Ocera Therapeutics, Inc.
Ocera Therapeutics, Inc. (Form: 10-Q, Received: 05/13/2014 13:30:59)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549  
___________________________________________________________
 
FORM 10-Q
(Mark One) 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2014
 
or
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                to                
 
Commission File Number 001-35119
___________________________________________________________
  
Ocera Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
63-1192270
(State or other jurisdiction of incorporation
 
(I.R.S. Employer Identification No.)
or organization)
 
 
 
525 University Avenue, Suite 610
 
 
Palo Alto, CA
 
94301
(Address of principal executive offices)
 
(Zip Code)
 
(650) 475-0150
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x   No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer o
 
Accelerated Filer o
 
 
 
Non-Accelerated Filer o
 
Smaller Reporting Company x
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨   No  x
 
The number of shares outstanding of the registrant’s Common Stock as of May 12, 2014, was [15,541,645].                          

1




OCERA THERAPEUTICS, INC.
INDEX
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2




PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements

Ocera Therapeutics, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
 
March 31,
 
December 31,
 
2014
 
2013
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
10,421

 
$
15,533

Short-term investments, available-for-sale
32,707

 
30,167

Accounts receivable
46

 
93

Prepaid expenses and other current assets
554

 
470

Assets of discontinued operations
168

 
3,029

Current assets
43,896

 
49,292

Property and equipment, net
51

 
59

Long-term investments

 
1,513

Deposits

 
26

Intangible assets, net
294

 
335

Goodwill
595

 
595

Total assets
$
44,836

 
$
51,820

Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
877

 
$
1,282

Accrued liabilities
1,005

 
1,902

Liabilities of discontinued operations
114

 
3,503

Total current liabilities
1,996

 
6,687

Other liabilities

 
1

Total liabilities
1,996

 
6,688

Commitments and contingencies (Note 8)


 

Stockholders' equity:
 
 
 
Preferred Stock - $0.00001 par value, 5,000,000 shares authorized and no shares issued or outstanding at March 31, 2014 and December 31, 2013.

 

Common stock - $0.00001 par value, 100,000,000 shares authorized, 15,523,692 and 15,300,214 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively.

 

Additional paid-in capital
128,386

 
126,615

Accumulated other comprehensive income
5

 
3

Deficit accumulated during the development stage
(85,551)

 
(81,486)

Total stockholders' equity
42,840

 
45,132

Total liabilities and stockholders' equity
$
44,836

 
$
51,820



See the accompanying notes to the unaudited consolidated financial statements.
3



Ocera Therapeutics, Inc.
(A Development Stage Company)
Consolidated Statements of Operations and Comprehensive Loss
(In Thousands, Except Share and Per Share Amounts)
(unaudited)
 
Three Months Ended
March 31,
 
Period from
December 20, 2004
(Inception) to
March 31, 2014
 
2014
 
2013
 
Revenue:
 
 
 
 
 
Royalty revenue
$
45

 
$

 
$
130

Total Revenue
45

 

 
130

Operating expenses:
 
 
 
 
 
Research and development
2,466

 
69

 
57,028

General and administrative
2,733

 
571

 
26,769

Amortization of intangibles
41

 

 
336

Impairment of intangibles

 

 
3,070

Total operating expenses
5,240

 
640

 
87,203

Other income (expense):
 
 
 
 
 
Interest and other income
13

 

 
3,783

Interest and other expense

 
(96
)
 
(1,424
)
Change in fair value of warrant liability

 
5

 
71

Total other income (expense), net
13

 
(91
)
 
2,430

Net loss from continuing operations
(5,182
)
 
(731
)
 
(84,643
)
Net income (loss) from discontinued operations (including gain on disposal of $1,149)
1,117

 

 
(908
)
Net loss
$
(4,065
)
 
$
(731
)
 
$
(85,551
)
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
Net loss per share from continuing operations, basic and diluted
$
(0.34
)
 
$
(1.15
)
 
 
Net income per share from discontinued operations, basic and diluted
0.07

 

 
 
Net loss per share, basic and diluted
$
(0.27
)
 
$
(1.15
)
 
 
Weighted average number of shares used to compute net loss per share of common stock, basic and diluted
15,421,234

 
637,221

 
 
 
 
 
 
 
 
Other comprehensive loss:
 
 
 
 
 
Net loss
$
(4,065
)
 
$
(731
)
 
$
(85,551
)
Unrealized gain on investments
2

 

 
5

Comprehensive loss
$
(4,063
)
 
$
(731
)
 
$
(85,546
)


See the accompanying notes to the unaudited consolidated financial statements.
4



Ocera Therapeutics, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(In Thousands)
(unaudited)

 
Three Months Ended
March 31,
 
Period From
December 20, 
2004
(Inception) to
March 31, 2014
 
2014
 
2013
 
Operating activities
 
 
 
 
 
Net loss
$
(4,065
)
 
$
(731
)
 
$
(85,551
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
Net (income) loss from discontinued operations
(1,117
)
 

 
908

Depreciation
10

 
3

 
416

Loss on disposal of fixed assets

 

 
15

Amortization of intangibles
41

 

 
336

Stock based compensation
1,375

 
16

 
2,763

Change in valuation of warrant liability

 
(5
)
 
(72
)
Impairment of intangible assets

 

 
3,070

(Amortization of discount) accretion of premium on investment securities
95

 
50

 
(208
)
Debt discount, net and noncash interest expense

 
46

 
410

Changes in operating assets and liabilities:
 
 
 
 
 
Accounts receivable
47

 

 
92

Prepaid expenses and other assets
(57
)
 
9

 
(483
)
Accounts payable
(406
)
 
(125
)
 
(123
)
Accrued liabilities
(896
)
 
77

 
45

Net cash used in continuing operating activities
(4,973
)
 
(660
)
 
(78,382
)
Net cash used in discontinued operating activities
(412
)
 

 
(1,418
)
Net cash used in operating activities
(5,385
)
 
(660
)
 
(79,800
)
Investing activities
 
 
 
 
 
Purchases of property and equipment
(2
)
 
(2
)
 
(406
)
Purchase of short-term and long-term investments
(5,371
)
 

 
(181,531
)
Sale and maturities of short-term investments
4,250

 

 
149,036

Cash received from merger transaction

 

 
7,464

Net cash used in continuing investing activities
(1,123
)
 
(2
)
 
(25,437
)
Net cash provided by discontinued investing activities
1,000

 

 
4,000

Net cash used in investing activities
(123
)
 
(2
)
 
(21,437
)
Financing activities
 
 
 
 
 
Proceeds from sale of convertible preferred stock

 

 
60,744

Proceeds from the sale of common stock, net

 

 
46,425

Proceeds from issuance of convertible notes payable, net

 

 
2,940

Proceeds from note payable

 

 
4,000

Repayments of note payable

 

 
(4,000
)
Proceeds from issuance of promissory note

 

 
1,000

Proceeds from issuance of common stock
396

 
20

 
549

Net cash provided by continuing financing activities
396

 
20

 
111,658

Net increase (decrease) in cash and cash equivalents
(5,112
)
 
(642
)
 
10,421

Cash and cash equivalents—beginning of period
15,533

 
2,303

 

Cash and cash equivalents—end of period
$
10,421

 
$
1,661

 
$
10,421

 
 
 
 
 
 

5




Ocera Therapeutics, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(In Thousands)
(unaudited)

 
Three Months Ended
March 31,
 
Period From
December 20, 
2004
(Inception) to
March 31, 2014
 
2014
 
2013
 
Supplemental schedule of noncash investing and financing activities
 
 
 
 
 
Warrants issued in connection with notes payable
$

 
$

 
$
143

Reclassification of warrant liability to additional paid-in-capital
$

 
$

 
$
94

Issuance of options related to consulting agreement
$

 
$

 
$
13

Cash paid for interest
$

 
$

 
$
861

Conversion of convertible promissory note and interest to common stock
$

 
$

 
$
4,233

Conversion of convertible preferred stock to common stock
$

 
$

 
$
61,743

Common stock issued in connection with merger transaction
$

 
$

 
$
13,524




See the accompanying notes to the unaudited consolidated financial statements.
6

Ocera Therapeutics, Inc.
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements


1. The Company
Ocera Therapeutics, Inc. (the "Company") is a clinical stage biopharmaceutical company focused on the development and commercialization of OCR-002 (ornithine phenylacetate). OCR-002 is an ammonia scavenger which has been granted Orphan Disease and Fast Track status from the US Food and Drug Administration (FDA) to treat hyperammonemia and associated hepatic encephalopathy in patients with liver cirrhosis, acute liver failure and acute liver injury.
On July 15, 2013, Terrapin Acquisition, Inc., a Delaware corporation (“Merger Sub”), a wholly owned subsidiary of Tranzyme, Inc., a Delaware corporation (“Tranzyme”), completed its merger (the “Merger”) with and into Ocera Therapeutics, Inc., a private Delaware corporation (“Private Ocera”).  Private Ocera is considered the acquiring company in the Merger for accounting purposes.  In connection with the Merger, the combined company changed its name to Ocera Therapeutics, Inc. and the name of Private Ocera was changed to Ocera Subsidiary, Inc. 
As of March 31, 2014, the Company has devoted substantially all of its efforts to product development, raising capital and building infrastructure, and has not realized significant revenues. Accordingly, the Company is considered to be in the development stage.
As of March 31, 2014, the Company has incurred losses since inception of $ 85.6 million . The Company expects to continue to incur losses and that it will require additional financial resources to advance its product candidates to either commercial stage or liquidity events.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company has a limited operating history and the sales and income potential of the Company's business and addressable market are unproven. The Company has experienced net losses each year since its inception and, as of March 31, 2014, had a deficit accumulated during the development stage of $ 85.6 million . The Company anticipates that it will continue to incur net losses into the foreseeable future as it continues the development and commercialization of its lead drug candidate OCR-002 and expands its corporate infrastructure. Based on the Company's operating plan, the Company believes its current working capital is sufficient to fund its operations through at least the next twelve months.
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with United States of America generally accepted accounting principles ("U.S. GAAP") for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements and related notes do not include all information and footnotes required by U.S. GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.
Unaudited Interim Financial Information
The accompanying interim consolidated financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The year-end balance sheet was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period.
Use of Estimates
The preparation of financial statements in conformity with the U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

7




Discontinued Operations
On September 11, 2013, the Board of Directors approved a restructuring plan related to the operations of Tranzyme Pharma Inc., its Sherbrooke, Quebec facility ("Tranzyme Pharma"), whereby the Company closed the operations of the facility effective as of November 11, 2013. On December 13, 2013, the Company entered into a Technology Transfer and License Agreement to sell the Company’s MATCH discovery platform and license the related intellectual property rights. The Company concluded that since Tranzyme Pharma's operations and the MATCH discovery platform comprised a component with distinct operations and cash flows that would be eliminated from ongoing operations, and the Company would not have significant involvement after the disposal, these components would be accounted for as discontinued operations. The results of operations of the components to be disposed of, related restructuring costs and gain on disposal of assets have been classified as net income (loss) from discontinued operations from their date of acquisition on July 15, 2013 through March 31, 2014. The assets and liabilities of Tranzyme Pharma have been classified as assets and liabilities, respectively, of discontinued operations. Unless noted otherwise, discussion in these notes to the financial statements pertain to our continuing operations.
Recent Accounting Pronouncements
In April 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (topic 360); Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 provides additional requirements to classify a disposal of a component of an entity or a group of components of an entity in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014, with an option for early adoption. The Company intends to adopt this guidance at the beginning of our first quarter of fiscal year 2015, and does not expect the adoption of this standard will have a material impact on the Company’s financial statements.
3. Fair Value Measurements
The following tables present information about the Company’s financial assets measured at fair value on a recurring basis as of March 31, 2014, and December 31, 2013, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. As a basis for categorizing inputs, the Company uses a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value from market-based assumptions to entity specific assumptions:
Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Inputs, other than level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3: Unobservable inputs that are supported by little or no market activity, which require the reporting entity to develop its own assumptions.
Assets measured at fair value on a recurring basis as of March 31, 2014 are as follows (in thousands):
 
Balance as of
March 31,
2014
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market funds
$
6,065

 
$
6,065

 
$

 
$

Commercial paper
14,998

 

 
14,998

 

Corporate debt securities
20,209

 

 
20,209

 

Total assets
$
41,272

 
$
6,065

 
$
35,207

 
$


8




Assets measured at fair value on a recurring basis as of December 31, 2013 are as follows (in thousands):
 
Balance as of
December 31,
2013
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market funds
$
5,774

 
$
5,774

 
$

 
$

Commercial paper
15,246

 

 
15,246

 

Corporate debt securities
20,884

 

 
20,884

 

Total assets
$
41,904

 
$
5,774

 
$
36,130

 
$

4. Balance Sheet Components
Investments
The following table summarizes the Company's available for sale investments as of March 31, 2014 (in thousands).
 
 
Maturity (in Years)
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
Short-term investments:
 
 
 
 
 
 
 
 
 
 
   Commercial paper
 
1 or less
 
$
12,488

 
$
10

 
$

 
$
12,498

   Corporate debt securities
 
1 or less
 
20,214

 

 
(5
)
 
20,209

Total investments
 
 
 
$
32,702

 
$
10

 
$
(5
)
 
$
32,707

The following table summarizes the Company's available for sale investments as of December 31, 2013 (in thousands).
 
 
Maturity (in Years)
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
Short-term investments:
 
 
 
 
 
 
 
 
 
 
   Commercial paper
 
1 or less
 
$
15,232

 
$
14

 
$

 
$
15,246

   Corporate debt securities
 
1 or less
 
14,930

 

 
(9
)
 
14,921

      Total
 
 
 
30,162

 
14

 
(9
)
 
30,167

Long-term investments:
 
 
 
 
 
 
 
 
 
 
   Corporate debt securities
 
More than 1
 
1,514

 

 
(1
)
 
1,513

      Total
 
 
 
1,514

 

 
(1
)
 
1,513

Total investments
 
 
 
$
31,676

 
$
14

 
$
(10
)
 
$
31,680

At each reporting date, the Company performs an evaluation of impairment to determine if the unrealized losses are other-than-temporary. For debt securities, management determines whether it intends to sell the impaired securities, and if there is no intent or expected requirement to sell, management considers whether it is likely that the amortized cost will be recovered. The Company does not consider unrealized losses on its debt investment securities to be credit-related. These unrealized losses relate to changes in interest rates and market spreads subsequent to purchase. The Company has not made a decision to sell securities with unrealized losses and believes it is more likely than not it would not be required to sell such securities before recovery of its amortized cost. There have been no other than temporary losses recognized in earnings.

9




Property and Equipment
Property and equipment, net were as follows (in thousands):
 
Useful Life
 
March 31,
 
December 31,
 
(in years)
 
2014
 
2013
Computer equipment and software
1.5 to 3 years
 
$
42

 
$
40

Office furniture and equipment
5 years
 
43

 
43

 
 
 
85

 
83

Accumulated depreciation
 
 
(34
)
 
(24
)
Property and equipment, net
 
 
$
51

 
$
59

Depreciation expense was $10,000 , $3,000 and $0.4 million for the three months ended March 31, 2014 and 2013, and for the period from December 20, 2004 (inception) to March 31, 2014, respectively.
Acquired intangible assets
The net book value of acquired intangible assets were as follows (in thousands):
 
March 31,
 
December 31,
Customer Agreements:
2014
 
2013
Cost
$
410

 
$
410

Accumulated amortization
(116
)
 
(75
)
Intangible assets, net
$
294

 
$
335

Weighted average remaining life (in years)
1.75
 
2.00
The estimated future amortization expense of purchased intangible assets as of March 31, 2014 is $0.1 million and $0.2 million for the nine-months and year ended December 31, 2014 and 2015 respectively.
Accrued Liabilities
Accrued liabilities were as follows (in thousands):
 
March 31,
 
December 31,
 
2014
 
2013
Accrued clinical trials
$
455

 
$
417

Accrued compensation
289

 
1,093

Accrued consulting
237

 
315

Other accrued liabilities
24

 
77

 
$
1,005

 
$
1,902


10




5. Stock Based Compensation
The Company’s stock option activity and related information for the three months ended March 31, 2014 was as follows (in thousands, except share and per share data):
 
 
 
 
 
 
 
Weighted-avg.
 
 
 
 Shares
 
 
 
 Weighted-avg.
 
Remaining
 
Aggregate
 
 Available
 
 Stock Options
 
 Exercise Price
 
Contractual
 
Intrinsic
 
 for Grant
 
 Outstanding
 
 Per Share
 
Life (in Years)
 
Value
 
 
 
 
 
 
 
 
 
 
 Balance at December 31, 2013
762,867

 
1,909,769

 
$
8.77

 
8.58
 
$
11,818

 Stock options granted
(35,000
)
 
35,000

 
$
12.29

 
 
 
 
 Stock options cancelled
61,802

 
(67,785
)
 
$
43.07

 
 
 
 
 Stock options exercised

 
(223,478
)
 
$
1.77

 
 
 
 
 Balance at March 31, 2014
789,669

 
1,653,506

 
$
8.38

 
9.02
 
$
5,578

 
 
 
 
 
 
 
 
 
 
At March 31, 2014:
 
 
 
 
 
 
 
 
 
    Vested and expected to vest
 
 
1,498,651

 
$
8.17

 
8.74
 
$
5,131

    Exercisable
 
 
218,856

 
$
11.79

 
6.28
 
$
1,504

The aggregate intrinsic value of options exercised under all option plans was $2.6 million and $11,000 for the three months ended March 31, 2014 and 2013, respectively, determined as of the date of option exercise.
The Company recognized stock based compensation expense as follows (in thousands):
 
Three Months Ended March 31,
 
2014
 
2013
Research and development
$
465

 
$
2

General and administrative
910

 
14

Total
$
1,375

 
$
16

Since December 20, 2004 (inception) to March 31, 2014, the Company has incurred $2.8 million of stock based compensation expense.
As of March 31, 2014, there were unrecognized compensation costs of $ 14.5 million related to stock options and the Company expects to recognize those costs over a weighted average period of 3.40 years .
Stock-based compensation cost for stock options is estimated at the grant date based on the fair-value using the Black-Scholes option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following weighted-average assumptions:
 
 
 
 
 
 
Period From
 
 
 
 
 
 
December 20, 2004
 
 
Three Months Ended March 31,
 
(Inception) to
 
 
2014
 
2013
 
March 31, 2014
Risk-free interest rates
 
2.01%
 
 
0.06% - 2.02%
Expected life in years
 
6.08
 
 
0.25 - 6.25
Expected dividend yield
 
 
 
Expected volatility
 
102%
 
 
52% - 109%

11




6. Discontinued Operations
On September 11, 2013, the Company announced a restructuring plan related to the operations of Tranzyme Pharma. On December 13, 2013, the Company entered into a Technology Transfer and License Agreement with Genentech, Inc. ("Genentech"), and F. Hoffman-La Roche, Ltd. ("Roche") to sell certain Canadian fixed assets and materials, the MATCH technology and rights to the Genentech and Roche customer agreements and related intellectual property through licensing of patents for $4.0 million . The Company concluded that the operations of Tranzyme Pharma and related asset groups sold to Genentech and Roche would be accounted for as discontinued operations as the operations and cash flows of the discontinued component or asset group would be eliminated from ongoing operations of the Company and there would not be significant involvement in the component or asset group after the disposal transaction.
During the three months ended March 31, 2014, the Company completed its obligations under the Technology Transfer and License Agreement with Genentech and Roche and recognized a gain on disposal of assets of $1.1 million within discontinued operations. Also, during the three months ended March 31, 2014, the Company recognized a $29,000 loss from previously unrecognized cumulative foreign currency translation adjustments related to the deconsolidation of subsidiary operations of Tranzyme Pharma.
The results of Tranzyme Pharma and related asset groups are disclosed as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss for the period presented (in thousands).
 
 
Three Months Ended
 
 
March 31, 2014
Proceeds recognized pursuant to Technology Transfer and License Agreement
 
$
4,000

Less carrying value of assets sold:
 
 
  Intangibles assets
 
(2,053
)
  Property and equipment
 
(356
)
  Goodwill
 
(442
)
Net gain on disposal of assets
 
1,149

Other (expenses) of discontinued operations
 
(3
)
Recognition of accumulated translation adjustments upon deconsolidation of subsidiary
 
(29
)
Net income from discontinued operations
 
$
1,117

The assets and liabilities of Tranzyme Pharma and related asset groups are presented as held for disposal in the Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013. The carrying amount of assets and liabilities are as follows (in thousands):
 
March 31, 2014
 
December 31, 2013
Prepaid expenses and other current assets
$
168

 
$
178

Property and equipment, net

 
356

Intangible assets, net

 
2,053

Goodwill

 
442

Assets of discontinued operations
$
168

 
$
3,029

 
 
 
 
Accounts payable
$
114

 
$
106

Deposit on sale of assets

 
3,000

Accrued liabilities

 
397

Liabilities of discontinued operations
$
114

 
$
3,503

Restructuring of Tranzyme Pharma
During the three months ended March 31, 2014, the Company paid most of the remaining liabilities related to the restructuring of Tranzyme Pharma. The remaining restructuring liabilities are classified as accounts payable in discontinued operations.

12




The following table summarizes the Company’s restructuring activities for the three months ended March 31, 2014 in thousands:
 
Post- Employment Benefits
 
Moving and Shipping Costs
 
Operating Activities
 
Total
Accrued Restructuring at December 31, 2013
$
392

 
$
99

 
$
11

 
$
502

Cash payments and other settlements
(392
)
 
(7
)
 
(11
)
 
(410
)
Accrued Restructuring at March 31, 2014
$

 
$
92

 
$

 
$
92

7. Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. Potentially dilutive securities which include convertible preferred stock, warrants, convertible notes payable and outstanding stock options under the stock option plan have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position. All share and per share amounts for all periods presented in the following table have been adjusted retroactively to reflect the exchange for Tranzyme, shares as of the date of the Merger.
The following table presents the computation of net loss per share (in thousands, except share and per share data):
 
Three Months Ended
March 31,
 
2014
 
2013
Numerator
 
 
 
Net loss from continuing operations
$
(5,182
)
 
$
(731
)
Net income from discontinued operations
1,117

 

Net loss
$
(4,065
)
 
$
(731
)
Denominator
 
 
 
Weighted average common shares outstanding used to compute net loss per share, basic and diluted
15,421,234

 
637,221

Net loss per share of common stock, basic and diluted
 
 
 
Net loss per share from continuing operations
$
(0.34
)
 
$
(1.15
)
Net income per share from discontinued operations
0.07

 

Net loss per share
$
(0.27
)
 
$
(1.15
)
The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive:
 
Three Months Ended
March 31,
 
2014
 
2013
Convertible preferred stock

 
4,840,324
Convertible preferred stock warrants

 
26,332
Common stock warrants
938,882

 
131,462
Common stock options
1,758,820

 
635,330
Total
2,697,702

 
5,633,448

13




In addition to the potentially dilutive securities noted above, the Company had outstanding convertible notes payable and accrued interest that were converted into 186,217 shares of common stock upon completion of the Merger. The Company has excluded these convertible notes payable from the table above.
8. Commitments and Contingencies
From time to time, the Company may be involved in disputes, including litigation, relating to claims arising out of operations in the normal course of its business. Any of these claims could subject the Company to costly legal expenses and, while the Company generally believes that it has adequate insurance to cover many different types of liabilities, its insurance carriers may deny coverage or its policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on the Company's consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, could damage the Company's reputation and business. The Company is currently not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the Company's consolidated results of operations or financial position.
Leases
Rent expense was $52,000 , $36,000  and $1.5 million  for the three months ended March 31, 2014 and 2013, and for the period from December 20, 2004 (inception) to March 31, 2014, respectively.
The following is a schedule of non-cancellable future minimum lease payments for operating leases as of March 31, 2014 (in thousands):
Years ending December 31:
 
2014 (Nine Months)
$
169

2015
38

Thereafter

Total
$
207

Other Commitments
In the normal course of business, the Company enters into various firm purchase commitments related to active pharmaceutical ingredients, clinical studies and research studies. As of March 31, 2014, these commitments were approximately $3.8 million .

14




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including any projections or earnings. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in our Annual Report on Form 10-K with the Securities and Exchange Commission (the “2013 Form 10-K”) and significant changes in this Quarterly Report on Form 10-Q in greater detail under the heading “Risk Factors.” Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. The following discussion should be read in conjunction with the 2013 Form 10-K and the consolidated financial statements and notes thereto included elsewhere in this Form 10-Q. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Overview
We are a clinical stage biopharmaceutical company focused on the development of OCR-002 for the treatment of acute and chronic hyperammonemia and associated hepatic encephalopathy, or HE, in patients with liver cirrhosis, acute liver failure and acute liver injury.
OCR-002 is a novel, proprietary molecule comprised of phenylacetate bound with ornithine functioning as an ammonia scavenger to treat acute and chronic HE.
OCR-002 has received Orphan Drug designation and Fast Track status from the U.S. Food and Drug Administration, or FDA, for the treatment of hyperammonemia and resultant HE in patients with acute liver failure or acute on chronic liver disease.
Our strategy is to focus clinical development activities on the intravenous form of OCR-002 to treat acute HE in hospitalized patients while beginning formulation work on the oral form of OCR-002 which would focus on acute-to-chronic care of HE patients.
Clinical Activity
We are currently conducting a Phase 2b study of OCR-002. In addition, there are two externally-sponsored Phase 2a trials of OCR-002 underway. One of these trials is being conducted in Spain, to assess ammonia lowering in patients with upper gastrointestinal bleeding. The first phase of this study was conducted on an open label basis and has been completed. The investigator observed a rapid decline in ammonia in the 10 patients who received OCR-002 compared with historic controls. The second phase of the study is a double-blind placebo controlled study of 38 patients. The second trial, sponsored by National Institutes of Health, is an open label study of OCR-002 on hyperammonemia in patients with acute liver failure.
We commenced our Phase 2b study of OCR-002 in the fourth quarter of 2013 and enrolled our first patient in the study in January 2014. This is a randomized, placebo-controlled, double-blind trial evaluating the efficacy, safety and pharmacokinetics of OCR-002 in hospitalized patients with liver cirrhosis and an acute episode of HE. We plan to conduct the study in sites in the U.S. and Europe. To increase the pace of enrollment, we amended our study protocol in March 2014 to broaden the eligible patient selection criteria. In April 2014, we further amended the protocol to increase patient dosage based on our review of preliminary pharmacokinetic data from the two ongoing Phase 2a trials. This increased dosage level remains below the maximum tolerated dosage observed in our Phase 1 study. We expect to complete trial enrollment mid-2015.
Previously, we completed preclinical efficacy studies of OCR-002 in two animal models, rat with bile duct ligation as a model for chronic liver disease and pig with hepatic artery ligation as a model for acute liver failure. In the rat model,

15




OCR-002 significantly reduced arterial ammonia, and in the pig model, OCR-002 significantly reduced arterial ammonia, brain ammonia and intracranial pressure. We also completed Phase 1 pharmacokinetic and safety studies of OCR-002 in a parallel ascending dose study of 54 healthy volunteers and 43 stable cirrhotic patients. Through this study, we established the pharmacokinetic profile of OCR-002 and identified safety margins.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. 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 revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments related to each of our critical accounting areas. 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. Actual results may differ from these estimates under different assumptions or conditions. We discussed accounting policies and assumptions that involve a higher degree of judgment and complexity within our Annual Report on Form 10-K for the year ended December 31, 2013. Other than those discussed below, there have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K.
Discontinued Operations
The results of operations of the components to be disposed of, related restructuring costs and gain on disposal of assets have been classified as net income (loss) from discontinued operations from their acquisition on July 15, 2013 through March 31, 2014. The assets and liabilities of Tranzyme Pharma have been classified as assets and liabilities, respectively, of discontinued operations.
Results of Operations
Three Months Ended March 31, 2014 and 2013 (in thousands):     
 
Three Months Ended
March 31,
 
 Change
 
2014
 
2013
 
Revenue:
 
 
 
 
 
Royalty revenue
$
45

 
$

 
$
45

Total Revenue
45

 

 
45

Operating expenses:


 


 
 
Research and development
2,466

 
69

 
2,397

General and administrative
2,733

 
571

 
2,162

Amortization of intangibles
41

 

 
41

Total operating expenses
5,240

 
640

 
4,600

Total other income (expense), net
13

 
(91)

 
104

Net loss from continuing operations
(5,182
)
 
(731
)
 
(4,451
)
Net income from discontinued operations
1,117

 

 
1,117

Net loss
$
(4,065
)
 
$
(731
)
 
$
(3,334
)
 
 
 
 
 
 
Unrealized gain on investments
2

 

 
2

Comprehensive loss
$
(4,063
)
 
$
(731
)
 
$
(3,332
)
Revenues
We generated $45,000 in revenue for the three months ended March 31, 2014 from royalty revenue from a licensing agreement compared to no revenue for the three months ended March 31, 2013. Prior to acquiring this license agreement in connection with our Merger, we had not generated any revenue from operations.

16




Costs and Expenses
Research and Development Expenses
Our research and development expenses increased by $2.4 million for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The increase in expenses for the three months ended March 31, 2014 was due to an increase in headcount related to the Merger, an increase in stock compensation expense and expenses incurred on our Phase 2b trial.
Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that may be used to conduct and manage clinical trials on our behalf. We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis.
Due to the significant risks and uncertainties inherent in the clinical development and regulatory approval processes, we cannot reasonably estimate the cost to complete projects and development timelines for their completion. Enrollment in clinical trials might be delayed or occur faster than anticipated for reasons beyond our control, requiring additional cost and time or accelerating spending. Results from clinical trials might not be favorable, or might require us to perform additional unplanned clinical trials, accelerating spending, requiring additional cost and time, or resulting in termination of the project. Regulatory reviews can also be delayed. Process development and manufacturing scale-up for production of clinical and commercial product supplies might take longer and cost more than our forecasts. As a result, clinical development and regulatory programs are subject to risks and changes that might significantly impact cost projections and timelines. We will need to raise additional money to advance development and commercialization of OCR-002 which may include entering into strategic alliances.
General and Administrative Expenses
Our general and administrative expenses increased by $2.2 million  for the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The increase in general and administrative expense was due primarily to an increase in stock compensation expense and, legal and accounting fees and other expenses associated with our corporate governance including directors and officer insurance and fees.
We expect that our general and administrative expenses may increase in the future as we expand our operating activities, maintain and expand our patent portfolio, and incur additional costs associated with public company support including legal fees, accounting fees and director and officers' liability insurance.
Amortization of intangibles
We recognized $41,000 for the amortization of the intangible assets for the three months ended March 31, 2014 as a result of intangible assets acquired in the Merger, compared to no amortization for the three months ended March 31, 2013.
Other Income (Expense), Net
We recognized $ 13,000 of investment income on our investment portfolio for the three months ended March 31, 2014 as compared to $91,000 of interest and other expense for the three months ended March 31, 2013. Interest expense primarily consists of interest accrued and amortization of debt issuance costs on convertible notes payable and the change in fair value of preferred stock warrants. The decrease in interest income (expense) for the three months ended March 31, 2014 compared to the three months ended March 31, 2013 is due to the conversion of convertible notes payable to common stock as a result of the Merger. Preferred stock warrants were converted to common stock warrants as a result of the Merger eliminating the terms that caused the change in fair value of the warrants to be recorded in operating results.
Net income from discontinued operations
During the three months ended March 31, 2014, we completed our obligations under the Technology Transfer and License Agreement with Genentech, Inc. and F. Hoffman-La Roche, Ltd., and recognized a gain on disposal of assets of $1.1 million within discontinued operations. Also during the three months ended March 31, 2014, we recognized a $29,000 loss from previously unrecognized cumulative foreign currency translation adjustments related to the deconsolidation of subsidiary operations of Tranzyme Pharma.

17




The following table summarizes the results of discontinued operations for the quarter ended March 31, 2014 (in thousands):
 
 
Three Months Ended
 
 
March 31, 2014
Proceeds recognized pursuant to Technology Transfer and License Agreement
 
$
4,000

Less carrying value of assets sold:
 
 
  Intangibles assets
 
(2,053
)
  Property and equipment
 
(356
)
  Goodwill
 
(442
)
Net gain on disposal of assets
 
1,149

Other (expenses) of discontinued operations
 
(3
)
Recognition of accumulated translation adjustments upon deconsolidation of subsidiary
 
(29
)
Net income from discontinued operations
 
$
1,117

Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows for the three months ended March 31, 2014 and 2013 (in thousands):
 
Three Months Ended March 31,
 
2014
 
2013
Cash flow from:
 
 
 
Continuing operating activities
$
(4,973
)
 
$
(660
)
Discontinued operating activities
(412
)
 

Continuing investing activities
(1,123
)
 
(2
)
Discontinued investing activities
1,000

 

Continuing financing activities
396

 
20

Net decrease in cash and cash equivalents
$
(5,112
)
 
$
(642
)
Comparison of the Three Months Ended March 31, 2014 and 2013
The primary use of cash in continuing operating activities for the three months ended March 31, 2014 was the result of our net loss from continuing operations of $5.2 million plus changes in working capital of $1.3 million. These changes were partially offset by non-cash charges of $1.5 million including depreciation expense, share-based compensation expense and the amortization of intangible assets acquired in the Merger. Cash used in continuing operating activities for the three months ended March 31, 2013 was related primarily to our net loss of $0.7 million , partially offset by non-cash charges of $0.1 million including depreciation expense, share-based compensation expense and non-cash debt and investment related expenses.
Cash used in discontinued operating activities for the three months ended March 31, 2014 was due primarily to payment of accrued liabilities of discontinued operations.
Cash used in continuing investing activities for the three months ended March 31, 2014 related to purchases of short-term and long-term investments of $5.4 million , partially offset by $4.3 million of investment maturities. For the three months ended March 31, 2013, net cash used by continuing investing activities related to purchases of property and equipment.
Cash provided by discontinued operations represents cash proceeds related to the Technology Transfer and License Agreement with the Genentech and Roche Group for rights to the MATCH discovery platform.
Net cash provided by continuing financing activities for the three months ended March 31, 2014 and March 31, 2013 related to proceeds from the exercise of stock options.

18




Capital Resources and Funding Requirements
We will require additional funds to support future operations including our development activities associated with the IV and oral forms of OCR-002. Our future funding requirements depends on many factors, including, but not limited to the progress, timing, scope and costs of our nonclinical studies and clinical trials, including the ability to enroll patients on a timely basis in our planned and potential future clinical trials, the time and cost necessary to respond to technological, market or governmental developments, and the cost of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights.
We expect to fund expenses from our current cash and cash equivalents, possible strategic opportunities and potentially additional financing transactions. We believe that our current cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months.
We have based our estimates of our cash needs on a number of assumptions that may prove to be wrong, and changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate. For example, our OCR-002 Phase 2b clinical trial may cost more than we expect, or development of the oral formulation of OCR-002 may involve the license of proprietary technology. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidate, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. If adequate funds are not available to us on a timely basis, or at all, we may be required to terminate or delay clinical trials or other development activities for OCR-002.
Our ability to finance operations beyond our current resources will depend heavily on our ability to obtain favorable results in clinical trials of OCR-002 and to develop and commercialize OCR-002 successfully. Additional financing may not be available when we need it or may not be available on terms that are favorable to us. We may elect to raise additional funds even before we need them if the conditions for raising capital are favorable. We may seek to raise additional capital through a combination of private and public equity offerings and debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends.
Contractual Obligations
The following is a schedule of non-cancellable future minimum lease payments for operating leases at March 31, 2014 (in thousands):
Years ending December 31:
 
2014 (Nine Months)
$
169

2015
38

Thereafter

Total
$
207

Other Commitments
In the normal course of business, we enter into various firm purchase commitments related to active pharmaceutical ingredients, clinical studies and research studies. As of March 31, 2014, these commitments were approximately $ 3.8 million .
Off-Balance Sheet Arrangements
We do not currently have, and did not have during the periods presented, any off-balance sheet arrangements, as defined under SEC rules. 

19




Item 3.         Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
Ocera has historically contracted with third-party providers to manufacture drug substance and to conduct clinical trials and perform other research and development activities in Europe. Accordingly, we are exposed to fluctuations in foreign currency exchange rates in connection with the liabilities incurred by us in these relationships. We do not currently hedge our exposures to foreign currency fluctuations.
      Market Risk
Our cash and cash equivalents and short-term investments as of March 31, 2014, consisted of cash, money market funds, commercial paper and corporate debt securities. 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 our financial condition and/or results of operations.     
Item 4.        Controls and Procedures
       Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial and accounting officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of March 31, 2014. Based on that evaluation, our principal executive officer and principal financial and accounting officer concluded that our disclosure controls and procedures as of March 31, 2014 are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
PART II. OTHER INFORMATION

Item 1.            Legal Proceedings
 We are not currently subject to any material legal proceedings.
Item 1A.   Risk Factors
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. During the quarterly period covered by this Quarterly Report on Form 10-Q, there were no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

20




Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6.    Exhibits  
(a) Exhibits required by Item 601 of Regulation S-K.
 
Exhibit
Number
 
Description
 
 
 
31.1*
 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2*
 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1**
 
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2**
 
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101.INS+
 
XBRL Instance Document
 
 
 
101.SCH+
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL+
 
XBRL Taxonomy  Calculation Linkbase Document
 
 
 
101.LAB+
 
XBRL Taxonomy Label Linkbase Document
 
 
 
101.PRE+
 
XBRL Taxonomy Presentation Linkbase Document
 
 
 
101.DEF+
 
XBRL Taxonomy Definitions Linkbase Document
*Filed herewith
**Furnished herewith
#Portions of these exhibits have been omitted pursuant to a request for confidential treatment submitted to the Securities and Exchange Commission.
 
+ Attached as Exhibits 101 to this report are the following financial statements from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Statements of Cash Flows and (iv) related notes to these financial statements tagged as blocks of text.
 
The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended (“Securities Act”) and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liabilities of those sections.


21




SIGNATURES
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
OCERA THERAPEUTICS, INC.
(Registrant)
 
Date:
May 13, 2014
By:
/s/ Linda S. Grais, M.D.
 
 
 
Linda S. Grais, M.D.
 
 
 
President and Chief Executive Officer
 
 
 
 
Date:
May 13, 2014
By:
/s/ Jeryl L. Hilleman
 
 
 
Jeryl L. Hilleman
 
 
 
Chief Financial Officer


22



EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, Linda S. Grais, M.D., certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Ocera Therapeutics, Inc. (the registrant);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
Date:
May 13, 2014
By:
/s/ Linda S. Grais, M.D.
 
 
 
Linda S. Grais, M.D.
 
 
 
President and Chief Executive Officer
 
 
 
(Principal Executive Officer)





EXHIBIT 31.2
 
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
 
I, Jeryl L. Hilleman, certify that:
 
1.
I have reviewed this Quarterly Report on Form 10-Q of Ocera Therapeutics, Inc. (the registrant);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
Date:
May 13, 2014
By:
/s/ Jeryl L. Hilleman
 
 
 
Jeryl L. Hilleman
 
 
 
Chief Financial Officer
 
 
 
(Principal Financial Officer)





 





EXHIBIT 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Ocera therapeutics, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Linda S. Grais, M.D., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
  
Date:
May 13, 2014
By:
/s/ Linda S. Grais, M.D.
 
 
 
Linda S. Grais, M.D.
 
 
 
President and Chief Executive Officer
 
 
 
(Principal Executive Officer)
 







EXHIBIT 32.2
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Ocera Therapeutics, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeryl L. Hilleman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date:
May 13, 2014
By:
/s/ Jeryl L. Hilleman
 
 
 
Jeryl L. Hilleman
 
 
 
Chief Financial Officer
 
 
 
(Principal Financial Officer)