PRE 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

 

Filed by the Registrant  ☒                            Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Under §240.14a-12

MELINTA THERAPEUTICS, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  (4)  

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  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

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  (4)  

Date Filed:

 

     

 

 

 


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PRELIMINARY PROXY STATEMENT SUBJECT TO COMPLETION

 

LOGO

To the Stockholders of Melinta Therapeutics, Inc.:

You are cordially invited to attend a special meeting of the stockholders, or the Special Meeting, of Melinta Therapeutics, Inc., a Delaware corporation, which we refer to as Melinta or the Company, which will be held at 8:00 a.m., local time, on [●], 2017, at [●] located at [●], unless postponed or adjourned to a later date. This is an important meeting that affects your investment in Melinta.

As previously announced, on November 28, 2017, Melinta and The Medicines Company, or Medicines, entered into a purchase and sale agreement, which we refer to as the Medicines purchase agreement, pursuant to which Melinta has agreed to purchase from Medicines its infectious disease business, which we refer to as the acquisition, which includes three marketed products, which we refer to as the “Products”: recently approved and launched Vabomere (vaborbactam/meropenem), and established commercial products Orbactiv (oritavancin) and Minocin IV (minocycline). Under the terms of the Medicines purchase agreement, the purchase price consists of (i) a payment by Melinta to Medicines of $165 million in cash (subject to a working capital adjustment) and the issuance to Medicines of a number of shares of Melinta common stock equal to $50 million, divided by 90% of the volume weighted average price for the trailing 10 trading day period ending 3 trading days prior to closing, (ii) a payment by Melinta to Medicines of $25 million following each of the twelve and eighteen month anniversaries of the closing date, (iii) payment by Melinta to Medicines of certain royalty payments, based on tiered net sales of the acquired products, and (iv) the assumption of certain liabilities.

In connection with the Medicines purchase agreement, Melinta entered into a commitment letter, which we refer to as the Deerfield commitment letter, with Deerfield Management Company, L.P. (“Deerfield”) and certain funds managed by Deerfield, which we collectively refer to as the Deerfield Funds, pursuant to which the Deerfield Funds have committed, upon the satisfaction of certain conditions set forth therein, to provide up to $190 million (less the amount of the Deerfield equity investment described below) of senior secured loans to finance the acquisition, which we refer to as the senior secured loans, together with up to $50 million in a senior secured delayed draw term loan facility. Under the Deerfield commitment letter, the Deerfield Funds have also committed to purchase a number of shares of Melinta common stock, which we refer to as the Deerfield equity investment, equal to 9.985% of the number of shares of Melinta common stock outstanding immediately following the acquisition (inclusive of such shares) for a purchase price per share of $13.50, representing 90% of the closing price for Melinta common stock on November 28, 2017. The Deerfield commitment letter provides that, on the closing date of the acquisition, Melinta will issue one or more warrants to the Deerfield Funds, which we refer to as the Deerfield warrant, to purchase an aggregate number of shares of Melinta common stock equal to 38.5% of the principal amount of the senior secured loans, divided by $15.00, representing the closing price for Melinta common stock on November 28, 2017, at a strike price of $16.50 per share (subject to adjustment as will be provided in the Deerfield warrant).

In addition, in connection with the Medicines purchase agreement, Melinta entered into equity commitment letters, which we refer to as the equity commitment letters, with Vatera Healthcare Partners LLC, which we refer to as Vatera, and JWC Rib-X LLC, which we refer to as JWC. Pursuant to the Vatera equity commitment letter, Vatera has committed to purchase 2,000,000 shares of Melinta common stock for an aggregate purchase price of $27 million or $13.50 per share, representing 90% of the closing price for the Melinta common stock on November 28, 2017. In addition, Melinta has granted Vatera and its assignees an option, exercisable in Vatera’s sole discretion, to purchase up to $10 million of shares of Melinta common stock at a price per share equal to 90% of the volume weighted average price for the trailing 10 trading day period ending 3 trading days prior to closing. Pursuant to the JWC equity commitment letter, JWC has committed to purchase 222,222 shares of Melinta common stock, for an aggregate purchase price of $3 million or approximately $13.50 per share, representing approximately 90% of the closing price for Melinta common stock on November 28, 2017. Each of Vatera’s and JWC’s obligation to fund its respective equity commitment under its equity commitment letter is subject to customary conditions (as further described below in the summary of the equity commitment letters).


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At the Special Meeting, Melinta will ask its stockholders to consider and vote upon a proposal (i) to approve the issuance of Melinta common stock pursuant to the Medicines purchase agreement, the Deerfield commitment letter and the equity commitment letters, and the issuance of the Deerfield warrant (and the shares issuable upon exercise of, or otherwise pursuant to, such warrant) as contemplated by the Deerfield commitment letter, and (ii) to adjourn the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the proposal above, as well as any other items that may properly come before the meeting.

After careful consideration, Melinta’s board of directors has unanimously approved the Medicines purchase agreement, the Deerfield commitment letter and the equity commitment letters and has determined that they are advisable, fair and in the best interests of Melinta and its stockholders. Accordingly, Melinta’s board of directors unanimously recommends that stockholders vote “FOR” the proposals set forth in this proxy statement. Stockholders representing approximately 52% of the shares of Melinta common stock, as of November 28, 2017, have executed voting agreements to approve the acquisition and the issuance of the securities in the transaction.

More information about Melinta, the proposed transactions and the proposals to be voted on at the Special Meeting are contained in the accompanying proxy statement. Melinta urges you to read the proxy statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE [17].

Your vote is important. Whether or not you expect to attend the Special Meeting in person, please complete, date, sign and promptly return the accompanying proxy card in the enclosed postage paid envelope to ensure that your shares will be represented and voted at the Special Meeting.

Melinta is excited about the opportunities the acquisition brings to its stockholders, and we thank you for your consideration and continued support.

Yours sincerely,

[            ]

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the Melinta common stock to be issued in connection with the Medicines purchase agreement, the Deerfield commitment letter or the equity commitment letter, or the Deerfield warrant (or the shares issuable upon exercise of, or otherwise pursuant to, such warrant) or determined if this proxy statement is accurate or adequate. Any representation to the contrary is a criminal offense.

This proxy statement is dated [●], 2017, and is first being mailed to stockholders on or about [●], 2017.


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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON [], 2017

To the Stockholders of Melinta Therapeutics, Inc.:

You are cordially invited to attend a special meeting of the stockholders, or the Special Meeting, of Melinta Therapeutics, Inc., a Delaware corporation, which we refer to as Melinta, which will be held at 8:00 a.m., local time, on [●], 2017, at the offices of [●] located at [●], unless postponed or adjourned to a later date.

As previously announced, on November 28, 2017, Melinta Therapeutics, Inc., or Melinta, and The Medicines Company, or Medicines, entered into a purchase and sale agreement, which we refer to as the Medicines purchase agreement, pursuant to which Melinta has agreed to purchase from Medicines its infectious disease business, which we refer to as the acquisition, which includes three marketed products, which we refer to as the “Products”: recently approved and launched Vabomere (vaborbactam/meropenem), and established commercial products Orbactiv (oritavancin) and Minocin IV (minocycline). Under the terms of the Medicines purchase agreement, the purchase price consists of (i) a payment by Melinta to Medicines of $165 million in cash (subject to a working capital adjustment) and the issuance to Medicines of a number of shares of Melinta common stock equal to $50 million, divided by 90% of the volume weighted average price for the trailing 10 trading day period ending 3 trading days prior to closing, (ii) a payment by Melinta to Medicines of $25 million following each of the twelve and eighteen month anniversaries of the closing date, (iii) payment by Melinta to Medicines of certain royalty payments, based on tiered net sales of the acquired products in certain jurisdictions and (iv) the assumption of certain liabilities.

In connection with the Medicines purchase agreement, Melinta entered into the Deerfield commitment letter, with Deerfield and the Deerfield Funds, pursuant to which Deerfield Funds have committed, upon the satisfaction of certain conditions set forth therein, to provide up to $190 million (less the amount of the Deerfield equity investment described below) of senior secured loans to finance the acquisition, which we refer to as the senior secured loans, together with up to $50 million in a senior secured delayed draw term loan facility. Under the commitment letter, the Deerfield Funds have also committed to purchase the Deerfield equity investment, equal to 9.985% of the number of shares of Melinta common stock outstanding immediately following the acquisition (inclusive of such shares) for a purchase price per share of $13.50, representing 90% of the closing price for the Melinta common stock on November 28, 2017. The Deerfield commitment letter provides that, on the closing date of the acquisition, Melinta will issue the Deerfield warrant, to purchase a number of shares of Melinta common stock equal to 38.5% of the principal amount of the senior secured loans, divided by $15.00, representing the closing price for the Melinta common stock on November 28, 2017, at a strike price of $16.50 per share.

In addition, in connection with the Medicines purchase agreement, Melinta entered into equity commitment letters, which we refer to as the equity commitment letters, with Vatera and JWC. Pursuant to the Vatera equity commitment letter, Vatera has committed to purchase 2,000,000 shares of Melinta common stock for an aggregate purchase price of $27 million or $13.50 per share, representing 90% of the closing price for the Melinta common stock on November 28, 2017. In addition, Melinta has granted Vatera and its assignees an option, exercisable in Vatera’s sole discretion, to purchase up to $10 million of shares of Melinta common stock at a price per share equal to 90% of the volume weighted average price for the trailing 10 trading day period ending 3 trading days prior to closing. Pursuant to the JWC equity commitment letter, JWC has committed to purchase 222,222 shares of Melinta common stock, for an aggregate purchase price of $3 million or approximately $13.50 per share, representing approximately 90% of the closing price for the Melinta common stock on November 28, 2017. Each of Vatera’s and JWC’s obligation to fund its respective equity commitment under its equity commitment letter is subject to customary conditions (as further described below in the summary of the equity commitment letters).

At the Special Meeting, Melinta will ask its stockholders to consider and vote upon a proposal (i) to approve the issuance of Melinta common stock pursuant to the Medicines purchase agreement, the Deerfield commitment letter and the equity commitment letters, and the issuance of the Deerfield warrant (and the shares issuable upon exercise of, or otherwise pursuant to, such warrant) as contemplated by the Deerfield commitment letter, and


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(ii) to adjourn the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the proposal above, as well as any other items that may properly come before the meeting.

After careful consideration, Melinta’s board of directors has unanimously approved the Medicines purchase agreement, the Deerfield commitment letter and the equity commitment letters and has determined that they are advisable, fair and in the best interests of Melinta and its stockholders. Accordingly, Melinta’s board of directors unanimously recommends that stockholders vote “FOR” the proposals set forth in this proxy statement. Stockholders representing approximately 52% of the shares of Melinta common stock, as of November 28, 2017, have executed voting agreements to approve the acquisition and the issuance of the securities in the transaction.

Melinta common stock is the only type of security entitled to vote at the Special Meeting. The board of directors has fixed [●], 2017 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Special Meeting and any adjournment or postponement thereof. Only holders of record of shares of Melinta common stock at the close of business on the record date are entitled to notice of, and to vote at, the Special Meeting. At the close of business on the record date, Melinta had [●] shares of common stock outstanding and entitled to vote at the Special Meeting. Each holder of record of shares of common stock on the record date will be entitled to one vote for each share held on all matters to be voted upon at the Special Meeting.

Your vote is important. The affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting is required for approval of the proposals set forth in this proxy statement.

Whether or not you plan to attend the Special Meeting in person, please complete, date, sign and promptly return the accompanying proxy card in the enclosed postage paid envelope to ensure that your shares will be represented and voted at the Special Meeting. If you date, sign and return your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of the Proposals. If you attend the Special Meeting, you may, upon your written request, withdraw your proxy and vote in person.

By Order of the Board of Directors of Melinta Therapeutics, Inc.

Paul Estrem

Secretary

[●], 2017

[●]

MELINTA’S BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT THE PROPOSALS OUTLINED ABOVE ARE ADVISABLE, FAIR AND IN THE BEST INTERESTS OF MELINTA AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED THE PROPOSALS. MELINTA’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT MELINTA STOCKHOLDERS VOTE “FOR” THE PROPOSALS.


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules thereunder, contains a notice of meeting with respect to the special meeting of stockholders, or the Special Meeting, at which Melinta stockholders will consider and vote on the proposals (i) to approve the issuance of Melinta common stock pursuant to the Medicines purchase agreement, the Deerfield commitment letter and the equity commitment letters, and the issuance of the Deerfield warrant as contemplated by the Deerfield commitment letter and (ii) to adjourn the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the proposal above.

Additional business and financial information about Melinta can be found in documents previously filed by Melinta with the U.S. Securities and Exchange Commission, or the SEC. This information is available to you without charge at the SEC’s website at www.sec.gov.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON [], 2017:

In addition to receiving the proxy statement from Melinta in the mail or obtaining the information on the SEC’s website, Melinta stockholders will also be able to obtain the proxy statement, free of charge, from Melinta by requesting copies in writing using the following contact information:

MELINTA THERAPEUTICS, INC.

300 Tri-State International

Suite 272

Lincolnshire, IL, 60069

Attn: Investor Relations

A copy of the proxy statement is also available, free of charge, at www.investorvote.com/MLNT and under the Investors—Financial Information section of Melinta’s website at www.melinta.com.

You may also request additional copies from our proxy solicitor, Georgeson, LLC, or Georgeson, using the following contact information:

1290 Avenue of the Americas, 9th Floor

New York, NY 10104

(866) 821-2550

IF YOU WOULD LIKE TO REQUEST MATERIALS, PLEASE DO SO BY [], 2017 IN ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETING.

See “Where You Can Find More Information” beginning on page [●] of this proxy statement.

NOTE REGARDING TRADEMARKS

Melinta is Melinta’s trade name and MELINTA®, MELINTA THERAPEUTICS® and MELINTA THE ANTIBIOTICS COMPANY® are registered trademarks of Melinta. BAXDELA™ is a trademark and pending trademark application of Melinta.

The other trademarks, trade names and service marks appearing in this proxy statement are the property of their respective holders.


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

     1  

SUMMARY

     6  

The Special Meeting

     6  

Summary of the Acquisition

     7  

Summary of the Deerfield Commitment Letter

     7  

Summary of the Equity Commitment Letters

     8  

Reasons for the Acquisition (see page [●])

     8  

Voting Agreements (see page [●])

     8  

Interests of Melinta’s Directors and Executive Officers (see page  [●])

     8  

Risk Factors (see page [●])

     9  

SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA

     10  

RISK FACTORS

     17  

Risks Related to the Acquisition

     17  

Risks Related to the Acquired Products

     19  

Risks Related to Melinta’s Financial Position and Need for Additional Capital

     20  

FORWARD-LOOKING STATEMENTS

     22  

THE SPECIAL MEETING

     23  

Date, Time and Place

     23  

Purpose of the Special Meeting

     23  

Recommendation of Melinta’s Board of Directors

     23  

Voting by Melinta’s Principal Stockholders

     23  

Record Date and Stockholders Entitled to Vote

     23  

Voting Procedures

     24  

Revoking Your Proxy Instructions

     24  

Counting Votes

     24  

Solicitation of Proxies

     25  

Adjournments and Postponements

     25  

Assistance

     26  

THE ACQUISITION

     27  

Background of the Acquisition

     27  

Interests of Melinta’s Directors and Executive Officers in the Acquisition

     38  

THE PURCHASE AGREEMENT

     39  

Medicines Purchase Agreement

     39  

Registration Rights Agreement

     42  

Deerfield Commitment Letter

     42  

Equity Commitment Letters

     45  

Voting Agreements

     45  

PROPOSAL: APPROVAL OF THE ISSUANCE OF COMMON STOCK

     47  

PROPOSAL: APPROVAL OF POSSIBLE ADJOURNMENT OF THE SPECIAL MEETING

     48  

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

     49  

Melinta Therapeutics,  Inc. Unaudited Pro Forma Combined Financial Information

     49  

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

     54  

Description of Transactions and Basis of Presentation

     54  

Purchase Price

     55  

Pro Forma Adjustments

     57  

ISSUANCE OF MELINTA’S COMMON STOCK

     61  
MELINTA’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      62  

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE INFECTIOUS DISEASE BUSINESS OF THE MEDICINES COMPANY      63  

STOCKHOLDER COMMUNICATIONS

     77  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     78  

WHERE YOU CAN FIND MORE INFORMATION

     80  

HOUSEHOLDING

     81  

Exhibit A - Current Report of Melinta on Form 8-K/A filed on December 5, 2017

  

Exhibit B -  Quarterly Report of Melinta (formerly known as Cempra, Inc.) on Form 10-Q for the fiscal quarter ended September 30, 2017

  

Exhibit C -  Annual Report of Melinta (formerly known as Cempra, Inc.) on Form 10-K for the fiscal year ended December 31, 2016

  

Exhibit D -  Condensed Combined Carve-out Financial Statements for the Infectious Disease Businesses of The Medicines Company

  

Exhibit E -  Quarterly Report of Melinta (formerly known as Cempra, Inc.) on Form 10-Q for the fiscal quarter ended March 31, 2017

  

Exhibit F -  Quarterly Report of Melinta (formerly known as Cempra, Inc.) on Form 10-Q for the fiscal quarter ended June 30, 2017

  

Exhibit G -  Current Report of Melinta (formerly known as Cempra, Inc.) on Form 8-K filed on March 6, 2017

  

Exhibit H -  Current Report of Melinta (formerly known as Cempra, Inc.) on Form 8-K filed on March 13, 2017

  

Exhibit I -  Current Report of Melinta (formerly known as Cempra, Inc.) on Form 8-K filed on March 28, 2017

  

Exhibit J -  Current Report of Melinta (formerly known as Cempra, Inc.) on Form 8-K filed on April 28, 2017

  

Exhibit K -  Current Report of Melinta (formerly known as Cempra, Inc.) on Form 8-K filed on April 28, 2017

  

Exhibit L -  Current Report of Melinta (formerly known as Cempra, Inc.) on Form 8-K filed on June 28, 2017

  

Exhibit M -  Current Report of Melinta (formerly known as Cempra, Inc.) on Form 8-K filed on August 9, 2017

  

Exhibit N -  Current Report of Melinta (formerly known as Cempra, Inc.) on Form 8-K filed on August 10, 2017

  

Exhibit O -  Current Report of Melinta (formerly known as Cempra, Inc.) on Form 8-K filed on September 7, 2017

  

Exhibit P -  Current Report of Melinta (formerly known as Cempra, Inc.) on Form 8-K filed on September 11, 2017

  

Exhibit Q -  Current Report of Melinta (formerly known as Cempra, Inc.) on Form 8-K filed on September 28, 2017

  

Exhibit R -  Current Report of Melinta (formerly known as Cempra, Inc.) on Form 8-K filed on October 31, 2017

  

Exhibit S -  Current Report of Melinta (formerly known as Cempra, Inc.) on Form 8-K filed on November 1, 2017

  

Exhibit T - Current Report of Melinta on Form 8-K filed on November 3, 2017

  

Exhibit U - Current Report of Melinta on Form 8-K filed on November 9, 2017

  

Exhibit V - Current Report of Melinta on Form 8-K filed on November 29, 2017

  

Exhibit W - Current Report of Melinta on Form 8-K filed on December 1, 2017

  

Exhibit X - Current Report of Melinta on Form 8-K filed on December 4, 2017

  

 

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Annex A - Medicines Purchase Agreement

  

Annex B - Deerfield Commitment Letter

  

Annex C - Vatera Equity Commitment Letter

  

Annex D - JWC Equity Commitment Letter

  

Annex E - Voting Agreements

  

Annex F - Form of Registration Rights Agreement

  

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

The following section provides answers to frequently asked questions about the Special Meeting. This section, however, only provides summary information. These questions and answers may not address all issues that may be important to you as a stockholder. For a more complete response to these questions and for additional information, please refer to the cross-referenced pages below. You should carefully read this entire proxy statement, including each of the annexes attached hereto.

 

Q: Why am I receiving this proxy statement?

 

A: You are receiving this proxy statement, because you have been identified as a stockholder of Melinta as of the record date, and thus you are entitled to vote at Melinta’s Special Meeting. This document serves as a proxy statement used to solicit proxies for the Special Meeting. This document contains important information about the acquisition and the Special Meeting of Melinta, and you should read it carefully.

 

Q: When and where is the Special Meeting?

 

A: The Special Meeting will be held on [●], 2017, at 8:00 a.m., local time, at [●] located at [●].

 

Q: Who is entitled to vote at the Special Meeting?

 

A: Only stockholders of record as of the close of business on [●], 2017, or the record date, will be entitled to vote at the Special Meeting. As of the close of business on the record date, there were [●] shares of Melinta common stock issued and outstanding and entitled to vote, held by approximately [●] stockholders of record. Each stockholder is entitled to one vote for each share of Melinta common stock held by such stockholder on the record date on the proposals presented in this proxy statement.

 

Q: What proposals will be considered at the Special Meeting?

 

A: At the Special Meeting, you will be asked to consider and vote on a proposal (i) to approve the issuance of Melinta common stock pursuant to the Medicines purchase agreement, the Deerfield commitment letter and the equity commitment letters, and the issuance of the Deerfield warrant (and the shares issuable upon exercise of, or otherwise pursuant to, such warrant) as contemplated by the Deerfield commitment letter (the “Proposal”) and (ii) to adjourn the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the proposal above (the “Adjournment”).

 

Q: How many votes are needed to approve the Proposal and the Adjournment?

 

A: To approve the Proposal or the Adjournment, “FOR” votes from the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting are required. If a quorum is not present, either (i) the chairperson of the meeting or (ii) any officer entitled to preside at or to act as secretary of the meeting may adjourn the meeting.

 

Q: Have any of Melinta’s stockholders agreed to vote in favor of the issuance of the shares?

 

A: Yes. In connection with the execution of the Medicines purchase agreement, holders beneficially owning as of November 28, 2017 approximately 52% of the shares of Melinta’s outstanding common stock have entered into voting agreements with Melinta that provide, among other things, that such stockholders shall vote in favor of the Proposal and, if necessary, the Adjournment.

 

Q: How does Melinta’s board of directors recommend that Melinta stockholders vote?

 

A: After careful consideration, Melinta’s board of directors unanimously recommends that Melinta stockholders vote in favor of the Proposal and, if necessary, the Adjournment.

 

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Q: What is the Medicines purchase agreement and the acquisition?

 

A: On November 28, 2017, Melinta entered into the Medicines purchase agreement, pursuant to which Melinta has agreed to purchase from Medicines its infectious disease business, which includes three marketed products: recently approved and launched Vabomere (vaborbactam/meropenem), and established commercial products Orbactiv (oritavancin) and Minocin IV (minocycline). Under the terms of the Medicines purchase agreement, the purchase price consists of (i) a payment by Melinta to Medicines of $165 million in cash (subject to a working capital adjustment) and the issuance to Medicines of a number of shares of Melinta common stock equal to $50 million, divided by 90% of the volume weighted average price for the trailing 10 trading day period ending 3 trading days prior to closing, (ii) a payment by Melinta to Medicines of $25 million following each of the twelve and eighteen month anniversaries of the closing date, (iii) payment by Melinta to Medicines of certain royalty payments, based on tiered net sales of the acquired products in certain jurisdictions and (iv) the assumption of certain liabilities.

For a more complete description of the Medicines purchase agreement, please see the section entitled “The Medicines Purchase Agreement” beginning on page [●] of this proxy statement.

 

Q: What is the Deerfield commitment letter?

 

A: The Deerfield commitment letter is a contractual obligation by Deerfield Management Company, L.P. and the Deerfield Funds to provide, upon the satisfaction of certain conditions set forth therein, up to $190 million (less the amount of the Deerfield equity investment described below) of senior secured loans to finance the acquisition, together with up to $50 million in a senior secured delayed draw term loan facility. Under the commitment letter, the Deerfield Funds have committed to purchase a number of shares of Melinta common stock equal to 9.985% of the number of shares of Melinta common stock outstanding immediately following the acquisition (inclusive of such shares) for a purchase price per share of $13.50, representing 90% of the closing price for the Melinta common stock on November 28, 2017.

The Deerfield commitment letter provides that, on the closing date of the acquisition, Melinta will issue the Deerfield warrant, to purchase a number of shares of Melinta common stock equal to 38.5% of the principal amount of the senior secured loans, divided by $15.00, representing the closing price for the Melinta common stock on November 28, 2017, at a strike price of $16.50 per share.

For a more complete description of the Deerfield commitment letter, please see the section entitled “The Deerfield Commitment Letter” beginning on page [●] of this proxy statement.

 

Q: What are the equity commitment letters?

 

A: The equity commitment letters are contractual commitments by Vatera and JWC to purchase 2,000,000 and 222,222 shares of common stock of Melinta, respectively, solely for purposes of funding the purchase price and other payment obligations or amounts payable by Melinta under the Medicines purchase agreement and other fees and expenses related to the acquisition.

For a more complete description of the equity commitment letters, please see the section entitled “The Equity Commitment Letters” beginning on page [●] of this proxy statement.

 

Q: Why is Melinta seeking stockholder approval to issue shares of common stock in connection with the acquisition?

 

A:

Because Melinta common stock is listed on the NASDAQ Global Market, Melinta is subject to the NASDAQ Listing Rules. Rules 5635(a), (b) and (d) require stockholder approval of certain transactions that result in the issuance of 20% or more of the outstanding voting power or shares of common stock outstanding before the issuance of stock or securities. Assuming that [●] shares of Melinta common stock are outstanding immediately prior to the closing of the acquisition and that the volume weighted average price of the Melinta common stock for the trailing 10 trading day period ending 3 trading days prior to

 

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  closing is equal to $[●], we expect that a total of [●] shares of Melinta common stock (excluding, for the avoidance of doubt, the warrants) will be issued in the aggregate pursuant to the Medicines purchase agreement, the Deerfield commitment letter and equity commitment letters (assuming a maximum total of $40 million is funded under the equity commitment letters). Accordingly, Melinta is seeking stockholder approval of this issuance under the NASDAQ Listing Rules.

 

Q: What risks should Melinta stockholders consider in deciding whether to vote in favor of the share issuance?

 

A: Melinta stockholders should carefully read the section of this proxy statement entitled “Risk Factors” beginning on page [●], which sets forth certain risks and uncertainties related to the acquisition.

 

Q: When do you expect the acquisition to be consummated?

 

A: We anticipate that the consummation of the acquisition will occur in the first quarter of 2018, as promptly as practicable after the Special Meeting and following satisfaction or waiver of all closing conditions. However, the exact timing of the consummation of the acquisition is not yet known.

 

Q: May I vote in person?

 

A: If you are a stockholder of Melinta and your shares of Melinta common stock are registered directly in your name with Melinta’s transfer agent, Computershare Trust Company, N.A., you are considered, with respect to those shares, the stockholder of record, and the proxy materials and proxy card are being sent directly to you by Melinta. If you are a Melinta stockholder of record, you may attend the Special Meeting to be held on [●], 2017 and vote your shares in person, rather than signing and returning your proxy.

If your shares of Melinta common stock are held by a bank, broker or other nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you together with a voting instruction card by such bank, broker or other nominee. As the beneficial owner, you are also invited to attend the Special Meeting. Since a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Special Meeting unless you obtain a proxy from your broker issued in your name giving you the right to vote the shares at the Special Meeting.

 

Q: If my Melinta shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A: Generally, if shares are held in street name, the beneficial owner of the shares is entitled to give voting instructions to the broker or nominee holding the shares. Since the Proposals are considered “non-routine” matters, your broker will not be able to vote your shares of Melinta common stock without specific instructions from you.

If your shares are held by your broker or other agent as your nominee, you will need to obtain a proxy form from the institution that holds your shares and follow the instructions included on that form regarding how to instruct your broker or other agent to vote your shares.

 

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Q: How do I cast my vote if I am a stockholder of record?

 

A: If you are a stockholder with shares registered in your name with Melinta’s transfer agent, Computershare Trust Company, N.A., on the record date, you may vote in person at the Special Meeting or vote by proxy by telephone or internet or by mail. Whether or not you plan to attend the Special Meeting, please vote as soon as possible to ensure your vote is counted. You may still attend the Special Meeting and vote in person even if you have already voted by proxy. For more detailed instructions on how to vote using one of these methods, please see the section of this proxy statement entitled “The Special Meeting—Voting Procedures” beginning on page [●].

 

    To vote in person. You may attend the Special Meeting and Melinta will give you a ballot when you arrive. If you need directions to the meeting, please refer to page [●] of this proxy statement.

 

    To vote by proxy by telephone or internet. If you have telephone or internet access, you may submit your proxy by following the instructions provided in this proxy statement, or by following the instructions provided with your proxy materials and on the enclosed proxy card or voting instruction card.

 

    To vote by proxy by mail. You may submit your proxy by mail by completing and signing the enclosed proxy card and mailing it in the enclosed envelope. Your shares will be voted as you have instructed.

 

Q: How do I cast my vote if I am a beneficial owner of shares registered in the name of my broker or bank?

If you are a beneficial owner of shares registered in the name of your broker, bank, dealer or other similar organization, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from Melinta. Simply complete and mail the proxy card to ensure that your vote is counted. Alternatively, you may vote by telephone or over the internet as instructed by your broker or other agent. To vote in person at the Special Meeting, you must obtain a valid proxy from your broker or other agent. Follow the instructions from your broker or other agent included with these proxy materials, or contact your broker or bank to request a proxy form.

 

Q: How many votes do I have?

 

A: On each matter to be voted upon, you have one vote for each share of Melinta common stock you hold as of the record date.

 

Q: What if I return a proxy card but do not make specific choices?

 

A: If you return a signed and dated proxy card without marking any voting selection, your shares will be voted “FOR” the Proposal and the Adjournment.

 

Q: What constitutes a quorum for purposes of the Special Meeting?

 

A: A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if stockholders holding at least a majority of the issued and outstanding shares entitled to vote are present or represented by proxy at the Special Meeting. On the record date, there were [●] shares of Melinta common stock issued and outstanding and entitled to vote. Accordingly, the holders of [●] shares must be present at the Special Meeting to have a quorum. Melinta stockholders beneficially owning in the aggregate, as of November 28, 2017, approximately 52% of Melinta’s outstanding common stock, have agreed to vote their shares at the meeting, such that (assuming compliance with voting agreements) a quorum is assured. Your shares will be counted toward the quorum at the Special Meeting only if you vote in person at the meeting, you submit a valid proxy vote or your broker, bank, dealer or similar organization submits a valid proxy vote.

 

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Q: May I change my vote after I have submitted a proxy or provided proxy instructions?

 

A: Any Melinta stockholder of record voting by proxy, other than those Melinta stockholders who have executed voting agreements, has the right to revoke his, her or its proxy at any time before the polls close at the Special Meeting by sending a written notice stating that he, she or it would like to revoke his, her or its proxy to the Corporate Secretary of Melinta, by providing a duly executed proxy card bearing a later date than the proxy being revoked or by attending the Special Meeting and voting in person. Attendance alone at the Special Meeting will not revoke a proxy. If a stockholder of Melinta has instructed a broker to vote its shares of Melinta common stock that are held in “street name,” the stockholder must follow directions received from its broker to change those instructions.

 

Q: Can I access these proxy materials on the Internet?

 

A: Yes. The Notice of Special Meeting, this proxy statement and the annexes attached hereto are available for viewing, printing, and downloading at [●]. All materials will remain posted on [●] at least until the conclusion of the meeting.

The Notice of Special Meeting, this proxy statement and the annexes attached hereto are also available, free of charge, in PDF and HTML format under the Investor Relations—Financial Information section of Melinta’s website at www.melinta.com and will remain posted on such website at least until the conclusion of the meeting.

 

Q: Where can I find the voting results of the meeting?

 

A: Melinta will announce the preliminary voting results at the meeting. Melinta will publish the results in a Form 8-K filed with the SEC within four business days of the meeting.

 

Q: What do I need to do now?

 

A: You are urged to read this proxy statement carefully, including each of the annexes attached hereto, and to consider how the Proposal and the Adjournment affects you. If your shares are registered directly in your name, you may complete, date and sign the enclosed proxy card and mail return it in the enclosed postage-paid envelope. Alternatively, you can vote by proxy by telephone or internet, deliver your completed proxy card in person or vote by completing a ballot in person at the Special Meeting.

 

Q: Who is paying for this proxy solicitation?

 

A: Melinta will bear the cost of soliciting proxies, including the printing, mailing and filing of this proxy statement, the proxy card and any additional information furnished to Melinta stockholders. Melinta has engaged Georgeson, LLC, a proxy solicitation firm, to solicit proxies from Melinta stockholders. Arrangements will also be made with banks, brokers, nominees, custodians and fiduciaries who are record holders of Melinta common stock for the forwarding of solicitation materials to the beneficial owners of Melinta common stock. Melinta will, upon request, reimburse these banks, brokers, nominees, custodians and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials.

 

Q: Who can provide me with additional information and help answer my questions?

 

A: If you would like additional copies, without charge, of this proxy statement or if you have questions about the acquisition and the proposals being considered at the Special Meeting, including the procedures for voting your shares, you should contact Georgeson, Melinta’s proxy solicitor, by telephone at (866) 821-2550.

 

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SUMMARY

This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To better understand the proposals being considered at the Special Meeting, you should read this entire proxy statement carefully, including the materials attached as annexes hereto. See “Where You Can Find More Information” beginning on page [●] of this proxy statement. Page references are included in parentheses to direct you to a more detailed description of the topics presented in this summary.

This proxy statement includes forward-looking statements within the meaning of Section 21E of the Exchange Act. For this purpose, any statements contained herein, other than statements of historical fact may be forward-looking statements under the provisions of The Private Securities Litigation Reform Act of 1995. In this proxy statement, words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “target,” “will,” “would” or other words that convey uncertainty of future events or outcomes are used to identify these forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. For more information, see the section entitled “Forward-Looking Statements” beginning on page [] of this proxy statement.

The Special Meeting

The Special Meeting will be held at 8:00 a.m., local time, on [●], 2017, at [●] located [●], to consider and act upon a proposal to (i) approve the issuance of Melinta common stock pursuant to the Medicines purchase agreement, the Deerfield commitment letter and the equity commitment letters, and the issuance of the Deerfield warrant (and the shares issuable upon exercise of, or otherwise pursuant to, such warrant) as contemplated by the Deerfield commitment letter and (ii) to adjourn the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the proposal above.

Only stockholders at the close of business on [●], 2017, the record date, are entitled to notice of, and to vote at, the Special Meeting and any adjournment or postponement thereof. Such stockholders are entitled to one vote on each matter submitted to stockholders at the Special Meeting for each share of Melinta common stock held as of the record date. At the close of business on the record date, there were [●] shares of Melinta common stock issued and outstanding and entitled to vote at the Special Meeting, held by approximately [●] holders of record.

Provided a quorum is present, the affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting is required for the approval of the Proposal. Melinta stockholders beneficially owning in the aggregate, as of November 28, 2017, approximately 52% of Melinta’s outstanding common stock, have agreed to vote in favor.

If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute “broker non-votes.” Broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. These matters are referred to as “non-routine” matters. The Proposal and the Adjournment are each a “non-routine” matter.

This solicitation is made on behalf of Melinta’s board of directors and Melinta will pay for the costs of solicitation. Copies of solicitation materials will be furnished to banks, brokerage firms and other custodians, nominees and fiduciaries holding shares in their names that are beneficially owned by others so that they may forward the solicitation materials to such beneficial owners upon request. You will need to obtain your own internet access if you choose to access the proxy materials and/or vote over the internet. In addition to soliciting

 



 

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proxies by mail, Melinta’s directors, executive officers and employees might solicit proxies personally and by telephone. None of these individuals will receive any additional compensation for this. Melinta has engaged Georgeson to assist Melinta in the distribution of proxy materials and the solicitation of votes described above for a fee of $[●], plus additional fees based on the amount and types of services rendered and reimbursement of reasonable expenses. Melinta will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their principals and obtaining their proxies.

Summary of the Acquisition

Pursuant to the Medicines purchase agreement, Melinta will acquire from Medicines assets and the capital stock of certain subsidiaries (the “Transferred Subsidiaries”) related to the infectious disease business, including the Products and line extensions thereof.

The purchase price payable under the Medicines purchase agreement consists of (i) a payment by Melinta to Medicines of $165 million in cash (subject to a working capital adjustment) and the issuance to Medicines of a number of shares of Melinta common stock equal to $50 million, divided by 90% of the volume weighted average price of the Melinta common stock for the trailing 10 trading day period ending 3 trading days prior to closing, (ii) a payment by Melinta to Medicines of $25 million following each of the twelve and eighteen month anniversaries of the closing date, (iii) the assumption of certain liabilities related to the acquired business and (iv) royalties on annual net sales of the Products as follows:

 

    U.S. net sales of Vabomere:

 

    On net sales above $50 million and at or below $100 million = 5.0%

 

    On net sales above $100 million and at or below $200 million = 7.5%

 

    On net sales above $200 million and at or below $500 million = 15.0%

 

    On net sales above $500 million = 25%

 

    U.S. combined net sales of Minocin IV and Orbactiv

 

    On net sales at or below $100 million = 5.0%

 

    On net sales above $100 million = 15.0%

 

    Ex-U.S. net sales of Vabomere, Orbactiv and Minocin IV

 

    On all net sales, including all milestone and royalty payments or other consideration received from ex-U.S. transfers of rights with respect to the products = 15.0%

The Medicines purchase agreement, which is the legal document governing the acquisition, is attached as Annex A to this document. You should read the agreement carefully and in its entirety.

Summary of the Deerfield Commitment Letter

In connection with the Medicines purchase agreement, Melinta entered into the Deerfield commitment letter, with Deerfield Management Company, L.P. and the Deerfield Funds, pursuant to which Deerfield Funds have committed, upon the satisfaction of certain conditions set forth therein, to provide up to $190 million (less the amount of the Deerfield equity investment described below) of senior secured loans to finance the acquisition, together with up to $50 million in a senior secured delayed draw term loan facility. Under the commitment letter, the Deerfield Funds have committed to purchase the Deerfield equity investment, equal to 9.985% of the number of shares of Melinta common stock outstanding immediately following the acquisition (inclusive of such shares) for a purchase price per share of $13.50, representing 90% of the closing price for the Melinta common stock on November 28, 2017, the date on which the Deerfield commitment letter was executed.

 



 

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The Deerfield commitment letter provides that, on the closing date of the acquisition, Melinta will issue the Deerfield warrant, to purchase a number of shares of Melinta common stock equal to 38.5% of the principal amount of the senior secured loans, divided by $15.00, representing the closing price for the Melinta common stock on November 28, 2017, at a strike price of $16.50 per share.

The Deerfield commitment letter is attached as Annex B to this document.

Summary of the Equity Commitment Letters

In connection with the Medicines purchase agreement, Melinta entered into equity commitment letters, which we refer to as the equity commitment letters, with Vatera and JWC. Pursuant to the Vatera equity commitment letter, Vatera has committed to purchase 2,000,000 shares of Melinta common stock for an aggregate purchase price of $27 million or $13.50 per share, representing 90% of the closing price for Melinta common stock on November 28, 2017. In addition, Melinta has granted Vatera and its assignees an option, exercisable in Vatera’s sole discretion, to purchase up to $10 million of shares of Melinta common stock at a price per share equal to 90% of the volume weighted average price for the trailing 10 trading day period ending 3 trading days prior to closing. Pursuant to the JWC equity commitment letter, JWC has committed to purchase 222,222 shares of Melinta common stock, for an aggregate purchase price of $3 million or approximately $13.50 per share, representing approximately 90% of the closing price for Melinta common stock on November 28, 2017. Each of Vatera’s and JWC’s obligation to fund its respective equity commitment under its equity commitment letter is subject to customary conditions (as further described below in the summary of the equity commitment letters).

The equity commitment letters are attached as Annex C and Annex D to this document.

Reasons for the Acquisition (see page [])

The board of directors of Melinta considered various reasons for the acquisition, as described herein.

Voting Agreements (see page [])

Concurrently with the execution of the Medicines purchase agreement, certain Melinta stockholders beneficially owning in the aggregate, as of November 28, 2017, approximately 52% of Melinta’s outstanding common stock, entered into voting agreements with Medicines (which agreements are attached as Annex E and which are referred to herein as “the voting agreements”). The voting agreements provide, among other things, that the parties to the agreement will vote the shares of Melinta capital stock held by them in favor of the Proposal.

Interests of Melinta’s Directors and Executive Officers (see page [])

In considering the recommendation of Melinta’s board of directors with respect to the Proposal to be acted upon by Melinta stockholders at the Special Meeting, Melinta stockholders should be aware that certain members of the board of directors of Melinta have interests in the acquisition that may be different from, or in addition to, interests they may have as Melinta stockholders.

As noted under “Security Ownership of Principal Stockholders and Management of Melinta” beginning on page [●] of this proxy statement, as of [●], 2017, Vatera Healthcare Partners LLC, or Vatera, beneficially owned approximately [●]% of the outstanding shares of Melinta common stock. Kevin Ferro, a current director of Melinta, is the Chief Executive Officer, Chief Investment Officer and the managing member of Vatera Holdings LLC, the manager of Vatera; Thomas Koestler, a current director of Melinta, is an Executive Director of Vatera

 



 

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Holdings LLC; and Cecilia Gonzalo, a current director of Melinta, is a Managing Director of Vatera Holdings LLC. In connection with the acquisition, Vatera entered into the Vatera equity commitment letter described in this proxy statement. The terms of the Vatera equity commitment letter, which were priced at the same terms as the Deerfield equity investment, were reviewed and approved by the non-Vatera members of Melinta’s board of directors.

Risk Factors (see page [])

The acquisition and related financings, including the possibility that the acquisition may not be consummated, poses a number of risks to Melinta and its stockholders.

 



 

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SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA

Introductory Note

On November 3, 2017, Cempra, Inc., a publicly traded Delaware corporation, completed its business combination with Melinta Therapeutics, Inc., a privately held Delaware corporation, in accordance with the terms of an Agreement and Plan of Merger and Reorganization, dated as of August 8, 2017, as amended on each of September 6, 2017 and October 24, 2017 (as so amended, the “Merger Agreement”) by and among Cempra, Inc., Melinta Therapeutics, Inc. and Castle Acquisition Corp. (“Merger Sub”). On November 3, 2017, pursuant to the Merger Agreement, Merger Sub merged with and into Melinta Therapeutics, Inc., with Melinta Therapeutics, Inc. surviving the merger and becoming a wholly owned subsidiary of Cempra, Inc. (the “Merger”). Concurrently with the effectiveness of the Merger, Cempra, Inc. changed its name to Melinta Therapeutics, Inc. and Melinta Therapeutics, Inc. changed its name to Melinta Subsidiary Corp.

For purposes of the financial disclosures in this proxy statement, “Cempra” refers to Cempra, Inc. for the period prior to the Merger. For accounting purposes, the Merger is treated as a reverse acquisition and, as such, the historical financial statements of the accounting acquirer (Melinta) became the historical financial statements of the combined company.

Summary of Financial Data

The following tables present summary historical financial data for each of Melinta, Cempra and certain assets of Medicines known, collectively, as the Infectious Disease Business (“IDB”), summary unaudited pro forma condensed combined financial data for Melinta, Cempra and IDB and comparative historical and unaudited pro forma per share data for Melinta, Cempra and IDB.

 



 

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Selected Historical Consolidated Financial Data of Melinta

The following table presents selected historical consolidated financial data for Melinta as of and for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, and as of September 30, 2017 and for the nine months ended September 30, 2017 and 2016. Melinta derived the following consolidated statements of operations data for the years ended December 31, 2016, 2015 and 2014, and the consolidated balance sheet data as of December 31, 2016 and 2015, from its audited consolidated financial statements and related notes included in Melinta’s Current Report on 8-K/A filed with the SEC on December 5, 2017, which document is attached as Exhibit A to this proxy statement. The consolidated statements of operations data for the nine months ended September 30, 2017 and 2016, and the consolidated balance sheet data as of September 30, 2017, are derived from Melinta’s unaudited consolidated financial statements and related notes included in its Current Report on 8-K/A filed with the SEC on December 5, 2017, which is attached as Exhibit A to this proxy statement. The consolidated statements of operations data for the years ended December 31, 2013 and 2012, and the consolidated balance sheet data as of December 31, 2014, 2013 and 2012 have been derived from Melinta’s consolidated financial statements for such periods, which have not been included in this document or incorporated into this document by reference. Melinta’s historical results are not necessarily indicative of the results that may be expected in the future and results of interim periods are not necessarily indicative of the results for the entire year. The following selected financial data should be read in conjunction with the section entitled “Melinta’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto appearing in Melinta’s Current Report on Form 8-K/A filed with the SEC on December 5, 2017, which document is attached as Exhibit A to this proxy statement.

 

     As of December 31,     As of
September 30,
 
     2016     2015      2014     2013     2012     2017  
     (in thousands)  
                                       

Balance Sheet Data:

             

Cash and equivalents

   $ 11,409     $ 30,158      $ 10,541     $ 10,113     $ 15,186     $ 12,193  

Working capital

   $ (8,330   $ 13,385      $ (10,727   $ (8,958   $ (9,266   $ (1,348

Total assets

   $ 16,634     $ 36,228      $ 13,866     $ 13,764     $ 16,552     $ 38,160  

Convertible payable promissory notes

   $ 45,127     $ —        $ —       $ —       $ —       $ 73,101  

Convertible preferred stock

   $ 218,343     $ 204,727      $ 114,114     $ 67,498     $ 18,460     $ 217,220  

Accumulative deficit

   $ 513,743     $ 439,811      $ 361,135     $ 293,351     $ 244,849     $ 553,880  

Total stockholders’ deficit

   $ 293,451     $ 222,099      $ 145,573     $ 79,163     $ 30,997     $ 330,742  

 

    Year Ended December 31,     Nine Months Ended September 30,  
    2016     2015     2014     2013     2012             2017                     2016          
          (in thousands, except per share data)        

Revenue

  $ —       $ —       $ —       $ 4,278     $ 8,295     $ 29,633     $ —    

Operating expenses:

             

Research and development

    49,791       62,788       53,647       42,290       15,456       37,876       33,489  

Selling, general and administrative

    19,410       14,159       13,562       12,507       9,006       25,976       14,824  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    69,201       76,947       67,209       54,797       24,462       63,852       48,313  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

    (69,201     (76,947     (67,209     (50,519     (16,167     (34,219     (48,313
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net

    (4,731     (1,729     (575     2,017       15,582       (5,917     (3,237
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (73,932   $ (78,676   $ (67,784   $ (48,502   $ (585   $ (40,136   $ (51,550
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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Selected Historical Consolidated Financial Data of Cempra

The following table presents selected historical consolidated financial data for Cempra as of and for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, and as of and for the nine months ended September 30, 2017 and 2016. Cempra derived the following consolidated statements of operations data for the years ended December 31, 2016, 2015 and 2014, and the consolidated balance sheet data as of December 31, 2016 and 2015, from its audited consolidated financial statements and related notes included in Cempra’s Annual Report on Form 10-K for the year ended December 31, 2016, as amended by Amendment No. 1 on Form 10-K/A, which document is attached as Exhibit C to this proxy statement. The consolidated statements of operations data for the years ended December 31, 2013 and 2012, and the consolidated balance sheet data as of December 31, 2014, 2013 and 2012 have been derived from Cempra’s audited consolidated financial statements for such periods, which have not been incorporated into this document by reference. The consolidated statements of operations data for the nine months ended September 30, 2017 and 2016, and the consolidated balance sheet data as of September 30, 2017, are derived from Cempra’s unaudited consolidated financial statements and related notes included in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, which is attached as Exhibit B to this proxy statement. Cempra’s historical results are not necessarily indicative of the results that may be expected in the future and results of interim periods are not necessarily indicative of the results for the entire year. The following selected financial data should be read in conjunction with the section entitled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto appearing in Cempra’s Annual Report on Form 10-K for the year ended December 31, 2016, as amended by Amendment No. 1 on Form 10-K/A, which document is attached as Exhibit C to this proxy statement and Cempra’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, which is attached as Exhibit B to this proxy statement.

 

     As of December 31,      As of
September 30,
 
     2016      2015      2014      2013      2012      2017  
     (in thousands)  

Balance Sheet Data:

                 

Cash and equivalents

   $ 231,553      $ 153,765      $ 99,113      $ 96,503      $ 70,109      $ 176,134  

Working Capital

   $ 208,774      $ 144,086      $ 86,766      $ 87,675      $ 65,029      $ 164,116  

Total assets

   $ 238,515      $ 162,140      $ 105,311      $ 99,008      $ 70,738      $ 179,880  

Total debt

   $ 15,327      $ 19,702      $ 18,472      $ 14,739      $ 9,850      $ 10,349  

Total shareholders’ equity

   $ 183,348      $ 117,665      $ 61,021      $ 69,975      $ 57,770      $ 143,557  

 

    Year Ended December 31,     Nine Months Ended September 30,  
    2016     2015     2014     2013     2012             2017                     2016          
          (in thousands, except per share data)        

Revenue:

             

Total revenue

  $ 18,016     $ 27,308     $ 15,216     $ 7,813     $ —       $ 7,449     $ 10,071  

Operating expenses:

             

Research and development

    81,686       93,353       62,539       41,300       16,869       28,338       60,643  

General and administrative

    53,538       22,871       12,077       9,433       6,069       21,291       35,333  

Restructuring

    —         —         —         —         —         3,553       —    

Total operating expenses

    135,224       116,224       74,616       50,733       22,938       53,182       95,976  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (117,208     (88,916     (59,400     (42,920     (22,938     (45,733     (85,905
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net

    (753     (2,197     (2,249     (2,114     (1,289     219       (618
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (117,961   $ (91,113   $ (61,649   $ (45,034   $ (24,227   $ (45,514   $ (86,523
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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    Year Ended December 31,     Nine Months Ended September 30,  
    2016     2015     2014     2013     2012             2017                     2016          
          (in thousands, except per share data)        

Accretion of redeemable convertible preferred shares

    —         —         —         —         (313     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common shareholders

  $ (117,961   $ (91,113   $ (61,649   $ (45,034   $ (24,540   $ (45,514   $ (86,523
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted loss per share

  $ (2.34   $ (2.09   $ (1.81   $ (1.53   $ (1.23   $ (0.87   $ (1.74
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computation of basic and diluted loss per share

    50,313,614       43,565,518       34,130,901       29,449,716       19,882,585       52,470,568       49,616,785  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Selected Historical Combined Financial Data of IDB

The following table presents selected historical combined financial data for IDB as of and for the years ended December 31, 2016 and 2015, and as of and for the nine months ended September 30, 2017 and 2016. IDB derived the following statements of operations and comprehensive loss for the years ended December 31, 2016 and 2015, and the balance sheet data as of December 2016 and 2015, from its audited financial statements and related notes, included elsewhere in this proxy statement. The statements of operations and comprehensive loss for the nine months ended September 30, 2017 and 2016, and the balance sheet data as of September 30, 2017, are derived from its unaudited condensed and combined financial statements and related notes, included elsewhere in this proxy statement. IDB’s historical results are not necessarily indicative of the results that may be expected in the future and results of interim periods are not necessarily indicative of the results for the entire year. The following selected financial data should be read in conjunction with “Medicines Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto appearing elsewhere in this proxy statement.

 

     Year Ended
December 31,
    Nine Months Ended
September 30,
 
     2016     2015     2017     2016  
     (in thousands)  

Statement of Operations Data:

        

Net revenue

   $ 24,973     $ 14,460     $ 23,635     $ 16,904  

Operating expenses:

        

Cost of revenue

     11,247       15,905       12,681       8,488  

Research and development

     51,841       37,662       37,399       30,633  

Selling, general and administrative

     139,443       82,432       94,527       103,562  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     202,531       135,999       144,607       142,683  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (177,558     (121,539     (120,972     (125,779

Other (expense) income

     (19     199       (820     (148
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (177,577     (121,340     (121,792     (125,927

Income tax benefit (expense)

     206       12,809       66,006       (12
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (177,371   $ (108,531   $ (55,786   $ (125,939
  

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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     As of December 31,     As of September 30,  
     2016     2015     2017  
     (in thousands)  

Balance Sheet Data:

      

Cash, cash equivalents and short-term investments

   $ —       $ —       $ —    

Working capital (deficit)

   $ (48,680   $ (22,280   $ (26,475

Total assets

   $ 430,346     $ 419,841     $ 426,935  

Total equity

   $ 196,681     $ 236,149     $ 310,583  

Selected Unaudited Pro Forma Combined Financial Data of Melinta, Cempra and IDB

The unaudited pro forma combined financial statements give effect to two transactions: the Merger and the acquisition. In addition, to fund the acquisition, Melinta will enter into a senior secured credit facility pursuant to the Deerfield commitment letter (“Credit Facility”) and receive additional equity investments pursuant to the Deerfield commitment letter and the equity commitment letters at the closing the acquisition. The acquisition and these concurrent financing activities are referred to collectively as the “Transaction.”

The following summary unaudited pro forma condensed combined financial data is intended to show how the Merger and the Transaction might have affected historical financial statements if the Merger and the Transaction had been completed on January 1, 2016 for the purposes of the statements of operations and as of September 30, 2017 for the purposes of the balance sheet and was prepared based on the historical financial results reported by Melinta, Cempra and IDB. This unaudited pro forma combined financial data was prepared using the acquisition method of accounting with Melinta considered the acquirer of both Cempra and IDB. The following should be read in conjunction with the Melinta historical audited consolidated financial statements for the year ended December 31, 2016, and the Melinta unaudited condensed and consolidated financial statements for the nine months ended September 30, 2017, included on Form 8-K/A filed with the SEC on December 5, 2017, attached as Exhibit A to this proxy statement; Cempra’s audited and unaudited historical financial statements and notes thereto of Cempra’s Annual Report on Form 10-K for the year ended December 31, 2016, attached as Exhibit C to this proxy statement and Cempra’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, attached as Exhibit B to this proxy statement; IDB’s audited and unaudited historical financial statements and the notes thereto for the year ended December 31, 2016 and the nine months ended September 30, 2017, attached as Exhibit D to this proxy statement; and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page [●] of this proxy statement and the other information contained in this proxy statement.

The unaudited pro forma condensed combined financial statements were prepared in accordance with the regulations of the SEC. The pro forma adjustments reflecting the completion of the Merger and the Transaction are based upon the acquisition method of accounting in accordance with GAAP, and upon the assumptions set forth in the notes to the unaudited pro forma condensed combined financial statements beginning on page [●] of this proxy statement.

The historical financial data has been adjusted to give pro forma effect to events that are (i) directly attributable to the Merger and the Transaction, (ii) factually supportable and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results. The pro forma adjustments are preliminary and based on management’s estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the acquisition and certain other adjustments.

The unaudited pro forma condensed combined financial data is presented for illustrative purposes only and is not necessarily indicative of the financial condition or results of operations of future periods or the financial condition or results of operations that actually would have been realized had the entities been combined during the periods presented. In addition, as explained in more detail in the accompanying notes to the unaudited pro

 



 

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forma condensed combined financial statements (see the section entitled “Unaudited Pro Forma Combined Financial Statements” beginning on page [●] of this proxy statement), the preliminary acquisition-date fair value of the identifiable assets acquired and liabilities assumed reflected in the unaudited pro forma condensed combined financial statements is subject to adjustment and may vary from the actual amounts that will be recorded upon completion of the merger.

 

     Year Ended
December 31,
     Nine Months Ended
September 30,
 
     2016      2017  
     (in thousands)  

Unaudited Pro Forma Condensed Combined Statements of Operations Data:

     

Revenue

   $ 42,989      $ 60,717  

Operating expenses:

     

Cost of product revenue

   $ 31,666      $ 27,118  

Research and development

   $ 180,668      $ 101,625  

Selling, general and administrative

   $ 216,867      $ 135,654  

Restructuring charge

   $ —        $ 3,553  

Total operating expenses

   $ 429,201      $ 267,950  

Total other expense

   $ 19,586      $ 14,674  

Net loss

   $ 405,798      $ 221,907  
           

 

As of September 30,

 
            2017  

Unaudited Pro Forma Combined Balance Sheet Data:

     

Cash and cash equivalents

      $ 184,232  

Working capital

      $ 143,346  

Total assets

      $ 614,911  

Stockholders’ equity

      $ 251,040  

Comparative Historical and Unaudited Pro Forma Per Share Data

The following table sets forth certain historical, unaudited pro forma condensed combined and pro forma condensed combined equivalent financial information and reflects:

Melinta and Cempra Historical Data: the historical Melinta net loss and book value per share of Melinta common stock and the Cempra net loss and book value per share of Cempra common stock;

Combined Company Pro Forma Data: the unaudited pro forma combined company net loss after giving effect to the Merger and the Transaction on a purchase basis as if the Merger had been completed on January 1, 2016; and

 



 

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You should read the table below in conjunction with the financial statements of Melinta and Cempra included in Exhibits A, B, and C respectively, of this proxy statement, and the related notes thereto. You are urged to also read the section entitled “Unaudited Pro Forma Combined Financial Statements” beginning on page [●] of this proxy statement.

 

     Year Ended
December 31, 2016
     Nine Months Ended
September 30, 2017
 

Melinta Historical Data

     

Basic and diluted net loss per common share:

   $ (94.29    $ (45.26

Book value per common share

      $ (261.25

Cempra Historical Data

     

Basic and diluted net loss per common share:

   $ (2.34    $ (0.87

Book value per common share

      $ 2.74  

Combined Company Pro Forma Data

     

Basic and diluted net loss per common share:

   $ (13.51    $ (7.24

Book value per common share

      $ 8.19  

 



 

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RISK FACTORS

If the acquisition is consummated, the company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement, you should carefully consider the risks described below before deciding how to vote your shares of common stock. You should also read and consider the other information in this proxy statement, including the other annexes attached hereto.

Risks Related to the Acquisition

Although Melinta expects that the acquisition will result in benefits, Melinta may not realize those benefits because of integration difficulties.

Integrating the acquired operations of Medicines’ infectious disease business successfully or otherwise realizing any of the anticipated benefits of the acquisition, including additional revenue opportunities, involves a number of challenges. The failure to meet these integration challenges could seriously harm Melinta’s results of operations and the market price of Melinta’s common stock may decline as a result. As part of the acquisition, Melinta and Medicines have entered into a transition services agreement to assist with integration following the acquisition. Melinta’s inability or failure to implement an orderly transition or the insufficiency of its integration plans and procedures could result in failure of or delays in the integration and could adversely impact Melinta’s business, results of operations and financial condition.

Melinta stockholders will experience dilution as a consequence of, among other transactions, the issuance of Melinta common stock in connection with the acquisition. Having a minority share position may reduce the influence that Melinta’s current stockholders have on the management of Melinta.

Current Melinta stockholders will experience substantial dilution upon the issuance of additional Melinta common stock pursuant to the Medicines purchase agreement, the Deerfield commitment letter (including the warrants issuable thereunder) and the equity commitment letters. Such dilution could, among other things, limit the ability of the current stockholders to influence management of Melinta, including through the election of directors following the acquisition.

Following the closing of the acquisition, Medicines, Deerfield, Vatera and our other stockholders may sell our common stock into the market, which could cause our stock price to decline.

While the Medicines registration rights agreement will provide for a 180 day lock-up on 50% of the shares of Melinta common stock issued to Medicines pursuant to the Medicines purchase agreement, the remaining 50% of the shares issued to Medicines, together with all of the shares of Melinta common stock being issued to Deerfield pursuant to the Deerfield commitment letter and Vatera and JWC pursuant to its equity commitment letter, will not be subject to a contractual lock-up. Once these shares become eligible for resale pursuant to a re-sale registration statement (which will be filed for each of Medicines, Deerfield, JWC and Vatera no later than 2 business days after closing) or pursuant to Rule 144, together with all of the shares issued to the pre-closing shareholders of the former Melinta prior to its merger with Cempra which become eligible for resale in May 2018, the sale of a substantial number of our shares by Medicines, Deerfield, JWC Vatera or our other stockholders within a short period of time could cause our stock price to decline, make it more difficult for us to raise funds through future offerings of our common stock or acquire other businesses using our common stock as consideration.

Following the consummation of the acquisition, Melinta will have substantial leverage, which could adversely affect the ability to raise capital or access other financing to fund Melinta’s business operations and limit Melinta’s ability to react to changes in the economy or its industry.

Following the consummation of the acquisition, including the funding of the indebtedness pursuant to the Deerfield commitment letter, upon the satisfaction of the conditions set forth therein, Melinta will have a

 

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substantial amount of indebtedness. Having a substantial amount of leverage may have important consequences, including:

 

    requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on indebtedness, thereby reducing the ability to use cash flow from Melinta’s operations to fund operations, capital expenditures, and future business opportunities;

 

    limiting the ability to obtain additional financing for working capital, capital expenditures, product and service development, debt service requirements, acquisitions, and general corporate or other purposes including equipment financing at reasonable rates, which is vital to Melinta’s business;

 

    increasing the risks of adverse consequences resulting from a breach of any indebtedness agreement, including, for example, a failure to make required payments of principal or interest due to failure of the acquired business to perform as expected;

 

    increasing vulnerability to general economic and industry conditions;

 

    restricting the ability to make strategic acquisitions or requiring non-strategic divestitures;

 

    subjecting Melinta’s operations to restrictive covenants that may limit operating flexibility; and

 

    placing Melinta’s operations at a competitive disadvantage compared to competitors that are less highly leveraged.

Despite Melinta’s substantial leverage, it may be able to incur significant additional amounts of debt, which could further exacerbate the risks associated with its significant leverage.

Subsequent to the consummation of the acquisition, Melinta may be required to take writedowns or write-offs, restructuring and impairment or other charges that could have a significant negative effect on its financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.

Although Melinta has conducted due diligence on the acquired products, Melinta cannot assure you that this diligence revealed all material issues that may be present, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of Melinta’s control will not later arise. As a result, Melinta may be forced to later write down or write off assets, restructure its operations, or incur impairment or other charges that could result in losses. Even if Melinta’s due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with its preliminary risk analysis. Even though these charges may be non-cash items and may not have an immediate impact on Melinta’s liquidity, the fact that Melinta reports charges of this nature could contribute to negative market perceptions about Melinta or its securities. In addition, charges of this nature may cause Melinta to be unable to obtain future financing on favorable terms or at all.

Some of Melinta’s directors have conflicts of interest that may influence them to support or approve the acquisition.

Certain directors of Melinta are participating in arrangements that provide them with interests in the acquisition that are different from yours. As noted under “Security Ownership of Principal Stockholders and Management of Melinta” beginning on page [●] of this proxy statement, as of [●], 2017, Vatera beneficially owned approximately [●]% of the outstanding shares of Melinta common stock. Three of the current nine directors of Melinta are affiliated with Vatera. In connection with the acquisition, Vatera entered into the Vatera equity commitment letter described in this proxy statement. While the terms of the Vatera equity commitment letter were reviewed and approved by the non-Vatera members of Melinta’s board of directors, and priced on the same terms as the Deerfield equity investment, the Vatera directors may have interests in the acquisition that are different from the interests of Melinta stockholders generally.

 

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The acquisition may be completed even though material adverse changes may result from the announcement of the acquisition, industry-wide changes and other causes.

In general, either party can refuse to complete the acquisition if there is a material adverse change affecting the other party between November 28, 2017, the date of the Medicines purchase agreement, and the closing. However, some types of changes do not permit either party to refuse to complete the merger, even if such changes would have a material adverse effect on Medicines or Melinta, to the extent they resulted from the following (unless, in some cases, they have a materially disproportionate effect on Medicines or Melinta, as the case may be):

 

    general legal, tax, economic, political or regulatory conditions;

 

    conditions (or changes therein) in the market for branded pharmaceutical products, infectious disease pharmaceutical products or the pharmaceutical industry generally;

 

    any changes in financial, banking or securities markets in general, including any disruption thereof and any decline in the price of any security or any market index or any change in prevailing interest or exchange rates;

 

    acts of war (whether or not declared), armed hostilities, cyber-attack or terrorism, or the escalation or worsening thereof;

 

    any changes or prospective changes in applicable laws or accounting rules or principles (including GAAP) or the enforcement, implementation or interpretation thereof;

 

    the results of any pre-clinical or clinical testing sponsored by Medicines, any of their competitors or any of their respective collaboration partners;

 

    any change or prospective change in reimbursement or payor rules or policies applicable to any product or product candidates of Medicines or the products or product candidates of any of their competitors;

 

    any natural or man-made disaster or acts of God;

 

    the failure to meet any financial or other plan, estimate, budget or projection; or

 

    any change in Medicines stock price or trading volume.

Risks Related to the Acquired Products

Because Melinta and the acquired business are similar and both are pharmaceutical businesses in the anti-infectives space, many of the risks related to the business of Melinta, disclosed in Melinta’s filings with the Securities and Exchange Commission, are applicable to the acquired business as well and should be read in conjunction with the risk factors set forth herein.

If we are not successful with our launch of Vabomere and Baxdela or the launches of other products in the future, or experience significant delays in doing so, our business likely would be materially harmed.

Medicines commercially launched Orbactiv in the United States in the third quarter of 2014, launched the new formulation of Minocin IV in the United States in 2015 and launched Vabomere in the United States in the fourth quarter of 2017. We are also commercially launching Baxdela in the first quarter of 2018. Commercial launches of this number of products in such a short period of time will require significant efforts from us and the devotion of substantial resources as we will need to finalize regulatory submissions, have manufactured sufficient quantities of product to commence commercial sales and establish the infrastructure necessary to commercially launch these products and products in development.

Our ability to successfully commercially launch these products and products in development will depend on our ability to:

 

    conduct clinical trials and make regulatory submissions and obtain regulatory approvals in the timeframes anticipated;

 

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    train, deploy and support a qualified sales force to market and sell our newly launched products;

 

    secure formulary approvals at our hospital customers;

 

    have third parties manufacture and release the products in sufficient quantities;

 

    implement and maintain agreements with wholesalers, distributors and group purchasing organizations;

 

    receive adequate levels of coverage and reimbursement for these products from governments and third-party payors; and

 

    develop and execute marketing and sales strategies and programs for the products.

We expect that the revenues from these products and products in development will represent a significant portion of our revenues in the future. As a result, if we are unable to successfully commercialize these products and products in development, our business, results of operations and financial condition likely would be materially harmed.

Orbactiv faces significant competition from branded and generic drugs treating acute bacterial skin or skin structure infections, or ABSSSI, which may limit the use of Orbactiv and adversely affect our anticipated revenue.

Orbactiv is an intravenous antibiotic approved by the U.S. Food and Drug Administration (FDA) for the treatment of ABSSSI, caused or suspected to be caused by susceptible gram-positive bacteria, including methicillin-resistant staphylococcus aureaus, or MRSA.

Competition in the market for therapeutic products that address gram-positive bacterial infections is intense. In particular, there are a variety of available therapies marketed for the treatment of ABSSSI. Some of these products are branded and subject to patent protection, and others are available on a generic basis. Many of these approved products, including vancomycin, ceftaroline (Teflaro), clindamycin, daptomycin, linezolid and telavancin (Vibativ) are well established therapies and are widely accepted by physicians, patients and hospital decision-makers. Additionally, insurers and other third-party payers may encourage the use of generic products. Vancomycin, for instance, which is sold in a relatively inexpensive generic form, has been widely used for over 50 years, is the most frequently used IV antibiotic, and we believe, based on our market research, is prescribed to approximately two-thirds of all hospitalized ABSSSI patients. If physicians and hospital decision-makers do not accept the potential advantages of Orbactiv, or are otherwise hesitant or slow to adopt Orbactiv, our anticipated revenues could be adversely affected.

There are also a number of products approved or in clinical development by third parties to treat ABSSSI. Approved products include Sivextro from Cubist Pharmaceuticals, Inc. (now a subsidiary of Merck & Co, Inc.), and Dalvance from Durata Therapeutics, Inc. (now a subsidiary of Allergan plc). Additionally, several companies have products in development that, if approved, may compete with Orbactiv. If any of these product candidates or any other products developed by our competitors are more effective, safer, more convenient or less costly than Orbactiv, or would otherwise render Orbactiv obsolete or non-competitive, our anticipated revenues from Orbactiv could be adversely affected.

Risks Related to Melinta’s Financial Position and Need for Additional Capital

Melinta will need to obtain additional financing to fund its operations.

Melinta will need to obtain additional financing to fund future operations, including the commercialization of Baxdela and Vabomere and to support the ongoing sales of Minocin IV and Orbactiv, as well as the development and commercialization of its product candidates and to support sales and marketing activities. Moreover, Melinta’s fixed expenses such as rent, license payments, interest expense and other contractual commitments are substantial.

 

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Melinta’s future funding requirements will depend on many factors, including, but not limited to:

 

    the costs and timing of establishing sales, marketing, and reimbursement capabilities;

 

    the initiation, progress, timing, scope and costs of its nonclinical studies and clinical trials, including the ability to timely enroll patients in its ongoing, planned and potential future clinical trials;

 

    the time and cost necessary to obtain regulatory approvals;

 

    the costs of manufacturing clinical and commercial supplies of Baxdela, the Products acquired from Medicines and its other product candidates;

 

    payments of milestones and royalties to third parties;

 

    the time and cost necessary to respond to technological and market developments;

 

    the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and

 

    the terms of any collaborative, license and other commercial relationships that Melinta may establish.

Until Melinta can generate a sufficient amount of revenue, it may raise additional funds through collaborations and registered public or private debt or equity financings. Additional funds may not be available when needed on terms that are acceptable, or at all. To the extent that Melinta raises additional capital through the sale of equity or convertible debt securities, the ownership interest of existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting its ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends.

 

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FORWARD-LOOKING STATEMENTS

This proxy statement includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. For this purpose, any statements contained herein, other than statements of historical fact, including statements regarding the proposed acquisition, including the expected timetable for completing the acquisition; future financial and operating results, including targeted product milestones and potential revenues; the progress and timing of product development programs and related trials; and the potential efficacy of products and product candidates, may be forward-looking statements under the provisions of The Private Securities Litigation Reform Act of 1995. In this proxy statement, words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will,” and variations of such words or similar expressions are used to identify these forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including risks relating to: the ability to consummate the proposed acquisition; risks related to our substantial indebtedness; clinical trials, including difficulties or delays in the completion of patient enrollment, data collection or data analysis; uncertainties in obtaining successful pre-clinical and clinical results for product candidates and unexpected costs that may result therefrom; ability to obtain required regulatory approvals for product candidates; costs, timing and regulatory review of the combined company’s studies and clinical trials, including its ability to address the issues identified by the FDA in the CRL relating to Melinta’s NDAs for solithromycin for CABP; failure to realize any value of certain product candidates developed and being developed, in light of inherent risks and difficulties involved in successfully bringing product candidates to market; the ability to develop new product candidates and support existing products; the ability to commercialize and launch any product candidate that receives regulatory approval, including Baxdela and the Products; the risk that the market for Melinta’s products, including Baxdela, or the Products may not be as large as expected; the ability to attain market acceptance among physicians, patients, patient advocacy groups, health care payors and the medical community for Baxdela and any future products of Melinta; the ability to continue marketing Baxdela, the Products or any approved drug successfully or at all once it is on the market in light of challenges relating to regulatory compliance, pricing, market acceptance and competition; the ability to obtain the substantial additional funding required to conduct development and commercialization activities; and the ability to obtain, maintain and enforce patent and other intellectual property protection for currently marketed products and product candidates. These and other risks are described in greater detail in the section entitled “Risk Factors” beginning on page [●] of this proxy statement. Many of these factors that will determine actual results are beyond Melinta’s ability to control or predict. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition, any forward-looking statements in this proxy statement represent Melinta’s views only as of the date of this proxy statement and should not be relied upon as representing Melinta’s views as of any subsequent date. Melinta anticipates that subsequent events and developments will cause its views to change. However, while Melinta may elect to update these forward-looking statements publicly at some point in the future, Melinta specifically disclaims any obligation to do so, except as may be required by law, whether as a result of new information, future events or otherwise. Melinta’s forward-looking statements generally do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments it may make.

 

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THE SPECIAL MEETING

Melinta is furnishing this proxy statement to its stockholders as part of the solicitation of proxies by Melinta’s board of directors for use at the Special Meeting and at any adjournments or postponements thereof.

Date, Time and Place

The Special Meeting will be held at 8:00 a.m., local time, on [●], 2017, at the offices of [●] located at [●].

If you are a holder of record and plan to attend the Special Meeting, please bring your proxy or a photo identification to confirm your identity. If you are a beneficial owner of common stock held by a bank or broker, i.e., in “street name,” you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or letter from a bank or broker are examples of proof of ownership. If you want to vote in person your common stock held in “street name,” you must get a proxy in your name from the registered holder.

Purpose of the Special Meeting

The purpose of the Special Meeting is to consider and act upon the approval of the issuance of Melinta common stock pursuant to the Medicines purchase agreement, the Deerfield commitment letter and the equity commitment letters, and the issuance of the Deerfield warrant (and the shares issuable upon exercise of, or otherwise pursuant to, such warrant) as contemplated by the Deerfield commitment letter, as well as any other items that may properly come before the meeting.

Recommendation of Melinta’s Board of Directors

After careful consideration, Melinta’s board of directors unanimously recommends that Melinta stockholders vote FOR the Proposal to approve the issuance of Melinta common stock pursuant to the Medicines purchase agreement, the Deerfield commitment letter and the equity commitment letters, and the issuance of the Deerfield warrant (and the shares issuable upon exercise of, or otherwise pursuant to, such warrant) as contemplated by the Deerfield commitment letter and FOR the adjournment of the Special Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Proposal.

Voting by Melinta’s Principal Stockholders

In connection with the execution of the Medicines purchase agreement, holders beneficially owning, as of November 28, 2017, approximately 52% of the shares of Melinta’s outstanding common stock, have entered into voting agreements with Medicines. The voting agreement, which is attached as Annex E hereto, provides among other things, that the parties to the agreements will vote (i) in favor of the acquisition and the adoption of the Medicines purchase agreement and the transactions contemplated thereby; and (ii) against any action or agreement that has or would be reasonably likely to result in any conditions under the Medicines purchase agreement not being fulfilled, any amendments to Melinta’s certificate of incorporation or bylaws, if such amendment would be expected to prevent or delay the closing of the acquisition or any other action or agreement that is intended, or could reasonably be expected, to impede, interfere with, delay or postpone the transactions contemplated by the Medicines purchase agreement or change in any manner the voting rights of any class of stock of Melinta. For more information on the voting agreement, please see the section of this proxy statement entitled “Agreements Related to the Acquisition” beginning on page [●].

Record Date and Stockholders Entitled to Vote

Only holders of record of shares of Melinta common stock at the close of business on [●], 2017, the record date for the Special Meeting, are entitled to vote the shares of Melinta common stock they held on the record date at the Special Meeting. At the close of business on the record date, there were [●] shares of common stock outstanding and entitled to vote at the Special Meeting, held by approximately [●] stockholders of record. Each holder of record is entitled to one vote for each share of Melinta common stock held by such stockholder on the record date on the proposals presented in this proxy statement.

 

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Voting Procedures

If your common stock is held by a broker, bank or other nominee, they should send you instructions that you must follow in order to have your shares voted. If you hold shares in your own name, you may vote by proxy in any one of the following ways:

 

    via the internet by accessing the proxy materials on the secure website, [●], and following the voting instructions on that website;

 

    via telephone by calling toll free [●] in the United States or [●] outside the United States and following the recorded instructions; or

 

    by completing, dating, signing and returning the enclosed proxy card.

The internet and telephone voting procedures are designed to authenticate stockholders’ identities by use of a control number to allow stockholders to vote their shares and to confirm that stockholders’ instructions have been properly recorded. Voting via the internet or telephone must be completed by [●], Eastern time on [●], 2017. Of course, you can always come to the meeting and vote your shares in person. If you submit or return a proxy card without giving specific voting instructions, your shares will be voted as recommended by Melinta’s board of directors.

Melinta is not aware of any other matters to be presented at the meeting, except for those described in this proxy statement. If any matters not described in this proxy statement are presented at the meeting, your proxyholder (one of the individuals named on your proxy card) will use their own judgment to determine how to vote your shares. If the meeting is adjourned, your proxyholder may vote your shares on the new meeting date as well, unless you revoke your proxy instructions before then.

Whether or not you plan to attend the Special Meeting in person, please vote as soon as possible to ensure your vote is counted.

Revoking Your Proxy Instructions

If you are a stockholder of record, you can revoke your proxy before your shares are voted at the meeting by:

 

    Filing a written notice of revocation bearing a later date than the proxy with Melinta’s Corporate Secretary at [300 Tri-State International Suite 272, Lincolnshire, IL, 60069, Attn: Investor Relations] at or before the taking of the vote at the meeting;

 

    Duly executing a later-dated proxy relating to the same shares and delivering it to Melinta’s Corporate Secretary at [300 Tri-State International Suite 272, Lincolnshire, IL, 60069, Attn: Investor Relations] at or before the taking of the vote at the meeting; or

 

    Attending the meeting and voting in person (although attendance at the meeting will not in and of itself constitute a revocation of a proxy).

If you are a beneficial owner of shares held in “street name,” you may submit new voting instructions by contacting your bank, broker, nominee or trustee. You may also vote in person at the meeting if you obtain a legal proxy from them.

Counting Votes

Consistent with state law and Melinta’s bylaws, the presence, in person or by proxy, of at least a majority of the shares outstanding and entitled to vote at the meeting will constitute a quorum for purposes of voting on a particular matter at the meeting. On the record date, there were [●] shares of common stock outstanding and entitled to vote. Accordingly, the holders of [●] shares must be present at the Special Meeting to have a quorum.

 

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Once a share is represented for any purpose at the meeting, it is deemed present for quorum purposes for the remainder of the meeting and any adjournment thereof unless a new record date is set for the adjournment. Shares held of record by stockholders or their nominees who do not vote by proxy or attend the meeting in person will not be considered present or represented and will not be counted in determining the presence of a quorum. Signed proxies that withhold authority or reflect abstentions or “broker non-votes” will be counted for purposes of determining whether a quorum is present. “Broker non-votes” are proxies received from brokerage firms or other nominees holding shares on behalf of their clients who have not been given specific voting instructions from their clients with respect to non-routine matters. If there is no quorum, the chairperson of the meeting or any officer entitled to preside at or to act as secretary of the meeting may adjourn the Special Meeting to another date.

Assuming the presence of a quorum at the meeting, the approval of the issuance of Melinta common stock requires the affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting. An abstention will have the same effect as a vote against the approval of these proposals. A “broker non-vote” will have no effect on the outcome of these proposals as it is not entitled to vote on the matters.

With respect to “non-routine” matters, a bank, brokerage firm, or other nominee is not permitted under the SRO rules to vote its clients’ shares if the clients do not provide instructions. The bank, brokerage firm, or other nominee will so note on the voting instruction form, and this constitutes a “broker non-vote.” “Broker non-votes” will be counted for purposes of establishing a quorum to conduct business at the meeting, but not for determining the number of shares voted FOR, AGAINST, ABSTAINING or WITHHELD FROM with respect to such non-routine matters.

In summary, if you do not vote your proxy, your bank, brokerage firm, or other nominee may either:

 

    cast a “broker non-vote” on non-routine matters; or

 

    leave your shares unvoted altogether.

Melinta encourages you to provide instructions to your bank, brokerage firm, or other nominee by voting your proxy. This action ensures that your shares will be voted in accordance with your wishes at the meeting.

Solicitation of Proxies

Melinta will pay the cost of this proxy solicitation. You will need to obtain your own internet access if you choose to access the proxy materials and/or vote over the internet. In addition to soliciting proxies by mail, Melinta’s directors, executive officers and employees might solicit proxies personally and by telephone. None of these individuals will receive any additional compensation for this. Melinta has engaged Georgeson to assist Melinta in the distribution of proxy materials and the solicitation of votes described above for a fee of $[●], plus additional fees based on the amount and types of services rendered and reimbursement of reasonable expenses. Melinta will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their principals and obtaining their proxies.

Adjournments and Postponements

The Special Meeting may be adjourned, recessed or postponed if a quorum is not present.

If the time, date and place of an adjourned meeting are announced at the original convening of the Special Meeting, no notice of an adjourned meeting need be given unless, after the adjournment, a new record date is fixed for the adjourned meeting, in which case notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. At any subsequent reconvening of the Special Meeting at which a quorum is present in person or represented by proxy, any business may be transacted that might have been

 

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transacted at the original meeting, and all proxies will be voted in the same manner as they would have been voted at the original convening of the Special Meeting, except for any proxies that have been validly revoked or withdrawn prior to the reconvened meeting.

Assistance

If you need assistance in completing your enclosed proxy card or have questions regarding the Special Meeting, please contact Georgeson, which is acting as Melinta’s proxy solicitation agent in connection with the merger, toll free at [●].

 

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THE ACQUISITION

This section and the section entitled “The Medicines Purchase Agreement” beginning on page [] of this proxy statement describe the material aspects of the acquisition, including the Medicines purchase agreement, the Deerfield commitment letter, the equity commitment letters, the voting agreements and the registration rights agreement. While Melinta believes that this description covers the material terms of the acquisition and the Medicines purchase agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement, including the Medicines purchase agreement, the Deerfield commitment letter, the equity commitment letters, the voting agreements and the registration rights agreement, all of which are attached as Annex A through F to this proxy statement, and the other annexes attached hereto.

Background of the Acquisition

References in this section to “Melinta” refer to (i) for the period prior to November 3, 2017, Melinta Therapeutics, Inc. (now known as Melinta Subsidiary Corp.) prior to its acquisition by Cempra, Inc. on November 3, 2017 and (ii) for the period on or after November 3, 2017, Melinta Therapeutics, Inc. (formerly known as Cempra, Inc.).

From time to time, Melinta has considered strategic business initiatives intended to further the development of its business and maximize stockholder value.

On June 15, 2017, Sundar Kodiyalam and Thomas Koestler, Ph.D., directors of Melinta, contacted Clive A. Meanwell, Chief Executive Officer of the Medicines Company (“Medicines”), to discuss Melinta’s potential interest in acquiring the infectious disease business unit of Medicines, following Medicines’ public announcement in January 2017 that Medicines was exploring alternatives for monetizing, in whole or in part, this business. On August 2, 2017, Messrs. Kodiyalam and Kevin Ferro had a follow-up meeting with Mr. Meanwell and Christopher Cox, Chief Corporate Development Officer of Medicines, to discuss their interest in a potential transaction.

On September 11, 2017, Mr. Kodiyalam contacted Alexander J. Denner, Ph.D, a director of Medicines, to seek information regarding Medicines’ process for selling its infectious disease business unit and, later on the same day, Mr. Kodiyalam and Mr. Meanwell had a conversation regarding the status of Medicines’ process and next steps.

On September 29, 2017, Melinta received access to Medicines’ due diligence data room and initiated its due diligence review. During September 2017 and through the execution of the purchase agreement on November 28, 2017, representatives of Melinta provided continuous updates to members of Melinta’s Board of Directors, including through Board update calls, regarding the potential opportunity and ongoing discussions with Medicines.

On October 13, 2017, Melinta submitted to Medicines a non-binding proposal to acquire the assets of the infectious disease business unit of Medicines, including rights related to the Products (Vabomere, Orbactiv and Minocin IV), and certain associated infrastructure to be determined pending due diligence. The non-binding proposal included (i) a $200 million upfront cash payment, (ii) a $20 million cash payment on the 24-month anniversary of closing, (iii) a $30 million cash payment upon Vabomere EU approval (to offset Medicines’ corresponding milestone obligation) and (iv) royalties on annual net sales of the products equal to (x) 15% on the increment above $100 million and below $400 million and (y) 25% on the increment above $400 million.

On October 23, 2017, Melinta received a second bid process letter from Citigroup Global Markets Inc., which we refer to as Citi, regarding the submission of final, definitive proposals to acquire the infectious disease business unit of Medicines, together with a form of purchase agreement proposed by Medicines. During the period following receipt of the bid process letter, Melinta continued its due diligence review.

 

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Beginning in late October 2017, Melinta engaged in discussions with various potential debt and equity financing sources for the Transaction, including the Deerfield Funds.

On November 3, 2017, Melinta and Cempra completed their merger transaction. On November 7, 2017, the re-constituted Board of Directors of Melinta held its first post-merger Board meeting. At the meeting, members of the Board and management presented to the Board regarding the pending Medicines opportunity and the potential terms of a revised bid proposal. Members of Melinta’s management team provided a detailed review of its commercial and financial assumptions on the Product portfolio held by Medicines, and its projections for the combined business over the near and long term. The Board also discussed potential financing options for the Transaction.

On November 8, 2017, Mr. Kodiyalam together with Dan Wechsler, the newly appointed Chief Executive Officer of Melinta, and John Temperato, Chief Commercial Officer of Melinta, met with Messrs. Meanwell and Cox to discuss the potential transaction.

On November 10, 2017, in accordance with the bid process letter, representatives from Willkie Farr & Gallagher LLP, whom we refer to as Willkie Farr, outside counsel to Melinta, submitted a mark-up of the draft purchase agreement to representatives from Cadwalader, Wickersham & Taft LLP, whom we refer to as Cadwalader, outside counsel to Medicines. On November 14, 2017, representatives from Cadwalader contacted representatives from Willkie Farr to provide feedback on the mark-up, including with respect to the proposed structure of the Transaction, Melinta’s proposed debt and equity financing and Melinta’s request for a reverse termination fee, the structure of the $30 million payment tied to Vabomere EU approval, the mechanism for the acquisition of Product inventory, the requirements for Melinta’s proxy statement for the Transaction, and Melinta’s expected timeline to closing.

On November 16, 2017, in accordance with the bid process letter, Melinta submitted to Citi a revised proposal to acquire the assets of the infectious disease business unit of Medicines. The revised proposal included (i) a $125 million upfront cash payment plus $50 million of Melinta common stock, (ii) a $25 million cash payment on the 12-month anniversary of closing, (iii) a $25 million cash payment on the 18-month anniversary of closing, (iv) the assumption of Medicines’ obligation to third parties to pay $30 million upon Vabomere EU approval, (v) an up to $20 million cash payment for inventory and (vi) royalties on annual net sales of the Products as follows:

 

    U.S. net sales of Vabomere:

 

    On net sales above $50 million and at or below $100 million = 5.0%

 

    On net sales above $100 million and at or below $200 million = 7.5%

 

    On net sales above $200 million and at or below $500 million = 15.0%

 

    On net sales above $500 million = 25%

 

    U.S. combined net sales of Minocin IV and Orbactiv

 

    On net sales at or below $100 million = 5.0%

 

    On net sales above $100 million = 15.0%

 

    On all milestone and royalty payments or other consideration received from ex-U.S. transfers of rights with respect to Vabomere, Orbactiv and Minocin IV = 15.0%

Melinta’s revised proposal included a “highly confident” letter from the Deerfield Funds with respect to up to $220 million of debt and equity financing, together with a term sheet from the Deerfield Funds providing for (i)

 

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$170 million of senior secured promissory notes, less the equity consideration described in clause (ii), (ii) equity consideration equal to 9.98% of Melinta outstanding common stock immediately following the acquisition, priced at 95% of the last closing price prior to execution of the commitment letter, (iii) certain royalties on annual net sales of Vabomere, (iv) a $50 million senior secured delayed draw term facility, and (v) warrants to purchase a number of shares of Melinta common stock equal to 39.5% of the principal amount of the senior secured promissory notes divided by the last closing price of Melinta common stock prior to the execution of the commitment letter, having a strike price equal to 110% of such closing price. Together with its revised proposal, Melinta submitted a revised mark-up of the purchase agreement, which provided that Melinta would be open to discussing a combined stock and asset purchase (as opposed to an asset purchase) and the deletion of the reverse termination fee.

On November 19, 2017, Mr. Kodiyalam contacted Mr. Denner to check on the status of Melinta’s revised proposal and, later on the same day, Mr. Kodiyalam and Messrs. Meanwell and Cox had a conversation regarding Melinta’s revised proposal. Also, on November 19, 2017, representatives from Cadwalader contacted representatives from Willkie Farr to seek further clarity on Melinta’s revised proposal, including with respect to the timeline to closing, the nature of the pro forma financials that Melinta would require in its proxy statement, the concept of a “ticking fee” in the event Melinta failed to close by a certain date, the valuation mechanism for the stock consideration, the proposed 180-day lock-up on the stock consideration, target working capital and the terms of the transition services agreement.

On November 20, 2017, representatives from Citi contacted Mr. Kodiyalam and stated that Melinta needed to improve its proposal in order to remain competitive. On the afternoon of November 20, 2017, Melinta submitted a revised proposal, which included the following modifications from its prior proposal: (i) a $155 million upfront cash payment (reflecting an additional $10 million of cash consideration and moving the up to $20 million inventory adjustment to a fixed $20 million as part of the upfront payment), (ii) a “ticking fee” payable in the event Melinta failed to close within 75 days of signing, (iii) clarification that the $50 million of stock would be determined based on a 10% discount to the 10-day VWAP prior to closing, (iv) a $30 million cash payment on the 18-month anniversary of closing (up from $25 million in its prior proposal) and (v) an additional $10 million cash payment on the 24-month anniversary of closing.

On the evening of November 21, 2017, based on further feedback from Medicines and its advisors, Melinta submitted a revised proposal, which included the following modifications from its prior proposal: (i) a $165 million upfront cash payment (reflecting an additional $10 million of cash consideration), (ii) a “ticking fee” payable in the event Melinta failed to close within 60 days of signing (down from 75 days) and (iii) the availability of a $100 million bridge loan facility to Medicines from the Deerfield Funds.

On the evening of November 21, 2017, Mr. Cox contacted Mr. Kodiyalam to indicate that, while Medicines was not in a position to grant exclusivity to Melinta, the Medicines Board of Directors had authorized Medicines to pursue the negotiation and finalization of definitive documentation with Melinta as soon as possible.

On November 22, 2017, Melinta and the Deerfield Funds entered into a revised term sheet providing for: (i) $190 million of senior secured promissory notes, less the equity consideration described in clause (ii), (ii) equity consideration equal to 9.98% of Melinta outstanding common stock immediately following the acquisition, priced at 90% of the last closing price prior to execution of the commitment letter, (iii) certain royalties on annual net sales of Vabomere, (iv) a $50 million senior secured delayed draw term facility, (v) warrants to purchase a number of shares of Melinta common stock equal to 38.5% of the principal amount of the senior secured promissory notes divided by the last closing price of Melinta common stock prior to the execution of the commitment letter, having a strike price equal to 110% of such closing price and (vi) the availability of a $100 million “bridge” loan facility to Medicines.

On November 23, 2017, representatives from Cadwalader delivered a revised draft of the purchase agreement to representatives from Willkie Farr, reflecting the updated deal terms contained in Melinta’s best and

 

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final proposal previously delivered on November 21, 2017. Between November 23, 2017 and November 28, 2017, representatives from Cadwalader and Willkie negotiated the final terms of the purchase agreement, including with respect to representations and warranties, covenants, and indemnification, and Mr. Kodiyalam and Mr. Cox and Mr. Meanwell had several conversations regarding the finalization of the definitive agreements. During this time period, Melinta also completed its due diligence.

On November 25, 2017, the Board of Directors of Melinta had an update call on the status of the proposed acquisition. At the meeting, representatives of Vatera proposed that, at signing, they would be willing to commit up to $30 million of equity financing necessary to finance the Transaction and that Vatera or its assignees may be willing to subscribe for up to an additional $10 million of Melinta common stock between signing and closing. Vatera’s proposal provided that the equity committed at signing would be priced at the same terms as the Deerfield equity investment (i.e., 90% of the last closing price prior to execution of the commitment letter) and that any additional equity (up to $10 million) subscribed for by Vatera or its assignees between signing and closing would be priced at the same terms as the Melinta common stock being issued to Medicines under the purchase agreement (i.e., 90% of the volume weighted average price for the trailing 10 trading day period ending 3 trading days prior to closing). Following receipt of Vatera’s proposal, six of the nine members of the Board of Directors who are unaffiliated with Vatera (the “non-Vatera directors”) discussed the terms of the proposal, the need for the equity commitment in order to finance the proposed acquisition, the availability of alternative financing, the general market and terms for PIPE investments and other considerations relating to Vatera’s proposed equity investment. Following the meeting, representatives of the non-Vatera directors further discussed the terms of Vatera’s proposed equity investment with Vatera. On November 26, 2017, the non-Vatera directors convened an update call to discuss the status of the proposed Vatera equity investment.

On November 27, 2017, the Board of Directors of Melinta held a telephonic meeting to review and approve the proposed acquisition, including the purchase agreement, the Deerfield commitment letter and the equity commitment letters. At the meeting, representatives from Willkie Farr reviewed the proposed deal terms and advised the Board of its fiduciary duties in considering the proposed acquisition. Members of Melinta’s management team provided a detailed review of its commercial and financial assumptions on the acquired Product portfolio, and its projections for the combined business over the near and long term, including in light of Melinta’s required debt obligations under the Deerfield agreements. At an executive session of the Board meeting, the non-Vatera directors reviewed and unanimously approved the terms of the Vatera equity commitment. After discussion, Melinta’s Board of Directors adopted unanimous resolutions declaring that the purchase agreement and the transactions contemplated thereby were advisable, fair and in the best interests of Melinta and its stockholders, approved the purchase agreement, the Deerfield commitment letter and the equity commitment letters and the transactions contemplated thereby and authorized Melinta to enter into the purchase agreement, the Deerfield commitment letter and the equity commitment letters and the transaction with Medicines. The Board of Directors also recommended that Melinta stockholders vote in favor of the issuance of Melinta common stock pursuant to the purchase agreement, the Deerfield commitment letter (including the warrants issuable thereunder) and the equity commitment letters.

On November 28, 2017, Melinta and the applicable counterparties executed the purchase agreement, the Deerfield commitment letter and the equity commitment letters and certain Melinta stockholders entered into voting agreements with Medicines.

On November 29, 2017, prior to market open, Melinta issued a press release, and held a conference call for the investment community, announcing the execution of the purchase agreement, the Deerfield commitment letter and the equity commitment letters.

Melinta’s Reasons for the Acquisition

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Melinta and its stockholders, and to recommend that the Melinta stockholders approve the issuance of shares of Melinta common stock (including the Deerfield warrants) in connection therewith, the Board of Directors based its determination on its assessment of the following factors:

Focused Portfolio with Significant Commercial Synergies. Once the acquisition closes, Melinta will have a portfolio of four complementary marketed antibiotic assets: Baxdela, recently launched Vabomere, and established commercial products, Orbactiv and Minocin IV. Melinta believes that the acquisition will result in a focused portfolio of high-value marketed assets with significant commercial synergies, allowing Melinta to maximize the value associated with the combined product portfolio.

Optimize Multi-Channel Strategy. Melinta believes the combined product portfolio will significantly enhance Melinta’s multi-channel strategy of delivering antibiotic solutions for ABSSSI and gram-negative infections within the hospital, emergency department and community settings. Each of the acquired Products in the portfolio has distinct value in the marketplace. The customers for the combined product portfolio have a strong overlap and Melinta believes it will be able to leverage its sales force across four products instead of just one product.

Strengthen Commercial Team. Melinta believes that the acquisition will bolster Melinta’s commercial team, which has been built out in preparation for the launch of Baxdela, with experienced anti-infective professionals from Medicines who can drive value across the combined portfolio. With Melinta’s commercial team now built out and preparing for Baxdela’s launch, coupled with the professionals that will join from Medicines, Melinta will have an experienced team of focused antibiotic experts as well as the therapeutic scale necessary to maximize the value of the combined product portfolio.

Partner Opportunities. Melinta has existing partnerships in place for Baxdela in well over 100 countries. As a result of the acquisition, Melinta will obtain U.S. and ex-U.S. rights to Vabomere, Orbactiv and Minocin IV. Melinta believes it will be able to leverage its existing partnerships while exploring new partnership possibilities with respect to the combined product portfolio.

In addition to the factors outlined above, the Melinta Board of Directors considered the following criteria in reaching its determination that the purchase agreement, the Deerfield commitment letter and the equity commitment letters and the transactions contemplated thereby were advisable, fair and in the best interests of Melinta and its stockholders, and to recommend that the Melinta stockholders approve the issuance of shares of Melinta common stock (including the Deerfield warrants) in connection therewith, all of which it viewed as supporting its decision to approve the business combination with Melinta:

 

    the opportunity for Melinta stockholders to participate in the long-term value of the Products (Vabomere, Orbactiv and Minocin IV) and Melinta’s existing product portfolio led by Baxdela, as a result of the acquisition;

 

    historical and current information concerning the infectious disease business unit, including its financial performance, financial condition, operations and management and the results of a due diligence investigation of Melinta conducted by Melinta’s management and advisors;

 

    the voting agreements entered into by stockholders of Melinta beneficially owning in the aggregate, as of November 28, 2017, approximately 52% of the outstanding capital stock of Melinta, pursuant to which those stockholders agreed, solely in their capacity as stockholders, to vote all of their shares of Melinta capital stock and securities in favor of the Proposal;

 

    the likelihood of retaining key Medicines employees to assist in the management of the combined product portfolio;

 

    the likelihood that the acquisition will be consummated on a timely basis, including the likelihood that the acquisition will receive all necessary regulatory approvals;

 

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    its understanding of the business of Medicines’ infectious disease business unit, including the Products and the expenses and fixed costs associated with its operations, the need for financing to support the combined product portfolio after the closing, and the prospects for value creation for Melinta stockholders in connection with the acquisition; and

 

    the terms and conditions of the purchase agreement, including the belief that the terms of the purchase agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable under the circumstances.

In the course of its deliberations, the Melinta Board of Directors also considered a variety of risks and other countervailing factors related to entering into the purchase agreement and the proposed business combination with Medicines, including:

 

    the possibility that the anticipated benefits of the acquisition may not be realized or that they may be lower than expected;

 

    the substantial indebtedness that Melinta will incur in connection with the acquisition, including the risk that the performance of the combined product portfolio following the closing does not meet near-term or long-term expectations and fails to generate sufficient revenues to enable Melinta to timely make all required payments of principal and interest under its Deerfield loan agreements;

 

    the significant royalties payable on the Products to Medicines under the purchase agreement;

 

    the assumption by Melinta of Medicines’ existing milestone and royalty obligations with respect to the Products;

 

    the significant dilution that will result to Melinta’s existing stockholders as a result of the Melinta common stock issuable pursuant to the Medicines purchase agreement, the Deerfield commitment letter (including the Deerfield warrants) and the equity commitment letters;

 

    the risk that the acquisition might not be consummated in a timely manner (including the “ticking fee” payable in the event the Transaction does not close by January 29, 2018) or at all and the potential adverse effect of the public announcement of the acquisition or on the delay or failure to complete the acquisition with Medicines on the reputation of Melinta;

 

    the risk to the business, operations and financial results of Melinta in the event that the acquisition is not consummated;

 

    the restrictions on the conduct of Melinta’s business prior to completion of the acquisition, which require Melinta to carry on its business in the ordinary course and consistent with past practice, subject to specific additional restrictions, which may delay or prevent Melinta from pursuing business opportunities that otherwise would be in its best interests;

 

    the risks, challenges and costs associated with successfully integrating the acquired business; and

 

    various other risks associated with the acquisition, including those described in the section entitled “Risk Factors” in this proxy statement.

The foregoing discussion of the factors considered by Melinta’s Board of Directors is not intended to be exhaustive, but does set forth the principal factors considered by Melinta’s Board of Directors. Melinta’s Board of Directors collectively reached the unanimous conclusion to approve the purchase agreement in light of the various factors described above and other factors that each member of Melinta’s Board of Directors deemed relevant. In view of the wide variety of factors considered by the members of Melinta’s Board of Directors in connection with their evaluation of the purchase agreement and the complexity of these matters, Melinta’s Board of Directors did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Melinta’s Board of Directors made its decision based on the totality of information presented to and considered by it. In considering the factors discussed above, individual directors may have given different weights to different factors.

 

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Market Opportunity

The relentless evolution of bacterial antibiotic resistance, coupled with the dearth of effective new antibiotics, has created an urgent public health threat. The integration of the acquired Product portfolio within the existing Melinta portfolio will further strengthen our ability to serve the needs of providers treating patients with serious bacterial infections across the healthcare delivery continuum. The combined product portfolio, pipeline, resources and people will create a standalone entity with core competencies that can help to address the significant need for new antibiotics to treat serious infections across multiple healthcare channels, while exercising a firm commitment to antibiotic stewardship.

The combined product portfolio will significantly enhance Melinta’s multi-channel strategy of delivering antibiotic solutions for ABSSSI and gram-infections within the hospital, emergency department, and community settings. We believe that each product has distinct value in the antibiotic marketplace, and that we are uniquely positioned to deliver this value:

 

LOGO

 

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Combined Antibiotic Portfolio

Following the acquisition, Melinta will have a deep pipeline of commercial, clinical and preclinical antibiotic assets across multiple potential indications. As such, the combined enterprise will have a platform for long-term, durable growth and a strategy to expand the anti-infective portfolio over time, providing the opportunity for multiple layers of revenue growth.

 

LOGO

This pipeline is expected to deliver a distinct value proposition across the antibiotic care continuum:

 

 

LOGO

Baxdela (delafloxacin)

Melinta’s current portfolio of antibiotics is led by Baxdela, a commercial-stage asset with the potential to address multiple types of infections that offers a new option for monotherapy treatment of adult patients with ABSSSI in oral and IV formulations. Baxdela is a novel fluoroquinolone that exhibits activity against both gram-positive and gram-negative pathogens, including MRSA, and is available in both IV and oral formulations. The

 

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commercial launch of Baxdela is planned for the first quarter of 2018. Further information regarding Baxdela is available in Melinta’s definitive proxy statement filed with the Securities and Exchange Commission on October 5, 2017.

Vabomere

Vabomere is the combination of meropenem, the leading carbapenem used in treatment of gram-negative infections, and vaborbactam, a novel beta-lactamase inhibitor that restores the efficacy of meropenem in CRE infections. Vabomere received FDA approval on August 29, 2017 and became commercially available in the fourth quarter of 2017. With its approval, the FDA also confirmed Vabomere’s status as a Qualified Infectious Disease Product, or QIDP, under the provisions of the 2012 Generating Antibiotics Incentives Now Act, or the 2012 GAIN Act. The NDA for Vabomere was based upon the TANGO I study, which evaluated the efficacy and safety of Vabomere versus piperacillin/tazobactam in cUTI and acute pyelonephritis due to susceptible Enterobacteriaceae. 98.4% of patients on the Vabomere arm met the primary endpoint of clinical success at the end of IV treatment, compared to 94% of patients in the piperacillin/tazobactam arm. Patients in the Vabomere arm of the study had fewer discontinuations due to AEs as compared to the piperacillin/tazobactam arm (2.9% vs. 5.1%), and the type of AEs seen in the trial were similar to that of meropenem alone.

On July 25, 2017, Medicines announced positive results from a planned interim analysis of the TANGO-2 trial. The TANGO-2 trial compared Vabomere to best available therapy (BAT) in CRE and is the only trial that evaluated a monotherapy option in CRE. Randomization in the trial was stopped early, following a recommendation by the Drug Safety Monitoring Board. The recommendation was based upon an interim analysis of 72 patients, including 43 with microbiologically evaluable CRE infections, including cUTI, acute pyelonephritis, cIAI, HAP/VAP, and bloodstream infections. DSMB concluded that the benefit-risk ratio no longer supported randomization of patients to the BAT arm due to results seen in patients in the Vabomere arm. The data showed a higher cure rate at test of cure and end of therapy as well as lower all-cause mortality versus BAT across all infection types. In addition, Vabomere had a lower rate of drug-related AEs versus BAT (24% vs. 44%).

We believe that Vabomere’s profile represents a leading therapy for treatment of serious infections due to gram-negative bacteria, including KPC-mediated CRE, which is Vabomere’s focus:

Key Focus for Vabomere – KPC-mediated CRE

 

 

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Vabomere Initial Commercialization Strategy. Following the acquisition, Melinta plans to continue the launch of Vabomere with a sales force of 135 sales representatives that will provide educational details primarily

 

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to infectious disease and critical care physicians, as well as infectious disease and hospital pharmacists. Melinta will leverage its planned presence in the hospital setting to promote Vabomere; the sales force will lead with Baxdela and Vabomere. Melinta will target hospital accounts with a high burden of serious gram-negative infections. Additionally, Melinta plans to deploy Medical Science Liaisons across the U.S. to meet with infectious disease and critical care key opinion leaders.

Melinta will distinguish Vabomere’s economic value proposition through a pricing strategy that is in line with currently branded therapies used in the treatment of serious gram-negative infections and designed to facilitate access within the hospital. Market research with hospital pharmacy directors has confirmed that Vabomere’s launch price of $990/day will allow access within the hospital while also capturing the incremental value the product has over currently available therapies. In addition, the economic value proposition of Vabomere will be demonstrated through health economic outcomes analyses and a budget impact model that show a lower cost per patient year compared to best available therapies.

We believe that Vabomere, based on its clinical profile, product label, and results from the TANGO-2 trial, has the potential to become a best-in-class therapy for the treatment of serious gram-negative infections, which includes KPC-mediated CRE.

Orbactiv

Orbactiv is a long-acting IV antibiotic of lipoglycopeptide class that allows for single infusion for ABSSSIs with no dose adjustment for mild/moderate renal or hepatic impairment or for age, weight, gender, or race. It provides an alternative solution to hospital admission or multiple days of therapy in outpatient setting. In contrast to the current standard of care (6 to 10 days of IV therapy), single-dose ABSSSI therapy with Orbactiv alternative increases patient convenience, guarantees patient adherence with a single dose, and allows for treatment in alternative, lower cost care settings. We will leverage our planned community-based sales force infrastructure planned for Baxdela to maximize Orbactiv potential.

Minocin IV

Minocin IV is an IV antibiotic of the tetracycline class with broad-spectrum activity against gram-positive and gram-negative pathogens. A new formulation was launched in 2015, which improved tolerability and convenience, owing to a smaller required infusion volume. Minocin IV is one of the few agents approved for treatment of Acinetobacter spp. Acinetobacter infections are generally seen in the ICU, particularly in mechanically ventilated patients. We will leverage our planned hospital-based sales force infrastructure planned for Baxdela and Vabomere to maximize Minocin IV potential.

Key Combined Business Strategies

Following the closing of the acquisition, Melinta will focus on development and commercialization of new antibiotics that enable patients with serious, life-threatening bacterial infections to be treated and cured. The critical components of the combined enterprise’s business strategy are:

 

  1. Commercialize Baxdela for ABSSSI in the United States. In the first quarter of 2018, Melinta plans to commercialize Baxdela in the U.S. with an efficient, targeted sales force initially consisting of 135 sales representatives, prioritizing high-value hospital accounts. In addition, sales representatives will target other market channels such as the emergency department and community settings to realize the full market potential of Baxdela.

 

  2. Commercialize Vabomere for KPC-mediated CRE in the United States. Following the closing of the acquisition, Melinta plans to continue to commercialize Vabomere in the U.S. with an efficient, targeted sales force initially consisting of 135 sales representatives (for clarity, Melinta will have one sales force of 135 representatives commercializing multiple products), prioritizing high-value hospital accounts, focusing on infectious disease and critical care physicians.

 

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  3. Optimize commercialization of Orbactiv and Minocin IV within the United States. Melinta plans to leverage its sales force presence within the hospital to appropriately position Minocin IV for the treatment of infections due to Acinetobacter. In addition, sales representatives will target emergency department and community market channels to realize the full market potential of Orbactiv.

 

  4. Pursue additional indications for Baxdela, leveraging its favorable attributes to optimize its minimum 10 year market exclusivity period in the United States. Due to provisions of the 2012 GAIN Act, specifically its QIDP designation, Baxdela has been granted at least 10 years of market exclusivity from first approval. Consequently, Melinta plans to develop Baxdela for additional indications where quinolones are established but unmet need continues to exist. Melinta is currently enrolling patients in a single Phase 3 clinical study for CABP, for which Melinta has secured FDA agreement on a Special Protocol Assessment. We may pursue additional indications for Baxdela as well.

 

  5. Leverage Melinta’s discovery platform and proprietary understanding of the ribosome to deliver novel drugs that can address the continuous need to combat bacterial resistance. Melinta’s discovery platform has the potential to drive significant, long-term value by providing a continual stream of novel antibiotics that meet the constantly evolving challenge of bacterial resistance. Melinta plans to advance its research efforts in the antibacterial space led by its ESKAPE pathogen program targeting “superbugs,” and evaluate the potential of other platform opportunities in antifungals, antiparasitics and oncology.

 

  6. Optimize partnerships to maximize the value of the combined product portfolio. Melinta has established partnerships for Baxdela in Europe and Asia-Pacific (excluding Japan) with Menarini IFR Srl, and in Central and South America with Eurofarma Laboratorios S.A. Melinta has also secured a development partnership with a clinical research organization, or CRO, for its pipeline asset called radezolid, which is focused on the topical dermatology space. Melinta has relationships related to solithromycin with Toyama Chemical Co., Ltd., or Toyama, in Japan and the U.S. Biomedical Advanced Research and Development Authority, or BARDA. Opportunities exist to leverage these partnerships for the combined product portfolio. Melinta plans to evaluate the potential of existing and new business development opportunities to further generate shareholder value.

 

  7. Advance solithromycin for CABP subject to non-dilutive financing, and for ophthalmic indications. Subject to the availability of non-dilutive financing, Melinta will continue to evaluate the opportunity to progress solithromycin and generate sufficient safety data to satisfactorily respond to the CRL it received from the FDA in December 2016. Solithromycin is currently in a Phase 3 clinical study in Japan, sponsored by Cempra’s development partner Toyama. If successful, Melinta would benefit from sales milestones and royalties from solithromycin sales in Japan. Additionally, Melinta will continue to evaluate the development of ophthalmic formulations for solithromycin for indications such as bacterial conjunctivitis and dry eye.

 

  8. Progress fusidic acid for ABSSSI and potentially for Osteomyelitis / Bone and Joint Infections. Melinta plans to continue to progress fusidic acid as an oral treatment for ABSSSI, which are frequently caused by MRSA. Fusidic acid has successfully completed one Phase 3 study in ABSSSI patients and requires one additional Phase 3 study to secure FDA approval. In addition, Melinta plans to continue to explore the potential use of fusidic acid for the long-term oral treatment of refractory osteomyelitis / BJI. Currently, there is no optimal oral, chronic antibiotic for treating these infections.

 

  9. Leverage the combined enterprise’s commercial organization to promote complementary internally developed products upon achievement of FDA regulatory approval. Melinta plans to obtain operating leverage from its commercial organization by promoting two or three complementary products upon FDA regulatory approval through the various channels, providing multiple layers of revenue growth. Melinta will also consider appropriate bolt-on acquisitions or co-promotion of complementary products in order to maximize the call capacity of its commercial organization.

 

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Melinta plans to carefully evaluate its capital allocation strategy to maximize shareholder value around the launch of Baxdela and Vabomere, and marketing of Orbactiv and Minocin IV, while maintaining a capital efficient approach to investing in its development programs and other opportunities.

MELINTA’S BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT THE PROPOSALS OUTLINED ABOVE ARE ADVISABLE, FAIR AND IN THE BEST INTERESTS OF MELINTA AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED THE PROPOSAL. MELINTA’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT MELINTA STOCKHOLDERS VOTE “FOR” THE PROPOSALS.

Interests of Melinta’s Directors and Executive Officers in the Acquisition

In considering the recommendation of Melinta’s board of directors with respect to the Proposal to be acted upon by Melinta stockholders at the Special Meeting, Melinta stockholders should be aware that certain members of the board of directors of Melinta have interests in the acquisition that may be different from, or in addition to, interests they may have as Melinta stockholders.

As noted under “Security Ownership of Principal Stockholders and Management of Melinta” beginning on page [●] of this proxy statement, as of [●], 2017, Vatera Healthcare Partners LLC, or Vatera, beneficially owned approximately [●]% of the outstanding shares of Melinta common stock. Kevin Ferro, a current director of Melinta, is the Chief Executive Officer, Chief Investment Officer and the managing member of Vatera Holdings LLC, the manager of Vatera; Thomas Koestler, a current director of Melinta, is an Executive Director of Vatera Holdings LLC; and Cecilia Gonzalo, a current director of Melinta, is a Managing Director of Vatera Holdings LLC. In connection with the acquisition, Vatera entered into the Vatera equity commitment letter described in this proxy statement. The terms of the Vatera equity commitment letter, which were priced at the same terms as the Deerfield equity investment, were reviewed and approved by the non-Vatera members of Melinta’s board of directors.

 

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THE PURCHASE AGREEMENT

The following is a summary of the material terms of the Medicines purchase agreement. A copy of the Medicines purchase agreement is attached as Annex A to this proxy statement. The Medicines purchase agreement has been attached to this proxy statement to provide you with information regarding its terms. The summary of the material terms of the Medicines purchase agreement below and elsewhere in this proxy statement is qualified in its entirety by reference to the Medicines purchase agreement. This summary may not contain all of the information about the Medicines purchase agreement that is important to you. Melinta urges you to read carefully the Medicines purchase agreement in its entirety as it is the legal document governing the purchase.

Medicines Purchase Agreement

On November 28, 2017, Melinta entered into the Medicines purchase agreement with Medicines. Upon consummation of the transactions contemplated by the Medicines purchase agreement, on the terms and subject to the conditions therein, Melinta will acquire from Medicines the Transferred Subsidiaries and certain assets primarily related to the infectious disease business, including the Products and line extensions thereof. The business, operations and activities of researching, discovering and developing pre-clinical and developmental assets, including the pre—clinical product candidates Oravance and Omnivance, the pre-clinical polymyxin programs, and all other pre-clinical and developmental programs being conducted at or in connection with Medicines’ San Diego facilities, are specifically excluded from the assets being purchased by Melinta.

Pursuant to the Medicines purchase agreement, Melinta will assume, among other things, liabilities arising out of or related to the acquired business arising or accruing after the closing and certain obligations under contingent payment contracts, and Medicines will retain liabilities relating to pre-closing activities, except to the extent specifically provided in the Medicines purchase agreement.

The Medicines purchase agreement contains termination rights, including the right of either Melinta or Medicines to terminate the Medicines purchase agreement: (i) if the transactions contemplated thereby have not been consummated by 11:59 p.m., Eastern Time on May 28, 2018, (ii) if the other party breaches any of its representations or warranties or fails to comply with any of its covenants or agreements under the Medicines purchase agreement such that any of the conditions to closing would not be satisfied; or (iii) in the event that any final and nonappealable adverse law or order is issued by a governmental authority of competent jurisdiction in the United States. Medicines also has the right to terminate the Medicines purchase agreement if Melinta stockholder approval of the issuance of Melinta common stock pursuant to the Medicines purchase agreement and in the Deerfield commitment letter and equity commitment letters is not received at the Special Meeting.

Purchase Price

The purchase price payable under the Medicines purchase agreement consists of (i) a payment by Melinta to Medicines of $165 million in cash (subject to a working capital adjustment) and the issuance to Medicines of a number of shares of Melinta common stock equal to $50 million divided by 90% of the volume weighted average price of Melinta common stock for the trailing 10 trading day period ending 3 trading days prior to closing of the transactions contemplated by the Medicines purchase agreement, (ii) a payment by Melinta to Medicines of $25 million in cash following each of the twelve and eighteen month anniversaries of the date of the closing of the transactions contemplated by the Medicines purchase agreement, (iii) the assumption of certain liabilities related to the acquired business and (iv) payment of royalties by Melinta to Medicines in cash on annual net sales of the Products as follows:

 

    U.S. net sales of Vabomere:

 

    On net sales above $50 million and at or below $100 million = 5.0%

 

    On net sales above $100 million and at or below $200 million = 7.5%

 

    On net sales above $200 million and at or below $500 million = 15.0%

 

    On net sales above $500 million = 25%

 

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    U.S. combined net sales of Minocin IV and Orbactiv

 

    On net sales at or below $100 million = 5.0%

 

    On net sales above $100 million = 15.0%

 

    Ex-U.S. net sales of Vabomere, Orbactiv and Minocin IV

 

    On all net sales, including all milestone and royalty payments or other consideration received from ex-U.S. transfers of rights with respect to the products = 15.0%

In certain circumstances, the royalties on annual net sales of the Products referenced above can be reduced upon generic entry to 50% or 25% of such levels or be reduced to 0%. After the closing of the transactions contemplated by the Medicines purchase agreement, Melinta has agreed to use commercially reasonable efforts to develop, promote, market, sell, distribute and commercialize Vabomere, Orbactiv and Minocin IV in the United States with a view towards maximizing net sales of such products in the United States and, with respect to products sold outside the United States, use commercially reasonable efforts to pursue agreements with third parties with a view towards maximizing net sales of such products outside the United States and not take any action, or omit to take any action, a primary purpose of which is to reduce the amount of royalty payments otherwise due to Medicines.

Ticking Fee

If the conditions to Melinta’s obligation to consummate the transactions contemplated by the Medicines purchase agreement (other than those conditions which are to be satisfied at the Closing) have been satisfied or waived and the closing date does not occur on or prior to January 29, 2018, on January 30, 2018, Melinta will pay to Medicines $1,700,000 weekly and shall continue to pay such weekly fee until the earlier of the closing date or the date upon which the Medicines purchase agreement is validly terminated.

Conditions to Closing

Each party’s obligation to complete the acquisition is subject to the satisfaction or waiver by each of the parties, at or prior to the closing of the transactions contemplated by the Medicines purchase agreement, of various conditions, which include the following:

 

    there being no adverse law or order or pending proceeding brought by a governmental authority of competent jurisdiction seeking to prohibit, prevent or make illegal consummation of any of the transactions contemplated by the Medicines purchase agreement;

 

    all applicable waiting periods or necessary approvals or clearances relating to the transactions contemplated by the Medicines purchase agreement under the HSR Act having expired, been terminated or received;

 

    the approval by a majority of Melinta’s stockholders of the issuance of Melinta common stock pursuant to the Medicines purchase agreement, the Deerfield commitment letter and the equity commitment letters shall have been obtained.

Our obligation to complete the acquisition is subject to the satisfaction or waiver, at or prior to the closing of the transactions contemplated by the Medicines purchase agreement, of various additional conditions, any of which may be waived by us, which include the following:

 

   

the fundamental representations of Medicines in the Medicines purchase agreement shall be true and correct in all material respects as of the time that the Medicines purchase agreement was signed and as of closing, except to the extent such representations and warranties are specifically made as of a

 

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particular date (in which case such representations and warranties shall be true and correct as of such date), and the remaining representations and warranties made by Medicines in the Medicines purchase agreement shall be true and correct in all respects as of the time that the Medicines purchase agreement was signed and as of closing, except to the extent such representations and warranties are specifically made as of a particular date (in which case such representations and warranties shall be true and correct as of such date), except in the case that such inaccuracies or breaches have not had, or would not reasonably be expected to have, individually or in the aggregate, a material adverse effect;

 

    Medicines and each other of its relevant subsidiaries shall have performed in all material respects all covenants and obligations required to be performed by it pursuant to the Medicines purchase agreement at or prior to closing;

 

    since the date of the Medicines purchase agreement, no effects shall have occurred which have had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect.

The obligation of Medicines and its subsidiaries to complete the acquisition is subject to the satisfaction or waiver, at or prior to the closing of the transactions contemplated by the Medicines purchase agreement, of various additional conditions, any of which may be waived by Medicines, which include the following:

 

    the representations and warranties made by Melinta in the Medicines purchase agreement shall be true and correct as of the time that the Medicines purchase agreement was signed and as of closing, except to the extent such representations and warranties are specifically made as of a particular date (in which case such representations and warranties shall be true and correct as of such date), except in the case that such inaccuracies would not reasonably be expected to have a Melinta material adverse effect;

 

    Melinta shall have performed in all material respects all covenants and obligations required to be performed by it pursuant to the Medicines purchase agreement at or prior to closing;

 

    since the date of the Medicines purchase agreement, no effects shall have occurred which have had or would reasonably be expected to have, individually or in the aggregate, a Melinta material adverse effect;

 

    the Melinta common stock being issued to Medicines shall have been issued pursuant to the Medicines purchase agreement and have been approved for listing on NASDAQ.

Representations and Warranties; Indemnity

The Medicines purchase agreement contains certain representations and warranties made by Medicines with respect to Medicines, the Transferred Subsidiaries and the purchased assets. The Medicines purchase agreement includes an indemnity from Medicines for breaches of representations, warranties and covenants and in respect of the excluded assets and excluded liabilities. Medicines’ indemnity obligations are subject to specified limitations described in the Medicines purchase agreement.

HSR Act and U.S. Antitrust Matters

Under the HSR Act and the rules and regulations promulgated thereunder, Medicines and Melinta are required to make certain filings with the U.S. Department of Justice (DOJ) and U.S. Federal Trade Commission (FTC). The acquisition may not be consummated until the applicable waiting period under the HSR Act has expired or has been terminated. Medicines and Melinta filed the required notification and report forms with the DOJ and the FTC under the HSR Act on December 5, 2017, and the waiting period under the HSR Act will expire at 11:59 p.m., Eastern time, on January 4, 2018.

During or after the statutory waiting periods and clearance of the acquisition, and even after completion of the acquisition, either the DOJ, the FTC or other governmental authorities could take action under the antitrust laws with respect to the acquisition as they deem necessary or desirable in the public interest, including seeking

 

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to enjoin the completion of the acquisition, to rescind the acquisition or to conditionally approve the acquisition upon the divestiture of assets of Melinta. Moreover, in some jurisdictions, a competitor, customer, state attorney general or other third party could initiate a private action under the antitrust laws challenging or seeking to enjoin the acquisition, before or after it is completed.

The Medicines purchase agreement provides that Medicines and Melinta will take all steps requested by the DOJ, the FTC or other governmental authorities to avoid or eliminate impediments under any antitrust law to enable the acquisition to occur as soon as reasonably practicable.

Other Regulatory Matters

In the United States, Melinta must comply with applicable federal and state securities laws and NASDAQ rules and regulations in connection with the issuance of shares of Melinta common stock in the acquisition, including the filing with the SEC of this proxy statement.

NASDAQ Listing

Melinta common stock currently is listed on the NASDAQ Global Market under the symbol “MLNT”. Under the Medicines purchase agreement, Melinta is required to use its best efforts to cause Melinta common stock to be issued pursuant to the Medicines purchase agreement to be approved for listing on NASDAQ, subject only to official notice of issuance, prior to the closing.

Registration Rights Agreement

In connection with the issuance of Melinta common stock to Medicines pursuant to the Medicines purchase agreement, Melinta has agreed to enter into, at the closing of the acquisition, a registration rights agreement (the form of which is attached as Annex F hereto) with Medicines, which we refer to herein as the Medicines registration rights agreement. Under the Medicines registration rights agreement, Melinta shall be obligated to file within 2 business days from the date of execution of the Medicines registration rights agreement a shelf registration statement on Form S-3 providing for the resale by Medicines of the Melinta common stock issued to Medicines pursuant to the acquisition and Melinta is required to use its best efforts to cause such shelf registration statement to be declared effective by the SEC within 90 days of filing, subject to a grace period beginning on February 14, 2018 and ending on March 16, 2018 to account for Melinta’s status as a “Loss Corporation” under the Internal Revenue Code and to permit Melinta to file its Form 10-K for the fiscal year December 31, 2017. Additionally, if Melinta registers shares of Melinta common stock (subject to certain exceptions) for public sale, Medicines will have the right to include its registrable securities in the registration statement, subject to customary cutbacks. The registration rights under the Medicines registration rights agreement will terminate upon the earliest of (i) termination of the agreement by the consent of Medicines, (ii) the fifth anniversary of the effective date of the Medicines shelf registration statement and (iii) the dissolution, liquidation or winding up of Melinta.

In addition, the Medicines registration rights agreement will provide for (i) a 180 day lock-up on 50% of the shares of Melinta common stock issued to Medicines pursuant to the Medicines purchase agreement and (ii) customary black-out periods and provisions requiring Medicines to sign lock-up agreements under certain circumstances in connection with any underwritten public offering of Melinta equity securities (as further described in Annex F hereto). The foregoing is a summary of the Medicines registration rights agreement and is qualified in its entirety by the Medicines registration rights agreement, the form of which is attached as Annex F hereto.

Deerfield Commitment Letter

In connection with the Medicines purchase agreement, Melinta entered into the Deerfield commitment letter, with Deerfield Management Company, L.P. and the Deerfield Funds, pursuant to which the Deerfield

 

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Funds have committed, upon the satisfaction of certain conditions set forth therein, to provide up to $190 million (less the amount of the Deerfield equity investment described below) of senior secured loans, having an interest rate of 11.75% per annum, to finance the acquisition, together with up to $50 million in a senior secured delayed draw term loan facility, having an interest rate of 14.75% per annum. Melinta can pay the interest payments under the senior secured loans and the senior secured delayed draw term loan facility in cash, in freely tradeable shares of Melinta common stock (subject to certain conditions), or a combination thereof. Under the Deerfield commitment letter, the Deerfield Funds have committed to purchase the Deerfield equity investment, equal to 9.985% of the number of shares of Melinta common stock outstanding immediately following the acquisition (inclusive of such shares) for a purchase price per share of $13.50, representing 90% of the closing price for Melinta common stock on November 28, 2017, the date on which the Deerfield commitment letter was executed.

The Deerfield commitment letter provides that the Deerfield Funds will receive, for a period of seven years, annual cash payments equal: (i) $0 for the first $75 million in Vabomere U.S. annual net sales and (ii) 3% on the increment of Vabomere U.S. annual net sales between $75 million and $500 million (stepping down to 2% after the repayment in full of the loan).

Deerfield Warrant

The Deerfield commitment letter provides that Melinta will issue to the Deerfield Funds on the closing date of the acquisition the Deerfield warrant (or multiple warrants of like tenor), to purchase a number of shares of Melinta common stock equal to 38.5% of the principal amount of the senior secured loans, divided by $15.00, representing the closing price for the Melinta common stock on November 28, 2017, the date on which the Deerfield commitment letter was executed. The Deerfield warrant will be exercisable for a duration of 7 years at a strike price of $16.50 (subject to adjustment as will be provided in the Deerfield warrant). The number of shares with respect to which the Deerfield warrant is exercisable and the strike price of the Deerfield warrant will be subject to adjustment to reflect certain events relating to Melinta common stock, such as any subdivision, combination, reclassification or similar transaction with respect to Melinta common stock. The Deerfield warrant will be subject to a restriction on the exercise thereof to the extent that, upon such exercise, the Deerfield Funds would beneficially own greater than 9.985% of the outstanding Melinta common stock. In its capacity as the holder of the Deerfield warrant, the Deerfield Funds will be entitled to receive dividends paid, and distributions made, to holders of Melinta common stock as if the Deerfield warrant had been exercised in full on the applicable record date for such dividend or distribution. In addition, Melinta will be obligated to reserve for issuance a number of authorized and unissued shares of Melinta common stock sufficient for the exercise of the Deerfield warrant in full (assuming a cash exercise and disregarding any limitations on exercise). Other than with respect to dividends and distributions, the Deerfield warrant will not entitle the Deerfield Funds, prior to the exercise of the Deerfield warrant, to rights as a Melinta stockholder.

The Deerfield warrant will also provide that, in the event of a major transaction as described in (i) or (ii) below where Melinta common stock is converted into the right to receive cash or other assets or in which Melinta has announced its intention to liquidate and distribute its assets to its stockholders, the Deerfield Funds will be entitled to convert the Deerfield warrant into an amount of the transaction consideration equal to the Black-Scholes value of the Deerfield warrant following such major transaction. With respect to all other major transactions, the Deerfield Funds will be entitled to exercise the Deerfield warrant for an amount of Melinta common stock (calculated in accordance with the terms of the Deerfield warrant) equal to the Black-Scholes value of the Deerfield warrant. Alternatively, the Deerfield Funds may require the Deerfield warrant to be assumed by the successor entity (or its parent company) in a major transaction. If the successor entity is publicly traded, then the documentation reflecting such assumption will provide that the Deerfield warrant will be exercisable for the appropriate number of shares of the successor entity. If the successor entity is not publicly traded, then the documentation reflecting such assumption will provide that the Deerfield warrant will be exercisable for the kind and amount of securities, cash and/or other property which a holder of Melinta common stock would have been entitled to receive in such major transaction.

 

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The Black-Scholes value of the Deerfield warrant for purposes of a major transaction will be determined based on, among other things, a risk-free interest rate corresponding to the US$ LIBOR/Swap rate (or, to the extent LIBOR ceases to be determined, a successor interest rate determined in accordance with the Deerfield warrant) for a period equal to the remaining term of the Deerfield warrant, zero borrowing cost, the arithmetic mean of the historical volatility of Melinta common stock for the 10, 30 and 50 trading day periods prior to the public announcement of such major transaction and a stock price equal to the greater of (1) the closing price of Melinta common stock on the trading day immediately preceding the consummation of such major transaction, (2) the first closing market price following the first public announcement of such major transaction or (3) the closing market price of the date immediately prior to the first public announcement of such major transaction.

A major transaction will be defined in the Deerfield warrant to include: (i) a consolidation, merger, business consolidation, reorganization, recapitalization or similar transaction that results in a change in control of Melinta (i.e., its current shareholders no longer holding at least 50% of the Melinta common stock or no longer having the ability to elect a majority of its board of directors), (ii) a sale or transfer of assets for a purchase price of more than 50% of Melinta’s enterprise value or a sale or all or substantially all of its assets, (iii) a purchase, tender or exchange offer resulting in a change in control of Melinta, (iv) any issuance of shares of Melinta common stock equal to 50% or more of Melinta common stock outstanding as of such issuance, (v) any liquidation, bankruptcy, insolvency, dissolution or winding up affecting Melinta, (vi) any cessation of Melinta common stock to be listed, traded or publicly quoted on the NASDAQ Global Market (without prompt re-listing or requoting on the New York Stock Exchange, the NYSE American, the NASDAQ Global Select Market or the NASDAQ Capital Market), or (vii) Melinta common stock ceasing to be registered under Section 12 of the Exchange Act.

Upon certain failures by Melinta to comply with its obligations under the Deerfield warrant or the Deerfield registration rights agreement described below, Melinta may be required to pay to the holders of Deerfield warrants as partial liquidated damages an amount equal to 15% per annum (or the maximum rate permitted by law, whichever is less) of the Black-Scholes value of the Deerfield warrant in cash or, at Melinta’s option (but subject to a 9.985% ownership limitation), in Melinta common stock (valued based on the volume weighted average price of Melinta common stock as of such time). If such failure remains uncured and the holders of the Deerfield warrant deliver notice of a default under the Deerfield warrant, Melinta will be entitled to redeem the Deerfield warrant for cash in an amount equal to the Black-Scholes value of the Deerfield warrant and, if following such notice of default Melinta does not redeem the Deerfield warrant, the holders may elect to exercise the Deerfield warrant for a number of shares (valued at 95% of the volume weighted average price of Melinta common stock for the 5 trading days immediately prior to the date of the applicable default notice) equal to the greater of (x) the Black-Scholes value of the Deerfield warrant as of the date of the notice of default and (y) the Black-Scholes value of the Deerfield warrant on the trading day immediately prior to the date that such shares are issued to Deerfield.

The Black-Scholes value of the Deerfield warrant for purposes of such events of default or failures will be determined based on, among other things, a risk-free interest rate corresponding to the US$ LIBOR/Swap rate (or, to the extent LIBOR ceases to be determined, a successor interest rate determined in accordance with the Deerfield warrant) for a period equal to the remaining term of the warrant, zero borrowing cost, the arithmetic mean of the historical volatility of the Melinta common stock for the 10, 30 and 50 trading day periods ending on the date of determination and a stock price equal to the volume weighted average price of the Melinta common stock on the date of such calculation.

Deerfield Registration Rights

The Deerfield commitment letter provides that Melinta and the Deerfield Funds will enter into a registration rights agreement at the closing in respect of the shares of Melinta common stock issuable upon exercise of the Deerfield warrant within a to be agreed upon time frame, which we refer to as the Deerfield registration rights agreement. Under the Deerfield registration rights agreement, the Deerfield Funds will also be entitled to two customary demand registrations within a 12-month period (subject to a minimum proceeds requirement of $10

 

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million) and customary piggy back registration rights, subject to customary black-out periods and, in the event Melinta conducts an underwritten public offering, lock-up periods. In addition, the Deerfield registration rights agreement will provide for appropriate liquidated damages in the event that Melinta fails to timely comply with its obligations to register such shares of Melinta common stock, which provisions will be similar to the liquidated damages provisions of the Deerfield warrant, as described above, and may, among other things result in the issuance of additional shares of Melinta common stock to holders of the Deerfield warrant.

Equity Commitment Letters

In addition, in connection with the Medicines purchase agreement, Melinta entered into equity commitment letters, which we refer to as the equity commitment letters, with Vatera and JWC. Pursuant to the Vatera equity commitment letter, Vatera has committed to purchase 2,000,000 shares of Melinta common stock for an aggregate purchase price of $27 million, or $13.50 per share, representing 90% of the closing price for Melinta common stock on November 28, 2017, the date on which the Vatera equity commitment letter was executed. In addition, Melinta has granted Vatera and its assignees an option, exercisable in Vatera’s sole discretion, to purchase up to $10,000,000 of shares of Melinta common stock at a price per share equal to 90% of the volume weighted average price for the trailing 10 trading day period ending 3 trading days prior to closing of the acquisition. Melinta has also agreed that any shares of Melinta common stock acquired by Vatera pursuant to its equity commitment letter shall constitute registrable securities under, and Vatera will have registration rights in respect of such shares of Melinta common stock, pursuant to the terms of the registration rights agreement to which Vatera and Melinta are parties.

Pursuant to the JWC equity commitment letter, JWC has committed to purchase 222,222 shares of Melinta common stock, for an aggregate purchase price of $3 million, or $13.50 per share, representing approximately 90% of the closing price for the Melinta common stock on November 28, 2017, the date on which the JWC equity commitment letter was executed.

Funding of the equity commitments is subject to the satisfaction (or waiver by Melinta) of (i) all of the conditions precedent to Melinta’s obligations to consummate the acquisition under the Medicines purchase agreement and (ii) all of the conditions precedent to Melinta’s and Medicines’ obligations to consummate the acquisition under the Medicines purchase agreement. The funding of the equity commitments will occur prior to or contemporaneously with the closing.

Each equity commitment letter and Vatera’s and JWC’s obligation to fund its equity commitment under its equity commitment letter will terminate upon the earliest to occur of (i) the valid termination of the Medicines purchase agreement, (ii) 30 days following the outside date under the Medicines purchase agreement, if the closing has not occurred (unless a claim has been brought under such equity commitment letter or under the Medicines purchase agreement prior to such valid termination, in the case of clause (i), and such 30-day anniversary, in the case of clause (ii), and if such claim is brought, then the applicable equity commitment will survive until there is a final, non-appealable resolution of such claim, Vatera or JWC, as applicable, performs its obligations pursuant to such resolution or Melinta, Medicines and Vatera or JWC, as applicable enter into a written agreement terminating such equity commitment letter), (iii) the assertion or commencement of a proceeding by Medicines or any of its affiliates against Vatera or JWC, as applicable, or certain of their related parties (other than claims to enforce Vatera’s or JWC’s, as applicable, obligation to fund its equity commitment in accordance with its equity commitment letter), and (iv) consummation of the closing.

Medicines is an express third party beneficiary of each equity commitment letter with respect to Melinta’s right to seek specific performance of Vatera’s and JWC’s obligation to fund its equity commitment under its equity commitment letter at the closing.

Voting Agreements

Concurrently with the execution of the Medicines purchase agreement, certain Melinta stockholders beneficially owning in the aggregate, as of November 28, 2017, approximately 52% of Melinta’s outstanding

 

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common stock, entered into voting agreements with Medicines. The voting agreement, which is attached as Annex E hereto, provides among other things, that the parties to the agreements will vote (i) in favor of the acquisition and the adoption of the Medicines purchase agreement and the transactions contemplated thereby; and (ii) against any action or agreement that has or would be reasonably likely to result in any conditions under the Medicines purchase agreement not being fulfilled, any amendments to Melinta’s certificate of incorporation or bylaws, if such amendment would be expected to prevent or delay the closing of the acquisition or any other action or agreement that is intended, or could reasonably be expected, to impede, interfere with, delay or postpone the transactions contemplated by the Medicines purchase agreement or change in any manner the voting rights of any class of stock of Melinta.

The Melinta stockholders that entered into a voting agreement are Warburg Pincus Netherlands Private Equity VIII C.V. I, WP-WPVIII Investors, L.P., Warburg Pincus Private Equity VIII, L.P., Vatera Healthcare Partners LLC, LUPA GmbH, JWC RIB-X LLC, Malin Life Sciences Holdings Limited, Falcon Flight LLC, and Quaker Bioventures II, LP.

 

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PROPOSAL: APPROVAL OF THE ISSUANCE OF COMMON STOCK

General

At the Special Meeting, Melinta stockholders will be asked to approve the issuance of Melinta common stock pursuant to the Medicines purchase agreement, the Deerfield commitment letter and the equity commitment letters, and the issuance of the Deerfield warrant (and the shares issuable upon exercise of, or otherwise pursuant to such warrant) as contemplated by the Deerfield commitment letter. The full text of the Medicines purchase agreement is attached to this proxy statement as Annex A.

Voting by Proxyholder

Your proxyholder (one of the individuals named on your proxy card) will vote your common stock in accordance with your instructions. Unless you give specific instructions to the contrary, your common stock will be voted for the issuance of Melinta common stock pursuant to the Medicines purchase agreement, the Deerfield commitment letter and the equity commitment letters, and the issuance of the Deerfield warrant (and the shares issuable upon exercise of, or otherwise pursuant to, such warrant) as contemplated by the Deerfield commitment letter.

Required Vote; Recommendation of Board of Directors

The affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on such matter at the Special Meeting is required for approval of the proposal. A “broker non-vote” will have no effect on the outcome of this proposal, while an abstention will have the same effect as a vote against the approval of this proposal.

MELINTA’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT MELINTA STOCKHOLDERS VOTE “FOR” THE PROPOSAL TO APPROVE THE ISSUANCE OF MELINTA COMMON STOCK PURSUANT TO THE MEDICINES PURCHASE AGREEMENT, THE DEERFIELD COMMITMENT LETTER AND THE EQUITY COMMITMENT LETTERS, AND THE ISSUANCE OF THE DEERFIELD WARRANT (AND THE SHARES ISSUABLE UPON EXERCISE OF SUCH WARRANT) AS CONTEMPLATED BY THE DEERFIELD COMMITMENT LETTER.

Voting by Melinta’s Principal Stockholders

In connection with the execution of Medicines purchase agreement, holders beneficially owning, as of November 28, 2017, approximately 52% of the shares of Melinta’s outstanding common stock, have entered into voting agreements with Medicines. The voting agreement, which is attached as Annex E hereto, provides among other things, that the parties to the agreements will vote (i) in favor of the acquisition and the adoption of the Medicines purchase agreement and the transactions contemplated thereby; and (ii) against any action or agreement that has or would be reasonably likely to result in any conditions under the Medicines purchase agreement not being fulfilled, any amendments to Melinta’s certificate of incorporation or bylaws, if such amendment would be expected to prevent or delay the closing of the acquisition or any other action or agreement that is intended, or could reasonably be expected, to impede, interfere with, delay or postpone the transactions contemplated by the Medicines purchase agreement or change in any manner the voting rights of any class of stock of Melinta. For more information on the voting agreement, please see the section of this proxy statement entitled “Agreements Related to the Acquisition” beginning on page [●].

 

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PROPOSAL: APPROVAL OF POSSIBLE ADJOURNMENT OF THE SPECIAL MEETING

General

If Melinta fails to receive a sufficient number of votes to approve the Proposal, Melinta may propose to adjourn the Special Meeting, if a quorum is present, for a period of not more than 30 days for the purpose of soliciting additional proxies to approve the Proposal. Melinta currently does not intend to propose adjournment at the Special Meeting if there are sufficient votes to approve the Proposal.

Vote Required; Recommendation of Board of Directors

The affirmative vote of the holders of a majority of the shares of Melinta common stock present in person or represented by proxy and entitled to vote on the matter at the Special Meeting is required to approve the adjournment of the Special Meeting for the purpose of soliciting additional proxies to approve the Proposal. A “broker non-vote” will have no effect on the outcome of this proposal, while an abstention will have the same effect as a vote against the approval of this proposal.

MELINTA’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT MELINTA STOCKHOLDERS VOTE “FOR” THE PROPOSAL TO ADJOURN THE SPECIAL MEETING, IF NECESSARY, IF A QUORUM IS PRESENT, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF PROPOSAL TO APPROVE THE ISSUANCE OF COMMON STOCK.

Voting by Melinta’s Principal Stockholders

In connection with the execution of Medicines purchase agreement, holders beneficially owning, as of November 28, 2017, approximately 52% of the shares of Melinta’s outstanding common stock, have entered into voting agreements with Medicines. The voting agreement, which is attached as Annex E hereto, provides among other things, that the parties to the agreements will vote (i) in favor of the acquisition and the adoption of the Medicines purchase agreement and the transactions contemplated thereby; and (ii) against any action or agreement that has or would be reasonably likely to result in any conditions under the Medicines purchase agreement not being fulfilled, any amendments to Melinta’s certificate of incorporation or bylaws, if such amendment would be expected to prevent or delay the closing of the acquisition or any other action or agreement that is intended, or could reasonably be expected, to impede, interfere with, delay or postpone the transactions contemplated by the Medicines purchase agreement or change in any manner the voting rights of any class of stock of Melinta. For more information on the voting agreement, please see the section of this proxy statement entitled “Agreements Related to the Acquisition” beginning on page [●].

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

Melinta Therapeutics, Inc. Unaudited Pro Forma Combined Financial Information

The unaudited pro forma combined financial statements give effect to two transactions: the Merger and the Transaction. The term “the combined company” as used in this section of the proxy statement refers to the new Melinta Therapeutics, Inc. following the Merger and the acquisition, both as discussed below. The unaudited pro forma combined financial information was prepared in accordance with the regulations of the SEC.

Merger with Cempra, Inc.

The following unaudited pro forma combined financial information gives effect to the Merger of a wholly-owned subsidiary of Cempra (now known as Melinta Therapeutics, Inc. but referred to as Cempra for purposes of describing the Merger) with and into Melinta Therapeutics, Inc. (now known as Melinta Subsidiary Corp. but referred to as Melinta for purposes of describing the Merger and as the accounting acquirer) which survived as a wholly-owned subsidiary of Cempra in a transaction accounted for as a reverse acquisition under the acquisition method of accounting in accordance with GAAP. For purposes of the financial disclosures in this proxy statement, “Cempra” refers to Cempra, Inc. for the period prior to the Merger. For accounting purposes, the Merger is treated as a reverse acquisition and, as such, the historical financial statements of the accounting acquirer (Melinta) became the historical financial statements of the post-closing company.

The unaudited pro forma combined balance sheet at September 30, 2017, and the unaudited pro forma combined statement of operations for the nine months ended September 30, 2017, and the year ended December 31, 2016, presented herein are based on the historical financial statements of Melinta and Cempra after giving effect to the acquisition (for accounting purposes) of Cempra by Melinta and the assumptions and adjustments described in the accompanying notes to these unaudited pro forma combined financial information.

Melinta was determined to be the acquirer for accounting purposes after consideration of the terms of the merger agreement and other factors, including: (i) Melinta security holders owned approximately 52% of the voting interests of the combined company immediately following the closing of the Merger and (ii) directors of Melinta were responsible for electing the chairman of the board for the combined company. Accordingly, the Merger has been accounted for by Melinta as a reverse merger acquisition under the acquisition method of accounting for business combinations.

The acquisition consideration is based on Cempra’s share price and shares of common stock outstanding as more fully described in the accompanying notes to the unaudited pro forma combined financial information. Under the reverse acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of Cempra based on their estimated fair values as of the Merger closing date. The excess of the purchase price over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. Alternatively, a bargain purchase gain is recognized if the aggregate fair value of the identifiable assets acquired and liabilities assumed exceeds the purchase price for the acquisition. The assets and liabilities and results of operations of Cempra were consolidated into the results of operations of Melinta as of the effective date of the Merger. The pro forma adjustments reflecting the completion of the Merger are based upon the acquisition method of accounting in accordance with GAAP and upon the assumptions set forth in the accompanying notes to the unaudited pro forma combined financial information.

The unaudited pro forma combined balance sheet as of September 30, 2017, gives effect to the Merger as if it occurred on September 30, 2017, and reflects the acquisition of Cempra by Melinta. The unaudited pro forma combined statements of operations for the nine months ended September 30, 2017, and for the year ended December 31, 2016, are presented as if the Merger was consummated on January 1, 2016, and combines the historical results of Melinta and Cempra for the nine months ended September 30, 2017, and the year ended December 31, 2016.

 

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Acquisition of Infectious Disease Business by Melinta

The following unaudited pro forma combined financial information gives effect to the Transaction, after giving effect to the Merger discussed above.

The unaudited pro forma combined balance sheet at September 30, 2017, and the unaudited pro forma combined statement of operations for the nine months ended September 30, 2017, and the year ended December 31, 2016, presented herein are based on the historical financial statements of Melinta, as adjusted for the Merger, and IDB after giving effect to the Transaction and the assumptions and adjustments described in the accompanying notes to these unaudited pro forma combined financial information. In addition, while Melinta is acquiring substantially all of IDB’s key operating assets, there are certain assets and liabilities that Melinta is not acquiring. These assets and liabilities, and the related expenses, have been eliminated from the combined company balance sheet and statement of operations as reflected in the pro forma adjustments.

Pro Forma Basis and Presentation

The unaudited pro forma combined financial information does not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the Merger or the Transaction, or with the integration of the companies. The unaudited pro forma combined financial information has been prepared for illustrative purposes only and is not necessarily indicative of the financial position or results of operations in future periods or the results that would have been realized had Melinta been a combined company during the specified periods.

The historical financial information has been adjusted to give pro forma effect to events that are (i) directly attributable to the Merger or the Transaction, (ii) factually supportable, and (iii) with respect to the statement of operations, expected to have a continuing impact on the combined results. The application of the acquisition method of accounting is dependent upon certain valuations that have yet to be completed. Accordingly, the pro forma adjustments are preliminary and based on management’s estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the Transaction and certain other adjustments. Therefore, pro forma adjustments reflected in the unaudited pro forma combined financial information are subject to further revision as additional information becomes available and additional analyses are performed, and have been made solely for the purpose of providing the unaudited pro forma combined financial information. Differences between the preliminary adjustments reflected in the unaudited pro forma combined financial information and the final application of the acquisition method of accounting, which is expected to be completed as soon as practicable after the closing of the Merger and the acquisition, may arise and those differences could have a material impact on the accompanying unaudited pro forma combined financial information and the combined company’s future results of operations and financial position. The amounts of acquisition consideration, assets acquired and liabilities assumed that will be used in acquisition accounting will be based on their respective fair values as determined at the time of closing, and may differ significantly from these estimates.

The unaudited pro forma combined financial information, including the notes thereto, should be read in conjunction with the Melinta historical audited consolidated financial statements for the year ended December 31, 2016, and the Melinta unaudited condensed and consolidated financial statements for the nine months ended September 30, 2017, included on Form 8-K/A filed with the SEC on December 5, 2017, attached as Exhibit A. They should also be read in conjunction with the Cempra historical audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 28, 2017, and the Cempra historical unaudited consolidated financial statements included in its Quarterly Report on Form 10-Q for the nine months ended September 30, 2017 filed with the SEC on November 2, 2017, attached as Exhibit B. Last, they should also be read in conjunction with the IDB carve-out historical audited consolidated financial statements for the year ended December 31, 2016, and the unaudited consolidated condensed financial statements for the nine months ended September 30, 2017, which are included in this proxy statement as Exhibit D.

 

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Unaudited Pro Forma Condensed Combined Balance Sheet

As of September 30, 2017

(in thousands)

 

(In thousands)   Historical
Melinta
    Historical
Cempra
    Pro Forma
Adjustments
    Notes     Melinta
Unaudited
Pro
Forma
Combined
    Historical
IDB
    Pro Forma
Adjustments
    Notes     Melinta
Unaudited
Pro
Forma
Combined
 

Assets

                 

Current assets

                 

Cash and cash equivalents

  $ 12,193     $ 176,134     $ (10,555     (A   $ 177,757     $ —       $ (165,000     (1   $ 184,232  
        (15     (B         183,900       (2  
                (42,425     (3  
                30,000       (2  

Receivables

    7,525       2,803       —           10,328       8,342           18,670  

Inventory

    5,997       —         —           5,997       42,850       19,237       (4     68,084  

Prepaid expenses and other current assets

    2,304       833       —           3,137       558       (197     (5     5,558  
                2,060       (4  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total current assets

    28,019       179,770       (10,570       197,219       51,750       27,575         276,544  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Property and equipment, net

    1,538       27       —           1,565       5,726       (5,726     (6     1,565  

Developed product rights, net

    —         —         29,200       (C     29,200       285,965       (285,965     (7     300,215  
                271,015       (7  

Other intangible assets

    7,500       —         11,200       (C     18,700       —             18,700  

Goodwill

    —         —         —           —         83,303       (83,303     (8     16,701  
                16,701       (9  

Other assets

    1,103       83       —           1,186       191       (191     (10     1,186  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total assets

  $ 38,160     $ 179,880     $ 29,830       $ 247,870     $ 426,935     $ (59,894     $ 614,911  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Liabilities

                 

Current liabilities

                 

Accounts payable

  $ 12,443     $ 6,665     $ —         $ 19,108     $ 2,869     $ —         $ 21,977  

Accrued expenses

    16,310       2,322       10,725       (D     29,357       46,656       (1,179     (11     76,509  
                2,000       (12  
                (325     (13  

Accrued interest on note payable

    275       —             275       —         (275     (3     —    

Long-term debt, current portion

    —         6,667       (6,667     (A     —         —         —           —    

Contingent purchase price-current portion

    —         —         —           —         28,700       (28,700     (14     34,712  
                34,712       (15  

Preferred stock warrants

    339       —         (339     (E     —         —         —           —    
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

    29,367       15,654       3,719         48,740       78,225       6,233         133,198  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Long term liabilities

                 

Notes payable

    39,206       —         —           39,206       —         (39,206     (3     146,400  
                146,400       (2  

Convertible promissory notes

    73,101       —         (73,101     (F     —         —         —           —    

Deferred revenue

    10,008       16,987       —           26,995       —         —           26,995  

Deferred purchase price

    —         —             —         —         43,173       (16     43,173  

Contingent purchase price

            —         34,183       (34,183     (14     14,105  
                14,105       (15  

Other liabilities

    —         —         —           —         3,944       (3,944     (17     —    

Long-term debt, net of current

    —         3,682       (3,682     (A     —         —         —           —    
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

    151,682       36,323       (73,064       114,941       116,352       132,578         363,871  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Convertible preferred stock

    217,220       —         (217,220     (G     —         —         —           —    

Shareholders' Equity

                 

Common stock

    1       53       (53     (H     22             22  
        11       (I          
        10       (J          

Additional paid-in capital/net parent investment

    223,137       626,001       (626,001     (H     640,526       311,710       (311,710     (18     763,581  
        (15     (B         55,555       (19  
        339       (E         30,000       (2  
        73,101       (F         37,500       (2  
        217,220       (G          
        126,754       (I          
        (10     (J          

Accumulated other comprehensive (loss) income

    —         —         —           —         (1,127     1,127       (20     —    

Accumulated deficit

    (553,880     (482,497     482,497       (H     (507,619     —         (2,944     (3     (512,563
        (206     (A         (2,000     (12  
        (10,725     (D          
        57,192       (K          
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total shareholders’ (deficit) equity

    (330,742     143,557       320,114         132,929       310,583       (192,472       251,040  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities and shareholders’ (deficit) equity

  $ 38,160     $ 179,880     $ 29,830       $ 247,870     $ 426,935     $ (59,894     $ 614,911  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

 

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Table of Contents

Unaudited Pro Forma Condensed Combined Statement of Operations

For the nine months ended September 30, 2017

(in thousands, except per share amounts)

 

    Historical
Melinta
    Historical
Cempra
    Pro Forma
Adjustments
    Notes     Melinta
Unaudited
Pro
Forma
Combined
    Historical
IDB
    Pro Forma
Adjustments
    Notes     Melinta
Unaudited
Pro
Forma
Combined
 

Revenue

                 

Product revenue

            $ 23,635         $ 23,635  

License

  $ 19,905     $ —           $ 19,905       —             19,905  

Collaboration

    9,728       —             9,728       —             9,728  

Contract research

    —         7,449           7,449       —             7,449  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total revenue

  $ 29,633     $ 7,449         $ 37,082     $ 23,635         $ 60,717  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Operating expenses

                 

Cost of product revenue

              12,681       (7,071     (21     27,118  
                20,326       (22  
                1,182       (23  

Research and development

    37,876       28,338           66,214       37,399       (1,988     (24     101,625  

General and administrative

    25,976       21,291       (6,532     (L     44,468       94,527       (3,341     (25     135,654  
        3,733       (M          

Restructuring charge

    —         3,553           3,553       —             3,553  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total operating expenses

  $ 63,852     $ 53,182     $ (2,799     $ 114,235     $ 144,607     $ 9,108       $ 267,950  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Loss from operations

  $ (34,219   $ (45,733   $ 2,799       $ (77,153   $ (120,972   $ (9,108     $ (207,233
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Other income (expenses)

                 

Interest income

    25       896           921       —             921  

Interest expense

    (5,765     (677     4,126       (N     (2,316     (144     2,316       (26     (14,201
                (14,201     (27  
                144       (28  

Loss on extinguishment of debt

    (607     —         (206     (N     (813     —             (813

Change in fair value of warrant liability

    335       —         (335     (O     —         —             —    

Other income

    95       —             95       (676         (581
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Other income (expense), net

  $ (5,917   $ 219     $ 3,585       $ (2,113   $ (820   $ (11,741     $ (14,674
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Net loss before income taxes

  $ (40,136   $ (45,514   $ 6,384       $ (79,266   $ (121,792   $ (20,849     $ (221,907

Benefit for income taxes

    —         —         —           —         66,006       (66,006     (29     —    
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Net Loss

  $ (40,136   $ (45,514   $ 6,384       $ (79,266   $ (55,786   $ (86,855     $ (221,907
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Accretion of preferred dividends

    (17,161     —         17,161       (P     —         —         —           —    
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Net loss available to common shareholders

  $ (57,297   $ (45,514   $ 23,545       $ (79,266   $ (55,786   $ (86,855     $ (221,907
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Basic and diluted net loss attributable to common shareholders per share

  $ (45.26   $ (0.87       $ (3.63     —           $ (7.24
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Basic and diluted weighted-average

                 

shares outstanding

    1,266       52,471       (31,887     (Q     21,850       —         8,801       (30     30,651  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

 

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Table of Contents

Unaudited Pro Forma Condensed Combined Statement of Operations

For the year ended December 31, 2016

(in thousands, except per share amounts)

 

    Historical
Melinta
    Historical
Cempra
    Pro Forma
Adjustments
    Notes     Melinta
Unaudited
Pro
Forma
Combined
    Historical
IDB
    Pro Forma
Adjustments
    Notes     Melinta
Unaudited
Pro
Forma
Combined
 

Revenue

                 

Product revenue

            $ 24,973         $ 24,973  

License

  $ —       $ 4,339         $ 4,339       —             4,339  

Contract research

    —         13,677           13,677       —             13,677  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total revenue

  $ —       $ 18,016         $ 18,016     $ 24,973         $ 42,989  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Operating expenses

                 

Cost of product revenue

              11,247       (7,930     (21     31,666  
                27,100       (22  
                1,249       (23  

Research and development

    49,791       81,686           131,477       51,841       (2,650     (24     180,668  

General and administrative

    19,410       53,538       7,467       (M     80,415       139,443       (2,991     (25     216,867  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Total operating expenses

  $ 69,201     $ 135,224     $ 7,467       $ 211,892     $ 202,531     $ 14,778       $ 429,201  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Loss from operations

    (69,201     (117,208     (7,467       (193,876     (177,558     (14,778       (386,212

Other income (expenses)

                 

Interest income

    30       475           505       —             505  

Interest expense

    (4,406     (1,228     2,244       (N     (3,390     —         3,390       (26     (18,936
                (18,936     (27  

Change in fair value of tranche assets and liabilities

    (1,313     —             (1,313     —             (1,313

Change in fair value of warrant liability

    781       —         (781     (O     —         —         —           —    

Other

    177       —             177       (19         158  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Other income (expense), net

  $ (4,731   $ (753   $ 1,463       $ (4,021   $ (19   $ (15,546     $ (19,586
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Net loss before income taxes

  $ (73,932   $ (117,961   $ (6,004     $ (197,897   $ (177,577   $ (30,324     $ (405,798

Benefit for income taxes

    —         —         —           —         206       (206     (29     —    
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Net Loss

  $ (73,932   $ (117,961   $ (6,004     $ (197,897   $ (177,371   $ (30,530     $ (405,798
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Accretion of preferred dividends

    (21,117     —         21,117       (P     —         —         —           —    
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Net loss available to common shareholders

  $ (95,049   $ (117,961   $ 15,113       $ (197,897   $ (177,371   $ (30,530     $ (405,798
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Basic and diluted net loss attributable to common shareholders per share

  $ (94.29   $ (2.34       $ (9.26     —           $ (13.51
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

Basic and diluted weighted-average shares outstanding

    1,008       50,314       (29,943     (Q     21,379       —         8,659       (30     30,038  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

     

 

 

 

 

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Table of Contents

NOTES TO UNAUDITED PRO FORMA COMBINED

FINANCIAL INFORMATION

1. Description of Transactions and Basis of Presentation

Description of Transactions

Merger with Cempra, Inc.

On August 8, 2017, Cempra, Inc. (now known as Melinta Therapeutics, Inc. but referred to as Cempra for purposes of describing the Merger) entered into a merger agreement with Melinta (now known as Melinta Subsidiary Corp. but referred to as Melinta for purposes of describing the Merger and as the accounting acquirer). On November 3, 2017, pursuant to the terms and subject to the conditions set forth in the merger agreement, Melinta was merged into a subsidiary of Cempra and survived as a wholly-owned subsidiary of Cempra. Cempra was re-named Melinta Therapeutics, Inc. in connection with the Merger.

Immediately prior to the completion of the Merger, the principal and interest under outstanding convertible promissory notes and all outstanding shares of preferred stock, including dividends of Melinta were converted into shares of Melinta common stock. As part of the completion of the Merger, each outstanding share of the common stock of Melinta was converted into the right to receive that number of shares of Cempra common stock as determined pursuant to the exchange ratios described in the merger agreement (except that stockholders of Melinta who are not “accredited investors” under U.S. securities laws or who held fractional shares received cash), and all options, warrants or other rights to purchase shares of capital stock of Melinta, were exchanged for rights to acquire Cempra common stock. No fractional shares of Cempra common stock were issued in connection with the Merger, and holders of Melinta capital stock were entitled to receive cash in lieu thereof.

Immediately upon completion of the Merger, Melinta’s former security holders beneficially owned shares of Cempra’s common stock representing an aggregate of approximately 52 percent on a fully-diluted basis as calculated under the treasury stock method.

Acquisition of IDB

On November 28, 2017, Melinta entered into the acquisition agreement with Medicines under which Melinta will acquire a group of wholly-owned subsidiaries of Medicines and certain other assets known, collectively, as the Infectious Disease Business. Melinta will pay to Medicines at the closing of the acquisition $165 million in cash (subject to a working capital adjustment) and a number of shares of Melinta common stock equal to $50 million, divided by 90% of the volume weighted average price for the trailing 10 trading day period ending 3 trading days prior to closing, and will be committed to further payments of $25 million each on the 12- and 18-month anniversaries of the closing date. In addition, Melinta will be obligated to make contingent milestone and sales-based royalty payments to third parties and Medicines based on future events.

Basis of Presentation

The accompanying pro forma condensed combined financial information was prepared in accordance with Article 11 of Regulation S-X and present the pro forma consolidated financial position and results of operations of the combined company based upon the historical financial information of Melinta and IDB after giving effect to the Merger, the Transaction and the adjustments described in these notes, and are intended to reflect the impact of the combinations, including the related financing transactions and the exclusion of certain IDB assets, on Melinta’s consolidated financial information.

Both the Merger and the acquisition will be accounted for under the acquisition method of accounting in accordance with ASC Topic 805, “Business Combinations”. For accounting purposes, Melinta is considered to have acquired Cempra even though legally Cempra was the issuer of the common stock in the merger.

 

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Table of Contents

Both the Cempra and the IDB identifiable assets acquired and liabilities assumed will be recorded at the acquisition-date fair values and added to Melinta’s balance sheet. The pro forma adjustments are preliminary and based on management’s estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the acquisition. These estimates are based on the most recently available information. To the extent there are significant changes to the combined company’s business following completion of the Merger and the Transaction, the assumptions and estimates set forth in the unaudited pro forma combined financial statements could change significantly. The allocations are dependent upon certain valuations and other studies that have not been completed for the Merger and will not be completed prior to the closing date of the Transaction. Accordingly, the pro forma purchase price adjustments are subject to further adjustments as additional information becomes available and as additional analyses and final valuations are conducted. There can be no assurances that these additional analyses and final valuations will not result in material changes to the estimates of fair value. In addition, differences between the preliminary and final amounts will likely occur as a result of changes in the estimated fair values of tangible and intangible assets acquired and liabilities assumed, including any goodwill or bargain purchase gains recognized, as of the dates that the Merger was and the Transaction is completed.

The unaudited pro forma condensed combined balance sheet data gives effect to the Merger and the Transaction as if they occurred on September 30, 2017. The unaudited pro forma combined statement of operations for the nine months ended September 30, 2017 combine the unaudited historical statements of operations of Cempra, IDB and Melinta for their respective nine-month periods ended September 30, 2017, and gives pro forma effect to the Merger and the Transaction as if they had been completed on January 1, 2016. The unaudited pro forma combined statement of operations for the year ended December 31, 2016, combine the historical statements of operations of Cempra, IDB and Melinta for their respective year ended December 31, 2016, and gives pro forma effect to the Merger and the Transaction as if they had been completed on January 1, 2016. In addition, while Melinta is acquiring substantially all of IDB’s operating assets, there are certain assets and liabilities that Melinta is not acquiring. These assets and liabilities, and the related expenses, have been eliminated from the combined company balance sheet and statement of operations as reflected in the pro forma adjustments.

2. Purchase Price

Merger with Cempra, Inc.

The purchase price for the merger with Cempra is as follows (in thousands, except share data):

 

Number of Cempra shares outstanding as of November 3, 2017

     10,502,477  

10-day weighted average Cempra common stock price as of November 3, 2017

     12.07  
  

 

 

 

Total estimated purchase price

     126,765  
  

 

 

 

For pro forma purposes, the fair value of consideration transferred was determined based on the 10-day volume weighted average closing price of Cempra common stock of $12.07 per share as of November 3, 2017, the closing date of the Merger. The combined company will expense all transaction costs as incurred.

 

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Table of Contents

The preliminary allocation of the purchase price to acquired tangible and intangible assets and liabilities assumed based on their estimated fair values as of September 30, 2017, comprises (in thousands):

 

Cash and cash equivalents

     176,134  

Receivables and other assets

     3,746  

Intangible assets

     40,400  

Accounts payable, accrued expenses and other liabilities

     (36,323
  

 

 

 

Net assets acquired

     183,957  

Less: estimated purchase price

     (126,765
  

 

 

 

Bargain purchase gain

     57,192  
  

 

 

 

The allocation of the purchase price is preliminary. The final determination of the purchase price allocation will be based on the fair values of assets, including identifiable intangible assets acquired, and the fair values of liabilities assumed as of the date that the Merger is completed. Melinta believes that the historical values of Cempra’s current assets and current liabilities approximate their fair value based on the short-term nature of such items. Cempra’s property and equipment consists of assets whose historical cost, less depreciation, is deemed to approximate its fair value. The estimated fair values of the assets acquired and liabilities assumed will remain preliminary until the combined company completes a valuation of significant identifiable intangible assets acquired and determines the fair values of other assets and liabilities. Based on such preliminary valuations, the excess of the purchase price over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. Alternatively, a bargain purchase gain is recognized if the aggregate fair value of the identifiable assets acquired and liabilities assumed exceeds the purchase price for the acquisition. Based on preliminary estimates of the fair value of the assets acquired and liabilities assumed as of September 30, 2017, and the purchase price, based on the closing price of Cempra common stock as of November 3, 2017, the combined company would recognize a bargain purchase gain as of September 30, 2017. The bargain purchase gain of $57,192 is primarily the result of the decrease in the market value of the Cempra common stock since the date that the merger agreement was announced. The bargain purchase gain has not been reflected in the pro forma condensed combined statement of operations as it is directly attributable to the Merger and will not have a continuing impact on the operating results of the combined organization.

Acquisition of Infectious Disease Business by Melinta

The purchase price for the acquisition of IDB is as follows (in thousands):

 

Cash

   $ 165,000  

Common stock of Melinta

     55,555  

Present value of milestone payment due on 12-month anniversary of closing *

     22,222  

Present value of milestone payment due on 18-month anniversary of closing *

     20,951  

Present value of contingent milestone payments *

     42,017  

Ticking fees *

     6,800  
  

 

 

 

Total estimated purchase price

   $ 312,545  
  

 

 

 

 

* The fair value of these contingent payments has been calculated using a probability-weighted, discounted cash flow approach based on a range of possible outcomes.

 

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Table of Contents

The preliminary allocation of estimated purchase price to acquired tangible and intangible assets and liabilities assumed based on their estimated fair values as of September 30, 2017, comprises (in thousands):

 

Net working capital

   $ 24,829  

Intangible assets

     271,015  
  

 

 

 

Net assets acquired

     295,844  

Less: estimated purchase price

     (312,545
  

 

 

 

Goodwill

   $ 16,701  
  

 

 

 

The allocation of the purchase price is preliminary. The final determination of the purchase price allocation will be based on the fair values of assets, including identifiable intangible assets acquired, and the fair values of liabilities assumed as of the date that the acquisition is completed. IDB and Melinta believe that the historical values of IDB’s current assets and current liabilities approximate their fair value based on the short-term nature of such items. The estimated fair values of the assets acquired and liabilities assumed will remain preliminary until the combined company completes a valuation of significant identifiable intangible assets acquired and intangible liabilities assumed and determines the fair values of other assets and liabilities. Based on such preliminary valuations, the excess of the purchase price over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. Alternatively, a bargain purchase gain is recognized if the aggregate fair value of the identifiable assets acquired and liabilities assumed exceeds the purchase price for the acquisition. Based on preliminary estimates of the fair value of the assets acquired and liabilities assumed as of September 30, 2017, and the purchase price, the combined company would recognize goodwill as of September 30, 2017.

3. Pro Forma Adjustments

The unaudited pro forma adjustments included in the pro forma condensed combined balance sheet are as follows:

 

  A. Represents the pay-off of Cempra’s long-term debt by Cempra as the debt will not be legally assumed by the combined company as part of the merger agreement. There was $10,555 of principal and $206 in unamortized debt issuance costs, resulting in a net reduction of long-term debt of $10,349 as of September 30, 2017.

 

  B. Represents shares repurchased by Cempra.

 

  C. Represents the preliminary estimated fair value of the intangible assets of Cempra acquired by Melinta as part of the Merger. These amounts include $29,200 for in-process research and development related to Solithromycin and Fusidic Acid. The fair value of IPR&D acquired through a business combination is capitalized as an indefinite-lived intangible asset until the completion or abandonment of the related research and development activities. When the related research and development is completed, the asset will be assigned a useful life and amortized. An additional $11,200 of intangibles is related to the non-compete agreements related to the executives that will be amortized over 18 months.

 

  D. Represents estimated transaction costs payable in cash of $7,037 and $3,688 that have not been incurred as of September 30, 2017, for Cempra and Melinta, respectively. These pro forma adjustments are not reflected in the unaudited pro forma condensed combined statements of operations as these amounts are not expected to have a continuing effect on the operating results of the combined company.

 

  E. Represents the conversion of Melinta preferred stock warrants into Cempra common stock warrants, eliminating the terms that caused the preferred stock warrants to be accounted for as a liability, and the elimination of the historical changes in the estimated fair value of the warrants that were recognized on the related statements of operations.

 

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Table of Contents
  F. Represents the conversion of Melinta’s convertible bridge notes payable and accrued interest to 3,766,311 shares of Cempra common stock, after applying the conversion of Melinta to Cempra shares, in connection with the merger.

 

  G. Represents the conversion of Melinta’s preferred stock to Cempra common stock, after applying the conversion of Melinta common stock to Cempra common stock, in connection with the merger.

 

  H. Represents the elimination of Cempra’s historical stockholder’s equity.

 

  I. Represents the estimated purchase consideration transferred to Cempra stockholders.

 

  J. Represents an increase in the par value of common stock based on the par value of Cempra common stock to be issued to Melinta shareholders (dollar amounts in thousands, except per share amounts):

 

Estimated shares of Cempra common stock issued to Melinta shareholders upon close of the Merger

     11,433,532  

Multiplied by par value per share of Cempra common stock

     0.001  
  

 

 

 

Par value of Cempra common stock issued to Melinta shareholders (in thousands)

     11  

Less historical par value of Melinta common stock

     (1
  

 

 

 

Net pro forma adjustment to common stock

     10  
  

 

 

 

 

  K. Represents the preliminary bargain purchase gain as a result of the transaction, which is subject to change based on information received before transaction closing.

 

  1. Represents cash paid at closing for the acquisition.

 

  2. Represents proceeds from the Credit Facility, $190,000, net of debt issuance fees of $6,100 and proceeds from issuance of additional equity of $30,000 to existing Melinta stockholders. The proceeds from the Credit Facility will be recorded as debt of $152,500 and equity of $37,500. The Credit Facility provides for a warrant to be issued to the lender for the purchase of Melinta common stock as well as a royalty on future sales of Vabomere. We have not included pro forma adjustments related to the warrant or the royalties as we are evaluating these terms of the Credit Facility to determine the proper accounting treatment. We will incorporate the value of these elements in the purchase price upon its finalization.

 

  3. Represents the pay-off of Melinta’s long-term debt by Melinta as the debt will be replaced by the Credit Facility.

 

  4. Adjustment to record fair value of Vabomere inventories purchased, including deposits for future production of API, which had previously been recognized as research and development expense by IDB.

 

  5. Adjustment to remove prepaid and other current assets related to the Targanta Canada R&D facility, which are excluded from the transaction.

 

  6. Adjustment to remove fixed assets located at the Rempex San Diego, CA facility, which are excluded from the transaction.

 

  7. Adjustment to the carrying value of developed product rights (principally patents and trademarks) to record them at estimated fair value—remove the historical carrying value and add estimated fair value. These values may change after completion of valuation studies of the rights to market Vabomere and Orbactiv in Europe, which have not been assigned any fair value in these pro forma adjustments.

 

Vabomere

   $ 215,616  

Orbactiv

     32,349  

Minocin IV

     23,050  
  

 

 

 

Developed product rights

   $ 271,015  
  

 

 

 

 

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  8. Adjustment to remove IDB’s historical goodwill.

 

  9. Represents goodwill, the excess of the purchase price over the value of the businesses acquired.

 

  10. Adjustment to remove restricted cash and lease deposit related to the Targanta R&D facility, which are excluded from the transaction.

 

  11. Adjustment to remove accrued expenses for early stage development product costs, which are excluded from the transaction.

 

  12. Represents Melinta’s estimated accrued transaction costs.

 

  13. Adjustment to remove transaction related accruals, which are excluded from the purchase agreement.

 

  14. Adjustment to remove the historical IDB carrying value of contingent purchase price.

 

  15. Adjustment to add fair value of contingent purchase price for potential event-based milestone payments.

 

  16. Adjustment to add deferred 12- and 18-month deferred purchase payments.

 

  17. Adjustment to remove deferred rent for the San Diego, CA facility, which is excluded from the transaction.

 

  18. Adjustment to remove additional paid-in capital.

 

  19. Represents common stock issued to seller—$50,000 purchased at a 10% discount equals $55,555 of stock. While the final number of shares of stock to be issued is not determinable until the closing of the Transaction, if the closing had been on November 28, 2017, when the closing price of Melinta stock was $15.00 (the latest practicable date), approximately 3.7 million shares would be issued.

 

  20. Adjustment to remove the accumulated other comprehensive income.

The unaudited pro forma adjustments included in the pro forma condensed combined statements of operation are as follows:

 

  L. Represents the elimination of transaction-related expenses incurred by Melinta and Cempra during the period. These amounts have been eliminated on a pro forma basis, as they are not expected to have a continuing effect on the operating results of the combined company.

 

  M. Represents the amortization of developed product rights and other intangible assets.

 

  N. Represents the elimination of interest expense on the conversion of Melinta’s convertible notes into Cempra common stock, as well as the payoff of the long-term debt for Cempra due to the requirements of the merger agreement.

 

  O. Represents the conversion of Melinta preferred stock warrants into Cempra common stock warrants, eliminating the terms that caused the preferred stock warrants to be accounted for as a liability, and the elimination of the historical changes in the estimated fair value of the warrants that were recognized on the related statements of operations.

 

  P. Represents the elimination of the accretion of preferred stock dividends as all outstanding Melinta preferred stock was assumed to be converted to common stock in connection with the Merger.

 

  Q. Represents the issuance of Cempra shares to Melinta stockholders in connection with the Merger, adjusted for Melinta’s historical weighted-average outstanding shares.

 

  21. Represents the elimination of amortization of IDB developed product rights.

 

  22. Represents the amortization of acquired developed product rights on a straight-line basis over the estimated patent lives.

 

  23. Represents 5% royalty due to IDB on net product sales.

 

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  24. Adjustment to remove research and development costs for early state development products, which are excluded from the transaction.

 

  25. Adjustment to remove transaction related costs, which are excluded from the transaction.

 

  26. Adjustment to remove interest expense related to Melinta’s long-term debt.

 

  27. Represents interest expense, at 11.75%, for the Credit Facility.

 

  28. Adjustment to remove IDB’s interest expense related to the San Diego, California facility lease, which is excluded from the transaction.

 

  29. Adjustment to eliminate the tax benefit recorded by IDB given the losses of the combined company. No other pro forma tax adjustments were identified as part of the preliminary valuation of the IDB.

 

  30. Represents the issuance of Melinta shares to Medicines, certain existing investors and the Deerfield Funds in connection with the acquisition. While the final number of shares of stock to be issued will not be determined until the closing of the Transaction, if the closing had been on November 28, 2017, when the closing price of Melinta stock was $15.00 (the latest practicable date), approximately 3.7 million shares would be issued to Medicines, approximately 2.2 million to the existing investors, and approximately 2.8 million shares to the Deerfield Funds.

 

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ISSUANCE OF MELINTA’S COMMON STOCK

The following description summarizes the material terms and provisions of Melinta’s common stock. The following description of Melinta’s common stock does not purport to be complete and is subject to, and qualified in its entirety by Melinta’s Amended and Restated Certificate of Amendment to the Certificate of Incorporation of Melinta. The terms of Melinta’s common stock may also be affected by Delaware law.

Melinta’s authorized common stock consists of 80,000,000 shares of common stock, $0.001 par value per share. The holders of Melinta common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to Melinta common stock.

 

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MELINTA’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with Melinta’s financial statements and related notes included with the Form 8-K/A filed with the SEC on December 5, 2017, attached as Exhibit A. This discussion and analysis and other parts of this proxy statement contain forward-looking statements based upon current beliefs, plans and assumptions, such as statements regarding Melinta’s intentions, plans, objectives, expectations, forecasts and projections. See “Forward-Looking Statements” in this proxy statement.

Melinta’s Management’s Discussion and Analysis of Financial Condition and Results of Operations is included in Melinta’s Current Report on 8-K/A filed with the SEC on December 5, 2017, attached as Exhibit A to this proxy statement.

 

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MEDICINES COMPANY’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF

THE INFECTIOUS DISEASE BUSINESS OF THE MEDICINES COMPANY

You should read the following discussion and analysis of financial condition and results of operations together with the combined financial statements and related notes of The Infectious Disease Business of The Medicines Company attached as Exhibit D. Certain businesses and assets referenced in this section related to the Transferred Subsidiaries, including the research and development of Oravance, Omnivance, the pre-clinical polymyxin programs and the programs being conducted at Medicines’ San Diego facilities were specifically excluded from the assets being acquired and will be separated from the acquired business prior to closing. See “Notes to Unaudited Pro Forma Combined Financial Information—Pro Forma Adjustments” for further information. Certain of the information contained in this discussion and analysis, including information with respect to IDB’s plans and strategy for its business and related financing, includes forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” in this proxy statement.

Overview

IDB is a commercial-stage biopharmaceutical business exclusively focused on the research, development and commercialization of innovative antibiotics to treat life-threatening infections, particularly those due to antimicrobial drug-resistant bacteria. IDB’s discovery-to-commercialization platform positions it to be a leader in the growing market in antimicrobial drug resistance, which has been identified by the World Health Organization as one of the biggest threats to human health.

IDB had a portfolio of two commercial stage products, Orbactiv and Minocin IV, a recently approved product, Vabomere, for which IDB received FDA approval on August 29, 2017 and for which IDB filed for regulatory approval in the European Union in the second quarter of 2017, and a pipeline of preclinical product candidates. IDB intends to commercialize its antibiotic portfolio in the United States using its dedicated sales force and to opportunistically seek development and commercialization partnerships for its products and product candidates outside the United States.

Results of Operations

Nine months ended September 30, 2016 and 2017

Net Revenue:

 

     Nine Months Ended
September 30,
               
     2016      2017      Change $      Change %  
     (In thousands)         

Orbactiv net revenue

   $ 11,433      $ 16,350      $ 4,917        43.00

Minocin IV net revenue

     5,471        7,285        1,814        33.15
  

 

 

    

 

 

    

 

 

    

Total net revenue

   $ 16,904      $ 23,635      $ 6,731        39.82
  

 

 

    

 

 

    

 

 

    

Net revenue increased by $6.7 million to $23.6 million for the nine months ended September 30, 2017 as compared to $16.9 million for the nine months ended September 30, 2016. Orbactiv net revenue increased by $4.9 million due to increased volume in the nine months ended September 30, 2017. The increase in Minocin IV net revenue of $1.8 million was primarily driven by volume increases in the nine months ended September 30, 2017.

 

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Cost of Revenue:

 

     Nine Months Ended September 30,  
     2016      % of
Total Cost
    2017      % of
Total Cost
 
     (In thousands)            (In thousands)         

Manufacturing/Logistics

   $ 1,372        16.1   $ 3,991        31.5

Royalty

     1,168        13.8     1,619        12.8

Impairment of inventory and amortization of acquired product rights and intangible assets

     5,948        70.1     7,071        55.7
  

 

 

    

 

 

   

 

 

    

 

 

 

Total cost of revenue

   $ 8,488        100.0   $ 12,681        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Cost of revenue in the nine months ended September 30, 2016 was $8.5 million compared to $12.7 million for the nine months ended September 30, 2017.

Cost of revenue during these periods consisted of:

 

    expenses in connection with the manufacture of IDB’s products sold, including expenses related to excess inventory and logistics costs related to Orbactiv and Minocin IV including distribution, storage, and handling costs;

 

    royalty expenses under IDB’s agreement with Eli Lilly and Company related to Orbactiv; and

 

    impairment of inventory and amortization of the costs of product rights, developed product rights and other identifiable intangible assets, which result from product and business acquisitions.

Cost of revenue increased by $4.2 million in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to increases in sales volume of Orbactiv and Minocin IV, as discussed above, increases in royalty expenses due to an increase in sales of Orbactiv and the amortization of acquired product rights and intangible assets associated with Vabomere of $1.1 million due to the FDA approval in the third quarter of 2017. IDB expects cost of revenue to increase in future periods due to an anticipated increase in sales volume.

Research and Development Expenses:

 

     Nine Months Ended September 30,  
     2016      % of
Total R&D
    2017      % of
Total R&D
 
     (In thousands)            (In thousands)         

Marketed products

          

Orbactiv

   $ 4,442        14.5   $ 8,864        23.7

Minocin IV

     715        2.3     1,127        3.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total marketed products

     5,157        16.8     9,991        26.7

Registration stage product candidates

          

Vabomere

     —          —       24,070        64.4
  

 

 

    

 

 

   

 

 

    

 

 

 

Total registration stage product candidates

     —          —       24,070        64.4

Research and development product candidates

          

Vabomere

     21,210        69.2     —          —  

Other

     1,913        6.3     1,432        3.8
  

 

 

    

 

 

   

 

 

    

 

 

 

Total research and development product candidates

     23,123        75.5     1,432        3.8

Other

     2,353        7.7     1,906        5.1
  

 

 

    

 

 

   

 

 

    

 

 

 

Total research and development expenses

   $ 30,633        100.0   $ 37,399        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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For these periods, IDB’s marketed products consisted of Minocin IV and Orbactiv. Registration stage product candidates consists of Vabomere beginning in the first quarter of 2017 when the NDA was accepted by the FDA. Research and development stage product candidates consisted of Vabomere until the first quarter of 2017 and other early stage compounds. Research and development expenses increased by $6.8 million in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to increases in Orbactiv of $4.4 million pertaining to the new formulation and increases in expenses, net of reimbursements received from BARDA, associated with Vabomere of $2.9 million relating to costs associated with the anticipated new drug application (NDA).

IDB expects research and development expenses in the remainder of 2017 to increase primarily due to manufacturing development activities for Vabomere.

Selling, General and Administrative Expenses:

 

     Nine Months Ended
September 30,
              
     2016      2017      Change $     Change %  
     (In thousands)        

Selling, marketing and promotional

   $ 40,261      $ 53,870      $ 13,608       33.80

General, corporate and administrative

     63,301        40,658        (22,642     -35.77
  

 

 

    

 

 

    

 

 

   

Total selling, general and administrative expenses

   $ 103,562      $ 94,528      ($ 9,034     -8.72
  

 

 

    

 

 

    

 

 

   

Selling, general and administrative expenses decreased by $9.0 million in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, primarily due to a decrease in general, corporate and administrative expenses of $22.6 million, partially offset by an increase in selling, marketing and promotional expenses of $13.6 million. The decrease in general, corporate and administrative expense was primarily due to adjustments to the fair value of contingent consideration due to the former equity holders of Targanta and Rempex of $38.5 million. This occurred as a result of the prior year positive results from the Vabomere clinical trials and the related increases in the probability that the contingent consideration payable to former Rempex equityholders will become due. The decrease in general, corporate and administrative expenses was partially offset by an increase in personnel related expenses of $7.3 million, accounting and legal fees of $4.1 million, office rent of $2.4 million and $2.1 million of other general, corporate and administrative expenses. The increase in selling, marketing and promotional expenses was primarily due to an increase in advertising and other marketing programs of $7.9 million, selling personnel related expenses of $5.3 million, product fees of $1.0 million and $1.0 million of other selling, marketing and promotional expenses, partially offset by decreases in consulting fees of $1.6 million.

Other Expense:

 

     Nine Months Ended
September 30,
               
         2016              2017          Change $      Change %  
     (In thousands)         

Other expense

   $ 148      $ 820      $ 672                

Other expense, which is comprised primarily of interest expense and foreign currency transactions, increased by $0.7 million in the nine months ended September 30, 2017. This increase was primarily due to losses on foreign currency transactions.

 

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(Provision) benefit for Income Taxes:

 

     Nine Months Ended
September 30,
               
         2016              2017          Change $      Change %  
     (In thousands)         

(Provision) benefit for income taxes

   ($ 12    $ 66,006      $ 66,018                

 

* Represents a change in excess of 100%

IDB’s income tax provision, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated future taxes to be paid. IDB is subject to income taxes in both the United States and Canada. IDB recorded a provision for income taxes of $12 thousand for the nine months ended September 30, 2016 compared to a benefit for income taxes of $66.0 million for the nine months ended September 30, 2017, based on a loss from operations before income taxes of $125.9 million and $121.8 million for the nine months ended September 30, 2016 and 2017, respectively. IDB’s effective income tax rates for each of the nine months ended September 30, 2016 and 2017 were approximately (0.1%) and 54.2%, respectively. IDB’s provision for income taxes was the result of state tax minimums. For the nine months ended September 30, 2017, IDB’s benefit for income taxes is primarily attributable to a reduction in its recorded valuation allowance against deferred tax assets as a result of the commencement of amortization of IPR&D associated with Vabomere upon approval by the FDA, which resulted in a discrete benefit of $66.0 million.

Years ended December 31, 2015 and 2016

Net Revenue:

 

     Year Ended
December 31,
               
     2015      2016      Change $      Change %  
     (In thousands)         

Orbactiv net revenue

   $ 9,085      $ 16,052      $ 6,967        76.7

Minocin IV net revenue

     5,375        8,921        3,546        66.0
  

 

 

    

 

 

    

 

 

    

Total net revenue

   $ 14,460      $ 24,973      $ 10,513        72.7
  

 

 

    

 

 

    

 

 

    

Net revenue increased by $10.5 million to $25.0 million in 2016 compared to $14.5 million in 2015. Orbactiv and Minocin IV net revenue increased by $7.0 million and $3.5 million, respectively, primarily due to increased volume in 2016.

Cost of Revenue:

 

     Year Ended December 31,  
     2015      % of
Total Cost
    2016      % of
Total Cost
 
     (In thousands)            (In thousands)         

Manufacturing/Logistics

   $ 4,000        25.1   $ 1,699        15.1

Royalty

     880        5.5     1,618        14.4

Impairment of inventory and amortization of acquired product rights and intangible assets

     11,025        69.4     7,930        70.5
  

 

 

    

 

 

   

 

 

    

 

 

 

Total cost of revenue

   $ 15,905        100.0   $ 11,247        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Cost of revenue in 2015 was $15.9 million compared to $11.2 million in 2016.

 

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Cost of revenue during these periods consisted of:

 

    expenses in connection with the manufacture of IDB’s products sold, including expenses related to excess inventory and logistics costs related to Orbactiv and Minocin IV including distribution, storage, and handling costs;

 

    royalty expenses under IDB’s agreement with Eli Lilly and Company related to Orbactiv; and

 

    impairment of inventory and amortization of the costs of product rights, developed product rights and other identifiable intangible assets, which result from product and business acquisitions.

Cost of revenue decreased by $4.7 million in 2016 compared to 2015, primarily due to an inventory obsolescence reserve relating to Orbactiv that was recorded in 2015. This decrease was partially offset by increases in royalty expenses due to an increase in sales of Orbactiv as well as increases in product rights amortization for Minocin IV because a full year of amortization was taken in 2016 compared to six months of amortization having been taken in 2015. IDB expects cost of revenue to increase in future periods due to an anticipated increase in sales volume.

Research and Development Expenses:

 

     Year Ended December 31,  
     2015      % of
Total R&D
    2016      % of
Total R&D
 
     (In thousands)            (In thousands)         

Marketed products

          

Minocin IV

   $ 202        0.5   $ 1,197        2.3

Orbactiv

     9,158        24.3     5,851        11.3
  

 

 

    

 

 

   

 

 

    

 

 

 

Total marketed products

     9,360        24.8     7,048        13.6

Registration stage product candidates

          

Minocin IV

     665        1.8     —          —  

Total registration stage product candidates

     665        1.8     —          —  
  

 

 

    

 

 

   

 

 

    

 

 

 

Research and development product candidates

          

Vabomere

     24,286        64.5     39,406        76.0

Other

     2,279        6.1     3,280        6.3
  

 

 

    

 

 

   

 

 

    

 

 

 

Total research and development product candidates

     26,565        70.6     42,686        82.3

Other

     1,072        2.8     2,107        4.1
  

 

 

    

 

 

   

 

 

    

 

 

 

Total research and development expenses

   $ 37,662        100.0   $ 51,841        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

For these periods, IDB’s marketed products consisted of Minocin IV (beginning with the second quarter of 2015) and Orbactiv. Registration stage product candidates consisted of Minocin IV until the second quarter of 2015, when it became a marketed product. Research and development stage product candidates consisted of Vabomere and other early stage compounds. Research and development expenses increased by $14.0 million in 2016 compared to 2015, primarily due to increases in expenses, net of reimbursements received from BARDA, associated with Vabomere of $15.1 million due to the TANGO 1 Phase 3 clinical trial and manufacturing development costs related to the NDA filing in the fourth quarter of 2016. This increase was partially offset by a decrease in expenses associated with Orbactiv.

In 2017, IDB expects manufacturing development activities for Vabomere to increase as it prepares for the approval of its NDA by the FDA.

 

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Selling, General and Administrative Expenses:

 

    Year Ended
December 31,
             
    2015     2016     Change $     Change %  
    (In thousands)        

Selling, marketing and promotional

  $ 60,793     $ 55,478     $ (5,315     (8.7 )% 

General, corporate and administrative

    21,639       83,965       62,326       288.0
 

 

 

   

 

 

   

 

 

   

Total selling, general and administrative expenses

  $ 82,432     $ 139,443     $ 57,011       69.2
 

 

 

   

 

 

   

 

 

   

Selling, general and administrative expenses increased by $57.0 million in 2016 compared to 2015, primarily due to an increase in general, corporate and administrative expenses of $62.3 million partially offset by a decrease in selling, marketing and promotional expenses of $5.3 million. The increase in general, corporate and administrative expense was primarily due to increases in expenses of approximately $54.8 million associated with the fair value adjustments of the contingent consideration due to the former equityholders of Rempex. This occurred as a result of the positive results from the TANGO 1 Phase 3 clinical trial and the related increase in the probability that the contingent consideration payable to former Rempex equityholders will become due. The remaining increase was due to an increase in personnel related expenses of $2.1 million, rent expenses of $1.7 million and accounting fees of $1.6 million, and other general, corporate and administrative expenses. The decrease in selling, marketing and promotional expenses was primarily due to decreases in personnel related expenses of $3.1 million, consulting fees of $1.7 million and speaker programs of $1.5 million, partially offset by increases in other selling and marketing expenses.

IDB expects its selling, general and administrative expenses will increase in 2017 due to increased costs related to the commercial launch of Vabomere.

Other Income (Expense):

 

     Year Ended
December 31,
               
     2015      2016      Change $      Change %  
     (In thousands)         

Other income (expense)

   $ 199      $ (19    $ (218      (109.5 )% 

Other income (expense), which is comprised primarily of foreign currency transactions, decreased by $0.2 million in 2016. This decrease was primarily due to realized losses on foreign currency transactions.

Benefit from Income Taxes:

 

     Year Ended
December 31,
               
     2015      2016      Change $      Change %  
     (In thousands)         

Benefit from income taxes

   $ 12,809      $ 206      $ (12,603      (98.4 )% 

IDB’s income tax benefit, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated future taxes to be paid. IDB is subject to income taxes in both the United States and Canada. IDB recorded a benefit from income taxes of $12.8 and $0.2 million in 2015 and 2016, respectively, based on a loss from operations before income taxes of $121.3 million and $177.6 million for the years ended December 31, 2015 and 2016, respectively. IDB’s effective income tax rates in 2015 and 2016 were approximately (10.6)% and (0.1%), respectively. This change in the effective tax rate was primarily driven

 

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by IDB’s loss for the year 2016 and the inability to realize any benefit from this loss due to the establishment of a valuation allowance against substantial portions of its deferred tax assets. The benefit from income taxes recorded in 2015 is a result of the reclassification of in-process research and development assets to developed product rights due to the approval of Minocin IV in the United States. At December 31, 2015, IDB recorded a $120.9 million valuation allowance against $153.0 million of deferred tax assets compared to a $165.0 million valuation allowance against $195.6 million of deferred tax assets at December 31, 2016.

Liquidity and Capital Resources

Cash Flows

Nine months ended September 30, 2016 and 2017

Net cash used in operating activities was $86.4 million in the nine months ended September 30, 2016 compared to $142.5 million in the nine months ended September 30, 2017. Net cash used in operating activities in the nine months ended September 30, 2016 included a net loss of $125.9 million and a $16.3 million decrease from working capital items, partially offset by non-cash items of $55.8 million. Non-cash items included change in contingent purchase price of $42.2 million, stock compensation of $7.4 million and depreciation and amortization of $6.2 million. Changes in working capital items primarily included changes in inventory, accounts payable and accrued expenses, partially offset by increases in BARDA receivable.

Net cash used in operating activities in the nine months ended September 30, 2017 included net loss of $55.8 million, a $44.5 million decrease from working capital items and a $42.2 million decrease from non-cash items. Non-cash items included deferred tax benefit of $66.1 million partially offset by stock compensation of $12.5 million, depreciation and amortization of $7.8 million, and change in contingent purchase price of $3.5 million. Changes in working capital items primarily included payments on contingent purchase price, changes in accounts payable and deferred revenue partially offset by changes in accrued expenses and other liabilities.

Net cash used in investing activities during the nine months ended September 30, 2016 and 2017 was $61 thousand and $4.4 million, respectively, primarily for the purchase of fixed assets.

Net cash provided by financing activities was $86.5 million and $146.9 million during the nine months ended September 30, 2016 and 2017, respectively. Net cash provided by the parent company during the nine months ended September 30, 2016 and 2017 was $94.5 million and $157.0 million, respectively. This was partially offset by payments on contingent purchases price of $8.0 million and $10.1 million during the nine months ended September 30, 2016 and 2017, respectively.

Years ended December 31, 2015 and 2016

Net cash used in operating activities was $129.7 million in 2015 compared to $117.1 million in 2016. Net cash used in operating activities in 2015 included net loss of $108.5 million and a $26.8 million decrease from working capital items, partially offset by non-cash items of $5.6 million. Non-cash items included stock compensation of $8.6 million and depreciation and amortization of $7.0 million. Changes in working capital items primarily included decreases in accounts receivable, inventory, BARDA receivable, deferred revenue and prepaid expenses and other current assets, partially offset by increases in accrued expenses.

Net cash used in operating activities in 2016 included net loss of $177.4 million and a $11.4 million decrease from working capital items, partially offset by non-cash items of $71.7 million. Non-cash items included stock compensation of $9.9 million, depreciation and amortization of $8.3 million and change in contingent consideration of $53.2 million. Changes in working capital items primarily included changes in inventory and accounts payable, partially offset by increases in accrued expenses.

 

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Net cash used in investing activities during 2015 and 2016 was $0.5 million and $1.3 million, respectively, primarily for the purchase of fixed assets.

Net cash provided by financing activities was $130.2 million and $118.3 million during 2015 and 2016, respectively. Net cash provided by the parent company during 2015 and 2016 was $145.7 million and $127.8 million, respectively. This was partially offset by payments on contingent purchase price of $15.5 million and $9.5 million during 2015 and 2016, respectively.

Contractual Obligations

IDB’s long-term contractual obligations include commitments and estimated purchase obligations entered into in the normal course of business. These obligations include commitments related to purchases of inventory, research and development service agreements, operating leases, consisting of IDB’s leased office space in San Diego, California and selling, general and administrative obligations.

Future estimated contractual obligations as of December 31, 2016 are:

 

Contractual Obligations (in thousands)(1)

   Total      Less Than
1 Year
     Years
1 -3
     Years
4 - 5
     More Than
5 Years
 

Inventory related commitments

   $ 9,330      $ 9,330      $ —        $ —        $ —    

Research and development

     34,132        22,498        11,331        303        —    

Operating leases

     35,298        1,121        5,566        5,905        22,706  

Selling, general and administrative

     1,996        1,596        400        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 80,756      $ 34,545      $ 17,297      $ 6,208      $ 22,706  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) This table does not include any milestone and royalty payments which may become payable to third parties for which the timing and likelihood of such payments are not known, as discussed below.

All of the inventory related commitments included above are non-cancellable. Included within the inventory related commitments above are purchase commitments as of December 31, 2016 totaling $8.9 million for Orbactiv bulk drug substances, and $0.4 million for Minocin IV. Included in research and development commitments are clinical research organization costs, validation batch manufacturing for Vabomere and other committed clinical materials and services. Of the total estimated contractual obligations for research and development, and selling, general and administrative, $16.9 million are non-cancellable.

On October 1, 2014, IDB entered into an agreement to lease 63,000 square feet of office space with ARE-SD Region No. 35, LLC for new office and laboratory space in San Diego. This lease has a term of 144 months. The commencement date is February 2017. The lease qualifies for operating lease treatment with recorded annual rent expense from commencement date to expiration. IDB’s expected total obligation for this space is $35.3 million.

Aggregate rent expense under IDB’s property leases that are applicable to IDB only was approximately $1.4 million and $1.7 million as of December 31, 2015 and 2016, respectively.

In addition to the amounts shown in the above table, IDB is contractually obligated to make potential future success-based development, regulatory and commercial milestone payments and royalty payments in conjunction with acquisitions IDB has entered into with third-parties. These contingent payments include royalty and/or milestone payments with respect to Orbactiv, Minocin IV, Vabomere and other preclinical product candidates. Each of these payments is contingent upon the occurrence of certain future events and, given the nature of those events, it is unclear when, if ever, IDB may be required to make such payments and with respect to royalty payments, what the total amount of such payments will be. Further, the timing of any of the foregoing future payments is not reasonably estimable. For those reasons, these contingent payments have not been included in

 

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the table above. IDB may have to make these significant contingent cash payments in connection with its acquisition and licensing activities upon the achievement of specified development, regulatory, sales and other milestones as follows:

 

    In connection with IDB’s acquisition of Targanta Therapeutics Corporation (Targanta), it is obligated to pay contingent cash payments up to $49.4 million to the former shareholders of Targanta and up to $25.0 million in additional payments to Eli Lilly and Company (Eli Lilly) and InterMune, Inc. upon reaching specified milestones. As a result of the Targanta acquisition, IDB is a party to a license agreement with Eli Lilly through its Targanta subsidiary. IDB is required to make payments to Eli Lilly upon reaching specified regulatory and sales milestones. In addition, IDB is obligated to pay royalties to Eli Lilly based on net sales of products containing Orbactiv or the other compounds in any jurisdiction in which IDB holds license rights to a valid patent.

 

    In connection with its acquisition of Rempex Pharmaceuticals Inc. (Rempex), IDB is obligated to pay contingent payments of up to $289.2 million, less certain expenses and employer taxes owing because of such payments, upon achievement of specified development, regulatory and sales milestones.

Recent Accounting Pronouncements

For detailed information regarding recently issued accounting pronouncements and the expected impact on the combined financial statements of The Infectious Disease Business of Medicines, see Note 2 “Significant Accounting Policies,” in the accompanying notes to the combined financial statements of The Infectious Disease Business of The Medicines Company, attached hereto as Exhibit D.

Application of Critical Accounting Estimates

The discussion and analysis of IDB’s financial condition and results of operations is based on its combined financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires IDB to make estimates and judgments that affect its reported assets and liabilities, revenues and expenses, and other financial information. Actual results may differ significantly from these estimates under different assumptions and conditions. In addition, IDB’s reported financial condition and results of operations could vary due to a change in the application of a particular accounting standard.

IDB regards an accounting estimate or assumption underlying its financial statements as a “critical accounting estimate” where:

 

    the nature of the estimate or assumption is material due to the level of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and

 

    the impact of the estimates and assumptions on financial condition or operating performance is material.

IDB’s significant accounting policies are more fully described in Note 2 to its combined financial statements. Not all of these significant accounting policies, however, requires that IDB make estimates and assumptions that IDB believes are “critical accounting estimates.” IDB believes that its estimates relating to revenue recognition, inventory, sharebased compensation, income taxes, in-process research and development, contingent purchase price from business combinations and impairment of long-lived assets described below are “critical accounting estimates.”

Revenue Recognition

Product Sales. IDB distributes Orbactiv and Minocin IV in the United States through sole source, exclusive distribution model with Integrated Commercialization Solutions or “ICS”. Prior to September 1, 2017, IDB

 

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recognized sales from Orbactiv under a deferred revenue model as it did not have sufficient information to develop estimates of expected returns and other adjustments to gross revenue. Under the deferred revenue model, IDB did not recognize revenue upon product shipment of Orbactiv to ICS. Instead, upon product shipment, IDB invoiced ICS, recorded deferred revenue at gross invoice sales price, classified the cost basis of the product held by ICS as finished goods inventory held by others and included such cost basis amount within prepaid expenses and other current assets on the consolidated balance sheets. IDB recognized revenue when hospitals purchased the products and the transaction consideration became fixed or determinable. Beginning September 1, 2017, IDB has sufficient market information to reasonably estimate its chargebacks, returns and other adjustments to gross revenues associated with Orbactiv and recognizes sales upon shipment to ICS. This change in estimate resulted in a $1.6 million and $0.4 million increase to net product revenues and cost of product revenues, respectively, for the nine months ended September 30, 2017. IDB had deferred revenue of $1.4 million, $2.3 million and $0.0 million associated with sales in the United States of Orbactiv as of December 31, 2015, 2016 and September 30, 2017, respectively. IDB recognized $9.1 million, $16.0 million, $11.4 million and $16.4 million of revenue associated with Orbactiv during the years ended December 31, 2015 and 2016 and the nine months ended September 30, 2016 and 2017, respectively, related to purchases by hospitals.

Under the same sole source distribution model with ICS, IDB record revenue upon shipment of Minocin IV to ICS. ICS then primarily sells these products to a limited number of national medical and pharmaceutical wholesalers with distribution centers located throughout the United States. Under the terms of this fee-for-service agreement, ICS places orders with IDB for sufficient quantities of Minocin IV to maintain an appropriate level of inventory based on IDB’s customers’ historical purchase volumes. ICS assumes all credit and inventory risks, is subject to IDB’s standard return policy and has sole responsibility for determining the prices at which it sells these products, subject to specified limitations in the agreement. The agreement terminates on February 28, 2019 and will automatically renew for additional one-year periods unless either party gives notice at least 90 days prior to the automatic extension. Either party may terminate the agreement at any time and for any reason upon 180 days prior written notice to the other party.

IDB does not recognize revenue from product sales until there is persuasive evidence of an arrangement, delivery has occurred, the price is fixed or determinable, the buyer is obligated to pay us, the obligation to pay is not contingent on resale of the product, the buyer has economic substance apart from IDB, IDB has no obligation to bring about the sale of the product, the amount of returns can be reasonably estimated and collectability is reasonably assured.

IDB records allowances for chargebacks and other discounts or accruals for product returns, rebates and fee-for-service charges at the time of sale, and report revenues net of such amounts. In determining the amounts of certain allowances and accruals, IDB must make significant judgments and estimates. For example, in determining these amounts, IDB estimates hospital demand, buying patterns by hospitals and group purchasing organizations from wholesalers and the levels of inventory held by wholesalers and by ICS. Making these determinations involves estimating whether trends in past wholesaler and hospital buying patterns will predict future product sales. IDB receives data periodically from ICS and wholesalers on inventory levels and levels of hospital purchases and IDB considers this data in determining the amounts of these allowances and accruals.

Product returns. IDB’s customer has the right to return any unopened product during the 18-month period beginning six months prior to the labeled expiration date and ending 12 months after the labeled expiration date. As a result, in calculating the accrual for product returns, IDB must estimate the likelihood that product sold might not be used within six months of expiration and analyze the likelihood that such product will be returned within 12 months after expiration. IDB considers all of these factors and adjust the accrual periodically throughout each quarter to reflect actual experience. When IDB’s customer returns product, the customer is generally given credit against amounts owed. The amount credited is charged to IDB’s product returns accrual.

In estimating the likelihood of product being returned, IDB relies on information from ICS and wholesalers regarding inventory levels, measured hospital demand as reported by third-party sources and internal sales data.

 

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IDB also considers the past buying patterns of ICS and wholesalers, the estimated remaining shelf life of product previously shipped, the expiration dates of product currently being shipped, price changes of competitive products and introductions of generic products.

At December 31, 2015, 2016 and September 30, 2017, IDB’s accrual for product returns was $1.2 million, $0.3 million and $0.2 million, respectively.

Chargebacks and rebates. Although IDB primarily sells products to ICS in the United States, it typically enters into agreements with hospitals, either directly or through group purchasing organizations acting on behalf of their hospital members, in connection with the hospitals’ purchases of products.

Based on these agreements, most of IDB’s hospital customers have the right to receive a discounted price for products and volume-based rebates on product purchases. In the case of discounted pricing, IDB typically provides a credit to ICS, or a chargeback, representing the difference between ICS’ acquisition list price and the discounted price. In the case of the volume-based rebates, IDB typically pays the rebate directly to the hospitals.

As a result of these agreements, at the time of product shipment, IDB estimates the likelihood that product sold to ICS might be ultimately sold to a contracting hospital or group purchasing organization. IDB also estimates the contracting hospital’s or group purchasing organization’s volume of purchases.

IDB bases its estimates on industry data, hospital purchases and the historic chargeback data it receives from ICS, most of which ICS receives from wholesalers, which detail historic buying patterns and sales mix for particular hospitals and group purchasing organizations, and the applicable customer chargeback rates and rebate thresholds.

IDB’s allowance for chargebacks was $0.2 million, $0.7 million and $1.2 million at December 31, 2015, 2016 and September 30, 2017, respectively. A 10% change in IDB’s allowance for chargebacks would have had an approximate $0.1 million effect on its reported net revenue for the nine months ended September 30, 2017.

Fees-for-service. IDB offers discounts to certain wholesalers and ICS based on contractually determined rates for certain services. IDB estimates its fee-for-service accruals and allowances based on historical sales, wholesaler and distributor inventory levels and the applicable discount rate. IDB’s discounts are accrued at the time of the sale and are typically settled with the wholesalers or ICS within 60 days after the end of each respective quarter. IDB’s fee-for-service accruals and allowances were $0.1 million, $0.2 million and $0.8 million at December 31, 2015, 2016 and September 30, 2017.

IDB has adjusted its allowances for chargebacks and accruals for product returns, rebates and fees-for-service in the past based on actual sales experience, and IDB will likely be required to make adjustments to these allowances and accruals in the future. IDB continually monitors its allowances and accruals and makes adjustments when it believes actual experience may differ from its estimates.

 

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The following table provides a summary of activity with respect to IDB’s sales allowances and accruals as of January 1, 2016, December 31, 2016 and September 30, 2017 (amounts in thousands):

 

     Cash
Discounts
    Returns     Chargebacks     Rebates     Fees-for-
Service
 
     (In thousands)  

Balance at January 1, 2016

   $ 75     $ 1,217     $ 215     $ 50     $ 144  

Allowances for sales during 2016)

     441       (854     2,886       44       821  

Actual credits issued for prior year’s sales

     (75     (86     (115     (50     (144

Actual credits issued for sales during 2016

     (344     —         (2,243     (29     (584
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

     97       277       743       15       237  

Allowances for sales during 2017 (unaudited)

     504       247       3,589       286       1,287  

Actual credits issued for prior year’s sales (unaudited)

     (97     (287     13       (15     (237

Actual credits issued for sales during 2017 (unaudited)

     (391     —         (3,106     (118     (496
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2017

   $ 113     $ 237     $ 1,239     $ 168     $ 791  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Inventory

IDB records inventory upon the transfer of title from its vendors. Inventory is stated at the lower of cost or net realizable value using first-in, first-out methodology. Orbactiv and Minocin IV bulk substance is classified as raw material and its costs are determined using acquisition costs from IDB’s contract manufacturers. IDB records work-in-progress costs of filling, finishing and packaging against specific product batches.

IDB reviews inventory, including inventory purchase commitments, for slow moving or obsolete amounts based on expected revenue. IDB reviews its projected market share as well as current buying patterns from its customers. IDB analyzes its ability to sell the inventory on hand and committed to customers prior to the expiration period of the respective inventory. Significant judgment is employed in determining the appropriateness of IDB’s ability to sell inventory on hand and commitments based on its sales projections. If annual and expected volumes are less than expected, IDB may be required to make additional allowances for excess or obsolete inventory in the future.

Share-Based Compensation

IDB recognizes compensation expense for grants under Medicines’ share-based compensation plan to its employees. Medicines accounts for share-based compensation expense using the accelerated expense attribution method. Medicines estimates the fair value of each option on the date of grant using the Black-Scholes closed-form option-pricing model based on assumptions for the expected term of the stock options, expected volatility of Medicines’ common stock, and prevailing interest rates. IDB estimates forfeitures in calculating the expense relating to share-based compensation as opposed to only recognizing forfeitures and the corresponding reduction in expense as they occur.

Medicines has based their assumptions on the following:

 

Assumption

  

Method of Estimating

•       Estimated expected term of options

  

•       Employees’ historical exercise experience

•       Expected volatility

  

•       Historical price of Medicines’ common stock

•       Risk-free interest rate

  

•       Yields of U.S. Treasury securities corresponding with the expected life of option grants

•       Forfeiture rates

  

•       Historical forfeiture data