Ocera Therapeutics, Inc.
Ocera Therapeutics, Inc. (Form: 10-Q, Received: 08/04/2016 16:11:00)


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 June 30, 2016
 
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) 475-0158
(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 July 29, 2016 was 21,851,488.

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 number, timing, design, results and implementation of our clinical trials and nonclinical activities for OCR-002 and the timing of the availability of data from these trials and activities; 
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; 
our expectations regarding federal, state and foreign regulatory requirements;
the therapeutic benefits, effectiveness and safety of OCR-002; 
the commercial success and market acceptance of OCR-002, if approved;
our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; 
the accuracy of our estimates of the size and characteristics of the markets that may be addressed by OCR-002;
our ability to manufacture sufficient amounts of OCR-002 for clinical trials and commercialization activities;
our ability to comply with the covenants in our credit facility;
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, 2015 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, 2015 and our other 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 subsidiary.
                         

2




OCERA THERAPEUTICS, INC.
INDEX
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


3




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

Ocera Therapeutics, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
 
June 30,
 
December 31,
 
2016
 
2015
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
34,193

 
$
35,921

Short-term investments, available-for-sale
1,250

 
7,415

Prepaid expenses and other current assets
466

 
686

Total current assets
35,909

 
44,022

Property and equipment, net
69

 
94

Deposits
36

 
26

Goodwill
595

 
595

Total assets
$
36,609

 
$
44,737

 
 
 
 
Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,435

 
$
701

Accrued liabilities
3,529

 
3,133

    Notes payable - short term
1,021

 

Total current liabilities
5,985

 
3,834

Notes payable - long term
8,582

 
9,508

Other liabilities
102

 
1

Total liabilities
14,669

 
13,343

Stockholders' equity:
 
 
 
Preferred stock - $0.00001 par value, 5,000,000 shares authorized and no shares issued or outstanding.

 

Common stock - $0.00001 par value, 100,000,000 shares authorized, 21,839,519 issued and outstanding at June 30, 2016 and 20,695,160 shares issued and outstanding at December 31, 2015.

 

Additional paid-in capital
167,990

 
162,832

Accumulated other comprehensive loss

 
(5
)
Accumulated deficit
(146,050
)
 
(131,433
)
Total stockholders' equity
21,940

 
31,394

Total liabilities and stockholders' equity
$
36,609

 
$
44,737



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



Ocera Therapeutics, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In Thousands, Except Share and Per Share Amounts)
(unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Royalty revenue
$
26

 
$
43

 
$
59

 
$
74

Operating expenses:
 
 
 
 
 
 
 
Research and development
3,909

 
3,417

 
8,656

 
7,815

General and administrative
2,970

 
2,832

 
5,524

 
5,088

Amortization of intangibles

 
41

 

 
82

Total operating expenses
6,879

 
6,290

 
14,180

 
12,985

Other (expense) income:
 
 
 
 
 
 
 
Interest and other income
30

 
26

 
63

 
49

Interest and other expense
(280
)
 

 
(559
)
 
(10
)
Other (expense) income, net
(250
)
 
26

 
(496
)
 
39

Net loss
$
(7,103
)
 
$
(6,221
)
 
$
(14,617
)
 
$
(12,872
)
 
 
 
 
 
 
 
 
Net loss per share:
 
 
 
 
 
 
 
Net loss per share, basic and diluted
$
(0.33
)
 
$
(0.31
)
 
$
(0.69
)
 
$
(0.65
)
Weighted average number of shares used to compute net loss per share of common stock, basic and diluted
21,552,089

 
19,772,345

 
21,248,027

 
19,759,923

 
 
 
 
 
 
 
 
Comprehensive loss:
 
 
 
 
 
 
 
Net loss
$
(7,103
)
 
$
(6,221
)
 
$
(14,617
)
 
$
(12,872
)
Unrealized (loss) gain on investments
(1
)
 
(2
)
 
5

 
26

Comprehensive loss
$
(7,104
)
 
$
(6,223
)
 
$
(14,612
)
 
$
(12,846
)


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



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

 
Six Months Ended
June 30,
 
2016
 
2015
Operating activities
 
 
 
Net loss
$
(14,617
)
 
$
(12,872
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation
25

 
16

Amortization of intangibles

 
82

Stock-based compensation
2,165

 
1,902

Amortization of premium on marketable securities
40

 
253

    Amortization of debt discount
95

 

Changes in operating assets and liabilities:
 
 
 
Prepaid expenses and other assets
210

 
273

Accounts payable
734

 
134

Accrued and other liabilities
497

 
64

Net cash used in operating activities
(10,851
)
 
(10,148
)
Investing activities
 
 
 
Purchases of marketable securities
(3,754
)
 
(18,022
)
Proceeds from maturities of marketable securities
9,884

 
26,000

Net cash provided by investing activities
6,130

 
7,978

Financing activities
 
 
 
Proceeds from sale of common stock, net of underwriting discounts and issuance cost
2,982

 
413

Proceeds from exercise of common stock options
11

 

Net cash provided by financing activities
2,993

 
413

Net decrease in cash and cash equivalents
(1,728
)
 
(1,757
)
Cash and cash equivalents—beginning of period
35,921

 
10,127

Cash and cash equivalents—end of period
$
34,193

 
$
8,370

Supplemental disclosures of cash flow information
 
 
 
Cash paid for interest
$
414

 
$

Supplemental schedule of noncash investing and financing activities
 
 
 
Issuance cost related to at the market equity program in accounts payable
$

 
$
9


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

Ocera Therapeutics, Inc.
Notes to Condensed 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 by the U.S. Food and Drug Administration for the treatment of hyperammonemia and resultant hepatic encephalopathy in patients with liver cirrhosis, acute liver failure and acute-on-chronic liver disease.
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 was 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 June 30, 2016 , the Company has incurred losses since inception of $ 146.1 million . The Company anticipates that it will continue to incur net losses into the foreseeable future as it continues its efforts to develop and commercialize 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 condensed consolidated financial statements of the Company and our wholly-owned subsidiary 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. For interim reporting the financial statements and related notes do not include all information and footnotes required by U.S. GAAP for annual reports. Accordingly, the accompanying unaudited interim condensed consolidated financial statements were derived from audited condensed financial statements, but do not include all disclosures required by U.S. GAAP for complete financial statements. 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, 2015.
Unaudited Interim Financial Information
The accompanying interim condensed 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 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.

7




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.
Investments in Marketable Securities
All investments in marketable securities have been classified as "available-for-sale" and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Unrealized gains and losses are excluded from earnings and are reported as a component of accumulated comprehensive income. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on investments in marketable securities are included in interest and other income (expense), net. The cost of securities sold is based on the specific-identification method. Interest earned on investments in marketable securities is included in interest and other income.
Recent Accounting Pronouncements
Occasionally, new accounting standards are issued or proposed by the Financial Accounting Standards Board (the "FASB"), or other standards-setting bodies that the Company adopts by the effective date specified within the standard. Unless otherwise discussed, standards that do not require adoption until a future date are not expected to have a material impact on the Company's condensed consolidated financial statements upon adoption.
Recent Accounting Updates Not Yet Effective
In February 2016, the FASB issued Accounting Standards Update, or ASU 2016-02, Leases, to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The standard will become effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of this standard on our condensed consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update, or ASU 2016-06, Derivatives and Hedging (Topic 815), Contingent Put and Call Options in Debt Instruments. This ASU clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this ASU is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence.   The new standard simplifies the embedded derivative analysis for debt instruments containing contingent call or put options by removing the requirement to assess whether a contingent event is related to interest rates or credit risks. This guidance should be applied on a modified retrospective basis to existing debt instruments as of the beginning of the fiscal year in which the amendments are effective, and is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of this standard will have on its condensed consolidated financial statements.
In March 2016, the FASB issued Accounting Standards Update, or ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), Compensation - Stock Compensation. The new guidance simplifies several aspects of the accounting for share-based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to the employees' maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. The Company is currently evaluating the impact that the adoption of this standard will have on its condensed consolidated financial statements.

In May 2014, the FASB issued Accounting Standard Accounting Standards Update, or ASU, No. 2014-09,  Revenue from Contracts with Customers.  The standard’s core principle is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will become effective for the Company beginning in the first quarter of 2018. Early adoption is permitted in 2017. Entities have the option of using either a full retrospective or a modified retrospective approach to adopt this new guidance. In March and April 2016, the FASB issued ASU, No. 2016-08 Revenue From Contracts With Customers : Principal vs. Agent Considerations and ASU 2016-10 Revenue From Contracts with Customers: Identifying Performance Obligations and Licensing to provide supplemental adoption guidance and

8




clarification to ASU 2014-09. The Company is currently evaluating the impact of the adoption of these standards on their Condensed Consolidated Financial Statements.


3. Fair Value Measurements
Financial assets and liabilities are recorded at fair value. The carrying amounts of certain of our financial instruments, including cash and cash equivalents, prepaid expenses and other current assets, accounts payable, and accrued liabilities and deferred revenue, approximate their fair value due to their short maturities. Short-term and long-term debt are reported at their respective amortized cost on our Consolidated Balance Sheets. The remaining financial instruments are reported on our Consolidated Balance Sheets at amounts that approximate current fair values. 
The following tables present information about the Company’s financial assets measured at fair value on a recurring basis as of June 30, 2016 , and December 31, 2015, 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: Inputs which include 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 are 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 June 30, 2016 are as follows (in thousands):
 
Balance as of
June 30,
2016
 
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
$
34,406

 
$
34,406

 
$

 
$

Corporate debt securities
1,250

 

 
1,250

 

 
$
35,656

 
$
34,406

 
$
1,250

 
$

Assets measured at fair value on a recurring basis as of December 31, 2015 are as follows (in thousands):
 
Balance as of
December 31,
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
$
34,806

 
$
34,806

 
$

 
$

Corporate debt securities
7,415

 

 
7,415

 

 
$
42,221

 
$
34,806

 
$
7,415

 
$

The Company estimates the fair value of corporate debt securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker quotes on the same or similar securities; issuer credit spreads; benchmark securities; prepayment or default projections based on historical data; and other observable inputs.


9




The estimated fair value of the Company's notes payable, considering level 2 inputs, approximates their carrying value based upon the borrowing terms and conditions currently available to the Company.    
4. Balance Sheet Components
Investments in Marketable Securities
The following table summarizes the Company's available for sale investments as of June 30, 2016 (in thousands):
 
 
Maturity (in Years)
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
Short-term investments:
 
 
 
 
 
 
 
 
 
 
   Corporate debt securities
 
1 or less
 
1,250

 

 

 
1,250

Total short-term investments
 
 
 
$
1,250

 
$

 
$

 
$
1,250

The following table summarizes the Company's available for sale investments as of December 31, 2015 (in thousands):
 
 
Maturity (in Years)
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Estimated Fair Value
Short-term investments:
 
 
 
 
 
 
 
 
 
 
   Corporate debt securities
 
1 or less
 
$
7,420

 
$

 
$
(5
)
 
$
7,415

Total short-term investments
 
 
 
$
7,420

 
$

 
$
(5
)
 
$
7,415

At each reporting date, the Company reviews its investments for impairment to determine if 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 that 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 in any of the periods presented.
Accrued Liabilities
Accrued liabilities were as follows (in thousands):
 
June 30,
 
December 31,
 
2016
 
2015
Clinical trials
$
2,234

 
$
1,666

Compensation and related expenses
782

 
993

Professional services
414

 
319

Interest expense
69

 
110

Other
30

 
45

Total accrued liabilities
$
3,529

 
$
3,133

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 $20.0 million in new term loans (the “Term Loan Facility”), $ 10.0 million of which was funded on July 30, 2015. The remaining $10.0 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 will be satisfied if the Company (a) has raised proceeds of at least $15.0 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.

10




The annual interest rate for the initial $10.0 million funding is 8.275% , and the interest rate for the second tranche will be fixed upon drawdown at an annual rate that is 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 condensed consolidated balance sheet. Legal and consulting fees are presented in the condensed consolidated 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.
In connection with the Loan Agreement, the Company issued the Lenders warrants to purchase an aggregate of 97,680 shares of the Company's common stock 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 condensed consolidated balance sheet. As of June 30, 2016, the warrants remained outstanding and exercisable. The debt discount is being amortized as interest expense over the term of the Term Loan Facility 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 or its subsidiary. However, the Company has agreed not to encumber any of the intellectual property of the Company or its subsidiary. The Loan Agreement contains customary representations, warranties and covenants by the Company, and customary indemnification obligations and events of default. The Company was in compliance with all covenants set forth in the Loan Agreement as of  June 30, 2016 .
The Company recorded interest expense related to the Term Loan Facility of $0.3 million for the three months ended June 30, 2016 , and $0.6 million for the six months ended June 30, 2016 . The annual effective interest rate on the note payable, including the amortization of the debt discounts and accretion of the final payments, is 11.72% .

Future minimum payments under the Loan Agreement as of June 30, 2016 are as follows ( in thousands):
Years ending December 31:
 
2016 (Remaining Six Months)
$
414

2017
3,839

2018
4,442

2019
3,261

Total future minimum payments
11,956

Less amount representing interest
1,956

Notes payable, gross
10,000

Unamortized discount on notes payable
(397
)
Notes payable, balance
9,603

Less current portion of notes payable
1,021

Non-current portion of notes payable
$
8,582

6. Stockholders' Equity
On May 15, 2015, the Company entered into a 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 $25.0 million from time to time through an “at the market” equity program under which Cowen acts as sales agent.
During the six months ended June 30, 2016 , the Company sold an aggregate of 1,132,390 shares of common stock under the Sales Agreement, at an average price of approximately $2.77 per share, for gross proceeds of $3.1 million and net proceeds of $3.0 million after deducting commissions and other transactions costs. During the six months ended June 30, 2015, the Company sold 135,562 shares of common stock under the Sales Agreement, at an average price of approximately

11




$3.79 per share for gross proceeds of $0.5 million and net proceeds of $0.4 million after deducting commissions and other transactions costs.
As of June 30, 2016 , $18.1 million of common stock remained available to be sold under the Sales Agreement, subject to certain conditions specified therein.
7. Stock-Based Compensation
The Company’s stock option activity and related information for the six months ended June 30, 2016 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, 2015
1,299,301

 
2,429,511

 
$
7.00

 
8.01
 
$
287

 Additional shares authorized
1,400,000

 
 
 
 
 
 
 
 
 Stock options granted
(1,537,000
)
 
1,537,000

 
$
2.94

 
 
 
 
 Stock options canceled
220,978

 
(220,978
)
 
$
6.98

 
 
 
 
 Stock options exercised

 
(11,969
)
 
$
0.92

 
 
 
 
 Balance at June 30, 2016
1,383,279

 
3,733,564

 
$
5.35

 
8.26
 
$
105

 
 
 
 
 
 
 
 
 
 
At June 30, 2016:
 
 
 
 
 
 
 
 
 
    Vested and expected to vest
 
 
3,595,695

 
$
5.41

 
8.22
 
$
105

    Exercisable
 
 
1,381,095

 
$
7.50

 
7.50
 
$
105

The aggregate intrinsic value of options exercised under all option plans was $25,000 for the six months ended June 30, 2016 determined as of the date of option exercise. No options were exercised during the six months ended June 30, 2015.
The Company recognized stock-based compensation expense within the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Research and development
$
171

 
$
56

 
$
377

 
$
265

General and administrative
888

 
881

 
1,788

 
1,637

Total
$
1,059

 
$
937

 
$
2,165

 
$
1,902

The above table includes stock compensation expense for consultants of $9 ,000 and $19,000 for the three and six months ended June 30, 2016, respectively. Stock compensation expense for consultants was insignificant for the three and six months ended June 30, 2015.
At June 30, 2016 , there were 136,000 unvested options outstanding with performance conditions related to the achievement of certain clinical milestones. During the three and six months ended June 30, 2016 , no expense was recorded for the performance-based options as it was not yet probable that such milestones would be met.
In April 2016, the Company’s board of directors approved an amendment and restatement of the Company’s Fourth Amended and Restated 2011 Stock Option and Incentive Plan (the “2011 Plan”) to, among other things, increase the maximum number of shares that may be issued under the 2011 Plan from 3,602,328 to 5,002,328 shares. The amendment and restatement of the 2011 Plan was approved by the Company’s stockholders on June 14, 2016 .
As of June 30, 2016 , there was unrecognized stock compensation expense of $7.6 million related to stock options. The Company expects to recognize those costs over a weighted average period of 2.30 years.

12




Stock-based compensation expense 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
June 30,

Six Months Ended
June 30,


2016

2015

2016

2015
Expected dividend yield




Risk-free interest rates

1.25% -1.47%

1.65% - 2.08%

1.25% - 1.97%

1.52% - 2.08%
Expected term in years

4.41 - 8.14

5.49 - 8.06

4.41 - 8.14

5.49 - 8.06
Expected volatility

74% - 94%

78% - 92%

74% - 94%

78% - 92%
On January 6, 2016 , the Company granted certain of its executive officers non-qualified stock options to purchase 206,625 shares of the Company’s common stock that vest on a monthly basis in equal installments over 48 months following the grant date if the Company's stock price equals or exceeds $6.00 for 20 consecutive trading days on or before June 30, 2017 . The options expire ten years from the date of the grant.
The weighted-average fair values of these options was determined using a Monte Carlo simulation model incorporating the following assumptions:
 
 
Six Months Ended
June 30, 2016
Expected dividend yield

Risk-free interest rates

1.82% - 2.05%
Expected term in years

6.02 - 8.00
Expected volatility

77% - 89%
Weighted-average fair value per share

1.33 - 1.42
The estimated expense for these awards is being recognized on an accelerated basis over the estimated requisite service period, with no adjustments in the future periods based upon the Company's actual common stock price. The Company recorded $29,000 and $91,000 during the three months and six months ended June 30, 2016 , respectively, of share-based compensation expense in connection with the market condition stock option awards described above.
8. 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 have been excluded from the computation of diluted net loss per share as the effect of their inclusion would be considered 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.
The following table presents the computation of net loss per share (in thousands, except share and per share data):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Numerator
 
 
 
 
 
 
 
Net loss
$
(7,103
)
 
$
(6,221
)
 
$
(14,617
)
 
$
(12,872
)
Denominator
 
 
 
 
 
 
 
Weighted average common shares outstanding used to compute net loss per share, basic and diluted
21,552,089

 
19,772,345

 
21,248,027

 
19,759,923

Net loss per share of common stock, basic and diluted
 
 
 
 
 
 
 
Net loss per share
$
(0.33
)
 
$
(0.31
)
 
$
(0.69
)
 
$
(0.65
)

13




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 as the effect of their inclusion would have been considered anti-dilutive:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Common stock warrants
1,026,249
 
931,942
 
1,026,249
 
932,237
Common stock options
3,681,401
 
2,020,872
 
3,655,965
 
2,029,911
Total
4,707,650
 
2,952,814
 
4,682,214
 
2,962,148

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, 2015 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, 2015 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. Common causes of liver malfunction leading to elevated ammonia levels and HE include alcoholism, viral hepatitis and autoimmune diseases, non-alcoholic steatohepatitis, or NASH, as well as obesity, Type II diabetes, and acetaminophen overdose. It is estimated that in the United States there are approximately eight million individuals with some form of chronic liver disease, of which one million have cirrhosis. Of the one million individuals in the United States that have cirrhosis, it is estimated that approximately 500,000 are at risk for developing HE.
OCR-002 is a novel molecule, ornithine phenylacetate, which functions as an ammonia scavenger. In pre-clinical studies, OCR-002 significantly reduced arterial ammonia and cerebral edema in an animal model of chronic liver disease and significantly attenuated arterial ammonia, extracellular brain ammonia and intracranial pressure in a second animal model of acute liver failure.
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 clinically significant safety concerns were observed. In addition, the DMC recommended that we continue the trial and increase target enrollment from 140 patients to approximately 230 patients. This sample size recommendation allows the trial to maintain 80% statistical power to observe the treatment effect at the conclusion of the trial that was observed by the DMC at the time of the interim analysis. The trial is currently being conducted in approximately 100 sites worldwide and as of July 29, 2016, approximately 195 patients have been enrolled in total. We expect to complete enrollment in the fourth quarter of 2016 and announce topline data in the first quarter of 2017.
We are also developing an oral form of OCR-002 with the goal of providing continuity of care for HE patients post discharge in order to prevent subsequent episodes of acute HE. In the fourth quarter of 2015, we completed a Phase 1 clinical trial with oral formulations of OCR-002 in healthy subjects. This open label, single-dose, five treatment, five-period crossover trial evaluated the pharmacokinetic, or pK, safety and tolerability of three prototype, extended-release oral formulations of OCR-002 compared to an immediate release oral solution of OCR-002 and the FDA approved ammonia-lowering agent, glycerol phenylbutyrate (RAVICTI®). Glycerol phenylbutyrate is a pre-pro-drug of phenylacetate, or PAA,

14




a component of OCR-002. The results of this trial demonstrated a robust, extended-release pattern for all three pilot OCR-002 extended-release formulations, with mean plasma phenylacetate concentrations exceeding those achieved with RAVICTI® at all time points for at least 12 hours post-dose. In addition, the concentration of phenylacetylglutamine, or PAGN, the end-product responsible for clearing ammonia, was greater in both plasma and urine for all three OCR-002 extended-release dosage forms than RAVICTI® at an approximately equivalent molar PAA dose. Based on the strength of these results and the prior clinical proof of concept established with RAVICTI® in preventing recurrent HE in patients suffering from liver cirrhosis and a prior history of HE, we plan to continue development of oral OCR-002 and expect to initiate a two-part Phase 1 clinical trial in patients with cirrhosis in the third quarter of 2016. Part 1 will evaluate the pK and bioavailability of a single oral dose of OCR-002 in cirrhotic patients dosed under certain conditions. Part 2 is expected to be a multi-dose study which will include the evaluation of steady state pK and the formation of PAGN. We expect enrollment in Part 1 to begin in the third quarter of 2016 with data anticipated by year-end 2016. We expect to complete Part 2 of this study, with data available, in the first half of 2017.
In 2012, we completed a Phase 1 pK and safety clinical trial of the intravenous form of OCR-002. A Phase 2a investigator-sponsored trial in Spain evaluated OCR-002 in patients with upper gastrointestinal bleeding associated with liver cirrhosis. These patients tend to have elevated ammonia levels because they swallow blood, which produces more ammonia as it is digested. In the first part of this trial, 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 trial, which was a randomized, placebo-controlled cohort of 38 patients. The data showed that over the first 12 hours of dosing, OCR-002 lowered ammonia by 19.6% compared to 3.2% in the placebo group, but this difference did not reach statistical significance. A statistically significant difference in urinary excretion of ammonia, as measured by PAGN, was observed and OCR-002 demonstrated a favorable safety profile and appeared to be well tolerated.
In addition, there is an investigator-sponsored Phase 2a clinical trial being conducted by the National Institutes of Health, or NIH, to evaluate the safety and pK of OCR-002 in patients with hyperammonemia and HE due to acute liver failure or injury. In November 2015, the NIH announced preliminary pK data on 24 patients and concluded that OCR-002 was safe and well-tolerated at the levels administered, up to 10 grams per 24 hours. A correlation was observed between the doses administered and the drug levels seen in the blood, but even at the 10 gram dose, the investigators deemed the exposure of the drug to be below the desired range. As a result, they are now enrolling an additional 12 patients at a higher dose of 20 grams per 24 hours and expect to complete enrollment in the third quarter of 2016. Data is expected to be available from this trial in late 2016 or early 2017.
Our strategy is to focus clinical development activities on the intravenous form of OCR-002 to treat acute HE in hospitalized patients and on the oral form of OCR-002, which will be directed to chronic care of HE patients.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated 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 consolidated 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, 2015. For the six months ended June 30, 2016, 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.

15




Results of Operations
Three Months and Six Months Ended June 30, 2016 and 2015 (in thousands):     
 
Three Months Ended
June 30,
 
 $ Change
 
Six Months Ended
June 30,
 
 $ Change
 
2016
 
2015
 
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Royalty revenue
$
26

 
$
43

 
$
(17
)
 
59

 
$
74

 
(15
)
Operating expenses:


 


 
 
 
 
 
 
 
 
Research and development
3,909

 
3,417

 
492

 
8,656

 
7,815

 
841

General and administrative
2,970

 
2,832

 
138

 
5,524

 
5,088

 
436

Amortization of intangibles

 
41

 
(41
)
 

 
82

 
(82
)
Total operating expenses
6,879

 
6,290

 
589

 
14,180

 
12,985

 
1,195

Total other income (expense)
(250)

 
26

 
(276
)
 
(496)

 
39

 
(535
)
Net loss
$
(7,103
)
 
$
(6,221
)
 
$
(882
)
 
$
(14,617
)
 
$
(12,872
)
 
$
(1,745
)
Revenues
We generated $26,000 in royalty revenue for the three months ended June 30, 2016 compared to $43,000 in royalty revenue for the three months ended June 30, 2015. We generated $59,000 in revenue for the six months ended June 30, 2016 compared to $74,000 in revenue for the six months ended June 30, 2015. The revenue in both periods was attributable to a license agreement that we acquired from Tranzyme in connection with the Merger.
Costs and Expenses
Research and Development Expenses
Our research and development expenses increased by $0.5 million for the three months ended June 30, 2016  compared to the three months ended June 30, 2015 . The increase in expenses was primarily due to an increase in headcount and related costs.
Our research and development expenses increased by $ 0.8 million for the six months ended June 30, 2016  compared to the six months ended June 30, 2015 . The increase in expenses was primarily due to an increase in headcount and related costs.
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 significant additional capital to advance the development and commercialization of OCR-002, which may include entering into strategic alliances.
General and Administrative Expenses
Our general and administrative expenses increased by $0.1 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The increase in general and administrative expenses was primarily due to an increase in our costs associated with professional outside services fees.

16




Our general and administrative expenses increased by $0.4 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The increase in general and administrative expenses was primarily due to an increase in our costs associated with professional outside services fees and an increase in stock based compensation expense.
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.
Other Income (Expense)
Our net other expense increased by $ 0.3 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. This increase was primarily due to an increase in interest expense and amortization of debt issuance costs on notes payable of $0.3 million related to the debt facility that closed in the third quarter of 2015.
Our net other expense increased by $0.5 million for the six months ended June 30, 2016 , compared to the six months ended June 30, 2015. This increase was primarily due to an increase in interest expense and amortization of debt issuance costs on notes payable of $0.6 million related to the debt facility that closed in the third quarter of 2015, partially offset by interest income earned on our investment portfolio.
Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows for the six months ended June 30, 2016 and 2015 (in thousands):
 
Six Months Ended
June 30,
 
2016
 
2015
Cash flow from:
 
 
 
Operating activities
$
(10,851
)
 
$
(10,148
)
Investing activities
6,130

 
7,978

Financing activities
2,993

 
413

Net decrease in cash and cash equivalents
$
(1,728
)
 
$
(1,757
)
Comparison of the Six Months Ended June 30, 2016 and 2015
The primary use of cash in operating activities for the six months ended June 30, 2016 was the result of our net loss from operations of $14.6 million partially offset by changes in working capital of $ 1.4 million and non-cash charges of $ 2.3 million including stock-based compensation expense, accretion of premiums on investment in marketable securities and amortization of debt discount. The primary use of cash in continuing operating activities for the six months ended June 30, 2015 was the result of our net loss from continuing operations of $12.9 million partially offset by changes in working capital of $0.5 million and non-cash charges of $2.3 million including share-based compensation expense, accretion of premiums on investment securities and amortization of intangibles.
Cash provided by investing activities for the six months ended June 30, 2016 consisted of $9.9 million of proceeds from investment maturities partially offset by purchases of investments of $3.8 million . Cash provided by investing activities for the six months ended June 30, 2015 consisted of $26.0 million of proceeds from investment maturities partially offset by purchases of investments of $18.0 million.
Cash provided by financing activities for the six months ended June 30, 2016 consisted of proceeds from the issuance of common stock pursuant to the “at the market” equity program of $3.0 million. Net cash provided by financing activities for the six months ended June 30, 2015 consisted of $0.4 million in proceeds from the issuance of common stock pursuant to the “at the market” equity program that was initiated during second quarter of 2015.
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,

17




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 or Ocera Subsidiary. 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 subsidiary. 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 Silicon Valley Bank 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 significant additional funds to support future operations including our development activities associated with the intravenous and oral formulations of OCR-002. Our future funding requirements depend 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, the cost of manufacturing adequate supplies of drug substance and drug product 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 $150.0 million. On May 15, 2015, we entered into a sales agreement, or the Sales 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 $25.0 million from time to time, through an “at the market” equity program under which Cowen acts as sales agent. During the six month period ended June 30, 2016, we sold an aggregate of 1,132,390 shares of common stock under the Sales Agreement, at an average sale price of approximately $2.77 per share for gross proceeds of $3.1 million and net proceeds of $3.0 million after deducting commissions and other

18




transactions costs. As of June 30, 2016 , $18.1 million of common stock remained available to be sold under the Sales Agreement, subject to certain conditions specified therein.
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 June 30, 2016 (in thousands):
 
 
Payments due by period
 
 
Less than 1 year

 
1 to 3 years

 
3 to 5 years

 
More than 5 years

 
Total

Note payable obligations, including interest (1)
 
$
414

 
$
8,281

 
$
3,261

 
$

 
$
11,956

Operating lease obligations
 
$
222

 
$
325

 
$
8

 
$

 
$
555

Other non-cancellable commitments (2)
 
$
153

 
$

 
$

 
$

 
$
153

Total
 
$
789

 
$
8,606

 
$
3,269

 
$

 
$
12,664

(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.
(2)     Contractual obligations and commitments under clinical contracts that are non-cancellable.
We have license milestone obligation payments that are not included in the table above because the Company cannot determine when or if the payments will occur. In the normal course of business, we enter into various firm purchase commitments and other contractual obligations which are cancellable within ninety days or less and are not a part of the future contractual obligations table above.
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
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, 2015. 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 June 30, 2016, 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, 2015, 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, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.

20




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
 
 
 
10.1†
 
Ocera Therapeutics, Inc. Fourth Amended and Restated 2011 Stock Option and Incentive Plan, together with forms of award agreements (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 15, 2016).
 
 
 
10.2*
 
Third Amendment to Lease Agreement dated May 16, 2016 by and between James Campbell, LLC and the Company.
 
 
 
10.3†
 
Amended and Restated Employment Agreement dated as of April 8, 2016 by and between the Company and Linda Grais (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated May 3, 2016).
 
 
 
10.4†
 
Amended and Restated Employment Agreement dated as of April 8, 2016 by and between the Company and Gaurav Aggarwal (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q dated May 3, 2016).
 
 
 
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
†Indicates a management contract or compensation plan, contract or arrangement.
+Attached as Exhibits 101 to this report are the following financial statements from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) related notes to these financial statements tagged as blocks of text.


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:
August 4, 2016
By:
/s/ Linda S. Grais, M.D.
 
 
 
Linda S. Grais, M.D.
 
 
 
President and Chief Executive Officer
 
 
 
 
Date:
August 4, 2016
By:
/s/ Michael Byrnes
 
 
 
Michael Byrnes
 
 
 
Chief Financial Officer and Treasurer


22



Exhibit 10.2
 
THIRD AMENDMENT TO
LEASE AGREEMENT

This Third Amendment to Lease Agreement (“Third Amendment”) is entered into on May 16, 2016 (“Effective Date”) by and between James Campbell Company LLC, a Delaware limited liability company (“Landlord”) and Ocera Therapeutics, Inc. , a Delaware corporation f/k/a Tranzyme, Inc. (“Tenant”).
 
RECITALS:

A.     Landlord and Tenant entered into an Office Lease dated November 28, 2011 (“Original Lease”) for approximately 8,126 rentable square feet known as a portion of Suite 300 in that building known as Central Park West (“Building”) located at 5001 S. Miami Boulevard, Durham, North Carolina 27703 (“Premises”).

B.    Landlord and Tenant entered into a First Amendment to Lease Agreement dated August 20, 2014 (“First Amendment”) and a Second Amendment to Lease Agreement dated June 5, 2015 (“Second Amendment”). The Original Lease, the First Amendment, and the Second Amendment are collectively referred to as “Lease.”

C.     Landlord and Tenant desire to enter into this Third Amendment for the purpose of revising certain terms of the Lease, including an extension of the term of the Lease and an option to renew, as set out with specificity below.

NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

1.     Recitals . The foregoing recitals are true, accurate and are incorporated herein by reference. The capitalized terms which are not defined herein shall have the same meaning as otherwise set out in the Lease.

2.     Extension of Term . Landlord and Tenant hereby agree to renew the term of the Lease for a period of one (1) year, beginning on February 1, 2017 and continuing until January 31, 2018 (“Extended Term”).
 
3.     Rent . Monthly Base Rent during the Extended Term shall be $17,606.33 (or $26.00 per sq. ft.) and shall be payable monthly in advance pursuant to the terms of the Lease. Tenant shall pay Landlord Additional Rent under the same terms and conditions described in the Lease.

4.     Option to Renew .

        (a)     Provided Tenant is not in default of the Lease (beyond any applicable notice and cure periods), Tenant shall have one (1) renewal option (“Option to Renew”) for a period of one (1) year commencing on February 1, 2018 and ending on January 31, 2019 (“Renewal Period”). In order to exercise the Option to Renew, Tenant must notify Landlord, in writing, of Tenant’s intention to exercise the Option to Renew on or prior to July 31, 2017 (“Option Deadline”), time being of the essence. If Tenant fails to notify Landlord by the Option Deadline that Tenant is exercising the Option to Renew, the Option to Renewal shall be null and void.

        (b)     If Tenant properly exercises its Option to Renew in accordance with Section 4(a) above, (i) the Monthly Base Rent during the Renewal Period shall be $17,606.33 (or $26.00 per sq. ft.) and

31185025_1.doc    1



shall be payable monthly in advance pursuant to the terms of the Lease and (ii) Tenant shall pay Landlord Additional Rent under the same terms and conditions described in the Lease.

    5.     Notices Addresses . As of the Execution Date, Section 1(k) of the Original Lease as it relates to the notice address for Landlord and Landlord’s property management company shall be deleted in its entirety and shall be replaced as follows:

Landlord:
James Campbell Company LLC
425 California Street, Suite 500
San Francisco, California 94104
Attn: Executive Vice President,
Real Estate Investment Management

with a copy to:
James Campbell Company LLC
c/o Avison Young
5440 Wade Park Boulevard, Suite 200
Raleigh, NC 27607

6.     No Options or Inducements; Condition of Premises . Tenant acknowledges and agrees that, as of the Effective Date and notwithstanding anything to the contrary set forth in the Lease or this Third Amendment, Tenant shall have no extension, termination, right of first offer, or other options whatsoever with regard to the Premises or under the Lease, as amended by this Third Amendment except as set forth in Section 4 above. Tenant further acknowledges and agrees that Tenant is not and shall not be entitled to any allowances, concessions, upfit work or other inducements of any kind in connection with the Premises or under the Lease, as amended by this Third Amendment. In the latter regard, Tenant acknowledges and agrees that from and after the Effective Date, Landlord is leasing the Premises to Tenant “as is,” without any representations or warranties of any kind (including, without limitation, any express or implied warranties of merchantability, fitness or habitability) and without any obligation on the part of Landlord to alter, remodel, improve, repair or decorate the Premises or any part thereof.

7.     Acknowledgment of Non-Existence of Claims and Waiver . Tenant acknowledges that as of the Effective Date, there are no claims by Tenant against Landlord arising under the Lease. Tenant releases and discharges Landlord, its successors and assigns, from any demands for injuries or damages of any kind or nature arising out of or related to the Lease or the Premises that occurred on or prior to the Effective Date.

8.     Binding Effect . The amendments made to the Lease pursuant to this Third Amendment shall be binding upon the parties and their respective successors and assigns.

9.     Brokerage . Tenant hereby represents to Landlord that Tenant has not entered into any agreements with any brokers in connection with this Third Amendment other than Newmark Grubb Knight Frank (“Tenant’s Broker”). Tenant hereby indemnifies, holds harmless, and agrees to defend Landlord, its members, principals, partners, officers, directors, employees and agents and the respective principals, officers and directors of any such agents from and against any and all claims of any brokers claiming to have represented Tenant in connection with this Third Amendment other than Tenant’s Broker. Landlord and Tenant acknowledge and agree that Avison Young (“Landlord’s Broker”) has represented Landlord in connection with this Third Amendment and all compensation due to Landlord’s Broker is Landlord’s sole responsibility.


31185025_1.doc    2



10.     Nature of Amendments . The amendments made to the Lease pursuant to this Third Amendment shall constitute the only amendments to be effectuated and all other provisions of the Lease not affected hereby shall remain in place as originally constituted and shall be in full force and effect. To the extent that there is any conflict between the terms of this Third Amendment and the Lease, the terms of this Third Amendment will govern.

(The remainder of this page is intentionally left blank. Next page is signature page.)

31185025_1.doc    3



IN WITNESS WHEREOF, Landlord and Tenant have entered into this Third Amendment as of the date set forth below.


LANDLORD:
 
James Campbell Company LLC,
a Delaware limited liability company
 
By:
/s/ Dorine Holsey Streeter
 
 
Dorine Holsey Streeter,
Executive Vice President,
Real Estate Investment Management
 
 
 
 
Date:
May 16
, 2016
 
 
 
By:
/s/ Douglas C. Morris
 
 
Douglas C. Morris,
Vice President,
Regional Manager
 
 
 
 
Date:
May 16
, 2016
 
 
 
TENANT:
 
 
 
 
Ocera Therapeutics, Inc.,
a Delaware corporation
f/k/a Tranzyme, Inc.
 
 
 
By:
/s/ Michael Byrnes
 
 
 
 
Name:
Michael Byrnes
 
 
 
 
Title:
Chief Financial Officer
 
 
 
 
Date:
May 08
, 2016
    



31185025_1.doc


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:
August 4, 2016
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:
August 4, 2016
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 June 30, 2016, 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:
August 4, 2016
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 June 30, 2016, 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:
August 4, 2016
By:
/s/ Michael Byrnes
 
 
 
Michael Byrnes
 
 
 
Chief Financial Officer and Treasurer
 
 
 
(Principal Financial and Accounting Officer)