SYNAGEVA BIOPHARMA CORP - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - SYNAGEVA BIOPHARMA CORP	Financial_Report.xls
EX-32.1 - EX-32.1 - SYNAGEVA BIOPHARMA CORP	d544517dex321.htm
EX-31.1 - EX-31.1 - SYNAGEVA BIOPHARMA CORP	d544517dex311.htm
EX-31.2 - EX-31.2 - SYNAGEVA BIOPHARMA CORP	d544517dex312.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-23155

SYNAGEVA BIOPHARMA CORP.

(Exact name of registrant as specified in its charter)


Delaware		56-1808663
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

33 Hayden Avenue,

Lexington, MA 02421

(Address of principal executive offices, including zip code)

(781) 357-9900

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s common stock as of August 1, 2013 was 27,475,913.

SYNAGEVA BIOPHARMA CORP.

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements		3
	Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012		3
	Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2013 and 2012		4
	Consolidated Statements of Comprehensive Loss (Unaudited) for the three and six months ended June 30, 2013 and 2012		5
	Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2013 and 2012		6
	Notes to the Financial Statements (Unaudited)		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		21
Item 4.	Controls and Procedures		22

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		22
Item 1A.	Risk Factors		22
Item 5.	Other Information		33
Item 6.	Exhibits		33

SIGNATURES			34

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

SYNAGEVA BIOPHARMA CORP.

CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except per share amounts)


	June 30, 2013			December 31, 2012

Assets
Current assets:
Cash and cash equivalents	$	47,760		$	23,883
Short-term investments		237,068			195,070
Accounts receivable		3,806			2,599
Prepaid expenses and other current assets		8,941			3,555

Total current assets		297,575			225,107
Property and equipment, net		13,207			4,012
Developed technology, net		4,159			5,564
Goodwill		8,535			8,535
Other assets		715			38

Total assets	$	324,191		$	243,256


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,443		$	2,576
Accrued expenses		8,052			5,112
Deferred revenue		2,153			5,391

Total current liabilities	$	12,648		$	13,079

Other non-current liabilities		717			—
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, par value $0.001; 60,000 shares authorized at June 30, 2013 and December 31, 2012; 27,352 and 24,467 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively		27			24
Additional paid-in capital		506,194			388,936
Accumulated other comprehensive loss		(15	)		6
Accumulated deficit		(195,380	)		(158,789	)

Total stockholders’ equity		310,826			230,177

Total liabilities and stockholders’ equity	$	324,191		$	243,256

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

SYNAGEVA BIOPHARMA CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012

Revenue:
Royalty revenue	$	2,944		$	1,447		$	4,649		$	2,896
Collaboration and license revenue		469			802			3,882			1,694
Other revenue		—			—			—			56

Total revenue		3,413			2,249			8,531			4,646

Costs and expenses:
Research and development		18,454			7,913			31,792			14,059
General and administrative		6,443			3,887			12,097			6,807
Amortization of developed technology		706			675			1,405			1,361

Total costs and expenses		25,603			12,475			45,294			22,227

Loss from operations		(22,190	)		(10,226	)		(36,763	)		(17,581	)

Interest income		83			3			172			5

Net loss	$	(22,107	)	$	(10,223	)	$	(36,591	)	$	(17,576	)


Basic and diluted net loss per share	$	(0.81	)	$	(0.48	)	$	(1.35	)	$	(0.84	)

Weighted average shares used in basic and diluted per share computations		27,280			21,284			27,055			21,048

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

SYNAGEVA BIOPHARMA CORP.

STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited and in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012

Net loss	$	(22,107	)	$	(10,223	)	$	(36,591	)	$	(17,576	)
Other comprehensive loss:
Fair market value adjustments of available for sale securities		(20	)		—			(12	)		—
Foreign currency translation adjustments		(7	)		(4	)		(9	)		(4	)

Total other comprehensive loss		(27	)		(4	)		(21	)		(4	)

Comprehensive loss	$	(22,134	)	$	(10,227	)	$	(36,612	)	$	(17,580	)

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

SYNAGEVA BIOPHARMA CORP.

STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)


	Six Months Ended June 30,
	2013			2012
	Consolidated
Cash flows from operating activities
Net Loss	$	(36,591	)	$	(17,576	)
Adjustments:
Depreciation and amortization		2,658			1,668
Stock compensation expense		3,586			1,512
Amortization of discount on investments		1,317			—
Acquired in-process research and development		2,500			—
Changes in assets and liabilities:
Accounts receivable		(1,207	)		609
Prepaid expenses, other current assets and other assets		(3,196	)		255
Accounts payable		(133	)		(1,016	)
Accrued expenses and other liabilities		1,058			1,089
Deferred revenue		(3,238	)		7,803
Deferred rent		92			—

Net cash used in operating activities		(33,154	)		(5,656	)

Cash flows from investing activities
Purchase of available for sale investments		(162,027	)		—
Proceeds from sales and maturities available for sale investments		118,700			—
Purchase of in-process research and development		(2,500	)		—
Capital expenditures		(7,941	)		(771	)
Restricted cash		(2,868	)		—

Net cash used in investing activities		(56,636	)		(771	)

Cash flows from financing activities
Proceeds from issuance of common stock, net		111,245			84,600
Proceeds from exercise of stock options		2,430			459

Net cash provided by financing activities		113,675			85,059

Effect of exchange rate on cash		(8	)		(5	)

Net increase in cash and equivalents		23,877			78,627
Cash and equivalents at the beginning of period		23,883			60,232

Cash and equivalents at the end of period	$	47,760		$	138,859


Supplemental schedule of non-cash investing activities
Capital expenditures incurred by not yet paid		2,507			—

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

SYNAGEVA BIOPHARMA CORP.

NOTES TO THE FINANCIAL STATEMENTS

(In thousands, except per share amounts or as otherwise indicated)

(Unaudited)

1.	Nature of the Business

Synageva BioPharma Corp. (“Synageva” or the “Company”) is a biopharmaceutical company focused on the discovery, development, and commercialization of therapeutic products for patients with life-threatening rare diseases for which there is a high unmet medical need. Synageva’s lead programs include sebelipase alfa (formerly referred to as SBC-102) and SBC-103. Sebelipase alfa is a recombinant form of the human lysosomal acid lipase (“LAL”) enzyme currently under Phase 3 global clinical investigation for the treatment of infants, children and adults with LAL Deficiency, a rare but devastating disease that causes significant morbidity and mortality. SBC 103, a replacement therapy for the treatment of mucopolysaccharidosis IIIB (MPS IIIB), also known as Sanfilippo B syndrome, is currently in preclinical evaluation. Synageva’s additional pipeline programs include other proteins targeting rare diseases that are characterized by significant morbidity and mortality and are selected based on scientific rationale, high unmet medical need, the potential to impact disease course and strategic alignment with our corporate focus. Synageva has not yet received approval to market sebelipase alfa or SBC-103 and is not currently commercializing any other products.

The Company’s business is subject to risks including those common to companies in the biopharmaceutical industry, such as the successful development of products, patient enrollment, clinical trial uncertainty, regulatory approval, fluctuations in operating results and financial risks, potential need for additional funding, protection of proprietary technology and patent risks, compliance with government regulations, dependence on key personnel, competition, technological and medical risks and management of growth.

The Company has incurred losses since inception and at June 30, 2013, had an accumulated deficit of $195.4 million. The Company expects to incur losses over the next several years as it continues to expand its drug discovery, development efforts and commercial activities. As a result of continuing losses, the Company may seek additional funding through a combination of public or private financing, collaborative relationships or other arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into new collaboration or license agreements. If we are unable to obtain additional funding on a timely basis, whether through sales of debt or equity or through third-party collaboration or license arrangements, we may be required to curtail or terminate some or all of our development programs, including some or all of our drug candidates.

Through June 30, 2013, the Company funded its operations primarily from proceeds of the sale of stock, issuance of convertible notes, royalty proceeds and proceeds from government grants and collaboration agreements. On January 9, 2013, the Company announced the closing of a $117.5 million underwritten public offering of approximately 2.5 million shares of common stock at a price of $47.53. The Company received net proceeds of approximately $111.1 million from this offering. In addition to this offering, the Company received net proceeds of $192.7 million from two public equity offerings in fiscal 2012. The Company intends to use the proceeds from these offerings for general corporate purposes, which may include working capital, capital expenditures, research and development expenditures, preclinical and clinical trial expenditures, commercial expenditures, acquisitions of new technologies or businesses that are complementary to our current technologies and business focus and investments. The Company expects that it will have sufficient cash and cash equivalents to sustain operations for at least the next 18 months.

2.	Summary of Significant Accounting Policies

Basis of Presentation

The accompanying Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for Quarterly Reports on Form 10-Q and do not include all of the information and note disclosures required by the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. The Financial Statements should therefore be read in conjunction with the Financial Statements and Notes thereto for the fiscal year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2013.

The accompanying Financial Statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect amounts reported in the Financial Statements and accompanying disclosures. Although these estimates are based on the information reasonably available and actions that the Company may undertake in the future, actual results may be different from those estimates. The Financial Statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair statement of results for these interim periods. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2013.

Reverse Merger

On November 2, 2011, Trimeris, Inc., a Delaware corporation (“Trimeris”), closed a merger transaction (the “Reverse Merger”) with Synageva BioPharma Corp., a privately held Delaware corporation (“Private Synageva”), pursuant to an Agreement and Plan of Merger and Reorganization, dated as of June 13, 2011 (the “Merger Agreement”), by and among Trimeris, Private Synageva and Tesla Merger Sub, Inc., a wholly owned subsidiary of Trimeris (“Merger Sub”). Pursuant to the Merger Agreement, Private Synageva became a wholly owned subsidiary of Trimeris through a merger of Merger Sub with and into Private Synageva, and the former stockholders of Private Synageva received shares of Trimeris that constituted a majority of the outstanding shares of Trimeris. In connection with the Reverse Merger, Trimeris changed its name to Synageva BioPharma Corp.

The Reverse Merger was accounted for as a reverse acquisition under which Private Synageva was considered the acquirer of Trimeris.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the six months ended June 30, 2013, as compared to the significant accounting policies disclosed in Note 2, Summary of Significant Accounting Policies, of the Company’s financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2012.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued an accounting standard update related to Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The revised standard requires companies to present information about reclassification adjustments from accumulated other comprehensive income in their annual financial statements in a single note or on the face of the financial statements. The Company adopted this standard in the first quarter of 2013 and presented this information in Note 6, Accumulated Other Comprehensive Income (Loss) to these condensed consolidated financial statements. The adoption of this standard did not have an impact on our financial position or results of operations.

In July 2013, the Financial Accounting Standards Board, or FASB, issued an accounting standards update clarifying the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The updated guidance requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward when settlement of the liability for an unrecognized tax benefit in this manner is available. The update is effective prospectively for reporting periods beginning after December 15, 2013, and early adoption and retrospective adoption are permitted. The adoption of this guidance is not expected to have an impact on the Company’s consolidated financial statements.

Principles of Consolidation

Synageva’s consolidated financial statements include the accounts of Synageva and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

3.	Fair Value of Financial Instruments

Cash and Cash Equivalents

The Company considers all highly liquid investments with a remaining maturity at the date of purchase of 90 days or less to be cash equivalents. At June 30, 2013 and December 31, 2012, substantially all cash equivalents were U.S. treasury bills and amounts held in money market accounts at commercial banks.

Investments

All of the Company’s investments were classified as available-for-sale at June 30, 2013 and December 31, 2012. The principal amounts of short-term investments are summarized in the tables below:


	Less Than 12 Months to Maturity
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(in thousands)

Balance at June 30, 2013:
U.S. Treasury securities	$	237,065	$	3	$	—	$	237,068

Total	$	237,065	$	3	$	—	$	237,068

Balance at December 31, 2012:
U.S. Treasury securities	$	195,055	$	15	$	—	$	195,070

Total	$	195,055	$	15	$	—	$	195,070

The Company completed an evaluation of its investments and determined that it did not have any other-than-temporary impairments as of June 30, 2013 or December 31, 2012.

Fair Value Measurements

Under current accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The current accounting guidance also establishes a hierarchy to categorize how fair value is measured and which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:


Level 1		Quoted prices in active markets for identical assets or liabilities.

Level 2		Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3		Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2013:


	June 30, 2013		Quoted Price in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents
Money market fund	$	18,975	$	18,975	$	—	$	—
US treasury securities		8,505		8,505		—	$	—
Marketable securities
US treasury securities	$	237,068	$	237,068	$	—	$	—

Total	$	264,548	$	264,548	$	—	$	—

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012:


	December 31, 2012		Quoted Price in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents
Money market fund	$	10,387	$	10,387	$	—	$	—
US treasury securities		10,011		10,011		—	$	—
Marketable securities
US treasury securities	$	195,070	$	195,070	$	—	$	—

Total	$	215,468	$	215,468	$	—	$	—

4.	Supplemental Balance Sheet Information

Prepaid expenses and other current assets consist of the following:


	June 30, 2013		December 31, 2012
Prepaid clinical, manufacturing, and scientific costs	$	4,033	$	1,598
Restricted cash – short-term letters of credit (1)		2,905		37
Interest receivable		737		603
Prepaid insurance		631		896
Other		635		421

	$	8,941	$	3,555

(1)	Restricted cash of $2.9 million at June 30, 2013 primarily relates to a short-term letter of credit associated with construction activities at our Lexington headquarters.

Accrued expenses consist of the following:


	June 30, 2013		December 31, 2012
Accrued compensation, benefits and withholdings	$	2,362	$	1,862
Clinical, manufacturing and scientific costs		3,099		1,978
Professional fees		620		685
Accrued capital expenditures (1)		1,472		—
Other		499		587

	$	8,052	$	5,112

(1)	Total incurred but not yet paid capital expenditures totaled $2,507, as disclosed on the statement of cash flows. The remaining $1,035 of the total was included in our accounts payable and other non-current liabilities balances as of June 30, 2013.

5.	Share Based Payments

The Company’s stock-based compensation plans include the 1996 Stock Option Plan and the 2005 Stock Plan, as well as options outstanding under Trimeris Inc.’s 1993 Plan and 2007 Stock Incentive Plan. The Board of Directors has the authority to determine to whom options will be granted, the number of shares, the term, and the exercise price.

The 2005 Stock Plan is the only existing equity compensation plan from which the Company may make equity-based awards to employees, directors and consultants. At the Company’s annual meeting of stockholders held June 6, 2013, stockholders approved amendments to the 2005 Stock Plan to increase the number of shares of common stock available for issuance by 1.5 million shares, increasing the maximum number of shares that may be issued under the 2005 Stock Plan to approximately 4.9 million shares. Shares subject to outstanding awards under the 2005 Stock Plan totaled 2.6 million as of June 30, 2013. At June 30, 2013, there were 1.2 million shares remaining available for grant under the 2005 Stock Plan.

The Company also maintains an Employee Stock Purchase Plan (the “ESPP”), which allows eligible employees to use payroll deductions to purchase shares of the Company’s common stock at a discount of 15%. The plan is considered a compensatory employee stock purchase plan, results in incremental stock-based compensation expense in future periods. Option periods under the ESPP run from January 1 to June 30 and July 1 to December 31 of each year. The first purchase occurred on June 30, 2013, and 5.3 shares were issued with the purchase.

A summary of stock option activity under all equity plans for the six months ended June 30, 2013 is as follows:


	Number of Shares			Weighted Average Exercise Price
Outstanding at December 31, 2012		2,529		$	25.06
Options granted		806			40.90
Options exercised		(407	)		5.97
Options canceled or expired		(99	)		85.41

Outstanding at June 30, 2013		2,829		$	30.22

The Company recognized stock-based compensation expense on all stock option awards for the three and six months ended June 30, 2013 and 2012, as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012

Research and development	$	712	$	226	$	1,376	$	431
General and administrative		1,158		687		2,210		1,081

	$	1,870	$	913	$	3,586	$	1,512

6.	Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated other comprehensive income (loss), net of tax by component:


	Unrealized Gains on Available for Sale Securities			Translation Adjustments			Total
Balance, as of December 31, 2012		15			(9	)		6
Other comprehensive loss before reclassifications		(12	)		(9	)		(21	)
Amounts reclassified from accumulated other comprehensive loss		—			—			—

Net current period other comprehensive loss		(12	)		(9	)		(21	)

Balance, as of June 30, 2013		3			(18	)		(15	)

Securities Available for Sale: Balances included within accumulated other comprehensive income (loss) related to unrealized holding gains (losses). There were no amounts reclassified from accumulated other comprehensive income (loss) during the three and six months ended June 30, 2013.

7.	Basic and Diluted Net Loss per Common Share

Basic net loss per common share has been computed by dividing net loss by the weighted average number of shares outstanding during the period. Diluted net income per share, if applicable, has been computed by dividing diluted net income by the diluted number of shares outstanding during the period. Except where the result would be antidilutive to loss from continuing operations, diluted net loss per share has been computed assuming the exercise of stock options, as well as their related income tax effects.

The following table sets forth the computation of basic and diluted net loss per common share:


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012

Numerator:
Net loss	$	(22,107	)	$	(10,223	)	$	(36,591	)	$	(17,576	)
Denominator
Weighted average common shares
Denominator for basic calculation		27,280			21,284			27,055			21,048
Denominator for diluted calculation		27,280			21,284			27,055			21,048
Net loss per share:
Basic	$	(0.81	)	$	(0.48	)	$	(1.35	)	$	(0.84	)
Diluted	$	(0.81	)	$	(0.48	)	$	(1.35	)	$	(0.84	)

The Company’s potential dilutive securities which include stock options have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average common stock outstanding used to calculate both basic and diluted net loss per share are the same. The following shares of potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as the effect of including such securities would be antidilutive (in thousands):


	June 30,
	2013		2012
Options to purchase common stock		2,829		2,750

8.	License Agreements and Collaborations

Collaborations

In August 2011, the Company entered into a collaboration agreement with Mitsubishi Tanabe Pharma Corporation (“Mitsubishi Tanabe”) whereby the Company utilizes its proprietary expression technology for the development of a certain targeted compound. The agreement included an upfront development payment to the Company of $3.0 million, on-going reimbursement or funding of development costs, estimated during the initial development period to be approximately $1.5 million, and the potential for an additional payment of $3.0 million due upon the successful completion of the initial development.

In March 2012, the Company entered into a second agreement with Mitsubishi Tanabe to develop a second protein therapeutic. The agreement included an upfront license payment to the Company of $9.0 million and on-going reimbursement or funding of development costs, estimated during the initial development period to be approximately $0.8 million, as well as the potential for an additional payment of $3.0 million due upon successful completion of the initial development stage of the second program.

Under both agreements, Mitsubishi Tanabe has an option to obtain an exclusive royalty-bearing license, with the right to grant sublicenses, to further develop and commercialize the licensed compound that is the subject of the agreement (the “Option”). Additionally, upon exercise of the Option under the applicable agreement, the parties intend to negotiate a follow-on collaboration and license agreement that may include potential future development and commercial sales based milestone payments, and potential royalty payments. The Company determined that the Option is substantive as the decision to exercise is in the control of Mitsubishi Tanabe and is not essential to the functionality of the other deliverables in either agreement. Therefore, the Option was not considered to be a deliverable at the inception of either collaboration agreement. The Option terminates sixty days after the date the Joint Steering Committee (“JSC”) determines that the initial development met certain criteria.

The Company evaluated the collaboration agreements in order to determine whether the deliverables at the inception of the agreements: (i) the upfront license payments, (ii) the research services during the development periods, and (iii) the JSC’s participation should be accounted for as a single unit or multiple units of accounting. The Company concluded that the upfront license payments do not have standalone value to Mitsubishi Tanabe because (i) Mitsubishi Tanabe does not have the ability to transfer or sublicense and (ii) the activities to be conducted during the development period are highly dependent on the Company’s unique knowledge and understanding of its proprietary technology which is critical to optimizing the compounds. The Company determined that the JSC is a deliverable through the development period. In both agreements, the Company concluded that there are two units of accounting which are being delivered over the same performance period. Under both agreements, we recognize revenue using the proportional performance method, which results in both upfront payments and reimbursed research and development payments being recognized over the development term which is our performance period. We measure our proportional performance based on the development hours incurred to date compared to the estimated total development hours.

Revenue recognized under the first and second Mitsubishi Tanabe development programs totaled $0.3 million and $0.2 million for the three months ended June 30, 2013, respectively, and $0.8 million and $3.1 million for the six months ended June 30, 2013, respectively. As of June 30, 2013, the deferred revenue balance includes $1.1 million and $1.0 million related to the first and second development programs, respectively. For the first and second Mitsubishi Tanabe programs we estimate we will complete our remaining performance obligations in the first half of 2014, and the fourth quarter of 2013, respectively.

9.	Commitments and Contingencies

On April 5, 2013, the Company, Shire Human Genetics Therapies, Inc. and its affiliates (“Shire”) and Cincinnati Children’s Hospital Research Foundation, an operating division of Children’s Hospital Medical Center, and their respective affiliates entered into a settlement agreement under which the parties settled the outstanding sebelipase alfa related patent issues between them, including the revocation actions in the United Kingdom and France and the outstanding opposition in the European Patent Office.

Simultaneously with the execution of the settlement agreement, the Company entered into a sublicense agreement with Shire whereby the Company received exclusive, worldwide rights to multiple patents and patent applications owned by Cincinnati Children’s Hospital Research Foundation, and its affiliates, which had been exclusively licensed to, or co-owned with, Shire. The patents and patent applications cover the use of LAL including for the treatment of LAL Deficiency and atherosclerosis. These additional patents and patent applications complement the Company’s intellectual property portfolio covering its LAL Deficiency program including its patents and patent applications for composition of matter, methods of use, and manufacturing.

In exchange for the settlement and the rights acquired from Shire, the Company paid an upfront payment of $2.5 million, and will be obligated to make two sales-based milestones (each a low single-digit million dollar payment), and low, single-digit percentage tiered royalty payments on sales of sebelipase alfa in the U.S. and certain countries in Europe. The obligation to make tiered royalty payments is expected to expire in 2021. The Company expensed the $2.5 million upfront license payment as in-process research and development expense in the second quarter of fiscal 2013.

Occupancy Arrangements

On January 15, 2013, the Company entered into a lease agreement to accommodate the Company’s continued growth and to relocate its corporate headquarters in Lexington, Massachusetts. The Company will occupy the location in stages as building modifications are completed. The Company began occupying a portion of the facility in the second quarter of 2013. The initial lease term is for 77 months after the Company begins occupying the entire location, with an option to extend the lease term for two separate three year renewal periods. Future minimum lease payments for the Lexington lease are as follows (in thousands):


Year Ending December 31,
2013	$	167
2014-2019		1,336 (per year	)
2020		334

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined under federal securities laws. Many of these statements can be identified by the use of words such as “believes,” “expects,” “anticipates,” “plans,” “may,” “will,” “projects,” “continues,” “estimates,” “potential,” “opportunity” or the negative versions of these terms and other similar expressions. Our actual results or experience could differ significantly from the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Risk Factors,” in Part II, Item 1A of this Quarterly Report on Form 10-Q. You should carefully consider that information before you make an investment decision.

We cannot guarantee any future results, levels of activity, performance or achievements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Quarterly Report on Form 10-Q as anticipated, believed, estimated or expected. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our estimates as of the date of this Quarterly Report on Form 10-Q (unless another date is indicated) and should not be relied upon as representing our expectations as of any other date. While we may elect to update these forward-looking statements, we specifically disclaim any obligation to do so.

The following discussion of our financial condition and results of operations should be read in conjunction with our Financial Statements and the related Notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a biopharmaceutical company focused on the discovery, development, and commercialization of therapeutic products for patients with life-threatening rare diseases for which there is an unmet medical need. Our management team is experienced in the development and commercialization of drugs for diseases with small patient populations, including clinical and translational research, working with payors to establish reimbursement, and designing and building commercial organizations to reach highly specialized physicians to facilitate patient identification. Our lead programs include sebelipase alfa for lysosomal acid lipase deficiency, or LAL Deficiency, and SBC-103 for mucopolysaccharidosis IIIB (MPS IIIB), also known as Sanfilippo B syndrome.

Sebelipase alfa for LAL Deficiency

LAL Deficiency is a rare autosomal recessive lysosomal storage disease, or LSD, caused by a marked decrease in LAL enzyme activity. LAL Deficiency in children and adults, sometimes called Cholesteryl Ester Storage Disease, or CESD, is an underappreciated cause of cirrhosis and accelerated atherosclerosis. These complications are due to the buildup of fatty material in the liver, blood vessel walls and other tissues and organs as a result of decreased LAL enzyme activity. Infants with LAL Deficiency, sometimes called Wolman disease, suffer from the most rapidly progressive form of LAL Deficiency that is usually fatal within the first six months of life. Affected infants develop severe malabsorption, growth failure and liver failure. There are no approved therapies for LAL Deficiency.

Sebelipase alfa is a recombinant form of the human lysosomal acid lipase enzyme, or LAL, currently under Phase 3 global clinical investigation for the treatment of infants, children and adults with LAL Deficiency. Sebelipase alfa has been granted orphan designations by the U.S. Food and Drug Administration (FDA), the European Medicines Agency (EMA), and the Japanese Ministry of Health, Labour and Welfare. Additionally, sebelipase alfa received fast track designation by the FDA, and Breakthrough Therapy designation by the FDA for early onset LAL Deficiency.

Phase 3 ARISE trial and Phase 1/2 extension study for sebelipase alfa in LAL Deficiency

The ARISE trial (Acid Lipase Replacement Investigating Safety and Efficacy), is a randomized, double-blind, placebo-controlled study with sebelipase alfa in children and adults with LAL Deficiency and is designed to assess the effects of sebelipase alfa on a broad range of abnormalities associated with the disease. Patients enrolled in the trial are randomized to infusions of sebelipase alfa (1 mg/kg, every other week) or placebo during the 20-week, double-blind treatment period and then allowed to enter into a long-term, open-label extension period. The efficacy and safety results from the double-blind treatment period will be used to support submissions for product registration. Dosing of patients in this trial began in February of this year and the company continues to expect enrollment to complete during 2014.

In addition to enrolling the ongoing Phase 3 ARISE trial in children and adults, patients continue to receive infusions with sebelipase alfa in the Phase 1/2 extension trial in adults with LAL Deficiency. One-year data from the Phase 1/2 extension trial with sebelipase alfa presented at the European Society for Paediatric Gastroenterology, Hepatology and Nutrition, or ESPGHAN, meeting in May of this year demonstrated sustained reductions in markers of liver damage with both ALT and AST, frequently into the normal range. In addition, sebelipase alfa improved the dyslipidemia associated with LAL Deficiency as measured by LDL-C, total cholesterol and triglycerides. Most adverse events were mild and unrelated to sebelipase alfa. As previously reported, one patient with a moderate (Grade 2) allergic type infusion-related reaction paused treatment with sebelipase alfa at nine months of the extension study, pending further tests. As an update, this patient has now completed these tests and the safety committee recommended the patient recommence treatment in the extension trial.

SBC-103 for MPS IIIB

The mucopolysaccharidoses (MPS) consist of a group of rare LSDs caused by a deficiency of enzymes needed to break down complex sugars called glycosaminoglycans. The MPS III syndromes (also known as Sanfilippo syndromes) share complications with other MPS diseases but represent a clinically distinct subset with marked central nervous system degeneration. MPS IIIB is caused by a marked decrease in alpha-N-acetyl-glucosaminidase (NAGLU) enzyme activity which leads to the buildup of abnormal sugars called heparan sulfate disaccharides (HSD) in the brain and other organs. The accumulation of abnormal HSD, particularly in the central nervous system, leads to severe cognitive decline, behavioral problems, speech loss, increasing loss of mobility, and premature death. There are no approved therapies for MPS IIIB.

SBC-103 is a recombinant form of the human NAGLU enzyme we are developing as an enzyme replacement therapy for MPS IIIB. Using various dosing approaches, SBC-103 reduced HSD substrate storage in the brains, liver and kidney tissues in an MPS IIIB animal model. SBC-103 has been granted orphan designation by the FDA and the EMA. We plan to be in clinical trials with SBC-103 during the first half of 2014.

About our additional pipeline programs and manufacturing platform

Our additional pipeline programs include other proteins targeting rare diseases at various stages of preclinical development. These diseases are characterized by significant morbidity and mortality and are selected based on scientific rationale, high unmet medical need, potential to impact disease course and strategic alignment with our corporate focus. In addition to these first-mover pipeline programs, we are leveraging the manufacturing platform further to develop improved biologic therapies for diseases with high unmet medical need.

Our proprietary manufacturing platform utilizes technology to produce drug product with consistent characteristics that enable robustness and flexibility during scale-up. In addition, the platform can provide favorable structural properties for bio-distribution and cell targeting in comparison to glycoproteins produced from other sources.

Financial Operations Overview

General

Our future operating results will depend on the progress of drug candidates currently in our research and development pipeline. The results of our operations will vary significantly from year-to-year and quarter-to-quarter and will depend largely on, among other factors, the cost and outcome of any preclinical development or clinical trials then being conducted.

A discussion of certain risks and uncertainties that could affect our liquidity, capital requirements and ability to raise additional funds is set forth under the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q.

Revenue

Royalty Revenue

Royalty revenues are recognized in the period earned, based on contract terms when reported sales are reliably measurable and collectability is reasonably assured. Royalty revenue relates to amounts earned from the sale of FUZEON by Hoffman-La Roche, Inc. (“Roche”). The FUZEON royalty stream was acquired in the Reverse Merger in the fourth quarter of fiscal 2011.

Collaboration and License Revenue

Collaboration and license revenue primarily relates to our collaboration agreements with Mitsubishi Tanabe whereby we utilize our proprietary expression technology in two development programs, in exchange for upfront license payments, funded development, and the potential for additional payments upon the successful completion of the development programs. Under the first program, which was entered into in August 2011, we received an upfront license payment of $3.0 million, on-going funding of development costs, and the potential for an additional payment of $3.0 million due upon the successful completion of the initial development. Additionally, we entered into a second agreement in March 2012, where we received an upfront license payment of $9.0 million, on-going funding of development costs, and the potential for an additional payment of $3.0 million due upon the successful completion of the initial development stage of the second program. We are recognizing revenue on consideration received under a proportional performance method. Under both agreements, Mitsubishi Tanabe has an option to obtain an exclusive royalty-bearing license, with the right to grant sublicenses, to further develop and commercialize the licensed compound. If Mitsubishi Tanabe exercises its option, the parties intend to negotiate a follow-on collaboration and license agreement that may include potential future development and commercial sales based milestone payments, and potential royalty payments.

Other Revenue

Other revenues relate to a National Institutes of Health (“NIH”) grant where revenue was recognized through the first quarter of fiscal 2012.

Research and Development

We expense research and development costs as incurred. Research and development expense consists of costs incurred to discover, research and develop drug candidates, including personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs, outside consulting services and other external costs. Research and development expense includes any costs associated with generating collaboration or grant revenue.

General and Administrative

General and administrative expense consists primarily of salaries, stock-based compensation expense and other related costs for personnel in executive, business development, commercial, finance, human resource, legal, information technology, and support personnel functions. We also expense patent costs and expenses associated with maintaining our intellectual property as incurred. Other costs include facility costs not otherwise included in research and development expense, insurance, and professional fees for legal, accounting and commercial services.

Amortization of Developed Technology

We provide for the cost of amortization of developed technology, computed using an accelerated method based on the undiscounted cash flows received from the FUZEON royalty stream, in proportion to the estimated total undiscounted cash flows.

Interest Income, net

Interest income relates to interest earned on our cash equivalent and short-term investment balances.

Results of Operations

Three and Six Months Ended June 30, 2013 and 2012

Revenues

The following table presents total revenue for the three months ended June 30, 2013 and 2012, respectively (in thousands):


	Three Months Ended June 30,
	2013		2012		$ Change			% Change

Royalty revenue	$	2,944	$	1,447	$	1,497			104	%
Collaboration and license revenue		469		802		(333	)		(42	)

Total revenue	$	3,413	$	2,249	$	1,164			52	%

Total revenues increased by approximately $1.2 million for the three months ended June 30, 2013, as compared to the comparable period of the prior year. The increase in revenues was primarily the result of higher FUZEON royalty revenue.

Royalty revenues of $2.9 million increased $1.5 million from the comparable period of the prior year and relate to the royalty payment earned from Roche, based on total worldwide net sales of FUZEON. Royalty revenues were higher, primarily due to a large non-recurring sale. FUZEON royalty revenues are unpredictable, as we are not marketing the product and large scale sales in certain regions can cause quarter to quarter variability. Collaboration and license revenue for the three months ended June 30, 2013 primarily relates to revenue recognized from development programs with Mitsubishi Tanabe. For the three months ended June 30, 2013, we recognized $0.3 million and $0.2 million related to the first and second Mitsubishi Tanabe programs, respectively. In the comparable three month period of the prior year, we recognized $0.4 million and $0.4 million related to the first and second programs, respectively.

The following table presents total revenue for the six months ended June 30, 2013 and 2012, respectively (in thousands):


	Six Months Ended June 30,
	2013		2012		$ Change		% Change

Royalty revenue	$	4,649	$	2,896	$	1,753		61	%
Collaboration and license revenue		3,882		1,694		2,188		129	%
Other revenue		—		56		—		—

Total revenue	$	8,531	$	4,646	$	3,885		84	%

Total revenues increased by approximately $3.9 million for the six months ended June 30, 2013, as compared to the comparable six month period of the prior year. The increase in revenues was the result of higher collaboration revenue of $2.2 million and higher FUZEON royalty revenue of $1.8 million (as discussed above). For the six months ended June 30, 2013, we recognized $0.8 million and $3.1 million related to the first and second Mitsubishi Tanabe programs, respectively. For the six months ended June 30, 2012, we recognized $1.2 million and $0.4 million for the programs, respectively.

As of June 30, 2013, our deferred revenue balance related to both of the Mitsubishi Tanabe collaboration agreements, totaled $1.1 million and $1.0 million, respectively. We expect to recognize both the upfront payments and additional funded development payments related to both arrangements over the next year, in proportion to our performance under the arrangements.

Research and Development Expenses

Research and development expenses for the three months ended June 30, 2013 and 2012 are summarized as follows (in thousands):


	Three Months Ended June 30,
	2013		2012		$ Change		% Change
Compensation and benefits-related	$	4,171	$	2,312	$	1,859		80	%
Clinical trials and manufacturing		7,254		3,727		3,527		95
In-process research and development		2,500		—		2,500		—
Development and other external services		1,856		784		1,072		137
Facilities and related		1,744		766		978		128
Stock-based compensation expense		712		226		486		215
Other		217		98		119		121

Total research and development expense	$	18,454	$	7,913	$	10,541		133	%

Research and development expense increased by approximately $10.5 million, or 133%, to $18.5 million for the three months ended June 30, 2013 as compared to $7.9 million for the three months ended June 30, 2012. The increase in total research and development expense is due to increased clinical trial costs, manufacturing fees and other development related external services associated with on-going development of sebelipase alfa, SBC-103 and our pipeline programs, as well as higher compensation expense from hiring additional staff to move our programs forward. Also contributing to the period-over-period increase in research and development expense was $2.5 million of in-process research and development and higher facilities and related expenses of $1.0 million. In-process research and development expense relates to an upfront license payment made to Shire Human Genetics Therapies, Inc. and its affiliates (“Shire”) to sublicense multiple patent and patent applications relating to the use of LAL for the treatment of LAL Deficiency and atherosclerosis, which complement our intellectual property portfolio covering our LAL Deficiency program. Higher facilities expenses primarily relates to increased costs to operate our manufacturing facilities and depreciation costs for both manufacturing and lab facilities. Additionally, for the three months ended June 30, 2013, research and development expense includes $0.7 million of stock-based compensation expense, compared to $0.2 million in the comparable prior year period. We expect research and development expense to continue to increase as development activities for sebelipase alfa, SBC-103 and our other pipeline programs continue.

Research and development expenses for the six months ended June 30, 2013 and 2012 are summarized as follows (in thousands):


	Six Months Ended June 30,
	2013		2012		$ Change		% Change
Compensation and benefits-related	$	7,909	$	4,576	$	3,333		73	%
Clinical trials and manufacturing		13,264		6,043		7,221		120
In-process research and development		2,500		—		2,500		—
Development and other external services		3,091		1,446		1,645		114
Facilities and related		3,173		1,330		1,843		139
Stock-based compensation expense		1,376		431		945		219
Other		479		233		246		106

Total research and development expense	$	31,792	$	14,059	$	17,733		126	%

Research and development expense increased by approximately $17.7 million, or 126%, to $31.8 million for the six months ended June 30, 2013 as compared to $14.1 million for the six months ended June 30, 2012. The increase in total research and development expense is due to increased clinical trial costs, manufacturing fees and other development related external services associated with on-going development of sebelipase alfa, SBC-103 and our pipeline programs, as well as higher compensation expense from hiring additional staff to move our programs forward. Also contributing to the period-over-period increase in research

and development expense was $2.5 million of in-process research and development and higher facilities and related expenses of $1.8 million. In-process research and development expense relates to an upfront license payment made share, as discussed above. Higher facilities expenses primarily relate to increased costs to operate our manufacturing facilities and depreciation costs for our manufacturing and lab facilities. Additionally, for the three months ended June 30, 2013, research and development expense includes $1.4 million of stock-based compensation expense, compared to $0.4 million in the comparable prior year period. We expect research and development expense to continue to increase as development activities for sebelipase alfa, SBC-103 and our other pipeline programs continue.

General and Administrative Expenses

General and administrative expenses for the three months ended June 30, 2013 and 2012 are summarized as follows (in thousands):


	Three Months Ended June 30,
	2013		2012		$ Change		% Change
Compensation and benefits-related	$	2,665	$	1,542	$	1,123		73	%
External services		2,471		1,567		904		58
Facilities related and other		149		91		58		64
Stock-based compensation expense		1,158		687		471		69

Total general and administrative expense	$	6,443	$	3,887	$	2,556		66	%

General and administrative expense increased by approximately $2.6 million to $6.4 million for the three months ended June 30, 2013 as compared to $3.9 million for the comparable period of the prior year. The increase was primarily due to higher compensation-related expenses of $1.6 million, including increased stock-based compensation expense of $0.5 million, resulting from hiring additional staff to support the growing company and pre-commercial preparations. External service costs also contributed $0.9 million to the period-over-period increase, primarily due to increased consulting, accounting, patent and pre-commercial related activities.

General and administrative expenses for the six months ended June 30, 2013 and 2012 are summarized as follows (U.S. dollars in thousands):


	Six Months Ended June 30,
	2013		2012		$ Change		% Change
Compensation and benefits-related	$	5,143	$	2,953	$	2,190		74	%
External services		4,481		2,537		1,944		77
Facilities related and other		263		236		27		11
Stock-based compensation expense		2,210		1,081		1,129		104

Total general and administrative expense	$	12,097	$	6,807	$	5,290		78	%

General and administrative expense increased by approximately $5.3 million to $12.1 million for the six months ended June 30, 2013 as compared to $6.8 million for the comparable period of the prior year. The increase was primarily due to higher compensation-related expenses of $3.3 million, including increased stock-based compensation expense of $1.1 million, resulting from hiring additional staff to support the growing company and pre-commercial preparations. External service costs also contributed $1.9 million to the period-over-period increase in expense and were primarily due to increased consulting, accounting, patent and pre-commercial related activities.

Amortization of Developed Technology

Costs recognized for the amortization of developed technology for the three and six months ended June 30, 2013 and 2012 are summarized as follows (in thousands):


	Three Months Ended June 30,
	2013		2012		$ Change		% Change
Amortization of developed technology		706		675		31		5	%


	Six Months Ended June 30,
	2013		2012		$ Change		% Change
Amortization of developed technology		1,405		1,361		44		3	%

We recognized $0.7 million and $1.4 million of costs related to the amortization of developed technology in the three and six months ended June 30, 2013 and 2012, respectively. Amortization of developed technology is computed using an accelerated method based on the undiscounted actual cash flows received from the FUZEON royalty stream, in proportion to the estimated total undiscounted cash flows from the asset.

Liquidity and Capital Resources

Sources of Liquidity

We have financed our operations to date primarily through the placement of our equity and debt securities and debt financings, and, to a lesser extent, license and royalty fees, upfront cash payments and research and development funding from collaborators, government grants and licensors. In November 2011, we acquired $50.1 million in cash as a result of the Reverse Merger with Trimeris. On January 10, 2012, we announced the closing of a $90.0 million underwritten public offering of approximately 3.6 million shares of our common stock at a price of $25.18 per share. We received net proceeds of approximately $84.6 million from this offering. In addition, on July 13, 2012, we announced the closing of a $115.0 million, second underwritten public offering of approximately 2.8 million shares of common stock at a price of $41.20 per share. We received net proceeds of approximately $108.1 million. On January 9, 2013, we announced the closing of a $117.5 million underwritten public offering of approximately 2.5 million shares of common stock at a price of $47.53 per share. We received net proceeds of approximately $111.1 million from this offering. We intend to use the net proceeds from these offerings for general corporate purposes, which may include working capital, capital expenditures, research and development expenditures, preclinical and clinical trial expenditures, commercial expenditures, acquisitions of new technologies or businesses that are complementary to our current technologies and business focus and investments.

We do not expect to generate any revenue from the direct sale of products currently in development for several years, if ever. As a result of our acquisition of Trimeris, we receive royalties from the sale of FUZEON by Roche, which we expect to decrease over time. A significant portion of our revenues for the foreseeable future will be quarterly royalty payments from Roche based on sales of FUZEON, up-front license payments and funded research and development that we may receive under existing or new collaboration agreements, if any.

As of June 30, 2013, our principal sources of liquidity consisted of cash and cash equivalents and short-term investments of approximately $284.8 million. Our cash equivalents are highly liquid investments with a maturity of three months or less at date of purchase and consist of U.S. treasury bills and amounts held in money market funds.

Cash Flows

The use of our cash flows for operations has primarily consisted of salaries and wages for our employees, facility and facility-related costs for our office, laboratory, and manufacturing facilities, fees paid in connection with preclinical studies, clinical studies, outsourced manufacturing, laboratory supplies, consulting fees and commercial, legal and accounting fees. We expect that costs associated with clinical studies and manufacturing costs as well as commercial planning costs will increase in future periods as sebelipase alfa advances into further stages of clinical testing and our other preclinical candidates, including SBC-103, move forward in development.

Net cash used in operating activities was $33.2 million for the six months ended June 30, 2013, and was primarily the result of a net loss of $36.6 million, the drivers of which are discussed in further detail in “Results of Operations.” In addition, non-cash items and changes in certain operating assets and liabilities affected operating cash during the first half of fiscal 2013. Non-cash items partially offsetting net loss include depreciation of fixed assets of $1.3 million, amortization of developed technology of $1.4 million, stock-based compensation of $3.6 million, and the amortization of discount on available for sale investments of $1.3 million. Cash used for in-process research and development of $2.5 million is presented as an adjustment to cash flows from operating activities and classified as a cash use from investing activities. Changes in operating assets and liabilities resulted in a net use of cash of $6.6 million, which was primarily the result of increased prepaid expenses and other assets of $3.2 million, decreased deferred revenue of $3.2 million and increased accounts receivable of $1.2 million from December 31, 2012. These changes were partially offset by net increases in accrued expenses, other liabilities and deferred rent of approximately $1.2 million. The increase in prepaid expense and other assets was primarily driven by cash outlays for clinical and manufacturing activities, the details of which are disclosed in further detail in Note 4, “Supplemental Balance Sheet Information.” The decrease in deferred revenue in the period was primarily the result of the recognition of upfront license fees related to the Mitsubishi Tanabe development programs.

Net cash used in operating activities was $5.7 million for the six months ended June 30, 2012 and was primarily the result of a net loss of $17.6 million, which is discussed in further detail in “Results of Operations.” In addition, non-cash items and changes in certain operating assets and liabilities affected operating cash during the first half of fiscal 2012. Non-cash items partially offsetting net loss include depreciation of fixed assets of $0.3 million, amortization of developed technology of $1.4 million and stock-based compensation of $1.5 million. Changes in operating assets and liabilities resulted in a net source of cash of $8.7 million, which was primarily the result of increased deferred revenue and accrued expenses of $7.8 million and $1.1 million from December 31, 2011, respectively. The increase in deferred revenue in the period was primarily the result of the upfront license fees related to the second Mitsubishi Tanabe development program. Other sources of cash included net decreases in accounts receivable of $0.6 million and prepaid expenses and other current assets of $0.3 million. Accounts payable decreased $1.0 million from December 31, 2011, resulting in a use of cash for the six month period ended June 30, 2012.

We expect to continue to use cash in operations as we continue to seek to advance our pipeline programs through preclinical testing and clinical development. In addition, in the future, we may owe royalties and other contingent payments to our licensors based on the achievement of developmental milestones, product sales, and other specified objectives.

Net cash used in investing activities totaled $56.6 million in the first half of fiscal 2013, and was primarily a result of the purchase of available-for-sale investments of $162.0 million, partially offset by cash received from the maturity of available for sale investments totaling $118.7 million. Other uses of cash for investing activities included $7.9 million for capital expenditures, $2.9 million of restricted cash and $2.5 million of in-process research and development costs, as discussed in the “Results of Operations – Research and Development Expenses.” The restricted cash outlay relates to a short-term letter of credit associated with construction activities at our headquarters in Lexington, MA. Capital expenditures of $7.9 million primarily relate to leasehold improvements at our production, lab and office locations. Cash used for capital expenditures in the statement of cash flows does not include $2.5 million for amounts that were incurred, but not yet paid as of June 30, 2013. We anticipate cash spent on capital expenditures will continue to increase as we expand and improve our internal production and development facilities. In the corresponding period of the prior year, net cash used in investing activities totaled $0.8 million and related to capital expenditures.

Financing activities provided cash of approximately $113.7 million in the first half of fiscal 2013, resulting from net cash received in secondary offerings of $111.1 million, net cash from issuance of stock in conjunction with our Employee Stock Purchase Plan of $0.2 million and proceeds from the exercise of stock options of $2.4 million. Financing activities provided cash of approximately $85.1 million for the comparable period of the prior year, resulting from net cash received in the secondary offering of $84.6 million and proceeds from the exercise of stock options of $0.5 million.

Funding Requirements

We have incurred significant losses since our inception. As of June 30, 2013, we had an accumulated deficit of approximately $195.4 million. Our cash and cash equivalents and investments balance at June 30, 2013 totaled $284.8 million. We expect to use our existing cash and cash equivalents and investments to continue our research and development programs and commercialization activities and to fulfill our planned operating goals. In particular, our currently planned operating and capital requirements include the need for working capital to support our research and development activities for sebelipase alfa, SBC-103 and other preclinical candidates that we are seeking to develop, and to fund our general and administrative and commercial costs and expenses. We expect that we will have sufficient cash and cash equivalents to sustain operations for at least the next 18 months.

Our ability to finance our operations into the future and to generate revenues will depend heavily on our ability to obtain favorable results in the ongoing clinical trials of sebelipase alfa and to successfully develop and commercialize sebelipase alfa. We expect that our significant sources of cash flows from operations for the foreseeable future will be quarterly royalty payments from Roche based on sales of FUZEON and additional collaboration revenues, if any. Net sales of FUZEON by Roche have decreased over the last several years and are expected to continue to decline in the future.

We may not be able to successfully enter into any new corporate collaborations and the timing, amount, and likelihood of us receiving additional payments under our current collaborations is highly uncertain. As a result, we cannot assure that we will attain any further funding from collaborations or licensing arrangements.

There are a number of factors that may adversely affect our planned future capital requirements and accelerate our need for additional financing, many of which are beyond our control, including the following:

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unanticipated costs in our research and development programs;

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the timing, receipt and amount of payments, if any, from current and potential future collaborators;

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the timing and amount of payments due to licensors of patent rights and technology used in our drug candidates; and

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unplanned costs to prepare, file, prosecute, maintain and enforce patent claims and other patent-related costs, including litigation costs and technology license fees.

We may seek additional funding through debt or equity financings. The fundraising environment for life science companies, in general, is highly volatile. Due to this and various other factors, including currently adverse general market conditions and the early-stage status of our development pipeline, additional funding may not be available on acceptable terms, if at all. In addition, the terms of any financing may be dilutive or otherwise adversely affect other rights of our stockholders. We also expect to seek additional funds through arrangements with collaborators, licensees or other third parties. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or drug candidates, and we may not be able to enter into such arrangements on acceptable terms, if at all. If we are unable to obtain additional funding on a timely basis, whether through sales of debt or equity or through third-party collaboration or license arrangements, we may be required to curtail or terminate some or all of our development programs, including some or all of our drug candidates.

Contractual Obligations and Requirements

As of June 30, 2013, our contractual obligations consisted primarily of operating leases for our headquarters and other facilities, contractual purchase obligations and to a lesser extent, minimum contractual payments on licensed technology.

On January 15, 2013, we entered into a lease agreement to accommodate our continued growth and to relocate our corporate headquarters in Lexington, Massachusetts. We will occupy the location in stages as building modifications are completed. We began occupying a portion of the facility in the second quarter of fiscal 2013. The initial lease term is for 77 months after we begin occupying the entire location, with an option to extend the lease term for two separate three year renewal periods. Future minimum lease payments for the Lexington lease are as follows (in thousands):


Year Ending December 31,
2013	$	167
2014-2019		1,336 (per year	)
2020		334

Additional manufacturing facility established in Massachusetts

Synageva’s manufacturing operations include approximately 64,000 square feet of office, research, manufacturing and laboratory facilities located in Georgia. The company recently established an additional manufacturing facility located in Massachusetts of approximately 39,000 square feet to further supply protein therapeutics for sebelipase alfa, SBC-103 and its additional pipeline programs.

There have been no other significant changes to our contractual obligations and requirements during the six months ended June 30, 2013, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the SEC on March 14, 2013.

Off-Balance Sheet Arrangements

As of June 30, 2013, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Policies and Estimates

In preparing our Financial Statements in accordance with accounting principles generally accepted in the U.S. and pursuant to the rules and regulations promulgated by the SEC, we make assumptions, judgments and estimates that can have a significant impact on our net income/loss and affect the reported amounts of certain assets, liabilities, revenue and expenses, and related disclosures. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of our Board of Directors.

We believe that the assumptions, judgments and estimates involved in the revenue recognition, research and development expense, amortization of intangible assets, and income taxes have the greatest impact on our Financial Statements, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.

There have been no significant changes to our critical accounting policies and estimates during the six months ended June 30, 2013, as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the SEC on March 14, 2013.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Our market risks during the six months ended June 30, 2013 have not materially changed from those discussed in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the SEC on March 14, 2013.

Item 4.

Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the Securities and Exchange Commission (“SEC”) and to process, summarize and disclose this information within the time periods specified in the rules and forms of the SEC. Based on the evaluation of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), Rules 13a-15(e) and 15d-15(e)) as of June 30, 2013, our Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions

There has been no change in our internal control over financial reporting that occurred during the six months ended June 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings.

See Note 9, “Commitments and Contingencies,” in the accompanying notes to condensed consolidated financial statements within Item 1 of Part I in this report, which is incorporated herein by reference.

Item 1A.

Risk Factors.

RISK FACTORS

Investing in our securities involves risk. Prior to making a decision about investing in our securities, you should carefully consider the specific risk factors discussed below and all of the other information contained or incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 14, 2013. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our operations. If any of these risks were to occur, our business, financial condition or results of operations would likely suffer. In that event, the trading price of our common stock could decline, and you could lose all or part of your investment.

Risks Related to Our Business

We are largely dependent on the success of sebelipase alfa. All of our product candidates, including sebelipase alfa, are still in either preclinical or clinical development. Clinical trials of our product candidates may not be successful. If we are unable to commercialize sebelipase alfa, or experience significant delays in doing so, our business will be materially harmed.

Our business prospects are largely dependent upon the successful development and commercialization of sebelipase alfa. We are currently enrolling patients in our global ARISE (Acid Lipase Replacement Investigating Safety and Efficacy) clinical trial, a randomized, double-blind, placebo-controlled Phase 3 trial of sebelipase alfa in children and adults with LAL Deficiency. We are currently enrolling infants with LAL Deficiency in a Phase 2/3 open-label trial with sebelipase alfa. Before we can commercialize product candidates, including sebelipase alfa, we need to:

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conduct substantial research and development;

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undertake preclinical and clinical testing, sampling activity and other costly and time consuming measures;

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scale-up manufacturing processes; and

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pursue and obtain marketing and manufacturing approvals and, in some jurisdictions, pricing and reimbursement approvals.

This process involves a high degree of risk and takes many years. Our product development efforts with respect to a product candidate may fail for many reasons, including:

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failure of the product candidate in preclinical studies;

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failure of later trials to confirm positive results from earlier preclinical studies or clinical trials;

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delays or difficulty enrolling patients in clinical trials, particularly for disease indications with small patient populations;

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failure to identify a sufficient number of patients who meet the clinical trial enrollment criteria and/or who would support commercial launch and subsequent commercialization efforts;

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patients exhibiting adverse reactions to the product candidate or indications of other safety concerns;

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insufficient clinical trial data to support the safety, effectiveness or superiority of the product candidate;

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inability to manufacture sufficient quantities of the product candidate for development or commercialization activities in a timely and cost-efficient manner, if at all;

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inability to produce, or sufficiently test, comparable or consistent drug materials derived from different manufacturing facilities operated by us or from processes run by our third party manufacturing partners which could impact our ability or timing with respect to receiving regulatory approval for our product candidates;

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failure to obtain, or delays in obtaining, the required regulatory approvals for the product candidate, the facilities or the processes used to manufacture the product candidate; or

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changes in the regulatory environment, including pricing and reimbursement, that make development of a new product or of an existing product for a new indication no longer desirable.

Few research and development projects result in commercial products, and success in preclinical studies or early clinical trials often is not replicated in later studies.

We may decide to abandon development of a product candidate or service at any time, or we may be required to expend considerable resources repeating clinical trials or conducting additional trials, either of which would increase costs of development and delay any revenue from those programs.

In addition, a regulatory authority may deny or delay an approval because it is not satisfied with the structure or conduct of clinical trials or due to its assessment of the data we supply. A regulatory authority, for instance, may not believe that we have adequately addressed negative safety signals or shown sufficient efficacy in the patient population studied in the clinical trial. Clinical data is subject to varied interpretations, and regulatory authorities may disagree with our assessments of data. In any such case, a regulatory authority could insist that we provide additional data, which could substantially delay or even prevent commercialization efforts, particularly if we are required to conduct additional pre-approval clinical studies.

The results of our clinical trials may not prove sufficient to obtain regulatory approval of our product candidates, and subsequent trials may fail to replicate promising data seen in earlier preclinical studies and clinical trials.

Interim data from an ongoing Phase 1/2 extension study with sebelipase alfa in adults with LAL Deficiency provided encouraging results regarding safety and tolerability as well as effects consistent with preclinical findings and the known mechanism of action for LAL. We are currently enrolling the global ARISE clinical trial, a randomized, double-blind, placebo-controlled Phase 3 trial of sebelipase alfa in children and adults with LAL Deficiency. Our Phase 2/3 trial in infants with LAL Deficiency is currently on-going. We also are developing other product candidates for other rare diseases, including SBC-103 targeting a disease known as MPS IIIB, or Sanfilippo B. In February 2013, we presented preclinical data from the SBC-103 program that shows that dosing with SBC-103 reduces the accumulation of substrate in the brain of an MPS IIIB animal model.

Promising results in our preclinical studies or clinical trials may not be replicated in ongoing and future studies or trials, and final data analysis may differ from interim data analysis. Even if our additional trials of sebelipase alfa are conducted and completed as planned, the results may not prove sufficient to obtain regulatory approval. Success in preclinical testing does not ensure success in clinical trials, and success in early stage clinical trials does not ensure success in later clinical trials. This can be the result of a variety of reasons, including variations in patient populations, adjustments to clinical trial protocols or designs as compared to earlier testing or trials, or the use of additional trial sites or investigators. Phase 3 clinical trials often fail to replicate encouraging results seen in preclinical studies and early clinical trials. We will incur substantial expenses moving our product candidates through stages of development, with no assurance that any of our product candidates will ultimately be commercialized. Future studies may, for example, indicate safety concerns that regulatory authorities view as unacceptable. Final data analysis of our completed, ongoing and future clinical trials may fail to demonstrate that our product candidates are sufficiently safe and effective for pursued indications. Any such failure could cause us to abandon a product candidate, substantially delay development of other product candidates, or require substantial expenditures to conduct additional trials. Both preclinical and clinical data are often susceptible to varying interpretations that may delay, limit or prevent regulatory approvals or commercialization. Any delay in, or termination of, our clinical trials would delay our obtaining regulatory approval of the affected product candidate and, consequently, our ability to commercialize that product candidate and potentially our other product candidates. Development and commercialization of therapies for rare diseases requires expenditure of significant funds with no assurance of success.

We may find it difficult to enroll patients in our clinical trials.

Sebelipase alfa is being developed to treat LAL Deficiency, which is very rare. Studies by investigators who screened various populations for a common mutation that causes LAL Deficiency indicate a prevalence range of 1:40,000 to 1:300,000 for LAL Deficiency in children and adults. There is no (or very little) prevalent population for infants with LAL Deficiency, since these infants rarely survive beyond the first year of life. Potential patients for our product candidates, including sebelipase alfa, may not be adequately diagnosed or identified with the diseases being targeted by our product candidates. We may not be able to initiate or continue clinical trials if we are unable to locate a sufficient number of eligible patients to participate in the clinical trials required by

the FDA or other non-U.S. regulatory agencies. In addition, the process of finding and diagnosing patients may prove costly. We are currently enrolling patients in the ARISE trial, a randomized, double-blind, placebo-controlled Phase 3 trial of sebelipase alfa in children and adults with LAL Deficiency. We are currently enrolling infants with LAL Deficiency, also known as Wolman disease, in a Phase 2/3 open-label trial with sebelipase alfa. Our inability to enroll a sufficient number of patients for any of our current or future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.

If our preclinical studies do not produce positive results, if our clinical trials are delayed or if serious side effects are identified during drug development, we may experience delays, incur additional costs and ultimately be unable to commercialize our product candidates.

Before obtaining regulatory approval for the sale of our product candidates, we must conduct, at our own expense, extensive preclinical tests to demonstrate the safety of our product candidates in animals, and clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Preclinical and clinical testing is expensive, difficult to design and implement, and can take many years to complete. A failure of one or more preclinical studies or clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, preclinical testing and the clinical trial process, which could delay or prevent our receipt of regulatory approval for, or the commercialization of, our product candidates, including:

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our preclinical tests or clinical trials may produce negative or inconclusive results, and we may decide to conduct, or regulators may require, additional preclinical testing or clinical trials, or we may abandon projects that we expect to be promising;

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a regulatory authority or institutional review board may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site;

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conditions imposed on us by the FDA or any non-U.S. regulatory authority regarding the scope or design of our clinical trials may require us to resubmit our clinical trial protocols to institutional review boards for re-inspection due to changes in the regulatory environment;

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the number of patients required for clinical trials may be larger than we anticipate or are able to enroll, or participants may drop out of, or not qualify for, clinical trials at a higher rate than we anticipate;

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our third-party contractors or clinical investigators may fail to comply with regulatory requirements or fail to meet their contractual obligations to us in a timely manner or at all;

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we might have to suspend or terminate one or more of our clinical trials if we, a regulatory authority or an institutional review board determine that the participants are being exposed to unacceptable health risks;

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a regulatory authority or institutional review board may require that we hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

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the cost of our clinical trials may be greater than we anticipate;

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the supply or quality of our product candidates or other materials necessary to conduct our clinical trials may be insufficient or inadequate or we may not be able to reach agreements on acceptable terms with prospective contract manufacturing organizations;

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we may not be able to reach agreements on acceptable terms with prospective clinical research organizations; or

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the effects of our product candidates may not be the desired effects, may include undesirable side effects, or the product candidates may have other unexpected characteristics.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate or are unable to successfully complete our clinical trials or other testing or if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

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be delayed in obtaining, or may not be able to obtain, marketing approval for one or more of our product candidates;

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obtain approval for indications that are not as broad as intended or entirely different than those indications for which we sought approval; or

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have the product removed from the market after obtaining marketing approval.

Our product development costs will also increase if we experience delays in testing or approvals. We do not know whether any preclinical tests or clinical trials will be initiated as planned, will need to be restructured or will be completed on schedule, if at all. Significant preclinical or clinical trial delays could also shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates. Such delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our products or product candidates.

We have neither obtained marketing approval, nor commercialized any of our current rare disease product candidates.

We have neither obtained marketing approval nor commercialized any of our current product candidates and do not expect to receive marketing approval or generate revenue from the direct sale of our products, including sebelipase alfa, for several years, if ever. We still have only limited experience in conducting clinical trials for sebelipase alfa even though we are currently enrolling patients in the ARISE trial, a randomized, double-blind, placebo-controlled Phase 3 trial of sebelipase alfa in children and adults with LAL Deficiency. We are also currently enrolling infants with LAL Deficiency in a Phase 2/3 open-label trial with sebelipase alfa. Additionally, we are conducting preclinical studies with other product candidates for various other indications. Our limited experience might prevent us from successfully designing or implementing a clinical trial for any of these diseases. We may not be able to demonstrate that our product candidates meet the appropriate standards for regulatory approval. If we are not successful in conducting and managing our preclinical development activities or clinical trials or obtaining regulatory approvals, we might not be able to commercialize our lead programs, or might be significantly delayed in doing so, which will materially harm our business.

If we infringe the rights of third parties we might have to forgo selling our future products, pay damages, or defend litigation.

If our product candidates, methods, processes, or other technologies infringe the proprietary rights of other parties, we could incur substantial costs and might have to:

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obtain rights or licenses from such third parties, which might not be available on commercially reasonable terms, if at all;

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abandon an infringing product candidate;

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redesign products or processes to avoid infringement;

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stop using the subject matter claimed in the patents held by others;

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pay damages; and/or

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defend or initiate litigation or administrative proceedings which might be costly whether we win or lose, and which could result in a substantial diversion of financial and management resources.

Any of these events could substantially harm our earnings, financial condition, and operations.

If the market opportunities for our product candidates are smaller than we believe they are, our revenues may be adversely affected and our business may suffer.

We focus our research and product development on treatments for rare diseases. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on estimates. Currently, most reported estimates of the prevalence of these diseases are based on studies of small subsets of the population of specific geographic areas, which are then extrapolated to estimate the prevalence of the diseases in the broader world population. For example, studies estimate the prevalence of LAL Deficiency in children and adults to be between 1:40,000 and 1:300,000. These estimates may prove to be incorrect and new studies may change the estimated prevalence of these diseases. If the estimates are incorrect, and the prevalence rate is lower than we anticipate, our commercial business may suffer.

The commercial success of any product candidate that we may develop, including sebelipase alfa, will depend upon the degree of market acceptance by physicians, patients, third party payors and others in the medical community.

Any future product that we may bring to the market, including sebelipase alfa, may not gain market acceptance by physicians, patients, third party payors and others in the medical community. If our products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of these product candidates, if approved for commercial sale, will depend on a number of factors, including:

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the prevalence and severity of any side effects of the product, including any limitations or warnings contained in a product’s approved labeling;

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the efficacy and potential advantages over alternative treatments;

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relative convenience and ease of administration;

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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

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the strength of marketing and distribution support and timing of market introduction of competitive products;

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publicity concerning our products or competing products and treatments; and

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sufficient third party insurance coverage or reimbursement in the countries or geographies where patients live.

Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical trials, market acceptance of the product will not be known until after it is launched. Our efforts to educate the medical community and third party payors on the benefits of the product candidates may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by the conventional technologies marketed by our competitors.

Uncertainties relating to third-party reimbursement and health care reform measures could limit payments or reimbursements for future products that we may develop could materially adversely affect our business.

In the U.S. and elsewhere, sales of prescription drugs depend in part on the consumer’s ability to obtain reimbursement for the cost of the drugs from third-party payors, such as private and government insurance programs. Third-party payors are increasingly challenging the prices charged for medical products and services, including those related to rare diseases, in an effort to promote cost containment measures and alternative health care delivery systems. Our prospects for achieving profitability will depend heavily upon the availability of adequate reimbursement for the use of our approved product candidates from governmental and other third party payors, both in the U.S. and in other markets. Reimbursement by a third party payor may depend upon a number of factors, including the third party payor’s determination that use of a product is:

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a covered benefit under its health plan;

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safe, effective and medically necessary;

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appropriate for the specific patient;

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cost-effective; and

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neither experimental nor investigational.

Obtaining reimbursement approval for a product from each governmental or other third party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our products to each payor. We may not be able to provide data sufficient to gain acceptance with respect to reimbursement or might need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any future products to such payors’ satisfaction. Such studies might require us to commit a significant amount of management time and financial and other resources. Even when a payor determines that a product is eligible for reimbursement, the payor may impose coverage limitations that preclude payment for some uses that are approved by the FDA or non-U.S. regulatory authorities. In addition, there is a risk that full reimbursement may not be available for high priced products. Moreover, eligibility for coverage does not imply that any product will be reimbursed in all cases or at a rate that allows us to make a profit or even cover our costs. Interim payments for new products, if applicable, may also not be sufficient to cover costs and may not be made permanent.

We are exposed to product liability and preclinical and clinical liability risks which could place a substantial financial burden upon us, should we be sued, if we do not have adequate liability insurance or general insurance coverage for such a claim.

Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of products like ours. Foreign regulations or clinical sites may require us, as sponsor, to be liable for medical outcomes even if an adverse event is not directly related to our product candidate. In addition, the use in our clinical trials of pharmaceutical formulations and products that our potential collaborators may develop and the subsequent sale of these formulations or products by us or our potential collaborators may cause us to bear a portion or all of the product liability risks. As is common for companies sponsoring such clinical testing, we carry product liability insurance. This insurance may in some instances may be insufficient to offset a negative judgment or settlement payment. As a result, a successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.

We are subject to regulations regarding the manufacturing of therapeutic proteins.

We are subject to ongoing periodic unannounced inspections by the FDA, corresponding state agencies or non-U.S. regulatory authorities to ensure strict compliance with current good manufacturing practice (“cGMP”) and other government regulations and corresponding foreign standards. The cGMP requirements govern quality control and documentation policies and procedures. Complying with cGMP and non-U.S. regulatory requirements will require that we expend time, money, and effort in production, recordkeeping, and quality control to assure that the product meets applicable specifications and other requirements. We must also pass a pre-approval inspection prior to regulatory approval. Failure to pass a pre-approval inspection might significantly delay FDA approval of our products. If we fail to comply with these requirements, we would be subject to possible regulatory action and might be limited in the jurisdictions in which we are permitted to sell our products. As a result, our business, financial condition, and results of operations might be materially harmed.

We currently manufacture the therapeutic protein products used in the production of sebelipase alfa; however, we have limited experience in manufacturing or procuring products in commercial quantities and our manufacturing system has never produced a product approved by regulatory authorities for commercial use. We may not be able to manufacture enough product to conduct clinical trials or for later commercialization at an acceptable cost or at all. We may not be able to produce, or sufficiently test comparable drug materials derived from different manufacturing facilities operating by us or from processes run by our third party manufacturing partners, which could impact our ability or timing with respect to receiving regulatory approval for our product candidates.

Our current and anticipated future reliance on a limited number of third parties to complete the manufacturing process for our products exposes us to certain risks.

We currently rely on third parties to complete the manufacturing process, including purifying, finishing and filling our products. Our anticipated future reliance on a limited number of third-party manufacturers exposes us to the following risks:

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We might be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited and the FDA and other regulatory authorities must approve any replacement contractor. This approval would generally require new testing and compliance inspections. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent processes for, production of our products after receipt of FDA approval, if any.

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Our third-party manufacturers might be unable to formulate and manufacture the relevant drugs in the volume and of the quality required to meet our clinical and commercial needs, if any.

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Our third-party contract manufacturers might not perform as agreed or might not remain in the contract manufacturing business for the time required to supply possible clinical trials or to successfully produce, store and distribute our products.

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Drug manufacturers are subject to ongoing periodic unannounced inspections by the regulatory, corresponding state agencies and non-U.S. regulatory authorities to ensure strict compliance with cGMP, and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers’ compliance with these regulations and standards.

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If any third-party manufacturer makes improvements in the manufacturing process for the relevant products, we might not own, or might have to share, the intellectual property rights to the innovation with our licensors.

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We might compete with other companies for access to these manufacturers’ facilities and might be subject to manufacturing delays if the manufacturers give other clients higher priority than us.

Each of these risks could delay our clinical trials or the approval, if any, of our product candidates by the FDA or the commercialization of our product candidates and could result in higher costs or deprive us of potential product revenues. As a result, our business, financial condition, and results of operations might be materially harmed.

We face significant competition from other pharmaceutical and biotechnology companies. Our operating results will suffer if we fail to compete effectively.

The pharmaceutical and biotechnology industries are intensely competitive and subject to rapid and significant technological change. Our competitors include organizations such as major multinational pharmaceutical companies, established biotechnology companies and specialty pharmaceutical and generic drug companies. Many competitors have greater financial and other resources than we have, such as larger research and development staff, more extensive marketing, distribution, sales and manufacturing organizations and experience, more extensive clinical trial and regulatory experience, expertise in prosecution of intellectual property rights and access to development resources like personnel and technology. As a result, these companies may develop or improve existing technologies that make our manufacturing technology or product candidates obsolete or they may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products.

Our operations are subject to the economic, political, legal and business conditions in the countries in which we do business, and our failure to operate successfully or adapt to changes in these conditions could cause our operations to be limited or disrupted.

We have expanded our operations outside of the United States and expect to continue to do so in the future. Our current operations in foreign countries subject us to certain risks that could cause our operations to be limited or disrupted, including volatility in international economies, political instability, difficulties enforcing contractual and intellectual property rights, changes in laws, regulations or enforcement practices with respect to our business, compliance with tax, employment and labor laws, costs and difficulties in recruiting and retaining qualified managers and employees to manage and operate the business in local jurisdictions and costs and difficulties in managing and monitoring international operations.

Our business depends on protecting our intellectual property.

We are pursuing intellectual property protection for sebelipase alfa and other product candidates in the form of patent applications that have been and will continue to be filed in the U.S. and in other countries; however, there can be no assurance that patents will issue with the scope for which they are originally filed, if at all.

If we and our licensors do not obtain protection for our respective intellectual property rights and our products are not, or are no longer, protected by regulatory exclusivity protection, such as orphan drug protection, our competitors might be able to take advantage of our research, development, and manufacturing efforts to develop and commercialize competing drugs.

Our success, competitive position, and future revenues, if any, depend in part on our ability and the abilities of our licensors to obtain and maintain patent protection for our products, methods, processes, and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights, and to operate without infringing on the proprietary rights of third parties. We currently hold various issued patents and exclusive rights to issued patents and own and have licenses to various patent applications, in each case in the U.S. as well as rights under foreign patents and patent applications. We anticipate filing additional patent applications both in the U.S. and in other countries, as appropriate. However, the patent process is subject to numerous risks and uncertainties, and there can be no assurance that we will be successful in protecting our products by obtaining and defending patents. These risks and uncertainties include the following:

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our patent rights might be challenged, invalidated, or circumvented, or otherwise might not provide any competitive advantage;

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our competitors, many of which have substantially greater resources than we do and many of which might make significant investments in competing technologies, might seek, or might already have obtained, patents that will limit, interfere with, make obsolete, or eliminate our ability to make, use, and sell our potential products either in the U.S. or in international markets;

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as a matter of public policy regarding worldwide health concerns, there might be significant pressure on the U.S. government and other international governmental bodies to limit the scope of patent protection both inside and outside the U.S. for disease treatments that prove successful; and

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countries other than the U.S. might have less restrictive patent laws than the U.S., giving foreign competitors the ability to exploit these laws to create, develop, and market competing products.

In addition, the USPTO and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical and/or biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified in the patent application, thereby limiting the scope of protection against competitive challenges. Thus, even if we or our licensors are able to obtain patents, the patents might be substantially narrower than anticipated.

Patent and other intellectual property protection is crucial to the success of our business and prospects, and there is a risk that such protections will prove inadequate. Our business and prospects might be materially harmed if these protections prove insufficient.

On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The USPTO has issued regulations and procedures to govern administration of the Leahy-Smith Act, but many of the substantive changes to patent law associated with the Leahy-Smith Act have only recently become effective. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

We rely on trade secret protections through confidentiality agreements with our employees and third parties, and the breach of these agreements could adversely affect our business and prospects.

We rely on trade secrets, which we seek to protect, in part, through confidentiality and non-disclosure agreements with our employees, collaborators, suppliers, and other parties. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any such breach, or that our trade secrets will not otherwise become known to or independently developed by our competitors. We might be involved from time to time in litigation to determine the enforceability, scope, and validity of our proprietary rights. Any such litigation could result in substantial cost and divert management’s attention from operations. If any of these events occurs, or we otherwise lose protection for our trade secrets or proprietary know-how, the value of this information may be greatly reduced.

We are dependent on certain license relationships.

We have licensed technology that is related to our proprietary expression technology from the University of Georgia, University of Minnesota and Pangenix. In addition, we obtained exclusive worldwide rights to multiple patents and patent applications covering the use of LAL for the treatment of LAL Deficiency and atherosclerosis from Shire and Cincinnati Children’s Hospital Research Foundation. We might enter into additional licenses in the future. Licenses to which we are a party contain, and we expect that any future licenses will contain, provisions requiring up-front, milestone, and royalty payments to licensors and other conditions to maintaining the license rights. If we fail to comply with our obligations under any such license, the applicable licensor may have the right to terminate the license on relatively short notice and as a result, we may not be able to commercialize drug candidates or technologies that were covered by the applicable license. Also, the milestone and other payments associated with these licenses will make it less profitable for us to develop our drug candidates.

We will be dependent on orphan drug status to commercialize sebelipase alfa and SBC-103. A competitor may receive orphan drug marketing authorization prior to us for the same indication for which we are seeking approval.

We expect to rely heavily on the orphan drug designation for sebelipase alfa and SBC-103, which grants seven years of marketing exclusivity under the Federal Food, Drug, and Cosmetic Act, and up to 10 years of marketing exclusivity in Europe. While the orphan drug designation for sebelipase alfa and SBC-103 will provide market exclusivity in the U.S., Europe, and other countries, we will not be able to exclude other companies from manufacturing and/or selling drugs using the same active ingredient for the same indication beyond that timeframe. Furthermore, the marketing exclusivity in Europe can be reduced from 10 years to six years if the initial designation criteria have significantly changed since the market authorization of the orphan drug. Even if we have orphan drug designation for a particular drug indication, we cannot guarantee that another company also with orphan drug designation will not receive marketing authorization for the same indication before we do. If that were to happen, our applications for that indication may not be approved until the competing company’s period of exclusivity has expired. Also, we cannot guarantee that another company with orphan drug designation will not receive marketing authorization for the same indication at the same time we do. In this case, both companies would receive market exclusivity, which could have a material adverse effect on sales in that market. Even if we are the first to obtain marketing authorization for an orphan drug indication, there are circumstances under which a competing product may be approved for the same indication during the seven-year period of marketing exclusivity in the U.S., such as if the later product is shown to be clinically superior to our product, or if the later product is a different drug than sebelipase alfa or SBC-103. Further, the seven-year marketing exclusivity in the U.S. would not prevent competitors from obtaining approval of the same compound for other indications or the use of other types of drugs for the same use as the orphan drug.

If we are unable to retain and recruit qualified scientists and advisors, or if any of our key executives, key employees or key consultants discontinues his or her employment or consulting relationship with us, it may delay our development efforts or otherwise harm our business.

The loss of any of our key executives, employees or key consultants could impede the achievement of our research and development objectives. Furthermore, recruiting and retaining qualified scientific personnel to perform research and development work in the future is critical to our success. We may be unable to attract and retain personnel on acceptable terms given the competition among biotechnology, biopharmaceutical, and health care companies, universities, and non-profit research institutions for experienced scientists and other disciplines. Competition for employees may impact our ability to recruit and retain qualified personnel in the future. Certain of our officers, directors, scientific advisors, and/or consultants or certain of the officers, directors, scientific advisors, and/or consultants hereafter appointed may from time to time serve as officers, directors, scientific advisors, and/or consultants of other biopharmaceutical or biotechnology companies. We do not maintain “key man” insurance policies on any of our officers or employees. We currently have employment contracts with our Chief Executive Officer, Sanj K. Patel, and other executive officers which provide for certain severance benefits. Consistent with our current employment policies, all of our employees are employed “at will” and, therefore, each employee may leave our employment at any time. If we are unable to retain our existing employees, including qualified scientific personnel, and attract additional qualified candidates, our business and results of operations could be adversely affected. We are not aware of any key personnel who intend to retire or otherwise leave us in the near future.

We derive a significant portion of our income from royalties on sales of FUZEON. If FUZEON sales continue to decline, our business could suffer.

Royalties on sales of FUZEON are currently a significant source of revenue for us. FUZEON competes with numerous existing therapies for the treatment of HIV. From 2007 through 2012, overall FUZEON net sales reported by our commercialization partner Hoffman-La Roche, Inc., or Roche, have declined, totaling $112.2 million, $88.4 million, $50.7 million and $41.3 million for fiscal 2009, 2010, 2011 and 2012, respectively. We cannot predict if or when sales levels for FUZEON will stabilize.

Uncertainties relating to third-party reimbursement and health care reform measures could limit payments or reimbursements for FUZEON, which could adversely affect our business.

Currently, because of the high cost of the treatment of HIV, many state legislatures are reassessing reimbursement policies for this therapy. If third-party payor reimbursements for FUZEON are limited or reduced, our results of operations will be adversely affected. In addition, emphasis in the U.S. on the reduction of the overall costs of health care through managed care has increased and will continue to increase the pressure to reduce the prices of pharmaceutical products.

The wholesale acquisition cost of a one-year supply of FUZEON in the U.S. is approximately $32,500. A high drug price could also negatively affect patients’ ability to receive reimbursement coverage for FUZEON from third-party payors, such as private or government insurance programs. If Roche is unable to obtain and maintain reimbursement from a significant number of third-party payors, it would have a material adverse effect on our business, financial condition and results of operations.

Currently, FUZEON is covered by Medicaid in all 50 states in the U.S. In addition, the AIDS Drug Assistance Programs in all 50 states and a majority of private insurers provide some amount of access to FUZEON. However, there are reimbursement challenges remaining. Some of the payors require patients to meet minimum medical requirements, such as maintaining certain cell levels

associated with HIV, to receive reimbursement. Other payors limit the number of patients to which they will provide reimbursement for FUZEON, and other payors may require co-payments by the patient in order to receive reimbursement for FUZEON that are significantly higher than those required for other anti-HIV drugs.

Several major pharmaceutical companies have offered to sell their anti-HIV drugs at or below cost to certain countries in Africa and Least Developed Countries (as defined by the United Nations), which could adversely affect the reimbursement climate of, and the prices that may be charged for, HIV medications in the U.S. and the rest of the world. Third-party payors could exert pressure for price reductions in the U.S. and the rest of the world based on these lower costs offered in Africa and Least Developed Countries. This price pressure could limit the price that Roche would be able to charge for FUZEON, thereby adversely affecting our results of operations

If the sale of FUZEON infringes the proprietary rights of third parties, we may need to obtain licenses, pay damages or defend litigation.

If the sale of FUZEON infringes the proprietary rights of third parties, we could incur substantial costs and may have to:

•

obtain licenses, which might not be available on commercially reasonable terms, if at all;

•

pay damages; and/or

•

defend litigation or administrative proceedings which might be costly whether we win or lose, and which could result in a substantial diversion of financial and management resources.

Any of these events could substantially harm our earnings, financial condition, and operations.

On November 20, 2007, Novartis filed a lawsuit against us and Roche and certain of its affiliated entities, alleging infringement of the ‘271 Patent, related to the manufacture, sale and offer for sale of FUZEON. On September 23, 2010, we entered into a settlement agreement (the “Settlement Agreement”) with Roche and Novartis settling the lawsuit and the lawsuit was dismissed with prejudice from the Eastern District of North Carolina on September 28, 2010. Under the terms of the Settlement Agreement, we, in collaboration with Roche, have the right to continue to sell FUZEON under a license to Novartis’ ‘271 Patent in exchange for the payment of royalties to Novartis on net sales of FUZEON. We will share responsibility for payment of these royalties equally with Roche.

We may pursue rapid expansion of our workforce or diversify our business strategy through mergers, acquisitions, licensing arrangement or other contractual arrangements with third parties which may require substantial resources and substantial amounts of time from members of our senior management and involve numerous risks.

We may spend substantial resources to hire additional employees or pursue acquisitions of new technologies or businesses that we would expect to be complementary to our current technologies or business focus through mergers, acquisitions, licensing arrangement or other contractual arrangements with third parties. Acquisitions of technologies, companies or product rights involve numerous risks, including potential difficulties in the integration of acquired operations such as retaining key employees of the acquired business, integrating research and development programs, not meeting financial objectives, increased costs, undisclosed liabilities not covered by insurance or terms of acquisition, and diversion of management’s attention and resources in connection with an acquisition. No assurance can be given as to our success in identifying, executing, and integrating acquisitions in the future.

Our success will depend in part on relationships with third parties. Any adverse changes in these relationships could adversely affect our business, financial condition, or results of operations.

Our success will be dependent on our ability to maintain and renew business relationships with third parties and to establish new business relationships. There can be no assurance that our management will be able to maintain such business relationships, or enter into or maintain new business contracts and other business relationships, on acceptable terms, if at all. The failure to maintain important business relationships could have a material adverse effect on our business, financial condition, or results of operations.

Our charter documents and indemnification agreements require us to indemnify our directors and officers to the fullest extent permitted by law, which may obligate us to make substantial payments and to incur significant insurance-related expenses.

Our charter documents require us to indemnify our directors and officers to the fullest extent permitted by law. This could require us, with some legally prescribed exceptions, to indemnify our directors and officers against any and all expenses, judgments, penalties, fines, and amounts reasonably paid in defense or settlement of an action, suit, or proceeding brought against any of them by reason of the fact that he or she is or was our director or officer. In addition, expenses incurred by a director or officer in defending any such action, suit, or proceeding must be paid by us in advance of the final disposition of that action, suit or proceeding if we receive an undertaking by the director or officer to repay us if it is ultimately determined that he or she is not entitled to be indemnified. We have also entered into indemnification agreements with each of our directors and officers. In furtherance of these indemnification obligations, we maintain directors’ and officers’ insurance in the amount of $30,000,000. For future renewals, if we are able to retain coverage, we may be required to pay a higher premium for our directors’ and officers’ insurance than in the past and/or the amount of its insurance coverage may be decreased.

Risks Relating Our Financial Position and Capital Requirements

We may be unable to raise the substantial additional capital that we will need to further develop and commercialize our products.

As is typical of biotechnology companies at our stage of development, our operations consume substantial amounts of cash and we will need substantial additional funds to further develop and commercialize our products.

While we will need to seek additional funding, we may not be able to obtain financing on acceptable terms, or at all. In addition, the terms of our financings may be dilutive to, or otherwise adversely affect, holders of our common stock. We may also seek additional funds through arrangements with collaborators or other third parties. These arrangements would generally require us to relinquish rights to some of our technologies, product candidates or products, and we may not be able to enter into such agreements, on acceptable terms, if at all. If we are unable to obtain additional funding on a timely basis, we may be required to curtail or terminate some or all of our development programs, including some or all of our product candidates.

We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We are a company with limited historical revenues, which makes it difficult to assess our future viability.

We are a clinical-stage biopharmaceutical company. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We expect our expenses to increase in connection with our efforts to seek approval for and commercialize sebelipase alfa and our research and development of our other product candidates, including but not limited to, SBC-103. As a result, we expect to continue to incur significant research and development and other expenses related to our ongoing operations for the foreseeable future. If any of our product candidates fail in clinical trials or do not gain regulatory approval, or if any of our product candidates, if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

Our ability to utilize Trimeris’ net operating loss and tax credit carryforwards in the future is subject to substantial limitations and may be further limited as a result of the Reverse Merger.

Federal and state income tax laws impose restrictions on the utilization of net operating loss (“NOL”) and tax credit carryforwards in the event that an “ownership change” occurs for tax purposes, as defined by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). In general, an ownership change occurs when stockholders owning 5% or more of a “loss corporation” (a corporation entitled to use NOL or other loss carryforwards) have increased their aggregate ownership of stock in such corporation by more than 50 percentage points during any three-year period. If an “ownership change” occurs, Section 382 of the Code imposes an annual limitation on the amount of post-ownership change taxable income that may be offset with pre-ownership change NOLs of the loss corporation experiencing the ownership change. The annual limitation is calculated by multiplying the loss corporation’s value immediately before the ownership change by the greater of the long-term tax-exempt rate determined by the IRS in the month of the ownership change or the two preceding months. This annual limitation may be adjusted to reflect any unused annual limitation for prior years and certain recognized built-in gains and losses for the year. Section 383 of the Code also imposes a limitation on the amount of tax liability in any post-ownership change year that can be reduced by the loss corporation’s pre-ownership change tax credit carryforwards.

On November 2, 2011, we completed the Reverse Merger which resulted in an “ownership change” of Trimeris. Trimeris previously experienced an “ownership change” in 2008. Accordingly, our ability to utilize Trimeris’ NOL and tax credit carryforwards may be substantially limited. These limitations could, in turn, result in increased future tax payments for us, which could have a material adverse effect on our business, financial condition.

Our management is required to devote substantial time to comply with public company regulations.

As a public company, we incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), as well as rules implemented by the SEC and the NASDAQ Global Select Market, impose various requirements on public companies, including those related to corporate governance practices. Our management and other personnel will need to devote substantial time to these requirements. Certain members of our management do not have experience in addressing these requirements.

Sarbanes-Oxley requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of Sarbanes-Oxley (“Section 404”). We will incur substantial accounting and related expenses to comply with Section 404. We may need to hire additional accounting and financial staff to satisfy the ongoing requirements of Section 404. Moreover, if we are not able to comply with the requirements of

Section 404, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the NASDAQ Global Select Market, the SEC, or other regulatory authorities.

We rely on Roche to timely deliver important financial information relating to sales of FUZEON. In the event that this information is inaccurate, incomplete, or not timely, we will not be able to meet our financial reporting obligations as required by the SEC.

Under the Roche License Agreement, Roche has exclusive control over the flow of information relating to sales of FUZEON that we require to meet our SEC reporting obligations. Roche is required under the Roche License Agreement to provide us with timely and accurate financial data related to sales of FUZEON so that we may meet our reporting requirements under federal securities laws. In the event that Roche fails to provide us with timely and accurate information, we may incur significant liability with respect to the federal securities laws, our disclosure controls and procedures under Sarbanes-Oxley may be inadequate, and we may be forced to restate our financial statements, any of which could adversely affect the market price of our common stock.

Changes in the estimated performance periods of our collaboration arrangements may negatively impact current period revenue.

We account for our collaboration arrangements under the proportional performance method, whereby the amount of revenue recognized in the current period is based on our performance compared to the total estimate to complete the project. If our estimates to complete change in future periods, our collaboration revenue may be reduced and could potentially be negative.

Risks Related to Ownership of Our Common Stock

The market price and trading volume of our common stock may be volatile.

The market price of our common stock could fluctuate significantly for many reasons, including the following factors:

•

announcements of clinical or regulatory developments or technological innovations by us or our competitors,

•

changes in our relationship with our licensors and other strategic partners,

•

our quarterly operating results,

•

declines in sales of FUZEON,

•

developments in patent or other technology ownership rights,

•

public concern regarding the safety of our products,

•

additional funds may not be available on terms that are favorable to us and, in the case of equity financings, may result in dilution to our stock holders,

•

government regulation of drug pricing, and

•

general changes in the economy, the financial markets or the pharmaceutical or biotechnology industries.

Additional factors beyond our control may also have an impact on the price of our stock. For example, to the extent that other large companies within our industry experience declines in their stock price, our stock price may decline as well. In addition, when the market price of a company’s common stock drops significantly, stockholders often institute securities class action lawsuits against the company. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources.

Future sales of substantial amounts of our common stock, or the perception that such sales could occur, could adversely affect the market price of our common stock.

Future sales into the public market of substantial amounts of our common stock, or securities convertible or exchangeable into shares of our common stock, including shares of our common stock issued upon exercise of options and warrants, or perceptions that such sales could occur, could adversely affect the market price of our common stock and our ability to raise capital in the future.

Ownership of our common stock is highly concentrated, and it may prevent you and other stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline.

Our executive officers and directors, together with their respective affiliates, beneficially own or control approximately 39% of our issued and outstanding common stock. Accordingly, these executive officers, directors and their affiliates, acting individually or as a group, have substantial influence over the outcome of a corporate action requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. These stockholders may also exert influence in delaying or preventing a change in control, even if such change in control would benefit our other stockholders. In addition, the significant concentration of stock ownership may adversely affect the market value of our common stock due to investors’ perception that conflicts of interest may exist or arise.

Anti-takeover provisions in our charter and bylaws may prevent or frustrate attempts by stockholders to change the board of directors or current management and could make a third-party acquisition of us difficult.

Our certificate of incorporation and bylaws contain provisions that may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock.

We have never declared or paid dividends on our common stock and do not anticipate paying dividends in the foreseeable future.

Our business requires significant funding, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

Item 5.

Other Information.

None.

Item 6.

Exhibits.


31.1		Certification of Chief Executive Officer pursuant to Rules 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2		Certification of Chief Financial Officer pursuant to Rules 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies this report and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of §18 of the Securities Exchange Act of 1934, as amended.

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase

101.LAB*		XBRL Taxonomy Extension Labels Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Link Document

*	Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, the interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Synageva BioPharma Corp.

Date: August 7, 2013	By:	/s/ Sanj K. Patel
		Sanj K. Patel
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: August 7, 2013	By:	/s/ Carsten Boess
		Carsten Boess
		Chief Financial Officer
		(Principal Financial Officer)

Exhibit Index


31.1		Certification of Chief Executive Officer pursuant to Rules 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2		Certification of Chief Financial Officer pursuant to Rules 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies this report and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of §18 of the Securities Exchange Act of 1934, as amended.

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase

101.LAB*		XBRL Taxonomy Extension Labels Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Link Document

*	Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company