TREVENA INC - FORM 10-Q - November 3, 2016

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EX-32.2 - EX-32.2 - TREVENA INC	trvn-20160930ex322e4c01d.htm
EX-32.1 - EX-32.1 - TREVENA INC	trvn-20160930ex32175eb38.htm
EX-31.2 - EX-31.2 - TREVENA INC	trvn-20160930ex3127f9de7.htm
EX-31.1 - EX-31.1 - TREVENA INC	trvn-20160930ex3110a0314.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2016

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

For the transition period from to

Commission File Number 001-36193

Trevena, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)		26-1469215 (I.R.S. Employer Identification No.)


1018 West 8th Avenue, Suite A King of Prussia, PA (Address of Principal Executive Offices)		19406 (Zip Code)

Registrant’s telephone number, including area code: (610) 354-8840

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 ☒ 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 ☒ 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.:


Large accelerated filer ☐		Accelerated filer ☒

Non-accelerated filer ☐		Smaller reporting company ☐
(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.


Common Stock, $0.001 par value	Shares outstanding as of October 31, 2016: 52,334,987

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TABLE OF CONTENTS


		Page
Cautionary Note Regarding Forward-Looking Statements		ii

	PART I- FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Balance Sheets	1
	Statements of Operations and Comprehensive Income (Loss)	2
	Statement of Stockholders’ Equity	3
	Statements of Cash Flows	4
	Notes to Unaudited Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
	PART II- OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	33

SIGNATURES		35

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but also are contained elsewhere in this Quarterly Report, as well as in sections such as “Risk Factors” that are incorporated by reference into this Quarterly Report from our most recent Annual Report on Form 10-K (the “Annual Report”). In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Forward-looking statements include statements about:

our plans to develop and potentially commercialize our product candidates;

our ability to fund future operating expenses and capital expenditures with our current cash resources;

our planned clinical trials and preclinical studies for our product candidates;

the timing and likelihood of obtaining and maintaining regulatory approvals for our product candidates;

the extent of clinical trials potentially required by the FDA for our product candidates;

the clinical utility and market acceptance of our product candidates;

our commercialization, marketing and manufacturing capabilities and strategy;

our intellectual property position; and

our ability to identify additional product candidates with significant commercial potential that are consistent with our commercial objectives.

You should refer to the “Risk Factors” section of this Quarterly Report and our Annual Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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PART I

ITEM 1. FINANCIAL STATEMENTS

TREVENA, INC.

Balance Sheets


	September 30, 2016		December 31, 2015
		(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	25,228,034	$	46,773,566
Marketable securities		94,386,006		125,864,447
Prepaid expenses and other current assets		1,644,792		1,892,217
Total current assets		121,258,832		174,530,230
Property and equipment, net		745,292		696,280
Restricted cash		112,620		112,620
Intangible asset, net		13,438		14,844
Total assets	$	122,130,182	$	175,353,974
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	6,903,250	$	6,749,625
Accrued expenses and other current liabilities		3,530,702		3,029,782
Current portion of loans payable, net		4,635,046		—
Deferred revenue		—		3,750,000
Deferred rent		50,175		43,907
Total current liabilities		15,119,173		13,573,314
Loans payable, net		13,644,787		18,185,898
Capital leases, net of current portion		12,022		7,942
Deferred rent, net of current portion		200,666		238,917
Warrant liability		90,561		153,238
Other long term liabilities		373,488		63,200
Total liabilities		29,440,697		32,222,509
Commitments and contingencies (Note 6)
Stockholders’ equity:
Common stock—$0.001 par value; 100,000,000 shares authorized, 52,242,647 and 50,802,603 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively		52,243		50,802
Preferred stock—$0.001 par value; 5,000,000 shares authorized, none issued or outstanding at September 30, 2016 and December 31, 2015		—		—
Additional paid-in capital		341,973,243		325,784,484
Accumulated deficit		(249,391,918)		(182,497,965)
Accumulated other comprehensive income (loss)		55,917		(205,856)
Total stockholders’ equity		92,689,485		143,131,465
Total liabilities and stockholders’ equity	$	122,130,182	$	175,353,974

See accompanying notes to financial statements.

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TREVENA, INC.

Statements of Operations and Comprehensive Income (Loss) (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Revenue:
Collaboration revenue	$	—	$	1,875,000	$	3,750,000	$	4,375,000
Total revenue		—		1,875,000		3,750,000		4,375,000
Operating expenses:
General and administrative		4,078,349		2,780,115		11,692,781		8,977,000
Research and development		25,548,532		9,650,138		58,504,964		30,524,601
Total operating expenses		29,626,881		12,430,253		70,197,745		39,501,601
Loss from operations		(29,626,881)		(10,555,253)		(66,447,745)		(35,126,601)
Other income (expense):
Change in fair value of warrant liability		(7,044)		(68,037)		62,677		(71,102)
Net (loss) gain on asset disposals		(8,808)		—		(8,808)		2,656
Miscellaneous income		—		731		221,699		174,266
Interest income		178,008		79,407		585,221		172,095
Interest expense		(433,931)		(72,331)		(1,306,997)		(215,293)
Total other (expense) income		(271,775)		(60,230)		(446,208)		62,622
Net loss attributable to common stockholders	$	(29,898,656)	$	(10,615,483)	$	(66,893,953)	$	(35,063,979)

Other comprehensive (loss) income, net:
Unrealized gain (loss) on marketable securities		(19,200)		32,298		261,773		61,182
Other comprehensive (loss) income		(19,200)		32,298		261,773		61,182
Comprehensive loss	$	(29,917,856)	$	(10,583,185)	$	(66,632,180)	$	(35,002,797)

Per share information:
Net loss per share of common stock, basic and diluted	$	(0.57)	$	(0.24)	$	(1.29)	$	(0.85)
Weighted average common shares outstanding, basic and diluted		52,205,156		44,214,428		51,911,107		41,443,362

See accompanying notes to financial statements.

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TREVENA, INC.

Statement of Stockholders’ Equity (Unaudited)

For the period from January 1, 2016 to September 30, 2016


	Stockholders' Equity
	Common Stock
								Accumulated
		$0.001		Additional				Other		Total
	Number of	Par		Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Value		Capital		Deficit		Income (Loss)		Equity
Balance, January 1, 2016	50,802,603	$	50,802	$	325,784,484	$	(182,497,965)	$	(205,856)	$	143,131,465
Stock-based compensation expense	—		—		4,258,418		—		—		4,258,418
Exercise of stock options	88,591		89		139,295		—		—		139,384
Net exercise of common stock warrant	698		1		(1)		—		—		—
Issuance of common stock, net of issuance costs	1,350,755		1,351		11,791,047		—		—		11,792,398
Unrealized gain on marketable securities	—		—		—		—		261,773		261,773
Net loss	—		—		—		(66,893,953)		—		(66,893,953)
Balance, September 30, 2016	52,242,647	$	52,243	$	341,973,243	$	(249,391,918)	$	55,917	$	92,689,485

See accompanying notes to financial statements.

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TREVENA, INC.

Statements of Cash Flows (Unaudited)


	Nine Months Ended September 30,
	2016		2015
Operating activities:
Net loss	$	(66,893,953)	$	(35,063,979)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		180,012		155,257
Stock-based compensation		4,258,418		2,348,526
Noncash interest expense on loans		404,222		117,188
Loss on disposal of assets		10,229		—
Revaluation of warrant liability		(62,677)		71,102
Amortization of bond premiums on marketable securities		1,119,730		758,337
Changes in operating assets and liabilities:
Prepaid expenses and other assets		247,425		(317,720)
Accounts payable and accrued expenses		620,791		(1,917,189)
Deferred revenue		(3,750,000)		5,625,000
Net cash used in operating activities		(63,865,803)		(28,223,478)

Investing activities:
Purchases of property and equipment		(228,902)		(203,440)
Maturities of marketable securities		84,264,000		48,350,000
Purchases of marketable securities		(53,643,516)		(108,285,889)
Net cash provided by (used in) investing activities		30,391,582		(60,139,329)

Financing activities:
Proceeds from exercise of common stock options		139,384		683,053
Proceeds from issuance of common stock, net		11,792,398		90,510,810
Capital lease payments		(3,093)		(1,906)
Net cash provided by financing activities		11,928,689		91,191,957
Net (decrease) increase in cash and cash equivalents		(21,545,532)		2,829,150
Cash and cash equivalents—beginning of period		46,773,566		36,205,559
Cash and cash equivalents—end of period	$	25,228,034	$	39,034,709

Supplemental disclosure of cash flow information:
Cash paid for interest	$	902,775	$	65,413
Capital lease additions	$	8,944	$	—

See accompanying notes to financial statements.

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TREVENA, INC.

Notes to Unaudited Financial Statements

1. Organization and Description of the Business

Trevena, Inc. (the “Company”) was incorporated in Delaware as Parallax Therapeutics, Inc. on November 9, 2007. The Company began operations in December 2007, and its name was changed to Trevena, Inc. on January 3, 2008. Trevena, Inc. is a biopharmaceutical company dedicated to discovering and developing innovative new medicines for serious unmet medical needs by utilizing novel approaches to target G protein coupled receptors. The Company operates in one segment and has its principal office in King of Prussia, Pennsylvania.

Liquidity

At September 30, 2016, the Company had an accumulated deficit of $249.4 million. The Company’s net loss was $66.9 million and $35.1 million for the nine months ended September 30, 2016 and 2015, respectively. The Company expects its cash and cash equivalents of $25.2 million and marketable securities of $94.4 million as of September 30, 2016, together with interest thereon, to be sufficient to fund its operating expenses and capital expenditure requirements into 2018.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are unaudited. The Company’s functional currency is the U.S. dollar. The financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the Company’s balance sheet as of September 30, 2016, its results of operations and its comprehensive income (loss) for the three and nine months ended September 30, 2016 and 2015, its statement of stockholders’ equity for the period from January 1, 2016 to September 30, 2016 and its cash flows for the nine months ended September 30, 2016 and 2015. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2015. Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2016, any other interim periods or any future year or period.

Recent Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”). ASU 2016-15 was issued to clarify how certain cash receipts and payments should be presented in the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2017 and interim periods within that reporting period. Early adoption is permitted. The Company is evaluating the effect this standard will have on its financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation— Stock Compensation (“ASU 2016-09”). ASU 2016-09 was issued as part of the FASB Simplification Initiative. This update addresses the income tax effects of stock-based payments and eliminates the windfall pool concept, as all of the tax effects related to stock-based payments will now be recorded at settlement (or expiration) through the income statement. The new guidance also permits entities to

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make an accounting policy election for the impact of forfeitures on the recognition of expense for stock-based payment awards. Forfeitures can be estimated or recognized when they occur. The standard is effective for annual periods beginning after December 15, 2016 and interim periods within that reporting period. Early adoption is permitted in any interim or annual period, with any adjustment reflected as of the beginning of the fiscal year of adoption. The Company is evaluating the effect this standard will have on its financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessees to record most leases on their balance sheets and disclose key information about leasing arrangements in an effort to increase transparency and comparability among organizations. The standard is effective for annual periods beginning after December 15, 2018 and interim periods within that reporting period. Early adoption is permitted. The Company is evaluating the effect this standard will have on its financial statements and related disclosures.

In August 2014, the FASB issued ASU 2014‑15, Presentation of Financial Statements‑Going Concern (Subtopic 205‑40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), which defines management’s responsibility to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The pronouncement is effective for annual reporting periods ending after December 15, 2016 with early adoption permitted. The Company is evaluating the effect this standard will have on its financial statements and related disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer in an amount reflecting the consideration it expects to receive in exchange for those goods or services. Additionally, in March 2016, the FASB issued ASU 2016-08 Revenue from Contracts with Customers, Principal versus Agent Considerations (“ASU 2016-08”). ASU 2016-08 amends the principal versus agent guidance in ASU 2014-09 to clarify how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principal to certain types of arrangements. The effective date for both standards is January 1, 2018, with an option that permits companies to adopt the standard as early as January 1, 2017. Early application prior to January 1, 2017 is not permitted. The standards permit the use of either the retrospective or cumulative effect transition method. The Company is evaluating the transition method that it will elect. The adoption of these standards is not expected to have a material impact on the Company’s financial statements.

3. Fair Value of Financial Instruments

Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a three-tier fair value hierarchy that distinguishes among the following:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

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Cash, Cash Equivalents and Marketable Securities

The following table presents fair value of the Company’s cash, cash equivalents and marketable securities as of September 30, 2016 and December 31, 2015:


	September 30, 2016
			Unrealized		Unrealized				Cash and Cash		Marketable
	Adjusted Cost		Gains		Losses		Fair Value		Equivalents		Securities

Cash	$	1,814,455	$	—	$	—	$	1,814,455	$	1,814,455	$	—

Level 1 (1):
Money market funds		19,296,757		—		—		19,296,757		19,296,757		—

Level 2 (2):
Cash and cash equivalents		4,116,730		93		—		4,116,823		4,116,823		—
U.S. government agency securities		94,330,182		57,364		(1,540)		94,386,006		—		94,386,006
Subtotal		98,446,912		57,457		(1,540)		98,502,829		4,116,823		94,386,006
Total	$	119,558,123	$	57,457	$	(1,540)	$	119,614,040	$	25,228,034	$	94,386,006


	December 31, 2015
			Unrealized		Unrealized				Cash and Cash		Marketable
	Adjusted Cost		Gains		Losses		Fair Value		Equivalents		Securities

Cash	$	20,672,737	$	—	$	—	$	20,672,737	$	20,672,737	$	—

Level 1 (1):
Money market funds		4,100,829		—		—		4,100,829		4,100,829		—
U.S. Treasury securities		12,020,862		92		(1,434)		12,019,520		—		12,019,520
Subtotal		16,121,691		92		(1,434)		16,120,349		4,100,829		12,019,520

Level 2 (2):
Repurchase agreements		22,000,000		—		—		22,000,000		22,000,000		—
U.S. government agency securities		114,049,441		269		(204,783)		113,844,927		—		113,844,927
Subtotal		136,049,441		269		(204,783)		135,844,927		22,000,000		113,844,927
Total	$	172,843,869	$	361	$	(206,217)	$	172,638,013	$	46,773,566	$	125,864,447

(1)

The fair value of Level 1 securities is estimated based on quoted prices in active markets for identical assets or liabilities.

(2)

The fair value of Level 2 securities is estimated based on observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

The Company classifies investments available to fund current operations as current assets on its balance sheets. As of September 30, 2016, the Company held $1.9 million of available-for-sale investment securities with contractual maturity dates of more than one year and less than two years. The Company did not hold any investment securities exceeding a two-year maturity.

Unrealized gains and losses on marketable securities are recorded as a separate component of accumulated other comprehensive income (loss) included in stockholders’ equity. The Company recorded an unrealized loss of $19,200 and an unrealized gain of $32,298 during the three months ended September 30, 2016 and 2015, respectively, and unrealized

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gains of $261,773 and $61,182 during the nine months ended September 30, 2016 and 2015, respectively. Realized gains (losses) are included in interest income (expense) in the statement of operations and comprehensive income (loss) on a specific identification basis. The Company did not record any realized gains or losses during the nine months ended September 30, 2016 and 2015. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.

There were no transfers between Level 2 and Level 3 during the nine months ended September 30, 2016 or the year ended December 31, 2015.

Warrants

At September 30, 2016, there is an outstanding warrant to purchase up to 20,161 shares of the Company’s common stock with a fair value recorded as a liability of $90,561 as it contains a cash settlement feature upon certain strategic transactions. The following table sets forth a summary of changes in the fair value of this warrant liability, which represents a recurring measurement that is classified within Level 3 of the fair value hierarchy, wherein fair value is estimated using significant unobservable inputs:


	Warrant Liability
Balance as of December 31, 2015		153,238
Amounts acquired or issued		—
Changes in estimated fair value		(62,677)
Balance as of September 30, 2016	$	90,561

On each re-measurement date, the fair value of the warrant classified as a liability is estimated using the Black-Scholes option pricing model. For this liability, the Company develops its own assumptions that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company’s common stock, stock price volatility, the contractual term of the warrant, risk-free interest rates and dividend yields. Due to the nature of these inputs, the valuation of the warrant is considered a Level 3 measurement. The following assumptions were used at September 30, 2016 and December 31, 2015 to determine the common stock warrant liability:


	September 30, 2016			December 31, 2015
Estimated remaining term		5.6	years		6.3	years
Risk-free interest rate		1.2	%		2.0	%
Volatility		77.1	%		67.4	%
Dividend yield		0	%		0	%
Fair value of underlying instrument*	$	6.75		$	10.50

*Trevena, Inc. closing stock price.

The warrant liability is recorded on its own line item on the Company’s balance sheets and is marked-to-market at each reporting period with the change in fair value recorded on its own line in the statements of operations and comprehensive income (loss).

In addition to the outstanding warrant to purchase 20,161 shares of common stock discussed above, the Company has outstanding warrants to purchase an aggregate of 40,689 shares of the Company’s common stock. These warrants qualify for equity classification and have been allocated upon the relative fair value of the base instrument and the warrants, according to the guidance of ASC 470-20-25-2. See Note 4 for additional information.

4. Loans Payable

In September 2014, the Company entered into a loan and security agreement with Oxford Finance LLC and Pacific Western Bank (formerly Square 1 Bank) (together, the “lenders”), pursuant to which the lenders agreed to lend the Company up to $35.0 million in a three-tranche series of term loans (Term Loans A, B, and C). Upon initially

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entering into the agreement, the Company borrowed $2.0 million under Term Loan A. On April 13, 2015, the Company amended the agreement with the lenders to change the draw period for Term Loan B. On December 23, 2015, the Company further amended the agreement with the lenders to, among other things, change the draw period for Term Loan C, modify the interest only period, and modify the maturity date of the loan. In December 2015, the Company borrowed the Term Loan B tranche of $16.5 million. The Company’s ability to draw an additional $16.5 million under Term Loan C was subject to the satisfaction of one or more specified triggers related to the results of the Company’s Phase 2b clinical trial of TRV027, which were announced in May 2016. Although certain of the triggers to draw on Term Loan C were not attained as of September 30, 2016, the Company is continuing to assess the remaining triggers to determine its eligibility to draw on Term Loan C.

The proceeds from Term Loan A and Term Loan B may be used to satisfy the Company’s future working capital needs, potentially including the development of its clinical and preclinical product candidates.

Borrowings accrue interest at a fixed rate of 6.50% per annum. The Company is required to make payments of interest only on borrowings under the loan agreement on a monthly basis through and including January 1, 2017, after which payments of principal in equal monthly installments and accrued interest will be due until the loan matures on March 1, 2020. If, based on the Company’s ongoing evaluation, it is eligible to draw on Term Loan C, monthly interest only payments will be extended to January 1, 2018 and the loan maturity date will be extended to December 1, 2020.

The Company paid the lenders a facility fee of $175,000 in connection with the execution of the original agreement and an amendment fee of $20,000 in connection with the execution of the second amendment to the agreement. Upon the last payment date of the amounts borrowed under the agreement, the Company will be required to pay a final payment fee equal to 6.1% of the aggregate amounts borrowed. In addition, if the Company repays Term Loan A and Term Loan B prior to the applicable maturity date, it will pay the lenders a prepayment fee of 3.0% of the total amount prepaid if the prepayment occurs prior to December 23, 2016, 2.0% of the total amount prepaid if the prepayment occurs between December 23, 2016 and December 23, 2017, and 1.0% of the total amount prepaid if the prepayment occurs on or after December 24, 2017.

The Company’s obligations under the loan and security agreement are secured by a first priority security interest in substantially all of the assets of the Company, other than intellectual property. The Company has agreed not to pledge or otherwise encumber its intellectual property, other than through grants of certain permitted non-exclusive or exclusive licenses or other conveyances of its intellectual property.

The loan and security agreement includes affirmative and restrictive covenants, including: (a) financial reporting requirements; (b) limitations on the incurrence of indebtedness; (c) limitations on liens; (d) limitations on certain merger and acquisition transactions; (e) limitations on dispositions of certain assets; (f) limitations on fundamental corporate changes (including changes in control); (g) limitations on investments; (h) limitations on payments and distributions and (i) other covenants. The agreement also contains certain events of default, including for payment defaults, breaches of covenants, a material adverse change in the collateral, the Company’s business, operations or condition (financial or otherwise), certain levies, attachments and other restraints on the Company’s business, insolvency, defaults under other agreements and misrepresentations.

Three Point Capital, LLC served as a placement agent in connection with the term loans. The Company paid the agent $65,000 upon execution of the agreement and $87,500 upon its draw of Term Loan B.

In connection with entering into the original agreement, the Company issued to the lenders and the placement agent warrants to purchase an aggregate of 7,678 shares of the Company’s common stock; warrants to purchase an aggregate of 5,728 shares remain outstanding as of September 30, 2016. These detachable warrant instruments have qualified for equity classification and have been allocated upon the relative fair value of the base instrument and the warrants, according to the guidance of ASC 470-20-25-2. These warrants are exercisable immediately and have an exercise price of $5.8610 per share. The warrants may be exercised on a cashless basis and will terminate on the earlier of September 19, 2024 or the closing of a merger or consolidation transaction in which the Company is not the surviving entity. In connection with the draw of Term Loan B, the Company issued to the lenders and the placement agent additional warrants to purchase an aggregate of 34,961 shares of the Company’s common stock. These warrants have

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substantially the same terms as those described above, and have an exercise price of $10.6190 per share and an expiration date of December 23, 2025.

As of September 30, 2016, borrowings of $18.5 million attributable to Term Loans A and B remain outstanding. Interest expense of $300,625 and $32,500 was recorded during the three months ended September 30, 2016 and 2015, respectively, and $901,875 and $97,500 was recorded during the nine months ended September 30, 2016 and 2015, respectively. The Company incurred lender and third party costs of $225,988 and $106,545, respectively, related to the issuance of Term Loan A. The Company incurred lender and third party costs of $44,058 and $87,500, respectively, related to the issuance of Term Loan B. The lender costs are classified as a debt discount and the third party costs are classified as debt issuance costs. Per ASU 2015-03, Interest-Imputation of Interest, debt discount and debt issuance costs are to be presented as a contra-liability to the debt on the balance sheet. These costs will be amortized to interest expense over the life of the loans using the effective interest method. A total of $30,022 and $39,639 of debt discount and debt issuance cost was amortized to interest expense during the three months ended September 30, 2016 and 2015 respectively, and $93,935 and $117,188 of debt discount and debt issuance costs was amortized to interest expense during the nine months ended September 30, 2016 and 2015, respectively.

The following table summarizes how the issuance of Term Loans A and B are reflected on the balance sheet at September 30, 2016:


	September 30,
	2016
Gross proceeds	$	18,500,000
Debt discount		(117,716)
Debt issuance costs		(102,451)
Carrying value		18,279,833
Current portion of loans payable, net		4,635,046
Loans payable, net	$	13,644,787

5. Stockholders’ Equity

Under its certificate of incorporation, the Company was authorized to issue up to 100,000,000 shares of common stock as of September 30, 2016. The Company also was authorized to issue up to 5,000,000 shares of preferred stock as of September 30, 2016. The Company is required, at all times, to reserve and keep available out of its authorized but unissued shares of common stock sufficient shares to effect the conversion of the shares of any outstanding preferred stock and all outstanding stock options and warrants.

Equity Offerings

In February 2016, the Company issued and sold 1,350,755 shares of common stock through Cowen and Company, LLC, pursuant to an at-the-market sales facility dated December 14, 2015. The shares were sold at a weighted average price per share of $9.00. The net offering proceeds to the Company were approximately $11.8 million after deducting related expenses, including commissions.

Equity Incentive Plans

In 2008, the Company adopted the 2008 Equity Incentive Plan, as amended on February 29, 2008, January 7, 2010, July 8, 2010, December 10, 2010, June 23, 2011 and June 17, 2013 (collectively, the “2008 Plan”) that authorized the Company to grant restricted stock and stock options to eligible employees, directors and consultants to the Company. As of January 2014, no further grants may be made under the 2008 Plan.

In 2013, the Company adopted the 2013 Equity Incentive Plan, as amended on March 31, 2014 (collectively, the “2013 Plan”). The 2013 Plan became effective upon the Company’s entry into the underwriting agreement related to its initial public offering in January 2014. The 2013 Plan provides for the grant of incentive stock options, non-statutory

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stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards and other forms of equity compensation (collectively, stock awards), all of which may be granted to employees, including officers, non-employee directors and consultants of the Company. Additionally, the 2013 Plan provides for the grant of cash and stock based performance awards. The 2013 Plan contains an “evergreen” provision, pursuant to which the number of shares of common stock available for issuance under the plan automatically increases on January 1 of each year beginning in 2015. As of January 1, 2016, the number of shares of common stock that may be issued under the 2013 Plan was automatically increased by 2,032,104 shares, representing 4% of the total number of shares of common stock outstanding on December 31, 2015.

Under both the 2008 Plan and the 2013 Plan, the amount, terms of grants and exercisability provisions are determined by the board of directors or its designee. The term of the options may be up to 10 years, and options are exercisable in cash or as otherwise determined by the board of directors. Vesting generally occurs over a period of not greater than four years.

The estimated grant-date fair value of the Company’s stock-based awards is amortized ratably over the awards’ service periods. Stock-based compensation expense recognized was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Research and development	$	634,718	$	349,698	$	1,763,514	$	927,521
General and administrative		910,592		540,720		2,494,904		1,421,005
Total stock-based compensation	$	1,545,310	$	890,418	$	4,258,418	$	2,348,526


	Options Outstanding
				Weighted
				Average
		Weighted		Remaining
		Average		Contractual
	Number of	Exercise		Term (in
	Shares	Price		years)
Balance, December 31, 2015	4,630,073	$	4.98	7.87
Granted	2,006,500		8.52
Exercised	(88,591)		1.57
Forfeited/Cancelled	(53,649)		6.67
Balance, September 30, 2016	6,494,333	$	6.10	7.83
Vested or expected to vest at September 30, 2016	6,250,402	$	6.03	7.78
Exercisable at September 30, 2016	2,722,290	$	4.02	6.46

The intrinsic value of the options exercisable as of September 30, 2016 was $8.0 million, based on the Company’s closing stock price of $6.75 per share and a weighted average exercise price of $4.02 per share.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options at the grant date. The Black-Scholes model requires the Company to make certain estimates and assumptions, including estimating the fair value of the Company’s common stock, assumptions related to the expected price volatility of the Company’s stock, the period during which the options will be outstanding, the rate of return on risk-free investments and the expected dividend yield for the Company’s common stock.

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The per-share weighted-average grant date fair value of the options granted to employees and directors during the nine months ended September 30, 2016 and 2015 was estimated at $5.29 and $4.37 per share, respectively, on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:


	Nine Months Ended
	September 30,
	2016		2015
Expected term of options (in years)	6.2		6.2
Risk-free interest rate	1.5	%	1.7	%
Expected volatility	67.9	%	68.8	%
Dividend yield	0	%	0	%

The weighted-average valuation assumptions were determined as follows:

Risk-free interest rate: The Company based the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term.

Expected term of options: Due to its lack of sufficient historical data, the Company estimates the expected life of its employee stock options using the “simplified” method, as prescribed in Staff Accounting Bulletin No. 107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option.

Expected stock price volatility: The Company estimated the expected volatility based on actual historical volatility of the stock price of similar companies with publicly-traded equity securities. The Company calculated the historical volatility of the selected companies by using daily closing prices over a period of the expected term of the associated award. The companies’ stock were selected based on their enterprise value, risk profiles, position within the industry and with historical share price information sufficient to meet the expected term of the associated award. A decrease in the selected volatility would have decreased the fair value of the underlying instrument.

Expected annual dividend yield: The Company estimated the expected dividend yield based on consideration of its historical dividend experience and future dividend expectations. The Company has not historically declared or paid dividends to stockholders. Moreover, it does not intend to pay dividends in the future, but instead expects to retain any earnings to invest in the continued growth of the business. Accordingly, the Company assumed an expected dividend yield of 0%.

Estimated forfeiture rate: The Company’s estimated annual forfeiture rate on stock option grants during 2016 and 2015 was 9%, based on the historical forfeiture experience.

At September 30, 2016, there was $14.6 million of total unrecognized compensation expense related to unvested options that will be recognized over the weighted average remaining period of 2.85 years.

Shares Available for Future Grant

At September 30, 2016, the Company has the following shares available to be granted under the 2013 Plan:


Available at December 31, 2015		959,354
Authorized		2,032,104
Granted		(2,006,500)
Forfeited/Cancelled		53,649
Available at September 30, 2016		1,038,607

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Shares Reserved for Future Issuance

At September 30, 2016, the Company has reserved the following shares of common stock for issuance:


Stock options outstanding		6,494,333
Shares available for future grant under 2013 Plan		1,038,607
Employee stock purchase plan		225,806
Warrants outstanding		60,850
Total shares of common stock reserved for future issuance		7,819,596

6. Commitments and Contingencies

Licenses

On May 3, 2013, the Company entered into an agreement with Allergan plc (formerly Actavis plc and Forest Laboratories Holdings Limited) (“Allergan”), under which the Company granted to Allergan an exclusive option to license its product candidate, TRV027.

Under the option agreement, the Company conducted, at its expense, a Phase 2b trial of TRV027 in acute heart failure. In March 2015, Allergan and the Company signed a letter agreement pursuant to which Allergan paid the Company $10.0 million to fund the expansion of the Phase 2b trial of TRV027 from 500 patients to 620 patients. Collaboration revenue has been recognized on a straight-line basis over the study period and has been fully recognized as of September 30, 2016. The March 2015 letter agreement does not otherwise amend the terms of the May 2013 option agreement.

In August 2016, Allergan notified the Company of its decision to not exercise its option. As such, the Company has retained all rights to TRV027.

Legal Proceedings

The Company is not involved in any legal proceeding that it expects to have a material effect on its business, financial condition, results of operations and cash flows.

7. Revenue

For arrangements with multiple elements, the Company recognizes revenue in accordance with the FASB’s

ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements, which provides guidance for separating and allocating consideration in a multiple element arrangement. Deliverables under the arrangement are separate units of accounting if the delivered item has value to the customer on a standalone basis and if the arrangement includes a general right of return relative to the delivery or performance of the undelivered item is considered probable and substantially within the Company’s control. The consideration that is fixed or determinable at the inception of the arrangement is allocated to the separate units of accounting based on their relative selling prices. Management exercises significant judgement in determining whether a deliverable is a separate unit of accounting.

In determining the separate units of accounting, the Company evaluates whether the components have standalone value to the collaborator based on consideration of the relevant facts and circumstances for each arrangements. Whenever the Company determines that an element is delivered over a period of time, revenue is recognized using either a proportional performance model, if a pattern of performance can be determined or a straight-line model over the period of performance, which is typically the research and development term.

The Company entered into a letter agreement with Allergan in March 2015 under which the Company received a nonrefundable upfront fee of $10.0 million. The terms of this agreement contain multiple deliverables which include (i)

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research and development activities and (ii) testing and analysis related to the Phase 2b trial of TRV027. Collaboration revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, delivery has occurred or the services have been rendered and the Company has fulfilled its performance obligations under the contract. The collaboration revenue was recorded on a straight-line basis and was fully recognized as of June 30, 2016. For the three months ended September 30, 2015, the Company recognized collaboration revenue of $1.9 million. For the nine months ended September 30, 2016 and 2015, the Company recognized collaboration revenue of $3.8 million and $4.4 million, respectively.

8. Net Loss Per Common Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Basic and diluted net loss per common share calculation:
Net loss	$	(29,898,656)	$	(10,615,483)	$	(66,893,953)	$	(35,063,979)
Net loss attributable to common stockholders	$	(29,898,656)	$	(10,615,483)	$	(66,893,953)	$	(35,063,979)
Weighted average common shares outstanding		52,205,156		44,214,428		51,911,107		41,443,362
Net loss per share of common stock - basic and diluted	$	(0.57)	$	(0.24)	$	(1.29)	$	(0.85)

The following outstanding securities at September 30, 2016 and 2015 have been excluded from the computation of diluted weighted shares outstanding, as they would have been anti-dilutive:


	September 30,
	2016	2015
Options outstanding	6,494,333	4,657,949
Warrants	60,850	27,839
Total	6,555,183	4,685,788

9. Other Comprehensive Income (Loss)

The following table presents changes in the components of accumulated other comprehensive income (loss), net of tax:


Balance, December 31, 2015	$	(205,856)
Net unrealized gains on marketable securities		261,773
Balance, September 30, 2016	$	55,917

There were no reclassifications out of accumulated other comprehensive income (loss) during the three or nine months ended September 30, 2016 and 2015. There was no tax effect during the three or nine months ended September 30, 2016 and 2015.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and result of operations should be read in conjunction with our unaudited financial statement and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, 2015, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 9, 2016. Unless the context otherwise requires, we use the terms “Trevena,” “company,” “we,” “us” and “our” to refer to Trevena, Inc.

Overview

Using our proprietary product platform, we have identified and are developing the following differentiated product candidates: