XOTC:PYMX Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012



UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
 þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
   
For the Quarterly Period Ended June 30, 2012
     
   
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: 000-51895
POLYMEDIX, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
DELAWARE
 
27-0125925
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
     
170 N. Radnor-Chester Road; Suite 300
Radnor, PA  19087
(Address of Principal Executive Offices)
     
(484) 598-2400
(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. þ Yes o No

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

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. (Check one)

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 o   No þ
 
As of August 9, 2012 the issuer had 106,791,339 shares of issued and outstanding common stock, par value $0.001 per share.
 
 
 

 
 
 

POLYMEDIX, INC.

INDEX


 
PART I - FINANCIAL INFORMATION
 
 



PART II - OTHER INFORMATION



 
 
1

 



PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.
PolyMedix, Inc.
(A Development Stage Company)
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands)


     
June 30,
 
December 31,
     
2012
 
2011
ASSETS
         
Current Assets:
         
Cash and cash equivalents
  $
10,695
 
 $19,704
Prepaid expenses and other current assets
   
 113
 
 129
Grant and contract receivable
   
 121
 
 543
Short-term investments
   
 1,650
 
 1,650
Total current assets
   
 12,579
 
 22,026
           
Property and Equipment:
         
Computers
   
 799
 
 799
Office furniture and lab equipment
   
 749
 
 734
Accumulated depreciation
   
 (1,084)
 
 (943)
Total property and equipment
   
 464
 
 590
           
Long-term assets - other
   
 153
 
 35
           
TOTAL ASSETS
  $
13,196
 
 $22,651
           
LIABILITIES AND STOCKHOLDERS' EQUITY
         
Current Liabilities:
         
Accounts payable
  $
3,690
 
 $3,033
Accrued expenses
   
 1,428
 
 1,955
Current portion of long-term debt
   
 965
 
 3,542
Total current liabilities
   
 6,083
 
 8,530
           
Long-term debt, less current portion
   
 5,743
 
 3,008
Deferred rent
   
 823
 
 866
Derivative liability
   
 1,159
 
 4,863
Total liabilities
   
 13,808
 
 17,267
           
Commitments and contingencies
         
           
Stockholders' Equity:
         
Preferred Stock ($0.001 par value; 10,000 shares authorized; 0 issued and outstanding at June 30, 2012 and December 31, 2011)
   
 -
 
 -
Common Stock ($0.001 par value; 250,000 shares authorized; 106,791 and 106,000 issued and outstanding at June 30, 2012 and December 31, 2011, respectively)
   
 107
 
 106
Additional paid-in capital
   
 91,487
 
 89,412
Deficit accumulated during the development stage
   
 (92,206)
 
 (84,134)
Total stockholders' equity
   
 (612)
 
 5,384
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
13,196
 
 $22,651

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
2

 

(A Development Stage Company)
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share amounts)

   
Three-Months Ended June 30,
   
Six-Months Ended June 30,
   
For the period August 8, 2002 (Inception) to June 30,
 
   
2012
   
2011
   
2012
   
2011
   
2012
 
Revenues:
                             
Grant and research revenues
  $ 499     $ 334     $ 1,104     $ 1,133     $ 10,266  
Total revenues
    499       334       1,104       1,133       10,266  
                                         
Operating Expenses:
                                       
Research and development
    3,441       2,674       8,005       5,317       64,696  
General and administrative
    1,955       1,900       3,832       3,387       39,628  
Total operating expenses
    5,396       4,574       11,837       8,704       104,324  
                                         
Other Income and Expenses:
                                       
Interest income
    13       26       28       44       1,813  
Interest (expense)
    (238 )     (302 )     (462 )     (625 )     (2,706 )
Gain (loss) on derivative instrument
    7,491       (700 )     3,404       (700 )     3,054  
(Loss) on extinguishment of debt
    (309 )     -       (309 )     -       (309 )
Total other income (expense)
    6,957       (976 )     2,661       (1,281 )     1,852  
                                         
Net income (loss)
  $ 2,060     $ (5,216 )   $ (8,072 )   $ (8,852 )   $ (92,206 )
                                         
Beneficial conversion feature on Series 2008 preferred stock, conversion inducement and dividends on Series 1 preferred stock
    -       -       -       -       (11,118 )
                                         
Net income (loss) attributable to common stockholders
  $ 2,060     $ (5,216 )   $ (8,072 )   $ (8,852 )   $ (103,324 )
                                         
Net income (loss) per common share - basic and diluted
  $ 0.02     $ (0.05 )   $ (0.08 )   $ (0.10 )        
                                         
Weighted average common shares outstanding - basic and diluted
    106,174       103,222       106,442       92,111          

The accompanying notes are an integral part of these condensed consolidated financial statements.


 
3

 

(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(unaudited) (in thousands)


   
Six-Months Ended June 30,
   
For the period August 8, 2002 (Inception) to
 
   
2012
   
2011
   
June 30, 2012
 
Cash Flows from Operating Activities:
                 
Net loss
  $ (8,072 )   $ (8,852 )   $ (92,206 )
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Depreciation
    141       115       1,318  
Amortization
    24       24       106  
Accretion of discount on investment securities
    -       -       (461 )
Stock-based compensation
    973       1,153       12,781  
Non-cash interest expense
    38       61       251  
Non-cash interest income
    (17 )     (11 )     (39 )
(Gain) loss on derivative instrument
    (3,404 )     700       (3,054 )
Non-cash loss on extinguishment of debt
    253       -       253  
(Increase) decrease in prepaid expenses and other current assets
    409       (667 )     (193 )
Increase (decrease) in accounts payable, accrued expenses and deferred rent
    1       (628 )     5,840  
Loss on disposal of fixed assets
    -       -       23  
Net cash used in operating activities
    (9,654 )     (8,105 )     (75,381 )
                         
Cash Flows from Investing Activities:
                       
Cash paid for property and equipment
    (15 )     (8 )     (1,461 )
Purchases of investments
    -       -       (39,489 )
Proceeds from maturities of investments
    -       -       38,301  
Net cash used in investing activities
    (15 )     (8 )     (2,649 )
                         
Cash Flows from Financing Activities:
                       
Proceeds from issuance of stock, net of financing costs
    -       18,617       80,898  
Proceeds from warrant and stock option exercises
    704       -       1,602  
Principal payments on capital lease obligations
    -       -       (331 )
Proceeds from issuance of debt, net of issue costs
    7,919       (2 )     17,756  
Principal payments on debt obligations
    (7,963 )     (1,570 )     (11,200 )
Net cash provided by financing activities
    660       17,045       88,725  
                         
Net increase (decrease) in cash and cash equivalents
    (9,009 )     8,932       10,695  
                         
Cash and cash equivalents - beginning of period
    19,704       19,171       -  
                         
Cash and cash equivalents - end of period
  $ 10,695     $ 28,103     $ 10,695  
                         
                         
Cash Paid for Interest
  $ 424     $ 584     $ 2,383  
                         
Non-Cash Investing Activities:
                       
Capital expenditures acquired on account
  $ -     $ -     $ 15  
                         
Non-Cash Financing Activities:
                       
Accrued financing costs
  $ 85     $ 167     $ 85  
Warrants issued to creditor and placement agents
  $ 100     $ -     $ 3,159  
Series D warrant issuance
  $ -     $ 4,513     $ 4,513  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
4

 

(A Development Stage Company)
Notes to Unaudited Condensed Consolidated Financial Statements

In these condensed consolidated financial statements, “PolyMedix,” “we,” “us” and “our” refer to PolyMedix, Inc. and its wholly owned subsidiary PolyMedix Pharmaceuticals, Inc., and “Common Stock” refers to the common stock, par value $0.001 per share of PolyMedix, Inc.

1 – Organization and Business Activities

We are a clinical stage biotechnology company focused on developing small-molecule drugs for the treatment of serious acute care conditions. Using our proprietary drug discovery platform, we have internally created a pipeline of first-in-class anti-infective agents, as well as other product candidates. Since 2002, we have been a development stage enterprise, and accordingly, our operations have been directed primarily toward conducting research and development activities, including pre-clinical testing and human clinical trials of our product candidates, and developing business strategies, raising capital, and recruiting personnel to support these operations.

We have incurred operating losses since inception, have not generated any product sales revenues and have not achieved profitable operations. Our deficit accumulated during the development stage through June 30, 2012 was approximately $92,206,000, and we expect to continue to incur substantial losses in future periods. None of our product candidates has received regulatory approval for commercial sale and our product candidates may never be commercialized. In addition, all of our product candidates are in the early stages of development and several programs are on hold pending additional financing. Our development programs require a significant amount of cash to support the development of product candidates. The progress and results of our current and any future clinical trials or future pre-clinical testing are uncertain, and if our product candidates do not receive regulatory approvals, our business, operating results, financial condition and cash flows will be materially adversely affected.

We are highly dependent on the success of our research, development and licensing efforts and, ultimately, upon regulatory approval and market acceptance of our products under development. Our short and long-term capital requirements depend upon a variety of factors, including the timing and results of our clinical trials, our ability to enter into, and realize the benefits from, strategic partnerships, regulatory and market acceptance of our product candidates, and various other factors, such as overall and sector-specific market conditions. Under our current operating plan, which includes a planned Phase 2B study for our lead candidate, brilacidin, we believe that our current cash and investment balances as of the date of this report will not be sufficient to fund our operations for the next 12 months.  We plan to seek additional funds through equity or debt financings, strategic alliances, or other sources.  However, we may not be able to obtain additional funding on favorable terms, if at all.  If we are unable to secure adequate additional funding, we may delay, scale-back or eliminate certain of our planned research, drug discovery and development activities and certain other aspects of our operations and our business until such time as we are successful in securing adequate additional funding.  As a result, our business, operating results, financial condition and cash flows may be materially and adversely affected.  Our ability to advance the clinical development of our drug candidates and ultimately seek regulatory approval depends upon our ability to meet the regulatory requirements and adhere to the guidance of the United States Food and Drug Administration (FDA) and other regulatory authorities on an ongoing basis, which may develop and change over time and are subject to interpretation by such regulatory authorities. Any changes in regulatory requirements or guidance may have significant impact on the timing and cost of clinical trials, and our ability to complete such trials, if at all.

In April 2011, we closed an equity financing for gross proceeds of $20,000,000, and in April 2012, we closed a debt financing for gross proceeds of $8,000,000 of which approximately $5,700,000 was used to pay off outstanding debt on a prior loan facility.  In June 2012, we prepaid $1,200,000, reducing our outstanding debt balance to $6,800,000.  Net proceeds from these financing activities have and will continue to be used to fund the clinical development of our lead product candidate, brilacidin (formerly PMX-30063), and for general corporate purposes.

 
5

 
Interim Financial Information

The condensed consolidated financial statements include the accounts of PolyMedix, Inc. and its wholly-owned subsidiary, PolyMedix Pharmaceuticals, Inc.  All intercompany accounts and transactions have been eliminated in consolidation.  The information as of June 30, 2012, and for the three- and six-month periods ended June 30, 2012 and 2011, and the period from August 8, 2002 (Inception) to June 30, 2012 is unaudited, but includes all adjustments (consisting only of normal recurring adjustments) which, in our opinion, are necessary to state fairly the financial information set forth in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The interim results are not necessarily indicative of the results to be expected for the full fiscal year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011 included in our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 13, 2012.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates include the value of our common stock, stock options, warrants, and debt.

Derivative Financial Instruments

We account for certain outstanding warrants as derivative financial instruments in accordance with the interpretive guidance under Accounting Standards Codification (ASC) 815, “Derivatives and Hedging.”  Generally, we do not use derivative financial instruments to hedge exposures to cash flow or market risks. However, certain other financial instruments, specifically certain of our warrants, are classified as derivative liabilities on our statement of financial position which meet the scoping requirements of ASC 815-10-15.   Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period, with the gains and losses recorded currently in our statement of operations as other income and expense.  In doing so, it is necessary to make certain assumptions and estimates to value these derivatives.

2 – Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04, which converges guidance with that of the International Accounting Standards Board (IASB) on how to measure fair value and on what disclosures to provide about fair value measurements.  While the ASU is largely consistent with existing fair value measurement principles in U.S. GAAP, it expands Accounting Standards Codification (ASC) 820’s existing disclosure requirements for fair value measurements and makes other amendments. Many of these amendments were made to eliminate unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards. However, some of the amendments could change how the fair value measurement guidance in ASC 820 is applied.  The ASU is effective for interim and annual periods beginning after December 15, 2011.  The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, which revised the manner in which entities present comprehensive income in their financial statements.  The new guidance removes the presentation options in ASC 220 and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements.  The ASU does not change the items that must be reported in other comprehensive income (OCI).  With the exception of the indefinite deferral of the provisions that require entities to present, in both net income and OCI, adjustments of items that are reclassified from OCI to net income, for public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

 
6

 
3 – Comprehensive Income and Loss
 
Comprehensive income and loss consists of reported net income or loss and unrealized gains or losses on available for sale securities.  As of June 30, 2012, we did not have any components in addition to reported net income and loss, which were included in comprehensive income and loss.  The comprehensive income and loss for each of the periods presented is equal to the net income and loss in the condensed consolidated statements of operations.
 
4 – Fair Value Measurements
 
The FASB has established a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels, as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on management’s own assumptions used to measure assets and liabilities at fair value. Classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
 
As of June 30, 2012 and December 31, 2011, we did not have any financial or nonfinancial instruments carried at fair value measured on a nonrecurring basis. The following table provides financial and nonfinancial assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2012 and December 31, 2011 (in thousands):
 

         
Fair Value Measurements at June 30, 2012
 
   
June 30, 2012
   
Quoted prices in
active markets
(Level 1)
   
Significant other
observable
inputs
(Level 2)
   
Significant
unobservable
inputs
(Level 3)
 
Derivative liability
  $ 1,159     $ -     $ -     $ 1,159  
                                 

         
Fair Value Measurements at December 31, 2011
 
   
December 31, 2011
   
Quoted prices in
active markets
(Level 1)
   
Significant other
observable
inputs
(Level 2)
   
Significant
unobservable
inputs
(Level 3)
 
Derivative liability
  $ 4,863     $ -     $ -     $ 4,863  
                                 

As discussed in Note 7, our Series D warrants are being accounted for as a derivative liability.  The fair value of our derivative liability was determined using the Black-Scholes-Merton formula – a Level 3 measurement.  As of June 30, 2012, unobservable inputs included an exercise price of $0.80, expected life of 3.78 years, volatility of 73.65%, a 3.78-year interpolated risk-free rate of 0.53%, and 0% dividend rate.  The only observable input was our then current stock price of $0.31.  As of December 31, 2011, unobservable inputs included an exercise price of $0.80, expected life of 4.28 years, volatility of 66.35%, a 4.28-year interpolated risk-free rate of 0.66%, and 0% dividend rate.  The only observable input was our then current stock price of $0.77.

Significant decreases in our stock price volatility will substantially decrease the overall valuation of our derivative liability, while significant increases in our stock price volatility will substantially increase the overall valuation.  As discussed in Note 7, the strike price of our Series D warrants may be decreased.  Accordingly, a significant decrease in the strike price of the Series D warrants will substantially increase the overall valuation.

 
 
7

 

The following tables set forth a summary of changes in the fair value of Level 3 liabilities for the three- and six- months ended June 30, 2012 (in thousands):

   
December 31, 2011
   
Warrant Exercises
   
Change in fair value
   
June 30,
2012
 
Derivative liability
  $ 4,863     $ (300 )   $ (3,404 )   $ 1,159  

   
March 31, 2012
   
Warrant Exercises
   
Change in fair value
   
June 30,
2012
 
Derivative liability
  $ 8,694     $ (44 )   $ (7,491 )   $ 1,159  

The following tables set forth a summary of changes in the fair value of Level 3 liabilities for the three- and six- months ended June 30, 2011 (in thousands):

   
December 31, 2010
   
Warrant Issuance
   
Change in fair value
   
June 30,
2011
 
Derivative liability
  $ -     $ 4,512     $ 700     $ 5,212  

   
March 31, 2011
   
Warrant Issuance
   
Change in fair value
   
June 30,
2011
 
Derivative liability
  $ -     $ 4,512     $ 700     $ 5,212  

5 –Short-term Investments

As of June 30, 2012 and December 31, 2011, we held only short-term investments, consisting of investments with maturities of less than one year.  All short-term investments represent certificates of deposit which are expected to be redeemed in the next 12 months, and are classified as “held to maturity” and recorded at cost.

6 –Debt

MidCap Financial SBIC LP (MidCap)

In April 2012, we entered into a Loan and Security Agreement (LSA) with MidCap for initial gross proceeds of $8,000,000 and in June 2012, we entered into a First Amendment to the LSA.  Approximately $5,700,000 of the proceeds was used to pay off our then outstanding credit facility with Hercules Technology II, L.P. (HTGC).  In June 2012, we made a $1,200,000 prepayment, reducing the amount of debt outstanding to $6,800,000.

This loan accrues interest at 11.95% and has a term of 39 months, with interest-only payments for the first nine months.  In connection with this loan, we also issued to MidCap a detachable warrant to purchase 161,290 shares of our common stock, which expires on April 4, 2017 (see Note 9 for additional information on the warrant).  The following table summarizes our debt included in our unaudited condensed consolidated balance sheet as of June 30, 2012 and December 31, 2011 (in thousands):
 
 
8

 

 
 
June 30, 2012
 
Principal
   
Unamortized Discount
 
Current portion
  $ 996     $ 31  
Long-term portion
    5,804       61  
Total
  $ 6,800     $ 92  
 
December 31, 2011
 
Principal
   
Unamortized Discount
 
Current portion
  $ 3,664     $ 122  
Long-term portion
    3,099       91  
Total
  $ 6,763     $ 213  

We allocated the $8,000,000 of proceeds received to both the debt and the detachable warrant based on the relative fair value of the debt instrument without the warrant and the warrant itself.  The relative fair value at the time of issuance was $7,900,000 and $100,000 for the debt and warrant, respectively (See Note 9 for additional information on the fair value of the warrant).  The portion allocated to the warrant was recorded to additional paid-in capital, and the liability portion will be amortized to interest expense as a discount to the principal balance of the debt.  As of June 30, 2012, we had accrued interest of approximately $72,000.  There are no financial covenants associated with this debt.  As of June 30, 2012, we were in compliance with all nonfinancial covenants.  We incurred $166,000 in debt issue costs in connection with securing the LSA, which we recorded as a noncurrent asset and are amortizing over the life of the loan.

Hercules Technology II, L.P. (HTGC)

In April 2012, we used approximately $5,700,000 of the proceeds from the MidCap LSA to pay off our then outstanding obligation to HTGC, including all outstanding principal, unpaid interest, and prepayment penalties.  As a result of this extinguishment, we also incurred a loss of approximately $309,000, comprised of the remaining outstanding discount to the HTGC principal balance, unamortized debt costs related to the HTGC transaction, and the prepayment penalty. All warrants issued to HTGC remain outstanding and were unaltered as a result of this prepayment.

Fair Value

We estimate the fair value of the principal balance of our debt to be $6,821,000 and $6,774,000 as of June 30, 2012 and December 31, 2011, respectively.  We determined this value by discounting the remaining cash flows of our outstanding debt obligations as of June 30, 2012 and December 31, 2011 using an interest rate of 11.95%, which we estimate is our current rate of borrowing.  As the valuation of our debt includes significant, unobservable inputs, it is classified under Level 3 of the fair value hierarchy.  Significant decreases in interest rates will substantially decrease the overall valuation of our debt, while significant increases in interest rates will substantially increase the overall valuation.

7 – Derivative Financial Instruments

Generally, we do not use derivative financial instruments to hedge exposures to cash flow or market risks.  From time to time, we seek additional funding from debt and equity financing arrangements, which frequently include the issuance of warrants to purchase our common stock.  Occasionally, such warrants contain certain provisions that require derivative classification in our financial statements.

 
9

 
Currently, the only outstanding warrants classified as derivative financial instruments are the Series D warrants, issued in connection with an equity financing that we closed in April, 2011.  Upon issuance of any warrant, we evaluate the terms of the warrant in connection with ASC 815, “Derivatives and Hedging.”  Our Series D warrants contain a provision whereby the exercise price may be reduced upon the occurrence of certain events within our control, such as the future issuance of common stock or rights to purchase common stock at a price below the current exercise price of the Series D warrants.  Accordingly, the Series D warrants are recorded as a derivative liability on our statement of financial position, with subsequent changes to fair value recorded through earnings at each reporting period in our statement of operations as other income (expense). As a noncash item, each subsequent change in fair value is reflected in our statement of cash flows as a noncash adjustment to net loss under operating activities.  Upon exercise of these warrants, the cash inflow will be recorded as a financing activity on our statement of cash flows.  As of June 30, 2012, Series D warrants to purchase 431,250 shares of our common stock have been exercised.

8 – Stock-Based Compensation

We maintain equity compensation plans under which grants of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, stock units and other stock-based awards may be granted to employees, non-employee directors and key advisors.  We have also granted certain awards outside of such equity compensation plans.  Since our inception on August 8, 2002, we have recognized equity compensation expense over the requisite service period using the Black-Scholes-Merton formula to estimate the fair value of stock options.  The following table summarizes the total stock-based compensation expense included in our unaudited condensed consolidated statements of operations (in thousands):

   
Three-Months Ended
June 30,
   
Six-Months Ended
June 30,
   
Period from
August 8, 2002 (Inception) to
 
   
2012
   
2011
   
2012
   
2011
   
June 30, 2012
 
Research and development
  $ 209     $ 247     $ 360     $ 459     $ 4,663  
General and administrative
    400        360       613       694        8,118  
Total stock-based compensation expense
  $ 609     $ 607     $ 973     $ 1,153     $ 12,781  

During the six-months ended June 30, 2012, stock options to purchase 4,508,000 shares of common stock were awarded to employees and non-employee directors at a combined grant date fair value of approximately $3,038,000.  There have been no significant changes to the assumptions used to calculate fair value from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011. As of June 30, 2012, there were approximately 21,439,000 shares of common stock issuable upon exercise of outstanding stock options and approximately 5,154,000 shares of common stock available for issuance of future equity compensation awards in connection with our equity compensation plans.  As of June 30, 2012 there was approximately $4,148,000 of total unrecognized compensation cost related to non-vested stock options, which will be amortized over the weighted average remaining service period.

9 – Stockholders’ Equity
 
Common Stock

We are authorized to issue up to 250,000,000 shares of common stock, with a par value of $0.001, of which 106,791,000 and 105,999,610 were issued and outstanding at June 30, 2012 and December 31, 2011, respectively.
 
Preferred Stock

We are authorized to issue up to 10,000,000 shares of preferred stock, with a par value of $0.001, of which no shares were issued and outstanding at both June 30, 2012 and December 31, 2011.

 
10

 
Warrants

As of June 30, 2012, we had the following warrants outstanding to purchase shares of our common stock (number of shares underlying warrants in thousands):

 Warrant Series
 
Outstanding as of
December 31, 2011
   
Exercise Price
   
Issued
   
Exercised
   
Outstanding as of
June 30, 2012
 
Expiration Date
2007
    2,489     $ 1.10             -       2,489  
December 2012
Series A
    22,285     $ 1.00             (359 )     21,926  
July 2013
Series B
    6,368     $ 1.00             -       6,368  
September 2013
Series C
    6,417     $ 1.25             -       6,417  
November 2014
HTGC
    628     $ 1.16             -       628  
March 2015
Series D
    12,500     $ 0.80             (431 )     12,069  
April 2016
MidCap
    -     $ 1.24       161       -       161  
April 2017
Total
    50,687               161       (790 )     50,058    

All warrants are exercisable beginning five years prior to their expiration date.

In connection with our underwritten offering which closed in April 2011, we issued Series D warrants to purchase 12,500,000 shares of our common stock at an aggregate initial fair value of $4,512,500, which are classified as a derivative liability on our statement of financial position.  See footnote 7 for additional information, and footnote 4 with respect to fair value.

In April 2012, we issued to MidCap a warrant to purchase 161,296 shares of our common stock in connection with the signing of a LSA with MidCap (included in table above). The fair value of this warrant at the time of issuance was $101,000, which was estimated using the Black-Scholes-Merton formula with the following assumptions: no dividends; current stock price of $1.16, strike price of $1.24, risk-free interest rate of 1.01%; estimated life of five years and volatility of 66.54%. This warrant expires on April 4, 2017. As discussed in Note 6, this value was used to determine the relative fair value of the warrants of $100,000, which was recorded to Additional Paid-In Capital.

Equity Line

We had an Investment Agreement (Investment Agreement) with Dutchess Opportunity Fund, II, L.P. (formerly known as Dutchess Equity Fund, L.P.) (Dutchess), pursuant to which Dutchess committed to purchase up to $10,000,000 (but not to exceed 12,000,000 shares) of the Company’s common stock, subject to the terms and conditions of the Investment Agreement.  As of June 30, 2012, we have not issued any shares pursuant to this Investment Agreement.  This Investment Agreement expired in July 2012.

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

You should read the following discussion in conjunction with our Annual Report on  Form 10-K filed with the SEC on March 13, 2012, as well as our unaudited condensed consolidated financial statements and risk factors included in this report on Form 10-Q.

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our financial condition, operations, plans, objectives, goals, business strategies, future events, capital expenditures, future results, our competitive strengths, and the trends in our industry are forward-looking statements. The words “believe,” “may,” “could,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “appear,” “future,” “likely,” “probably,” “suggest,” “goal,” “potential” and similar expressions, as they relate to us, are intended to identify forward-looking statements.

Forward-looking statements reflect only our current expectations. In any forward-looking statement, where we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith as of the date of such statement and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will be achieved or accomplished. Our actual results, performance or achievements could differ materially from those expressed in or inferred from the forward-looking statements due to a number of uncertainties, many of which are unforeseen, including:

 
Ø
the results of our preclinical and clinical trials, including regulatory approvals necessary for advancement and continuation of our development programs;
 
Ø
our ability to attract patients to participate in and third party providers to administer our clinical studies;
 
Ø
our need for, and the availability of, substantial capital in the future to fund our operations and planned clinical trials;
 
Ø
the conditions in the capital markets and the biopharmaceutical industry that may make raising capital or entering into strategic arrangements difficult and expensive;
 
Ø
changes to the regulations or guidance to which we and our product candidates are subject, both in the United States and internationally;
 
Ø
the timing of our product development and evaluation;
 
Ø
the timing and magnitude of expenditures we may incur in connection with our ongoing research and development activities;
 
Ø
the outcome of pending or future legal proceedings, claims, lawsuits or investigations;
 
Ø
our reliance on third party manufacturers and suppliers to produce our compounds in the quantities and quality needed for our clinical trials;
 
Ø
the size of the market opportunity for our product candidates;
 
Ø
the ability of our product candidates to successfully compete against existing and new products made by our competitors;
 
Ø
the success, timing and financial consequences of our formation of new business relationships and alliances; and
 
Ø
the timing and volume of sales of products for which we may obtain marketing approval.

In addition, you should refer to the “Risk Factors” section of this report for a discussion of other factors that may cause our actual results to differ materially from those implied by our forward-looking statements. Because of these factors or others, the forward-looking statements in this report may not prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified period, if at all. Accordingly, you should not place undue reliance on these forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or the persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. We undertake no obligation to update any forward-looking statements, whether resulting from new information, future events or otherwise, except as may be required by applicable law or regulation.

 
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General

We are a clinical stage biotechnology company focused on developing small-molecule drugs for the treatment of serious acute care conditions. Using our proprietary drug discovery platform, we have internally created a pipeline of first-in-class anti-infective agents, as well as other product candidates. Since 2002, we have been a development stage enterprise, and accordingly, our operations have been directed primarily toward conducting research and development activities, including pre-clinical testing and human clinical trials of our product candidates, and developing business strategies, raising capital, and recruiting personnel to support these operations.

We have incurred operating losses since inception, have not generated any product sales revenues and have not achieved profitable operations. Our deficit accumulated during the development stage through June 30, 2012 was approximately $92,206,000, and we expect to continue to incur substantial losses in future periods. None of our product candidates has received regulatory approval for commercial sale and our product candidates may never be commercialized. In addition, all of our product candidates are in the early stages of development and several programs are on hold pending additional financing. Our development programs require a significant amount of cash to support the development of product candidates. The progress and results of our current and any future clinical trials or future pre-clinical testing are uncertain, and if our product candidates do not receive regulatory approvals, our business, operating results, financial condition and cash flows will be materially adversely affected.

We are highly dependent on the success of our research and development efforts and, ultimately, upon regulatory approval and market acceptance of our products under development.  Our short and long-term capital requirements depend upon a variety of factors, including the timing and results of our clinical trials, our ability to enter into, and realize the benefits from, strategic partnerships, regulatory and market acceptance of our product candidates, and various other factors, such as overall and sector-specific market conditions. Under our current operating plan, which includes a planned Phase 2B study for brilacidin, we believe that our current cash and investment balances as of the date of this report will not be sufficient to fund our operations for the next 12 months.  We plan to seek additional funds through equity or debt financings, strategic alliances, or other sources.  However, we may not be able to obtain additional funding on favorable terms, if at all.  If we are unable to secure adequate additional funding, we may delay, scale-back or eliminate certain of our planned research, drug discovery and development activities and certain other aspects of our operations and our business until such time as we are successful in securing adequate additional funding.  As a result, our business, operating results, financial condition and cash flows may be materially and adversely affected.  Our ability to advance the clinical development of our drug candidates and ultimately seek regulatory approval depends upon our ability to meet the regulatory requirements and adhere to the guidance of the United States Food and Drug Administration (FDA) and other regulatory authorities on an ongoing basis, which may develop and change over time and are subject to interpretation by such regulatory authorities. Any changes in regulatory requirements or guidance may have significant impacts on the timing and cost of clinical trials, and our ability to complete such trials, if at all.

Brilacidin

The intravenous formulation of our lead product candidate, brilacidin (formerly PMX-30063), is an antibiotic intended for the treatment of acute bacterial skin and skin structure infections (ABSSSI) caused by either drug-sensitive or drug-resistant strains of Staphylococcus aureus bacteria. In the future, we intend to expand its development to potentially include other infections, bacterial strains, routes of administration, and indications, including an oral topical formulation for the treatment of cancer oral mucositis.

 
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ABSSSI

In April 2012, we completed and announced positive results from a Phase 2A clinical trial with brilacidin.  This randomized, blinded, active-controlled, multinational Phase 2A clinical trial was conducted at multiple sites in Canada, Russia and Ukraine.  The study objectives were to evaluate the safety and efficacy of brilacidin as treatment for ABSSSI caused by Staphylococcus aureus, including methicillin-resistant Staphylococcus aureus (MRSA).  The study objectives were met, with all evaluated doses of brilacidin demonstrating similar clinical response rates to those of the active control, daptomycin.  The study was conducted in accordance with FDAs most recent ABSSSI guidelines and is intended to support regulatory approval in the United States.  As expected, and consistent with previous clinical studies, patients receiving brilacidin commonly reported sensations of numbness and tingling that were generally characterized as mild and resolved following treatment. No patient stopped treatment as a result of these sensations. Other treatment-related adverse events included hypertension, injection site pain, nausea, vomiting, vertigo, and pyrexia. There was one treatment-related serious adverse event that was at least possibly drug-related reported in each brilacidin study arm. Treatment-related serious adverse events included an instance of hypertension in the medium and high dose regimens, which discontinued therapy, and an instance of increased platelets in the low dose regimen.

Provided we have adequate financing in place and receive positive feedback from FDA, a Phase 2B study is expected to commence during the second half of 2012, with results expected in the first half of 2013.  We expect that the direct development costs to conduct this Phase 2B clinical study for brilacidin will be in the range of $4 million to $7 million.  If we have regulatory clearance to proceed with the Phase 2B study, but do not have adequate cash resources to fund the study as planned, we may scale back or delay starting the Phase 2B study until adequate additional cash resources are secured. We will incur substantial costs and need to conduct additional studies beyond the planned Phase 2B clinical trial in order to file a New Drug Application (NDA) for brilacidin.  The nature, design, size and cost of further studies will depend in large part on the outcome of preceding studies and discussions with regulators.

In our Phase 2B study, we presently plan to study shorter dosing regimens of brilacidin.  Based on analysis of data, we believe brilacidin may be safe and effective as a single dose.  We presently plan to study single dose regimen in the Phase 2B study.  In addition, we also presently plan to study a regimen delivering 0.4 mg/kg once daily for three days.  We are conducting pharmacokinetic and pharmacodynamics analyses to determine final dosing regimens for the next clinical study.  The final results may change our present plans for dosing in the Phase 2B study.

Oral Mucositis

In animal models of oral mucositis, an oral rinse containing brilacidin was shown to reduce the occurrence of severe ulcerative oral mucositis by more than 90% compared to placebo.  Brilacidin and related compounds have shown antibacterial, anti-biofilm and anti-inflammatory properties.  It is believed that the combination of these attributes contribute to the efficacy of brilacidin in these animal models.

We are currently conducting enabling work to file an investigational new drug application (IND) with FDA for this indication. Depending on the outcome of discussions with regulators and with adequate additional funding, a clinical trial in cancer patients may commence during the first half of 2013.
 
Delparantag

Delparantag (formerly PMX-60056) is a synthetic, small-molecule intended to reverse the effects of the commonly used anticoagulants unfractionated heparin (UFH), and its derivatives, low molecular weight heparins (LMWH), to help manage the balance of antithrombosis and anticoagulation and reduce the incidence of bleeding in certain interventional cardiology procedures, such as Percutaneous Coronary Intervention (PCI) and Coronary Arterial Bypass Grafting (CABG), and other situations where UFH and LMWH are used and bleeding may occur.

 
14

 
In May 2012, we announced that we had stopped enrollment in two clinical trials for delparantag: a Phase 2 clinical trial for reversing the anticoagulant activity of UFH in patients undergoing PCI procedures, and a Phase 1B/2 clinical trial for reversing the anticoagulant activity of the LMWH enoxaparin in healthy volunteers.  While delparantag showed activity in neutralizing both UFH and the LMWH enoxaparin in these clinical trials, we decided to stop enrollment in both trials due to observations of reductions in blood pressure in some patients.  We believe these side effects may be addressed by administration of delparantag in a larger volume and/or over a longer infusion time. Because of our limited financial resources and current capital market conditions, we made the strategic decision not to incur additional expenses relating to the delparantag program, but instead seek a strategic partner to resume development.  This strategic approach enables us to direct our development efforts and resources on brilacidin and our core strategic antimicrobial focus.  We believe delparantag continues to have potential for development as an anticoagulant reversing agent.

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of the changes in our results of operations from the three- and six-months ended June 30, 2012 and 2011, and in our financial condition as of June 30, 2012 and December 31, 2011.
 
Critical Accounting Policies and Practices
 
The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to adopt critical accounting policies and to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. These critical accounting policies and estimates have been reviewed by the audit committee of our board of directors. The principal items in our condensed consolidated financial statements reflecting critical accounting policies or requiring significant estimates and judgments are as follows:
 
Stock-based compensation
 
Since inception, we have used the Black-Scholes-Merton formula to estimate the fair value of stock options and warrants and have elected to continue to estimate the fair value of stock options and warrants using the Black-Scholes-Merton formula. The volatility and expected term assumptions have the most significant effect on the results obtained from the Black-Scholes-Merton formula.  As noted in our Annual Report on Form 10-K for the year ended December 31, 2011, we have to date assumed that stock options have an expected life of five years, representing about half of their contractual life, and assumed Common Stock volatility of between 41% and 75%.  Warrants have an initial expected life of five years, equal to their contractual life, with adjustments made each reporting period for certain warrants requiring mark-to-market treatment.  Higher estimates of volatility and expected life of the option or warrant increase the value of an option or warrant and the resulting expense.  Given the absence of an active market for our Common Stock in prior periods, the fair value of our Common Stock has periodically been estimated using several criteria, including progress and milestones achieved in our research activities along with the price per share of our Preferred and Common Stock offerings.
 
Results of Operations

Grant and contract revenues were $499,000 and $1,104,000 for the three- and six-month periods ended June 30, 2012, respectively, compared to $334,000 and $1,133,000 for the three- and six-month periods ended June 30, 2011.  Over all periods, we had the same four research grants and contracts outstanding.  The increase in the quarter-to-date revenue is attributable to the timing of certain subcontract costs under our existing research grants and contracts.  Year-to-date revenue remained flat.

Research and development expenses were $3,441,000 and $8,005,000 for the three- and six-month periods ended June 30, 2012, respectively, compared to $2,674,000 and $5,317,000 for the three- and six-month periods ended June 30, 2011, respectively.  The quarter-to-date increase is due primarily to increases in drug development costs for brilacidin in relation to the completion of a Phase 2A trial that was ongoing during the second quarter of 2012, and preparation for a planned Phase 2B trial to commence in the second half of 2012.  The year-to-date increase is related primarily to clinical trials that had not been fully underway during the first quarter of 2011, but which were completed during or were ongoing throughout the first half of 2012.
 
Our research and development expenses include $1,242,000, and $3,316,000 of direct research and development costs for brilacidin for the three- and six-month periods ended June 30, 2012, respectively, $656,000 and $4,643,000 for the three- and six-month periods ended June 30, 2011, respectively, $24,416,000 for the period from August 8, 2002 (Inception) to June 30, 2012.  While we do not specifically track indirect costs and general and administrative expenses by product candidate, most of these costs and expenses have been incurred in support of this lead product candidate.

 
15

 
General and administrative expenses were $1,955,000 and $3,832,000 for the three- and six-month periods ended June 30, 2012, respectively, compared to $1,900,000 and $3,387,000 for the three- and six-month periods ended June 30, 2011, respectively.  General and administrative expenses remained relatively flat in both periods.
 
Interest income was $13,000 and $28,000 for the three- and six-month periods ended June 30, 2012, respectively, compared to $26,000 and $44,000 for the three- and six-month periods ended June 30, 2011, respectively, and fluctuated consistently with decreasing cash balances.
 
Interest expense was $238,000 and $462,000 for the three- and six-month periods ended June 30, 2012, respectively, compared to $302,000 and $625,000 for the three- and six-month periods ended June 30, 2011, respectively.  This decrease in both periods is due to decreased outstanding debt and interest rates.

Gain (Loss) on derivative instruments was $7,491,000 and $3,404,000 for the three- and six-month periods ended June 30, 2012, respectively, compared to ($700,000) for both the three- and six-month periods ended June 30, 2011, respectively.  In connection with our Series D warrants classified as a derivative liability, the warrants are adjusted for changes in fair value at each reporting period, and such changes are recorded through earnings.  Due to decreases in our stock price in both periods, the fair value decreased resulting in a non-cash gain and decrease in the derivative liability.

Loss on extinguishment of debt was $309,000 for the three- and six-month periods ended June 30, 2012 compared to $0 for the three and six-month periods ended June 30, 2011.  In April 2012, we paid off our then outstanding credit facility with Hercules Technology II, L.P. (HTGC) with proceeds from a new debt facility with MidCap Financial SBIC, L.P. (MidCap). This amount represents the losses incurred in connection with the extinguishment of the original credit facility.
 
Historical Cash Flows
 
Operating Activities. Cash used in operating activities was $9,654,000 and $8,105,000 for the six-month periods ended June 30, 2012 and 2011, respectively.  This increase was driven primarily by an increase in our operational cash outflows related to our completed and ongoing clinical trials.
 
Investing Activities. Cash used in investing activities primarily represents cash paid for the purchase of capital assets and investments offset by the proceeds from the maturity and sale of such assets and investments.  During the six-month periods ended June 30, 2012 and 2011, we paid $15,000 and $8,000, respectively, for the purchase of lab equipment.
 
Financing Activities. To date, we have financed our operating and investing activities primarily from the proceeds from the sale of equity securities and issuance of debt. During the six-month period ended June 30, 2012, we paid down approximately $7,963,000 in principal on our long-term debt, and received proceeds of approximately $7,919,000 from a new credit facility.  We also received proceeds of approximately $704,000 from the exercise of outstanding warrants.  During the six-month period ended June 30, 2011, we paid down approximately $1,570,000 in principal on our long-term debt, and received approximately $18,617,000 in proceeds associated with our April 2011 equity financing.
 
Financial Condition, Liquidity and Capital Resources
 
In April 2012, we entered into a loan and security agreement with MidCap for initial gross proceeds of $8,000,000.  Approximately $5,700,000 of the proceeds was used to pay off our credit facility with HTGC.  In June 2012, we entered into a first amendment to the loan and security agreement with MidCap and repaid $1,200,000 in principal, reducing our outstanding principal balance to $6,800,000.  In April 2011, we completed an underwritten registered offering for gross proceeds of $20,000,000.  Proceeds from these financing activities have been used to fund our clinical development of brilacidin and delparantag, and will be used to fund our continued clinical development of brilacidin, and for general corporate purposes.  Under our current operating plan, which includes a planned Phase 2B study for brilacidin, we believe that our current cash and investment balances as of the date of this report will not be sufficient to fund our operations for the next 12 months.  We may seek additional funds through equity or debt financings, among other sources, or through government grants and contracts. However, we may not be able to obtain additional funding on favorable terms, if at all. If we are unable to secure adequate additional funding in the future, we may delay, scale-back or eliminate certain of our planned research, drug discovery and development activities and certain other aspects of our operations and our business until such time as we are successful in securing adequate additional funding. As a result, our business may be materially and adversely affected.
 
 
16

 
As of June 30, 2012 and December 31, 2011, we had cash and investment balances of approximately $12,345,000 and $21,354,000, respectively, and total liabilities of approximately $13,808,000 and $17,267,000, respectively.  The decrease in our cash and investment balances from December 31, 2011 to June 30, 2012 was primarily attributable to payment of costs related to our completed Phase 2A clinical trial for brilacidin and costs in preparation of our Phase 2B clinical trial for brilacidin which is planned to commence later this year. The decrease in our total liabilities was primarily attributable to the non-cash mark-to-market adjustment on our Series D warrants classified as a derivative liability.

We are a development stage company and have not experienced significant revenue generating activities since our formation.  We have incurred operating losses for each year since our inception in 2002. To achieve operating profits, we, alone or with others, must successfully identify, develop and market product candidates.
 
We are subject to many risks associated with development-stage businesses, including risks associated with the ability to raise capital. Please see the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q for more information regarding risks associated with our business.
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Interest Rates

Our investment assets consist solely of certificates of deposit with a financial institution. The interest rates are fixed over the duration of the certificate, and are backed by the full faith and credit of the financial institution. We intend to hold such certificates to maturity at which time the certificate will be redeemed at face value, and all accrued interest will be paid. Due to the backing of the financial institution, we do not believe that we have a material exposure to interest rate risk related to our investment portfolio.

Our long-term debt no longer carries a variable interest rate.  Accordingly, we do not believe that we have a material exposure to interest rate risk related to our long-term debt.

Item 4.  Controls and Procedures.
 
Conclusions regarding disclosure controls and procedures. An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) or 15d-15(e) promulgated under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, and also accumulated and communicated to our management, including the CEO and CFO, to allow timely decisions regarding required disclosure as specified in SEC rules and forms.
 
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 
17

 
PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On July 2, 2012, a putative class action was filed against us, and our chief executive officer, chief financial officer, and a former officer.  The action was filed in the United States District Court for the Eastern District of Pennsylvania, purportedly on behalf of a class of our investors who purchased our publicly traded securities between March 7, 2011 and May 10, 2012.  The complaint in this action generally alleges violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act in connection with various public statements made by us.  We believe these allegations to be without merit and intend to vigorously defend this action.  The potential impact of this action, which seeks unspecified damages, attorneys’ fees and expenses, is uncertain.
 
Item 1A. Risk Factors

Risks Related to Our Business

We have incurred losses since inception and anticipate that we will continue to incur losses for the foreseeable future.

We are a development stage company with a limited operating history.  As of June 30, 2012, we had an accumulated deficit of approximately $92,206,000.  We expect to continue to incur significant and increasing operating losses, in the aggregate and on a per share basis, for the foreseeable future.  These losses, among other things, have had and will continue to have an adverse effect on our results of operations, financial condition, stockholders’ equity, net current assets and working capital.

Because of the numerous risks and uncertainties associated with developing new drugs, we are unable to predict the extent of any future losses or when we will become profitable, if at all.  We have no products available for commercial sale, and, to date, we have not generated any product revenue.  We have financed our operations and internal growth primarily through equity and debt financings.  We have devoted substantially all of our efforts to research and development, including current Good Manufacturing Practices (cGMP) manufacturing and current Good Laboratory Practices (cGLP) compliant toxicology, safety pharmacology, genotoxicity studies and clinical studies for our lead clinical product candidates.

If we are unable to meet our needs for additional funding in the future, we will be required to limit, scale back or cease operations.

We do not have the funding resources necessary to carry out all of our proposed operating activities.  We will need to obtain additional financing in the future in order to fully fund these product candidates through the regulatory approval process. Costs of our proposed activities unrelated to our two lead product candidates would be in addition to these estimates.
 
Under our current operating plan, which includes a planned Phase 2B study for brilacidin, we believe that our current cash and investment balances as of the date of this report will not be sufficient to fund our operations for the next 12 months.  We plan to seek additional funds through equity or debt financings, strategic alliances, or other sources.  However, we may not be able to obtain additional funding on favorable terms, if at all.  If we are unable to secure adequate additional funding, we may delay, scale-back or eliminate certain of our planned research, drug discovery and development activities and certain other aspects of our operations and our business until such time as we are successful in securing adequate additional funding.  As a result, our business, operating results, financial condition and cash flows may be materially and adversely affected.
 
We expect that the direct development costs to conduct a Phase 2B clinical study for brilacidin will be in the range of $4 million to $7 million.  We will incur substantial costs beyond the present and planned Phase 2 trials in order to file a New Drug Application (NDA) for brilacidin.  The nature, design, size and cost of further studies will depend in large part on the outcome of preceding studies and discussions with regulators.
 
 
18

 
Our future capital requirements will depend on many factors, including:
 
Ø
the timing and success of our clinical trials for brilacidin;
 
Ø
continued progress of and increased spending related to our research and development activities, including our plan to hire additional research and development employees;
 
Ø
the conditions in the capital markets and the biopharmaceutical industry that make raising capital or entering into strategic arrangements difficult and expensive;
 
Ø
progress with preclinical experiments and clinical trials, including regulatory approvals necessary for advancement and continuation of our development programs;
 
Ø
changes in regulatory requirements and guidance of the FDA and other regulatory authorities, which may require additional clinical trials to evaluate safety and/or efficacy, and thus have significant impacts on our timelines, cost projections, and financial requirements;
 
Ø
ongoing general and administrative expenses related to our being a reporting company;
 
Ø
the cost, timing, and results of regulatory reviews and approvals;
 
Ø
the costs of pending or future legal proceedings, claims, lawsuits and investigations;
 
Ø
the success, timing, and financial consequences of any future collaborative, licensing and other arrangements that we may establish;
 
Ø
the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
 
Ø
the costs of commercializing any of our other product candidates;
 
Ø
technological and market developments;
 
Ø
the cost of manufacturing development; and
 
Ø
timing and volume of sales of products for which we obtain marketing approval.
 
These factors could result in variations from our projected operating and liquidity requirements.  Additional funds may not be available when needed, or, if available, we may not be able to obtain such funds on terms acceptable to us.  If adequate funds are unavailable, we may be required, among other things, to:
 
Ø
delay, reduce the scope of or eliminate one or more of our research or development programs;
 
Ø
license rights to technologies, product candidates or products at an earlier stage than otherwise would be desirable or on terms that are less favorable to us than might otherwise be available;
 
Ø
obtain funds through arrangements that may require us to relinquish rights to product candidates or products that we would otherwise seek to develop or commercialize by ourselves; or
 
Ø
cease operations.
 
Funding, especially on terms acceptable to us, may not be available to meet our future capital needs because of the state of the credit and capital markets.

Global market and economic conditions have been, and continue to be, disruptive and volatile. The debt and equity capital markets have been impacted by significant write-offs in the financial services sector and the re-pricing of credit risk in the broadly syndicated market, among other things. These events have negatively affected general economic conditions and it is uncertain when the credit and capital markets will stabilize or improve.

 
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In particular, the cost of raising money in the debt and equity capital markets has increased substantially while the availability of funds from those markets has diminished significantly. Also, as a result of concern about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets has increased as many lenders and institutional investors have increased interest rates, enacted tighter lending standards and reduced and, in some cases, ceased to provide funding to borrowers. Low valuations and decreased appetite for equity investments, among other factors, may make the equity markets difficult to access on acceptable terms or unavailable altogether.

If funding is not available when needed, or is available only on unfavorable terms, meeting our capital needs or otherwise taking advantage of business opportunities may become challenging, which could have a material adverse effect on our business plans.
 
We have pledged substantially all of our assets, other than our intellectual property, as collateral to secure certain credit facilities and have provided the lenders with remedies in the event of a default, including the ability to collect and liquidate the collateral.
 
We have $6,800,000 outstanding on our credit facility with MidCap and a $1,000,000 letter of credit agreement to secure our payment obligations under our facility operating lease. We may renew or extend these credit facilities or establish similar credit facilities in the future. Under our current operating plan, which includes a planned Phase 2B study for brilacidin, we believe that our current cash and investment balances as of the date of this report will not be sufficient to fund our operations for the next 12 months.  If we do not make required payments to our secured creditors or otherwise experience an event of default, our secured creditors may exercise all remedies available to them under the applicable credit agreements and applicable law, including acceleration of our obligations to them and the collection and liquidation of the collateral. While we have not pledged our intellectual property as collateral, we have pledged the rights to any payments and proceeds from the sale, licensing or disposition of all or any part of our intellectual property.
 
Development of our product candidates is a lengthy, expensive and uncertain process that requires investment of substantial amounts of time and money that may not yield viable products, which may cause our business and results of operations to suffer.
 
We face the risks of failure inherent in developing drugs based on new technologies and particularly those with novel mechanisms of action. Product candidates with novel mechanisms of action may receive increased scrutiny by the FDA and other regulatory bodies due to the greater uncertainty and questions regarding potential novel toxicities, which could result in requirements for additional safety and other studies, which, if required, would increase the time and cost of development. None of our product candidates have received regulatory approval for commercial sale and our product candidates may never be commercialized. In addition, all of our product candidates are in the early stages of development and certain of our programs are on hold until we are able to obtain and allocate sufficient resources, including financing. The progress and results of any ongoing or future clinical trials or future pre-clinical testing are uncertain, and if our product candidates do not receive regulatory approvals, our business, operating results, financial condition and cash flows will be materially adversely affected. Our product candidates are not expected to be commercially available for several years, if at all.
 
Our development programs require a significant amount of cash to support the development of product candidates.  We will need to obtain additional financing in the future. We may not be able to obtain such additional financing on terms acceptable to us or at all.
 
In addition, a number of potential drugs, including drugs intended to be utilized for similar indications as our product candidates, have shown promising results in early studies, but failed in subsequent clinical trials and/or failed to obtain necessary regulatory approvals. Data obtained from such studies are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. Regulatory authorities may refuse or delay approval as a result of many other factors, including changes in regulatory policy during the period of product development.
 
 
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The FDA has been actively working to revise certain of its guidance and in August 2010 issued draft guidance for clinical trial conduct, evaluation, clinical endpoints, and requirements for regulatory approval for antibiotic product candidates intended for use in acute bacterial infections, including acute bacterial skin and skin structure infections (ABSSSI), which has been the intended first clinical indication for brilacidin.  Based on the potential impacts of revised final FDA guidance, there may be delays in the conduct of clinical trials in the United States.  Furthermore, there has not been a new product candidate for heparin reversal considered by the FDA in recent years, and there has never to date been a product candidate for reversal of LMWH considered by the FDA.  The FDA and/or other foreign regulatory authorities may in the future request clinical trial parameters that result in clinical trials that are too expensive or too difficult to demonstrate pharmacoeconomic and therapeutic benefits compared to current therapy. As a result, our present plans for clinical development, including the cost and timing for development of our product candidates, may ultimately be substantially different than our present expectations, and there is no way of predicting what impacts on our timelines, cost projections, and clinical trials requirements may result from these changes in policy, requirements, standards, and guidance of the FDA and other regulatory authorities.
 
Completion of clinical trials may take many years. The length of time required varies substantially according to the type, complexity, novelty and intended use of the product candidate. The FDA and/or other foreign regulatory authorities monitor the progress of each phase of testing, and may require the modification, suspension, or termination of a trial if it is determined to present excessive risks to patients. The clinical trial process may also be accompanied by substantial delay and expense and the data generated in these studies ultimately may not be sufficient for marketing approval by the FDA and/or other foreign regulatory authorities. Our rate of commencement and completion of clinical trials may be delayed by many factors, including:
 
Ø
our inability to manufacture or obtain sufficient quantities of materials for use in clinical trials;
 
Ø
variability in the number and types of patients available for each study;
 
Ø
difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
 
Ø
safety issues or side effects;
 
Ø
poor or unanticipated effectiveness of products during the clinical trials;
 
Ø
government or regulatory delays; and/or
 
Ø
changes in regulatory requirements and guidance of the FDA and other regulatory authorities, which may require additional clinical trials to evaluate safety and/or efficacy, and thus have significant impacts on our timelines, cost projections, and financial requirements.
 
Notwithstanding our efforts during the application process and the submission of any requested additional information, the FDA and/or other foreign regulatory authorities ultimately may decide that the application does not satisfy the regulatory criteria for approval and refuse to approve the application.  Furthermore, the FDA and/or other foreign regulatory authorities may prevent us from marketing a product candidate under a label for its desired indications or place other conditions, including restrictive labeling, on distribution as a condition of any approvals, which may impair commercialization of the product.
 
We are a development stage company, which makes it difficult to evaluate our existing business and business prospects and increases the risk that the value of any investment in our company may decline.
 
We are a development stage company and to date, our only revenues have been from research grants and contracts.  We will not be able to generate revenue from product sales or royalties unless and until we receive regulatory approval and begin commercialization of our product candidates or otherwise out license our compounds.  We are not certain of when, if ever, that will occur.  Although we intend to introduce products, we may not do so.  Because the expected markets for our products are not established, uncertain and evolving, and because we are a development stage company, it is difficult to assess or predict the growth rate, if any, and the size of this market.  We may not develop additional product candidates or be able to introduce products, a market for our products may not develop, and/or our products may not achieve market acceptance.
 
 
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If our product candidates are not demonstrated to be sufficiently safe and effective in clinical trials, they will not receive regulatory approval and we will be unable to commercialize them and our business and results of operations will suffer.
 
Our product candidates must satisfy rigorous standards of safety and efficacy before they can be approved by the FDA and/or other foreign regulatory authorities for commercial use.  The FDA and foreign regulatory authorities have full discretion over this approval process.  We will need to conduct significant additional research, involving testing in animals and in humans, before we can file applications for product approval.  Typically, in the pharmaceutical industry there is a high rate of attrition for product candidates in pre-clinical testing and clinical trials.  Also, satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources.  Success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful.  For example, a number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials and in interim analyses.  In addition, delays or rejections may be encountered based upon additional government regulation, including any changes in regulatory policy, during the process of product development, clinical trials and regulatory approvals.
 
If we are not able to retain our current management and advisory team and attract and retain qualified scientific, technical and business personnel, our business will suffer.
 
We are highly dependent on our executive officers and other key management and technical personnel, including Nicholas Landekic, Daniel M. Jorgensen, MD, MPH, Richard Scott, Ph.D., and Edward Smith.  The loss of any of them could have a material adverse effect on our future operations.  We do not maintain “key person” life insurance policies on any of our personnel.
 
Our success is also dependent on our ability to attract, retain and motivate highly trained technical, marketing, sales and management personnel for the development, maintenance and expansion of our activities.  We may not be able to retain our existing personnel or attract additional qualified employees.  The loss of key personnel or the inability to hire and retain additional qualified personnel in the future could have a material adverse effect on our business, financial condition and results of operation.
 
Even if regulatory authorities approve our product candidates, they may not be commercially successful.
 
Our product candidates may not be commercially successful because physicians, government agencies and other third party payors may not accept them, or the potential markets may prove smaller than we estimate.  Third parties may develop superior products or have proprietary rights that preclude us from marketing our products.  We also expect that most of our product candidates will be very expensive, if approved.  If we do obtain regulatory approval for any of our product candidates, we will need to achieve patient acceptance and demand in order to be commercially successful.  Patient acceptance of and demand for any product candidates will depend upon many factors, including but not limited to, the extent, if any, of reimbursement of drug and treatment costs by government agencies and other third party payers, pricing, the safety and effectiveness of alternative products, and the prevalence and severity of side effects associated with our products.  If we are unable to demonstrate pharmacoeconomic and therapeutic benefits, we will not achieve product acceptance and sufficient demand, and our operating results and financial condition will be materially adversely affected.
 
We do not have sales, marketing or distribution capabilities.  If we fail to effectively sell, market and distribute any product candidate for which we receive regulatory approval, our business and results of operations will suffer.
 
If we are unable to create sales, marketing and distribution capabilities or enter into agreements with third parties to perform these functions, we will not be able to successfully commercialize any of our product candidates that may receive regulatory approval in the future.  We have no sales, marketing or distribution capabilities.  In order to successfully commercialize any of our product candidates, we must either internally develop sales, marketing and distribution capabilities or make arrangements with third parties to perform these services.
 
 
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If we do not develop a marketing and sales force with technical expertise and supporting distribution capabilities, we will be unable to market any of our products directly.  To promote any of our products through third parties, we will have to locate acceptable third parties for these functions and enter into agreements with them on acceptable terms and we may not be able to do so.  In addition, any third-party arrangements we are able to enter into may result in lower revenues than we could have achieved by directly marketing and selling our products.
 
We may suffer losses from product liability claims.
 
Any of our product candidates could cause adverse events to patients, such as immunologic or allergic reactions.  These reactions may not be observed in clinical trials, but may nonetheless occur after commercialization.  If any of these reactions occur, they may render our product candidates ineffective in some patients and our sales would suffer.
 
We may be susceptible to product liability lawsuits from events arising out of the use of product candidates in clinical studies.  If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of any products or product candidates.  Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing, marketing and sale of pharmaceutical products.  We may not be able to avoid product liability claims. Product liability insurance for the pharmaceutical and biotechnology industries is generally expensive, if available at all.  If we are unable to protect against potential product liability claims, we may be unable to commercialize our product candidates.  A successful product liability claim brought against us in excess of our insurance coverage may cause us to incur substantial liabilities and, as a result, our business may be negatively impacted or fail.
 
Due to our reliance on third party manufacturers, suppliers and research organizations, we may be unable to implement our manufacturing, supply and clinical operations strategies, which would materially harm our business.
 
If our current and future licensing, manufacturing and supply strategies are unsuccessful, then we may be unable to complete any preclinical or clinical trials and/or commercialize our product candidates in a timely manner, if at all.  Completion of any preclinical or clinical trials and/or commercialization of our product candidates will require access to, or development of, facilities to manufacture a sufficient supply of our product candidates, or the ability to license them to other companies to perform these functions.  We do not have the resources, facilities or experience to manufacture our product candidates on our own and do not intend to develop or acquire facilities for the manufacture of product candidates for pre-clinical trials, clinical trials or commercial purposes in the foreseeable future.  We intend to continue to license technology and/or rely on contract manufacturers to produce sufficient quantities of our product candidates necessary for any pre-clinical or clinical testing we undertake.  Such contract manufacturers may be the sole source of production and may have limited experience at manufacturing, formulating, analyzing, filling and finishing our types of product candidates.
 
We also intend to rely on third parties to supply the components that we will need to develop, test and commercialize all of our product candidates.  There may be a limited supply of these components.  We might not be able to enter into agreements that assure us of the availability of such components in the future from any supplier.  Our potential suppliers may not be able to adequately supply us with the components necessary to successfully conduct our pre-clinical and clinical trials and/or to commercialize our product candidates.  If we cannot acquire an acceptable supply of components to produce our product candidates, we will not be able to complete pre-clinical and clinical trials and will not be able to commercialize our product candidates.
 
In addition, we rely on contract research organizations in conducting clinical trials for our product candidates.  We do not have the resources, facilities or experience to conduct clinical studies for our product candidates on our own and do not intend to develop or acquire such resources, facilities or experience in the foreseeable future.  The quality, cost and timing of work performed by our contracted contract research organizations has a significant impact on our clinical programs and our business.
 
 
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If we make technology or product acquisitions, we may incur a number of costs, may have integration difficulties and may experience other risks that could harm our business and results of operations.
 
We may acquire and/or license additional product candidates and/or technologies in the future.  Any product candidate or technology we license or acquire will likely require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities, if any.  All product candidates are prone to risks of failure inherent in biotechnology product development, including the possibility that the product candidate or product developed based on licensed technology will not be shown to be sufficiently safe and effective for approval by regulatory authorities.  In addition, we cannot assure you that any product candidate that we develop based on acquired or licensed technology that is granted regulatory approval will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace.  Moreover, integrating any newly acquired product could be expensive and time-consuming.  If we cannot effectively manage these aspects of our business strategy, our business may be negatively impacted or fail.
 
Furthermore, proposing, negotiating and implementing an economically viable acquisition or license can be a lengthy, costly and complex process.  Other companies, including those with substantially greater financial, marketing and sales resources, may compete with us for the acquisition or license of product candidates and/or technologies.  We may not be able to acquire the rights to alternative product candidates and/or technologies on terms that we find acceptable, or at all.  Our failure to acquire or license alternative products and/or technologies could have a material adverse effect on our business, prospects and financial condition.
 
Failure to effectively manage our growth may have a material adverse effect on our business, results of operations and financial condition.
 
In April 2011 and 2012, we obtained additional debt and equity financing to fund the continued clinical development of our lead drug candidate, brilacidin. As a result, we have begun to expand our operations, including hiring of additional personnel. However, we may not be able to effectively grow and expand our business. Successful implementation of our business plan will require management of growth, which will result in an increase in the level of responsibility for management personnel. To manage growth effectively, we will be required to continue to implement and improve our operating and financial systems and controls to expand, train and manage our employee base. The management, systems and controls in place or to be implemented may not be adequate for such growth, and the steps taken to hire personnel and to improve such systems and controls might not be sufficient. If we are unable to manage our growth effectively, it will have a material adverse effect on our business, results of operations and financial condition.
 
Our executive officers and directors have the ability to significantly influence matters submitted to our stockholders for approval.
 
As of June 30, 2012, our executive officers and directors, in the aggregate, beneficially owned shares representing approximately 13% of our common stock.  Beneficial ownership includes shares over which an individual or entity has investment or voting power and includes shares that could be issued upon the exercise of options and warrants within 60 days after the date of determination.  On matters submitted to our stockholders for approval, holders of our common stock are entitled to one vote per share.  If our executive officers and directors choose to act together, they would have significant influence over all matters submitted to our stockholders for approval, as well as our management and affairs.  For example, these individuals, if they chose to act together, would have significant influence on the election of directors, and other matters submitted to stockholder vote, including any approval of any merger, consolidation or sale of all or substantially all of our assets.  This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire.
 
 
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Risks Related to our Intellectual Property
 
The obstacles to procurement and enforcement of our intellectual property and proprietary rights could harm our competitive position by allowing competitors access to our proprietary technology and to introduce competing products.
 
We regard our product candidates as proprietary and rely primarily on a combination of patents, trademarks, copyrights, and trade secrets and other methods to protect our proprietary rights.  We maintain confidentiality agreements with our employees, consultants and current and potential affiliates, customers and business partners.
 
If we fail to secure and then enforce patents and other intellectual property rights underlying our product candidates and technologies, we may be unable to compete effectively.  The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes.  Our success will depend, in part, on our ability, and the ability of our licensors, to obtain and to keep protection for our products and technologies under the patent laws of the U.S. and other countries, so that we can stop others from using our inventions.  Our success also will depend on our ability to prevent others from using our trade secrets.
 
Our pending U.S. and foreign patent applications may not result in the issuance of patents to us or may not result in the issuance of patents that will be advantageous to us.  If we do not receive patents for these applications or do not receive adequate protections, our developments will not have any proprietary protection and other entities will be able to make the products and compete with us.  Also, any patents we have obtained or do obtain may be challenged by reexamination, opposition or other administrative proceeding, or may be challenged in litigation, and such challenges could result in a determination that the patent is invalid or unenforceable.  In addition, competitors may be able to design alternative methods or devices that avoid infringement of our patents.  To the extent our intellectual property protection offers inadequate protection, or is found to be invalid, we are exposed to a greater risk of direct competition.  Both the patent application process and the process of managing patent disputes can be time consuming and expensive and may require significant time and attention from our management.  Furthermore, the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States.
 
In addition, the standards that the United States Patent and Trademark Office, (U.S. PTO), uses to grant patents can change.  Consequently, we may be unable to determine the type and extent of patent claims that will be issued to us or to our licensors in the future, if any patent claims are issued at all.  In addition, if the U.S. PTO and/or other patent offices where we file our patent applications increase the fees associated with filing and prosecuting patent applications we would incur higher expenses and our intellectual property strategy could be adversely affected.
 
The confidentiality agreements we require of our employees and those which we enter into with other parties may not provide adequate protection for our trade secrets, know-how or other confidential information or prevent any unauthorized use or disclosure or the unlawful development by others.  If any of our confidential intellectual property is disclosed, our business may suffer.  Such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure.  Monitoring unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate.
 
We may have to engage in costly litigation to enforce or protect our proprietary technology, which may harm our business, results of operations, financial condition and cash flows.
 
The pharmaceutical field is characterized by a large number of patent filings involving complex legal and factual questions, and, therefore, we cannot predict with certainty whether any patents or in-licensed patents will be enforceable.  Additionally, we may not be aware of all of the patents potentially adverse to our interests that may have been issued to others.  Should third parties file patent applications, or be issued patents, claiming technology also claimed by us in pending applications, we may be required to participate in interference proceedings in the U.S. PTO to determine priority of invention.  We, or our licensors, also could be required to participate in interference proceedings involving our issued patents and pending applications of another entity.
 
 
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In the event a competitor infringes upon our patent or other intellectual property rights, litigation to enforce our intellectual property rights or to defend our patents against challenge, even if successful, could be expensive and time consuming and could require significant time and attention from our management.  We may not have sufficient resources to enforce our intellectual property rights or to defend any patents against challenges from others.  If our intellectual property does not provide adequate protection against our competitors’ products, our competitive position and business could be adversely affected.
 
Our commercial success depends significantly on our ability to develop and commercialize our products without infringing the intellectual property rights of third parties.
 
Our commercial success will depend, in part, on our not infringing the patents or proprietary rights of third parties.  Third parties that believe we are infringing on their rights could bring actions against us claiming damages and seeking to enjoin clinical testing, manufacturing and marketing of the affected product or products.
 
If we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation.  If any of these actions are successful, we could be required, in addition to any potential liability for damages, to obtain a license to continue to manufacture or market the affected product, in which case we may be required to pay substantial royalties or grant cross licenses to our patents.  However, any such license may not be available on acceptable terms or at all.  Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations, as a result of patent infringement claims, which would harm our business.
 
We may enter into licensing agreements with third party intellectual property owners for use of their property in connection with our products in order to ensure that such third party’s rights are not infringed.  Although we are not aware that any of our intended products would materially infringe the rights of others, a claim of infringement may be asserted against us and any such assertion may result in costly litigation or may require us to obtain a license in order to make, use, or sell our products.  Third parties may assert infringement claims against us in the future with respect to current or future products.  Any such claims or litigation, with or without merit, could be costly and a diversion of management’s attention, which could have a material adverse effect on our business, operating results and financial condition.  Adverse determinations in such claims or litigation could harm our business, operating results and financial condition.
 
We may be unable to protect the intellectual property rights of the third parties from whom we license certain of our intellectual property or with whom we have entered into other strategic relationships, which may harm our business.
 
We are, and will continue to be, reliant upon such third parties to protect their intellectual property rights to this technology.  Such third parties may determine not to protect the intellectual property rights that we license from them and we may be unable defend such intellectual property rights on our own or we may have to undertake costly litigation to defend the intellectual property rights of such third parties.  We may not continue to have proprietary rights to the intellectual property that we license from such third parties or otherwise have the right to use through similar strategic relationships.  Any loss or limitations on use with respect to our right to use such intellectual property licensed from third parties or otherwise obtained from third parties with whom we have entered into strategic relationships could have a material adverse effect on our business, operating results and financial condition.
 
Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties.  In addition, most countries limit the enforceability of patents against government agencies or government contractors.  In these countries, the patent owner may be limited to monetary relief and may be unable to enjoin infringement, which could materially diminish the value of the patent.  Compulsory licensing of life-saving products is also becoming increasingly popular in developing countries, through either direct legislation or international initiatives.  Such compulsory licenses could be extended to include some of our product candidates, which may limit our potential revenue opportunities.
 
 
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International patent protection is particularly uncertain, and if we are involved in opposition proceedings in foreign countries, we may have to expend substantial sums and management resources.
 
Patent law outside the U.S. is even more uncertain than in the U.S. and is periodically reviewed and revised in many countries.  Further, the laws of some foreign countries may not protect our intellectual property rights to the same extent as U.S. laws.  For example, certain countries do not grant patent claims that are related to the treatment of humans.  We may participate in opposition proceedings to determine the validity of our foreign patents or our competitors’ foreign patents, which could result in substantial costs and diversion of our management’s efforts.
 
The government maintains certain rights to data and government use of our technology that we develop using government grant and contract money and we may lose the revenues from such technology if we do not commercialize and utilize the technology pursuant to established government guidelines.
 
Some of our research has been or are being funded in part by government grants and contracts. As a result of such funding, the U.S. Government has established guidelines and have certain rights in the technology developed with the grant and contract. If we fail to meet these guidelines, we would lose our exclusive rights to these products, and we would lose potential revenue derived from the sale of these products.
 
Risks Related to our Industry
 
We may experience delays in obtaining or we may not obtain required regulatory approvals in the U.S. to market our proposed product candidates.
 
Delays in regulatory approval, limitations in regulatory approval and withdrawals of regulatory approval may have a negative impact on our results of operations.  If we experience significant delays in testing or approvals, or in our ability to license product candidates, our product development costs may increase.  If the FDA grants regulatory approval of a product, this approval will be limited to those disease states and conditions for which the product has been demonstrated through clinical trials to be safe and effective.  Any product approvals that we receive in the future could also include significant restrictions on the use or marketing of our products.  Product approvals, if granted, can be withdrawn for failure to comply with regulatory requirements or upon the occurrence of adverse events following commercial introduction of the products.  Failure to comply with applicable FDA or other applicable regulatory requirements may result in criminal prosecution, civil penalties, recall or seizure of products, total or partial suspension of production or injunction, as well as other regulatory action against our product candidates or us.  If approvals are withdrawn for a product, or if a product were seized or recalled, we would be unable to sell or license that product and our revenues would suffer.  In addition, outside the U.S., our ability to market any of our potential products is contingent upon receiving market application authorizations from the appropriate regulatory authorities and these foreign regulatory approval processes include all of the risks associated with the FDA approval process described above.
 
The FDA has been actively working to revise certain of its guidance and in August 2010 issued draft guidance for clinical trial conduct, evaluation, clinical endpoints, and requirements for regulatory approval for antibiotic product candidates intended for use in acute bacterial infections, including skin and skin structure infections (ABSSSI), which has been the intended first clinical indication for brilacidin.  Based on the potential impacts of revised final FDA guidance, there may be delays in the conduct of clinical trials in the United States. Furthermore, there has not been a new product candidate for heparin reversal considered by the FDA in recent years, and there has never to date been a product candidate for reversal of LMWH considered by the FDA.  The FDA and/or other foreign regulatory authorities may in the future request clinical trial parameters that result in clinical trials that are too expensive or too difficult to demonstrate pharmacoeconomic and therapeutic benefits compared to current therapy.  As a result, our present plans for clinical development, including the cost and timing for development of our product candidates, may ultimately be substantially different than our present expectations, and there is no way of predicting what impacts on our timelines, cost projections, and clinical trials requirements may result from these changes in policy, requirements, standards, and guidance of the FDA and other regulatory authorities.
 
 
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If competitors develop and market products that offer advantages as compared to our product candidates, our commercial opportunities will be limited.
 
Other companies have products and product candidates in development to treat the conditions we are seeking to ultimately treat.  If these competitors are able to develop products that are more effective, have fewer side effects, are less expensive or offer other advantages as compared to our product candidates, our commercial opportunities will be limited.  Furthermore, if our competitors commercialize competing products before we do, then our ability to penetrate the market and sell our products may be impaired.
 
Our competitors include fully integrated pharmaceutical companies and biotechnology companies, universities and public and private research institutions.  Many of the organizations competing with us have substantially greater capital resources, larger research and development staffs and facilities, greater experience in drug development and in obtaining regulatory approvals, and greater manufacturing and marketing capabilities than we do.  These organizations also compete with us to:
 
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attract parties for acquisitions, joint ventures or other collaborations;
 
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license proprietary technology that is competitive with the technology we are practicing;
 
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attract funding; and
 
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attract and hire scientific talent.
 
In the antibiotic market, many major pharmaceutical companies, such as GlaxoSmithKline, Pfizer, Bayer, Merck and Sanofi Aventis have already established significant positions.  Additionally, many smaller companies, such as Astellas Pharma, Forest Laboratories, Cubist Pharmaceuticals, Basilea Pharmaceutica, Theravance, The Medicines Company, Trius Therapeutics, NovaBay Pharmaceuticals, Inc., and Rib-X Pharmaceuticals either have marketed, or are attempting to enter this market by developing, novel and more potent antibiotics that are intended to be effective against drug-resistant bacterial strains.  In the UFH antagonist market, protamine is the only available antidote for and antagonist to UFH and, as such, protamine currently dominates this market.  Because of protamine’s virtual monopoly of the UFH antidote/antagonist market, we believe that it may be difficult for our future UFH antidote/antagonist products to penetrate this market.  In addition, new products competing with UFH and LMWH may be successful in gaining market share and reduce the market for a UFH and LMWH reversing agent.  There may be additional competitive products about which we are not aware.
 
Health care reform legislation may increase our costs, impair our ability to match our pricing with any such increased costs, and therefore could materially and adversely affect our business, financial condition and results of operations.
 
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively the “Act”) enacted sweeping health care reforms in March 2010, with staggered effective dates from 2010 through 2018, and many provisions in the Act require the issuance of additional guidance from the U.S. Department of Labor, the Internal Revenue Service, the U.S. Department of Health & Human Services, and the states.  This reform includes, but is not limited to: the implementation of a small business tax credit; required changes in the design of our healthcare policy including providing insurance coverage to part-time workers working thirty or more hours per week; “grandfathering” provisions for existing policies; state insurance exchanges; “pay or play” requirements; and a “Cadillac plan” excise tax.  We are currently unable to determine the long-term impact of such legislation on our business. Since many provisions of the Act do not become operative until future years, we do not expect the Act to have a material adverse impact on our results of operations in 2012.  However, health care reform as mandated and implemented under the Act and any future federal or state mandated health care reform could materially and adversely affect our financial position and results of operations by increasing our costs, hindering our ability to effectively match our cost of providing health insurance with our pricing and impeding our ability to attract and retain customers as well as potentially changing our business model or causing us to lose certain current competitive advantages.
 
 
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Healthcare reform measures could adversely affect our business.
 
The business and financial condition of pharmaceutical companies is affected by the efforts of governmental and third party payors to contain or reduce the costs of healthcare.  In the U.S. and in foreign jurisdictions there have been, and we expect that there will continue to be, a number of legislative and regulatory proposals aimed at changing the healthcare system.  For example, in some countries other than the U.S., pricing of prescription drugs is subject to government control, and we expect proposals to implement similar controls in the U.S. to continue.  The implementation of such additional controls could have the effect of reducing the prices that we are able to charge for any products we develop and sell through these plans.  Prescription drug legislation and related amendments or regulations could also cause third party payors other than the federal government, including the states under the Medicaid program, to discontinue coverage for any products we develop or to lower reimbursement amounts that they pay.
 
Further federal, state and foreign healthcare proposals and reforms are likely.  While we cannot predict the legislative or regulatory proposals that will be adopted or what effect those proposals may have on our business, including the future reimbursement status of any of our product candidates, the pendency or approval of such proposals could result in a decrease in our stock price or limit our ability to raise capital or to obtain strategic partnerships or licenses.
 
Because our activities may involve the use of hazardous materials, we may be subject to claims relating to improper handling, storage or disposal of these materials that could be time consuming and costly.
 
If we use biological and hazardous materials in a manner that causes injury, we may be liable for damages.  Our research and development activities may involve the controlled use of potentially harmful biological materials as well as hazardous materials, chemicals and various radioactive compounds.  We cannot completely eliminate the risk of accidental contamination or injury from the use, storage, handling or disposal of these materials.  In the event of contamination or injury, we could be held liable for damages that result, and any liability could exceed our resources.  We are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products.  The cost of compliance with these laws and regulations could be significant.
 
Risks Related to our Capital Stock
 
Our common stock price is volatile, our stock is highly illiquid, and any investment in our securities could decline substantially in value.
 
Our common stock is quoted on the OTC Bulletin Board. Trading of our stock through the OTC Bulletin Board is frequently thin and highly volatile. In light of our small size and limited resources, as well as the uncertainties and risks that can affect our business and industry, our stock price is expected to continue to be highly volatile and can be subject to substantial drops, with or even in the absence of news affecting our business. The following factors, in addition to the other risk factors described in this Form 10-Q and the potentially low volume of trades in our common stock, may have a significant impact on the market price of our common stock, some of which are beyond our control:

        results and timing for achievements of preclinical and clinical milestones;
        commercial success of approved products;
        corporate partnerships;
        technological innovations by us or competitors;
        changes in laws and government regulations both in the U.S. and overseas;
        the outcome of pending or future legal proceedings, claims, lawsuits, or investigations;
        changes in key personnel at our company;
        developments concerning proprietary rights, including patents and litigation matters;
        public perception relating to the commercial value or safety of any of our product candidates;
        future sales of our securities;
        future issuance of our securities causing dilution;
        anticipated or unanticipated changes in our financial performance or future prospects;
        general trends related to the biopharmaceutical and biotechnological industries; and
        general conditions in the stock market.

 
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The stock market in general has experienced relatively large price and volume fluctuations. In particular, the market prices of securities of smaller biotechnology companies have experienced dramatic fluctuations that often have been unrelated or disproportionate to the operating results of these companies. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in its value. You should also be aware that price volatility may be worse if the trading volume of the common stock remains limited or declines.
 
If our stock price remains low or declines further our ability to raise further working capital and our ability to continue operations could be adversely impacted.
 
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital.  Because a significant portion of our operations has been and will continue to be financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our operations.  Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plans and operations, including our ability to develop our product candidates and continue our current operations.  If our stock price remains low or declines further, it may be more difficult or impossible to raise additional capital.  If we are unable to raise sufficient capital in the future, and we are unable to generate funds from operations sufficient to meet our obligations, we will not be able to have the resources to continue our normal operations.
 
The market price for our common stock may also be affected by our ability to meet or exceed expectations of analysts or investors.  Any failure to meet these expectations, even if minor, may have a material adverse effect on the market price of our common stock.
 
If we undergo a reverse split of our common stock, the value of our common stock may be less than the market value of the common stock before the split multiplied by the split ratio.
 
At our 2012 annual meeting of stockholders, our stockholders approved a proposal that will allow us to undergo a reverse stock split at any time prior to the 2013 annual meeting of stockholders.  The reverse stock split will be effected, if at all, by an amendment to our certificate of incorporation to combine outstanding shares of our common stock into a lesser number of outstanding shares by a ratio between 2:1 and 6:1, inclusive, with the exact ratio to be set by our board of directors in its sole discretion.  One of the intended purposes of undergoing a reverse stock split would be to increase the per share market price of our common stock, in order to enhance our ability to meet the initial listing requirements of The Nasdaq Stock Market LLC or other national securities exchange.  After the completion of any reverse stock split, however, the per share market price of our common stock may not increase as much as planned, and the post-split market price of our common stock may be less than the pre-split price multiplied by the split ratio. In addition, a reduction in the shares available in the public float may impair the liquidity in the market for our common stock which may reduce the value of our common stock.  Further, even if we undergo a reverse stock split, we may not obtain approval for the listing of our common stock on The Nasdaq Stock Market LLC or other national securities exchange.
 
If we issue additional shares in the future, it will likely result in the dilution of our existing stockholders.
 
Our certificate of incorporation authorizes the issuance of up to 250,000,000 shares of common stock with a $0.001 par value and up to 10,000,000 preferred shares with a par value of $0.001, of which approximately 107,000,000 common shares were issued and outstanding as of June 30, 2012. We may need to increase our authorized share count in order to issue additional shares of common stock in the future.  In addition, if we effect a reverse stock split, the number of authorized unissued shares of our common stock will increase.  From time to time we also will increase the number of shares available for issuance in connection with our equity compensation plans and we may issue awards to our employees outside the terms of our stock plans. As of June 30, 2012 we had approximately 5,154,000 additional shares of common stock reserved for future issuance under our stock plans. Our board of directors may fix and determine the designations, rights, preferences or other variations of each class or series within each class of preferred stock and may choose to issue some or all of such shares to provide additional financing or acquire more products or businesses in the future.
 
 
30

 
Moreover, in the past, we issued warrants and options to acquire shares of common stock. As of June 30, 2012, we had warrants and options to purchase approximately 71,497,000 shares of our common stock outstanding.
 
The issuance of any securities for acquisition, licensing or financing efforts, upon conversion of any preferred stock or exercise of warrants and options, pursuant to our equity compensation plans, or otherwise may result in a reduction of the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will cause a reduction in the proportionate ownership and voting power of all current stockholders. Further, such issuance may result in a change in control of our corporation.
 
Financial Industry Regulatory Authority (FINRA) sales practice requirements may also limit a stockholder’s ability to buy and sell our Common Stock.
 
FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.  Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information.  Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers.  FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
 
We have never paid dividends on our common stock and do not anticipate paying any in the foreseeable future.
 
Since our reincorporation in Delaware in March 24, 2005, we have never declared or paid a cash dividend on our common stock and we do not expect to pay cash dividends in the foreseeable future.  If we do have available cash, we intend to use it for research and development of our product candidates and for general corporate purposes.
 

 
Delaware law, our stockholder rights plan, and our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay and discourage takeover attempts that stockholders may consider favorable.
 
Certain provisions of our amended and restated certificate of incorporation and our amended and restated bylaws and applicable provisions of Delaware corporate law may make it more difficult for or prevent a third party from acquiring control of us or changing our board of directors and management. These provisions include:
 
Ø
the ability of our board of directors to issue preferred stock with voting or other rights or preferences;
 
Ø
limitations on the ability of stockholders to amend our charter documents, including stockholder supermajority voting requirements;
 
Ø
requirements that special meetings of our stockholders may only be called by the chairman of our board of directors, our president, or upon a resolution adopted by, or an affirmative vote of, a majority of our board of directors; and
 
Ø
advance notice procedures our stockholders must comply with in order to nominate candidates for election to our board of directors or to place stockholders’ proposals on the agenda for consideration at meetings of stockholders.
 
 
31

 
We will also be afforded the protections of Section 203 of the Delaware General Corporation Law, which will prevent us from engaging in a business combination with a person who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock, unless board or stockholder approval were obtained.

We review these provisions from time to time. Any delay or prevention of a change in control transaction or changes in our board of directors or management could deter potential acquirers or prevent the completion of a transaction in which our stockholders could receive a premium over the then current market price for their shares.

In addition, we have a stockholder rights plan pursuant to which we distributed rights to purchase shares of our Series C Preferred Stock. The rights become exercisable upon the earlier of ten business days after a public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, 15% or more of our common stock then outstanding or ten business days after the commencement of a tender or exchange offer that would result in a person or group beneficially owning 15% or more of our common stock then outstanding. These rights may cause substantial dilution to a person or group that attempts to acquire us (or which otherwise acquires 15% or more of our common stock) on terms or in a manner not approved by our board of directors, except pursuant to an offer conditioned upon the negation, purchase or redemption of these rights. Accordingly, these rights could delay or discourage someone from acquiring our business, even if doing so would benefit our stockholders.
 
Item 5.  Other Information

On August 6, 2012, PolyMedix entered into a letter agreement (the “Letter Agreement”) with Bozena Korczak, pursuant to which Ms. Korczak became the Vice President, Development of PolyMedix, and ceased serving as PolyMedix’s Vice President, Drug Development.  The Letter Agreement amends and restates, and supersedes, in all respects, the Employment Agreement, dated November 5, 2007, between PolyMedix and Ms. Korczak.  Under the terms of the Letter Agreement, the term of Ms. Korczak’s new position is six months, through January 31, 2013; thereafter, her employment may continue at will and upon the mutual agreement of PolyMedix and Ms. Korczak.  If Ms. Korczak is terminated prior to January 31, 2013 for any reason other than “Cause” (as defined in the Letter Agreement), she will receive compensation through that date.  In addition, under the terms of the Letter Agreement, Ms. Korczak’s annual base salary will remain at $310,000, her stock options will continue to vest in accordance with previously issued stock option agreements, and she will be eligible for a cash bonus, to be awarded in PolyMedix’s sole discretion.  Ms. Korczak will also be provided such other benefits as are generally made available to employees of PolyMedix.
 
Item 6.  Exhibits

Exhibit No.
Description of Exhibit
   
Exhibit 10.1
Loan and Security Agreement dated April 5, 2012 by and among PolyMedix, Inc., PolyMedix Pharmaceuticals, Inc., MidCap Financial SBIC, LP, as administrative agent, and the lenders listed thereto from time to time (incorporated by reference from Exhibit 10.1 to the Form 8-K filed on April 10, 2012).
   
Exhibit 10.2
First Amendment to Loan and Security Agreement, dated as of June 11, 2012, by and among MidCap Financial SBIC, LP, as administrative agent and lender, PolyMedix, Inc., and PolyMedix Pharmaceuticals, Inc. (incorporated by reference from Exhibit 10.1 to the Form 8-K filed on June 12, 2012).
   
Exhibit 10.3
Warrant to Purchase Common Stock dated April 5, 2012 (incorporated by reference from Exhibit 10.2 to the Form 8-K filed on April 10, 2012).
   
Exhibit 10.4
Registration Rights Agreement dated April 5, 2012 by and between PolyMedix, Inc. and MidCap Financial SBIC, LP (incorporated by reference from Exhibit 10.3 to the Form 8-K filed on April 10, 2012).
   
Exhibit 10.5  Letter Agreement, dated August 6, 2012, between PolyMedix, Inc., and Bozena Korczak. *+
   
Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
   
Exhibit 31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
   
Exhibit 32.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
   
Exhibit 101
                            The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Cash Flows; and (iv) the Notes to the Condensed Consolidated Financial Statements.
* Filed herewith.
+ Management contract or compensatory arrangement.
 
 
32

 


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.


PolyMedix, Inc.


August 9, 2012
 
By: /s/ Nicholas Landekic
Date
 
Nicholas Landekic
   
President & Chief Executive Officer (Principal Executive Officer)

August 9, 2012
 
By: /s/ Edward F. Smith
Date
 
Edward F. Smith
   
Vice President, Finance & Chief Financial Officer (Principal Financial and Accounting Officer)
 
 
33

 


Exhibit No.
Description of Exhibit
   
   
Exhibit 10.1
Loan and Security Agreement dated April 5, 2012 by and among PolyMedix, Inc., PolyMedix Pharmaceuticals, Inc., MidCap Financial SBIC, LP, as administrative agent, and the lenders listed thereto from time to time (incorporated by reference from Exhibit 10.1 to the Form 8-K filed on April 10, 2012).
   
Exhibit 10.2
First Amendment to Loan and Security Agreement, dated as of June 11, 2012, by and among MidCap Financial SBIC, LP, as administrative agent and lender, PolyMedix, Inc., and PolyMedix Pharmaceuticals, Inc. (incorporated by reference from Exhibit 10.1 to the Form 8-K filed on June 12, 2012).
   
Exhibit 10.3
Warrant to Purchase Common Stock dated April 5, 2012 (incorporated by reference from Exhibit 10.2 to the Form 8-K filed on April 10, 2012).
   
Exhibit 10.4
Registration Rights Agreement dated April 5, 2012 by and between PolyMedix, Inc. and MidCap Financial SBIC, LP (incorporated by reference from Exhibit 10.3 to the Form 8-K filed on April 10, 2012).
   
Exhibit 10.5 Letter Agreement, dated August 6, 2012, between PolyMedix, Inc., and Bozena Korczak. *+ 
   
Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
   
Exhibit 31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
   
Exhibit 32.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
   
Exhibit 101
                            The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Cash Flows; and (iv) the Notes to the Condensed Consolidated Financial Statements.
* Filed herewith.
+ Management contract or compensatory arrangement.
 
 
34

 

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