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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, 2015.

Or

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

For the transition period from                    to                    .

Commission File Number 000-51171

EPIRUS BIOPHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

(617) 600-3497

(Registrant’s telephone number, including area code)

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

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

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

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

Number of shares of the registrant’s Common Stock, $0.001 par value per share, outstanding as of August 10, 2015: 23,567,796 shares

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EPIRUS BIOPHARMACEUTICALS, INC.
QUARTERLY REPORT
ON FORM 10-Q

INDEX

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

EPIRUS Biopharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

See accompanying notes to condensed consolidated financial statements.

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EPIRUS Biopharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(In thousands, except share and per share amounts)

See accompanying notes to condensed consolidated financial statements

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EPIRUS Biopharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

See accompanying notes to condensed consolidated financial statements

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EPIRUS Biopharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(unaudited)

(In thousands, except share and per share amounts)

1.                                      Organization

On July 15, 2014, EPIRUS Biopharmaceuticals, Inc., a Delaware corporation and private company (“Private Epirus”), completed its merger with EB Sub, Inc., formerly known as BRunning, Inc., a wholly-owned subsidiary of Zalicus Inc., a Delaware corporation (“Zalicus”) (the “Merger”). As part of the Merger, Zalicus was renamed EPIRUS Biopharmaceuticals, Inc. (“Public Epirus”) and Private Epirus was renamed EB Sub, Inc. (“EB Sub”). The boards of directors of Private Epirus and Zalicus approved the Merger on April 15, 2014, and the stockholders of Private Epirus and Zalicus approved the Merger and related matters on July 15, 2014. Following completion of the Merger, EB Sub, Inc. (formerly Private Epirus), is the surviving corporation of the Merger and a wholly-owned subsidiary of Public Epirus. The historical financial statements of Private Epirus have become the historical financial statements of Public Epirus, or the combined company, and are included in this quarterly report on Form 10-Q.

The terms “Company” and “Epirus” as used in these notes to consolidated financial statements refer to Private Epirus and its subsidiaries prior to the completion of the Merger and to Public Epirus and its subsidiaries subsequent to the completion of the Merger.

The Company is a biopharmaceutical company focused on building a pure-play, sustainable and profitable biosimilar business by improving patient access to these important, cost-effective medicines worldwide. Biosimilars are highly similar versions of approved patented biological drug products, referred to as reference or innovator products. Building a pure-play biosimilar company requires strong technical capabilities. The Company is a global company with an experienced product development team based in Boston, Massachusetts and a robust clinical, regulatory and business development infrastructure based in Zug, Switzerland. The Company’s strategy for biosimilars relies on global partnerships and distinct strategies to address the diverse and evolving regulatory, legal and commercial landscape.

The Company seeks to build a sustainable platform focusing on a therapeutically-focused pipeline of Immunoglobulin G (IgG), Chinese Hamster Ovary (CHO) cell derived monoclonal antibodies, or MAbs. The Company’s pipeline of product candidates includes BOW015, a biosimilar version of Remicade® (infliximab), BOW050, a biosimilar version of Humira® (adalimumab) and BOW070, a biosimilar version of Actemra® (tocilizumab).

For the Company’s lead product candidate, BOW015, the Company has reported bioequivalence and efficacy data from a Phase 1 clinical trial in the United Kingdom and a Phase 3 clinical trial in India, both of which demonstrated the equivalence of BOW015 to Remicade. The Company also announced positive 58 week follow up data from the Phase 3 trial. In this open label phase, the Company demonstrated that patients can be safely initiated and effectively maintained on BOW015 for 58 weeks, and that patients can be safely switched from Remicade to BOW015 and effectively maintained out to 58 weeks. The Company intends to initiate a global clinical program for BOW015 in late 2015 or early 2016. The Company has been designing this clinical program in consultation with European regulatory bodies in order to obtain the data necessary to support eventual approval of BOW015 in North America and Europe.

In collaboration with the Company’s commercialization partner Sun Pharmaceutical Industries Ltd., formerly known as Ranbaxy Laboratories Limited, (“Sun”), the Company launched BOW015 in India in November 2014. BOW015 is sold under the brand name InfimabTM and is the first infliximab biosimilar approved in India. The Company expects to utilize its existing regulatory data package to gain regulatory approval for BOW015 in additional countries.

In May 2015, the Company entered into a development and future distribution agreement with mAbxience S.A., a company organized and existing under the laws of Uruguay and a wholly owned subsidiary of

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CHEMO Group (“Mabxience”), for BOW015 in Latin American markets, including Argentina, Chile, Ecuador, Paraguay, Uruguay and Venezuela. The Company has an established partnership with Livzon Mabpharm Inc. for the production of biosimilars for China and associated markets. In July 2015, the Company also entered into an agreement with Swiss Pharma International AG, an affiliate of Pharmaceutical Works Polpharma S.A. (together with Swiss Pharma International AG, “Polpharma”), for the development and commercialization of BOW015, BOW050 and BOW070 in certain designated territories, including most of the European Union, certain countries in the Middle East, Turkey, Russia, and other countries comprising the Commonwealth of Independent States. The Company is also pursuing development and commercial partnerships in the United States, Brazil, and elsewhere.

2.                                      Basis of Presentation and Use of Estimates

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2015. For further information, refer to the consolidated financial statements and footnotes included in the Company’s annual consolidated financial statements for the year ended December 31, 2014, which are included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2015.

3.                                      Summary of Significant Accounting Policies

In the three and six months ended June 30, 2015, there were no changes to the Company’s significant accounting policies identified in the Company’s most recent annual consolidated financial statements for the fiscal year ended December 31, 2014, which are included in the Company’s annual report on Form 10-K filed with the SEC on March 31, 2015.

Principles of Consolidation

The consolidated financial statements include the accounts of Epirus and its wholly owned subsidiaries: EB Sub, Inc., a Delaware Corporation, Epirus Biopharmaceuticals Ltd., a United Kingdom corporation, Epirus Switzerland GmbH, a Swiss corporation, Epirus Brasil Tecnologia Ltda, a Brazilian corporation, and Zalicus Pharmaceuticals Ltd., a Canadian corporation. All significant intercompany balances and transactions have been eliminated in consolidation.

Merger and Exchange Ratio

The Merger has been accounted for as a “reverse merger” under the acquisition method of accounting for business combinations with Private Epirus treated as the accounting acquirer of Zalicus. The historical financial statements of Private Epirus have become the historical financial statements of Public Epirus, or the combined company, and are included in this quarterly report on Form 10-Q. Since the Merger, costs related to Zalicus operations have been immaterial. As a result of the Merger, historical common stock, stock options and additional paid-in capital, including share and per share amounts, have been retroactively adjusted to reflect the equity structure of Public Epirus, including the effect of the Merger exchange ratio and the Public Epirus common stock par value of $0.001 per share. See Note 5, “Merger,” for additional discussion of the Merger and the exchange ratio.

Reverse Stock Split

On July 16, 2014, Public Epirus effected a 1-for-10 reverse stock split of its outstanding common stock, par value $0.001 per share (“Public Epirus Common Stock”) (the “Reverse Stock Split”). The accompanying

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consolidated financial statements and these notes to consolidated financial statements, including the Merger exchange ratio applied to historical Private Epirus common stock and stock options, give retroactive effect to the Reverse Stock Split for all periods presented. The shares of Public Epirus Common Stock retained a par value of $0.001 per share. See Note 5, “Merger,” for additional discussion of the Merger and the exchange ratio.

Impairment of Long-Lived Assets

Long-lived assets, including finite-lived intangible assets, to be held and used are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Indefinite lived intangible assets are also tested at least annually for impairment. Determination of the recoverability of long-lived assets, including finite-lived intangible assets is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are written down to their estimated fair values. During the three and six months ended June 30, 2015, the Company determined that there was no impairment of any of its long-lived assets, including indefinite and finite-lived intangible assets.

Recent Accounting Pronouncements

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which amends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition, and creates a new Topic 606, Revenue from Contracts with Customers. In July 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09.  This ASU will be effective for annual and interim periods beginning on or after December 15, 2017. Early adoption is permitted, however not before the original effective date of annual periods beginning after December 15, 2016. Two adoption methods are permitted: retrospectively to all prior reporting periods presented, with certain practical expedients permitted; or retrospectively with the cumulative effect of initially adopting the ASU recognized at the date of initial application. The Company has not yet determined which adoption method it will utilize or the effect that the adoption of this guidance will have on its consolidated financial statements.

Debt Issuance Costs

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the related liability, rather than as a deferred charge. The updated guidance is effective retroactively for financial statements covering fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted, but the Company does not anticipate electing early adoption. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements.

Technical Corrections and Improvements

In June 2015, the FASB issued ASU No. 2015-10, Technical Corrections and Improvements. ASU 2015-10 covers a wide range of Topics in the ASC. The amendments in this ASU represent changes to clarify the ASC, correct unintended application of guidance, or make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Additionally, some of the amendments will make the ASC easier to understand and easier to apply by eliminating inconsistencies, providing needed clarifications, and improving the presentation of guidance in the ASC. The amendments in ASU 2015-10 that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. All other amendments will be effective upon the issuance of this ASU.  The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements and footnote disclosures.

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4.                                      Business Agreements

Sun Pharmaceutical Industries (formerly known as Ranbaxy Laboratories)

For the three and six months ended June 30, 2015, the Company recorded royalty revenue of $36 and $54, respectively, related to commercial sales of the Company’s product, Infimab, which the Company launched with its commercialization partner Sun during the fourth quarter of 2014.  As of June 30, 2015, all royalty payments have been received.

Sun made an upfront payment of $500 upon the execution of the license agreement by and between the Company and Sun, dated as of January 3, 2014 and as amended from time to time (the “License Agreement”) and is obligated to pay the Company up to $1,000 if certain development and regulatory approval milestones are achieved and up to $10,000 if certain sales milestones are achieved. Under certain circumstances of uncured breach by the Company and termination of the License Agreement by Sun, monetary damages of $500 would be due to Sun.

The Company has invoiced Sun for a total of $1,250 in milestone payments, including the upfront payment, and received payments totaling $1,250 through June 30, 2015.

Mabxience, S.A.

On May 13, 2015, the Company entered into an Exclusive License Agreement (the “MabX Agreement”) with Mabxience for the development, manufacturing and commercialization of BOW015.

Under the MabX Agreement, the Company licensed to Mabxience an exclusive, royalty-bearing, non-transferable, sublicenseable license to develop, manufacture, commercialize and distribute BOW015 in the Mabxience territory. The Mabxience territory consists of Argentina, Chile, Ecuador, Paraguay, Uruguay and Venezuela. Pursuant to the MabX Agreement, Mabxience will be solely responsible, at its expense, for all aspects of commercialization of licensed product in the Mabxience territory. As consideration for the license granted to Mabxience, the Company is eligible to receive certain non-refundable, non-creditable milestone payments up to $1.5 million upon the achievement of certain commercial sales in the Mabxience territory. In addition, the Company is eligible to receive certain royalty payments in the high teen percentages and distribution payments from Mabxience.

These potential milestone and royalty payments have not been earned as of June 30, 2015.

If not terminated earlier or extended by mutual agreement of the parties, the MabX Agreement expires in its entirety upon the fifteenth (15) anniversary of the first commercial sale of BOW015 in the Mabxience territory.

5.                                      Merger

As described in Note 1, “Organization,” on July 15, 2014 (the “Effective Time”), the Company completed the Merger with Zalicus. Pursuant to the Merger Agreement, each share of capital stock of Private Epirus was exchanged for 0.13259 shares of Public Epirus Common Stock (the “Exchange Ratio”). All Private Epirus stock options granted under the Private Epirus stock option plans (whether or not then exercisable) that were outstanding prior to the effective time of the Merger and all warrants to purchase Private Epirus capital stock that were outstanding prior to the effective time of the Merger were exchanged at the same ratio as described below. Upon the consummation of the Merger, equity holders of Private Epirus were issued an aggregate of 10,288,180 shares of Public Epirus Common Stock, plus 1,152,042 and 21,996 shares of Public Epirus Common Stock which could be issued in the future upon exercise of stock options and warrants, respectively.

After the Effective Time, all outstanding and unexercised Private Epirus stock options assumed by Zalicus were exercised solely for shares of Public Epirus Common Stock and all outstanding and unexercised warrants to purchase Private Epirus capital stock were exercised solely for shares of Public Epirus Common Stock. The number of shares of Public Epirus Common Stock subject to each Private Epirus stock option or warrant assumed by Zalicus was determined by multiplying (a) the number of shares of Private Epirus common stock that were subject to such Private Epirus stock option or warrant, as in effect immediately prior to the Effective Time, by (b) the Exchange Ratio, and rounding the resulting number down to the nearest whole number of shares of Public Epirus Common

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Stock. The per share exercise price for the Public Epirus Common Stock issuable upon exercise of each Private Epirus stock option or warrant assumed by Zalicus was determined by dividing (a) the per share exercise price of Private Epirus common stock subject to such Private Epirus stock option or warrant, as in effect immediately prior to the Effective Time, by (b) the Exchange Ratio and rounding the resulting exercise price up to the nearest whole cent.

All Zalicus equity awards granted prior to the Merger remained legally outstanding.

The Merger was accounted for as a reverse acquisition under the acquisition method of accounting with Private Epirus treated as the accounting acquirer and Zalicus treated as the acquired company for financial reporting purposes. Private Epirus was determined to be the accounting acquirer based upon the terms of the Merger and other factors, such as relative voting rights and the composition of the combined company’s board of directors and senior management. Accordingly, the Zalicus tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the date of acquisition, with the excess consideration transferred recorded as goodwill.

See Note 11, “Stock-Based Compensation,” for additional details regarding the accounting treatment for the equity awards of Private Epirus and Zalicus.

The acquisition-date fair value of the consideration transferred is as follows:

(1)                                 The stock transferred in the table above is comprised of 2,610,871 common shares outstanding at the time of the Merger plus 25,000 restricted stock units (RSUs) that vested immediately upon the closing of the Merger. The fair value of shares of Public Epirus Common Stock owned by Zalicus shareholders of $31,104 includes approximately $1 related to fractional shares resulting from the Reverse Stock Split.

(2)                                 The shares outstanding are multiplied by the closing trading price of Public Epirus Common Stock as of the Merger date.

(3)                                 Consideration transferred includes approximately $220 of Zalicus equity awards assumed and deemed attributable to precombination services to Zalicus. The fair value of the equity awards at July 15, 2014 was determined using a Black-Scholes option-pricing model with the following ranges of assumptions: exercise price of $14.70 per share to $591.00 per share; underlying stock value of $11.80 per share; expected volatility of 66.02%; expected term of 0.1 years to 6.0 years; and risk-free interest rate of 1.91%.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

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The purchase price allocation was prepared on a preliminary basis and is subject to change as additional information becomes available concerning the tax basis of the assets acquired and the liabilities assumed. Any adjustments to the purchase price allocation as a result of a change in tax basis or rates will be made as soon as practicable but no later than one year from July 15, 2014, the acquisition date.

For acquired working capital accounts such as accounts receivable, prepaid expenses and other current assets, accounts payable and certain accrued expenses, the Company determined that no fair value adjustments were required due to the short timeframe until settlement for these assets and liabilities.

The fair value of the in-process research and development (“IPR&D”) was determined using the multi-period excess earnings method, a variation of the income approach, including a discount rate of 13.1% applied to the projected cash flows. The Company believes the assumptions used were consistent and representative of those a market participant would use in estimating the fair value of the IPR&D. The Company will not begin amortizing the IPR&D asset until the research and development is complete and the asset is reclassified to a definite-lived amortizing asset.

Goodwill was calculated as the difference between the acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The goodwill is not expected to be deductible for income tax purposes. Goodwill was recorded as an indefinite-lived asset and is not currently being amortized but is tested for impairment on an annual basis or when indications of impairment exist.

Other liabilities of $391 and $376 of other current liabilities related to a sublease liability assumed for Zalicus’ Cambridge, Massachusetts facility. The liability represented the fair value of the difference between the total sublease payments and the total payments for the facility per the lease agreement. The original lease and the sublease agreement terminate in January 2017.

The deferred tax liability of $2,166 related to the temporary difference associated with the $5,500 value of the IPR&D asset, which is not deductible for tax purposes. The deferred tax liability was recorded based on a 39.39% effective tax rate.

The operating results of Zalicus for the period from July 16, 2014 to December 31, 2014, including an operating loss of $25, were included in the Company’s consolidated financial statements as of and for the year ended December 31, 2014. During the three and six months ended June 30, 2015, operating results for Zalicus were immaterial.

The Company incurred a total of $5,779 in transaction costs in connection with the Merger, excluding Zalicus transaction costs, which were included in general and administrative expense within the consolidated statement of operations for the year ended December 31, 2014.

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6.                                      Goodwill, IPR&D and Intangible Assets, Net

Goodwill

The Company’s goodwill balance as of June 30, 2015 was $16,363.  As of June 30, 2015, there were no accumulated impairment losses. Goodwill has been assigned to the Company’s single reporting unit, which is the single operating segment by which the chief operating decision maker manages the Company.

IPR&D

In connection with the Merger in 2014, the Company recognized IPR&D related to Z944. The carrying value of the IPR&D related to Z944 as of June 30, 2015 and December 31, 2014 was $5,500. See Note 5 “Merger” for additional details.

Intangibles

Intangible assets, net of accumulated amortization is as follows:

Amortization expense, which is included within research and development expense in the consolidated statements of operations and comprehensive loss, was $56 and $113 for the three and six months ended June 30, 2015, respectively, and $0 for the three and six months ended June 30, 2014.

The estimated aggregate amortization of intangible assets as of June 30, 2015, for each of the five succeeding years and thereafter is as follows:

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7.                                      Accrued Expenses and Other Current Liabilities

Accrued expenses consisted of the following:

8.                                      Debt

Hercules Notes

As of June 30, 2015, the Company had outstanding borrowings under the Loan and Security Agreement with Hercules Technology Growth Capital, Inc., dated as of September 30, 2014 and as amended from time to time (the “2014 Loan Agreement”) of $15,000. The first term loan, with a principal amount of $7,500 was drawn down on October 1, 2014. The second term loan, with a principal amount of $7,500, was drawn down on May 29, 2015. 

As of June 30, 2015, on the Company’s balance sheet, the Company has recorded a short term debt obligation of $896, net of a debt discount of $11 and a long-term debt obligation of $13,918, net of debt discount of $175. Amortization of the debt discount, which was recorded as interest expense in the statement of operations, was approximately $16 and $32 for the three and six months ended June 30, 2015, respectively.

Future principal payments, which exclude the 3% end of term charge that will be payable upon repayment of the notes in full, in connection with the 2014 Loan Agreement, as of June 30, 2015 are as follows:

9.                                      Capital Stock

On February 4, 2015 the Company closed on an underwritten public offering of 9,600,000 shares of its common stock, offered at a price of $5.00 per share. Net proceeds to the Company from this offering were approximately $43,570, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. On February 13, 2015, the Company closed on the sale of an additional 958,208 shares of its common stock at a price of $5.00 per share. Net proceeds to the Company from this overallotment were approximately $4,391, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company intends to continue to use the net proceeds of $47,961 from the offering to progress its global BOW015 clinical program and to advance the development of its other product candidates, as well as for general corporate and working capital purposes.

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10.                               Fair Value Measurements

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis in the accompanying balance sheets as of June 30, 2015 and December 31, 2014:

As of June 30, 2015, the Company did not have any liabilities measured at fair value on a recurring basis.

11.                               Stock-Based Compensation

Stock-Based Compensation

On April 2, 2015, the board of directors of the Company adopted the 2015 Equity Incentive Plan (“2015 Plan”) and on June 4, 2015, the stockholders of the Company approved the 2015 Plan.  Pursuant to the 2015 Plan, 1,700,000 shares of common stock were initially authorized for issuance. The 2015 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted and unrestricted stock and stock units, performance awards, cash-based awards and awards that are convertible into or otherwise based on the Company’s common stock.

For the three and six months ended June 30, 2015, the Company recognized stock-based compensation expense of approximately $843 and $1,369, respectively, in connection with its stock-based payment awards.  The Company recorded a reduction in stock-based compensation expense in the six months ended June 30, 2015 of $100 resulting from the modification of an award for a former officer of the company.  For the three and six months ended June 30, 2014, the Company recognized stock-based compensation expense of approximately $327 and $371, respectively, in connection with its stock-based payment awards.

Stock Options

A summary of stock option activity during the six months ended June 30, 2015 is as follows:

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The aggregate intrinsic value in the table above represents the value (the difference between the Company’s common stock fair value on June 30, 2015 and the exercise price of the options, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2015. As of June 30, 2015, there was $9,190 of total unrecognized stock-based compensation expense related to stock options granted under the plans. The expense is expected to be recognized over a weighted-average period of 3.25 years.

During the three and six months ended June 30, 2015 and 2014, the range of assumptions used in the Black-Scholes pricing model for new grants were as follows:

Restricted Stock Units

A summary of the activity of nonvested restricted stock units (“RSUs”) for the six months ended June 30, 2015 is as follows:

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As of June 30, 2015, there was $1,191 of total unrecognized stock-based compensation expense related to nonvested RSUs. The expense is expected to be recognized over a weighted-average period of 3.5 years.

During February 2015, the Company issued 117,131 RSUs to certain employees, which vest with respect to one quarter (1/4) of the RSUs on the first anniversary of the grant date and an additional one quarter (1/4) on each anniversary thereafter until the fourth anniversary of the grant date. In addition, the Company issued 9,490 RSUs to certain employees as merit grants in lieu of annual raises. These RSUs vest in full on the first year anniversary of the grant date.

Restricted Stock Awards

In April 2014, the Company granted 53,056 shares of restricted common stock to a vendor for consulting services.  The restricted stock award is subject to certain performance-based vesting conditions under which 25% of the award vested on April 15, 2014, 50% vested on September 24, 2014 and the remaining 25% would vest following the successful achievement of certain performance milestones and the passage of time.

As of June 30, 2015 and December 31, 2014, the Company had outstanding 13,259 shares of nonvested restricted common stock at a weighted average grant date fair value of $5.08. During the three and six months ended June 30, 2015, the Company recorded $(3) and $38 in stock compensation expense related to the nonvested restricted common stock award. During the three and six months ended June 30, 2014, the Company recorded $98 in stock compensation expense related to the nonvested restricted common stock.

12.                               Income Taxes

For the three and six months ended June 30, 2015, the Company recorded an income tax benefit of $43 and $55, respectively.  For the three months ended June 30, 2015, the income tax benefit resulted primarily from amortization of the Company’s deferred tax benefit related to the transfer of IPR&D to the Company’s subsidiary, Epirus Switzerland GmbH, a Swiss corporation (the “Tax Benefit”) of $46, offset by tax expense for cash flows generated in foreign territories of $3.  For the six months ended June 30, 2015, the income tax benefit resulted primarily from amortization of the Tax Benefit of $92, offset in part by tax expense for cash flows generated in foreign territories of $30 and minimum state taxes due in the United States of $7.

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For the three and six months ended June 30, 2014, the Company recorded an income tax benefit of $47 and income tax expense of $39, respectively.  For the three months ended June 30, 2014, the income tax benefit resulted primarily due to amortization of the Tax Benefit of $46, a tax benefit from the reversal of the Alternative Minimum Tax (the “AMT”) due for fiscal year ended December 31, 2013 (“FY2013”) of $20 offset in part by tax expense for cash flows generated in foreign territories of $19.  For the six months ended June 30, 2014, the income tax expense resulted primarily from tax expense for cash flows generated in foreign territories of $151 offset in part by amortization of the Tax Benefit of $92 and a tax benefit from the reversal of the AMT due for FY2013 of $20.

The Company has evaluated the positive and negative evidence on the realizability of its deferred tax assets in each jurisdiction and management has determined that it is more likely than not that the Company will not utilize the benefits of its deferred tax assets in each jurisdiction. Accordingly, the deferred tax assets have been fully reserved as of June 30, 2015 and December 31, 2014.

13.                               Commitments

On May 15, 2015, the Company amended its March 2013 operating lease for office space in Boston, Massachusetts (the “Second Amendment”). The Second Amendment provides the Company additional square footage of approximately 3,000 square feet on the same floor of the office commencing on October 1, 2015. The Company has committed to lease this space for a period of six years. The Second Amendment contains rent escalation that is being accounted for as rent expense under the straight-line method. The Company will record rent expense of approximately $14 per month on a straight-line basis over the effective lease term.

As of June 30, 2015, future minimum lease payments under all of the Company’s operating leases are as follows:

14.                               Net Loss Per Share

The following potentially dilutive securities outstanding, prior to the use of the treasury stock method, have been excluded from the computation of diluted weighted-average shares outstanding for the three and six months ended June 30, 2015 and 2014, as they would be dilutive.

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15.                               Legal Proceedings

From time to time, the Company is involved in legal proceedings and claims of various types and accounts for these legal proceedings in accordance with ASC Topic 450, “Contingencies.” The Company records a liability in its consolidated financial statements for these matters when a loss is considered probable and the amount of loss can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its consolidated financial statements.

Zalicus Shareholder Litigation

Between April 28, 2014 and May 2, 2014, three putative class action lawsuits were filed by purported stockholders of Zalicus in the Business Litigation Session of the Massachusetts Superior Court, Suffolk County (the “Massachusetts Court”), against Zalicus, EB Sub, Inc. the members of Zalicus’ board of directors and Private Epirus. Plaintiff has since voluntarily dismissed one of these actions, Civil A. No. 14-1380. The remaining two actions, Civ. A. No. 14-1381 and Civ. A. No. 14-1455, were consolidated into a single action, In re Zalicus Shareholder Litigation, Lead Civ. A. No. 14-1381 (the “Massachusetts Action”). The Massachusetts Action alleged that the Zalicus board of directors breached its fiduciary duties, and that Private Epirus and EB Sub, Inc. aided and abetted the purported breaches, in connection with the proposed Merger. The Massachusetts Action sought relief including, among other things, a declaration that the Merger Agreement was entered into in breach of fiduciary duties and is unlawful and unenforceable, an order enjoining defendants from proceeding with the Merger, an order enjoining defendants from consummating the Merger unless and until additional procedures are implemented and all material information in connection with the proposed Merger is disclosed, rescission of the Merger or any terms thereof to the extent implemented (or an award of rescissory damages), compensatory damages and interest, and an award of all costs of the Massachusetts Action, including reasonable attorneys’ fees and experts’ fees.

Between May 1, and May 16, 2014, three putative class action lawsuits were filed by purported stockholders of Zalicus in the Court of Chancery of the State of Delaware (the “Delaware Court”) against Zalicus, Zalicus’ directors, Private Epirus and/or EB Sub, Inc., Stein v. Zalicus Inc., et al., No. 9602; Do v. Zalicus, Inc., et al., No. 9636; and Mendlowitz, et al. v. Zalicus Inc., et al., No. 9664 (the “Consolidated Action”). On May 23, 2014, plaintiff Harvey Stein filed a verified amended complaint, and on May 27, 2014, plaintiff Tuan Do filed a verified amended complaint. The Consolidated Action alleged that the Zalicus board of directors breached their fiduciary duties, and Private Epirus and/or EB Sub, Inc. aided and abetted the purported breaches, in connection with the proposed Merger. The Consolidated Action sought relief including, among other things, to preliminarily and permanently enjoin the proposed Merger, to enjoin consummation of the proposed Merger and rescind the Merger if consummated (or to award rescissory damages), an award of compensatory damages, and an award of all costs of the Consolidated Action, including reasonable attorneys’ fees and experts’ fees.

On June 6, 2014, plaintiffs’ counsel in the Consolidated Action filed a motion seeking to schedule a preliminary injunction hearing in advance of the stockholder vote on the proposed Merger, and seeking expedited discovery in advance of that hearing. Zalicus, Private Epirus, and the individual defendants opposed the motion. After a hearing, on June 13, 2014, the Delaware Court denied plaintiffs’ motion.

On October 27, 2014, plaintiffs’ counsel in the Massachusetts Action served the Company with a motion for voluntary dismissal and an award of attorney’s fees. The motion alleged, as set forth in the consolidated

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amended complaint filed in the Massachusetts Action on May 21, 2014, that the Form S-4 Registration Statement filed with the SEC on May 8, 2014 contained numerous material misstatements and/or omissions that prevented the Company’s shareholders from being able to evaluate the reasonableness of the Merger. The motion further alleged that in the Amended Registration Statement filed on June 4, 2014, the Company supplemented the disclosures and addressed the allegedly material misstatements and omissions contained in the initial Registration Statement, and that the Company did so in response to the claims made in the Massachusetts Action.

On November 6, 2014, with the Massachusetts Court’s entry of a judgment of dismissal, the Massachusetts Action was closed.

On November 10, 2014, the parties in the Consolidated Action submitted a stipulation and proposed order to dismiss the Consolidated Action and to set a schedule for plaintiffs’ counsel’s anticipated application for an award of attorney’s fees and expenses. On November 12, 2014, the Delaware Court entered an order dismissing the Consolidated Action without prejudice. The Delaware Court retained jurisdiction solely for the purpose of determining plaintiffs’ anticipated application for an award of attorneys’ fees and reimbursement of expenses.

After the Consolidated Action was dismissed, the parties commenced and engaged in discussions to resolve the amount of plaintiffs’ counsel’s application for fees and expenses.

After negotiations, the parties agreed that the Company would make a combined, global fee and expense payment to counsel in both the Consolidated Action and the Massachusetts Action in the amount of $400, of which $50 would be paid by the Company’s insurer, in full satisfaction of plaintiffs’ counsel’s claim for attorneys’ fees and expenses in the Consolidated Action and the Massachusetts Action, which the parties memorialized in a stipulation dated January 13, 2015. As a result of the order, the Company recorded $350 in general and administrative expense in its Consolidated Statement of Operations for the year ended December 31, 2014. The parties requested that the Delaware Court close the Consolidated Action as a result of the stipulation. The Delaware Court directed that notice of the resolution of plaintiffs’ counsel’s request for attorneys’ fees and expenses be provided to shareholders. The parties have since issued notice to shareholders (including via the Company’s filing on its Current Report on March 13, 2015). After expiration of the requisite notice waiting period, the parties submitted to the Delaware Court a proposed order verifying that notice has been provided and providing for the final dismissal and closure of the case. On April 15, 2015, the Delaware Court accepted the order and closed and dismissed the Consolidated Action.

The agreed-to $400 fee and expense amount was paid on April 22, 2015, which is within ten days of the final dismissal and closure of the Consolidated Action.

Reliance Life Sciences Dispute

In December 2014, Reliance Life Sciences Pvt Ltd, or RLS, the Company’s BOW015 contract manufacturer for India, exercised its three-year termination for-convenience right with respect to the parties’ Manufacturing and Supply Agreement, dated as of May 14, 2014 and as amended from time to time (the “RLS Agreement”), which would have caused the RLS Agreement to terminate in December 2017. In addition, in March 2015, RLS initiated an arbitration proceeding under the RLS Agreement alleging that the RLS Agreement grants RLS exclusive global supply rights for BOW015, that the terms of the Company’s collaboration agreements with Fujifilm Diosynth Biotechnologies U.S.A., Inc. and Livzon MabPharm Inc. violate the RLS Agreement, and sought to terminate the RLS Agreement. The proceeding initiated by RLS sought a declaratory judgment, but did not seek any monetary damages.

On April 22, 2015, the Company entered into a Settlement Agreement with RLS (the “Settlement Agreement”). Pursuant to the Settlement Agreement, RLS has agreed to manufacture 20 final batches of BOW015, with the initial 15 binding forecast batches to be manufactured on or before June 30, 2016 and the final five non-binding forecast batches to be manufactured on or before December 31, 2016, with the forecast for such final batches to be finalized by December 31, 2015. RLS has also agreed to use reasonable commercial efforts to transfer the existing Indian marketing authorization for BOW015 granted by the Drug Controller General of India (“DCGI”) to the Company or its designee, with all costs of the transfer to be borne by the Company and subject to the DCGI’s approval of such transfer. The Company has agreed to pay to RLS a fee of $2,250, payable in four installments over the course of the final batch manufacture, with the final installment to be paid no later than ten days after June 30,

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2016. Pursuant to the Settlement Agreement, on May 4, 2015, RLS withdrew the arbitration proceeding it initiated, and the parties have agreed to release each other from all causes of actions or claims, present and future, arising under the RLS Agreement. Following the satisfaction by both parties of all of the terms of the Settlement Agreement, the RLS Agreement and related agreements between the parties shall be terminated and neither party shall have any further rights or obligations thereunder. The Company made the first payment of $750 on April 27, 2015.

For the three and six months ended June 30, 2015, the Company recorded a one-time charge of $2,183 to general and administrative expenses, which represents the net present value of the installment payments due under the Settlement Agreement.

In addition, the Company recorded a one-time charge of $1,800 to research and development expense in the three and six month periods ended June 30, 2015, which represents the Company’s portion of the purchase obligation of the 15 binding forecast batches to be manufactured on or before June 30, 2016 by RLS. As of June 30, 2015, the Company has paid $561 towards this obligation.

16.                               Subsequent Events

Polpharma

On July 13, 2015, the Company entered into a Collaboration Agreement (the “Collaboration Agreement”) with Polpharma, for the development and commercialization in certain designated territories of the Company’s product candidates, BOW015, BOW050 and BOW070. The designated territories include the European Union (with the exception of Austria, Belgium, Denmark, Finland, Luxembourg, the Netherlands and Sweden, which are reserved for the Company), together with certain countries in the Middle East, Turkey, Russia, and other countries comprising the Commonwealth of Independent States, or CIS. The Company will also retain exclusive rights for the three products in North America and other markets outside of the designated territories, including Switzerland and Norway. Within the designated territories, the Collaboration Agreement contains exclusivity provisions such that each of the Company and Polpharma agrees not to exploit any other biosimilar product based on reference product other than the three products licensed under the Collaboration Agreement, subject to limited exceptions.

Under the Collaboration Agreement, the Company and Polpharma have cross-licensed all intellectual property rights and technology relating to their applicable biosimilar development programs to enable the parties to develop and commercialize the three above-mentioned biosimilar products in the designated territories and the Company to develop and commercialize these biosimilar products outside of the designated territories. The three product programs will consist of process development, clinical trials, regulatory, manufacturing and commercialization activities in the designated territories. For such programs, the Company will lead the global product development and clinical programs and will also be responsible for process development, scale-up and manufacturing in the designated territories, both parties will collaborate on regulatory filings in the designated territories, and Polpharma will be responsible for the commercialization of the products in the designated territories. Polpharma has the right to be a second source manufacturer for any of the products, including a right to perform fill and finish production for all three products, subject to certain conditions. A joint management committee will oversee the collaboration on behalf of both parties.

Polpharma will bear 51% and the Company will bear 49% of the costs associated with the development programs for the three products in the designated territories. Following commercial launch, profits and losses for the three products in the designated territories will be split 51% for Polpharma and 49% for the Company.

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

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and their notes appearing elsewhere in this quarterly report. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed below and elsewhere in this quarterly report.

In the following discussion, the terms “Epirus,” “we,” “our,” “us” or the “Company” refer to EPIRUS Biopharmaceuticals, Inc., a Delaware corporation and private company, prior to the July 15, 2014 merger described below, and EPIRUS Biopharmaceuticals, Inc., formerly known as Zalicus Inc., a Delaware corporation and public company, subsequent to the July 15, 2014 merger described below.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Various statements throughout this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may appear throughout this report. Words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will be,” “will continue,” “will result,” “seek,” “could,” “may,” “might,” or the negative of these terms and similar expressions or words, identify forward-looking statements. Forward-looking statements are based upon current expectations that involve risks, changes in circumstances, assumptions and uncertainties. Important factors that could cause actual results to differ materially from those reflected in our forward-looking statements include, among others:

·                  our inability to obtain regulatory approval for, or successfully commercialize, our leading product candidate, BOW015 or our other product candidates, BOW050 and BOW070;

·                  our inability to secure and maintain relationships with collaborators and single-source contract manufacturers;

·                  our history of operating losses and inability to ever become profitable;

·                  our limited history of complying with public company reporting requirements;

·                  our limited sales and marketing infrastructure;

·                  uncertainty and volatility in the price of our common stock;

·                  our inability to develop, implement and maintain appropriate internal controls;

·                  uncertainty as to our employees’, independent contractors’ and other collaborators’ compliance with regulatory standards and requirements and insider trading rules;

·                  uncertainty as to the relationship between the benefits of our product candidates and the risks of their side-effect profiles;

·                  our inability to effectively compete with the reference biologic products for our biosimilar product candidates and from other pharmaceuticals approved for the same indication as the reference biologic products;

·                  dependence on the efforts of third-parties to conduct and oversee our clinical trials for our product candidates, to manufacture nonclinical and clinical supplies of our product candidates, to store critical components of our product candidates, and to commercialize our product candidates;

·                  the extent of government regulations;

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·                  uncertainty of clinical trial results;

·                  a loss of any of our key management personnel;

·                  our inability to develop or commercialize our product candidates due to intellectual property rights held by third parties and our inability to protect the confidentiality of our trade secrets;

·                  the cost and effects of potential litigation; and

·                  our limited financial resources and inability to access capital to fund proposed operations.

All written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We caution investors not to rely too heavily on the forward-looking statements we make or that are made on our behalf. We undertake no obligation, and specifically decline any obligation, to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in any annual, quarterly or current reports that we may file with the Securities and Exchange Commission (the “SEC”).

We encourage you to read the discussion and analysis of our financial condition and our unaudited interim financial statements contained in this report. We also encourage you to read Item 1A of Part II of our quarterly report on Form 10-Q for the quarter ended March 31, 2015 entitled “Risk Factors” and Item 1A of Part I of our annual report on Form 10-K for the fiscal year ended December 31, 2014, which contains a discussion of the risks and uncertainties associated with our business. In addition to the risks described above, other unknown or unpredictable factors also could affect our results. There can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Therefore, no assurance can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.

Overview

On July 15, 2014, EPIRUS Biopharmaceuticals, Inc., a Delaware corporation and private company (“Private Epirus”), completed its merger with EB Sub, Inc., formerly known as BRunning, Inc., a wholly-owned subsidiary of Zalicus Inc., a Delaware corporation (“Zalicus”) (the “Merger”). As part of the Merger, Zalicus was renamed EPIRUS Biopharmaceuticals, Inc. (“Public Epirus”) and Private Epirus was renamed EB Sub, Inc. (“EB Sub”). The boards of directors of Private Epirus and Zalicus approved the Merger on April 15, 2014, and the stockholders of Private Epirus and Zalicus approved the Merger and related matters on July 15, 2014. Following completion of the Merger, Private Epirus, now known as EB Sub, Inc., was the surviving corporation of the Merger and a wholly-owned subsidiary of Public Epirus. The historical financial statements of Private Epirus have become the historical financial statements of Public Epirus, or the combined company, and are included in this quarterly report on Form 10-Q.

We are a biopharmaceutical company focused on building a pure-play, sustainable and profitable biosimilar business by improving patient access to these important, cost-effective medicines worldwide. Biosimilars are highly similar versions of approved patented biological drug products, referred to as reference or innovator products. Based on projected global sales estimates from EvaluatePharma®, more than $80 billion in major biological drug sales is expected to face competition from biosimilars as a result of the expiration of patents over the next decade.

Building a pure-play biosimilar company requires strong technical capabilities. We are a global company with an experienced product development team based in Boston, Massachusetts and a robust clinical, regulatory and business development infrastructure based in Zug, Switzerland. Our strategy for biosimilars relies on global partnerships and distinct strategies to address the diverse and evolving regulatory, legal and commercial landscape.

We seek to build a sustainable platform focusing on a therapeutically-focused pipeline of Immunoglobulin G (IgG), Chinese Hamster Ovary (CHO) cell derived monoclonal antibodies, or MAbs. Our pipeline of product candidates includes BOW015, a biosimilar version of Remicade® (infliximab), BOW050, a biosimilar version of

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Humira® (adalimumab) and BOW070, a biosimilar version of Actemra® (tocilizumab). Collectively, Remicade, Humira and Actemra generated approximately $23 billion in global innovator sales in 2014, according to EvaluatePharma, with Remicade alone generating approximately $8.8 billion in global sales in 2014.

For our lead product candidate, BOW015, we have reported bioequivalence and efficacy data from a Phase 1 clinical trial in the United Kingdom and a Phase 3 clinical trial in India, both of which demonstrated the equivalence of BOW015 to Remicade. We also announced positive 58 week follow up data from the Phase 3 trial. In this open label phase, we demonstrated that patients can be safely initiated and effectively maintained on BOW015 for 58 weeks, and that patients can be safely switched from Remicade to BOW015 and effectively maintained out to 58 weeks. We intend to initiate a global clinical program for BOW015 in late 2015 or early 2016. We have been designing this clinical program in consultation with European regulatory bodies in order to obtain the data necessary to support eventual approval of BOW015 in North America and Europe.

In collaboration with our commercialization partner Sun Pharmaceutical Industries Ltd., formerly known as Ranbaxy Laboratories Limited, (“Sun”), we launched BOW015 in India in November 2014. BOW015 is sold under the brand name InfimabTM and is the first infliximab biosimilar approved in India. We expect to utilize our existing regulatory data package to gain regulatory approval for BOW015 in additional countries.

In May 2015, we entered into a development and future distribution agreement with mAbxience S.A., a company organized and existing under the laws of Uruguay and a wholly owned subsidiary of CHEMO Group, for BOW015 in Latin American markets, including Argentina, Chile, Ecuador, Paraguay, Uruguay and Venezuela. We have an established partnership with Livzon Mabpharm Inc. for the production of biosimilars for China and associated markets. In July 2015, we also entered into an agreement with Swiss Pharma International AG, an affiliate of Pharmaceutical Works Polpharma S.A. for the development and commercialization of BOW015, BOW050 and BOW070 in certain designated territories, including most of the European Union, certain countries in the Middle East, Turkey, Russia, and other countries comprising the Commonwealth of Independent States. We are also pursuing development and commercial partnerships in the United States, Brazil, and elsewhere.

Presentation for Reverse Stock Split

On July 16, 2014, Public Epirus effected a 1-for-10 reverse stock split of its outstanding common stock, par value $0.001 per share (“Public Epirus Common Stock”) (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each ten shares of Public Epirus Common Stock issued and outstanding immediately prior to the Reverse Stock Split were automatically combined into and became one share of common stock. No fractional shares were issued as a result of the Reverse Stock Split and any stockholder who otherwise would have been entitled to receive fractional shares was entitled to receive cash in an amount, without interest, determined by multiplying such fraction of a share by $11.80, the closing price of a share of Public Epirus Common Stock on the NASDAQ Stock Market on July 15, 2014, after giving effect to the Reverse Stock Split. Also, as a result of the Reverse Stock Split, the per share exercise price of, and the number of shares of common stock underlying, our stock options, warrants and other derivative securities outstanding immediately prior to the Reverse Stock Split were automatically proportionally adjusted based on the 1-for-10 split ratio in accordance with the terms of such options, warrants or other derivative securities, as the case may be. Share and per-share amounts of Public Epirus Common Stock, options and warrants included herein have been adjusted to give effect to the Reverse Stock Split. The Reverse Stock Split did not alter the par value of Public Epirus Common Stock, $0.001 per share, or modify any voting rights or other terms of the common stock. The accompanying condensed consolidated financial statements and notes to the condensed consolidated financial statements, including the Exchange Ratio applied to historical Private Epirus common stock and stock options, give retroactive effect to the Reverse Stock Split for all periods presented.

As of June 30, 2015, we had an accumulated deficit of $109.4 million. We had a net loss of $15.3 million and $9.9 million for the three months ended June 30, 2015 and 2014, respectively and $22.8 million and $17.5 million for the six months ended June 30, 2015 and 2014, respectively.

Critical Accounting Policies and Estimates

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas generally require us to make

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judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used, which would have resulted in different financial results.

There were no changes to our critical accounting policies between December 31, 2014 and June 30, 2015. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2014 which are included in our annual report on Form 10-K filed with the SEC on March 31, 2015.

Recent Accounting Pronouncements

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which amends the guidance for accounting for revenue from contracts with customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and creates a new Topic 606, Revenue from Contracts with Customers. In July 2015, the FASB approved a one-year deferral of the effective date of ASU 2014-09.  This ASU will be effective for annual and interim periods beginning on or after December 15, 2017. Early adoption is permitted, however not before the original effective date of annual periods beginning after December 15, 2016. Two adoption methods are permitted: retrospectively to all prior reporting periods presented, with certain practical expedients permitted; or retrospectively with the cumulative effect of initially adopting the ASU recognized at the date of initial application. We have not yet determined which adoption method we will utilize or the effect that the adoption of this guidance will have on our consolidated financial statements.

Debt Issuance Costs

In April 2015, the FASB issued ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the related liability, rather than as a deferred charge. The updated guidance is effective retroactively for financial statements covering fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted but we do not anticipate electing early adoption. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

Technical Corrections and Improvements

In June 2015, the FASB issued ASU No. 2015-10, Technical Corrections and Improvements. ASU 2015-10 covers a wide range of Topics in the ASC. The amendments in this ASU represent changes to clarify the ASC, correct unintended application of guidance, or make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Additionally, some of the amendments will make the ASC easier to understand and easier to apply by eliminating inconsistencies, providing needed clarifications, and improving the presentation of guidance in the ASC. The amendments in ASU 2015-10 that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. All other amendments will be effective upon the issuance of this ASU.  We do not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements and footnote disclosures.

Results of Operations

The following discussion summarizes the key factors our management team believes are necessary for an understanding of our financial statements.

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Comparison of the Three Months Ended June 30, 2015 and 2014:

The following table sets forth our results of operations for each of the periods set forth below (in thousands):

Revenue — For the three months ended June 30, 2015, we recorded revenue of $45,000 consisting of royalties of $36,000 and amortization of deferred revenue of $9,000 under our agreement with Sun.

Research and development expenses—For the three months ended June 30, 2015, research and development expense was $8.3 million compared to $2.6 million for the three months ended June 30, 2014, an increase of $5.7 million, or 220%. This increase was primarily the result of an increase in development costs of $2.4 million, $0.3 million and $0.1 million related to BOW015, BOW050 and BOW070, respectively.  In addition, we also recorded a one-time charge of $1.8 million for the three months ended June 30, 2015 for BOW015 commercial batches included in our Settlement Agreement with Reliance Life Sciences Pvt Ltd, or RLS, dated as of April 22, 2015 (the “Settlement Agreement”).  Finally, overhead costs increased by $1.1 million primarily due to an increase in headcount related costs of $0.7 million and $0.3 million in non-cash stock-based compensation. Offsetting these increases was a decrease in development costs of $0.1 million related to BOW030 (our bevacizumab product candidate).  We expect research and development expense to increase in future periods as compared to the current period due to costs related to our global clinical program for BOW015, which we plan to initiate in late 2015 or early 2016, and development of our pipeline product candidates.

The following table sets forth our results of research and development expenses by program for each of the periods set forth below (in thousands):