirically treat a broad spectrum of potential pathogens;

treatment-limiting adverse events, including in some instances, kidney damage, allergic reactions, or sudden cardiovascular death due to cardiac arrhythmia; and/or

lack of effectiveness due to growing bacterial resistance in pathogens such as methicillin-resistant Staphylococcus aureus, or MRSA, multi-drug resistant Streptococcus pneumoniae, or MDR-SP, and extended spectrum beta-lactamase-, or ESBL-producing Enterobacteriaceae.

There is not one superior, cost-effective treatment option available for physicians that can overcome all of these limitations, highlighting the urgent need for new antibiotic therapies. It is essential for the treatment of patients with serious community-acquired bacterial infections that physicians prescribe the right antibiotic the first time, as ineffective antibiotics can quickly lead to more severe and invasive infections or even death. Invasive infections are those that have spread from an initial localized tissue infection, such as ABSSSI, to other tissues throughout the body or bloodstream, and frequently result from ineffective or delayed initial treatment.

Despite the availability of several other drugs for treating patients with ABSSSI and CABP, researchers at the Centers for Disease Control and Prevention estimated that, in 2005, approximately 94,300 patients had an invasive MRSA infection in the United States. These researchers further estimated that, in 2005, there were more than 18,000 in-hospital patient deaths as a result of invasive MRSA infections in the United States, which represents more deaths each year in the United States than those caused by HIV/AIDS, Parkinson’s Disease, emphysema and homicide, according to the Infectious Diseases Society of America.

The important need for new treatment options for serious bacterial infections was highlighted by the passage in July 2012 of the Food and Drug Administration Safety and Innovation Act, which includes the Generating Antibiotic

Incentives Now Act, or the GAIN Act. The GAIN Act is intended to provide incentives for the development of new qualified infectious disease products. Qualified infectious disease products are defined as antibacterial or antifungal drugs intended to treat serious or life-threatening infections that are resistant to treatment, or that treat qualifying resistant pathogens identified by the FDA. Examples of pathogens that may be designated as a qualifying pathogen include MRSA, vancomycin-resistant Enterococcus, and multi-drug resistant Gram-negative bacteria. A new drug that is designated as a qualified infectious disease product after a request by the sponsor that is made before an NDA is submitted will be eligible, if approved, for an additional five years of exclusivity beyond any period of exclusivity to which it would have previously been eligible. In addition, a qualified infectious disease product will receive other regulatory benefits, including priority review by the FDA. We believe that omadacycline will qualify for this designation and intend to request that it be so designated as soon as it is appropriate.

We believe omadacycline will enable reliable cure rates and shorter hospital stays, reducing overall healthcare costs and allowing for completion of therapy with an oral antibiotic at home, and that it will be the primary antibiotic choice of physicians for the treatment of community-acquired bacterial infections due to its:

availability in both once-daily IV and oral formulations, which enables reliable step-down therapy so that the patient can be discharged from the hospital more quickly to recover at home using an oral formulation of the same antibiotic, thereby reducing overall healthcare costs and the potential for side effects and treatment failure,

broad-spectrum activity against bacteria, which we believe will allow physicians to rely on omadacycline to be effective against nearly every type of community-acquired bacterial infection,

favorable safety and tolerability profile based on our clinical studies in more than 700 patients and subjects to date, and

ability to overcome bacterial resistance, as our studies have demonstrated that omadacycline is active against common bacterial pathogens, such as MRSA in ABSSSI and CABP, MDR-SP in CABP, and ESBL-producing Enterobacteriaceae in UTI, that are resistant to currently used antibiotics.

We have exclusive, worldwide rights to develop and commercialize omadacycline and continue to explore commercial licensing partnerships in the United States, Europe, Japan and other major or emerging markets around the world. Our patent estate covers omadacycline’s composition of matter, method of production, multiple method of use indications, and formulations. The earliest of these patents is scheduled to expire in 2023 in the United States and 2021 in areas outside the United States, and we may be eligible for patent term extension with respect to omadacycline if it receives regulatory approval. If omadacycline is approved by the European Medicines Agency, or EMA, we expect that omadacycline will qualify for eight years of data exclusivity and an additional two years of marketing exclusivity in the European Union.

Our second most advanced product candidate, PTK-AR01, is a novel, tetracycline-derived compound designed for use in the treatment of acne and rosacea. PTK-AR01 has demonstrated favorable anti-inflammatory activity, narrow-spectrum antibacterial activity relative to other tetracycline-derived molecules, oral bioavailability, and favorable pharmacokinetic, or PK, properties which we believe make it particularly well-suited for the treatment of acne and rosacea in the community setting. We have licensed rights to PTK-AR01 for the treatment of acne and rosacea in the United States to a subsidiary of Warner Chilcott plc, or Warner Chilcott, while retaining rights in the rest of the world. Warner Chilcott is responsible for the clinical development of PTK-AR01 for the treatment of acne in the United States and initiated a Phase 2 clinical trial of this product candidate for this indication in June 2012. Warner Chilcott may elect to advance the development of PTK-AR01 for the treatment of rosacea.

In addition to omadacycline and PTK-AR01, we have advanced a series of product candidates through to proof of concept in animal models. We designed these next generation, tetracycline-derived, new molecular entities using our proprietary drug development platform, and incorporated the recognized immune-modulation, anti-inflammatory, and other properties of the tetracycline class. We believe that, based on our preclinical testing to date, the potential for these small molecule therapies to treat debilitating neurological and inflammatory diseases, such as MS, SMA, RA, and inflammatory bowel disease, or IBD, is promising. In addition, we have an early-

stage program focused on the treatment of Clostridium difficile associated diarrhea, or CDAD, as well as a program focused on important animal health diseases.

The following table summarizes our most advanced product candidates:

LOGO

(1)

Animal health and other novel research programs not included.

(2)

End-of-Phase 2 meeting completed for ABSSSI and CABP; SPA agreements were received for ABSSSI and CABP in February 2011 and March 2012, respectively.

(3)

Funded through NIH grant and patient advocacy groups.

Our proprietary drug development platform, which is designed to produce novel product candidates to treat a variety of serious human diseases, is grounded in our fundamental expertise in chemistry and biology and our proprietary chemistry techniques. Our tetracycline program is supported by over 50 years of use of tetracycline-based antibacterial products which have demonstrated a favorable safety profile and pharmacology. We maintain an active tetracycline chemistry program and have produced a diverse collection of chemically-distinct, patent-protected, tetracycline-derived compounds with varied and useful properties. The potential of this program is further strengthened by recent recognition that tetracyclines, in addition to having antibacterial activity, can also affect inflammation and immune responses. In addition, our Multiple Adaptation Response, or MAR, program is based on novel discoveries in pathogen genomics, which has allowed us to identify novel small molecules that could act to prevent serious and life threatening infections before they develop.

Our Strengths

We believe that we have the ability to design, develop, and commercialize innovative therapies that address critical unmet clinical needs in a cost effective manner due to our:

Lead product candidate, omadacycline, which is in a late stage of clinical development, and is supported by a comprehensive preclinical and clinical data set. We believe that omadacycline has the potential to significantly advance the treatment of serious community-acquired bacterial infections such as ABSSSI, CABP, and UTI, and that physicians will choose it as a first-line empiric monotherapy for the treatment of these infections where antibiotic resistance is of concern. Following our End-of-Phase 2 meeting with the FDA regarding omadacycline, we obtained two separate SPA agreements for registration trials in ABSSSI and CABP. We have studied our once-daily IV and oral formulations of omadacycline in over 700 patients and subjects to date, and omadacycline has demonstrated a favorable safety and tolerability profile in our clinical trials. We believe our plan to simultaneously conduct two Phase 3 registration trials in ABSSSI, our comprehensive set of preclinical and clinical studies, and our two SPA agreements with

the FDA will minimize the time to develop omadacycline and the risk associated with its development, regulatory approval, and commercialization in ABSSSI and CABP.

Focus on tetracycline-derived small molecules, providing a strong foundation for designing novel product candidates. We believe the basic tetracycline structure provides us with an ideal basis for developing novel product candidates, including anti-infective, neuroprotective, and anti-inflammatory agents. Tetracycline-based antibacterial medicines have been in use for over 50 years and have a well-established safety and tolerability profile. We believe that this history and clinical experience for tetracycline-derived medicines will facilitate rapid and broad utilization of our novel product candidates by physicians.

Expertise in chemistry and biology, enabling us to design novel product candidates with desired properties. Our expertise in chemistry and biology, along with our proprietary drug development platform, allow us to modify the basic tetracycline structure to generate novel, improved, and patentable new chemical entities that possess desired properties, such as a modified antibacterial spectrum, the ability to overcome bacterial resistance, improved bioavailability, and targeted activity. For example, in our non-anti-infective programs, we have tailored the activity of our tetracyclines to design product candidates that we believe will address significant unmet needs in MS, SMA, RA, and IBD. In addition, our MAR program is based on novel discoveries in pathogen genomics which has allowed us to design unique small molecules that could act to prevent serious and life threatening infections before they develop.

Strong intellectual property portfolio, providing us with what we believe to be a significant competitive advantage. We believe we have a comprehensive intellectual property estate which we have achieved through broad, international protection of our proprietary, diverse, and chemically-distinct compounds, novel formulations, and chemistry techniques. As of June 30, 2012, we own or exclusively license in certain fields over 150 patents worldwide with approximately 400 applications pending. Omadacycline is protected by issued composition of matter patents through 2023, with the possibility of exclusivity for up to an additional five-year period in the United States, and additional method of synthesis, polymorph, and use patent applications which, if issued, would provide additional protection of the product candidate through at least 2029. We also believe that the patent life of omadacycline may be further extended through additional studies, additional patents, and review time extensions. We anticipate that our patent applications for our other product candidates, if issued, would have expiration dates ranging from 2021 through 2033.

Early use of animal models, which is designed to increase predictability and reduce research and development costs. Rather than relying solely on in vitro tests to determine the efficacy of a particular compound, we employ relevant animal models in our drug development process to gain a better understanding of the biological effects of a particular compound to ensure desired pharmacologic properties from the earliest research stages. This approach allows us to make more informed decisions in identifying product candidates with more favorable efficacy and safety potential for patients, thus potentially reducing our overall research and development costs.

Focus on small molecules, allowing us to manufacture our product candidates at a favorable cost. All of our product candidates are compounds of low molecular weight, commonly referred to as small molecules. Our product candidates are typically manufactured utilizing a three- to four-step synthetic process from readily available, low cost materials. Our experienced manufacturing team plans to continue to further optimize our manufacturing processes for cost efficiency.

Experienced management team that has a strong track record in the development and commercialization of new medicines. Our management team has extensive experience in the biopharmaceutical industry and key members of our team have played an important role in the development and commercialization of approved antibiotics, including Tygacil, Biaxin, Azactam, and Tobi. This experience has been recognized internationally through various awards, including the following: Walter Gilbert, Ph.D., one of our co-founders and vice chairman, received a Nobel Prize in Chemistry in 1980; Stuart B. Levy, M.D., one of our co-founders, vice chairman, and chief scientific officer, received the 2011 Hamao Umezawa Memorial Award by the International Society of Chemotherapy for work in antimicrobial research and development and the 2012 Abbott-ASM Lifetime Achievement Award for sustained contributions to the

microbiological sciences; and Evan Loh, M.D, our chairman of the board and chief medical officer, received the 2006 Heroes of Chemistry Award from the American Chemical Society for his leadership role in the clinical development of Tygacil.

We also believe that the timeline and risks associated with the clinical development of omadacycline may be lessened by regulatory incentives in the United States that are designed to bring additional antibiotic product candidates to market more rapidly. In response to the growing unmet medical need in the area of serious bacterial infections, in July 2012, the United States Congress passed, and President Obama signed, the Food and Drug Administration Safety and Innovation Act, which included the GAIN Act. The GAIN Act is intended to provide incentives for the development of new, qualified infectious disease products. Qualified infectious disease products are defined as antibacterial or antifungal drugs intended to treat serious or life-threatening infections that are resistant to treatment, or that treat qualifying resistant pathogens identified by the FDA. Examples of pathogens that may be designated as a qualifying pathogen include MRSA, vancomycin-resistant Enterococcus, and multi-drug resistant Gram-negative bacteria. We believe that omadacycline will qualify for this designation and intend to request that it be so designated as soon as it is appropriate. A new drug that is designated as a qualified infectious disease product after a request by the sponsor that is made before an NDA is submitted will be eligible, if approved, for an additional five years of exclusivity beyond any period of exclusivity to which it would have previously been eligible. In addition, a qualified infectious disease product will receive priority review and Fast Track designation by the FDA. Fast Track designation is a process that is designed to facilitate the development, and expedite the review of drugs to treat serious diseases and fill an unmet medical need. Priority review is designed to give drugs that offer major advances in treatment, or provide a treatment where no adequate therapy exists, an expedited review by the FDA within six months as compared to a standard review time of ten months.

Our Strategy

We aim to be a leading company in the discovery, development, and commercialization of innovative medicines that address serious unmet medical needs, including: infectious diseases, with a focus on treatments for patients with serious community-acquired bacterial infections where antibiotic resistance is of concern for treating physicians; community-based inflammatory and infectious syndromes, such as acne and rosacea; serious chronic inflammation-related diseases for which current therapies are inadequate, such as RA, MS, and IBD; and SMA, for which we intend to seek orphan drug designation. Our strategy is to:

Complete the Phase 3 clinical development of omadacycline for ABSSSI and CABP and file for marketing approvals in the United States and Europe. We have two separate SPA agreements with the FDA regarding registration trials of omadacycline in ABSSSI and CABP. Based on our SPA agreement for ABSSSI and interactions with European regulatory agencies, we intend to advance omadacycline into Phase 3 registration trials covered by this agreement in the first quarter of 2013. If the results of these omadacycline trials are positive, we intend to initially file for marketing approvals in the United States and Europe, and then subsequently in other markets around the world. Based on our SPA agreement for CABP, we anticipate initiating the Phase 3 registration trial covered by this agreement, upon securing a partnership or grant funding, or obtaining additional funding beyond the proceeds of this offering. While we do not currently have any plans with respect to additional collaboration partners, we do intend to seek one or more collaborative partnerships to develop and market omadacycline outside of the United States and potentially within the United States in the community market.

Expand the development of omadacycline to address other antibacterial indications where bacterial resistance to current antibiotics is an important unmet clinical need, including UTI. We believe that omadacycline’s unique product profile provides the opportunity to expand its uses beyond ABSSSI and CABP. We believe that UTI, caused by multi-drug resistant ESBL-producing Enterobacteriaceae, MRSA, and Enterococcus, presents a clinically-important unmet need. Our preclinical and Phase 1 data suggest that omadacycline could have sufficient concentrations in urine to successfully treat UTI. Currently, there are limited marketed oral agents available with a spectrum of activity appropriate for UTI patients with these resistant pathogens.

Advance the clinical development of our other product candidates, either alone or with strategic partners. We intend to continue to support the clinical development of our other product candidates. Our partner, Warner Chilcott, initiated in June 2012 a Phase 2 clinical trial of our product candidate for the treatment of acne, PTK-AR01. In addition, we intend to advance our preclinical programs for SMA with a patient advocacy group and funding from the National Institutes of Health, or NIH, and to advance our preclinical programs for MS, RA, and IBD through external grant support and collaborations where possible. While we do not currently have any plans with respect to any additional collaboration partners, we do intend to seek one or more collaborative partnerships to develop and market our product candidates in these indications.

Develop new product candidates to meet key unmet needs in debilitating diseases. We plan to continue to expand our product candidate portfolio by leveraging our expertise in chemistry and biology and our library of tetracycline-derived compounds to discover and develop novel, proprietary product candidates that address unmet needs in debilitating diseases. In particular, in light of the fact that there are clinical studies that suggest that older-generation tetracyclines appear to have a beneficial effect in MS and RA, we have designed and are developing orally-available, non-antibiotic, tetracycline-derived molecules to address these and other chronic inflammatory diseases.

Retain commercialization rights to our product candidates in certain key markets while identifying partners to expand our global reach. We intend to retain commercialization or co-marketing rights to product candidates for selected antibiotic and other highly concentrated acute-care markets that we can reach with a targeted marketing and sales effort. We also plan to develop partnerships with established pharmaceutical and biotechnology companies that have the development, marketing, and distribution capabilities for products that require a substantial marketing infrastructure and/or expertise, such as diseases that are treated by primary care physicians and in territories outside North America.

The Antibiotics Market and Limitations of Current Therapies

Physicians commonly prescribe antibiotics to treat patients with acute and chronic infectious diseases that are either known, or presumed, to be caused by bacteria. According to the Kalorama Report, in 2011, approximately $23 billion was spent on antibiotic drugs worldwide, of which almost $9 billion was spent in the United States. The World Health Organization has identified the development of worldwide resistance to currently available antibacterial agents as being one of the three greatest threats to human health in this decade. Historically, the majority of life threatening infections resulting from antibiotic resistant bacteria were acquired in the hospital setting. The emergence of multi-drug resistant pathogens in the community setting further emphasizes the need for novel agents capable of overcoming resistance.

Bacteria are often broadly classified as Gram-positive bacteria, including resistant bacteria such as MRSA and MDR-SP; Gram-negative bacteria, including resistant bacteria such as ESBL-producing Enterobacteriaceae; atypical bacteria, including C. pneumoniae and Legionella pneumophila; and anaerobic bacteria, including Bacteroides and Clostridia. Antibiotics that are active against both Gram-positive and Gram-negative bacteria are referred to as having a “broad spectrum,” while antibiotics that are active only against a select subset of Gram-positive or Gram-negative are referred to as having a “narrow spectrum.” Because most currently prescribed antibiotics that have activity against resistant organisms typically cover only Gram-positive bacteria, this prevents their use as a first-line empiric monotherapy treatment of serious infections where Gram-negative, atypical or anaerobic bacteria may also be involved. Based on published studies, rates of infections involving organisms other than Gram-positive bacteria have been found to be as much as 15% in ABSSSI, up to 40% in CABP, and 70% to 90% in UTI.

When a patient comes to the emergency room or hospital for treatment of a serious infection, the physician’s selection of which IV antibiotic to use is often based on the severity of infection, the pathogen believed most likely to be involved, and the probability of a resistant pathogen being present. After initial IV therapy and once the infection begins to respond to treatment, hospitals and physicians face strong pressures to discharge patients from the hospital in order to reduce costs, avoid hospital acquired infections, and improve the patient’s quality of life. In order to transition patients out of the hospital and back home to complete the course of therapy, physicians typically prefer to have the option to prescribe an oral formulation of the same antibiotic.

Antibiotics used to treat ABSSSI, CABP, UTI, and other serious community-acquired bacterial infections must satisfy a wide range of criteria on a cost-effective basis. For example, existing treatment options for ABSSSI, including vancomycin, linezolid, daptomycin, and tigecycline, and for CABP, including levofloxacin, moxifloxacin, azithromycin, ceftriaxone, ceftaroline, and tigecycline, have one or more of the following significant limitations:

Limited spectrum of antibacterial activity. Since it may take as long as 48 to 72 hours to identify the pathogen(s) causing an infection, and most of the currently available options that cover resistant pathogens are only narrow-spectrum treatments, physicians are frequently forced to initially prescribe two or more antibiotics to treat a broad spectrum of potential pathogens. For example, vancomycin, linezolid, and daptomycin, the most frequently prescribed treatments for certain serious bacterial infections, are narrow-spectrum treatments active only against Gram-positive bacteria. The currently available treatment with a more appropriate spectrum for use as a monotherapy against serious and resistant bacterial infections is tigecycline, but it has other significant limitations, including twice-daily IV dosing and tolerability concerns, such as a high rate of nausea and vomiting.

Lack of both IV and oral formulations. Of the most common treatments for serious bacterial infections, vancomycin, daptomycin, ceftriaxone, and tigecycline are only available as injectable or IV formulations. The lack of an effective oral formulation of these and many other commonly prescribed antibiotics requires continued IV therapy which is inconvenient for the patient and may result in longer hospital stays and greater cost. Alternatively, switching the patient to a different orally-available antibiotic at the time of hospital discharge carries the risk of new side effects and possible treatment failure. While linezolid is a twice-daily IV and oral therapy, it is a narrow-spectrum treatment that is associated with increasing bacterial resistance, side effects from interactions with other therapies, and other serious safety concerns.

Safety/tolerability concerns and side effects. Concerns about antibiotic safety and tolerability are among the leading reasons why patients stop treatment and fail therapy. The most commonly used antibiotics, such as vancomycin, linezolid, daptomycin, levofloxacin, moxifloxacin, azithromycin, and tigecycline, are associated with safety and tolerability concerns. Vancomycin, for example, which requires frequent therapeutic monitoring of blood levels and corresponding dose adjustments, is associated with allergic reactions and can cause kidney damage, loss of balance, loss of hearing, vomiting, and nausea in certain patients. Linezolid is associated with bone marrow suppression and loss of vision and should not be taken by patients who are also on many commonly prescribed anti-depressants, such as monoamine oxidase inhibitors and serotonin reuptake inhibitors. Daptomycin has been associated with a reduction of efficacy in patients with moderate renal insufficiency and has a side effect profile that includes muscle damage. Tigecycline is associated with high rates of vomiting and nausea. Levofloxacin and moxifloxacin are associated with tendon rupture. Additionally, a May 2012 article in the New England Journal of Medicine indicated that a small number of patients treated with azithromycin and quinolones, such as levofloxacin or moxifloxacin, may experience sudden death due to cardiac arrhythmia, which is often predicted by a prolongation of QTc. QTc is assessed with an electrocardiogram and is considered a key component of determining risk for sudden cardiac arrhythmia or death.

Growing bacterial resistance. Bacterial resistance to the most frequently prescribed antibiotics has limited their potential to treat infections, which prevents their use as a first-line empiric monotherapy. MRSA and MDR-SP in the community have posed treatment challenges because of resistance to penicillins (resistance rate up to 100% for both), cephalosporins (100% and 11%, respectively, for ceftriaxone), macrolides (83% and 86%, respectively, for erythromycin/azithromycin), and quinolones (73% and 2%, respectively, for levofloxacin), particularly in ABSSSI and CABP. There have also been recent reports of resistance developing during treatment with daptomycin and concerns about an increasing frequency of strains of Staphylococcus aureus with reduced susceptibility to vancomycin. Additionally, linezolid use has been associated with drug resistance, including reports of outbreaks of resistance among Staphylococcus aureus and Enterococcus strains. The increasing occurrence of multi-drug resistant, ESBL-producing, Gram-negative bacteria in community-acquired UTIs has severely curtailed the oral antibiotic treatment options available to physicians for these UTIs. For example, in a recent survey, 95% and 76% of the ESBL isolates of E. coli found in UTIs, respectively, were resistant to ceftriaxone and levofloxacin.

These limitations can ultimately lead to longer hospital stays, greater healthcare costs, and increased morbidity and mortality due to lower cure rates and increased side effects. While certain antibiotics address some of these criteria, there is not one superior treatment option that satisfies all criteria. It is essential for the treatment of patients with serious community-acquired bacterial infections that physicians prescribe the right antibiotic the first time, as ineffective antibiotics can quickly lead to more severe and invasive infections or even death.

Our Solution

In order to address the limitations of current antibiotics, we have designed omadacycline to be a new broad-spectrum agent for use as a first-line empiric monotherapy for patients suffering from serious community-acquired bacterial infections, such as ABSSSI, CABP, and UTI, where antibiotic resistance is of concern for treating physicians. We believe omadacycline will enable physicians to prescribe an antibiotic that will result in reliable cure rates and shorter hospital stays through the completion of therapy with an oral antibiotic at home, all of which will reduce overall healthcare costs. Advantages of omadacycline include:

Availability of once-daily IV and oral formulations. We have studied once-daily IV and oral formulations of omadacycline in more than 700 patients and subjects to date in multiple clinical trials, and we intend to use both of these formulations in our Phase 3 registration trials. The bioequivalence of the IV and oral formulations permits step-down therapy, avoiding the safety and efficacy concerns of switching to a different antibiotic in continuing therapy at home. Our SPA agreements with the FDA will permit us to submit for approval both IV and oral formulations of omadacycline.

Broad spectrum of antibacterial activity. Omadacycline is active in vitro against all common pathogens found in ABSSSI, such as Staphylococcus aureus, including MRSA, Streptococci (including Group A Streptococci), anaerobic pathogens, and many Gram-negative organisms. For example, our in vitro testing of omadacycline indicates that it is four to eight times more potent than vancomycin against Staphylococcus aureus. Omadacycline is also active in vitro against the key pathogens found in CABP, such as Streptococcus pneumoniae, including MDR-SP, Staphylococcus aureus, Haemophilus influenzae, and atypical bacteria, including Legionella pneumophila. Our data indicate the in vitro activity of omadacycline is eight to 32 times more potent than leading therapies for CABP against Streptococcus pneumoniae. Omadacycline is also one of the few antibiotics active in vitro against ESBL-producing Enterobacteriaceae that cause UTI. We believe omadacycline has the appropriate spectrum coverage to become the primary antibiotic choice of physicians and serve as a first-line empiric monotherapy for ABSSSI, CABP, UTI, and other serious community-acquired bacterial infections.

Favorable safety and tolerability profile. We have observed omadacycline to be generally well tolerated in studies involving more than 700 patients and subjects. None of these subjects discontinued treatment or experienced a serious adverse event related to omadacycline. We have conducted a thorough QTc study, which is a specific clinical study defined by FDA guidance to assess prolongation of QTc, an indicator of cardiac arrhythmia. This study demonstrated no prolongation of QTc by omadacycline. Further, in clinical studies, omadacycline has demonstrated that it does not adversely affect blood cell production, nor is it metabolized in the liver or anywhere else in the body, thus reducing the likelihood of causing drug-to-drug interactions. Additionally, omadacycline has demonstrated low rates of diarrhea, and we have not observed C. difficile infection, which can frequently occur from the use of broad-spectrum antibiotics.

Designed to overcome bacterial resistance. We have utilized our proprietary drug development platform to design omadacycline to overcome the two major mechanisms of tetracycline resistance, known as efflux and ribosome protection. Our attempts to generate resistance to omadacycline in the laboratory indicate a low potential for developing resistance. In addition, our testing of thousands of bacterial samples in the laboratory demonstrated that omadacycline was not affected by clinically-relevant mechanisms of resistance to tetracyclines or to other classes of antibiotics.

In addition to its broad spectrum of antibacterial activity and its availability in once-daily IV and oral formulations, omadacycline penetrates tissues broadly, including the lungs, muscle, and kidneys, thereby achieving high concentrations at the sites of infection. Omadacycline is not significantly bound by proteins in the

blood, meaning that the majority of omadacycline is available to fight infections in the tissues where they occur. Since omadacycline is eliminated from the body via the kidneys, liver, and intestine in a balanced manner, we believe it can be used in patients with diminished kidney and liver function, without dose adjustment.

Our market research indicates that physicians would prescribe a drug with omadacycline’s profile to treat ABSSSI more than 40% of the time (replacing vancomycin 65% of the time) and CABP more than 25% of the time (replacing both leading regimens, ceftriaxone and azithromycin or a respiratory quinolone, 25% to 30% of the time). We believe these levels of use would establish omadacycline as a primary antibiotic choice for use as a first-line empiric monotherapy to treat serious community-acquired bacterial infections where antibiotic resistance is of concern.

Omadacycline

Overview

Using our proprietary drug development platform, we have designed omadacycline to have significant advantages over existing antibiotics, including broad spectrum of coverage, IV and oral formulations with once-daily dosing, favorable safety and tolerability profile, and activity against resistant bacteria. We have successfully completed all pre-clinical and Phase 1 and Phase 2 clinical trials necessary to advance omadacycline into Phase 3 development. We have studied once-daily IV and oral formulations of omadacycline in over 700 patients and subjects, and omadacycline has demonstrated a favorable clinical response and safety and tolerability profile in our clinical trials. We conducted an End-of-Phase 2 meeting with the FDA in July 2008, and began to progress omadacycline into a Phase 3 clinical trial for the treatment of complicated skin and skin structure infections, or cSSSI.

After we initiated our Phase 3 trial in cSSSI, in March 2010, the FDA notified us that its guidance for the conduct of studies for this indication would be modified. This modification included changes in eligibility criteria, revising the disease indication from cSSSI to ABSSSI and changes in the primary efficacy endpoint for trials in this indication from a test of cure assessment to an early response assessment. A test of cure, or TOC, assessment is a traditional assessment of durability of cure following a certain period after the last dose of an antibiotic. An early response assessment measures the cessation of spread of a bacterial infection, by measuring the size of a skin lesion, and the absence of fever (temperature <38.0^oC), both determined at 48 to 72 hours after initiation of antibiotic treatment. With these major modifications, our initial Phase 3 trial design did not align with the FDA’s then-evolving guidance for trials aimed at supporting the approval of an antibiotic for the treatment of ABSSSI. As a result, the Phase 3 trial was terminated after having enrolled 140 of the planned 790 subjects at six U.S. sites.

Phase 3 Registration Study Plans

We have adjusted our proposed Phase 3 clinical trial design for omadacycline to incorporate changes in regulatory guidance from the FDA over the last five years for the development of antibiotics as treatment for both ABSSSI and CABP. Following modification of the FDA’s guidance, we reached agreements with the FDA in the form of the SPA agreements for both the planned ABSSSI trials, for which we received the SPA in February 2011, and a trial in CABP, for which we received the SPA in March 2012.

ABSSSI trials. The two Phase 3 clinical trials of omadacycline for the treatment of ABSSSI are designed to be randomized, controlled, and blinded multi-center studies targeting the enrollment of 790 patients, in which we would compare IV and oral forms of omadacycline to linezolid. We anticipate that these clinical trials will be conducted at over 150 sites, with a significant portion of these sites located in the United States and the remainder located in Canada, Europe, Asia, Africa and Latin America. The clinical trial design contemplates two IV doses of 100 mg of omadacycline on the first day of treatment, followed by one 100 mg IV dose of omadacycline every 24 hours on subsequent days, with a potential switch to one 300 mg oral dose of omadacycline every 24 hours, compared to one 600 mg IV dose of linezolid every 12 hours, with a potential switch to one 600 mg oral dose every 12 hours. The primary endpoint for these studies is non-inferiority of omadacycline compared to linezolid in a modified intent-to-treat, or mITT, population using a 9% non-inferiority

margin. A mITT population refers to all subjects enrolled in a trial with a baseline pathogen who receive at least one dose of study drug. The primary endpoint for FDA purposes in these trials will be early response, which refers to the cessation of spread of infection and the absence of fever (temperature <38.0^oC), both assessed at 48 to 72 hours after initiation of treatment. For EMA purposes, the primary endpoint will be clinical response at TOC, determined ten to 17 days after the last dose. Secondary endpoints include microbiological response and safety. In addition, drug levels in plasma will be assessed in a subset of the patients enrolled in the trial. Major skin subclasses that will be allowed in the study include cellulitis, wound, and major abscesses with systemic involvement substantially sized (>75 cm²). Patients who have previously taken effective antibiotics for the treatment of an infection within 72 hours of receiving the first dose of study medication will be excluded from enrollment. While all patients will be initiated with IV treatment in a hospital setting, depending on physician assessment, patients may be subsequently discharged to oral therapy for both treatment arms.

CABP trial. The Phase 3 clinical trial of omadacycline for the treatment of CABP, contemplated by our SPA for this indication, is designed to be a randomized, controlled, and double-blinded multi-center study targeting the enrollment of 830 patients, in which we would compare IV and oral forms of omadacycline to moxifloxacin. The clinical trial design contemplates two 100 mg IV doses of omadacycline on the first day of treatment, followed by one 100 mg IV dose of omadacycline every 24 hours on subsequent days, with a potential switch to one 300 mg oral dose of omadacycline every 24 hours, compared to one 400 mg IV dose of moxifloxacin every 24 hours, with a potential switch to one 400 mg oral dose every 24 hours. If fluoroquinolone non-susceptible S. aureus is suspected in patients, one 600 mg IV and oral dose of linezolid every 12 hours may be added to the moxifloxacin treatment. The primary endpoints for the study are non-inferiority of omadacycline compared to moxifloxacin in intent-to-treat, or ITT, and microbiologic ITT, or microITT, populations using 10% and 15% non-inferiority margins, respectively. The ITT population in this trial refers to all randomized patients. A microITT population refers to all ITT patients for whom a pathogen has been identified. The primary endpoint for FDA purposes in these trials will be the improvement in at least two of four patient reported symptoms (cough, sputum production, chest pain, and shortness of breath) without deterioration in any of the four symptoms at 96 to 120 hours after initiation of treatment, which is referred to as early response, and for EMA purposes, the primary endpoint will be clinical response at TOC, determined ten to 17 days after the last dose. Key secondary endpoints include microbiological response, safety, and all-cause mortality. Only patients with bacteria typically associated with CABP, as defined in the protocol for this trial, including S. pneumoniae, H. influenzae, S. aureus, and Legionella, will be included in the microITT population. At least 80% of the patients in the study will be required to have moderate-to-severe CABP, as defined by the protocol. Patients who have previously taken effective antibiotics for the treatment of an infection within 72 hours of receiving the first dose of study medication will be excluded from enrollment. While all patients will be initiated on IV treatment in a hospital setting, depending on physician assessment, patients may be subsequently discharged to oral therapy for both treatment arms. We do not intend to commence this trial until we secure a partnership or additional funding.

Phase 3 Non-Registration Trial in cSSSI

Design. We designed our Phase 3 non-registration trial pursuant to the 1998 FDA guidance on developing antimicrobial drugs for the treatment of cSSSI. Our primary objective of the trial was to establish that omadacycline as a monotherapy was not inferior to linezolid, with or without moxifloxacin, as a treatment for patients with serious skin infections. Following randomization, patients initially received either IV therapy with 100 mg of omadacycline every 24 hours or 600 mg of linezolid every 12 hours. For patients with infections suspected or documented as involving Gram-negative bacteria, the blinded physician had the option of providing patients with additional antibiotic therapy, with patients assigned to the linezolid arm receiving 400 mg of moxifloxacin every 24 hours and patients assigned to omadacycline receiving a placebo, since omadacycline has activity against some of the most common Gram-negative bacteria that commonly cause these infections, to match the dosing regimen of linezolid-treated patients.

Patients who were enrolled in this trial had one of three major infection types: wound infection, cellulitis or major abscess. Enrollment of patients with major abscess was limited to 20% of the total enrollment. Patients were initially treated with the applicable study drug intravenously and then, based on the physician’s assessment of the

response of the infection to treatment, patients could be switched to oral therapy. For oral therapy, patients randomized to linezolid received one 600 mg tablet of linezolid every 12 hours, and if treatment for suspected Gram-negative bacteria was still required, one 400 mg tablet of moxifloxacin every 24 hours. Patients randomized to omadacycline received 300 mg of omadacycline (dosed as two 150 mg tablets) every 24 hours, plus placebo where Gram-negative bacteria was suspected. Patients transitioned to oral therapy after receiving an average of 4.8 days of IV therapy. We intended to evaluate our primary hypothesis by analyzing the clinical success rates in ITT and clinically evaluable, or CE, populations. The ITT population in this trial refers to all enrolled subjects who receive more than one dose of study drug, and a CE population refers to all ITT subjects who had a qualifying infection as defined in the protocol, received the study drug for more than five days, had all protocol-defined clinical evaluations, and had not received non-study antibiotics. As a result of the study being terminated ahead of schedule, we did not enroll a sufficient number of patients to determine non-inferiority or superiority.

Patient characteristics. Of the 140 patients that received at least one dose of study drug, 68 were randomized to omadacycline and 72 were randomized to linezolid. Cellulitis was present in 92 of the 140 patients enrolled. The maximal dimension of the infection at baseline exceeded 10 cm for 125 of the 140 patients, and for these patients the mean maximal lesion dimension exceeded 20 cm.

Efficacy. Although we terminated this trial before reaching our enrollment goal, thus precluding any statistical conclusions with regard to non-inferiority, the table below shows the clinical success rates in omadacycline and linezolid-treated patients in the two primary analysis populations—ITT and CE. The overall clinical success rates in the ITT population were between 85% and 90% in both omadacycline- and linezolid-treated patients. In the CE population, the overall clinical success rates were in the mid-90% range for both omadacycline and linezolid-treated patients. These data confirm the favorable comparative activity seen in our Phase 2 trials of omadacycline and we believe this supports proceeding to Phase 3 registration studies.


	Omadacycline							Linezolid
Population	Clinical Success (N)		Total (N)		Clinical Success (%)			Clinical Success (N)		Total (N)		Clinical Success (%)
Intent-to-Treat		58		68		85.3	%		64		72		88.9	%
Clinically Evaluable		58		60		96.7	%		64		67		95.5	%

Note: The table above shows data from our Phase 3 non-registration trial, which did not have a sufficient number of patients enrolled to determine statistical non-inferiority.

We also analyzed subgroups of CE patients defined by the category of complicated skin infection experienced by those patients. The table below shows the clinical success rates at the TOC in CE patients for each of the three major categories of serious skin infections (wound, cellulitis, and major abscess). This analysis showed that for each of the categories of serious skin infection, omadacycline treatment resulted in approximately the same cure rate as linezolid treatment, thus demonstrating consistent activity across the major ABSSSI subtypes that we intend to study in our Phase 3 registration trials.


	Omadacycline							Linezolid
Population	Clinical Success (N)		Total (N)		Clinical Success (%)			Clinical Success (N)		Total (N)		Clinical Success (%)
All CE Patients at TOC		58		60		96.7	%		64		67		95.5	%
Wound		13		13		100	%		12		13		92.3	%
Cellulitis		38		39		97.4	%		44		45		97.8	%
Major Abscess		7		8		87.5	%		8		9		88.9	%

Note: The table above shows data from our Phase 3 non-registration trial, which did not have a sufficient number of patients enrolled to determine statistical non-inferiority.

Safety and Tolerability. The overall incidence of adverse events was similar in both treatment groups. There were no significant alterations of cardiovascular, renal or hepatic safety laboratory values. One death occurred in a patient who presented with undiagnosed metastatic lung cancer after being assessed as cured following the TOC visit. Study investigators did not consider any of the serious adverse events reported to be related to either

omadacycline or linezolid. The table below shows the adverse events reported by 10% or more of either omadacycline-treated patients or linezolid-treated patients.


	Omadacycline (N = 68)					Linezolid (N = 72)
Adverse Event	N		Patients Reporting AE (%)			N		Patients Reporting AE (%)
Nausea		18		26.5	%		19		26.4	%
Headache		16		23.5	%		5		6.9	%
Dizziness		7		10.3	%		6		8.3	%
Vomiting		6		8.8	%		11		15.3	%
Diarrhea		3		4.4	%		13		18.1	%

Post-hoc efficacy analysis. Because we terminated our Phase 3 non-registration trial in response to the FDA’s decision to adjust the primary endpoint of skin infection trials to the early response endpoint, we conducted a post-hoc analysis to assess how lesion size was affected in each of the treatment arms, which is one of the two components of the early response endpoint assessment. We also evaluated the effect on fever, which is the other component of the early response endpoint assessment, and confirmed that patients with fever who were treated with omadacycline experienced reductions in fever as expected, similar to linezolid. As with our Phase 2 study, the protocol required that lesion size be measured by recording the maximal lesion dimension at baseline. We recorded subsequent measurements upon the completion of IV therapy, at the end of therapy, and then again at the TOC. Of the 140 patients in the ITT population, 125 had lesions whose maximal dimension exceeded ten cm (approximately 75 cm²). Of these subjects, the mean size of the infected lesion among omadacycline-treated patients was 20.75 cm. Among linezolid-treated patients, the mean size of the infected lesion was 22.8 cm. The table below shows the percent reduction in the size of the infected lesion for each of these subjects at each of the time points where measurements were taken. In each treatment arm, we saw an increased reduction in lesion size at the end of therapy, at the end of IV therapy, and at TOC. For those subjects, 12 in each treatment group, whom we evaluated within 24 to 72 hours of starting therapy, which corresponds to the new FDA guidance regarding the early response endpoint, there was a mean reduction in maximal dimension that exceeded 60% for both treatment groups. Taken together with the post-hoc analyses we conducted in our Phase 2 study, we believe that this analysis supports a conclusion that lesion size will be reduced at a comparable rate to that observed with linezolid and supports our belief that comparable activity to linezolid at the newly required early response endpoint will be shown in our registration studies.


	Omadacycline (N = 62)					Linezolid (N = 65)
Time of Measurement	N		Reduction in Maximal Dimension (Mean; %)			N		Reduction in Maximal Dimension (Mean; %)
End of IV Therapy (EOIV) for All		59		-60.4	%		59		-62.5	%
EOIV at 24-72 Hours after Baseline		12		-62.3	%		12		-56.8	%
End of Therapy		60		-81.3	%		61		-86.3	%
Test of Cure		60		-92.3	%		61		-92.5	%

Pharmacokinetics. Pharmacokinetic data from our Phase 3 non-registration trial, together with that collected in our Phase 2 trial indicate that we achieved comparable drug levels in both healthy Phase 1 volunteers and patients with serious skin infections.

Summary. Although we stopped our Phase 3 non-registration trial before we reached our enrollment goal due to the FDA’s decision to adjust the primary endpoint of skin infection trials to the early response endpoint, we believe that the results of the Phase 3 non-registration trial further support our expectation that omadacycline will be well tolerated and effective as a treatment of patients with serious skin infections. Combined with those patients treated in our Phase 2 trial, we have treated a total of 179 patients with skin infections with omadacycline. Further, we believe that data from our post-hoc analyses of the newly required early response endpoint would support omadacycline’s comparable activity to linezolid within the ABSSSI study design in our SPA agreement with the FDA.

Phase 2 Study in cSSSI

Design. We designed a Phase 2 trial with the primary objective of comparing the safety and tolerability of omadacycline to linezolid in patients with cSSSI. Our key secondary objectives involved comparing the efficacy of omadacycline to linezolid and assessing the PK properties of omadacycline.

Following randomization, patients initially received IV therapy with 100 mg of omadacycline every 24 hours or 600 mg of linezolid every 12 hours. For patients with infections suspected or documented as involving Gram-negative bacteria, the blinded physician had the option of providing patients with additional IV antibiotic therapy, with patients assigned to the linezolid group also receiving 2 grams of aztreonam every 12 hours, and patients assigned to the omadacycline group receiving a placebo to match the dosing regimen of linezolid-treated patients. Based on a blinded physician’s assessment of the appropriateness of hospital discharge and continuation of oral therapy, most patients then transitioned to oral therapy. For oral therapy, patients randomized to omadacycline received 200 mg of omadacycline (dosed as two 100 mg capsules) every 24 hours. Patients randomized to linezolid received one 600 mg tablet of linezolid every 12 hours. Patients in both groups received an average of five to six days of oral therapy following an average of 4.3 days of IV therapy.

Patient characteristics. Of the 219 patients that received at least one dose of the study drug in our Phase 2 study, 111 were randomly selected to be treated with omadacycline and 108 were randomly selected to be treated with linezolid. Two-thirds (66.2%, or 145) of the total patients suffered from major abscesses. About 17%, or 38 of the total patients suffered from wound infections, and the majority of these infections (29/38, or 76.3%) were due to traumatic injuries. The mean maximal length of the infections among the total patients was 13.1 cm, and over two-thirds of the patients exhibited moderate to severe reddening of the skin, or erythema; hardness, or induration, of the infected area; and pain at baseline.

Efficacy. We measured clinical responses in two study populations—ITT and CE. The ITT population in this trial refers to all enrolled subjects who receive more than one dose of study drug, and the CE population refers to all ITT subjects who had a qualifying infection and were treated and evaluated as defined in the protocol. The table below summarizes the rates of successful clinical response for each of the two study populations and shows that in both populations the successful clinical response rates in omadacycline-treated patients were comparable to those in linezolid-treated patients.


	Omadacycline							Linezolid							Difference (%)			95% Confidence Interval (CI)⁽¹⁾
Population	Clinical Success (N)		Total (N)		Clinical Success (%)			Clinical Success (N)		Total (N)		Clinical Success (%)			Difference (%)			95% Confidence Interval (CI)⁽¹⁾
Intent-to-Treat		98		111		88.3	%		82		108		75.9	%		12.4	%		1.9 to 22.9
Clinically Evaluable		98		100		98.0	%		82		88		93.2	%		4.8	%		-1.7 to 11.3

(1)

The 95% confidence intervals were to be calculated for the difference in success rates between the two treatment groups for each population. If the lower limit of the 95% confidence interval for omadacycline minus linezolid was greater than or equal to -20% for both endpoints, then the hypothesis that omadacycline is non-inferior to linezolid would be supported. If the lower limit of the 95% confidence interval exceeds 0%, then the superiority of omadacycline over linezolid is supported.

Analyses of clinical responses by category of serious infection also showed that favorable outcomes with omadacycline occurred consistently across infection types. For subjects with major abscesses the difference in successful clinical response was 3.6% (95% CI -3.7 to 10.9) favoring omadacycline treatment (98.5% vs. 94.8%) in the CE population. For the next most frequent infection type, wound infections associated with trauma, the difference in successful clinical response was 10.0% (95% CI -13.6 to 33.6), favoring omadacycline treatment (100% vs. 90%) in the CE population. The leading cause of infection was Staphylococcus aureus, the majority of which were MRSA isolates.

Safety and tolerability. There were three serious adverse events reported in this trial—one in an omadacycline-treated patient and two in linezolid-treated patients. The study investigator considered the event in the omadacycline-treated patient, which involved worsening confusion, to be unrelated to the study therapy. Among the 111 omadacycline-treated patients, 46 (41.4%) experienced one or more treatment-emergent adverse events and 24 (21.6%) experienced one or more adverse events assessed as potentially treatment-related. By

comparison, among the 108 linezolid-treated patients, 55 (50.9%) experienced one or more treatment-emergent adverse events and 33 (30.6%) experienced adverse events assessed as potentially treatment-related. In both arms of the trial, the most frequently involved organ system was the gastrointestinal tract, with adverse events reported in 21 (18.9%) omadacycline-treated patients and 20 (18.5%) linezolid-treated patients. There were no significant alterations of cardiovascular, renal, or hepatic safety laboratory values. The table below lists ten specific treatment-emergent adverse events which occurred in five or more patients in either treatment group.


	Omadacycline (N = 111)					Linezolid (N = 108)
Adverse Event	N		%			N		%
Nausea		13		11.7	%		8		7.4	%
Headache		7		6.3	%		9		8.3	%
Constipation		5		4.5	%		2		1.9	%
Fatigue		5		4.5	%		2		1.9	%
Rash / rash erythematous		5		4.5	%		2		1.9	%
Vomiting		5		4.5	%		4		3.7	%
Dizziness		4		3.6	%		5		4.6	%
Alanine aminotransferase increased⁽¹⁾		3		2.7	%		7		6.5	%
Aspartate aminotransferase increased⁽¹⁾		3		2.7	%		5		4.6	%
Diarrhea		3		2.7	%		6		5.6	%

(1)

Refers to an elevated level of this specific liver enzyme.

Post-hoc efficacy analysis. In its draft guidance on skin infection trials issued in August 2010, the FDA revised the disease indication to be addressed in these trials from cSSSI to ABSSSI. The primary purpose of this new terminology is to identify infections for clinical registration trials for which a reliable estimate of a treatment effect of antibacterial drug therapy can be determined. This change was made to avoid including patients with mild infections that would not require antibacterial therapy or those with chronic infections, such as diabetic foot infections. The types of infections that are considered appropriate for clinical study primarily include cellulitis, wound infection, major cutaneous abscess, and burn infection. A critical new requirement of the new ABSSSI designation is that the minimum surface area of redness, edema, and/or induration must be >75 cm².

The adjusted primary endpoint for ABSSSI under the FDA’s draft guidance is based on historical data demonstrating cessation of lesion spread and absence of fever at 48-72 hours after initiation of antibacterial therapy. Assessment of efficacy at this earlier time point is in contrast to the previously recommended primary assessment of efficacy at the TOC endpoint, which was typically 7-14 days after the completion of therapy. In response to the FDA’s decision to adjust the primary endpoint to the early response timepoint, we have conducted a post-hoc analysis to assess a subset of patients from our Phase 2 study in whom cessation of an increase in the size of the infected lesion, measured in only one maximal dimension, and the absence of fever (temperature <38.0^oC) had been recorded over the first days of study therapy. Using these data, we retrospectively calculated the early response endpoint, demonstrating that 96.8% (30/31) of omadacycline-treated patients and 94.4% (34/36) of linezolid-treated patients met these two criteria. Among the omadacycline-treated patients, the size of the infected lesion decreased an average of 31.8% relative to pre-treatment, compared to an average reduction of 6.7% among the linezolid-treated patients. The baseline lesion dimensions were large as required in ABSSSI. While our previous Phase 2 and 3 studies were not designed to test statistical significance for these new endpoints, we believe the results of the previous Phase 2 and 3 studies, when considered together, support the hypothesis that omadacycline will demonstrate comparable efficacy to linezolid at the early assessment timepoint.

LOGO

Pharmacokinetics. We found that omadacycline exposure was similar to that measured in our earlier Phase 1 studies in healthy volunteers. These results are consistent with achieving therapeutic exposures using a once-daily regimen of omadacycline in both the IV and oral formulations.

Summary. In treating patients with serious infections involving the skin and surrounding tissues, IV and oral formulations of omadacycline demonstrated comparable safety, tolerability, and activity to linezolid. Based on this work, we conducted an End-of-Phase 2 meeting with the FDA, and we determined to progress omadacycline into Phase 3 clinical trials for the treatment of cSSSI. Further, we believe that data from our post-hoc analyses of the early response endpoint would support omadacycline’s comparable activity to linezolid within the ABSSSI study design in our SPA agreement with the FDA.

Phase 1 Studies

We assessed omadacycline in 16 single- and multiple-dosing Phase 1 studies for both the IV and oral formulations, involving more than 500 healthy volunteers. The results of these Phase 1 studies showed that omadacycline:

was well tolerated, with no nausea or vomiting in subjects treated with the IV or oral formulations being used in Phase 3 registration trials at the planned therapeutic dose;

was associated with asymptomatic increases in heart rate, that were not evident in Phase 2 and Phase 3 non-registration trials in patients with cSSSI;

was associated with mild reversible increases in alanine aminotransferase, a liver enzyme, at doses above the therapeutic doses used in Phase 2 and Phase 3 non-registration trials;

was bioequivalent in both IV and oral formulations;

had pharmacokinetics sufficient to support convenient once-daily dosing regimens;

had minimal variations in bioavailability among men and women and patients at varying weights and sizes, supporting fixed dose formulations;

did not affect the QT interval as demonstrated in a thorough QTc study;

would not require dosage adjustment in patients with hepatic impairment;

was not metabolized, suggesting a low potential for drug-drug interactions; and

was excreted as active drug with sufficient concentrations in urine to contemplate development for UTI.

From our End-of-Phase 2 meeting with the FDA regarding omadacycline, we have agreement that the preclinical and Phase 1 package for this product candidate is complete. We still plan to conduct several small Phase 1 studies to evaluate exposure levels of omadacycline in patients with impaired kidney function, pediatric patients, and a drug interaction study.

Preclinical Studies

We have conducted preclinical studies to assess the safety of omadacycline, including 13-week IV and oral studies in rats and monkeys to assess for efficacy in animal models of bacterial infections. In vitro and in vivo testing indicated the potential clinical utility of omadacycline in ABSSSI, CABP, and UTI. The table below shows the in vitro activity of omadacycline against a broad range of bacterial pathogens found in ABSSSI, CABP, and UTI, as assessed in independent laboratories using bacteria isolated from clinical specimens.

Clinical bacterial isolate minimum inhibitory concentration, or MIC, data from Phase 3 registration trials will determine the susceptibility or resistance level of omadacycline for the bacteria noted in the following tables. MIC values are indicative of a bacterium’s susceptibility or resistance to a particular antibiotic. A lower MIC value indicates potentially greater potency in vitro. Susceptibility and resistance data from other tetracycline-like compounds provide some guidance with regard to expected results for omadacycline. Historically, with older tetracyclines, MIC values for Gram-positive bacteria were considered susceptible up to 2 ug/mL and for most Gram-negative bacteria up to 4 ug/mL. Traditionally, bacteria considered resistant had MIC values for Gram-positive bacteria of 8 ug/mL and above, while Gram-negative bacteria were considered resistant with MIC values of 16 ug/mL and higher.

In the tables below, the column labeled “Number of Isolates” indicates the number of patients from whom an isolate of the organism was obtained. MIC₉₀ indicates the concentration of drug that inhibits 90% of the pathogens in vitro, while MIC₅₀ indicates the concentration of drug that inhibits 50% of the pathogens in vitro.


Class	Organism	Number of Isolates		MIC50 (µg / mL)		MIC90 (µg / mL)
Gram-positive pathogens	Staphylococcus aureus (MSSA)		52		0.25		0.25
	Staphylococcus aureus (MRSA)		111		0.25		0.25
	Coagulase-negative staphylococci		152		0.25		1.00
	Enterococcus faecalis (VSE)		107		0.25		0.50
	Enterococcus faecalis (VRE)		47		0.12		0.25
	Enterococcus faecium (VSE)		56		0.12		0.12
	Enterococcus faecium (VRE)		100		0.12		0.12
	Streptococcus pneumoniae		104		0.12		0.12
	Streptococcus pneumoniae (PRSP)		51		0.12		0.12
	Streptococcus pyogenes		104		0.12		0.12
	Streptococcus agalactiae		53		0.12		0.25
Gram-negative pathogens	Haemophilus influenzae		105		0.50		1.00
	Moraxella catarrhalis		105		0.25		0.25
	Escherichia coli		203		2.00		4.00
	Klebsiella pneumoniae		204		2.00		8.00
	Acinetobacter baumannii		53		0.25		4.00
Anaerobic pathogens	Bacteroides fragilis		100		1.00		2.00
	Clostridium perfringens		100		1.00		4.00
	Anaerobic Gram-positive cocci		101		0.25		0.50
Atypical pathogens	Legionella pneumophila		25		0.25		0.25
	Chlamydia pneumoniae		5		0.25		0.25

The tables below compare the in vitro activity of omadacycline and various antibiotics for ABSSSI, CABP and UTI pathogens against various strains of bacteria, including those resistant to current antibiotics.

Key Pathogens—ABSSSI


	MIC₉₀ (ug/ml)
Organism (Number of Isolates)	Omadacycline		Ceftriaxone			Linezolid			Levofloxacin		Vancomycin		Amox- Clav⁽¹⁾
Staphylococcus aureus (MRSA) (111)		0.25		>64	⁽²⁾		4			>8		1		>8
Staphylococcus aureus (MSSA) (52)		0.25		4			2			2		1		1
Streptococcus pyogenes (104)		0.12		0.03			2			1		0.5		0.015
Escherichia coli ESBL neg. (101)		4		0.12			N/A	⁽³⁾		0.06		N/A		16

(1)

Amoxicillin-clavulanic acid.

(2)

“>” indicates the highest concentration tested.

(3)

“N/A” indicates that the antibiotic is not indicated against this organism and/or has no useful therapeutic activity.

Key Anaerobe Pathogens—ABSSSI

MIC₉₀ (ug/ml)

Organism (Number of Isolates)

Omadacycline

Cefotaxime

Metronidazole

Clindamycin

Amox-
Clav

Anaerobic Gram-positive cocci (101)

0.5

>64

⁽¹⁾

(1)

“>” indicates the highest concentration tested.

Key Typical Pathogens—CABP


	MIC₉₀ (ug/ml)
Organism (Number of Isolates)	Omadacycline		Ceftriaxone		Linezolid			Levofloxacin		Vancomycin		Amox- Clav		Azithromycin
Streptococcus pneumoniae, PRSP (51)		0.12		2		2			1		1		8		>4	⁽²⁾
Haemophilus influenzae (105)		1		0.008		N/A	⁽¹⁾		0.03		N/A		1		4
Moraxella catarrhalis (105)		0.25		1		N/A			0.06		N/A		0.25		0.06

(1)

“N/A” indicates that the antibiotic is not indicated against this organism and/or has no useful therapeutic activity.

(2)

“>” indicates the highest concentration tested.

Key Atypical Pathogens—CABP

MIC₉₀ (ug/ml)

Organism (Number of Isolates)

Omadacycline

Ceftriaxone

Linezolid

Moxifloxacin

Vancomycin

Amox-
Clav

Azithromycin

Legionella pneumophila (25)

0.25

N/A

⁽¹⁾

N/A

<0.03

⁽²⁾

N/A

0.5

(1)

“N/A” indicates that the antibiotic is not indicated against this organism and/or has no useful therapeutic activity.

(2)

“<” indicates the lowest concentration tested.

Key Pathogens—UTI

MIC₉₀ (ug/ml)

Organism (Number of Isolates)

Omadacycline

Ceftriaxone

Linezolid

Levofloxacin

Vancomycin

Amox-

clav

Escherichia coli ESBL pos. (102)

128

N/A

⁽³⁾

>16

N/A

Staphylococcus aureus (MRSA) (111)

0.25

>64

⁽²⁾

CoNS, MR (114)⁽¹⁾

>64

Enterococcus species (310)

0.25

>64

>32

(1)

CoNS, MR: Coagulase-negative Staphylococcus species (not S. aureus), methicillin resistant.

(2)

“>” indicates the highest concentration tested.

(3)

“N/A” indicates that the antibiotic is not indicated against this organism and/or has no useful therapeutic activity.

PTK-AR01 – Novel Oral Tetracycline for Acne and Rosacea

Overview

PTK-AR01 is a novel next generation tetracycline that we designed specifically for dermatological use. Because dermatology is not our core area of focus, we have licensed U.S. rights to PTK-AR01 for the treatment of acne and rosacea to Warner Chilcott, which funds all development costs for this program. In exchange for license rights, we earn milestone payments upon the achievement of development and regulatory progress, of which more than $20 million remain to be achieved, and a royalty on eventual net sales, if any. We retain commercialization rights outside of the United States, which are available for licensing to other partners in key international markets, such as the European Union and Japan. Warner Chilcott initiated a Phase 2 clinical trial of PTK-AR01 for the treatment of acne in June 2012. Warner Chilcott may elect to advance the development of PTK-AR01 for the treatment of rosacea.

Market

Both acne and rosacea can be disfiguring conditions with significant social and medical costs. According to the Italian Journal of Public Health, the United States market for drugs to treat acne and rosacea is believed to exceed $1 billion annually. In recent years, more than $1.3 billion was spent annually in the United States for various oral formulations of doxycycline or minocycline to treat these conditions.

Acne can affect up to 91% of males and 79% of females during adolescence, and 25% of males and 50% of females into adulthood. Acne lesions primarily affect the face and upper torso/back. While disfiguring when lesions are active, chronic acne can also leave the skin permanently scarred. The social costs to young adults are manifested in increased incidences of depression, anxiety, social disorders, and missed work, and those that suffer from acne are nearly twice as likely to commit suicide as similarly-aged non-acne sufferers. The most common oral treatments prescribed by dermatologists are tetracycline derivatives, which dermatologists widely accept as a first-line therapy for moderate-to-severe acne. A common side effect associated with the use of any broad-spectrum antibacterial agent is gastrointestinal upset and antibiotic associated infections caused by the destruction of the normal bacterial flora. In addition, there is a growing concern and awareness of the development of antibiotic resistant bacteria from the heavy use of broader-spectrum antibiotics, such as the older generation tetracyclines, when broad-spectrum antibacterial therapy is not necessary. Similarly, for patients with severe acne, oral retinoid drugs are the leading option, but these drugs are not universally effective and also carry potentially serious side effects. Therefore, we believe there is an unmet need for an improved tetracycline for this market.

Rosacea affects primarily middle-aged adults, more often women than men, and results in chronic flushing and inflammation of the skin and is prominent on the face. There is no known cure for rosacea, but a number of oral antibiotics and anti-inflammatory drugs have been used to treat it. While a variety of treatments have been employed in the treatment of patients with rosacea, including topical and systemic antibiotics and topical corticosteroids, no treatment has been shown to be consistently effective.

Development

In the treatment of acne and rosacea, a new product that targets a narrower spectrum of bacterial types, including Propionibacterium acnes, which is a key bacterium associated with acne, would offer advantages over the existing therapies, including older tetracycline derivatives. As compared to existing tetracycline being used for the treatment of acne and rosacea, preclinical studies demonstrated that PTK-AR01 has an improved profile including narrow spectrum of antibacterial activity, oral bioavailability, anti-inflammatory activity, and PK properties.

Other Product Candidates

In addition to omadacycline and PTK-AR01, we have advanced a series of product candidates through to proof of concept stage in animal models. We designed these next generation, tetracycline-derived, new molecular entities using our proprietary drug development platform, and incorporated the recognized immune-modulation, anti-inflammatory, and other properties of the tetracycline class.

PTK-MS01—Oral Anti-Inflammatory/Neuroprotective Tetracyclines for Multiple Sclerosis

Market

MS is a chronic, debilitating disease of the central nervous system that currently affects approximately 2.5 million people worldwide. In 2011, drugs prescribed for the treatment of MS generated more than $12.3 billion in sales worldwide. The side effects, injectable-only formulation, and lack of sustained efficacy of current injectable, first-line MS therapies indicate that an unmet need still exists. The recently approved oral therapy, Gilenya, may have the advantage of being more convenient, but concerns about side effects and sustained efficacy still remain. No cure for MS currently exists, and each of the products currently used is approved to help slow or reduce the frequency or severity of debilitating attacks of muscle weakness and dysfunction that characterize MS. To avoid compounding safety risks, drugs that treat MS are typically administered alone, and are minimally active for some patients or can fail to work over time. As such, there remains a need for more effective drugs and combinations of drugs to treat both the symptoms and underlying disease of MS.

Development

We are developing a novel oral small molecule, PTK-MS01, for the treatment of MS. PTK-MS01 is a derivative of minocycline, a member of the tetracycline class of molecules. An increasing body of published information, including clinical studies in humans with relapsing-remitting MS, or RRMS, and animal models of the disease, has demonstrated the potential of oral minocycline for the treatment of MS. The potential of minocycline to treat MS is thought to be due to the anti-inflammatory and neuroprotective properties of the compound and unrelated to its antibacterial activity. The major drawback to the chronic use of minocycline in the treatment of MS when broad-spectrum antibacterial therapy is not necessary is its antibacterial activity which can result in the development of antibiotic resistance and related side effects, such as gastrointestinal intolerability and fungal overgrowth. We have evaluated minocycline and PTK-MS01 using in vitro assays of anti-inflammatory activity and neuroprotection and in animal models that simulate MS. Based on preclinical data, including its overall activity in the various models, favorable oral availability profile, and results from preliminary safety studies and the lack of antibacterial activity in animals, we believe PTK-MS01 has the potential to be a valuable therapy for the treatment of MS. While several past attempts to combine current immunosuppressive agents in RRMS patients have shown positive improvements in efficacy, they have exacerbated the frequency of serious adverse events when compared to single-agent therapy. We believe that the complementary neuroprotective and anti-inflammatory features of PTK-MS01 should enable the compound to be combined with current therapies without increasing serious adverse events. We maintain all commercialization rights to PTK-MS01. PTK-MS01 is in preclinical testing.

PTK-SMA2—Novel Tetracycline for Spinal Muscular Atrophy

Market

SMA is a rare genetic disorder characterized by progressive deterioration of motor neurons in the spinal cord. The most severe and common form, Type 1 SMA, can be a cause of death in infants. Patients with less severe forms, however, can live to adulthood, but continue to suffer from permanent and severe physical disabilities. Currently, no treatment exists for SMA, and potential therapies are still in early stage development. According to the SMA Foundation, approximately 10,000 to 25,000 patients suffer from SMA in the United States. Despite the modestly sized patient populations, we believe that a drug that can provide substantial quality of life or survival advantages can create attractive market opportunities, similar to the commercial experiences in several lysosomal storage disorder indications. Moreover, we expect the SMA market to be readily accessible to a highly concentrated sales force and benefits from a well-organized patient advocacy community.

Development

SMA is caused by a defect in the SMN1 gene, which leaves the patient unable to produce functional SMN protein which is important to motor neuron function. However, humans have a highly related gene, SMN2, which has been the subject of much research since the modulation of this gene might compensate for the defect in the SMN1 gene. The SMN2 gene produces RNA which is responsible for the production of nonfunctional SMN

protein. Our approach is to alter the splicing of the sequence of the RNA resulting in the production of functional SMN protein. We believe that a drug capable of increasing the production of the functional SMN protein through the modulation of SMN2 RNA sequences has the potential for disease modification in patients with this disorder.

Through in vitro and whole cell screening of our proprietary library of tetracycline derivatives, we have identified compounds with the ability to modulate SMN2 RNA splicing. Our lead candidate for the treatment of SMA, PTK-SMA2, is a novel small molecule that in animal models of SMA and cultured cells from SMA patients has been shown to alter SMN2 RNA splicing and significantly improve the production of functional SMN protein. PTK-SMA2 was shown to improve survival time and motor neuron function in the most severe mouse model of Type I SMA. Pharmacokinetic studies in animals have shown that PTK-SMA2 achieves significant plasma and tissue levels after IV and intracerebroventricular injection, including in the brain which is the most affected by the disease. Based on these results, we plan to advance PTK-SMA2 into IND-enabling studies.

Over the past several years, Families of SMA, a patient advocacy group, has supported our development of PTK-SMA2, providing us an aggregate of $1.2 million in funding. In addition, with the goal of advancing this program into clinical development, in 2009, we were awarded a five-year, milestone driven grant worth up to $4.7 million from the NIH, and have successfully delivered against annual ongoing requirements. We intend to seek orphan drug designation for PTK-SMA2 in this disease.

PTK-RA01—Oral Tetracycline for Rheumatoid Arthritis/Inflammatory Bowel Disease

Market

RA and IBD are chronic disorders where there remains an unmet need for safer, more effective, and more convenient treatments. For example, in RA, the current leading treatments are biologics which are only available in injectable formulation, can result in immunosuppression and cause other serious side effects. Currently available treatments for IBD disorders, such as prednisone, are not reliably effective, can result in immunosuppression and cause other serious side effects such as weight gain, hypertension, and diabetes.

RA is an autoimmune disease that can affect many different tissues and organs, but principally attacks the joints. In 2011, more than $15.6 billion was spent worldwide on drugs to treat RA.

IBD is a group of inflammatory conditions that affect the colon and small intestine. The most common forms of IBD are Crohn’s disease and ulcerative colitis and symptoms include abdominal pain, vomiting, diarrhea, and bleeding. Based on market research reports, the worldwide market for IBD disorders is expected to reach approximately $5.5 billion in 2012.

Development

Early proof of concept clinical studies suggest that minocycline and doxycycline have activity in patients with RA, but no tetracycline derivative has been approved to treat RA or IBD. We have discovered a novel non-antibacterial tetracycline-derived compound, PTK-RA01, which has shown a favorable oral availability profile and improved anti-inflammatory activity in animal models of RA compared to other tetracycline derivatives. Our pre-clinical studies indicate that PTK-RA01 offers the potential for an improved safety profile compared to currently available biologic treatment options, which are known to be broadly immunosuppressive. In our efforts to understand how this compound works in the various animal models, we have demonstrated that PTK-RA01 modulates autoimmune inflammatory pathways and does not suppress the immune system. In addition to RA, we have explored the utility of PTK-RA01 for the treatment of IBD, given that it is also an important autoimmune-based disease. Using a mouse model of IBD, we have demonstrated efficacy and believe there is the potential to develop a single compound that will be applicable to both RA and IBD indications. We intend to seek a partner for further development in these indications.

Other Research Programs

Multiple Adaptational Response Program for Preventing Infection and Add-On Therapy

We are developing non-tetracycline-derived anti-infective drugs that target virulence, which is the ability of bacteria to cause infection. We believe that anti-virulence drugs could have broad utility in the prevention of

bacterial infections in populations that are at risk, such as patients receiving mechanical ventilation, patients with recurring urinary tract infections, individuals at risk after a bioterrorism attack, or individuals in developing nations where diseases like cholera are problematic. Our novel approach focuses on inhibiting a family of transcription factors, which are proteins that control more than 50 different genes, many of which result in virulence. We refer to this related group of transcription factors as the MAR family. In the process of a bacterial cell causing infection in a human host, a large number of genes important to virulence are turned on, thus allowing the bacteria to successfully infect the host. We have demonstrated that inhibition of MAR by deleting the gene or inhibiting the gene function with a small molecule inhibitor reduces or eliminates virulence, thereby preventing infection. We have advanced our MAR program through proof of concept in animal models involving several types of bacteria, including P. aeruginosa, Yersinia Sp., and E. coli, in infections including pneumonia and UTI. These studies have shown that small molecule drugs, which target the MAR pathway, may have the potential to provide protection from lethal bacterial infections. We believe that MAR-targeted drugs offer the potential for both the prevention of infections and as an add-on therapy to currently available antibiotics.

Novel tetracycline for C. difficile infections

Clostridium difficile associated diarrhea, or CDAD, continues to be a complication of antibiotic therapy and has recently become more threatening in the community setting due to expanded use of quinolone and broad -spectrum cephalosporin antibiotics. The normal gut microflora forms a protective barrier known as colonization resistance to minimize intrusion of pathogenic organisms, including the overgrowth of C. difficile. CDAD infection results from the disruption of the normal gut microflora when an antibiotic is taken for an unrelated infection. The initial management of CDAD involves discontinuation of antibiotics to allow the normal gut microflora to restore itself. Although some cases of CDAD will resolve with cessation of antibiotic treatment, current clinical practice dictates that treatment should be directed against C. difficile itself, to avoid the risk of the disease worsening. Currently, the majority of CDAD patients that are treated receive metronidazole or oral vancomycin that remain in the gut, but these antibiotics are increasingly being considered inadequate because of decreased response rates. Further, the recurrence rate of disease following metronidazole therapy is known to be as high as 20% to 30% of patients. While a new treatment option, Dificid, has shown favorable efficacy, safety and somewhat reduced rates of recurrence, development of resistance is always a concern and additional therapies are needed. We have identified oral narrow-spectrum tetracycline-derived compounds that remain in the gut with activity against C. difficile and have conducted proof of concept studies with early leads in a rodent model of CDAD.

Our Drug Development Platform

Our tetracycline program is supported by over 50 years of use of tetracycline-based antibacterial products which have demonstrated a favorable safety and pharmacology profile. We maintain an active tetracycline chemistry program and have produced a diverse collection of chemically-distinct, patent-protected, tetracycline-derived compounds with varied and useful properties. These collections have been developed in pursuit of various structure-and-activity-relationships, or SAR, from our many programs and exploratory syntheses. The potential of this program is further strengthened by recent recognition that tetracyclines, in addition to having antibacterial activity, can also affect inflammation and immune responses. Recognizing this broad range of potential therapeutic activity, we have leveraged our expertise in chemistry and biology to develop novel and proprietary techniques that manipulate the basic tetracycline structure in order to produce novel drugs that could be used to treat a variety of serious human diseases. This expertise allows us to modify the spectrum of antibacterial activity, retain activity against resistant bacteria, completely eliminate antibacterial activity, retain favorable absorption characteristics, enhance compound penetration into certain tissues, avoid various side effects, and to enhance or introduce these or other new properties into our derivatives.

In addition, our MAR program is based on novel discoveries in pathogen genomics, which has allowed us to identify small molecules that could act to prevent serious and life-threatening infections before they develop. Leveraging the same chemistry and biology expertise as in our tetracycline-derivative programs, we have also had success discovering novel small molecules that inhibit MAR.

Our Commercialization Strategy

Assuming approval from regulatory authorities, we intend to market omadacycline as a first-line empiric monotherapy that will be commercialized worldwide for the treatment of serious community-acquired bacterial infections. We retain worldwide commercial rights to omadacycline. In the United States, we plan to either commercialize omadacycline alone or in collaboration with one or more pharmaceutical companies that have established commercial capabilities. We intend to build a commercial organization in the United States to focus on educating hospital-based and other physicians who treat serious community-acquired bacterial infections, nurses, pharmacy directors, and payors about omadacycline. We also plan to develop a commercial strategy that targets institutions with the greatest use of antibiotics for serious community-acquired bacterial infections where antibiotic resistance is of concern for treating physicians.

We will also seek to partner omadacycline in the European Union, which has similarly seen an increase in serious community-acquired bacterial infections. We believe that there is a similar rapidly growing need in other markets throughout the world, including established Asian markets such as Japan, Korea, and Taiwan, as well as emerging markets, such as China, Russia, South America, and India. We envision expansion of omadacycline to these markets through partnerships following the commercialization of omadacycline in the United States.

We have partnered with Warner Chilcott, who will commercialize our product candidate in our acne/rosacea program. With the exception of our SMA program, we would seek to partner our other programs in a similar manner and leverage the existing development and commercialization infrastructure of our partners to commercialize these product candidates. The SMA program is a focused market opportunity where we may commercialize these product candidates either alone or in collaboration with a partner with established commercial capabilities.

Competition

Our potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical companies, and generic drug companies. We believe that our product candidates offer key potential advantages over competitive products that could enable our product candidates, if approved, to capture meaningful market share from our competitors.

If approved by the FDA, omadacycline will compete with other antibiotics in the serious bacterial skin infection market. These include generic vancomycin, linezolid, sold under the brand name Zyvox by Pfizer Inc., daptomycin, sold under the brand name Cubicin by Cubist Pharmaceuticals, Inc., 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., and ceftaroline, sold under the brand name Teflaro by Forest Laboratories, Inc. Further, we expect that product candidates currently in Phase 3 development, or that could enter Phase 3 development in the near future, may represent significant competition if approved. These include ceftobiprole, under development by Basilea Pharmaceutica AG and approved in Canada and Switzerland, radezolid, under development by Rib-X Pharmaceuticals, Inc., tedizolid, under development by Trius Therapeutics, Inc., delafloxacin, under development by Rib-X Pharmaceuticals, Inc., dalbavancin, under development by Durata Therapeutics, Inc., BC-3781, under development by Nabriva Therapeutics AG, JNJ-Q2, under development by Furiex Pharmaceuticals, Inc. and oritavancin, under development by The Medicines Company.

If approved by the FDA, omadacycline will also compete with other antibiotics in the community-acquired pneumonia market. These include azithromycin, sold under the brand names Zithromax and Z-PAK by Pfizer Inc. and available as a generic, clarithromycin, sold under the brand name Biaxin by Abbott Laboratories and available as a generic, moxifloxacin, sold under the brand name Avelox by Bayer AG, levofloxacin, sold under the brand name Levaquin by Johnson & Johnson and available as a generic, tigecycline, sold under the brand

name Tygacil by Pfizer Inc., linezolid, sold under the brand name Zyvox by Pfizer Inc., ceftriaxone, sold under the brand name Rocephin by F. Hoffman-La Roche Ltd and available as a generic, and ceftaroline, sold under the brand name Teflaro by Forest Laboratories, Inc. We also are aware of various drugs under development for the treatment of CABP, including BC-3781, under development by Nabriva Therapeutics AG, delafloxacin, under development by Rib-X Pharmaceuticals, Inc., CEM-101, under development by Cempra Holdings, LLC, and JNJ-Q2, under development by Furiex Pharmaceuticals, Inc.

Many of our potential competitors have substantially greater financial, technical, and human resources than we do, as well as greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products, and the commercialization of those products. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any product candidate we may commercialize and may render our product candidates obsolete or non-competitive before we can recover the expenses of their development and commercialization. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Finally, the development of new treatment methods for the diseases we are targeting could render our product candidates non-competitive or obsolete.

Manufacturing

We do not own or operate current Good Manufacturing Practices, or cGMP, manufacturing facilities for the production of any of our product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We discover the initial synthesis routes for all our compounds and traditionally helped third-party manufacturers to scale-up and develop these processes, analytical methods, and formulations. All of our product candidates are organic compounds of low molecular weight, commonly referred to as small molecules. They are manufactured in simple synthetic processes from readily available starting materials. We currently rely on a small number of third-party contract manufacturers for all of our required raw materials, drug substance, and finished product for our preclinical research and clinical trials. We do not have long-term agreements with any of these third parties. We also do not have any current contractual relationships for the manufacture of commercial supplies of any of our product candidates after they are approved. If any of our products are approved by any regulatory agency, we intend to enter into agreements with third-party contract manufacturers for the commercial production of those products. We currently employ internal resources to manage our manufacturing contractors and conduct manufacturing process research in a lab-scale pilot facility in our Cambridge, Massachusetts laboratories.

For omadacycline, the manufacturing process has been refined to commercial scale, and we have produced stable IV and oral formulations. We have identified qualified commercial manufacturers, and we intend to use those manufacturers to complete process validation in support of market authorization filing, approval, and launch.

Intellectual Property

The proprietary nature of, and protection for, our proprietary drug development platform, our product candidates, and our discovery programs, processes, and know-how are important to our business. We seek patent protection in the United States and internationally for areas such as composition of matter and the chemistries which allow for the synthesis of novel substituted tetracycline compounds which exhibit significant antibacterial and/or anti-inflammatory activity, and any other technology to which we have rights, where available and when appropriate. Our policy is to pursue, maintain and defend patent rights, whether developed internally or licensed from third parties, and to protect the technology, inventions, and improvements that are commercially important to the development of our business. We also rely on trade secrets that may be important to the development of our business.

Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our proprietary technologies and compounds, our current and future product candidates and the methods used to develop and manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell, or importing our products and technology depends on the extent to which we have rights under valid and enforceable patents or

trade secrets that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our technology. For this and more comprehensive risks related to our intellectual property, please see “Risk Factors—Risks Related to Our Intellectual Property.”

Omadacycline

The patent portfolio for omadacycline is directed to cover compositions of matter, formulations, manufacturing methods and methods of use. It includes issued U.S. patents, pending U.S. patent applications, and corresponding foreign national or regional counterpart patents or applications. The patents and patent applications covering omadacycline include patents and patent application owned by us, as well as patents and patent applications owned jointly by us and Tufts University that are subject to a license agreement we have with Tufts. The issued composition of matter patent (U.S. Patent No. 7,553,828), if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, is expected to expire in 2023. We believe that an additional term of up to five years for one of our omadacycline patents may result from the patent term extension provision of the Hatch-Waxman Amendments of 1984, or the Hatch-Waxman Amendments. We expect that the other patents and patent applications in this portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, would expire between 2021 and 2029, excluding any additional term from patent term adjustment or patent term extension.

PTK-AR01

The patent portfolio for our acne and rosacea program is directed to cover compositions of matter and methods of use. The lead compound in this program is disclosed in U.S. Patent Application Nos. 11/963,540 and 11/963,509, and corresponding foreign national or regional counterpart applications. We expect that the patent applications in this portfolio, if issued as patents, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, would expire in 2027, excluding any additional term from patent term adjustment or patent term extension.

PTK-MS01

The patent portfolio for our multiple sclerosis program is directed to cover compositions of matter and methods of use. The lead compound in this program was first disclosed (but not claimed) in U.S. Patent No. 6,846,939, owned jointly by us and Tufts, and in pending related U.S. Patent Application Nos. 12/351,405, 12/473,955, and 12/547,870. The lead compound is also disclosed in U.S. Patent Application Nos. 10/877,928 and 12/563,923, and corresponding foreign national or regional counterpart applications. We expect that the patent applications in this portfolio, if issued as patents, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, would expire between 2021 and 2029, excluding any additional term from patent term adjustment or patent term extension.

PTK-SMA2

The patent portfolio for our spinal muscular atrophy program is directed to cover compositions of matter and methods of use. The lead compound in this program is disclosed in U.S. Patent Application No. 61/653,262. We believe that a patent application claiming the lead compound, if issued as a patent, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, would expire in 2033, excluding any additional term from patent term adjustment or patent term extension.

PTK-RA01

The patent portfolio for our rheumatoid arthritis program is directed to cover compositions of matter and methods of use. It includes issued U.S. Patent No. 7,056,902, pending U.S. applications, and corresponding foreign national or regional counterpart applications. The issued composition of matter patent (U.S. Patent No. 7,056,902), if the appropriate maintenance, renewal, annuity or other governmental fees are paid, is expected

to expire in 2023. We believe that an additional term of up to five years for one of our patents, may result from the patent term extension provision of the Hatch-Waxman Amendments. We expect that the patent applications in this portfolio, if issued as patents, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, would expire between 2022 and 2029, excluding any additional term from patent term adjustment or patent term extension.

MAR Program

The MAR patent portfolio for small molecule inhibitors of bacterial virulence contains layered protection directed to cover composition of matter and methods of use. It includes issued U.S. Patent No. 7,405,235 and pending U.S. applications (including U.S. Ser. Nos. 11/823,103, 12/057,357, 12/462,405, 12/536,887 and 12/765,528 that disclose lead compounds for this program), and the corresponding foreign applications. The issued composition of matter patent, if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, is expected to expire in 2023, excluding any additional term for patent term extension. We expect that the patent applications in this portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, would expire between 2023 and 2030, excluding any additional term for patent term adjustment or patent term extension. We believe that an additional term of up to five years for one or more of our patents may result from the patent term extension provision of the Hatch-Waxman Amendments.

The MAR patent portfolio also includes patents and patent applications directed to cover methods of identifying additional small molecule inhibitors of bacterial virulence. The majority of these patents and patent applications are being licensed from Tufts University. The issued patents include U.S. Patent Nos. 5,650,321, 5,766,924, 5,817,793, 6,068,972, 6,136,602, 6,346,391, 6,391,545, 6,448,006, 6,485,973, 6,677,133, 7,026,136, 7,075,582, 7,202,339, 8,012,711 and 8,039,221, as well as the corresponding foreign patents. Pending applications include U.S. Ser. Nos. 12/625,003, 13/228,979 and 13/431,713, as well as the corresponding foreign applications. The issued patents, if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, are expected to expire between 2012 and 2023. We expect that the patent applications in this portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, would expire between 2019 and 2023, excluding any additional term for patent term adjustment or patent term extension.

Trade Secrets

In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and know-how can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors, and commercial partners. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems.

Trademarks

Further, we seek trademark protection in the United States where available and when appropriate. We have registered the service marks PARATEK and PARATEK PHARMACEUTICALS & DESIGN, which we use in connection with our pharmaceutical research and development as well as our product candidates. We have received Notices of Allowance from the United States Patent and Trademark Office and the Canadian Intellectual Property Office for the PARACYCLINE mark which is registered in the European Union and Japan. In addition, we have registered the service mark THE ANTIBIOTIC RESISTANCE COMPANY in the European Union and Japan, which may be used in connection with the research and development of pharmaceuticals, drugs and antibiotics and the test, evaluation research and development of antibiotics, and other pharmaceutical products, respectively.

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Collaborations, License Agreements and Other External Sources of Funding

Our commercial strategy is to partner with established pharmaceutical companies to develop and market products for the larger “community” markets, while retaining certain rights to products aimed at concentrated markets, such as hospital-based products, in the United States where we may seek to participate in development and commercialization. As of June 30, 2012, we have obtained $172.7 million in funding from external collaborations and grants. Through our collaborations, we may receive more than $20 million in milestone achievement payments in the coming years as our products progress.

Warner Chilcott

In July 2007, we entered into a collaborative research and license agreement with Warner Chilcott under which we granted Warner Chilcott an exclusive license to research, develop, and commercialize tetracycline products for use in the United States for the treatment of acne and rosacea. Under the terms of the agreement, we and Warner Chilcott 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 Warner Chilcott, we may conduct certain additional development activities to the extent we determine in good faith that we have the necessary resources available for such activities. Warner Chilcott has agreed to reimburse us for our costs and expenses, including third-party costs, incurred in conducting any such development activities.

Under the terms of the agreement, Warner Chilcott 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. Warner Chilcott may elect to advance the development of PTK-AR01 for the treatment of rosacea. We have agreed during the term of the agreement not to directly or indirectly develop or commercialize any tetracycline compounds in the United States for the treatment of acne and rosacea, and Warner Chilcott has agreed during the term of the 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.

Warner Chilcott paid us an upfront fee in the amount of $4 million on the execution date of the agreement. In addition, Warner Chilcott may be required to pay us an aggregate of approximately $25 million upon the achievement of specified development and regulatory milestones, of which $3.4 million has already been paid. Warner Chilcott is also obligated to pay us tiered royalties based on net sales of tetracycline compounds developed under the agreement. Warner Chilcott’s obligation to pay us royalties for each tetracycline compound it commercializes under the 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 we or Warner Chilcott may terminate the agreement for certain specified reasons at any time after Warner Chilcott has commenced development of any tetracycline compound, including if Warner Chilcott 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 we or Warner Chilcott may terminate the agreement at will on 60 days’ notice (unless the breach relates to a payment term, which requires a 30-day notice) in the event of the uncured breach of a material term or upon the bankruptcy of the other party that is not discharged within 60 days. Upon the termination of the agreement by Warner Chilcott for our breach, Warner Chilcott’s license shall continue following the effective date of termination, subject to the payment by Warner Chilcott 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 Warner Chilcott to pay us any further royalty or milestone payments shall terminate. Upon the termination of the agreement by us for Warner Chilcott’s breach or the voluntary termination of the agreement by Warner Chilcott, Warner Chilcott’s license under the agreement will terminate.

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Tufts University License Agreement

In February 1997, we entered into a license agreement with Tufts University under which we 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 in humans and animals and for agricultural applications. We subsequently entered into seven amendments to this 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 us to Tufts under our sublicense agreements with specified sublicensees. We are obligated under the agreement to provide Tufts with annual diligence reports and a business plan and to meet certain other diligence milestones. We have 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. We are primarily responsible for the preparation, filing, prosecution, and maintenance of all patent applications and patents covering the licensed intellectual property licensed to us under the agreement at our sole expense. We have the first right, but not the obligation, to enforce the licensed intellectual property against infringement by third parties.

We issued Tufts 500,000 shares of our common stock on the date of execution of the agreement, and we may be required to make certain payments of up to $300,000 to Tufts upon the achievement by products developed under the agreement of specified development and regulatory approval milestones. We have already made a payment of $50,000 to Tufts for achieving the first milestone following commencement of the Phase 3 non-registration trial for omadacycline. We are also obligated to pay Tufts a minimum royalty in the amount of $25,000 per year if we do not sponsor at least $100,000 of research at Tufts in such year and to pay royalties in the single digits based on net sales of products. In the past, we have opted to satisfy our minimum royalty obligations to Tufts by providing an equivalent amount of sponsored research or receiving a waiver from Tufts with respect to such obligations. We expect that we will satisfy our future minimum royalty obligations by making annual payments of $25,000 to Tufts. If we enter into a sublicense under the agreement, we will be obligated to pay Tufts a percentage of the upfront or maintenance fees paid to us by the sublicensee and the lesser of a percentage of the royalty payments made to us by the sublicensee or the amount of royalty payments that would have been paid by us to Tufts if we had sold the products.

Unless terminated earlier, the agreement will expire at the same time as the last-to-expire patent in our patent rights under the license agreement. Tufts has the right to terminate the agreement upon 30 days’ notice should we fail to make a material payment under the agreement, commit a material breach of the agreement, or if, after we have started to commercialize a product under the agreement, we cease to carry on our business for a period of 90 consecutive days. We have the right to terminate the agreement at any time upon 180 days’ notice to Tufts. Tufts has the right to convert our exclusive license to a non-exclusive license if we do not commercialize a product licensed under the agreement within the specified time period.

NIH Grant Funding

We have also successfully pursued a strategy of funding our research programs with external grant support. We have been able to secure more than $10 million in grant funding from organizations such as the Medicines for Malaria Venture, Families of SMA, and the NIH over recent years. We continue to leverage grant funded research to explore opportunities in new areas of research.

An effort currently benefiting from grant support is our SMA program. Formerly funded by the non-profit patient advocacy group Families of SMA for screening of novel compounds, this program is now funded by an NIH grant. The NIH grant has supported lead and back-up optimization and initiation of IND-enabling preclinical studies.

As we have received funding for our SMA program from the NIH, a funding agency of the United States government, inventions conceived or first actually reduced to practice during the performance of the research

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project are subject to the rights and limitations of certain federal statutes and various implementing regulations known generally and collectively as the Bayh-Dole Requirements. As a funding recipient, we are subject to certain invention reporting requirements and certain limitations are placed on our assignment of the invention rights. In addition, the federal government retains a non-exclusive, irrevocable, paid-up license to practice the invention and, in exceptional cases, the federal government may seek to take title to the invention.

Past Collaborations

Novartis

In September 2009, we entered into a license and collaboration agreement with Novartis for the co-development and commercialization of omadacycline, which included a $70 million upfront license fee, future development and sales milestone payments, and future royalty payments, depending on the success of omadacycline. Under the agreement, Novartis was to have led development activities for omadacycline, and we were to have co-developed omadacycline and contributed a share of its development expense.

The agreement provided that Novartis would bear the majority of all direct development costs incurred in connection with omadacycline and would assume all responsibility for manufacturing of omadacycline. The agreement provided Novartis with a global, exclusive patent license for the development, manufacturing and marketing of omadacycline.

Novartis had the right to terminate the agreement without cause upon providing sixty days’ advance written notice. Novartis provided us with a notice of intent to terminate the agreement on June 29, 2011, and the termination became effective sixty days later. While Novartis terminated the agreement without cause, Novartis indicated that it elected to terminate the agreement due to the then-existing delays and uncertainties we were experiencing at that time in connection with the regulatory pathway for approval of omadacycline in two core indications, ABSSSI and CABP.

In January 2012, we and Novartis entered into a letter agreement, which we refer to as the Novartis Letter Agreement, in which we reconciled shared development costs and expenses and granted Novartis a right of first negotiation with respect to commercialization rights of omadacycline following approval of omadacycline from the FDA, EMA or any regulatory agency, but only to the extent we have not previously granted such commercialization rights for omadacycline to another third party as of any such approval. Pursuant to the reconciliation of development costs and expenses, we agreed to pay Novartis approximately $2.9 million on June 30, 2012, and as of the date hereof, this amount remains outstanding.

Government Regulation and Product Approval

Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing, and export and import of products such as those we are developing. Our drugs must be approved by the FDA through the NDA process before they may be legally marketed in the United States.

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United States Government Regulation

NDA Approval Processes

In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act, or the FDCA, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local, and foreign statues and regulation require the expenditure of substantial time and financial resources. Failure to comply with the applicable requirements of the United States at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions, any of which could have a material adverse effect on us. These sanctions could include:

refusal to approve pending applications;

withdrawal of an approval;

imposition of a clinical hold;

warning letters;

product seizures or recalls;

total or partial suspension of production or distribution; or

injunctions, fines, restitution, disgorgement, or civil or criminal penalties.

The process required by the FDA before a drug may be marketed in the United States generally involves the following:

completion of preclinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory Practices, or GLPs, or other applicable regulations;

submission to the FDA of an IND, which must become effective before human clinical trials may begin;

performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug for its intended use, conducted in accordance with Good Clinical Practices, or GCPs, which are ethical and scientific quality standards and FDA requirements for conducting, recording and reporting clinical trials to assure that the rights, safety and well-being of trial participants are protected;

submission to the FDA of an NDA;

satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s safety, identity, strength, quality, and purity; and

FDA review and approval of the NDA.

Once a pharmaceutical candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. Some preclinical or nonclinical testing may continue even after the IND is submitted. In addition to including the results of the preclinical studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase lends itself to an efficacy determination. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the IND on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. A clinical hold may occur at any time during the life of an IND, and may affect one or more specific studies or all studies conducted under the IND.

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All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs. They must be conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion criteria, and the safety and effectiveness criteria to be evaluated. Each protocol and any amendments must be submitted to the FDA as part of the IND, and progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently in other situations, including the occurrence of serious adverse events. An institutional review board, or IRB, at each institution participating in the clinical trial must review and approve the protocol and any amendments before a clinical trial commences or continues at that institution, approve the information regarding the trial and the consent form that must be provided to each trial subject or his legal representative, and monitor the study until completed and otherwise comply with IRB regulations.

Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

Phase 1. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution, and elimination. In the case of some products for severe or life-threatening diseases, such as cancer, especially when the product may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.

Phase 2. Clinical trials are initiated in a limited patient population intended to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases, and to determine dosage tolerance and optimal dosage.

Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy, and safety in an expanded patient population at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of the product and provide an adequate basis for regulatory approval and product labeling.

Phase 1, Phase 2, and Phase 3 testing may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and FDA to reach agreement on the next phase of development. Sponsors typically use the End of Phase 2 meeting to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trial that they believe will support approval of the new drug. If this type of discussion occurred, a sponsor may be able to request a Special Protocol Assessment, or SPA, the purpose of which is to reach agreement with the FDA on the design of the Phase 3 clinical trial protocol design and analysis that will form the primary basis of an efficacy claim.

According to FDA guidance for industry on the SPA process, a sponsor which meets the prerequisites may make a specific request for a special protocol assessment and provide information regarding the design and size of the proposed clinical trial. The FDA is supposed to evaluate the protocol within 45 days of the request to assess whether the proposed trial is adequate, and that evaluation may result in discussions and a request for additional information. A SPA request must be made before the proposed trial begins, and all open issues must be resolved before the trial begins. If a written agreement is reached, it will be documented and made part of the record. The agreement will be binding on the FDA and may not be changed by the sponsor or the FDA after the trial begins except with the written agreement of the sponsor and the FDA or if the FDA determines that a substantial scientific issue essential to determining the safety or efficacy of the drug was identified after the testing began. Also, if the sponsor makes any unilateral changes to the approved protocol, the agreement will be invalidated.

The recently enacted Food and Drug Administration Safety and Innovation Act, or FDASIA, made permanent the Pediatric Research Equity Act, or PREA, which requires a sponsor to conduct pediatric studies for most drugs and biologicals, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route

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of administration. Under PREA, original NDAs, BLAs and supplements thereto, must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric studies for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug or biologic is ready for approval for use in adults before pediatric studies are complete or that additional safety or effectiveness data needs to be collected before the pediatric studies begin. After April 2013, the FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation. In our End-of-Phase 2 meeting with the FDA regarding omadacycline, we agreed to initiate an initial pediatric study prior to submission of the NDA because serious and resistant ABSSSI and CABP also occur in children. Omadacycline could be a useful new antibiotic for this patient population. This study is planned for 2013. We intend to request a deferral for children under the age of nine because tetracyclines are known to cause deposits in tooth enamel leading to tooth staining in this population.

Concurrent with clinical trials, companies usually complete additional animal safety studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and the manufacturer must develop methods for testing the quality, purity and potency of the final drugs. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf-life.

The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of user fees, but a waiver of such fees may be obtained under specified circumstances. The FDA reviews all NDAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. It may request additional information rather than accept a NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing.

Once the submission is accepted for filing, the FDA begins an in-depth review. NDAs receive either standard or priority review. A drug representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. The FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing complies with cGMP requirements to assure and preserve the product’s safety, identity, strength, quality and purity. The FDA may refer the NDA to an advisory committee for review and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured and tested.

The FDA may require, as a condition of approval, restricted distribution and use, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, pre-approval of promotional materials, restrictions on direct-to-consumer advertising or commitments to conduct additional research post-approval. The FDA will issue a complete response letter if the agency decides not to approve the NDA in its present form. The complete response letter usually describes all of the specific deficiencies in the NDA identified by the FDA. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application.

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Expedited Review and Approval

The FDA has various programs, including Fast Track, priority review, and accelerated approval, which are intended to expedite or simplify the process for reviewing drugs, and/or provide for approval on the basis of surrogate endpoints. Even if a drug qualifies for one or more of these programs, the FDA may later decide that the drug no longer meets the conditions for qualification or that the time period for FDA review or approval will not be shortened. Generally, drugs that may be eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that offer meaningful benefits over existing treatments. For example, Fast Track is a process designed to facilitate the development, and expedite the review of drugs to treat serious diseases and fill an unmet medical need. Priority review is designed to give drugs that offer major advances in treatment, or provide a treatment where no adequate therapy exists, an expedited review within six months as compared to a standard review time of ten months. Although Fast Track and priority review do not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated drug and expedite review of the application for a drug designated for priority review. Accelerated approval provides an earlier approval of drugs to treat serious diseases, and that fill an unmet medical need based on a surrogate endpoint, which is a laboratory measurement or physical sign used as an indirect or substitute measurement representing a clinically meaningful outcome. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform post-marketing clinical trials.

FDASIA includes the Generating Antibiotic Incentives Now Act, or GAIN Act, which is intended to provide incentives for the development of new qualified infectious disease products. A new drug that is designated as a qualified infectious disease product after a request by the sponsor that is made before an NDA is submitted will be eligible, if approved, for an additional five years of exclusivity beyond any period of exclusivity to which it would have previously been eligible. In addition, a qualified infectious disease product will receive priority review and Fast Track designation. Qualified infectious disease products are defined as antibacterial or antifungal drugs intended to treat serious or life-threatening infections that are resistant to treatment, or that treat qualifying resistant pathogens identified by the FDA. Examples of pathogens that may be designated as a qualifying pathogen include MRSA, vancomycin-resistant Enterococcus and multi-drug resistant Gram-negative bacteria. We believe that omadacycline will qualify for this designation and intend to make a request that it be so designated as soon as it is appropriate.

Patent Term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specifics of FDA approval of the use of our drugs, some 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 restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND, and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the extension must be applied for prior to expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply for restoration of patent term for omadacycline beyond its current composition of matter expiration date, depending on the expected length of clinical trials and other factors involved in the submission of the omadacycline NDA.

Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of

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patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages, or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

Pediatric Exclusivity

The FDASIA made permanent the Best Pharmaceuticals for Children Act, or BPCA, which provides for an additional six months of marketing exclusivity if a sponsor conducts clinical trials in children in response to a written request from the FDA, or a Written Request. If the Written Request does not include studies in neonates, the FDA is required to include its rationale for not requesting those studies. The FDA may request studies on approved or unapproved indications in separate Written Requests. The issuance of a Written Request does not require the sponsor to undertake the described studies. To date, we have not received any Written Requests.

Post-approval Requirements

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

Any drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other things:

record-keeping requirements;

reporting of adverse experiences with the drug;

providing the FDA with updated safety and efficacy information;

drug sampling and distribution requirements;

notifying the FDA and gaining its approval of specified manufacturing or labeling changes;

complying with certain electronic records and signature requirements; and

complying with FDA promotion and advertising requirements.

Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and some state agencies for compliance with cGMP requirements and other laws.

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be.

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Recent Changes to the Regulatory Landscape

The analytic approach of the FDA’s Anti-Infective Drugs Division has undergone evolution in recent years, primarily driven by concerns that increasingly less effective antibiotics may have been approved in the last 10 to 15 years. The impact of these changes was a rethinking of how antibiotic efficacy is measured in clinical trials, and a review of the statistical tools used to analyze the data. In March 2009, the FDA published a draft guidance entitled “Guidance for Industry Community-Acquired Bacterial Pneumonia: Developing Drugs for Treatment” and in August 2010, it published a draft guidance entitled “Guidance for Industry Acute Bacterial Skin and Skin Structure Infections: Developing Drugs for Treatment”, or the 2010 Guidance. The purpose of this guidance was to address many of the uncertainties regarding what the FDA expected from sponsors and clinical trials for the indications of ABSSSI and CABP.

The FDA asked sponsors to include additional measurements in their evaluation of efficacy that the FDA believes are more objective and less susceptible to interpretation by investigators. Non-inferiority comparisons of drugs are the standards for antibiotics, and non-inferiority margins are the margins used in the statistical analysis comparing two treatment arms in a study. These are the statistical margins or rules used to distinguish the degree of potential difference between two antibiotics in a study. In September 2010, one month after issuing the 2010 Guidance, the FDA approved Teflaro, the first antibiotic NDA reviewed pursuant to these new endpoints and non-inferiority margins. Our SPA agreements with the FDA for omadacycline include provisions that are consistent with the 2010 Guidance.

Government Regulation of Veterinary Drugs

Drugs that will be used in animals are also subject to regulation by the FDA, and related applications are submitted to FDA’s Center for Veterinary Medicine, or CVM. A new animal drug may not be sold in the United States unless it is the subject of an approved new animal drug application, or a NADA, an abbreviated NADA, or an ANADA, or unless there is a conditional approval, or a CNADA, in effect. A NADA is used to seek approval of a new animal drug and includes any subsequent supplemental applications made to an approval. An ANADA is used to seek approval for a generic new animal drug and includes any subsequent supplements to an approved ANADA. As with drugs for human use, a generic new animal drug is a copy of an approved new animal drug for which patents or other periods of exclusivity are near expiration. A CNADA allows a drug sponsor to legally market a new animal drug intended for a minor use or a minor species after proving it is safe, but before collecting all the necessary effectiveness data that would otherwise be required for a full NADA. The drug sponsor can keep the product on the market for up to five years, while collecting the required effectiveness data, if the FDA approves the sponsor’s annual renewal requests.

Before a NADA for a new drug can be submitted to the FDA, the sponsor must typically conduct clinical trials after submitting a Notice of Claimed Investigational Exemption for a New Animal Drug. Because some animals are used in human food, the FDA may require not only information about the effect of the new drug in treating the animal, but also information about any residues that might remain and later be found in human food products.

After approval, animal drugs and their manufacturers are subject to ongoing regulation by the FDA.

Foreign Regulation

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of foreign countries or economic areas, such as the European Union, before we may commence clinical trials or market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.

Under European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicinal products produced by biotechnology or those medicinal products containing new active substances for specific

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indications such as the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, viral diseases and designated orphan medicines, and optional for other medicines which are highly innovative. Under the centralized procedure, a marketing application is submitted to the European Medicines Agency where it will be evaluated by the Committee for Medicinal Products for Human Use and a favorable opinion typically results in the grant by the European Commission of a single marketing authorization that is valid for all European Union member states within 67 days of receipt of the opinion. The initial marketing authorization is valid for five years, but once renewed is usually valid for an unlimited period. The decentralized procedure provides for approval by one or more “concerned” member states based on an assessment of an application performed by one member state, known as the “reference” member state. Under the decentralized approval procedure, an applicant submits an application, or dossier, and related materials to the reference member state and concerned member states. The reference member state prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment report, each concerned member state must decide whether to approve the assessment report and related materials. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.

As in the United States, we may apply for designation of a product as an orphan drug for the treatment of a specific indication in the European Union before the application for marketing authorization is made. Orphan drugs in Europe enjoy economic and marketing benefits, including up to 10 years of market exclusivity for the approved indication unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan-designated product.

Reimbursement

Sales of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly reducing reimbursements for medical products and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our product candidates or a decision by a third-party payor to not cover our product candidates could reduce physician usage of the product candidate and have a material adverse effect on our sales, results of operations and financial condition.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.

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The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sales of our product candidates, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates. If third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, ACA) enacted in March 2010, is expected to have a significant impact on the health care industry. ACA is expected to expand coverage for the uninsured while at the same time containing overall healthcare costs. With regard to pharmaceutical products, among other things, ACA is expected to expand and increase industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare Part D program. We cannot predict the impact of ACA on pharmaceutical companies as many of the ACA reforms require the promulgation of detailed regulations implementing the statutory provisions which has not yet occurred. In addition, although the United States Supreme Court recently upheld the constitutionality of most of the ACA, some states have stated their intentions to not implement certain sections of ACA and some members of Congress are still working to repeal ACA. These challenges add to the uncertainty of the changes enacted as part of ACA.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and generally tend to be significantly lower.

Legal Proceedings

We are not currently a party to any material legal proceedings.

Facilities

Our headquarters are located in Boston, Massachusetts, where we occupy approximately 15,088 square feet of office space under a lease that expires in 2016. We also occupy approximately 16,135 square feet of office and laboratory space in Cambridge, Massachusetts under a lease that expires in June 2017. We believe that our facilities are sufficient to meet our current needs and that suitable additional space will be available as and when needed.

Employees

As of June 30, 2012, we had 32 full-time employees, 24 of whom were primarily engaged in research and development activities. A total of 12 employees have an M.D. or Ph.D. degree. None of our employees are represented by a labor union and we consider our employee relations to be good.

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Management

Executive Officers and Directors

The following table sets forth certain information concerning our executive officers and directors as of October 1, 2012:


Name	Age		Title
Executive Officers
Dennis P. Molnar		43	President, Chief Executive Officer and Director
Kathryn M. Boxmeyer		37	Vice President, Chief Financial Officer and Treasurer
Beverly A. Armstrong		43	Vice President—Administration, Chief Compliance Officer, General Counsel and Secretary
Sean M. Johnston, Ph.D.		54	Vice President—Manufacturing Operations
Stuart B. Levy, M.D.		73	Chief Scientific Officer,Vice Chairman and Director
Evan Loh, M.D.		53	Chief Medical Officer and Chairman of the Board
S. Ken Tanaka, Ph.D.		60	Vice President—Research & Development

Non-Employee Directors
Walter Gilbert, Ph.D.^{(1) (2)}		80	Vice Chairman and Director
Dennis Purcell ⁽³⁾		57	Director
Pieter J. Strijkert, Ph.D. ^{(2) (3)}		76	Director
Anthony Sun, M.D. ^{(1) (2)}		40	Director
Louise Mawhinney ⁽⁴⁾		56	Director Nominee

(1)

Member of our audit committee.

(2)

Member of our compensation committee.

(3)

Member of our nominating and governance committee.

(4)

In September 2012, Ms. Mawhinney was appointed by our board of directors, effective upon the completion of this offering, to fill the vacancy on our board of directors. Ms. Mawhinney will be our audit committee chair after the completion of this offering.

The biographies of each of the directors below contain information regarding each person’s service as a director, business experience, director positions held currently or at any time during the last five years, information regarding involvement in certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that caused the board of directors to conclude that the person should serve as a director for the company as of the date of this prospectus.

Executive Officers

Dennis P. Molnar, M.B.A., has been our President and Chief Executive Officer since February 2012. Mr. Molnar was previously our Executive Director of Corporate Development from 2001 to 2005 and our Vice President of Corporate Development from January 2005 to February 2012. Mr. Molnar has 19 years of experience in the pharmaceutical and biotechnology industries working in a variety of capacities, including business development, management, finance, and consulting. From 2000 to 2001, Mr. Molnar was President of JBI Associates, LLC, a software and consulting services firm to hospital pharmacies. From 1998 to 2000, Mr. Molnar served as Director of Finance and Business Development of Magainin Pharmaceuticals Inc. Prior to 1998, he held a series of positions at Bogart Delafield Ferrier, Inc., a strategic management consulting firm to the pharmaceutical and biotech industries from 1993 to 1996. Mr. Molnar received his B.A. from Brown University and his M.B.A. in healthcare management from the Wharton School of Management.

We believe that Mr. Molnar possesses specific attributes that qualify him to serve as a member of our board of directors, including the perspective and experience he brings as our Chief Executive Officer, which brings historic knowledge, operational expertise, and continuity to our board of directors, and his more than 19 years of prior executive experience with several biotechnology and pharmaceutical companies.

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Kathryn M. Boxmeyer, M.B.A., has been our Vice President, Chief Financial Officer, and Treasurer since March 2011. Prior to that, Ms. Boxmeyer held a series of positions in our Finance department since joining Paratek in 2001, including as our Vice President of Finance from March 2010 to March 2011. Ms. Boxmeyer has over 13 years of experience in the pharmaceutical and biotechnology industries working in finance, business development, and strategy consulting. From 1996 to 1999, Ms. Boxmeyer served as a member of the investment banking team at Raymond James & Associates where she worked as an advisor on the healthcare team, specializing in initial public offerings, follow-on offerings, private placements, mergers and acquisitions, and fairness opinions to companies in the life sciences, medical devices, and healthcare services sectors. Ms. Boxmeyer has also previously been a member of the management consulting group at Mercer Management Consulting. Ms. Boxmeyer received her A.B. from Harvard University and her M.B.A. from the Tuck School of Business at Dartmouth College.

Beverly A. Armstrong, J.D., M.B.A., has been our Vice President—Administration, Chief Compliance Officer, General Counsel, Secretary since January 2005. Prior to that Ms. Armstrong served as our Vice President, Chief Financial Officer, Treasurer, and Secretary from 2000 to 2005. She has also served as Vice President of our subsidiary, Paratek UK Limited, since 2005. Ms. Armstrong has 17 years of experience in finance, law, operations, and advising companies in the healthcare and biotechnology industries. Prior to joining Paratek, Ms. Armstrong served as an advisor to us while at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., a Boston-based law firm, where she specialized in securities offerings, SEC reporting, private equity financings, business plan development, mergers and acquisitions, joint ventures, technology transfer and strategic collaborations for biotechnology, high technology, and healthcare-related companies. Ms. Armstrong started her business career as a member of the investment banking group at Morgan Stanley & Co. Ms. Armstrong is admitted to practice law in Massachusetts and New York and she is a member of the New York and Boston Bar Associations. Ms. Armstrong serves on the Board of Directors of the Kenneth B. Schwartz Center for Compassionate Healthcare, The Alliance for Business Leadership, and other not-for-profit organizations. Ms. Armstrong received her A.B. from Harvard University, her M.B.A. from Harvard Business School, and her J.D. from Harvard Law School.

Sean M. Johnston, Ph.D., has been our Vice President—Manufacturing Operations since April 2003 and has over 25 years of experience in the pharmaceutical industry focusing on process development, manufacturing and operations. Dr. Johnston began his career as a Process Manager for Bristol Myers-Squibb. Prior to joining Paratek, Dr. Johnston served as the Senior Vice President of Operations for Genaera Corporation from 1999 to 2003. At Genaera and other start-up organizations, he managed development, manufacture and analytical activities associated with a range of drug product candidates, including small molecules and biologics in multiple product formulations. He has made regulatory submissions in the United States, Canada, and Europe, and has experience with pre-approval inspections and general inspections by the FDA and other regulatory authorities. Dr. Johnston has also worked with pharmaceutical contract manufacturers, including Lonza and Siegfried Chemicals, where he was responsible for all aspects of commercial and clinical manufacturing, process improvement, technology transfer, and facilities expansion. Dr. Johnston received his B.S., M.B.A. and Ph.D. from the National University of Ireland.

Stuart B. Levy, M.D., has been our Chief Scientific Officer and Vice Chairman of the Board of Directors since co-founding Paratek in 1996. Dr. Levy has over 30 years of research experience on the mechanisms of microbial drug resistance and, among other work, discovered the efflux mechanism of resistance to tetracycline and the mar operon. A pioneer and recognized expert in the field of antibiotic resistance, Dr. Levy is currently the Director of the Center for Adaptation Genetics and Drug Resistance at Tufts University School of Medicine. He holds professorships in the Departments of Molecular Biology and Microbiology and of Medicine. He is a past President of the American Society for Microbiology and serves as the President of the Alliance for Prudent Use of Antibiotics. Dr. Levy earned his B.A. at Williams College and his M.D. at the University of Pennsylvania.

We believe that Dr. Levy possesses specific attributes that qualify him to serve as a member of our board of directors, including the perspective and experience he brings as our Co-Founder, Chief Scientific Officer, and Vice Chairman, which brings historic knowledge, operational expertise and continuity to our board of directors, and his world class expertise, including over 30 years of research, in the fields of antibiotic resistance and the mechanisms of microbial drug resistance.

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Evan Loh, M.D., was appointed Chief Medical Officer in June 2012 and has served on and been the Chairman of our board of directors since May 2012. From October 2009 to January 2012, Dr. Loh served as Senior Vice President, Development and Strategic Operations, Worldwide Research and Development, at Pfizer. While at Pfizer, Dr. Loh’s responsibilities included scientific, operational, and strategic drug development oversight for all pre-proof of concept development phase programs and leading portfolio prioritization. Prior to joining Pfizer, from January 2007 to October 2009, Dr. Loh was Vice President, Clinical Research & Development at Wyeth, where he was responsible for leadership and strategic oversight of clinical development efforts across multiple therapeutic areas throughout the world. He is the 2006 recipient of the Heroes of Chemistry Award from the American Chemical Society for his leadership role at Wyeth in the clinical development of Tygacil. Dr. Loh served as a faculty member at both Harvard Medical School and the University of Pennsylvania School of Medicine. Dr. Loh received his A.B. from Harvard College and his M.D. from Harvard Medical School. He completed his Internal Medicine and Cardiovascular fellowship training at Brigham and Women’s Hospital.

We believe that Dr. Loh possesses specific attributes that qualify him to serve as a member of our board of directors, including more than 12 years experience in senior executive management roles with large, international pharmaceutical companies.

S. Ken Tanaka, Ph.D., has been our Vice President—Research & Development since 2001. Dr. Tanaka has over 30 years of experience in research and development in the pharmaceutical industry at both large and small pharmaceutical companies. From 1997 to 2001, he worked at PathoGenesis Corp. as its Senior Director of Anti-Infective Drug Evaluation, supervising development efforts and marketing of aerosolized tobramycin. In 1987, Dr. Tanaka joined Schwartz-Pharma to lead their U.S. clinical development effort, and then joined Abbott Laboratories as head of Microbiology in 1991. At Abbott, he was involved in the macrolide, quinolone, and NCE discovery programs as well as the development and marketing support for clarithromycin, temofloxacin, and ABT-773. Prior to that, he worked at E.R. Squibb and Sons, Inc. as a scientist in its monobactam and NCE programs. He received his B.S. from the University of Washington and his Ph.D. from Northwestern University, each in Microbiology, and did his postdoctoral training in Clinical Microbiology at the University of Washington.

Board of Directors

Walter Gilbert, Ph.D., has served on our board of directors since 1996 and is one of our co-founders. Dr. Gilbert served as our chairman of the board from 1996 until May 2012, and currently serves as vice chairman. Dr. Gilbert is currently a Managing Partner of BioVentures Investors, a life-sciences venture capital firm. Dr. Gilbert has had a long track record of experience in the biotechnology industry. He was a co-founder of Biogen, Inc. and CEO from 1981 to 1984; more recently, he was a co-founder of Myriad Genetics, Inc. (NASDAQ: MYGN), a diagnostic testing company, and is currently vice-chairman of Myriad’s Board of Directors. He also previously served on the board of directors of Memory Pharmaceuticals, Inc. (NASDAQ: MEMY). A well-known molecular biologist, he is the Carl M. Loeb University Professor Emeritus, Harvard University. He was awarded a Nobel Prize in Chemistry in 1980 for the development of a method for rapid DNA sequencing.

We believe that Dr. Gilbert possesses specific attributes that qualify him to serve as a member of our board of directors, including the perspective and experience he brings as our co-founder and vice chairman, which brings historic knowledge and continuity to our board of directors. In addition, because Dr. Gilbert has founded a number of companies and served on several boards of directors of public companies, we believe he has substantial experience regarding how boards can and should effectively oversee and manage companies, and a significant understanding of governance issues.

Dennis Purcell, M.B.A., has served on our board of directors since October 2009. Mr. Purcell has served as the Senior Managing Partner of Aisling Capital since June 2001 and is responsible for the management of the funds. Prior to joining Aisling Capital, Mr. Purcell served as Managing Director of the Life Sciences Investment Banking Group at Chase H&Q (formerly Hambrecht & Quist, or H&Q) for over five years, and served on the Executive Committee of H&Q. Prior to joining H&Q, Mr. Purcell was a Managing Director in the Healthcare Group at PaineWebber, Inc. Mr. Purcell currently serves as a director of Xanodyne Pharmaceuticals, Inc.

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Previously he served as a director of Aton Pharmaceuticals, Inc., Auxilium Pharmaceuticals, Inc., Cengent Therapeutics, Inc., and Valentis, Inc. He is also a former member of the Board of Directors of the Biotechnology Industry Organization (BIO)—Emerging Companies Section. He has served as a member of the Advisory Council at Harvard Medical School. Mr. Purcell received his B.A. in Economics from the University of Delaware, and his M.B.A. from Harvard University.

We believe that Mr. Purcell possesses specific attributes that qualify him to serve as a member of our board of directors, including his experience building, investing in, and growing biotechnology companies, and his extensive experience in finance, capital markets, and investing. In addition, because Mr. Purcell has served on many boards of directors, we believe he has substantial experience regarding how boards can and should effectively oversee and manage companies, and a significant understanding of governance issues.

Pieter J. Strijkert, Ph.D., has served on our board of directors since 1997. He served as a member of the management board of Royal Gist-Brocades NV (Delft) from 1985 until 1995. Dr. Strijkert is currently chairman of the Board of Dynacorts Therapeutics BV, a company focused on treating depression and Crucell BV, a vaccine development company. He previously served as a director of Chiron Corporation, a biopharmaceutical, vaccine and blood testing company, until 2005 when it became a wholly-owned subsidiary of Novartis International AG. He also served as a consultant for Crucell BV from May 2007 until February 2010, when it was acquired by a wholly-owned subsidiary of Johnson & Johnson. He has previously served as a director of deVGen NV (Ghent, Belgium), as chairman of the Supervisory Board of Introgene (Leiden), Pharming BV (Leiden), as chairman of UbiSys NV (Utrecht), as chairman of the Board of the New Drug Research Foundation (The Hague) and as chairman of the Committee “Biotechnology” (Amsterdam). He has previously served as chairman of the Board of International Biosynthetics BV, as chairman of the Board of External Management Partners Holding BV (Staverden), and as a board member of the Association of the Dutch Chemical Industry (VNCI), the Bureau EG-Liaison, the Senior Advisory Group on Biotechnology (Brussels), the ETH in Zurich, Switzerland and the Foundation for the Preservation of the Central Laboratory of the Netherlands Red Cross Blood Transfusion Service. He is also an advisory board member for a number of other institutions, including Eidgenossische Technische Hochschule Institut für Biotechnologie (Zurich). Dr. Stijkert has a M.S. in Microbiology and a Ph.D. from Utrecht University in the Netherlands.

We believe that Dr. Strijkert possesses specific attributes that qualify him to serve as a member of our board of directors, including the perspective and experience he brings as a director of our Company since 1997, which brings historic knowledge and continuity to our board of directors. In addition, because Dr. Strijkert has served on several boards of directors with international pharmaceutical companies, we believe he has substantial experience regarding how boards can and should effectively oversee and manage companies and a significant understanding of governance issues.

Anthony Sun, M.D., has served on our board of directors since October 2007. Dr. Sun joined Aisling Capital in 2002 and currently serves as a partner. Previously, Dr. Sun was an Adjunct Instructor of Medicine at the Hospital of the University of Pennsylvania. Dr. Sun currently serves as a director of CeNeRx BioPharma, Inc., Dynova Laboratories, Inc. and HerbalScience, Inc. He was previously on the board of MAP Pharmaceuticals, Inc. Dr. Sun received his B.S. in Electrical Engineering from Cornell University and his M.D. from Temple University School of Medicine. In addition, he is a Board Certified Internist and has an M.B.A. from The Wharton School at the University of Pennsylvania.

We believe that Dr. Sun possesses specific attributes that qualify him to serve as a member of our board of directors, including his experience building, investing in and growing biotechnology companies and extensive experience in finance, capital markets and investing. In addition, because Dr. Sun has served on many boards of directors, we believe he has substantial experience regarding how boards can and should effectively oversee and manage companies, and a significant understanding of governance issues.

Louise Mawhinney will begin serving on our board of directors effective upon the completion of this offering. In September 2012, she began serving as Chief Financial Officer at Aratana Therapeutics, an animal health company. Prior to that, from May 2008 to September 2012, Ms. Mawhinney served as Chief Financial Officer of Ikonisys Inc., a medical device and diagnostic company. From September 2006 to May 2008, she served as

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Senior Vice President and Chief Financial Officer at Helicos BioSciences Corporation, a genetic analysis technology company. Prior to her tenure at Helicos, Ms. Mawhinney was Chief Financial Officer for ArQule, Inc., a publicly-traded biotechnology company engaged in the research and development of oncology therapeutics. She also formerly worked in the tax department of KPMG in Boston. Ms. Mawhinney holds a Masters Degree from the University of St. Andrews in Scotland. We believe that Ms. Mawhinney’s specific accounting and financial experience and her many years of executive experience in the life science industry qualify her to serve as a member of our board of directors.

Composition of our Board of Directors

Our board of directors currently consists of seven members, four of whom are non-employee directors. All of our directors were elected pursuant to the board composition provisions of our stockholders agreement, which provisions will terminate upon the completion of this offering. Upon termination of these provisions, there will be no further contractual obligations regarding the election of our directors.

Our directors hold office until their successors have been elected and qualified or until the earlier of their death, resignation or removal. There are no family relationships among any of our directors or executive officers.

In accordance with our restated certificate of incorporation and restated bylaws, which will become effective upon the closing of this offering, our board of directors will be divided into three classes with staggered three-year terms. At each annual meeting of stockholders commencing with the meeting in 2013, the successors to the directors whose terms then expire will be elected to serve until the third annual meeting following the election. At the closing of this offering, our directors will be divided among the three classes as follows:

the Class I directors will be , and and their terms will expire at the annual meeting of stockholders to be held in 2013;

the Class II directors will be , and and their terms will expire at the annual meeting of stockholders to be held in 2014; and

the Class III directors will be , and and their terms will expire at the annual meeting of stockholders to be held in 2015.

Our restated certificate of incorporation provides that the authorized number of directors comprising our board of directors shall be fixed in our restated by-laws. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that each class will consist of approximately one-third of the directors.

Director Independence

Based upon information requested from and provided by each director concerning their background, employment and affiliations, including family relationships, our board of directors has determined that none of Messrs. , and , representing of our directors, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under Rule 5605(a)(2) of the NASDAQ Marketplace Rules. Our board of directors also determined that Ms. Mawhinney (upon completion of this offering) and Drs. Glibert and Sun, who comprise our audit committee; Drs. Gilbert, Strijkert and Sun, who comprise our compensation committee; and Mr. Purcell and Dr. Strijkert, who comprise our nominating and governance committee, all satisfy the independence standards for such committees established by the SEC and the NASDAQ Marketplace Rules, as applicable, including, in the case of all the members of our audit committee, the independence requirements contemplated by Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. In making such determination, the board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances the board of directors deemed relevant in determining their independence.

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Board Composition

Upon completion of our initial public offering, our nominating and governance committee will be responsible for reviewing with the board of directors, on an annual basis, the appropriate characteristics, skills and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the nominating and corporate governance committee and the board of directors will take into account many factors, including the following:

diversity of personal and professional background, perspective, experience, age, gender, ethnicity and country of citizenship;

personal and professional integrity and ethical values;

experience in one or more fields of business, professional, governmental, scientific or educational endeavors, and a general appreciation of major issues facing public companies similar in scope and size to us;

experience relevant to our industry or with relevant social policy concerns;

relevant academic expertise or other proficiency in an area of our operations;

objective and mature business judgment and expertise; and

any other relevant qualifications, attributes or skills.

Committees of the Board of Directors

Our board of directors has established an audit committee, a compensation committee and a nominating and governance committee. Each committee will, upon the closing of this offering, operate under a charter approved by our board of directors. Following the closing of this offering, copies of each committee’s charter will be posted on the Investor Relations section of our website, which is located at www.paratekpharm.com. The composition and function of each of these committees, as they will exist and operate upon the closing of this offering, are described below.

Audit Committee. Our audit committee is composed of Louise Mawhinney (chair), Walter Gilbert, Ph.D., and Anthony Sun. M.D., and is authorized to:

approve and retain the independent auditors to conduct the annual audit of our books and records;

review the proposed scope and results of the audit;

review and pre-approve the independent auditor’s audit and non-audit services rendered;

approve the audit fees to be paid;

review accounting, financial and disclosure controls with the independent auditors and our financial and accounting staff;

review and approve transactions between us and our directors, officers and affiliates;

recognize and prevent prohibited non-audit services;

establish procedures for complaints received by us regarding accounting matters;

oversee internal audit functions; and

prepare the report of the audit committee required by the SEC rules.

Compensation Committee. Our compensation committee is composed of Walter Gilbert, Ph.D. (chair), Pieter Strijkert, Ph.D., and Anthony Sun. M.D., and is authorized to:

review and recommend the compensation arrangements for directors and management, including the compensation for our president and chief executive officer;

establish and review general compensation policies with the objective to attract and retain superior talent, to reward individual performance and to achieve our financial goals;

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administer our stock incentive plans; and

prepare the report of the compensation committee if required by the SEC rules.

Nominating and Governance Committee. Our nominating and governance committee is composed of Dennis Purcell and Pieter Strijkert, Ph.D. (chair), and is authorized to:

identify and nominate members of the board of directors;

develop and recommend to the board of directors a set of corporate governance principles applicable to our company; and

oversee the evaluation of the board of directors and management.

Compensation Committee Interlocks and Insider Participation

No member of our compensation committee has at any time been an employee of ours. None of our executive officers serves as a member of the board of directors or compensation committee of any company that has one or more executive officers serving as a member of our board of directors or compensation committee.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. The code of business conduct and ethics will be available on our website at www.paratekpharm.com upon completion of this offering. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website.

Limitation of Directors’ and Officers’ Liability and Indemnification

We have obtained director and officer liability insurance to cover liabilities our directors and officers may incur in connection with their services to us. Our restated certificate of incorporation and restated by-laws to be effective upon the completion of this offering provide that we will indemnify and advance expenses to any of our directors and officers who, by reason of the fact that he or she is one of our officers or directors, is involved in a legal proceeding of any nature. We will repay certain expenses incurred by a director or officer in connection with any civil, criminal, administrative or investigative action or proceeding, including actions by us or in our name. Such indemnifiable expenses include, to the maximum extent permitted by law, attorney’s fees, judgments, fines, ERISA excise taxes, penalties, settlement amounts and other expenses reasonably incurred in connection with legal proceedings. A director or officer will not receive indemnification if he or she is found not to have acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interest.

We will enter into indemnification agreements with each of our non-employee directors and with certain officers. These agreements provide that we will, among other things, indemnify and advance expenses to our directors and officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by us arising out of such person’s services as our director or officer, or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and officers.

This limitation of liability and indemnification does not affect the availability of equitable remedies. In addition, we have been advised that in the opinion of the SEC, indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, is against public policy as expressed in the Securities Act and is therefore unenforceable.

There is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

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Executive and Director Compensation

Summary Compensation Table

The following table sets forth the compensation paid or accrued during the fiscal year ended December 31, 2011 to (1) our chief executive officer, and (2) our two other highest paid executive officers as of December 31, 2011. We refer to these officers as our named executive officers.


Name and principal position	Year		Salary		All Other Compensation⁽¹⁾		Total
Thomas J. Bigger⁽²⁾		2011	$	420,000	$	9,800	$	429,800
Former President and Chief Executive Officer

Gary J. Noel, M.D.⁽³⁾		2011		330,000		9,800		339,800
Vice President, Chief Medical Officer

Beverly A. Armstrong		2011		295,992		9,800		305,792
Vice President—Administration, General Counsel, Chief Compliance Officer and Secretary

(1)

Represents matching contributions under our 401(k) plan.

(2)

Mr. Bigger left the Company effective February 27, 2012.

(3)

Dr. Noel left the Company effective June 4, 2012.

Narrative to Summary Compensation Table

Terms and Conditions of 2011 Performance-Based Annual Bonus Program

Our named executive officers’ 2011 base salary amounts and bonus targets are set forth in the table below.


Name	2011 Salary		Bonus Target
Thomas J. Bigger	$	420,000	$	126,000	⁽¹⁾
Gary J. Noel, M.D.		330,000		82,500	⁽²⁾
Beverly A. Armstrong		295,992		73,998	⁽²⁾

(1)

Represents 30% of 2011 base salary.

(2)

Represents 25% of 2011 base salary.

Our board of directors may, in its discretion, award bonuses to executive officers from time to time. We have established bonus targets for our executive officers and typically conduct an annual performance review process to serve as the basis for determining eligibility for any such bonuses. Among the key parameters that are the basis for such bonus determinations are our achievement of corporate goals and the achievement of specified goals and objectives by each department and individual. Primarily based upon such performance review process, our management may propose bonus awards to the compensation committee of the board. The compensation committee or the board of directors makes a final determination of bonus awards. We did not achieve the performance goals applicable to each of our named executive officers, and therefore no bonuses were paid for 2011.

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Outstanding Equity Awards at Fiscal Year-End

The following table presents the outstanding equity awards held by each of the named executive officers as of December 31, 2011.


Name and principal position	Number of securities underlying unexercised options exercisable		Number of securities underlying unexercised options unexercisable⁽¹⁾			Option exercise price		Option expiration date
Thomas J. Bigger		92,000		0			0.50		5/8/12
		80,000		0			1.00		11/1/16
		150,000		10,000	⁽²⁾		2.00		2/20/18

Gary J. Noel, M.D.		46,875		103,125	⁽³⁾		2.00		9/10/20

Beverly A. Armstrong		56,250		3,750	⁽²⁾

PARATEK PHARMACEUTICALS INC S-1/A