Ocera Therapeutics, Inc.
Ocera Therapeutics, Inc. (Form: 10-Q, Received: 11/05/2015 18:35:44)


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 September 30, 2015
 
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 x
 
 
 
Non-Accelerated Filer o
 
Smaller Reporting Company o
(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 October 31, 2015 was 20,503,211.

1






FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology.
These forward-looking statements include, but are not limited to, statements about:
the timing, design, implementation and success of our clinical trials for OCR-002; 
our ability to enroll patients, and the timing of enrollment, in our Phase 2b clinical trial of OCR-002;
our ability to obtain U.S. and foreign regulatory approval for OCR-002 and the ability of OCR-002 to meet existing or future regulatory standards; 
the progress, timing and amount of expenses associated with our research, development and commercialization activities for OCR-002; 
the therapeutic benefits, effectiveness and safety of OCR-002; 
our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; 
our intention to seek, and our ability to establish strategic collaborations or partnerships for the development or sale of OCR-002 and the effectiveness of such collaborations or partnerships; 
our expectations as to future financial performance, cash and expense levels and liquidity sources; and
other risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q, Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014 and our other prior filings with the SEC.
Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q, Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014 and our other prior filings with the SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
Unless the context requires otherwise, references in this Quarterly Report to “we,” “us” and “our” refer to Ocera Therapeutics, Inc. and its subsidiaries.
                         

2




OCERA THERAPEUTICS, INC.
INDEX
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


3




PART I - FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements

Ocera Therapeutics, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
 
September 30,
 
December 31,
 
2015
 
2014
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
22,767

 
$
10,127

Short-term investments, available-for-sale
25,117

 
37,112

Accounts receivable
35

 
62

Prepaid expenses and other current assets
643

 
970

Total current assets
48,562

 
48,271

Property and equipment, net
109

 
61

Long-term investments

 
3,928

Deposits
44

 
26

Intangible assets, net
48

 
171

Goodwill
595

 
595

Total assets
$
49,358

 
$
53,052

 
 
 
 
Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,037

 
$
941

Accrued liabilities
2,495

 
1,966

Total current liabilities
3,532

 
2,907

Notes payable
9,462

 

Other liabilities
2

 

Total liabilities
12,996

 
2,907

Commitments and contingencies (Note 10)


 

Stockholders' equity:
 
 
 
Preferred stock - $0.00001 par value, 5,000,000 shares authorized and no shares issued or outstanding at September 30, 2015 and December 31, 2014.

 

Common stock - $0.00001 par value, 100,000,000 shares authorized, 20,424,885 shares issued shares outstanding at September 30, 2015 and 19,747,362 shares issued and outstanding at December 31, 2014.

 

Additional paid-in capital
160,717

 
155,083

Accumulated other comprehensive income (loss)
3

 
(27
)
Accumulated deficit
(124,358
)
 
(104,911
)
Total stockholders' equity
36,362

 
50,145

Total liabilities and stockholders' equity
$
49,358

 
$
53,052



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



Ocera Therapeutics, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In Thousands, Except Share and Per Share Amounts)
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
Licensing revenue
$

 
$
200

 
$

 
$
200

Royalty revenue
35

 
33

 
109

 
111

Total revenue
35

 
233

 
109

 
311

Operating expenses:
 
 
 
 
 
 
 
Research and development
4,235

 
4,189

 
12,050

 
11,481

General and administrative
2,372

 
2,682

 
7,460

 
7,836

Amortization of intangibles
41

 
41

 
123

 
123

Total operating expenses
6,648

 
6,912

 
19,633

 
19,440

Other income (expense):
 
 
 
 
 
 
 
Interest and other income
23

 
18

 
71

 
43

Interest and other expense
(203
)
 

 
(213
)
 

Other income (expense), net
(180
)
 
18

 
(142
)
 
43

Net loss from continuing operations
(6,793
)
 
(6,661
)
 
(19,666
)
 
(19,086
)
Net income from discontinued operations (See Note 7)
219

 
58

 
219

 
1,195

Net loss
$
(6,574
)
 
$
(6,603
)
 
$
(19,447
)
 
$
(17,891
)
 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
Net loss per share from continuing operations, basic and diluted
$
(0.34
)
 
$
(0.34
)
 
$
(0.99
)
 
$
(1.14
)
Net income per share from discontinued operations, basic and diluted
0.01

 

 
0.01

 
0.07

Net loss per share, basic and diluted
$
(0.33
)
 
$
(0.34
)
 
$
(0.98
)
 
$
(1.07
)
Weighted average number of shares used to compute net loss per share of common stock, basic and diluted
20,183,939

 
19,330,888

 
19,902,815

 
16,778,047

 
 
 
 
 
 
 
 
Other comprehensive loss:
 
 
 
 
 
 
 
Net loss
$
(6,574
)
 
$
(6,603
)
 
$
(19,447
)
 
$
(17,891
)
Unrealized gain (loss) on investments
4

 
(10
)
 
30

 
(9
)
Comprehensive loss
$
(6,570
)
 
$
(6,613
)
 
$
(19,417
)
 
$
(17,900
)


See the accompanying notes to the unaudited consolidated financial statements.
5



Ocera Therapeutics, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
(unaudited)

 
Nine Months Ended
September 30,
 
2015
 
2014
Operating activities
 
 
 
Net loss
$
(19,447
)
 
$
(17,891
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Net income from discontinued operations
(219
)
 
(1,195
)
Depreciation
23

 
28

Amortization of intangibles
123

 
123

Stock-based compensation
2,860

 
3,701

 Accretion of premium on investment securities
321

 
409

Amortization of debt discount
31

 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
27

 
61

Prepaid expenses and other assets
327

 
(653
)
Accounts payable
73

 
(239
)
Accrued liabilities
531

 
(29
)
Net cash used in continuing operating activities
(15,350
)
 
(15,685
)
Net cash provided by (used in) discontinued operating activities
219

 
(444
)
Net cash used in operating activities
(15,131
)
 
(16,129
)
Investing activities
 
 
 
Purchases of property and equipment
(71
)
 
(38
)
Purchase of short-term and long-term investments
(23,320
)
 
(35,586
)
Maturities of short-term and long-term investments
38,952

 
19,545

Deposits on equipment
(18
)
 

Net cash provided by (used in) continuing investing activities
15,543

 
(16,079
)
Net cash provided by discontinued investing activities

 
1,165

Net cash provided by (used in) investing activities
15,543

 
(14,914
)
Financing activities
 
 
 
Proceeds from sale of common stock, net of underwriting discounts and commissions and offering expenses
2,480

 
23,439

Proceeds from notes payable, net
9,748

 

Proceeds from exercise of common stock options

 
398

Net cash provided by continuing financing activities
12,228

 
23,837

Net increase (decrease) in cash and cash equivalents
12,640

 
(7,206
)
Cash and cash equivalents—beginning of period
10,127

 
15,533

Cash and cash equivalents—end of period
$
22,767

 
$
8,327

Supplemental disclosures of cash flow information
 
 
 
Cash paid for interest
$
71

 
$

Supplemental schedule of noncash investing and financing activities
 
 
 
Cashless exercise of stock options
$

 
$
22

Fair value of warrants issued in connection with notes payable
$
317

 
$

Deferred offering costs in accrued expense and accounts payable
$
23

 
$
55

Unrealized gain (loss) on investments
$
30

 
$
(9
)

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

Ocera Therapeutics, Inc.
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 drug designation and Fast Track status from the U.S. Food and Drug Administration 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 (“Ocera Subsidiary”).
The Company's business is subject to significant risks consistent with biopharmaceutical companies seeking to develop technologies and product candidates for human therapeutic use. These risks include, but are not limited to, uncertainties regarding research and development, access to capital, obtaining and enforcing patents, receiving regulatory approval and competition with other biotechnology and pharmaceutical companies.
The Company has a limited operating history and the sales and income potential of the Company's business and market are unproven. As of September 30, 2015 , the Company has incurred losses since inception of $ 124.4 million . The Company anticipates that it will continue to incur net losses into the foreseeable future as it continues the development and commercialization of OCR-002 and as it expands its corporate infrastructure. Based on the Company's current operating plan, the Company believes its working capital is sufficient to fund its operations through at least the next twelve months.
2. Summary of Significant Accounting Policies
Basis of Presentation
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, 2014.
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.
Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board issued Accounting Standard Update 2015-03,  Simplifying the Presentation of Debt Issuance Costs , which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The recognition and measurement guidance for debt issuance costs are not affected by this guidance. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal

7




years. The Company has chosen to early adopt this guidance and present the legal costs in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount.

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 September 30, 2015 , and December 31, 2014, 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.
None of the Company’s non-financial assets and liabilities is recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.
Assets measured at fair value on a recurring basis as of September 30, 2015 are as follows (in thousands):
 
Balance as of
September 30,
2015
 
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
$
12,343

 
$
12,343

 
$

 
$

Commercial paper
6,999

 

 
6,999

 

Corporate debt securities
18,118

 

 
18,118

 

Total assets
$
37,460

 
$
12,343

 
$
25,117

 
$

Assets measured at fair value on a recurring basis as of December 31, 2014 are as follows (in thousands):
 
Balance as of
December 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
$
9,171

 
$
9,171

 
$

 
$

Commercial paper
3,750

 

 
3,750

 

Corporate debt securities
36,790

 

 
36,790

 

Government agency debt securities
$
500

 
$

 
$
500

 
$

Total assets
$
50,211

 
$
9,171

 
$
41,040

 
$


8




4. Balance Sheet Components
Investments
The following table summarizes the Company's available for sale investments as of September 30, 2015 (in thousands):
 
 
Maturity (in Years)
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
Short-term investments:
 
 
 
 
 
 
 
 
 
 
   Commercial paper
 
1 or less
 
$
6,996

 
$
3

 
$

 
$
6,999

   Corporate debt securities
 
1 or less
 
18,118

 

 

 
18,118

Total investments
 
 
 
$
25,114

 
$
3

 
$

 
$
25,117

The following table summarizes the Company's available for sale investments as of December 31, 2014 (in thousands):
 
 
Maturity (in Years)
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
Short-term investments:
 
 
 
 
 
 
 
 
 
 
   Commercial paper
 
1 or less
 
$
3,748

 
$
2

 
$

 
$
3,750

   Corporate debt securities
 
1 or less
 
33,379

 

 
(17
)
 
33,362

      Total
 
 
 
37,127

 
2

 
(17
)
 
37,112

Long-term investments:
 
 
 
 
 
 
 
 
 
 
   Corporate debt securities
 
1 to 2
 
3,439

 

 
(11
)
 
3,428

Government agency debt securities
 
1 to 2
 
501

 

 
(1
)
 
500

      Total
 
 
 
3,940

 

 
(12
)
 
3,928

Total investments
 
 
 
$
41,067

 
$
2

 
$
(29
)
 
$
41,040

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.
Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
 
Useful Life
 
September 30,
 
December 31,
 
(in years)
 
2015
 
2014
Computer equipment and software
1.5 to 3 years
 
$
53

 
$
53

Office furniture and equipment
5 years
 
68

 
68

Construction in progress
 
 
71

 

Total property and equipment, gross
 
 
192

 
121

Less: accumulated depreciation
 
 
(83
)
 
(60
)
Property and equipment, net
 
 
$
109

 
$
61

Total d epreciation expense was $6,000 and $8,000 for the three months ended September 30, 2015 and 2014 respectively, and $ 23,000 and $ 28,000 for the nine months ended September 30, 2015 and 2014, respectively.

9




Acquired Intangible Assets
The net book value of acquired intangible assets was as follows (in thousands):
 
September 30,
 
December 31,
Customer Agreements:
2015
 
2014
Carrying value
$
410

 
$
410

Accumulated amortization
(362
)
 
(239
)
Intangible assets, net
$
48

 
$
171

Weighted average remaining life (in years)
.25
 
1.0
The Company recognized $41,000 as amortization expense on the intangible assets for the three months ended September 30, 2015 and 2014 and $ 123,000 for the nine months ended September 30, 2015 and 2014.
As of September 30, 2015 , the remaining amortization expense related to our purchased intangible assets was approximately $48,000 during 2015.
Accrued Liabilities
Accrued liabilities were as follows (in thousands):
 
September 30,
 
December 31,
 
2015
 
2014
Clinical trials
$
1,419

 
$
897

Payroll and related expenses
711

 
678

Professional services
234

 
343

Other
131

 
48

Total
$
2,495

 
$
1,966

5. Notes Payable

On July 30, 2015, the Company and Ocera Subsidiary entered into a Loan and Security Agreement (the “Loan Agreement”) with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”) (collectively, the “Lenders”). The Loan Agreement provides for up to $20 million in new term loans (the “Term Loan Facility”), $ 10 million of which was funded on July 30, 2015. The remaining $10 million is available for draw until December 31, 2016 at the Company’s discretion, subject to achievement of certain financial and clinical milestones. The milestones would be satisfied if the Company (a) has raised proceeds of at least $15 million from the sale of equity securities or upfront payments from a partnership agreement and (b) achieved positive data from its ongoing Phase 2b clinical trial of OCR-002.

The annual interest rate for the initial $10 million funding is 8.275% , and the interest rate for the second tranche will be fixed upon drawdown at an annual rate of the greater of 8.275% or 8.085% plus the 30-day U.S. LIBOR rate. Loan payments are interest-only until February 1, 2017, followed by 30 equal monthly payments of principal and interest through the scheduled maturity date of August 1, 2019 if the second tranche is not drawn. If the second tranche is drawn, the interest-only period continues to August 1, 2017, followed by 24 equal monthly payments. In addition, a final payment equal to 3% of the aggregate amount drawn will be due at maturity or on earlier repayment. If the Company prepays all or a portion of the loans, a prepayment fee of between 1 - 3 % of the principal amount prepaid will also be due depending on the timing of the prepayment.

At the initial funding, the Company received net proceeds of $9.7 million after fees and expenses. These fees and expenses are being accounted for as a debt discount and classified within notes payable on the Company’s balance sheet. Consistent with the early adoption of ASU 2015-3, the Company's legal and consulting fees of $0.3 million are presented in the balance sheet as a direct deduction from the carrying amount of the notes liability, consistent with debt discounts. Debt discounts, issuance costs and the final payment are being amortized or accreted as interest expense over the term of the loan using the effective interest method.

10




In connection with the Loan Agreement, the Company agreed to issue to the Lenders warrants to purchase shares of common stock equal to 4% of the amount loaned, divided by the exercise price, which was the average closing price of the common stock for the 10 trading days prior to funding. Accordingly, in connection with the initial funding, the Company issued the Lenders warrants to purchase an aggregate of 97,680 shares at an exercise price of $4.095 per share. The Company recorded $0.3 million for the warrants as debt discount within notes payable and an increase to additional paid-in capital on the Company’s balance sheet (see Note 6). As of September 30, 2015 the warrants remained outstanding and exercisable. The debt discount is being amortized as interest expense over the term of the loan using the effective interest method.

The Term Loan Facility is secured by substantially all of the assets of the Company and its subsidiaries, except that the collateral does not include any intellectual property held by the Company, its subsidiaries or any securities in Tranzyme Holdings, ULC held by the Company. However, the Company has agreed not to encumber any of the intellectual property of the Company or its subsidiaries. The Loan Agreement contains customary representations, warranties and covenants by the Company, and customary indemnification obligations and events of default. The Company was in material compliance with all applicable covenants set forth in the Loan Agreement as of September 30, 2015.

The Company recorded interest expense related to the Term Loan Facility of $0.2 million for the nine months ended September 30, 2015. The annual effective interest rate on the note payable, including the amortization of the debt discounts and accretion of the final payments, is 11.71% .

Future payments under the Loan Agreement as of September 30, 2015 are as follows ( in thousands):
Years ending December 31:
 
2015 (Remaining Three Months)
$
207

2016
828

2017
3,839

2018
4,442

2019
3,261

Total minimum payments
12,577

Less amount representing interest
2,577

Notes payable, gross
10,000

Unamortized discount on notes payable
(538
)
Notes Payable, balance
9,462

Current portion of notes payable

Non-current portion of notes payable
$
9,462

6. Stockholders' Equity
On May 15, 2015, the Company entered into the Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may issue and sell shares of its common stock having aggregate sales proceeds of up to $25,000,000 from time to time through an “at the market” equity program under which Cowen acts as sales agent.
During the three months ended September 30, 2015, the Company sold an aggregate of 540,660 shares of common stock under the Sales Agreement, at an average price of approximately $4.00 per share, for gross proceeds of $2.17 million and net proceeds of $2.05 million after deducting commissions and other transactions costs. As of September 30, 2015, $22.3 million of common stock remained available to be sold under the Sales Agreement, subject to certain conditions specified therein.
Subsequently in October 2015, the Company sold 78,326 shares of common stock under the Sales Agreement, at an average price of approximately $3.94 per share for gross proceeds of approximately $0.3 million.
Common Stock Warrants
In connection with the $10 million initial funding of the Term Loan Facility in July 2015, the Company issued warrants to purchase a total of 97,680 shares of common stock to the Lenders (see Note 5). The exercise price for each warrant is $4.095 per share. The warrants are immediately exercisable, and excluding certain mergers or acquisitions, will expire on July 30, 2025. The warrants were determined to be indexed to the Company's own stock and to meet the criteria to be classified in permanent stockholders' equity on the Company's balance sheet.

11




The fair value of the warrants issued was approximately $0.3 million and was estimated using a Black-Scholes valuation model on a non-recurring basis with the following assumptions: fair value of common stock at issuance of $3.84 ; risk-free interest rate of 2.28% based upon observed risk-free interest rates appropriate for the expected term of the warrants; expected volatility of 87% based on the average historical volatilities of a peer group of publicly-traded companies within the Company’s industry; expected term of ten years, which is the contractual life of the warrants; and a dividend yield of 0% . The allocation of proceeds to the warrants in a relative-fair-value allocation with the related notes payable was also $0.3 million . As of September 30, 2015, all of these warrants remained outstanding and exercisable.
Stock-Based Compensation
The Company’s stock option activity and related information for the nine months ended September 30, 2015 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, 2014
342,210

 
2,086,602

 
$
8.01

 
8.63
 
$
871

 Additional shares authorized
1,300,000

 
 
 
 
 
 
 
 
 Stock options granted
(707,500
)
 
707,500

 
$
3.73

 
 
 
 
 Stock options canceled
364,591

 
(364,591
)
 
$
6.44

 
 
 
 
 Stock options exercised

 

 
$

 
 
 
 
 Balance at September 30, 2015
1,299,301

 
2,429,511

 
$
7.00

 
8.26
 
$
293

 
 
 
 
 
 
 
 
 
 
At September 30, 2015:
 
 
 
 
 
 
 
 
 
    Vested and expected to vest
 
 
2,357,995

 
$
7.04

 
8.23
 
$
293

    Exercisable
 
 
929,839

 
$
8.58

 
6.91
 
$
293

The aggregate intrinsic value of options exercised under all option plans was $0 and $2.7 million for the nine months ended September 30, 2015 and 2014, respectively, determined as of the date of option exercise.
On April 23, 2015, the Company’s board of directors approved an amendment and restatement of the Company’s 2011 Stock Option and Incentive Plan (the “2011 Plan”) to increase the maximum number of shares that may be issued under the 2011 Plan from 2,302,308 to 3,602,328 shares. The amendment and restatement of the 2011 Plan was approved by the Company’s stockholders on June 18, 2015. In June 2015, the Company granted 50,000 common stock options to a consultant, of which 25,000 stock options will vest based on the achievement of certain clinical milestones. During the three and nine months ended September 30, 2015, no expense has been recorded for the performance based options.
In April 2015, the Company amended the non-employee director compensation policy to amend the exercise period of all existing awards from three months to three year following such directors’ departure from the Company’s board of directors. The Company uses historical experience to estimate the expected term of awards granted with the extended exercise period. The Company's expected term for non-employee director options with the extended term is estimated to be 8.06 years. During the three and nine months ended September 30, 2015, $35,000 and $136,000 respectively, of stock compensation expense was recorded pursuant to this modification.
The Company recognized stock-based compensation expense as follows (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Research and development
$
192

 
$
528

 
$
456

 
$
1,359

General and administrative
766

 
921

 
2,404

 
2,342

Total
$
958

 
$
1,449

 
$
2,860

 
$
3,701

The above table includes $11,000 and $12,000 of stock compensation expense for the three months and the nine months ended September 30, 2015 related to stock option grants to consultants in 2015.

12




As of September 30, 2015 , there were unrecognized compensation costs of $8.5 million related to stock options and the Company expects to recognize those costs over a weighted average period of 2.44 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 all stock options granted was estimated using the following weighted-average assumptions:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2015
 
2014
 
2015
 
2014
Expected dividend yield
 
 
 
 
Risk-free interest rates
 
1.59% - 1.64%
 
1.85% - 2.00%
 
1.52% - 2.08%
 
1.85% - 2.01%
Expected life in years
 
5.52 - 6.08
 
6.08
 
5.49 - 8.06
 
6.08
Expected volatility
 
78% - 80%
 
97%
 
78% - 92%
 
97% - 102%
7. Discontinued Operations
On September 11, 2013, the Company announced a restructuring plan related to the operations of Tranzyme Pharma Inc. (“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 nine months ended September 30, 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. There was $0.2 million in income recorded in discontinued operations for the three and nine month periods ended September 30, 2015 that relates to certain foreign research credits received.
The results of Tranzyme Pharma and related asset groups are disclosed as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss as follows (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2015
 
2014
 
2015
 
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

Settlement of certain restructuring charges
 

 
68

 

 
68

Other income (expenses) of discontinued operations
 
219

 

 
219

 
(6
)
Recognition of accumulated translation adjustments upon deconsolidation of subsidiary
 

 
(10
)
 

 
(16
)
Net income from discontinued operations
 
$
219

 
$
58

 
$
219

 
$
1,195



13




8. License Agreements

Lyric Pharmaceuticals, Inc.
In September 2014, the Company entered into an Asset License and Purchase Agreement for the Sale and License of ulimorelin ("TZP-101"), the former lead compound of Tranzyme, to Lyric Pharmaceuticals, Inc. (“Lyric”). Per the terms of the agreement, the Company received an up-front nonrefundable payment of $200,000 for the transfer of intellectual property and materials associated with TZP-101 and the licensing of associated patents with no further ongoing obligations to be performed by the Company. In addition, Lyric is solely responsible for the preclinical and clinical development of all products arising from the further development of TZP-101.

If successful, the Company could receive future consideration as a percentage of the proceeds received by Lyric upon its sale or license to a third party, and under certain conditions, clinical and regulatory milestones totaling up to $25.0 million plus royalty payments from potential product sales generated by TZP-101.

9. 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 warrants 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
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Numerator
 
 
 
 
 
 
 
Net loss from continuing operations
$
(6,793
)
 
$
(6,661
)
 
$
(19,666
)
 
$
(19,086
)
Net income from discontinued operations
219

 
58

 
219

 
1,195

Net loss
$
(6,574
)
 
$
(6,603
)
 
$
(19,447
)
 
$
(17,891
)
Denominator
 
 
 
 
 
 
 
Weighted average common shares outstanding used to compute net loss per share, basic and diluted
20,183,939

 
19,330,888

 
19,902,815

 
16,778,047

Net loss per share of common stock, basic and diluted
 
 
 
 
 
 
 
Net loss per share from continuing operations
$
(0.34
)
 
$
(0.34
)
 
$
(0.99
)
 
$
(1.14
)
Net income per share from discontinued operations
0.01

 

 
0.01

 
0.07

Net loss per share
$
(0.33
)
 
$
(0.34
)
 
$
(0.98
)
 
$
(1.07
)
The following weighted average 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
September 30,
 
Nine Months Ended
September 30,
 
2015
 
2014
 
2015
 
2014
Common stock warrants
997,839
 
938,882
 
954,345
 
938,882
Common stock options
2,340,054
 
1,985,217
 
2,134,428
 
1,827,527
Total
3,337,893
 
2,924,099
 
3,088,773
 
2,766,409

14




The Company has utilized the control number concept in the computation of diluted earnings per share to determine whether potential common stock instruments are dilutive. The control number used is income (loss) from continuing operations. The control number concept requires that the same number of potentially dilutive securities applied in computing diluted earnings per share from continuing operations be applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories. Therefore, no dilutive effect has been recognized in the calculation of income from discontinued operations per share for the three and nine months ended September 30, 2015.
10. 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 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 $101,000 and $53,000 for the three months ended September 30, 2015 and 2014, respectively and $238,000 and $156,000 for the nine months ended September 30, 2015 and 2014, respectively.
The following is a schedule of non-cancellable future minimum lease payments for operating leases as of September 30, 2015 (in thousands):
Years ending December 31:
 
2015 (Remaining Three Months)
$
109

2016
379

2017
15

Total
$
503

11. Subsequent Events
Pursuant to the Company's "at the market" equity program, in October 2015, the Company sold 78,326 shares of common stock under a Sales Agreement, at an average price of approximately $3.94 per share for gross proceeds of approximately $0.3 million.

15




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014 and the unaudited consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Part II, Item 1 of this Quarterly Report on Form 10-Q, Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014 and our other filings with the SEC, our actual results could differ materially from those anticipated in these forward-looking 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 acute and chronic orphan liver diseases. Our initial focus is on the development and commercialization of a clinical candidate, OCR-002, for the treatment of hepatic encephalopathy, or HE. HE is a serious complication of liver cirrhosis, or liver failure, marked by mental changes including confusion, impaired motor skills, disorientation in time and space, and, in its more severe form, stupor, coma and even death. Although the exact cause of HE is not completely understood, there is growing evidence that elevated ammonia is a primary driver of HE, and that lowering ammonia may be beneficial to patients suffering from HE. OCR-002 is a novel molecule, ornithine phenylacetate, which functions as an ammonia scavenger. Common causes of liver malfunction leading to elevated ammonia levels and HE include alcoholism, viral hepatitis and auto-immune diseases, nonalcoholic steatohepatitis, or NASH, as well as obesity, Type II diabetes, and acetaminophen overdose.
OCR-002 has been granted orphan drug designation and Fast Track status by the U.S. Food and Drug Administration, or FDA, for the treatment of hyperammonemia and resultant HE in patients with acute liver failure and acute on chronic liver disease. In pre-clinical studies, OCR-002 significantly reduced arterial ammonia in an animal model of chronic liver disease and significantly reduced arterial ammonia, brain ammonia and intracranial pressure in a second animal model of acute liver failure. In 2012, we completed a Phase 1 pharmacokinetic and safety clinical trial of the intravenous form of OCR-002. A Phase 2a investigator-sponsored study in Spain evaluated OCR-002 in patients with upper gastrointestinal bleeding associated with liver cirrhosis. In the first part of this study, a 10-patient open label safety cohort, OCR-002 was shown to lower ammonia when administered as a continuous intravenous infusion of up to 10 grams per 24 hours. In February 2015, we announced the preliminary topline results of the second part of this study, which was a randomized, placebo-controlled cohort of 38 patients. The data showed that OCR-002 lowered ammonia by 19.6% over the first 12 hours, compared to 3.2% over the first 12 hours in the placebo group, but this difference did not reach statistical significance. A statistically significant difference in urinary excretion of ammonia, as measured by phenylacetylglutamine, or PAGN, the key ammonia elimination pathway for OCR-002, was observed and OCR-002 demonstrated a favorable safety profile and appeared to be well tolerated.
We are currently conducting a randomized, placebo-controlled double blind Phase 2b clinical trial to evaluate the safety and efficacy of intravenous administration of OCR-002 in reducing the severity of HE symptoms among hospitalized HE patients. In March 2015, an independent data monitoring committee, or DMC, conducted an interim analysis, reporting that the trial was not futile and that no drug related safety signals were observed. In addition, the DMC recommended that we continue the study and increase target enrollment from 140 patients to approximately 230 patients. As a result of the DMC’s recommendation, we expect to complete trial enrollment in the second half of 2016. As of September 30, 2015, approximately 110 patients have been enrolled in the study. In addition, there is an investigator-sponsored Phase 2a clinical trial being conducted by the National Institute of Health, or NIH, to evaluate the safety of OCR-002 in patients with hyperammonemia and HE due to acute liver failure or injury.
In the third quarter we initiated a Phase 1 trial with several oral prototype formulations of OCR-002, with data expected in the near term.
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

16




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, 2014. There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K.
Merger with Tranzyme, Inc.
On July 15, 2013, Terrapin Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of Tranzyme, Inc., a Delaware corporation, or Tranzyme, completed its merger, or the Merger, with and into Ocera Therapeutics, Inc., a private Delaware corporation, or 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. , or Ocera Subsidiary.
Results of Operations
Three and Nine Months Ended September 30, 2015 and 2014 (in thousands):     
 
Three Months Ended
September 30,
 
 $ Change
 
Nine Months Ended
September 30,
 
 $ Change
 
2015
 
2014
 
 
2015
 
2014
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Licensing revenue
$

 
$
200

 
$
(200
)
 
$

 
$
200

 
$
(200
)
Royalty revenue
35

 
33

 
2

 
109

 
111

 
(2
)
Total Revenue
35

 
233

 
(198
)
 
109

 
311

 
(202
)
Operating expenses:


 


 
 
 
 
 
 
 
 
Research and development
4,235

 
4,189

 
46

 
12,050

 
11,481

 
569

General and administrative
2,372

 
2,682

 
(310
)
 
7,460

 
7,836

 
(376
)
Amortization of intangibles
41

 
41

 

 
123

 
123

 

Total operating expenses
6,648

 
6,912

 
(264)

 
19,633

 
19,440

 
193

Total other income (expense)
(180)

 
18

 
(198
)
 
(142)

 
43

 
(185
)
Net loss from continuing operations
(6,793
)
 
(6,661
)
 
(132
)
 
(19,666
)
 
(19,086
)
 
(580
)
Net income from discontinued operations
219

 
58

 
161

 
219

 
1,195

 
(976
)
Net loss
$
(6,574
)
 
$
(6,603
)
 
$
29

 
$
(19,447
)
 
$
(17,891
)
 
$
(1,556
)
Revenues
We generated $35,000 in royalty revenue for the three months ended September 30, 2015 compared to $33,000 in royalty revenue for the three months ended September 30, 2014. We generated $0.1 million in royalty revenue for the nine months ended September 30, 2015 compared to $0.1 million in royalty revenue for the nine months ended September 30, 2014. The revenue in both periods was attributable to a license agreement, which we acquired from Tranzyme in connection with the Merger.
Licensing revenue for each of the three and nine months ended September 30, 2014 was $0.2 million, consisting of an up-front nonrefundable payment for the transfer of intellectual property and materials associated with TZP-101 to Lyric Pharmaceuticals, Inc.
Costs and Expenses
Research and Development Expenses
Our research and development expenses increased by $46,000 for the three months ended September 30, 2015  compared to the three months ended September 30, 2014 . The increase in expenses was primarily due to the increased expenses associated with our development program for OCR-002, partially offset by a decrease in stock compensation expense.
Our research and development expenses increased by $0.6 million for the nine months ended September 30, 2015  compared to the nine months ended September 30, 2014. The increase in expenses was due to the increased expenses associated with our development program for OCR-002, including the ongoing enrollment and site activation of our Phase

17




2b trial for OCR-002 and initiation of our Phase 1 clinical trial of oral drug candidate OCR-002, partially offset by a decrease in stock compensation expense.
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 decreased by $0.3 million for the three months ended September 30, 2015 compared to the three months ended September 30, 2014 . The decrease in general and administrative expense was primarily due to a decrease in our costs associated with legal and outside services fees, including stock-based compensation, partially offset by an increase in personnel costs and related expenses.
Our general and administrative expenses decreased by $0.4 million for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 . The decrease in general and administrative expense was primarily due to a decrease in our costs associated with legal and outside services fees, partially offset by an increase in personnel costs and related expenses including stock-based compensation.
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 potentially expand our infrastructure.
Amortization of intangibles
We recognized $41,000 for the amortization of the intangible assets for each of the three months ended September 30, 2015 and September 30, 2014 and $ 0.1 million for the amortization of the intangible assets for each of the nine months ended September 30, 2015 and September 30, 2014 .
Other Income (Expense)
Our other income (expense) decreased by $ 0.2 million for the three and nine months ended September 30, 2015, respectively, compared to the three and nine months ended September 30, 2014. This decrease was primarily due to interest accrued and amortization of debt issuance costs on notes payable related to the debt facility that closed in the third quarter of 2015, partially offset by interest income earned on our investment portfolio of $23,000 and $71,000 for the three and nine months ended September 30, 2015, respectively.
Net income from discontinued operations
During the nine months ended September 30, 2014, we recognized a gain on disposal of assets of $1.1 million within discontinued operations. This related to the completion of our obligations under the Technology Transfer and License Agreement with Genentech, Inc. and F. Hoffman-La Roche, Ltd., in February 2014. During the three and nine periods ended September 30, 2015, $0.2 million of income was recorded within discontinued operations. This related to certain foreign research credits received in the third quarter 2015.

18




The following table summarizes the results of discontinued operations for the three months and nine months ended September 30, 2015 and September 30, 2014 (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2015
 
2014
 
2015
 
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

Settlement of certain restructuring charges
 

 
68

 

 
68

Other income (expenses) of discontinued operations
 
219

 

 
219

 
(6
)
Recognition of accumulated translation adjustments upon deconsolidation of subsidiary
 

 
(10
)
 

 
(16
)
Net income from discontinued operations
 
$
219

 
$
58

 
$
219

 
$
1,195

Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows for the nine months ended September 30, 2015 and 2014 (in thousands):
 
Nine Months Ended
September 30,
 
2015
 
2014
Cash flow from:
 
 
 
Continuing operating activities
$
(15,350
)
 
$
(15,685
)
Discontinued operating activities
219

 
(444
)
Continuing investing activities
15,543

 
(16,079
)
Discontinued investing activities

 
1,165

Continuing financing activities
12,228

 
23,837

Net increase (decrease) in cash and cash equivalents
$
12,640

 
$
(7,206
)
Comparison of the Nine Months Ended September 30, 2015 and 2014
The primary use of cash in continuing operating activities for the nine months ended September 30, 2015 was the result of our net loss from continuing operations of $19.7 million partially offset by changes in working capital of $ 1.0 million and non-cash charges of $ 3.4 million including share-based compensation expense, and accretion of premium on investment of securities. Cash used in continuing operating activities for the nine months ended September 30, 2014 was related primarily to our net loss from continuing operations of $19.1 million plus changes in working capital of $0.9 million. These changes are partially offset by non-cash charges of $4.3 million including share-based compensation expense and accretion of premium on investment of securities.
Cash provided by discontinued operating activities for the nine months ended September 30, 2015 was due primarily to certain foreign research credits received. Cash used in discontinued operating activities for the nine months ended September 30, 2014 was due primarily to payment of accrued liabilities of discontinued operations.
Cash provided by continuing investing activities for the nine months ended September 30, 2015 related to $39.0 million of investment maturities partially offset by purchases of short-term and long-term investments of $23.3 million . For the nine months ended September 30, 2014 , net cash used by continuing investing activities related to purchases of short-term and long-term investments of $35.6 million partially offset by $19.5 million of investment maturities.

19




Cash provided by discontinued investing activities for the nine months ended September 30, 2014 represents cash proceeds related to the Technology Transfer and License Agreement with Genentech, Inc. and F. Hoffman-La Roche, Ltd. for rights to the MATCH discovery platform, which we acquired from Tranzyme in the Merger.
Cash provided by continuing financing activities for the nine months ended September 30, 2015 related to net proceeds from issuance of notes payable of $9.7 million and proceeds from issuance of common stock pursuant to the “at the market” equity program of $2.5 million. Net cash provided by financing activities for the nine months ended September 30, 2014 related to net proceeds of $23.4 million generated from our public offering completed on July 10, 2014, as well as proceeds from the exercise of stock options of $0.4 million.
Debt Facility
On July 30, 2015, we entered into a Loan and Security Agreement, or the Loan Agreement, with Oxford Finance LLC and Silicon Valley Bank , or collectively, the Lenders. The Loan Agreement provides up to $20 million principal in new term loans, $10 million of which was funded on July 30, 2015. The remaining $10 million is available for draw until December 31, 2016 at the Company’s discretion, subject to achievement of certain financial and clinical milestones. We refer to this facility as the Term Loan Facility.

The term loan repayment schedule provides for interest only payments (i) through either February 1, 2017 or August 1, 2017 with respect to the first $10 million of the term loans, depending on whether the remaining term loans have been funded within a certain period set forth in the Loan Agreement, and (ii) through August 1, 2017 with respect to the remaining $10 million of term loans, in each case followed by consecutive equal monthly payments of principal and interest in arrears starting on such dates and continuing through the maturity date of August 1, 2019. The Loan Agreement provides for an interest rate equal to the greater of (i) 8.275% or (ii) the sum of the thirty-day U.S. LIBOR rate for five days prior to the funding date of the applicable term loan plus 8.085%. The Loan Agreement also provides for a final interest payment equal to 3.0% of the original principal amount of the first $10 million in term loans and 1.325% of the original principal amount of the remaining $10 million in term loans, or $432,500, which is due when the term loan becomes due or upon the prepayment of the facility. We have the option to prepay the outstanding balance of the term loan in full, subject to a prepayment fee of 1% to 3% depending upon when the prepayment occurs. The Term Loan Facility matures on August 1, 2019.

The Term Loan Facility is secured by substantially all of our assets and the assets of Ocera Subsidiary, Inc., except that the collateral does not include any intellectual property held by us, Ocera Subsidiary or our respective subsidiaries, or any securities in Tranzyme Holdings, ULC owned or held of record by us. However, pursuant to the terms of a negative pledge arrangement, we have agreed not to encumber any of the intellectual property of ours or our subsidiaries. The Loan Agreement contains customary representations, warranties and covenants by us, which covenants limit our ability to convey, sell, lease, transfer, assign or otherwise dispose of certain of our assets; engage in any business other than the businesses we currently engage in or reasonably related thereto; liquidate or dissolve; make certain management changes; undergo certain change of control events; create, incur, assume, or be liable with respect to certain indebtedness; grant certain liens; pay dividends and make certain other restricted payments; make certain investments; enter into any material transactions with any affiliates, with certain exceptions; make payments on any subordinated debt; and permit certain of our subsidiaries to maintain, own or otherwise hold any material assets or conduct any business operations other than as disclosed to the Lenders. In addition, subject to certain exceptions, we and Ocera Subsidiary are required to maintain with SVB their respective primary deposit accounts, securities accounts and commodity accounts.
The Loan Agreement also contains customary indemnification obligations and customary events of default, including, among other things, our failure to fulfill certain of our obligations under the Loan Agreement, the occurrence of a material adverse change, which is defined as a material adverse change in our business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan, or a material impairment in the perfection or priority of the Lenders’ lien in the collateral or in the value of such collateral. In the event of default by us under the Loan Agreement, the Lenders would be entitled to exercise their remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts then outstanding under the Loan Agreement, which could harm our financial condition.
Capital Resources and Funding Requirements
We will require additional funds to support future operations including our development activities associated with the intravenous and oral formulations 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

20




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 our operations with our current cash and cash equivalents and proceeds from potential additional financing transactions and possible strategic opportunities. We believe that our current cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months.
On May 15, 2015, we filed a shelf registration statement on Form S-3 under which we may offer shares of our common stock and preferred stock, various series of warrants to purchase common stock or preferred stock and debt securities, either individually or in units, in one or more offerings, up to a total dollar amount of $150,000,000. On May 15, 2015, we entered into a Sales Agreement, or the Sale Agreement, with Cowen and Company, LLC, or Cowen, pursuant to which we may issue and sell shares of our common stock for which we included a prospectus to our shelf registration statement on Form S-3, having aggregate sales proceeds of up to $25,000,000, from time to time, through an “at the market” equity program under which Cowen acts as sales agent. During the third quarter of 2015, we sold an aggregate of 540,660 shares of common stock under the Sales Agreement, at an average price of approximately $4.00 per share for gross proceeds of $2.17 million and net proceeds of $2.05 million after deducting commissions and other transactions costs. As of September 30, 2015, $22.3 million of common stock remained available to be sold under the Sales Agreement, subject to certain conditions specified therein.
Subsequently in October 2015, we sold an aggregate of 78,326 shares of common stock under the Sales Agreement, at an average price of approximately $3.94 per share, for gross proceeds of approximately $0.3 million.
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 fully and timely enroll patients and 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, as is the case with our Term Loan Facility, results 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 table summarizes our future contractual obligations as of September 30, 2015 (in thousands):
 
Payments due by years
 
2015 (Remaining Three Months)

 
2016

 
2017

 
2018

 
2019

 
Total

Note payable obligations, including interest (1)
$
207

 
$
828

 
$
3,839

 
$
4,442

 
$
3,261

 
$
12,577

Operating lease obligations
$
109

 
$
379

 
$
15

 
$

 
$

 
$
503

(1)    Upon the occurrence of an event of default, as defined in the Loan Agreement, and during the continuance of an event of default, a default interest rate of an additional 5% will be applied to the outstanding loan balances, and the Lenders may declare all outstanding obligations immediately due and payable.
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 September 30, 2015 , these commitments consisted of

21




approximately $5.7 million in contractual obligations and commitments under material contracts, the majority of which are cancellable within 90 days or less.
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. 

22




Item 3.         Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk affecting our company, see Item 7A: "Quantitative and Qualitative Disclosures about Market Risk" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. Our exposure to foreign currency risk and market risk has not materially changed from that disclosed in our Annual Report.
Item 4.        Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible 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 of the period covered by this report. Based on that evaluation, our principal executive officer and principal financial and accounting officer concluded that, as of September 30, 2015, our disclosure controls and procedures were effective at the reasonable assurance level.

We continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
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.
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, 2014 and in Part II, “Item 1A: Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, each as filed with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. Except for the risk factors set forth below, 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, 2014.

We have a significant amount of debt that may cause risks that could adversely affect our business, operating results and financial condition.

We entered into the Loan Agreement for the Term Loan Facility on July 30, 2015. The Loan Agreement provides up to $20 million principal in new term loans, $10 million of which was funded on July 30, 2015. The remaining $10 million is available for draw until December 31, 2016 at the Company’s discretion, subject to achievement of certain financial and clinical milestones. The Term Loan Facility is secured by substantially all of our assets and the assets of our subsidiary, Ocera Subsidiary, Inc., except that the collateral does not include any intellectual property held by us, Ocera Subsidiary, Inc. or our respective subsidiaries, or any securities in Tranzyme Holdings, ULC owned or held of record by us. However, pursuant to the terms of

23




a negative pledge arrangement, we have agreed not to encumber any of the intellectual property of ours or our subsidiaries. The level and nature of our indebtedness could, among other things:

make it difficult for us to obtain any necessary financing in the future;
limit our flexibility in planning for or reacting to changes in our business;
reduce funds available for use in our operations and corporate development initiatives;
impair our ability to incur additional debt because of financial and other restrictive covenants or the liens on our assets that secure our current debt;
hinder our ability to raise equity capital, because in the event of a liquidation of our business, debt holders receive a priority before equity holders;
make us more vulnerable in the event of a downturn in our business; and
place us at a possible competitive disadvantage relative to less leveraged competitors and competitors that have better access to capital resources.

In addition, if we do not meet certain conditions set forth in the Loan Agreement, we will not be able to draw the remaining $10 million available under the Term Loan Agreement, which could materially harm our financial condition. We may also incur significantly more debt in the future, which will increase each of the risks described above related to our indebtedness.

The Loan Agreement for the Term Loan Facility contains operating covenants that may restrict our business and financing activities.

The Loan Agreement restricts, among other things, our ability to:

convey, sell, lease, transfer, assign or otherwise dispose of certain of our assets;
engage in any business other than the businesses we currently engage in or reasonably related thereto;
liquidate or dissolve;
make certain management changes;
undergo certain change of control events;
create, incur, assume, or be liable with respect to certain indebtedness;
grant certain liens;
pay dividends and make certain other restricted payments;
make certain investments;
enter into any material transactions with any affiliates, with certain exceptions;
make payments on any subordinated debt; or
permit certain of our subsidiaries to maintain, own or otherwise hold any material assets or conduct any business operations other than as disclosed to the Lenders.

The operating restrictions and covenants in the Loan Agreement, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control and we may not be able to meet those covenants. A breach of any of the covenants under the Loan Agreement could result in a default under the Loan Agreement, which could cause all of the outstanding indebtedness under the Term Loan Facility to become immediately due and payable.

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.

24




Item 5. Other Information
None.
Item 6.    Exhibits  
(a) Exhibits required by Item 601 of Regulation S-K.
 
Exhibit
Number
 
Description
 
 
 
4.1
 
Warrant to Purchase Stock dated as of July 30, 2015 issued by the Company to Oxford Finance LLC (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 4, 2015).

 
 
 
4.2
 
Warrant to Purchase Stock dated as of July 30, 2015 issued by the Company to Silicon Valley Bank (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on August 4, 2015).

 
 
 
10.1
 
Ocera Therapeutics, Inc. Loan and Security Agreement dated as of July 30, 2015 by and among the Company, Ocera Subsidiary, Inc., Oxford Finance LLC and Silicon Valley Bank.
(Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 4, 2015).

 
 
 
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
+Attached as Exhibits 101 to this report are the following financial statements from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statements of Cash Flows and (iv) related notes to these financial statements tagged as blocks of text.



25




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:
November 5, 2015
By:
/s/ Linda S. Grais, M.D.
 
 
 
Linda S. Grais, M.D.
 
 
 
President and Chief Executive Officer
 
 
 
 
Date:
November 5, 2015
By:
/s/ Michael Byrnes
 
 
 
Michael Byrnes
 
 
 
Chief Financial Officer and Treasurer


26



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:
November 5, 2015
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, Michael Byrnes, 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:
November 5, 2015
By:
/s/Michael Byrnes
 
 
 
Michael Byrnes
 
 
 
Chief Financial Officer and Treasurer
 
 
 
(Principal Financial and Accounting 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 September 30, 2015, 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, to my knowledge 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:
November 5, 2015
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 September 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Byrnes, 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, to my knowledge 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:
November 5, 2015
By:
/s/Michael Byrnes
 
 
 
Michael Byrnes
 
 
 
Chief Financial Officer and Treasurer
 
 
 
(Principal Financial and Accounting Officer)