10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________________________________

FORM 10-Q

(Mark One) 

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

For the quarterly period ended March 31, 2015

or

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

For the transition period from       to

Commission File Number 001-35119

___________________________________________________________

Ocera Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

DELAWARE	63-1192270
(State or other jurisdiction of incorporation	(I.R.S. Employer Identification No.)
or organization)

525 University Avenue, Suite 610
Palo Alto, CA	94301
(Address of principal executive offices)	(Zip Code)

(650) 475-0150

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

Large Accelerated Filer o	Accelerated Filer x
Non-Accelerated Filer o	Smaller Reporting Company o
(Do not check if a smaller reporting company)

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

The number of shares outstanding of the registrant’s Common Stock as of April 30, 2015 was 19,747,362.

1

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology.

These forward-looking statements include, but are not limited to, statements about:

• the timing, design, implementation and success of our clinical trials for OCR-002; 

• our ability to enroll patients, and the timing of enrollment, in our Phase 2b clinical trial of OCR-002;

• our ability to obtain U.S. and foreign regulatory approval for OCR-002 and the ability of OCR-002 to meet existing or future regulatory standards; 

• the progress, timing and amount of expenses associated with our research, development and commercialization activities for OCR-002; 

• the therapeutic benefits, effectiveness and safety of OCR-002; our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; 

• our intention to seek, and our ability to establish strategic collaborations or partnerships for the development or sale of OCR-002 and the effectiveness of such collaborations or partnerships; 

• our expectations as to future financial performance, cash and expense levels and liquidity sources; and

• other risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Unless the context requires otherwise, references in this Quarterly Report to “we,” “us” and “our” refer to Ocera Therapeutics, Inc. and its subsidiaries.

2

OCERA THERAPEUTICS, INC.

INDEX

		Page
Part I.	Financial Information	4
Item 1	Unaudited Consolidated Financial Statements	4
	Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014	4
	Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2015 and 2014	5
	Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4	Controls and Procedures	19
Part II.	Other Information	19
Item 1	Legal Proceedings	19
Item 1A	Risk Factors	19
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3	Defaults Upon Senior Securities	20
Item 4	Mine Safety Disclosures	20
Item 5	Other Information	20
Item 6	Exhibits	20
	Signatures	21

3

PART I - FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

Ocera Therapeutics, Inc. Consolidated Balance Sheets (In Thousands, Except Share and Per Share Amounts)
	March 31,			December 31,
	2015			2014
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	10,294		$	10,127
Short-term investments, available-for-sale	33,659			37,112
Accounts receivable	31			62
Prepaid expenses and other current assets	543			970
Total current assets	44,527			48,271
Property and equipment, net	53			61
Long-term investments	2,169			3,928
Deposits	—			26
Intangible assets, net	130			171
Goodwill	595			595
Total assets	$	47,474		$	53,052
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	1,029			941
Accrued liabilities	1,958			1,966
Total liabilities	2,987			2,907
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock - $0.00001 par value, 5,000,000 shares authorized and no shares issued or outstanding at March 31, 2015 and December 31, 2014.	—			—
Common stock - $0.00001 par value, 100,000,000 shares authorized, 19,747,362 shares issued and outstanding at March 31, 2015 and December 31, 2014.	—			—
Additional paid-in capital	156,048			155,083
Accumulated other comprehensive income (loss)	1			(27		)
Accumulated deficit	(111,562		)	(104,911		)
Total stockholders' equity	44,487			50,145
Total liabilities and stockholders' equity	$	47,474		$	53,052

See the accompanying notes to the unaudited consolidated financial statements.

4

Ocera Therapeutics, Inc. Consolidated Statements of Operations and Comprehensive Loss (In Thousands, Except Share and Per Share Amounts) (unaudited)
	Three Months Ended March 31,
	2015			2014
Revenue:
Royalty revenue	$	31		$	45
Total revenue	31			45
Operating expenses:
Research and development	4,398			2,466
General and administrative	2,256			2,733
Amortization of intangibles	41			41
Total operating expenses	6,695			5,240
Other income (expense)	13			13
Net loss from continuing operations	(6,651		)	(5,182		)
Net income from discontinued operations (including gain on disposal of $1,149)	—			1,117
Net loss	$	(6,651	)	$	(4,065	)
Net loss per share:
Net loss per share from continuing operations, basic and diluted	$	(0.34	)	$	(0.34	)
Net income per share from discontinued operations, basic and diluted	—			0.07
Net loss per share, basic and diluted	$	(0.34	)	$	(0.27	)
Weighted average number of shares used to compute net loss per share of common stock, basic and diluted	19,747,362			15,421,234
Other comprehensive loss:
Net loss	$	(6,651	)	$	(4,065	)
Unrealized gain on investments	28			2
Comprehensive loss	$	(6,623	)	$	(4,063	)

See the accompanying notes to the unaudited consolidated financial statements.

5

Ocera Therapeutics, Inc. Consolidated Statements of Cash Flows (In Thousands) (unaudited)
	Three Months Ended March 31,
	2015			2014
Operating activities
Net loss	$	(6,651	)	$	(4,065	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income from discontinued operations	—			(1,117		)
Depreciation	8			10
Amortization of intangibles	41			41
Stock based compensation	965			1,375
Accretion of premium on investment securities	154			95
Changes in operating assets and liabilities:
Accounts receivable	31			47
Prepaid expenses and other assets	453			(57		)
Accounts payable	88			(406		)
Accrued liabilities	(8		)	(896		)
Net cash used in continuing operating activities	(4,919		)	(4,973		)
Net cash used in discontinued operating activities	—			(412		)
Net cash used in operating activities	(4,919		)	(5,385		)
Investing activities
Purchases of property and equipment	—			(2		)
Purchase of short-term and long-term investments	(13,414		)	(5,371		)
Sale and maturities of short-term and long-term investments	18,500			4,250
Net cash provided by (used in) continuing investing activities	5,086			(1,123		)
Net cash provided by discontinued investing activities	—			1,000
Net cash provided by (used in) investing activities	5,086			(123		)
Financing activities
Proceeds from exercise of common stock options	—			396
Net cash provided by continuing financing activities	—			396
Net increase (decrease) in cash and cash equivalents	167			(5,112		)
Cash and cash equivalents—beginning of period	10,127			15,533
Cash and cash equivalents—end of period	$	10,294		$	10,421

See the accompanying notes to the unaudited consolidated financial statements.

6

Ocera Therapeutics, Inc.

Notes to Unaudited Consolidated Financial Statements

1. The Company

Ocera Therapeutics, Inc. (the "Company") is a clinical-stage biopharmaceutical company focused on the development and commercialization of OCR-002 (ornithine phenylacetate). OCR-002 is an ammonia scavenger which has been granted orphan drug designation and Fast Track status from the U.S. Food and Drug Administration to treat hyperammonemia and associated hepatic encephalopathy in patients with liver cirrhosis, acute liver failure and acute liver injury.

On July 15, 2013, Terrapin Acquisition, Inc., a Delaware corporation (“Merger Sub”), a wholly owned subsidiary of Tranzyme, Inc., a Delaware corporation (“Tranzyme”), completed its merger (the “Merger”) with and into Ocera Therapeutics, Inc., a private Delaware corporation (“Private Ocera”).  Private Ocera is considered the acquiring company in the Merger for accounting purposes.  In connection with the Merger, the combined company changed its name to Ocera Therapeutics, Inc. and the name of Private Ocera was changed to Ocera Subsidiary, Inc. 

The Company's business is subject to significant risks consistent with biopharmaceutical companies seeking to develop technologies and product candidates for human therapeutic use. These risks include, but are not limited to, uncertainties regarding research and development, access to capital, obtaining and enforcing patents, receiving regulatory approval and competition with other biotechnology and pharmaceutical companies.

The Company has a limited operating history and the sales and income potential of the Company's business and market are unproven. As of March 31, 2015, the Company has incurred losses since inception of $111.6 million. The Company anticipates that it will continue to incur net losses into the foreseeable future as it continues the development and commercialization of OCR-002 and as it expands its corporate infrastructure. Based on the Company's current operating plan, the Company believes its working capital is sufficient to fund its operations through at least the next twelve months.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with United States of America generally accepted accounting principles ("U.S. GAAP") for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements and related notes do not include all information and footnotes required by U.S. GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2014.

Unaudited Interim Financial Information

The accompanying interim consolidated financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The year-end balance sheet was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period.

Use of Estimates

The preparation of financial statements in conformity with the U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

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3. Fair Value Measurements

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis as of March 31, 2015, and December 31, 2014, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. As a basis for categorizing inputs, the Company uses a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value from market-based assumptions to entity specific assumptions:

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

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

Level 3: Unobservable inputs that are supported by little or no market activity, which require the reporting entity to develop its own assumptions.

Assets measured at fair value on a recurring basis as of March 31, 2015 are as follows (in thousands):

	Balance as of March 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	9,364	$	9,364	$	—	$	—
Commercial paper	5,249		—		5,249		—
Corporate debt securities	30,079		—		30,079		—
Government agency debt securities	500		—		500		—
Total assets	$	45,192	$	9,364	$	35,828	$	—

Assets measured at fair value on a recurring basis as of December 31, 2014 are as follows (in thousands):

	Balance as of December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	9,171	$	9,171	$	—	$	—
Commercial paper	3,750		—		3,750		—
Corporate debt securities	36,790		—		36,790		—
Government agency debt securities	$	500	$	—	$	500	$	—
Total assets	$	50,211	$	9,171	$	41,040	$	—

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4. Balance Sheet Components

Investments

The following table summarizes the Company's available for sale investments as of March 31, 2015(in thousands):

	Maturity (in Years)	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Short-term investments:
Commercial paper	1 or less	$	5,244	$	5	$	—		$	5,249
Corporate debt securities	1 or less	28,414		—		(4		)	28,410
Total		33,658		5		(4		)	33,659
Long-term investments:
Corporate debt securities	1 to 2	1,669		—		—			1,669
Government agency debt securities	1 to 2	500		—		—			500
Total		2,169		—		—			2,169
Total investments		$	35,827	$	5	$	(4	)	$	35,828

The following table summarizes the Company's available for sale investments as of December 31, 2014 (in thousands):

	Maturity (in Years)	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Short-term investments:
Commercial paper	1 or less	$	3,748	$	2	$	—		$	3,750
Corporate debt securities	1 or less	33,379		—		(17		)	33,362
Total		37,127		2		(17		)	37,112
Long-term investments:
Corporate debt securities	1 to 2	3,439		—		(11		)	3,428
Government agency debt securities	1 to 2	501		—		(1		)	500
Total		3,940		—		(12		)	3,928
Total investments		$	41,067	$	2	$	(29	)	$	41,040

At each reporting date, the Company performs an evaluation of impairment to determine if the unrealized losses are other-than-temporary. For debt securities, management determines whether it intends to sell the impaired securities, and if there is no intent or expected requirement to sell, management considers whether it is likely that the amortized cost will be recovered. The Company does not consider unrealized losses on its debt investment securities to be credit-related. These unrealized losses relate to changes in interest rates and market spreads subsequent to purchase. The Company has not made a decision to sell securities with unrealized losses and believes it is more likely than not it would not be required to sell such securities before recovery of its amortized cost. There have been no other than temporary losses recognized in earnings.

9

Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):

	Useful Life	March 31,			December 31,
	(in years)	2015			2014
Computer equipment and software	1.5 to 3 years	$	53		$	53
Office furniture and equipment	5 years	68			68
Total property and equipment, gross		121			121
Less: accumulated depreciation		(68		)	(60		)
Property and equipment, net		$	53		$	61

Depreciation expense was $8,000 and $10,000 for the three months ended March 31, 2015 and 2014 respectively.

Acquired Intangible Assets

The net book value of acquired intangible assets were as follows (in thousands):

	March 31,			December 31,
Customer Agreements:	2015			2014
Carrying value	$	410		$	410
Accumulated amortization	(280		)	(239		)
Intangible assets, net	$	130		$	171
Weighted average remaining life (in years)	0.75			1.00

The Company recognized $41,000 as amortization expense on the intangible assets for the three months ended March 31, 2015 and 2014. No impairment charges were recorded.

As of March 31, 2015, expected amortization expense related to our purchased intangible assets is approximately $130,000 during 2015.

Accrued Liabilities

Accrued liabilities were as follows (in thousands):

	March 31,		December 31,
	2015		2014
Clinical trials	$	1,342	$	897
Payroll and related expenses	400		678
Professional services	140		343
Other	76		48
Total	$	1,958	$	1,966

10

5. Stock Based Compensation

The Company’s stock option activity and related information for the three months ended March 31, 2015 was as follows (in thousands, except share and per share data):

							Weighted-avg.
	Shares				Weighted-avg.		Remaining	Aggregate
	Available		Stock Options		Exercise Price		Contractual	Intrinsic
	for Grant		Outstanding		Per Share		Life (in Years)	Value
Balance at December 31, 2014	342,210		2,086,602		$	8.01	8.63	$	871
Stock options granted	(12,000	)	12,000		$	4.50
Stock options cancelled	57,417		(57,417	)	$	7.49
Stock options exercised	—		—		$	—
Balance at March 31, 2015	387,627		2,041,185		$	8.00	8.32	$	522
At March 31, 2015:
Vested and expected to vest			1,978,575		$	8.02	8.29	$	522
Exercisable			658,253		$	8.95	6.65	$	519

The aggregate intrinsic value of options exercised under all option plans was $0 and $2.6 million for the three months ended March 31, 2015 and 2014, respectively, determined as of the date of option exercise.

The Company recognized stock based compensation expense as follows (in thousands):

	Three Months Ended March 31,
	2015		2014
Research and development	$	209	$	465
General and administrative	756		910
Total	$	965	$	1,375

As of March 31, 2015, there were unrecognized compensation costs of $9.8 million related to stock options and the Company expects to recognize those costs over a weighted average period of 2.74 years.

Stock-based compensation cost for stock options is estimated at the grant date based on the fair-value using the Black-Scholes option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following weighted-average assumptions:

	Three Months Ended March 31,
	2015	2014
Expected dividend yield	—	—
Risk-free interest rates	1.52%	2.01%
Expected life in years	6.08	6.08
Expected volatility	91%	102%

11

6. Discontinued Operations

On September 11, 2013, the Company announced a restructuring plan related to the operations of Tranzyme Pharma. On December 13, 2013, the Company entered into a Technology Transfer and License Agreement with Genentech, Inc. ("Genentech"), and F. Hoffman-La Roche, Ltd. ("Roche") to sell certain Canadian fixed assets and materials, the MATCH technology and rights to the Genentech and Roche customer agreements and related intellectual property through licensing of patents for $4.0 million. The Company concluded that the operations of Tranzyme Pharma and related asset groups sold to Genentech and Roche would be accounted for as discontinued operations as the operations and cash flows of the discontinued component or asset group would be eliminated from ongoing operations of the Company and there would not be significant involvement in the component or asset group after the disposal transaction.

During the three months ended March 31, 2014, the Company completed its obligations under the Technology Transfer and License Agreement with Genentech and Roche and recognized a gain on disposal of assets of $1.1 million within discontinued operations. There were no income or losses recorded in discontinued operations for the period ended March 31, 2015.

The results of Tranzyme Pharma and related asset groups are disclosed as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss for the period ended March 31, 2014 (in thousands):

	Three Months Ended
	March 31, 2014
Proceeds recognized pursuant to Technology Transfer and License Agreement	$	4,000
Less carrying value of assets sold:
Intangibles assets	(2,053		)
Property and equipment	(356		)
Goodwill	(442		)
Net gain on disposal of assets	1,149
Other expenses of discontinued operations	(3		)
Recognition of accumulated translation adjustments upon deconsolidation of subsidiary	(29		)
Net income from discontinued operations	$	1,117

7. Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. Potentially dilutive securities which include warrants and outstanding stock options under the stock option plan have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position. All share and per share amounts for all periods presented in the following table have been adjusted retroactively to reflect the exchange for Tranzyme shares as of the date of the Merger.

12

The following table presents the computation of net loss per share (in thousands, except share and per share data):

	Three Months Ended March 31,
	2015			2014
Numerator
Net loss from continuing operations	$	(6,651	)	$	(5,182	)
Net income from discontinued operations	—			1,117
Net loss	$	(6,651	)	$	(4,065	)
Denominator
Weighted average common shares outstanding used to compute net loss per share, basic and diluted	19,747,362			15,421,234
Net loss per share of common stock, basic and diluted
Net loss per share from continuing operations	$	(0.34	)	$	(0.34	)
Net income per share from discontinued operations	—			0.07
Net loss per share	$	(0.34	)	$	(0.27	)

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive:

	Three Months Ended March 31,
	2015	2014
Common stock warrants	932,535	938,882
Common stock options	2,039,050	1,758,820
Total	2,971,585	2,697,702

8. Commitments and Contingencies

From time to time, the Company may be involved in disputes, including litigation, relating to claims arising out of operations in the normal course of business. Any of these claims could subject the Company to costly legal expenses and, while the Company generally believes that it has adequate insurance to cover many different types of liabilities, its insurance carriers may deny coverage or its policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on the Company's consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, could damage the Company's reputation and business. The Company is currently not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the Company's consolidated results of operations or financial position.

Rent expense was $57,000 and $52,000 for the three months ended March 31, 2015 and 2014, respectively.

The following is a schedule of non-cancellable future minimum lease payments for operating leases as of March 31, 2015 (in thousands):

Years ending December 31:
2015 (Remaining Nine Months)	$	140
2016	18
Total	$	158

13

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

The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014 and the unaudited consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014, our actual results could differ materially from those anticipated in these forward-looking statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Overview

We are a clinical-stage biopharmaceutical company focused on acute and chronic orphan liver diseases. Our initial focus is on the development and commercialization of a clinical candidate, OCR-002, for the treatment of hepatic encephalopathy, or HE. HE is a serious complication of liver cirrhosis, or liver failure, marked by mental changes including confusion, impaired motor skills, disorientation in time and space, and, in its more severe form, stupor, coma and even death. Although the exact cause of HE is not completely understood, there is growing evidence that elevated ammonia is a primary driver of HE, and that lowering ammonia may be beneficial to patients suffering from HE. OCR-002 is a novel molecule, ornithine phenylacetate, which functions as an ammonia scavenger. Common causes of liver malfunction leading to elevated ammonia levels and HE include alcoholism, viral hepatitis and auto-immune diseases, nonalcoholic steatohepatitis, or NASH, as well as obesity, Type II diabetes, and acetaminophen overdose.

OCR-002 has been granted orphan drug designation and Fast Track status by the U.S. Food and Drug Administration, or FDA, for the treatment of hyperammonemia and resultant HE in patients with acute liver failure and acute on chronic liver disease. In pre-clinical studies, OCR-002 significantly reduced arterial ammonia in an animal model of chronic liver disease and significantly reduced arterial ammonia, brain ammonia and intracranial pressure in a second animal model of acute liver failure. In 2012, we completed a Phase 1 pharmacokinetic and safety clinical trial of the intravenous form of OCR-002. A Phase 2a investigator-sponsored study in Spain evaluated OCR-002 in patients with upper gastrointestinal bleeding associated with liver cirrhosis. In the first part of this study, a 10-patient open label safety cohort, OCR-002 was shown to lower ammonia when administered as a continuous intravenous infusion of up to 10 grams per 24 hours. In February 2015, we announced the preliminary topline results of the second part of this study, which was a randomized, placebo-controlled cohort of 38 patients. The data showed that OCR-002 lowered ammonia by 19.6% over the first 12 hours, compared to 3.2% over the first 12 hours in the placebo group, but this difference did not reach statistical significance. A statistically significant difference in urinary excretion of ammonia, as measured by phenylacetylglutamine, or PAGN, the key ammonia elimination pathway for OCR-002, was observed and OCR-002 demonstrated a favorable safety profile and appeared to be well tolerated.

We are currently conducting a randomized, placebo-controlled double blind Phase 2b clinical trial to evaluate the safety and efficacy of intravenous administration of OCR-002 in reducing the severity of HE symptoms among hospitalized HE patients. In March 2015, an independent data monitoring committee, or DMC, conducted an interim analysis, reporting that the trial was not futile and that no drug related safety signals were observed. In addition, the DMC recommended that we continue the study and increase target enrollment from 140 patients to approximately 230 patients. As a result of the DMC’s recommendation, we expect to complete trial enrollment in the second half of 2016. This expectation is based on an assumption that we continue to enroll at least 10 patients per month, which has been our average in the first four months of 2015. In addition, there is an investigator-sponsored Phase 2a clinical trial being conducted by the National Institute of Health, or NIH, to evaluate the safety of OCR-002 in patients with hyperammonemia and HE due to acute liver failure or injury.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments related to each of our critical accounting areas. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We discussed accounting policies and assumptions that involve a higher degree of judgment and complexity within our Annual Report on Form 10-K for the year

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ended December 31, 2014. There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K.

Merger with Tranzyme, Inc.

On July 15, 2013, Terrapin Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of Tranzyme, Inc., a Delaware corporation, or Tranzyme, completed its merger, or the Merger, with and into Ocera Therapeutics, Inc., a private Delaware corporation, or Private Ocera.  Private Ocera is considered the acquiring company in the Merger for accounting purposes.  In connection with the Merger, the combined company changed its name to Ocera Therapeutics, Inc. and the name of Private Ocera was changed to Ocera Subsidiary, Inc. 

Results of Operations

Three Months Ended March 31, 2015 and 2014 (in thousands):

	Three Months Ended March 31,						$ Change			% Change
	2015			2014
Revenue:
Royalty revenue	$	31		$	45		$	(14	)	(31)%
Total Revenue	31			45			(14		)	(31)%
Operating expenses:
Research and development	4,398			2,466			1,932			78%
General and administrative	2,256			2,733			(477		)	(17)%
Amortization of intangibles	41			41			—			—%
Total operating expenses	6,695			5,240			1,455			28%
Total other income (expense)	13			13			—			—%
Net loss from continuing operations	(6,651		)	(5,182		)	(1,469		)	28%
Net income from discontinued operations	—			1,117			(1,117		)	(100)%
Net loss	$	(6,651	)	$	(4,065	)	$	(2,586	)	64%

Revenues

We generated $31,000 in revenue for the three months ended March 31, 2015 compared to$45,000in revenue for the three months ended March 31, 2014.The revenue in both periods was attributable to a license agreement, which we acquired from Tranzyme in connection with the Merger.

Costs and Expenses

Research and Development Expenses

Our research and development expenses increased by $1.9 million, or 78%, for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. The increase in expenses was due to the continued steady progress of our development program for OCR-002, including the ongoing enrollment and site activation of our Phase 2b trial for OCR-002.

Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that may be used to conduct and manage clinical trials on our behalf. We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis.

Due to the significant risks and uncertainties inherent in the clinical development and regulatory approval processes, we cannot reasonably estimate the cost to complete projects and development timelines for their completion. Enrollment in clinical trials might be delayed or occur faster than anticipated for reasons beyond our control, requiring additional cost and time or accelerating spending. Results from clinical trials might not be favorable, or might require us to perform additional unplanned clinical trials, accelerating spending, requiring additional cost and time, or resulting in

15

termination of the project. Regulatory reviews can also be delayed. Process development and manufacturing scale-up for production of clinical and commercial product supplies might take longer and cost more than our forecasts. As a result, clinical development and regulatory programs are subject to risks and changes that might significantly impact cost projections and timelines. We will need to raise additional money to advance development and commercialization of OCR-002 which may include entering into strategic alliances.

General and Administrative Expenses

Our general and administrative expenses decreased by $0.5 million, or 17%, for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. The decrease in general and administrative expense was due primarily to a decrease in our costs associated with legal and outside services fees.

We expect that our general and administrative expenses may increase in the future as we expand our operating activities, maintain and expand our patent portfolio and potentially expand our infrastructure.

Amortization of intangibles

We recognized $41,000 for the amortization of the intangible assets for the three months ended March 31, 2015 and three months ended March 31, 2014.

Net income from discontinued operations

During the three months ended March 31, 2014, we completed our obligations under the Technology Transfer and License Agreement with Genentech, Inc. and F. Hoffman-La Roche, Ltd., and recognized a gain on disposal of assets of $1.1 million within discontinued operations. There was no income or loss recorded within discontinued operations for the period ended March 31, 2015.

The following table summarizes the results of discontinued operations for the three months ended March 31, 2014 (in thousands):

	Three Months Ended
	March 31, 2014
Proceeds recognized pursuant to Technology Transfer and License Agreement	$	4,000
Less carrying value of assets sold:
Intangibles assets	(2,053		)
Property and equipment	(356		)
Goodwill	(442		)
Net gain on disposal of assets	1,149
Other expenses of discontinued operations	(3		)
Recognition of accumulated translation adjustments upon deconsolidation of subsidiary	(29		)
Net income from discontinued operations	$	1,117

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Liquidity and Capital Resources

Cash Flows

The following table summarizes our cash flows for the three months ended March 31, 2015 and 2014 (in thousands):

	Three Months Ended March 31,
	2015			2014
Cash flow from:
Continuing operating activities	$	(4,919	)	$	(4,973	)
Discontinued operating activities	—			(412		)
Continuing investing activities	5,086			(1,123		)
Discontinued investing activities	—			1,000
Continuing financing activities	—			396
Net increase (decrease) in cash and cash equivalents	$	167		$	(5,112	)

Comparison of the Three Months Ended March 31, 2015 and 2014

The primary use of cash in continuing operating activities for the three months ended March 31, 2015 was the result of our net loss from continuing operations of $6.7 million plus changes in working capital of $0.6 million. These changes were partially offset by non-cash charges of $1.2 million including depreciation expense, share-based compensation expense, amortization of intangible assets acquired in the Merger and accretion of premiums on investment securities. Cash used in continuing operating activities for the three months ended March 31, 2014 was related primarily to our net loss of $5.2 million, partially offset by non-cash charges of $1.5 million including depreciation expense, share-based compensation expense, amortization of intangible assets acquired in the Merger and accretion of premiums on investment securities.

Cash used in discontinued operating activities for the three months ended March 31, 2014 was due primarily to payment of accrued liabilities of discontinued operations.

Cash provided by continuing investing activities for the three months ended March 31, 2015 related to $18.5 million of investment maturities partially offset by purchases of short-term and long-term investments of $13.4 million. For the three months ended March 31, 2014, net cash used by continuing investing activities related to purchases of short-term and long-term investments of $5.4 million, partially offset by $4.3 million of investment maturities and purchases of property and equipment.

Cash provided by discontinued investing activities represents cash proceeds related to the Technology Transfer and License Agreement with Genentech, Inc. and F. Hoffman-La Roche, Ltd. for rights to the MATCHdiscovery platform, which we acquired from Tranzyme in the Merger.

Net cash provided by continuing financing activities for the three months ended March 31, 2014 related to proceeds from the exercise of stock options.

Capital Resources and Funding Requirements

We will require additional funds to support future operations including our development activities associated with the intravenous and oral formulations of OCR-002. Our future funding requirements depends on many factors, including, but not limited to the progress, timing, scope and costs of our nonclinical studies and clinical trials including the ability to enroll patients on a timely basis in our planned and potential future clinical trials, the time and cost necessary to respond to technological, market or governmental developments, and the cost of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights.

We expect to fund expenses from our current cash and cash equivalents, possible strategic opportunities and potentially additional financing transactions. We believe that our current cash and cash equivalents will be sufficient to fund our operations for at least the next twelve months.

We have based our estimates of our cash needs on a number of assumptions that may prove to be wrong, and changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate. For example, our OCR-002 Phase 2b clinical trial may cost more than we expect, or development of the oral formulation of OCR-002 may involve the license of proprietary technology. Because of the numerous risks and uncertainties associated

17

with the development and commercialization of our product candidate, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. If adequate funds are not available to us on a timely basis, or at all, we may be required to terminate or delay clinical trials or other development activities for OCR-002.

Our ability to finance operations beyond our current resources will depend heavily on our ability to fully and timely enroll patients and obtain favorable results in clinical trials of OCR-002 and to develop and commercialize OCR-002 successfully. Additional financing may not be available when we need it or may not be available on terms that are favorable to us. We may elect to raise additional funds even before we need them if the conditions for raising capital are favorable. We may seek to raise additional capital through a combination of private and public equity offerings and debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends.

Contractual Obligations

The following is a schedule of non-cancellable future minimum lease payments for operating leases at March 31, 2015 (in thousands):

Years ending December 31:
2015 (Remaining Nine Months)	$	140
2016	18
Total	$	158

In the normal course of business, we enter into various firm purchase commitments related to active pharmaceutical ingredients, clinical studies and research studies. As of March 31, 2015, these commitments consisted of approximately $5.0 million in contractual obligations and commitments under contracts that are cancellable within 90 days or less.

Off-Balance Sheet Arrangements

We do not currently have, and did not have during the periods presented, any off-balance sheet arrangements, as defined under SEC rules. 

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk affecting our company, see Item 7A: "Quantitative and Qualitative Disclosures about Market Risk" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. Our exposure to foreign currency risk and market risk has not materially changed from that disclosed in our Annual Report.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our principal executive officer and principal financial and accounting officer, evaluated the effectiveness of our disclosure controls and procedures as of the period covered by this report. Based on that evaluation, our principal executive officer and principal financial and accounting officer concluded that, as of March 31, 2015, our disclosure controls and procedures were effective at the reasonable assurance level.

We continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

We are not currently subject to any material legal proceedings.

Item 1A.Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. During the

19

quarterly period covered by this Quarterly Report on Form 10-Q, there were no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6.    Exhibits

(a) Exhibits required by Item 601 of Regulation S-K.

Exhibit Number	Description
31.1*	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS+	XBRL Instance Document
101.SCH+	XBRL Taxonomy Extension Schema Document
101.CAL+	XBRL Taxonomy  Calculation Linkbase Document
101.LAB+	XBRL Taxonomy Label Linkbase Document
101.PRE+	XBRL Taxonomy Presentation Linkbase Document
101.DEF+	XBRL Taxonomy Definitions Linkbase Document

*Filed herewith

**Furnished herewith

+ Attached as Exhibits 101 to this report are the following financial statements from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statements of Cash Flows and (iv) related notes to these financial statements tagged as blocks of text.

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SIGNATURES

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

OCERA THERAPEUTICS, INC.

(Registrant)

Date:	May 7, 2015	By:	/s/ Linda S. Grais, M.D.
			Linda S. Grais, M.D.
			President and Chief Executive Officer
Date:	May 7, 2015	By:	/s/Michael Byrnes
			Michael Byrnes
			Chief Financial Officer and Treasurer

21

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Linda S. Grais, M.D., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Ocera Therapeutics, Inc. (the registrant);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 7, 2015	By:	/s/ Linda S. Grais, M.D.
			Linda S. Grais, M.D.
			President and Chief Executive Officer
			(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Michael Byrnes, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Ocera Therapeutics, Inc. (the registrant);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 7, 2015	By:	/s/Michael Byrnes
			Michael Byrnes
			Chief Financial Officer and Treasurer
			(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Ocera Therapeutics, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Linda S. Grais, M.D., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	May 7, 2015	By:	/s/ Linda S. Grais, M.D.
			Linda S. Grais, M.D.
			President and Chief Executive Officer
			(Principal Executive Officer)

EX-32.2

Exhibit 32.2 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Ocera Therapeutics, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Byrnes, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	May 7, 2015	By:	/s/Michael Byrnes
			Michael Byrnes
			Chief Financial Officer and Treasurer
			(Principal Financial and Accounting Officer)

XML

Discontinued Operations (Discontinued Operations in the Company's Consolidated Statements of Operations and Comprehensive Loss) (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Net gain on disposal of assets	$ 0
Net loss from discontinued operations	0	1,117,000
Tranzyme Pharma Inc. [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Net gain on disposal of assets	1,149,000	1,149,000
Other income (expense), net		(3,000)
Recognition of accumulated translation adjustments upon deconsolidation of subsidiary		(29,000)
Net loss from discontinued operations		1,117,000
Tranzyme Pharma Inc. [Member] | Intangible Assets [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Lees carrying value of assets sold		(2,053,000)
Tranzyme Pharma Inc. [Member] | Property, Plant and Equipment [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Lees carrying value of assets sold		(356,000)
Tranzyme Pharma Inc. [Member] | Goodwill [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Lees carrying value of assets sold		(442,000)
Tranzyme Pharma Inc. [Member] | Customer Agreements And Intellectual Property [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Proceeds recognized pursuant to Technology Transfer and License Agreement		$ (4,000,000)

XML

Balance Sheet Components (Property and Equipment) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 121		$ 121
Less accumulated depreciation	(68)		(60)
Property and equipment, net	53		61
Depreciation expense	8	10
Computer equipment and software [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	53		53
Computer equipment and software [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Useful life	1 year 6 months
Computer equipment and software [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Useful life	3 years
Office furniture and equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 68		$ 68
Useful life	5 years

XML

Fair Value Measurements

3 Months Ended

Mar. 31, 2015

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis as of March 31, 2015, and December 31, 2014, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value. As a basis for categorizing inputs, the Company uses a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value from market-based assumptions to entity specific assumptions:

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

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

Level 3: Unobservable inputs that are supported by little or no market activity, which require the reporting entity to develop its own assumptions.

Assets measured at fair value on a recurring basis as of March 31, 2015 are as follows (in thousands):

	Balance as of March 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	9,364	$	9,364	$	—	$	—
Commercial paper	5,249		—		5,249		—
Corporate debt securities	30,079		—		30,079		—
Government agency debt securities	500		—		500		—
Total assets	$	45,192	$	9,364	$	35,828	$	—

Assets measured at fair value on a recurring basis as of December 31, 2014 are as follows (in thousands):

	Balance as of December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	9,171	$	9,171	$	—	$	—
Commercial paper	3,750		—		3,750		—
Corporate debt securities	36,790		—		36,790		—
Government agency debt securities	$	500	$	—	$	500	$	—
Total assets	$	50,211	$	9,171	$	41,040	$	—

XML

Stock Based Compensation (Stock-based compensation expense) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 965	$ 1,375
Research and Development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	209	465
General and Administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 756	$ 910

XML

Stock Based Compensation (Stock Option Activity) (Details) (Stock Options [Member], USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2015	Dec. 31, 2014
Stock Options [Member]
Shares Available for Grant
Shares available for grant	342,210
Stock options granted	(12,000)
Stock options cancelled	57,417
Shares available for grant	387,627	342,210
Stock Options Outstanding
Beginning balance, options	2,086,602
Stock options granted	(12,000)
Stock options cancelled	(57,417)
Stock options exercised	0
Ending balance, options	2,041,185	2,086,602
Stock options vested and expected to vest	1,978,575
Stock options exercisable	658,253
Weighted-average Exercise Price Per Share
Weighted-average exercise price, options outstanding	$ 8.01
Grants in period	$ 4.50
Cancelled in period	$ 7.49
Exercises in period	$ 0.00
Weighted-average exercise price, options outstanding	$ 8.00	$ 8.01
Weighted-average exercise price, options exercisable	$ 8.02
Weighted-average exercise price, options vested and expected to vest	$ 8.95
Weighted-average remaining contractual life, options outstanding	8 years 3 months 26 days	8 years 7 months 17 days
Weighted-average remaining contractual life, options vested and expected to vest	8 years 3 months 15 days
Weighted-average remaining contractual life, options exercisable	6 years 7 months 24 days
Aggregate Intrinsic value, options outstanding	$ 522	$ 871
Aggregate Intrinsic value, options vested and expected to vest	522
Aggregate Intrinsic value, options exercisable	$ 519

XML

Stock Based Compensation (Valuation Assumptions) (Details) (Stock Options [Member])	3 Months Ended		111 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2014
Fair Value Assumptions and Methodology [Abstract]
Risk free interest rate	1.52%	2.01%
Expected life in years	6 years 29 days	6 years 29 days
Expected dividend yield	0.00%	0.00%
Expected volatility	91.00%	102.00%
Minimum [Member]
Fair Value Assumptions and Methodology [Abstract]
Expected life in years			3 months
Maximum [Member]
Fair Value Assumptions and Methodology [Abstract]
Expected life in years			6 years 3 months

XML

Stock Based Compensation (Additional Information) (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 965,000	$ 1,375,000
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value of options exercised	0	2,600,000
Compensation costs not yet recognized	$ 9,800,000
Period for recognizing costs	2 years 8 months 27 days

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2015

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with United States of America generally accepted accounting principles ("U.S. GAAP") for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements and related notes do not include all information and footnotes required by U.S. GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2014.

Unaudited Interim Financial Information

The accompanying interim consolidated financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The year-end balance sheet was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period.

Use of Estimates

The preparation of financial statements in conformity with the U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

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Discontinued Operations (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 13, 2013
Restructuring Cost and Reserve [Line Items]
Net gain on disposal of assets	$ 0
Tranzyme Pharma Inc. [Member]
Restructuring Cost and Reserve [Line Items]
Net gain on disposal of assets	1,149,000	1,149,000
Tranzyme Pharma Inc. [Member] | Customer Agreements And Intellectual Property [Member]
Restructuring Cost and Reserve [Line Items]
Sale price for discontinued operations			$ 4,000,000

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 10,294	$ 10,127
Short-term investments, available-for-sale	33,659	37,112
Accounts receivable	31	62
Prepaid expenses and other current assets	543	970
Total current assets	44,527	48,271
Property and equipment, net	53	61
Long-term investments	2,169	3,928
Deposits	0	26
Intangible assets, net	130	171
Goodwill	595	595
Total assets	47,474	53,052
Current liabilities:
Accounts payable	1,029	941
Accrued liabilities	1,958	1,966
Total liabilities	2,987	2,907
Commitments and contingencies
Stockholders' equity:
Preferred stock - $0.00001 par value, 5,000,000 shares authorized and no shares issued or outstanding at March 31, 2015 and December 31, 2014.	0	0
Common stock - $0.00001 par value, 100,000,000 shares authorized, 19,747,362 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively.	0	0
Additional paid-in capital	156,048	155,083
Accumulated other comprehensive income (loss)	1	(27)
Accumulated deficit	(111,562)	(104,911)
Total stockholders' equity	44,487	50,145
Total liabilities and stockholders' equity	$ 47,474	$ 53,052

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Operating activities
Net loss	$ (6,651)	$ (4,065)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income from discontinued operations	0	(1,117)
Depreciation	8	10
Amortization of intangibles	41	41
Stock based compensation	965	1,375
Accretion of premium on investment securities	154	95
Changes in operating assets and liabilities:
Accounts receivable	31	47
Prepaid expenses and other assets	453	(57)
Accounts payable	88	(406)
Accrued liabilities	(8)	(896)
Net cash used in continuing operating activities	(4,919)	(4,973)
Net cash used in discontinued operating activities	0	(412)
Net cash used in operating activities	(4,919)	(5,385)
Investing activities
Purchases of property and equipment	0	(2)
Purchase of short-term and long-term investments	(13,414)	(5,371)
Sale and maturities of short-term investments	18,500	4,250
Net cash provided by (used in) continuing investing activities	5,086	(1,123)
Net cash provided by discontinued investing activities	0	1,000
Net cash provided by (used in) investing activities	5,086	(123)
Financing activities
Proceeds from exercise of common stock options	0	396
Net cash provided by continuing financing activities	0	396
Net increase (decrease) in cash and cash equivalents	167	(5,112)
Cash and cash equivalents—beginning of period	10,127	15,533
Cash and cash equivalents—end of period	$ 10,294	$ 10,421

XML

Net Loss Per Share (Schedule of Antidilutive Securities Excluded From Earnings Per Share) (Details)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount	2,971,585	2,697,702
Warrants [Member] | Common Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount	932,535	938,882
Stock Options [Member] | Common Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount	2,039,050	1,758,820

XML

The Company (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Losses incurred since inception	$ (111,562)	$ (104,911)

XML

Commitments and Contingencies (Details) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Commitments and Contingencies Disclosure [Abstract]
Rent expense	$ 57,000	$ 52,000
Future Minimum Payments Due by Fiscal Year Maturity [Abstract]
2015 (Remaining Nine Months)	140,000
2016	18,000
Total	$ 158,000

XML

Balance Sheet Components (Available For Sale Investments) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 35,827	$ 41,067
Unrealized Gains	5	2
Unrealized Losses	(4)	(29)
Estimated Fair Value	35,828	41,040
Short-term investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	33,658	37,127
Unrealized Gains	5	2
Unrealized Losses	(4)	(17)
Estimated Fair Value	33,659	37,112
Short-term investments [Member] | Commercial Paper [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	5,244	3,748
Unrealized Gains	5	2
Unrealized Losses	0	0
Estimated Fair Value	5,249	3,750
Short-term investments [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	28,414	33,379
Unrealized Gains	0	0
Unrealized Losses	(4)	(17)
Estimated Fair Value	28,410	33,362
Long-term investments [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	2,169	3,940
Unrealized Gains	0	0
Unrealized Losses	0	(12)
Estimated Fair Value	2,169	3,928
Long-term investments [Member] | Corporate Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,669	3,439
Unrealized Gains	0	0
Unrealized Losses	0	(11)
Estimated Fair Value	1,669	3,428
Long-term investments [Member] | US Government Agencies Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	500	501
Unrealized Gains	0	0
Unrealized Losses	0	(1)
Estimated Fair Value	$ 500	$ 500

XML

The Company

3 Months Ended

Mar. 31, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The Company

The Company

Ocera Therapeutics, Inc. (the "Company") is a clinical-stage biopharmaceutical company focused on the development and commercialization of OCR-002 (ornithine phenylacetate). OCR-002 is an ammonia scavenger which has been granted orphan drug designation and Fast Track status from the U.S. Food and Drug Administration to treat hyperammonemia and associated hepatic encephalopathy in patients with liver cirrhosis, acute liver failure and acute liver injury.

On July 15, 2013, Terrapin Acquisition, Inc., a Delaware corporation (“Merger Sub”), a wholly owned subsidiary of Tranzyme, Inc., a Delaware corporation (“Tranzyme”), completed its merger (the “Merger”) with and into Ocera Therapeutics, Inc., a private Delaware corporation (“Private Ocera”).  Private Ocera is considered the acquiring company in the Merger for accounting purposes.  In connection with the Merger, the combined company changed its name to Ocera Therapeutics, Inc. and the name of Private Ocera was changed to Ocera Subsidiary, Inc. 

The Company's business is subject to significant risks consistent with biopharmaceutical companies seeking to develop technologies and product candidates for human therapeutic use. These risks include, but are not limited to, uncertainties regarding research and development, access to capital, obtaining and enforcing patents, receiving regulatory approval and competition with other biotechnology and pharmaceutical companies.

The Company has a limited operating history and the sales and income potential of the Company's business and market are unproven. As of March 31, 2015, the Company has incurred losses since inception of $111.6 million. The Company anticipates that it will continue to incur net losses into the foreseeable future as it continues the development and commercialization of OCR-002 and as it expands its corporate infrastructure. Based on the Company's current operating plan, the Company believes its working capital is sufficient to fund its operations through at least the next twelve months.

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Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2015	Dec. 31, 2014
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.00001	$ 0.00001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.00001	$ 0.00001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	19,747,362	19,747,362
Common stock, shares outstanding	19,747,362	19,747,362

XML

Balance Sheet Components (Tables)

3 Months Ended

Mar. 31, 2015

Balance Sheet Components [Abstract]

Summary of available for sale investments

The following table summarizes the Company's available for sale investments as of March 31, 2015(in thousands):

	Maturity (in Years)	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Short-term investments:
Commercial paper	1 or less	$	5,244	$	5	$	—		$	5,249
Corporate debt securities	1 or less	28,414		—		(4		)	28,410
Total		33,658		5		(4		)	33,659
Long-term investments:
Corporate debt securities	1 to 2	1,669		—		—			1,669
Government agency debt securities	1 to 2	500		—		—			500
Total		2,169		—		—			2,169
Total investments		$	35,827	$	5	$	(4	)	$	35,828

The following table summarizes the Company's available for sale investments as of December 31, 2014 (in thousands):

	Maturity (in Years)	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Short-term investments:
Commercial paper	1 or less	$	3,748	$	2	$	—		$	3,750
Corporate debt securities	1 or less	33,379		—		(17		)	33,362
Total		37,127		2		(17		)	37,112
Long-term investments:
Corporate debt securities	1 to 2	3,439		—		(11		)	3,428
Government agency debt securities	1 to 2	501		—		(1		)	500
Total		3,940		—		(12		)	3,928
Total investments		$	41,067	$	2	$	(29	)	$	41,040

Property and equipment components

Property and equipment, net consisted of the following (in thousands):

	Useful Life	March 31,			December 31,
	(in years)	2015			2014
Computer equipment and software	1.5 to 3 years	$	53		$	53
Office furniture and equipment	5 years	68			68
Total property and equipment, gross		121			121
Less: accumulated depreciation		(68		)	(60		)
Property and equipment, net		$	53		$	61

Net book value of acquired intangible assets

The net book value of acquired intangible assets were as follows (in thousands):

	March 31,			December 31,
Customer Agreements:	2015			2014
Carrying value	$	410		$	410
Accumulated amortization	(280		)	(239		)
Intangible assets, net	$	130		$	171
Weighted average remaining life (in years)	0.75			1.00

Schedule of accrued liabilities

Accrued liabilities were as follows (in thousands):

	March 31,		December 31,
	2015		2014
Clinical trials	$	1,342	$	897
Payroll and related expenses	400		678
Professional services	140		343
Other	76		48
Total	$	1,958	$	1,966

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2015	Apr. 30, 2015
Document and Entity Information [Abstract]
Entity Registrant Name	Ocera Therapeutics, Inc.
Entity Central Index Key	0001274644
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 31, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		19,747,362

XML

Stock Based Compensation (Tables)

3 Months Ended

Mar. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of stock option activity

The Company’s stock option activity and related information for the three months ended March 31, 2015 was as follows (in thousands, except share and per share data):

							Weighted-avg.
	Shares				Weighted-avg.		Remaining	Aggregate
	Available		Stock Options		Exercise Price		Contractual	Intrinsic
	for Grant		Outstanding		Per Share		Life (in Years)	Value
Balance at December 31, 2014	342,210		2,086,602		$	8.01	8.63	$	871
Stock options granted	(12,000	)	12,000		$	4.50
Stock options cancelled	57,417		(57,417	)	$	7.49
Stock options exercised	—		—		$	—
Balance at March 31, 2015	387,627		2,041,185		$	8.00	8.32	$	522
At March 31, 2015:
Vested and expected to vest			1,978,575		$	8.02	8.29	$	522
Exercisable			658,253		$	8.95	6.65	$	519

Stock-based compensation expense

The Company recognized stock based compensation expense as follows (in thousands):

	Three Months Ended March 31,
	2015		2014
Research and development	$	209	$	465
General and administrative	756		910
Total	$	965	$	1,375

Stock option valuation assumptions

The fair value of employee stock options was estimated using the following weighted-average assumptions:

	Three Months Ended March 31,
	2015	2014
Expected dividend yield	—	—
Risk-free interest rates	1.52%	2.01%
Expected life in years	6.08	6.08
Expected volatility	91%	102%

XML

Consolidated Statements of Operations and Comprehensive Loss (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Revenue:
Royalty revenue	$ 31	$ 45
Total Revenue	31	45
Operating expenses:
Research and development	4,398	2,466
General and administrative	2,256	2,733
Amortization of intangibles	41	41
Total operating expenses	6,695	5,240
Other income (expense)	13	13
Net loss from continuing operations	(6,651)	(5,182)
Net income from discontinued operations (including gain on disposal of $1,149)	0	1,117
Net loss	(6,651)	(4,065)
Net loss per share:
Net loss per share from continuing operations, basic and diluted	$ (0.34)	$ (0.34)
Net income per share from discontinued operations, basic and diluted	$ 0.00	$ 0.07
Net loss per share, basic and diluted	$ (0.34)	$ (0.27)
Weighted average number of shares used to compute net loss per share of common stock, basic and diluted	19,747,362	15,421,234
Unrealized gain on investments	28	2
Comprehensive loss	$ (6,623)	$ (4,063)

XML

Discontinued Operations

3 Months Ended

Mar. 31, 2015

Restructuring and Related Activities [Abstract]

Discontinued Operations

Discontinued Operations

On September 11, 2013, the Company announced a restructuring plan related to the operations of Tranzyme Pharma. On December 13, 2013, the Company entered into a Technology Transfer and License Agreement with Genentech, Inc. ("Genentech"), and F. Hoffman-La Roche, Ltd. ("Roche") to sell certain Canadian fixed assets and materials, the MATCH technology and rights to the Genentech and Roche customer agreements and related intellectual property through licensing of patents for $4.0 million. The Company concluded that the operations of Tranzyme Pharma and related asset groups sold to Genentech and Roche would be accounted for as discontinued operations as the operations and cash flows of the discontinued component or asset group would be eliminated from ongoing operations of the Company and there would not be significant involvement in the component or asset group after the disposal transaction.

During the three months ended March 31, 2014, the Company completed its obligations under the Technology Transfer and License Agreement with Genentech and Roche and recognized a gain on disposal of assets of $1.1 million within discontinued operations. There were no income or losses recorded in discontinued operations for the period ended March 31, 2015.

The results of Tranzyme Pharma and related asset groups are disclosed as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss for the period ended March 31, 2014 (in thousands):

	Three Months Ended
	March 31, 2014
Proceeds recognized pursuant to Technology Transfer and License Agreement	$	4,000
Less carrying value of assets sold:
Intangibles assets	(2,053		)
Property and equipment	(356		)
Goodwill	(442		)
Net gain on disposal of assets	1,149
Other expenses of discontinued operations	(3		)
Recognition of accumulated translation adjustments upon deconsolidation of subsidiary	(29		)
Net income from discontinued operations	$	1,117

XML

Stock Based Compensation

3 Months Ended

Mar. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Options

Stock Based Compensation

The Company’s stock option activity and related information for the three months ended March 31, 2015 was as follows (in thousands, except share and per share data):

							Weighted-avg.
	Shares				Weighted-avg.		Remaining	Aggregate
	Available		Stock Options		Exercise Price		Contractual	Intrinsic
	for Grant		Outstanding		Per Share		Life (in Years)	Value
Balance at December 31, 2014	342,210		2,086,602		$	8.01	8.63	$	871
Stock options granted	(12,000	)	12,000		$	4.50
Stock options cancelled	57,417		(57,417	)	$	7.49
Stock options exercised	—		—		$	—
Balance at March 31, 2015	387,627		2,041,185		$	8.00	8.32	$	522
At March 31, 2015:
Vested and expected to vest			1,978,575		$	8.02	8.29	$	522
Exercisable			658,253		$	8.95	6.65	$	519

The aggregate intrinsic value of options exercised under all option plans was $0 and $2.6 million for the three months ended March 31, 2015 and 2014, respectively, determined as of the date of option exercise.

The Company recognized stock based compensation expense as follows (in thousands):

	Three Months Ended March 31,
	2015		2014
Research and development	$	209	$	465
General and administrative	756		910
Total	$	965	$	1,375

As of March 31, 2015, there were unrecognized compensation costs of $9.8 million related to stock options and the Company expects to recognize those costs over a weighted average period of 2.74 years.

Stock-based compensation cost for stock options is estimated at the grant date based on the fair-value using the Black-Scholes option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following weighted-average assumptions:

	Three Months Ended March 31,
	2015	2014
Expected dividend yield	—	—
Risk-free interest rates	1.52%	2.01%
Expected life in years	6.08	6.08
Expected volatility	91%	102%

XML

Fair Value Measurements (Fair Value) (Details) (Recurring [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	$ 45,192	$ 50,211
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	9,364	9,171
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	35,828	41,040
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	0	0
Money Market Funds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	9,364	9,171
Money Market Funds [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	9,364	9,171
Money Market Funds [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	0	0
Money Market Funds [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	0	0
Commercial Paper [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	5,249	3,750
Commercial Paper [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	0	0
Commercial Paper [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	5,249	3,750
Commercial Paper [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	0	0
Corporate Debt Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	30,079	36,790
Corporate Debt Securities [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	0	0
Corporate Debt Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	30,079	36,790
Corporate Debt Securities [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	0	0
US Government Agencies Debt Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	500	500
US Government Agencies Debt Securities [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	0	0
US Government Agencies Debt Securities [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	500	500
US Government Agencies Debt Securities [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total assets	$ 0	$ 0

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Discontinued Operations (Tables)

3 Months Ended

Mar. 31, 2015

Restructuring and Related Activities [Abstract]

Discontinued operations included the Income Statement and Balance Sheets

The results of Tranzyme Pharma and related asset groups are disclosed as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss for the period ended March 31, 2014 (in thousands):

	Three Months Ended
	March 31, 2014
Proceeds recognized pursuant to Technology Transfer and License Agreement	$	4,000
Less carrying value of assets sold:
Intangibles assets	(2,053		)
Property and equipment	(356		)
Goodwill	(442		)
Net gain on disposal of assets	1,149
Other expenses of discontinued operations	(3		)
Recognition of accumulated translation adjustments upon deconsolidation of subsidiary	(29		)
Net income from discontinued operations	$	1,117

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2015

Accounting Policies [Abstract]

Basis of Accounting

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with United States of America generally accepted accounting principles ("U.S. GAAP") for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements and related notes do not include all information and footnotes required by U.S. GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2014.

Unaudited Interim Financial Information

Unaudited Interim Financial Information

The accompanying interim consolidated financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The year-end balance sheet was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with the U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Earnings Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. Potentially dilutive securities which include warrants and outstanding stock options under the stock option plan have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position. All share and per share amounts for all periods presented in the following table have been adjusted retroactively to reflect the exchange for Tranzyme shares as of the date of the Merger.

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Net Loss Per Share

3 Months Ended

Mar. 31, 2015

Earnings Per Share [Abstract]

Net Loss Per Share

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. Potentially dilutive securities which include warrants and outstanding stock options under the stock option plan have been excluded from the computation of diluted net loss per share as they would be anti-dilutive. For all periods presented, there is no difference in the number of shares used to compute basic and diluted shares outstanding due to the Company’s net loss position. All share and per share amounts for all periods presented in the following table have been adjusted retroactively to reflect the exchange for Tranzyme shares as of the date of the Merger.

The following table presents the computation of net loss per share (in thousands, except share and per share data):

	Three Months Ended March 31,
	2015			2014
Numerator
Net loss from continuing operations	$	(6,651	)	$	(5,182	)
Net income from discontinued operations	—			1,117
Net loss	$	(6,651	)	$	(4,065	)
Denominator
Weighted average common shares outstanding used to compute net loss per share, basic and diluted	19,747,362			15,421,234
Net loss per share of common stock, basic and diluted
Net loss per share from continuing operations	$	(0.34	)	$	(0.34	)
Net income per share from discontinued operations	—			0.07
Net loss per share	$	(0.34	)	$	(0.27	)

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive:

	Three Months Ended March 31,
	2015	2014
Common stock warrants	932,535	938,882
Common stock options	2,039,050	1,758,820
Total	2,971,585	2,697,702

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2015

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

From time to time, the Company may be involved in disputes, including litigation, relating to claims arising out of operations in the normal course of business. Any of these claims could subject the Company to costly legal expenses and, while the Company generally believes that it has adequate insurance to cover many different types of liabilities, its insurance carriers may deny coverage or its policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on the Company's consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, could damage the Company's reputation and business. The Company is currently not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the Company's consolidated results of operations or financial position.

Rent expense was $57,000 and $52,000 for the three months ended March 31, 2015 and 2014, respectively.

The following is a schedule of non-cancellable future minimum lease payments for operating leases as of March 31, 2015 (in thousands):

Years ending December 31:
2015 (Remaining Nine Months)	$	140
2016	18
Total	$	158

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2015

Fair Value Disclosures [Abstract]

Assets and liabilities measured at fair value on a recurring basis

Assets measured at fair value on a recurring basis as of March 31, 2015 are as follows (in thousands):

	Balance as of March 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	9,364	$	9,364	$	—	$	—
Commercial paper	5,249		—		5,249		—
Corporate debt securities	30,079		—		30,079		—
Government agency debt securities	500		—		500		—
Total assets	$	45,192	$	9,364	$	35,828	$	—

Assets measured at fair value on a recurring basis as of December 31, 2014 are as follows (in thousands):

	Balance as of December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	9,171	$	9,171	$	—	$	—
Commercial paper	3,750		—		3,750		—
Corporate debt securities	36,790		—		36,790		—
Government agency debt securities	$	500	$	—	$	500	$	—
Total assets	$	50,211	$	9,171	$	41,040	$	—

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Net Loss Per Share (Schedule of Basic and Diluted Loss Per Share) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Numerator
Net loss from continuing operations	$ (6,651)	$ (5,182)
Net income from discontinued operations	0	1,117
Net loss	$ (6,651)	$ (4,065)
Denominator
Weighted average common shares outstanding used to compute net loss per share, basic and diluted	19,747,362	15,421,234
Net loss per share of common stock, basic and diluted
Net loss per share from continuing operations	$ (0.34)	$ (0.34)
Net income per share from discontinued operations	$ 0.00	$ 0.07
Net loss per share, basic and diluted	$ (0.34)	$ (0.27)

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2015

Commitments and Contingencies Disclosure [Abstract]

Schedule of non-cancellable future minimum lease payments for operating leases

The following is a schedule of non-cancellable future minimum lease payments for operating leases as of March 31, 2015 (in thousands):

Years ending December 31:
2015 (Remaining Nine Months)	$	140
2016	18
Total	$	158

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Balance Sheet Components (Acquired Intangible Assets) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Balance Sheet Components [Abstract]
Carrying value	$ 410		$ 410
Accumulated amortization	(280)		(239)
Intangible assets, net	130		171
Weighted average remaining life (in years)	9 months		1 year
Amortization of intangibles	41	41
Expected amortization expense	$ 130

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Consolidated Statements of Operations and Comprehensive Loss (Parenthetical) (USD $)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Net gain on disposal of assets	$ 0
Tranzyme Pharma Inc. [Member]
Net gain on disposal of assets	$ 1,149,000	$ 1,149,000

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Balance Sheet Components

3 Months Ended

Mar. 31, 2015

Balance Sheet Components [Abstract]

Balance Sheet Components

Balance Sheet Components

Investments

The following table summarizes the Company's available for sale investments as of March 31, 2015(in thousands):

	Maturity (in Years)	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Short-term investments:
Commercial paper	1 or less	$	5,244	$	5	$	—		$	5,249
Corporate debt securities	1 or less	28,414		—		(4		)	28,410
Total		33,658		5		(4		)	33,659
Long-term investments:
Corporate debt securities	1 to 2	1,669		—		—			1,669
Government agency debt securities	1 to 2	500		—		—			500
Total		2,169		—		—			2,169
Total investments		$	35,827	$	5	$	(4	)	$	35,828

The following table summarizes the Company's available for sale investments as of December 31, 2014 (in thousands):

	Maturity (in Years)	Amortized Cost		Unrealized Gains		Unrealized Losses			Estimated Fair Value
Short-term investments:
Commercial paper	1 or less	$	3,748	$	2	$	—		$	3,750
Corporate debt securities	1 or less	33,379		—		(17		)	33,362
Total		37,127		2		(17		)	37,112
Long-term investments:
Corporate debt securities	1 to 2	3,439		—		(11		)	3,428
Government agency debt securities	1 to 2	501		—		(1		)	500
Total		3,940		—		(12		)	3,928
Total investments		$	41,067	$	2	$	(29	)	$	41,040

At each reporting date, the Company performs an evaluation of impairment to determine if the unrealized losses are other-than-temporary. For debt securities, management determines whether it intends to sell the impaired securities, and if there is no intent or expected requirement to sell, management considers whether it is likely that the amortized cost will be recovered. The Company does not consider unrealized losses on its debt investment securities to be credit-related. These unrealized losses relate to changes in interest rates and market spreads subsequent to purchase. The Company has not made a decision to sell securities with unrealized losses and believes it is more likely than not it would not be required to sell such securities before recovery of its amortized cost. There have been no other than temporary losses recognized in earnings.

Property and Equipment, net

Property and equipment, net consisted of the following (in thousands):

	Useful Life	March 31,			December 31,
	(in years)	2015			2014
Computer equipment and software	1.5 to 3 years	$	53		$	53
Office furniture and equipment	5 years	68			68
Total property and equipment, gross		121			121
Less: accumulated depreciation		(68		)	(60		)
Property and equipment, net		$	53		$	61

Depreciation expense was $8,000 and $10,000 for the three months ended March 31, 2015 and 2014 respectively.

Acquired Intangible Assets

The net book value of acquired intangible assets were as follows (in thousands):

	March 31,			December 31,
Customer Agreements:	2015			2014
Carrying value	$	410		$	410
Accumulated amortization	(280		)	(239		)
Intangible assets, net	$	130		$	171
Weighted average remaining life (in years)	0.75			1.00

The Company recognized $41,000 as amortization expense on the intangible assets for the three months ended March 31, 2015 and 2014. No impairment charges were recorded.

As of March 31, 2015, expected amortization expense related to our purchased intangible assets is approximately $130,000 during 2015.

Accrued Liabilities

Accrued liabilities were as follows (in thousands):

	March 31,		December 31,
	2015		2014
Clinical trials	$	1,342	$	897
Payroll and related expenses	400		678
Professional services	140		343
Other	76		48
Total	$	1,958	$	1,966

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Balance Sheet Components (Accrued Liabilities) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Balance Sheet Components [Abstract]
Clinical trials	$ 1,342	$ 897
Payroll and related expenses	400	678
Professional services	140	343
Other	76	48
Accrued liabilities	$ 1,958	$ 1,966

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Net Loss Per Share (Tables)

3 Months Ended

Mar. 31, 2015

Earnings Per Share [Abstract]

Computation of net loss per share

The following table presents the computation of net loss per share (in thousands, except share and per share data):

	Three Months Ended March 31,
	2015			2014
Numerator
Net loss from continuing operations	$	(6,651	)	$	(5,182	)
Net income from discontinued operations	—			1,117
Net loss	$	(6,651	)	$	(4,065	)
Denominator
Weighted average common shares outstanding used to compute net loss per share, basic and diluted	19,747,362			15,421,234
Net loss per share of common stock, basic and diluted
Net loss per share from continuing operations	$	(0.34	)	$	(0.34	)
Net income per share from discontinued operations	—			0.07
Net loss per share	$	(0.34	)	$	(0.27	)

Potentially dilutive securities not included in the calculation of dilutive net loss per share

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive:

	Three Months Ended March 31,
	2015	2014
Common stock warrants	932,535	938,882
Common stock options	2,039,050	1,758,820
Total	2,971,585	2,697,702