PREM14A 1 d446062dprem14a.htm PREM14A PREM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934 (Amendment No.     )

 

 

Filed by the Registrant  ☒

Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

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

CEMPRA, INC.

(Name of Registrant as Specified In Its Charter)

 

  

 

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

Payment of Filing Fee (Check the appropriate box):

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

Title of each class of securities to which transaction applies:

 

Common stock of Melinta Therapeutics, Inc., par value $0.001(“Melinta common stock”)

  (2)  

Aggregate number of securities to which transaction applies:

 

499,537,711 shares

  (3)  

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

 

The maximum aggregate value of the transaction was determined based upon the aggregate value of the securities of Melinta Therapeutics, Inc. (“Melinta”) to be acquired by Cempra, Inc. (“Cempra”) pursuant to the Agreement and Plan of Merger and Reorganization, dated as of August 8, 2017, as amended, among Cempra, Castle Acquisition Corp., and Melinta, which value was determined by multiplying one-third of the par value of Melinta common stock, $0.001, by 499,537,711 shares of Melinta common stock outstanding on a fully-diluted as-converted to common stock basis. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying the amount calculated in the preceding sentence by .0001159.

  (4)  

Proposed maximum aggregate value of transaction:

 

$166,512.57

  (5)  

Total fee paid:

 

$19.30

  Fee paid previously with preliminary materials.

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

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

 

  (4)  

Date Filed:

 

     

 

 

 


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PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION

 

LOGO

To the Stockholders of Cempra, Inc.:

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

As previously announced, on August 8, 2017, Cempra and Melinta Therapeutics, Inc., or Melinta, entered into an agreement and plan of merger and reorganization, which we refer to, as amended on September 6, 2017 and as may be further amended from time to time, as the merger agreement, pursuant to which a wholly owned subsidiary of Cempra will merge with and into Melinta with Melinta surviving as a wholly owned subsidiary of Cempra. Immediately following the effective time of the merger, Melinta stockholders are expected to own, on a fully-diluted basis as calculated under the treasury stock method, approximately 51.9%, and Cempra’s current stockholders are expected to own approximately 48.1%, of Cempra’s common stock, par value $0.001 per share, or Cempra common stock.

At the effective time of the merger, Cempra will be renamed “Melinta Therapeutics, Inc.” and expects to trade under the symbol “MLNT” on the NASDAQ Global Market. At the effective time of the merger, directors and executive officers, including directors and executive officers designated by Melinta, will be appointed to Cempra’s board of directors and management, respectively.

At the 2017 Annual Meeting, Cempra will ask its stockholders to consider and vote upon the following proposals:

1. To approve the issuance of Cempra common stock pursuant to the merger agreement.

2. To approve three separate proposals to amend Cempra’s certificate of incorporation to:

a. increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000, the approval of which is necessary to enable Cempra to issue the required number of shares of Cempra common stock to Melinta stockholders in connection with the merger;

b. change the name of Cempra to “Melinta Therapeutics, Inc.”; and

c. elect for Cempra not to be governed by or subject to Section 203 of the Delaware General Corporation Law, or the DGCL (as described further on page 136 of this proxy statement).

3. To approve amendments to Cempra’s certificate of incorporation to effect a reverse stock split of Cempra common stock, referred to as the reverse stock split.

4. To elect three Class III directors for a three-year term expiring in 2020; provided, however, that, if the merger is completed, the board of directors of Cempra will be reconstituted as set forth in the merger agreement.

5. To approve on a non-binding advisory basis Cempra’s 2016 executive compensation.

6. To ratify the appointment of PricewaterhouseCoopers LLP as Cempra’s independent registered public accounting firm for the fiscal year ending December 31, 2017.

 


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7. To consider and vote on a proposal to adjourn the 2017 Annual Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2017 Annual Meeting to approve items 1, 2a, 2b, 2c or 3 above.

8. To transact such other business as may properly come before the 2017 Annual Meeting or any adjournment or postponement thereof.

Proposals 1 and 2a are conditioned upon each other, and the approval of each such proposal is a condition to the completion of the merger. Therefore, the completion of the merger cannot proceed without the approval of Proposals 1 and 2a.

If approved, upon the effectiveness of the amendments to Cempra’s certificate of incorporation effecting the reverse stock split, the outstanding shares of Cempra common stock will be reclassified and combined into a lesser number of shares to be determined by Cempra’s board of directors prior to the effective time of such amendments and public announcement by Cempra. If the reverse stock split (Proposal 3) is enacted, Cempra’s board of directors may choose, in its discretion, not to implement Proposal 2a.

After careful consideration, Cempra’s board of directors has approved the merger agreement and the proposals referred to above and has determined that they are advisable, fair and in the best interests of Cempra stockholders. Detailed descriptions of the strategic and financial analysis supporting this determination are contained in this proxy statement. Accordingly, Cempra’s board of directors unanimously recommends that stockholders vote “FOR” the issuance of Cempra common stock pursuant to the merger agreement, “FOR” the amendment to Cempra’s certificate of incorporation to increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000, “FOR” the amendment to Cempra’s certificate of incorporation to change the name of Cempra to “Melinta Therapeutics, Inc.,” “FOR” the amendment to Cempra’s certificate of incorporation to elect for Cempra not to be governed by or subject to Section 203 of the DGCL, “FOR” the amendments to Cempra’s certificate of incorporation to effect the reverse stock split and related matters, “FOR” the election of the three Class III nominees for election to the board of directors of Cempra for a three-year term, “FOR” Cempra’s 2016 executive compensation, “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as Cempra’s independent registered public accounting firm for the fiscal year ending December 31, 2017, and “FOR” the adjournment of the 2017 Annual Meeting if necessary to solicit additional proxies if there are not sufficient votes to approve the issuance of Cempra common stock pursuant to the merger agreement or the charter amendments at the time of the 2017 Annual Meeting.

More information about Cempra, Melinta, the proposed transactions and the proposals to be voted on at the 2017 Annual Meeting are contained in the accompanying proxy statement. Cempra urges you to read the proxy statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 39.

Your vote is important. Whether or not you expect to attend the 2017 Annual Meeting in person, please complete, date, sign and promptly return the accompanying proxy card in the enclosed postage paid envelope to ensure that your shares will be represented and voted at the 2017 Annual Meeting.

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

Yours sincerely,

David S. Zaccardelli, Pharm.D.

Acting Chief Executive Officer

 


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Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the merger described in this proxy statement or the Cempra common stock to be issued in connection with the merger or determined if this proxy statement is accurate or adequate. Any representation to the contrary is a criminal offense.

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

 


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PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION

 

LOGO

6320 QUADRANGLE DRIVE, SUITE 360, CHAPEL HILL, NORTH CAROLINA 27517

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON []

To the Stockholders of Cempra, Inc.:

The 2017 annual meeting of the stockholders, or the 2017 Annual Meeting, of Cempra, Inc., or Cempra, will be held at [●] [a.m.], local time, on [●], at the [●] located at [●], to consider and act upon the following matters:

 

  1. To approve the issuance of common stock, par value $0.001 per share, of Cempra, or Cempra common stock, pursuant to the Agreement and Plan of Merger and Reorganization, dated as of August 8, 2017, as amended on September 6, 2017 and as may be further amended from time to time, by and among Cempra, Castle Acquisition Corp., a wholly owned subsidiary of Cempra, and Melinta Therapeutics, Inc.

 

  2. To approve three separate proposals to amend Cempra’s certificate of incorporation to:

 

  a. increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000, the approval of which is necessary to enable Cempra to issue the required number of shares of Cempra common stock to Melinta stockholders in connection with the merger;

 

  b. change the name of Cempra to “Melinta Therapeutics, Inc.”; and

 

  c. elect for Cempra not to be governed by or subject to Section 203 of the Delaware General Corporation Law.

 

  3. To approve amendments to Cempra’s certificate of incorporation to effect a reverse stock split of Cempra common stock, referred to as the reverse stock split.

 

  4. To elect three Class III directors for a three-year term expiring in 2020; provided, however, that, if the merger is completed, the board of directors of Cempra will be reconstituted as set forth in the merger agreement.

 

  5. To approve on a non-binding advisory basis Cempra’s 2016 executive compensation.

 

  6. To ratify the appointment of PricewaterhouseCoopers LLP as Cempra’s independent registered public accounting firm for the fiscal year ending December 31, 2017.

 

  7. To consider and vote on a proposal to adjourn the 2017 Annual Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2017 Annual Meeting to approve Proposals 1, 2a, 2b, 2c or 3 above.

 

  8. To transact such other business as may properly come before the 2017 Annual Meeting or any adjournment or postponement thereof.

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

Your vote is important. The affirmative vote of the holders of a majority of the shares of Cempra common stock present in person or represented by proxy and entitled to vote on the matter at the 2017 Annual Meeting is

 


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required for approval of Proposal 1, Proposal 5, Proposal 6 and Proposal 7 above. The affirmative vote of the holders of a majority of the outstanding shares of Cempra common stock as of the record date for the 2017 Annual Meeting is required for approval of Proposal 2a, Proposal 2b, Proposal 2c and Proposal 3 above. Proposal 4, the election of the Class III directors, will be determined by a plurality of the votes cast at the 2017 Annual Meeting.

Whether or not you plan to attend the 2017 Annual Meeting in person, please complete, date, sign and promptly return the accompanying proxy card in the enclosed postage paid envelope to ensure that your shares will be represented and voted at the 2017 Annual Meeting. If you date, sign and return your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of Proposals 1 through 7. The failure to return your proxy card or to vote in person at the 2017 Annual Meeting will have the same effect as a vote against Proposal 2a, Proposal 2b, Proposal 2c and Proposal 3. If you attend the 2017 Annual Meeting, you may, upon your written request, withdraw your proxy and vote in person.

By Order of the Board of Directors of Cempra, Inc.

Mark W. Hahn

Secretary

[●]

Chapel Hill, North Carolina

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

 


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the rules thereunder, contains a notice of meeting with respect to the 2017 annual meeting of stockholders, or the 2017 Annual Meeting, at which Cempra stockholders will consider and vote on the proposals to approve the issuance of common stock, par value $0.001 per share, of Cempra, or Cempra common stock, issuable to the holders of common stock, par value $0.001, of Melinta, or Melinta common stock, pursuant to the merger agreement described in this proxy statement; to approve amendments to Cempra’s certificate of incorporation to: (a) increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000, the approval of which is necessary to enable Cempra to issue the required number of shares of Cempra common stock to Melinta stockholders in connection with the merger; (b) change the name of Cempra to “Melinta Therapeutics, Inc.;” (c) elect for Cempra not to be governed by or subject to Section 203 of the Delaware General Corporation Law, or the DGCL; and (d) to effect a reverse stock split of Cempra common stock and related matters, referred to in this proxy statement as the reverse stock split; to elect three Class III directors for a three-year term expiring in 2020; to approve on a non-binding advisory basis Cempra’s 2016 executive compensation; to ratify the appointment of PricewaterhouseCoopers LLP as Cempra’s registered public accounting firm for the fiscal year ending December 31, 2017; and to consider and vote on a proposal to adjourn the 2017 Annual Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2017 Annual Meeting in favor of Proposals 1, 2a, 2b, 2c or 3 above.

Additional business and financial information about Cempra can be found in documents previously filed by Cempra with the U.S. Securities and Exchange Commission, or the SEC. This information is available to you without charge at the SEC’s website at www.sec.gov. In addition to receiving the proxy statement from Cempra in the mail or obtaining the information on the SEC’s website, Cempra stockholders will also be able to obtain the proxy statement, free of charge, from Cempra by requesting copies in writing using the following contact information:

CEMPRA, INC.

Attn: Investor Relations

6320 Quadrangle Drive, Suite 360

Chapel Hill, North Carolina 27517

Tel: (919) 313-6601

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

1290 Avenue of the Americas, 9th Floor

New York, NY 10104

(866) 821-2550

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

See “Where You Can Find More Information” beginning on page 228 of this proxy statement.

Except as otherwise specifically noted in this proxy statement “Cempra,” “we,” “our,” “us” and similar words refer to Cempra, Inc., including in certain cases, our subsidiaries. Throughout this proxy statement, we refer to Melinta Therapeutics, Inc. as “Melinta” and we refer to the Agreement and Plan of Merger and Reorganization, dated as of August 8, 2017, as amended on September 6, 2017, among Cempra, Castle Acquisition Corp., and Melinta, as it may be further amended from time to time, as the “merger agreement.” References in this proxy statement to the “combined company” refer to Cempra and Melinta, together with their respective subsidiaries, following the completion of the merger.

 


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In addition, throughout this proxy statement, we refer to the stockholders of Cempra as the “Cempra stockholders,” the stockholders of Melinta as the “Melinta stockholders” and the transactions contemplated by the merger agreement, including the issuance of Cempra common stock to the Melinta stockholders, as, collectively, the “merger.”

Except as specifically indicated, the following information and all other information in this proxy statement does not give effect to the reverse stock split described in Proposal 3.

NOTE REGARDING TRADEMARKS

Cempra™ is Cempra’s trade name, the Cempra logo is Cempra’s trademark and Taksta® is Cempra’s registered trademark.

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

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

 


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING AND THE MERGER

     1  

SUMMARY

     13  

Combined Business Summary

     13  

The 2017 Annual Meeting

     22  

The Parties

     23  

Summary of the Merger

     24  

Reasons for the Merger

     24  

Opinion of Cempra’s Financial Advisor

     24  

Overview of the Merger Agreement

     25  

Stockholder Agreements

     27  

The Board of Directors and Management Following the Merger

     28  

Interests of Cempra’s Directors and Executive Officers

     28  

Interests of Melinta’s Directors and Executive Officers

     28  

Certain U.S. Federal Income Tax Considerations

     29  

Risk Factors

     29  

Regulatory Approvals

     29  

Anticipated Accounting Treatment

     29  

Appraisal Rights

     29  

Comparison of Stockholder Rights

     30  

SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA

     31  

MARKET PRICE AND DIVIDEND INFORMATION

     37  

RISK FACTORS

     39  

Risks Related to the Merger

     39  

Risks Related to the Reverse Stock Split

     44  

Risks Related to Cempra

     45  

Risks Related to Melinta

     45  

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

     45  

Risks Related to Regulatory Review and Approval of Melinta’s Product Candidates

     47  

Risks Related to Melinta’s Business

     49  

Risks Related to Melinta’s Intellectual Property

     56  

FORWARD-LOOKING STATEMENTS

     58  

THE 2017 ANNUAL MEETING

     59  

Date, Time and Place

     59  

Purposes of the 2017 Annual Meeting

     59  

Recommendation of Cempra’s Board of Directors

     60  

Record Date and Stockholders Entitled to Vote

     60  

Voting Procedures

     60  

Revoking Your Proxy Instructions

     61  

Counting Votes

     61  

No Dissenters’ Rights or Appraisal Rights

     63  

Solicitation of Proxies

     63  

Adjournments and Postponements

     63  

Voting by Cempra’s Directors, Executive Officers and Principal Stockholders

     64  

Assistance

     64  

THE PARTIES

     65  

THE MERGER

     66  

Background of the Merger

     66  

Cempra’s Reasons for the Merger

     77  

Opinion of Cempra’s Financial Advisor

     82  

Certain Financial Projections

     91  

 

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Interests of Cempra’s Directors and Executive Officers in the Merger

     104  

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

     108  

Certain U.S. Federal Income Tax Considerations

     110  

Anticipated Accounting Treatment

     111  

THE MERGER AGREEMENT

     115  

Form of the Merger

     115  

Effective Time of the Merger

     115  

Merger Consideration

     115  

Stock Options and Warrants

     118  

Determination of Cempra Cash Balance

     118  

Regulatory Approvals

     119  

NASDAQ Listing

     120  

Appraisal Rights

     120  

Amendments to Cempra’s Certificate of Incorporation and Bylaws

     120  

Conditions to the Completion of the Merger

     120  

No Solicitation

     123  

Meeting of Cempra Stockholders and Melinta Stockholder Approval

     124  

Directors and Officers Following the Merger

     125  

Indemnification of Directors and Officers

     125  

Conduct of Business Pending the Merger

     126  

Other Agreements

     127  

Termination

     129  

Termination Fee

     130  

Representations and Warranties

     131  

Amendment

     132  

AGREEMENTS RELATED TO THE MERGER

     132  

MATTERS BEING SUBMITTED TO A VOTE OF CEMPRA STOCKHOLDERS

     134  

Proposal 1: Approval of the Issuance of Common Stock in the Merger

     134  

Proposal 2a: Approval of Amendment to Cempra’s Certificate of Incorporation to Increase the Number of Authorized Shares of Cempra Common Stock from 80,000,000 to 250,000,000

     134  

Proposal 2b: Approval of Amendment to Cempra’s Certificate of Incorporation to Change the Name of Cempra to “Melinta Therapeutics, Inc.”

     135  

Proposal 2c: Approval of Amendment to Cempra’s Certificate of Incorporation to Elect for Cempra not to be Governed by or Subject to Section 203 of the DGCL

     136  

Proposal 3: Approval of the Reverse Stock Split

     137  

Proposal 4: Election of Class III Directors

     142  

Proposal 5: Advisory Vote on Executive Compensation

     146  

Proposal 6: Ratification of Appointment of Independent Registered Accounting Firm

     147  

Proposal 7: Approval of Possible Adjournment of the 2017 Annual Meeting

     148  

CEMPRA’S BUSINESS

     149  

CEMPRA’S PROPERTY

     149  

MELINTA’S BUSINESS

     150  

CEMPRA’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     162  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT CEMPRA’S MARKET RISK

     162  

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

     163  

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

     185  

DESCRIPTION OF CEMPRA’S CAPITAL STOCK

     195  

Authorized Capital Stock

     195  

Common Stock

     195  

Listing

     195  

 

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Transfer Agent and Registrar

     195  

Preferred Stock

     195  

Stock Options

     196  

Registration Rights

     196  

Provisions of Cempra’s Certificate of Incorporation and By-Laws and Delaware Anti-Takeover Law

     197  

AUDITOR AND AUDIT COMMITTEE MATTERS

     199  

Fees Paid to the Independent Registered Public Accounting Firm

     199  

CORPORATE GOVERNANCE

     201  

Information About the Board of Directors and its Committees

     201  

Board Composition

     201  

Selection of Nominees for the Board of Directors

     201  

Board Committees

     202  

Audit Committee

     202  

Compensation Committee

     203  

Nominating and Governance Committee

     203  

Information Regarding Meetings of the Board and Committees

     203  

Risk Oversight

     203  

DIRECTOR COMPENSATION

     204  

Director Compensation in Fiscal 2016

     204  

Director Compensation Plan

     204  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     205  

COMPENSATION DISCUSSION AND ANALYSIS

     206  

Executive Summary

     206  

Overview

     206  

Compensation Objectives

     206  

Components of the Executive Compensation Program

     208  

2016 Executive Compensation

     209  

2016 Performance Objectives and Achievement

     210  

Other Compensation

     211  

Compensation Consultant Agreement

     212  

Stock Ownership Requirements

     212  

Anti-Hedging and Anti-Pledging Policy

     212  

Employment and Severance Agreements

     212  

Tax and Accounting Considerations

     214  

Pension Benefits

     214  

Nonqualified Deferred Compensation

     214  

Grants of Plan-Based Awards

     216  

Extension of Option Exercise Period

     218  

Option Exercises

     218  

Option Repricings

     219  

Potential Payments on Termination and Change of Control

     219  

Risk Oversight

     220  

Compensation Committee Report

     220  

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     221  

STOCKHOLDER COMMUNICATIONS

     221  

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT OF CEMPRA

     222  

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT OF MELINTA

     225  

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     228  

WHERE YOU CAN FIND MORE INFORMATION

     228  

HOUSEHOLDING

     228  

FUTURE STOCKHOLDER PROPOSALS

     229  

DIRECTIONS TO 2017 ANNUAL MEETING

     229  

CEMPRA FINANCIAL STATEMENTS

     F-1  

MELINTA FINANCIAL STATEMENTS

     F-2  

 

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Annex A-1

   Agreement and Plan of Merger and Reorganization, dated as of August 8, 2017, among Cempra, Inc., Castle Acquisition, Corp. and Melinta Therapeutics, Inc.

Annex A-2

   Amendment to Agreement and Plan of Merger and Reorganization, dated as of September 6, 2017, among Cempra, Inc., Castle Acquisition, Corp. and Melinta Therapeutics, Inc.

Annex B-1

   Cempra’s Annual Report on Form 10-K for the year ended December 31, 2016

Annex B-2

   Amendment No. 1 on Form 10-K/A to Cempra’s Annual Report on Form 10-K for the year ended December 31, 2016

Annex B-3

   Cempra’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017

Annex C

   Opinion of Cempra’s Financial Advisor

Annex D-1

   Voting and Lock-Up Agreement, dated as of August 8, 2017, between Melinta Therapeutics, Inc. and the Cempra stockholders party thereto

Annex D-2

   Voting and Lock-Up Agreement, dated as of August 8, 2017, between Cempra, Inc. and the Melinta stockholders party thereto

Annex E-1

   Form of Registration Rights Agreement

Annex E-2

   Consent and Waiver Agreement, dated as of August 8, 2017, among Cempra, Inc. and the Investors party thereto

Annex F

   Amended and Restated Certificate of Amendment to the Certificate of Incorporation of Cempra, Inc. (increase authorized shares; name change; opt-out of Section 203 of the DGCL)

Annex G

   Certificates of Amendment to the Certificate of Incorporation of Cempra, Inc. (reverse stock split and related matters)

 

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QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING

AND THE MERGER

Except as specifically indicated, the following information and all other information in this proxy statement does not give effect to the reverse stock split described in Proposal 3.

The following section provides answers to frequently asked questions about the 2017 Annual Meeting and the merger. This section, however, only provides summary information. These questions and answers may not address all issues that may be important to you as a stockholder. For a more complete response to these questions and for additional information, please refer to the cross-referenced pages below. You should carefully read this entire proxy statement, including each of the Annexes attached hereto.

 

Q: Why am I receiving this proxy statement?

 

A: You are receiving this proxy statement because you have been identified as a stockholder of Cempra as of the record date, and thus you are entitled to vote at Cempra’s 2017 Annual Meeting. This document serves as a proxy statement used to solicit proxies for the 2017 Annual Meeting. This document contains important information about the merger and the 2017 Annual Meeting of Cempra, and you should read it carefully.

 

Q: When and where is 2017 Annual Meeting?

 

A: The 2017 Annual Meeting will be held on [●], 2017, at [●] [a.m.] local time, at [●] at [●].

 

Q: Who is entitled to vote at the 2017 Annual Meeting?

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

 

Q: What proposals will be considered at the 2017 Annual Meeting?

 

A: At the 2017 Annual Meeting, you will be asked to consider and vote on the following proposals:

 

    a proposal to approve the issuance of Cempra common stock pursuant to the merger agreement;

 

    a proposal to amend Cempra’s certificate of incorporation to:

 

    increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000, the approval of which is necessary to enable Cempra to issue the required number of shares of Cempra common stock to Melinta stockholders in connection with the merger;

 

    change the name of Cempra to “Melinta Therapeutics, Inc.”; and

 

    elect for Cempra not to be governed by or subject to Section 203 of the DGCL.

 

    a proposal to approve amendments to Cempra’s certificate of incorporation to effect the reverse stock split;

 

    a proposal to elect three Class III directors for a three-year term expiring in 2020;

 

    a proposal to approve on a non-binding advisory basis Cempra’s 2016 executive compensation;

 

    a proposal to ratify the appointment of PricewaterhouseCoopers LLP as Cempra’s independent registered public accounting firm for the fiscal year ending December 31, 2017;

 

    a proposal to consider and vote on a proposal to adjourn the 2017 Annual Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2017 Annual Meeting to approve items 1, 2a, 2b, 2c or 3 above; and


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    a proposal to transact such other business as may properly come before the 2017 Annual Meeting or any adjournment or postponement thereof.

 

Q: What is the merger?

 

A: Cempra and Melinta have entered into an Agreement and Plan of Merger and Reorganization, dated as of August 8, 2017, as amended on September 6, 2017, that contains the terms and conditions of the proposed business combination of Cempra and Melinta. Under the merger agreement, Castle Acquisition Corp., a wholly owned subsidiary of Cempra, will merge with and into Melinta, with Melinta surviving as a wholly owned subsidiary of Cempra. This transaction is referred to as the merger. Had the merger been consummated on August 8, 2017, after market close, Cempra would have issued to Melinta stockholders an aggregate of approximately 58.3 million shares of Cempra common stock, and would have assumed Melinta options and warrants that represented an aggregate of approximately 4.2 million shares of Cempra common stock if all such options and warrants were exercised, after adjusting such options and warrants by the exchange ratio and without taking into account the proceeds from the exercise of such option and warrants, in each case subject to adjustment as a result of the reverse stock split. Immediately following the effective time of the merger, Melinta stockholders are expected to own, on a fully-diluted basis as calculated under the treasury stock method, approximately 51.9%, and Cempra’s current stockholders are expected to own approximately 48.1%, of Cempra common stock. The final number of shares and the resulting ownership split between Cempra stockholders and Melinta stockholders will be subject to adjustments at the closing of the merger based on Cempra’s cash levels (net of debt and transaction expenses) and Melinta’s debt levels (above a permitted amount) and transaction expenses as described further in the section entitled “The Merger Agreement—Merger Consideration” beginning on page 115 of this proxy statement. The merger will be accounted for as a reverse merger.

For a more complete description of the merger, please see the section entitled “The Merger Agreement” beginning on page 115 of this proxy statement. For a discussion of the accounting treatment for the merger, see the section entitled “The Merger—Anticipated Accounting Treatment” beginning on page 111 of this proxy statement.

 

Q: What will happen if Cempra stockholders do not vote to approve the issuance of Cempra common stock pursuant to the merger agreement described in Proposal 1 or the amendment to the certificate of incorporation of Cempra described in Proposal 2a?

 

A: Stockholder approval of the issuance of Cempra common stock pursuant to the merger agreement described in Proposal 1 and of the amendment to the certificate of incorporation of Cempra described in Proposal 2a are conditions to the consummation of the merger. If either of these proposals are not approved, the merger agreement may be terminated by Cempra or Melinta. In the event of termination for failure of Cempra stockholders to approve the stock issuance described in Proposal 1 or the amendment to the certificate of incorporation of Cempra described in Proposal 2a, Cempra will be required to pay to Melinta up to $2.0 million of out-of-pocket costs incurred by Melinta in connection with the transactions, and, should certain other triggering events occur, Cempra will be required to pay to Melinta a termination fee of $7.9 million (which amount would be reduced by any prior expense reimbursement). For additional information relating to termination rights under the merger agreement, please refer to the sections below entitled “The Merger Agreement—Termination” and “The Merger Agreement—Termination Fee” beginning on pages 129 and 130, respectively.

 

Q: What will happen to Cempra if, for any reason, the merger with Melinta does not close?

 

A:

Cempra has invested significant time and incurred, and expects to continue to incur, significant expenses related to the proposed merger with Melinta. In the event the merger does not close, Cempra will have limited ability to launch any approved product candidates without obtaining additional financing. Although

 

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  Cempra’s board of directors may elect to, among other things, attempt to complete another strategic transaction if the merger with Melinta does not close, Cempra’s board of directors may instead divest all or a portion of Cempra’s business or take steps necessary to liquidate or dissolve Cempra’s business and assets if a viable alternative strategic transaction is not available.

 

Q: Why is Cempra proposing to merge with Melinta?

 

A: Cempra’s board of directors considered a number of factors that supported its decision to approve the merger agreement. In the course of its deliberations, Cempra’s board of directors also considered a variety of risks and other countervailing factors related to entering into the merger agreement.

For a more complete discussion of Cempra’s reasons for the merger, please see the section entitled “The Merger—Cempra’s Reasons for the Merger” beginning on page 77 of this proxy statement.

 

Q: What is required to consummate the merger?

 

A: To consummate the merger, Cempra stockholders must approve (1) the issuance of shares of Cempra common stock in the merger, which requires the affirmative vote of the holders of a majority of the shares of Cempra common stock present in person or represented by proxy and entitled to vote on the matter at the 2017 Annual Meeting and (2) the amendment of Cempra’s certificate of incorporation to increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000, which requires the affirmative vote of the holders of a majority of the outstanding shares of Cempra common stock as of the record date for the 2017 Annual Meeting. In addition, Melinta stockholders must adopt the merger agreement, which requires the affirmative vote of (a) the holders of a majority of the shares of Melinta’s capital stock outstanding and (b) a majority of the issued and outstanding shares of Melinta’s Series 2 Preferred Stock, Series 3 Preferred Stock and Series 4 Preferred Stock, voting together as a single class. On August 8, 2017, by the requisite vote, the stockholders of Melinta adopted the merger agreement pursuant to a written consent in lieu of a meeting, and on September 6, 2017, by the requisite vote, the stockholders of Melinta adopted the merger agreement as amended by the Amendment to Agreement and Plan of Merger and Reorganization, dated as of September 6, 2017, or the merger agreement amendment, and approved the merger and related transactions pursuant to the terms of the merger agreement, as amended. In addition to obtaining stockholder approval, each of the other closing conditions set forth in the merger agreement must be satisfied or waived.

For a more complete description of the closing conditions under the merger agreement, please see the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 120 of this proxy statement.

 

Q: Are there any federal or state regulatory requirements that must be complied with or federal or state regulatory approvals or clearances that must be obtained in connection with the merger?

 

A: Under the Hart–Scott–Rodino Antitrust Improvements Act of 1976, as amended, or the HSR Act, and the rules and regulations promulgated thereunder, Cempra and Melinta are required to make certain filings with the Antitrust Division of the U.S. Department of Justice, or the DOJ, and the U.S. Federal Trade Commission, or the FTC. The merger may not be consummated until the applicable waiting period under the HSR Act has expired or has been terminated. Cempra and Melinta each filed their respective notification and report forms with the DOJ and the FTC under the HSR Act on August 25, 2017. Accordingly, the initial waiting period will expire at 11:59 p.m., Eastern time, on September 25, 2017, unless the waiting period is earlier terminated by the DOJ and the FTC or extended by a request from the DOJ or the FTC for additional information or documentary material from Cempra or Melinta prior to that time.

In the United States, Cempra must comply with applicable federal and state securities laws and NASDAQ rules and regulations in connection with the issuance of shares of Cempra common stock in the merger,

 

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including the filing with the SEC of this proxy statement. Prior to consummation of the merger, Cempra intends to file an initial listing application with the NASDAQ Global Market pursuant to NASDAQ Rule 5110(a) and to effect the initial listing of Cempra common stock issuable in connection with the merger or upon exercise of Melinta’s outstanding stock options or warrants.

 

Q: What will Melinta stockholders receive in the merger?

 

A: The shares of Cempra common stock issued or issuable to Melinta stockholders in connection with the merger are expected to represent, on a fully-diluted basis as calculated under the treasury stock method, approximately 51.9%, and shares of Cempra common stock held by Cempra’s current stockholders are expected to represent approximately 48.1%, of Cempra common stock immediately following the effective time of the merger. The final number of shares and the resulting ownership split between Cempra stockholders and Melinta stockholders will be subject to adjustments at the closing of the merger based on Cempra’s cash levels (net of debt and transaction expenses) and Melinta’s debt levels (above a permitted amount) and transaction expenses as described further in the section entitled “The Merger Agreement—Merger Consideration” beginning on page 115 of this proxy statement.

At the effective time of the merger, each share of Melinta common stock will be converted into and exchanged for the right to receive a number of shares of Cempra common stock equal to the exchange ratio calculated in accordance with the merger agreement, except that shares held by stockholders who do not meet the definition of an “accredited investor” under Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended, or the Securities Act, will receive a per-share cash payment based on the closing price of Cempra common stock on the closing date of the merger multiplied by the exchange ratio. The exact exchange ratio per share of Melinta common stock will be based in part on the number of Melinta’s and Cempra’s common stock outstanding or issuable pursuant to outstanding options and warrants immediately prior to the effective time of the merger and the volume weighted average closing price of Cempra common stock on the NASDAQ Global Market for the ten trading days preceding the closing of the merger and will not be calculated until the closing date of the merger.

For a more complete discussion of the exchange ratio at the effective time of the merger, please see the section entitled “The Merger Agreement—Merger Consideration” beginning on 115 of this proxy statement.

 

Q: Who will be the directors and executive officers of the combined company following the merger?

 

A: At the effective time of the merger, the board of directors of Cempra will be reconstituted. The combined company will initially have a nine member board of directors, comprised of four directors designated by Cempra, four directors designated by Melinta (one of whom will be chairman of the board, designated by Melinta) and a newly appointed Chief Executive Officer. Melinta and Cempra have created a CEO selection committee, comprised of an equal number of Melinta directors and Cempra directors, which intends to recommend to Cempra and Melinta an appropriate individual to serve as the successor CEO as of the closing of the merger. An executive search firm has been retained to identify the CEO for the combined company and the search is ongoing. If a jointly chosen CEO is not appointed as of the closing of the merger, the initial chairman of the board (or another person unanimously agreed by the CEO selection committee) will serve as interim Chief Executive Officer.

At least ten days prior to the closing of the merger, Cempra intends to file an information statement with the SEC pursuant to Section 14(f) of the Exchange Act and Rule 14(f)-1 thereunder setting forth information regarding the Cempra and Melinta designees who will be appointed to the combined company’s board of directors at the effective time of the merger.

Additionally, the merger agreement provides that, immediately after the effective time of the merger, Cempra shall terminate the employment of its Acting Chief Executive Officer as an officer of Cempra and its subsidiaries, to be replaced by the successor Chief Executive Officer (or interim Chief Executive Officer,

 

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as applicable). The remainder of the combined company’s officers have not yet been identified, but the parties expect to identify these individuals prior to the closing of the merger.

 

Q: What are the material federal income tax consequences of the reverse stock split and the merger to me?

 

A: Except as with respect to cash received in lieu of a fractional share, Cempra stockholders generally will not recognize gain or loss as a result of the reverse stock split. Cempra stockholders that, pursuant to the reverse stock split, receive cash in lieu of a fractional share will recognize capital gain or loss in an amount equal to the difference, if any, between the amount of cash received and the portion of the Cempra stockholder’s aggregate adjusted tax basis in the shares of Cempra common stock surrendered that is allocated to such fractional share.

Cempra stockholders will not sell, exchange or dispose of any shares of Cempra common stock as a result of the merger. Therefore, there will be no material U.S. federal income tax consequences to Cempra stockholders as a result of the merger.

For a more complete description of the tax consequences of the reverse stock split and the merger, please see the section entitled “The Merger—Certain U.S. Federal Income Tax Considerations” beginning on page 110 of this proxy statement.

 

Q: Why is Cempra seeking stockholder approval to issue shares of common stock to existing stockholders of Melinta?

 

A: Because Cempra common stock is listed on the NASDAQ Global Market, Cempra is subject to NASDAQ Listing Rules. Rule 5635 of NASDAQ Listing Rules requires stockholder approval if, as is the case here, a listed company issues common stock or securities convertible into or exercisable for common stock in a private placement equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock. Accordingly, Cempra is seeking stockholder of approval of this issuance under NASDAQ Listing Rules.

 

Q: What is the reverse stock split and why is it necessary?

 

A: Immediately prior to the effective time of the merger, if the reverse stock split is approved and Cempra’s board of directors has determined, in its discretion, to implement it, the outstanding shares of Cempra common stock will be reclassified and combined into a lesser number of shares to be determined by Cempra’s board of directors prior to the effective time and publicly announced by Cempra. Pursuant to the merger agreement, Cempra agreed to use its commercially reasonable efforts to maintain its existing listing on the NASDAQ Global Market (or else, the NASDAQ Capital Market) and to cause the shares of Cempra common stock being issued in the merger to be approved for listing on the NASDAQ Global Market (or else, the NASDAQ Capital Market) at or prior to the effective time of the merger. Under applicable marketplace rules established by NASDAQ, the combined company is required to comply with the initial listing standards of the applicable NASDAQ market to continue to be listed on such market following the merger. The NASDAQ Global Market’s initial listing standards require a company to have, among other things, a $4.00 per share minimum bid price and the NASDAQ Capital Market’s initial listing standards require a company to have, among other things, a $4.00 per share minimum bid price. Because the current price of Cempra common stock is less than the required minimum bid prices, the reverse stock split is necessary to obtain approval of the listing of the combined company and the shares of Cempra common stock being issued in the merger on either market.

 

Q: What risks should Cempra stockholders consider in deciding whether to vote in favor of the share issuance, reverse stock split and name change?

 

A:

Cempra stockholders should carefully read the section of this proxy statement entitled “Risk Factors” beginning on page 39, which sets forth certain risks and uncertainties related to the merger and reverse

 

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  stock split, risks and uncertainties to which the combined company’s business will be subject, risks and uncertainties to which Cempra, as an independent company, is subject and risks and uncertainties to which Melinta, as an independent company, is subject.

 

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

 

A: Cempra and Melinta anticipate that the consummation of the merger will occur in the fourth quarter of 2017 as promptly as practicable after the 2017 Annual Meeting and following satisfaction or waiver of all closing conditions. However, the exact timing of the consummation of the merger is not yet known. For a more complete description of the closing conditions under the merger agreement, please see the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 120 of this proxy statement.

 

Q: How will the merger affect stock options and warrants to acquire Melinta common stock?

 

A Upon the effectiveness of the merger, each outstanding option to purchase Melinta common stock, whether vested or unvested, and all warrants to purchase Melinta common stock will be assumed by Cempra and become options and warrants to purchase Cempra common stock. Each assumed option and warrant and their respective exercise price, if any, shall be adjusted based on the exchange ratio calculated in accordance with the merger agreement.

 

Q: How will the reverse stock split and the merger affect stock options and warrants to acquire Cempra common stock and Cempra’s stock option plans?

 

A: As of the effective time of the reverse stock split, Cempra will adjust and proportionately decrease the number of shares of Cempra common stock reserved for issuance upon exercise of, and adjust and proportionately increase the exercise price of, all options and warrants to acquire Cempra common stock. All stock options and warrants to acquire shares of Cempra common stock that are outstanding immediately prior to the effective time of the merger will remain outstanding following the effective time of the merger. In addition, as of the effective time of the reverse stock split, Cempra will adjust and proportionately decrease the total number of shares of Cempra common stock that may be the subject of future grants under Cempra’s stock options plans.

 

Q: Should Melinta’s stockholders send in their stock certificates now?

 

A: No. After the merger is consummated, Melinta stockholders will receive written instructions from the exchange agent for exchanging their certificates representing shares of Melinta capital stock for book-entry entitlements representing shares of Cempra common stock (or, in the case of non-accredited Melinta stockholders receiving a cash payment pursuant to the merger agreement, for cash). Melinta stockholders will also receive a cash payment for any fractional shares.

Cempra stockholders will also receive a cash payment for any fractional shares resulting from the reverse stock split.

 

Q: Am I entitled to appraisal rights?

 

A: Cempra stockholders are not entitled to appraisal rights in connection with the merger or any of the proposals to be voted on at the 2017 Annual Meeting.

 

Q: Have Melinta stockholders agreed to adopt the merger agreement?

 

A:

Yes. On August 8, 2017, Melinta stockholders adopted the merger agreement and approved the merger and related transactions, and on September 6, 2017, Melinta stockholders approved the merger agreement

 

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  amendment, adopted the merger agreement, as amended, and approved the merger and related transactions, pursuant to the terms of the merger agreement, as amended, in each case pursuant to a written consent in lieu of a meeting.

In addition, in connection with the execution of the merger agreement, holders beneficially owning, as of August 8, 2017, approximately 91.5% of the shares of Melinta’s outstanding capital stock, including Melinta’s directors and executive officers, have entered into voting and lock-up agreements with Cempra that provide, among other things, that such stockholders shall vote in favor of the adoption of the merger agreement and against any proposal made in opposition to, or in any competition with, the merger.

 

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

 

A: Yes. In connection with the execution of the merger agreement, holders beneficially owning as of August 8, 2017, approximately 11.5% of the shares of Cempra’s outstanding common stock, including Cempra’s directors and executive officers, have entered into voting and lock-up agreements with Melinta that provide, among other things, that such stockholders shall vote in favor of the adoption of the merger agreement and against any proposal made in opposition to, or in any competition with, the merger.

 

Q: Has Cempra or Melinta entered into any agreements with Melinta’s and Cempra’s stockholders restricting the transfer of shares of their common stock?

 

A: Yes. The voting and lock-up agreements described above place restrictions on the transfer of the shares of Cempra and Melinta capital stock held by the respective signatory stockholders, both before, and for 180 days following, the closing of the merger.

 

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

 

A: After careful consideration, Cempra’s board of directors unanimously recommends that Cempra stockholders vote:

 

    FOR Proposal 1 to approve the issuance of Cempra common stock in connection with the merger;

 

    FOR Proposal 2a to increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000;

 

    FOR Proposal 2b to change the name of Cempra to “Melinta Therapeutics, Inc.”;

 

    FOR Proposal 2c to elect for Cempra not to be governed by or subject to Section 203 of the DGCL;

 

    FOR Proposal 3 to approve amendments to Cempra’s certificate of incorporation to effect the reverse stock split;

 

    FOR Proposal 4 to elect three Class III directors for a three-year term expiring in 2020;

 

    FOR Proposal 5 to approve on a non-binding advisory basis Cempra’s 2016 executive compensation;

 

    FOR Proposal 6 to ratify the appointment of PricewaterhouseCoopers LLP as Cempra’s independent registered public accounting firm for the fiscal year ending December 31, 2017; and

 

    FOR Proposal 7 to approve an adjournment of the 2017 Annual Meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposals 1, 2a, 2b, 2c or 3.

 

Q: May I vote in person?

 

A:

If you are a stockholder of Cempra and your shares of Cempra common stock are registered directly in your name with Cempra’s transfer agent, Computershare Trust Company, N.A., you are considered, with respect

 

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  to those shares, the stockholder of record, and the proxy materials and proxy card are being sent directly to you by Cempra. If you are a Cempra stockholder of record, you may attend the 2017 Annual Meeting to be held on [●], 2017 and vote your shares in person, rather than signing and returning your proxy.

If your shares of Cempra common stock are held by a bank, broker or other nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you together with a voting instruction card by such bank, broker or other nominee. As the beneficial owner, you are also invited to attend the 2017 Annual Meeting. Since a beneficial owner is not the stockholder of record, you may not vote these shares in person at the 2017 Annual Meeting unless you obtain a proxy from your broker issued in your name giving you the right to vote the shares at the 2017 Annual Meeting.

 

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

 

A: Generally, if shares are held in street name, the beneficial owner of the shares is entitled to give voting instructions to the broker or nominee holding the shares. If the beneficial owner does not provide voting instructions, the broker or nominee can still vote the shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters, as discussed further below. Your broker will not be able to vote your shares of Cempra common stock without specific instructions from you for “non-routine” matters.

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

 

Q: What are “broker non-votes”?

 

A: If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute “broker non-votes.” “Broker non-votes” occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. These matters are referred to as “non-routine” matters. Since brokers are permitted to vote on “routine” matters without instructions from the beneficial owner, “broker non-votes” do not occur with respect to “routine” matters. Proposal 1 to approve the issuance of Cempra common stock pursuant to the merger agreement, Proposal 2a to approve the amendment to Cempra’s certificate of incorporation to increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000, Proposal 2b to approve the amendment to Cempra’s certificate of incorporation to change the name of Cempra to “Melinta Therapeutics, Inc.,” Proposal 2c to approve the amendment to Cempra’s certificate of incorporation to elect for Cempra not to be governed by or subject to Section 203 of the DGCL, Proposal 3 to approve amendments to Cempra’s certificate of incorporation to effect the reverse stock split, Proposal 4 to elect three Class III directors, Proposal 5 to approve on a non-binding advisory basis Cempra’s 2016 executive compensation, and Proposal 7 to adjourn the 2017 Annual Meeting to solicit additional proxies if there are not sufficient votes in favor of Proposals 1, 2a, 2b, 2c or 3 are “non-routine matters.” Proposal 6 to ratify the appointment of PricewaterhouseCoopers LLP as Cempra’s registered public accounting firm for the fiscal year ending December 31, 2017 is a routine matter. However, when a matter to be voted on is the subject of a contested solicitation, banks, brokers and other nominees do not have discretion to vote your shares with respect to any proposal to be voted on.

 

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

 

A:

If you are a stockholder with shares registered in your name with Cempra’s transfer agent, Computershare Trust Company, N.A., on the record date, you may vote in person at the 2017 Annual Meeting or vote by proxy by telephone or internet or by mail. Whether or not you plan to attend the 2017 Annual Meeting, please vote as soon as possible to ensure your vote is counted. You may still attend the 2017 Annual Meeting and vote in person even if you have already voted by proxy. For more detailed instructions on how

 

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  to vote using one of these methods, please see the section of this proxy statement entitled “The 2017 Annual Meeting—Voting Procedures” beginning on page 60.

 

    To vote in person. You may attend the 2017 Annual Meeting and Cempra will give you a ballot when you arrive. If you need directions to the meeting, please refer to page 229 of this proxy statement.

 

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

 

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

 

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

If you are a beneficial owner of shares registered in the name of your broker, bank, dealer or other similar organization, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from Cempra. Simply complete and mail the proxy card to ensure that your vote is counted. Alternatively, you may vote by telephone or over the internet as instructed by your broker or other agent. To vote in person at the 2017 Annual Meeting, you must obtain a valid proxy from your broker or other agent. Follow the instructions from your broker or other agent included with these proxy materials, or contact your broker or bank to request a proxy form.

 

Q: How many votes do I have?

 

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

 

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

 

A: If you return a signed and dated proxy card without marking any voting selections, your shares will be voted “FOR” the approval of the issuance of Cempra common stock pursuant to the merger agreement, “FOR” the amendment to Cempra’s certificate of incorporation to increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000, “FOR” the amendment to Cempra’s certificate of incorporation to change the name of Cempra to “Melinta Therapeutics, Inc.,” “FOR” the amendment to Cempra’s certificate of incorporation to elect for Cempra not to be governed by or subject to Section 203 of the DGCL, “FOR” the amendments to Cempra’s certificate of incorporation to effect the reverse stock split, “FOR” the election of three Class III directors, “FOR” the approval of Cempra’s 2016 executive compensation, “FOR” the appointment of PricewaterhouseCoopers LLP as Cempra’s registered public accounting firm for the fiscal year ending December 31, 2017 and “FOR” the adjournment of the 2017 Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposals 1, 2a, 2b, 2c or 3. If any other matter is properly presented at the 2017 Annual Meeting, your proxyholder (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.

 

Q: What other matters may arise at the 2017 Annual Meeting?

 

A: Other than the proposals described in this proxy statement, Cempra does not expect any other matters to be presented for a vote at the 2017 Annual Meeting. If any other matter is properly brought before the 2017 Annual Meeting, your proxy gives authority to the individuals named on your proxy card to vote on such matters in their discretion.

 

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Q: What constitutes a quorum for purposes of the 2017 Annual Meeting?

 

A: A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if stockholders holding at least a majority of the issued and outstanding shares entitled to vote are present or represented by proxy at the 2017 Annual Meeting. On the record date, there were [●] shares of Cempra common stock issued and outstanding and entitled to vote. Accordingly, the holders of [●] shares must be present at the 2017 Annual Meeting to have a quorum. Your shares will be counted toward the quorum at the 2017 Annual Meeting only if you vote in person at the meeting, you submit a valid proxy vote or your broker, bank, dealer or similar organization submits a valid proxy vote.

 

Q: How many votes are needed to approve each proposal?

 

A: The following votes are required to approve each proposal:

 

    Proposal 1To approve the issuance of Cempra common stock pursuant to the merger agreement. “FOR” votes from the holders of a majority of the shares of Cempra common stock present in person or represented by proxy and entitled to vote on the matter at the 2017 Annual Meeting are required to approve this proposal.

 

    Proposal 2a—To approve an amendment to Cempra’s certificate of incorporation to increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000, the approval of which is necessary to enable Cempra to issue the required number of shares of Cempra common stock to Melinta stockholders in connection with the merger. “FOR” votes from the holders of a majority of the outstanding shares of Cempra common stock as of the record date for the 2017 Annual Meeting are required to approve this proposal.

 

    Proposal 2b—To approve an amendment to Cempra’s certificate of incorporation to change the name of Cempra to “Melinta Therapeutics, Inc.”. “FOR” votes from the holders of a majority of the outstanding shares of Cempra common stock as of the record date for the 2017 Annual Meeting are required to approve this proposal.

 

    Proposal 2c—To approve an amendment to Cempra’s certificate of incorporation to elect for Cempra not to be governed by or subject to Section 203 of the DGCL. “FOR” votes from the holders of a majority of the outstanding shares of Cempra common stock as of the record date for the 2017 Annual Meeting are required to approve this proposal.

 

    Proposal 3—To approve amendments to Cempra’s certificate of incorporation to effect the reverse stock split. “FOR” votes from the holders of a majority of the outstanding shares of Cempra common stock as of the record date for the 2017 Annual Meeting are required to approve this proposal.

 

    Proposal 4—To elect three Class III directors for a three-year term expiring in 2020. The three nominees receiving the most “FOR” votes (from the votes of shares cast in person or by proxy) will be elected.

 

    Proposal 5—To approve on a non-binding advisory basis Cempra’s 2016 executive compensation. “FOR” votes from the holders of a majority of the shares of Cempra common stock present in person or represented by proxy and entitled to vote on the matter at the 2017 Annual Meeting are required to approve this proposal.

 

    Proposal 6—To ratify the appointment of PricewaterhouseCoopers LLP as Cempra’s registered public accounting firm for the fiscal year ending December 31, 2017. “FOR” votes from the holders of a majority of the shares of Cempra common stock present in person or represented by proxy and entitled to vote on the matter at the 2017 Annual Meeting are required to approve this proposal.

 

   

Proposal 7—To approve the proposal to adjourn the 2017 Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposals. 1, 2a, 2b, 2c or 3. If a quorum is present at the 2017 Annual Meeting, “FOR” votes from the holders of a majority of the shares of

 

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Cempra common stock present in person or represented by proxy and entitled to vote on the matter at the 2017 Annual Meeting are required to approve this proposal. If a quorum is not present, either (i) the chairperson of the meeting or (ii) any officer entitled to preside at or to act as secretary of the meeting may adjourn the meeting.

Proposals 1 and 2a are conditioned upon each other, and the approval of each such proposal is a condition to the completion of the merger. Therefore, the completion of the merger cannot proceed without the approval of Proposals 1 and 2a.

 

Q: What happens if I do not return a proxy card or otherwise provide proxy instructions?

 

A: The failure to return your proxy card or otherwise provide proxy instructions will have the same effect as voting against Proposals 2a, 2b, 2c and 3.

 

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

 

A: Any Cempra stockholder of record voting by proxy, other than those Cempra stockholders who have executed a voting and lock-up agreement, has the right to revoke the proxy at any time before the polls close at the 2017 Annual Meeting by sending a written notice stating that he, she or it would like to revoke his, her or its proxy to the Corporate Secretary of Cempra, by providing a duly executed proxy card bearing a later date than the proxy being revoked or by attending the 2017 Annual Meeting and voting in person. Attendance alone at the 2017 Annual Meeting will not revoke a proxy. If a stockholder of Cempra has instructed a broker to vote its shares of Cempra common stock that are held in “street name,” the stockholder must follow directions received from its broker to change those instructions.

 

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

 

A: Yes. The Notice of Annual Meeting, this proxy statement and the Annexes attached hereto (including Cempra’s Annual Report on Form 10-K for the year ended December 31, 2016, as amended by Amendment No. 1 on Form 10-K/A, attached as Annexes B-1 and B-2 hereto) are available for viewing, printing, and downloading at www.investorvote.com. All materials will remain posted on www.investorvote.com at least until the conclusion of the meeting.

The Notice of Annual Meeting, this proxy statement and the Annexes attached hereto (including Cempra’s Annual Report on Form 10-K for the year ended December 31, 2016, as amended by Amendment No. 1 on Form 10-K/A, attached as Annexes B-1 and B-2 hereto) are also available, free of charge, in PDF and HTML format under the Investor Relations—Financial Information section of Cempra’s website at www.benefitfocus.com and will remain posted on such website at least until the conclusion of the meeting.

 

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

 

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

 

Q: What do I need to do now?

 

A: You are urged to read this proxy statement carefully, including each of the Annexes attached hereto, and to consider how the merger and the other proposals affect you. If your shares are registered directly in your name, you may complete, date and sign the enclosed proxy card and mail return it in the enclosed postage-paid envelope. Alternatively, you can vote by proxy by telephone or internet, deliver your completed proxy card in person or vote by completing a ballot in person at the 2017 Annual Meeting.

 

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Q: Who is paying for this proxy solicitation?

 

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

 

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

 

A: If you would like additional copies, without charge, of this proxy statement or if you have questions about the merger and the other proposals being considered at the 2017 Annual Meeting, including the procedures for voting your shares, you should contact Georgeson, Cempra’s proxy solicitor, by telephone at (866) 821-2550.

 

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PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION

SUMMARY

This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To better understand the merger and the other proposals being considered at the 2017 Annual Meeting, you should read this entire proxy statement carefully, including the materials attached as Annexes hereto. See “Where You Can Find More Information” beginning on page 228 of this proxy statement. Page references are included in parentheses to direct you to a more detailed description of the topics presented in this summary.

This proxy statement includes forward-looking statements within the meaning of Section 21E of the Exchange Act. For this purpose, any statements contained herein, other than statements of historical fact may be forward-looking statements under the provisions of The Private Securities Litigation Reform Act of 1995. In this proxy statement, words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “target,” “will,” “would” or other words that convey uncertainty of future events or outcomes are used to identify these forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. For more information, see the section entitled “Forward-Looking Statements” beginning on page 58 of this proxy statement.

Combined Business Summary

Overview

The combination of Melinta and Cempra will form a leading biopharmaceutical company focused on curing patients with serious, life-threatening bacterial infections. The relentless evolution of bacterial antibiotic resistance, coupled with the dearth of effective new antibiotics, has created an urgent public health threat.

In the United States, tens of millions of patients are treated annually for serious infections. According to the U.S. Centers for Disease Control and Prevention, or the CDC, an increasing number of bacteria are now resistant to every available antibiotic. The CDC estimates that each year in the United States at least two million people become infected with bacteria that are resistant to antibiotics and at least 23,000 people die each year as a result. By way of comparison, overdoses on prescription opioids, one element of the opioid public health crisis in the U.S., claim approximately 15,000 deaths per year in the U.S. At least one recent economic analysis estimates that, globally, approximately 700,000 people die every year from drug resistant strains of common bacterial infections, HIV, tuberculosis and malaria. This same analysis predicts that there will be approximately 10 million deaths from antimicrobial resistance by 2050 worldwide, exceeding cancer-related deaths over the same period, highlighting that serious action must be taken.

Without new antibiotics capable of treating ever more complex bacterial pathogens, we risk reversing one of the greatest triumphs of medicine and a return to the pre-antibiotic era, when common infections were untreatable and often fatal. Antibiotic-resistant infections add considerable and avoidable costs to the U.S. healthcare system. According to the CDC’s Antibiotic Resistance Threat Report, the total estimated financial cost to the U.S. of antibiotic resistance may range as high as $20 billion in excess direct healthcare costs, with additional societal costs for lost productivity as high as $35 billion a year.

The combined Melinta and Cempra pipelines, resources and people create a standalone entity with core competencies that can help to address this significant need for new antibiotics to treat serious infections, while exercising a firm commitment to antibiotic stewardship.

 



 

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Market Opportunity

Acute Bacterial Skin and Skin Structure Infections

More than 14 million patients in the U.S. are treated for ABSSSI (acute bacterial skin and skin structure infections, which refers to a bacterial infection of skin and associated soft tissues, such as cellulitis, wound infection, and abscess) on an annual basis. While the majority of these patients are treated successfully in the community, many patients will require treatment in Emergency Departments, or ED, and urgent care centers on an outpatient basis (estimated by Melinta to be 1.6 million), and a significant portion will receive treatment as hospital inpatients (2.9 million). In addition, patients with obesity and diabetes, two conditions of high and increasing prevalence in the U.S., are more susceptible to development of more complex skin infections that tend to have more gram- negative or mixed pathogens, typically requiring treatment with broader spectrum antibiotics. Many current treatments lack methicillin-resistant Staphylococcus aureus, or MRSA, coverage, which is an important treatment consideration because more than 35 percent of all skin infections are believed to have MRSA involvement.

Each of these settings possesses unique challenges in the care of ABSSSI patients, as follows:

Hospital Setting

The 2.9 million patients hospitalized with ABSSSI are often characterized by co-morbid complexity: a recent analysis of inpatient claims revealed that they are older, have higher rates of obesity (~50%), and suffer from conditions such as diabetes (31%) and cardiovascular disease such as hypertension (49%) at rates that are considerably higher than the rest of the U.S. population. In addition, this same analysis revealed that while only ~40% of patients had microbiology testing results, those who did had a high rate of MRSA infections (22%) as well as gram-negative or mixed infections (37%). Furthermore, two papers by Lipksy and colleagues (Lipsky, BA et al., Diagn Microbiol Infect Dis., 2014, 79(2), 273-279; Lipsky, BA et al., Diagn Microbiol Infect Dis., 2014, 79(2), 266-272) demonstrated that the patients whose infections have a gram-negative or mixed etiology receive inappropriate initial antibiotic therapy, or IIAT, at a significantly higher rate than patients with a gram-positive etiology alone. IIAT was determined to lead to a significantly longer length of stay and rate of composite economic outcome (defined as readmissions and unplanned office visits or ED visits after hospital discharge). Furthermore, many of the commonly utilized ABSSSI therapies present clinical obstacles such as drug-drug interactions, drug-disease interactions, safety and tolerability issues, and limited coverage spectrum, all of which make optimal antibiotic selection difficult. The aforementioned factors underscore the need for a new antibiotic treatment with the following features: i) broad spectrum of coverage for administration as empiric therapy, ii) a favorable safety and tolerability profile, iii) limited drug-drug and drug-disease interactions, and iv) intravenous, or IV, and oral formulations, to encourage improved outcomes with earlier hospital discharge.

Emergency Department and Urgent Care Settings

Patients who present to ED and urgent care centers are often subsequently admitted to the hospital, and, as such, present with the same or similar characteristics as patients who are hospitalized for ABSSSI. However, for the 1.6 million patients (as estimated by Melinta) treated in the ED and not admitted, physicians are even more limited by their inability to culture the infection and determine the appropriate antibiotic susceptibility. Therefore, the need for a broad-spectrum empiric therapy (therapy initiated prior to definitive pathogen identification, or in the absence of this information), with both IV and oral formulations which also possesses an attractive safety and tolerability profile is just as acute in this setting, particularly in patients in which MRSA or gram-negative pathogens are suspected. Furthermore, ED physicians value a therapy that allows them to treat and subsequently discharge a patient, thereby avoiding a hospital admission altogether. This is of particular interest for EDs in hospitals that participate in U.S. Centers for Medicare & Medicaid Services, or CMS, quality programs that reward or penalize hospitals based upon patient outcomes across the entire episode of care.

 



 

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Community Setting

Melinta estimates that approximately 11.6 million patients are treated in the community setting, which is comprised of a diversity of specialties, most, if not all, of which treat ABSSSI in various sub-settings. These include primary care physicians, office-based infectious disease physicians, podiatrists, stand-alone ED and urgent care centers, long-term care, wound care/burn units and ambulatory surgical centers. Physicians treating ABSSSI in the community setting often treat empirically because of the limitations in their access to cultures to identify antibiotic susceptibilities. In particular, physicians in the community setting value therapies with broad spectrum coverage including MRSA and gram-negative pathogens in those patients at risk for pathogens across the bacterial spectrum. Having an oral formulation is paramount, as physicians treating patients in the community need patients to be able to access and take prescriptions, which could prevent the need for hospital admission and/or expensive outpatient parenteral antibiotic therapy, or OPAT. Currently, there is no single product in the U.S. approved by the U.S. Food and Drug Administration, or FDA, that is labeled with a comparable spectrum of coverage and is available in both IV and oral formulations other than Baxdela.

 

 

LOGO

In addition to ABSSSI, other important antibiotic markets that the combined company will be positioned to pursue with the combined portfolio of assets include:

 

    Community-acquired bacterial pneumonia, or CABP—over six million patients annually in the U.S.

 

    Complicated urinary tract infections, or cUTI—up to seven million office visits annually in the U.S.

 

    Osteomyelitis / bone and joint infections, or BJI—up to one million patients annually in the U.S.

 

    Acne—up to 50 million patients annually in the U.S.

 

    Multi-drug resistant pathogens across indications—over two million antimicrobial-resistant infections from pathogens including ESKAPE (see ESKAPE Pathogen Program described further on page 20 of this proxy statement) across a variety of indications annually and growing.

 



 

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Combined Antibiotic Portfolio

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

 

 

LOGO

 



 

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

 

 

LOGO

Baxdela (delafloxacin)

Melinta’s portfolio of antibiotics is led by Baxdela, a commercial-stage asset with the potential to address multiple types of infections that offers a new option for monotherapy treatment of adult patients with ABSSSI in oral and IV formulations. Baxdela is a novel fluoroquinolone that exhibits activity against both gram-positive and gram-negative pathogens, including MRSA, and is available in both IV and oral formulations. On June 19, 2017, Baxdela received approval from the FDA for treatment of adult patients with ABSSSI. With its approval, the FDA also confirmed Baxdela’s status as a Qualified Infectious Disease Product, or QIDP, under the provisions of the 2012 Generating Antibiotics Incentives Now Act, or the 2012 GAIN Act, which extends the market exclusivity period by five years for a total of at least ten years in the United States. Consequently, and because Melinta believes Baxdela has utility across many different infection types, Melinta has commenced Phase 3 clinical development for CABP and intends to pursue Phase 2 clinical development for cUTI. Together, these three indications comprise the majority of bacterial infections requiring initial hospitalization in the United States. In addition, Melinta has successfully partnered Baxdela with leading multinational pharmaceutical partners for markets outside the United States. Melinta may obtain additional funds through the achievement of regulatory, commercial and sales-based milestones, as well as royalties on sales of Baxdela outside the United States.

 



 

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Cempra and Melinta believe that the combined company has a differentiated commercialization strategy for the launch of Baxdela, which will lead to a more successful outcome than select recent antibiotic launches. Cempra and Melinta believe that certain recent antibiotic launches have performed suboptimally because the products lack clinical and economic differentiation over established lower cost agents. As a result, undifferentiated, higher-priced antibiotics are often relegated to later lines of treatment due to the availability of generics that are perceived to be effective for first-line treatment at a lower cost. In the growing segment of patients who have co-morbidities such as obesity and diabetes, and are at risk for a broad range of gram-positive and gram-negative pathogens, Baxdela represents a simplified treatment approach due to the following:

 

    Broad-spectrum coverage, including MRSA, to provide confidence that empiric treatment with Baxdela will cover the range of potential gram-negative and gram-positive pathogens in these patients with co-morbidities.

 

    IV and oral formulations, with the flexibility to initiate therapy with either option.

 

    No dosage adjustments due to weight, hepatic impairment, or mild-moderate renal impairment.

 

    No clinically significant drug-drug interactions.

 

    Attractive safety and tolerability profile.

 

    Pricing which simplifies prescribing for physicians and enables greater access for patients.

 

 

LOGO

Baxdela Initial Commercialization Strategy

Baxdela’s clinical profile, coupled with a differentiated and focused commercial strategy, has the potential to optimize uptake among challenging, co-morbid patient populations, which comprise approximately 70% of the

 



 

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addressable population, across multiple sites of care. Throughout the development of Baxdela, Melinta has focused its attention on conveying the pharmacoeconomic benefit of Baxdela. Through the course of its commercial launch, the combined company will continue to engage in robust health economics outcomes research to support the value proposition of Baxdela to hospitals and payers.

The combined company will be poised to pursue a multi-channel strategy targeting physicians in the hospital, emergency department, and community settings who most frequently treat patients for whom Baxdela is appropriate. The combined company plans to use the latest market intelligence and advanced targeting methods to identify the prescribers where Baxdela can be appropriately utilized in their practice. Initially, the combined company plans to deploy a sales force of approximately 50 sales representatives that will expand in a measured, capital-efficient fashion as the combined company observes adoption in target segments. Additionally, the combined company plans to deploy Medical Science Liaisons across the U.S. to meet with key opinion leaders across multiple physician specialties (such as infectious disease, hospitalists, internists, and surgeons). They will work with these specialists across the multiple sites of care where the patients are treated.

Furthermore, pursuant to the launch plan, the combined company will distinguish Baxdela’s economic value proposition through a pricing and contracting strategy designed to facilitate access across the combined company’s multi-channel approach. Market research with retail and non-retail payers suggests that the post-closing company can successfully commercialize Baxdela at a price point in the retail segment that will not require prior authorizations and other hurdles for physicians to write prescriptions while providing a compelling value proposition to hospital channel customers.

In July of this year, three antimicrobial susceptibility testing devices for Baxdela received 510(k) approval from the FDA. Susceptibility testing devices such as disks, gradient strips, and automated panels allow health care providers to evaluate the susceptibility of different organisms to different antibiotics. With the 510(k) approval of these devices, hospital microbiology labs will be able to evaluate the susceptibility of different pathogens to Baxdela, which in turn may help inform patient care decision-making. The approval of these testing devices is noteworthy, as few antibiotics have three types of susceptibility testing devices available at launch; typically, this range of devices is not available until several months or even years after the antibiotic has received FDA approval.

Cempra and Melinta believe Baxdela has the potential to achieve over $400 million in peak year sales for the treatment of ABSSSI in the U.S.

Cempra and Melinta believe that Baxdela, based on its attributes, clinical data and product label, is a highly attractive treatment option for ABSSSI patients, and is particularly well-suited for complex patients with comorbid conditions. Given the prevalence of these patients, Cempra and Melinta believe that there is a corresponding attractive commercial opportunity. At the same time, Cempra and Melinta also recognize that the growing problem of antibiotic resistance is in part due to the inappropriate use of antibiotics. Cempra and Melinta understand and agree with the principles of antibiotic stewardship, and will seek to ensure that Baxdela is used appropriately.

Solithromycin

The next most advanced asset in the combined company’s pipeline is solithromycin, a next-generation oral and intravenous macrolide, which has potent activity against most macrolide-resistant CABP pathogens. Solithromycin completed two Phase 3 clinical trials testing both oral and IV formulations for the treatment of CABP and new drug applications, or NDAs, were submitted to the FDA in April 2016. In December 2016, Cempra received a complete response letter, or CRL, from the FDA on both NDAs that agreed solithromycin efficacy had been demonstrated, but that required additional safety data as well as resolution of certain manufacturing concerns as a condition for response. In the first quarter of 2017, Cempra met with the FDA to discuss the solithromycin CRL and the FDA reiterated their request for additional clinical safety data prior to approval.

 



 

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Any further development for solithromycin to support a CRL response is dependent on the ability to secure non-dilutive funding. Based on the completed protocol for the proposed safety study, Cempra is actively engaged with potential government and industry partners to identify non-dilutive funding to support the execution of this study.

Solithromycin is also being formulated for ophthalmic indications to support a potential Investigational New Drug, or IND, application filing in 2018. In the second quarter, Cempra presented data at the annual meeting of the Association for Research in Vision and Ophthalmology highlighting topical ophthalmic formulations of solithromycin in preclinical models of activity, tolerability and pharmacokinetics in the eye. The combined company anticipates exploring the potential effects of solithromycin to treat ophthalmic bacterial infections as well as dry eye.

Fusidic acid

After Baxdela and solithromycin, the third most-advanced program in the combined company’s pipeline is fusidic acid an antibiotic with a long history of safety and efficacy outside the U.S. Fusidic acid is orally active against gram-positive bacteria, including MRSA. Fusidic acid successfully completed a Phase 3 clinical study in ABSSSI patients and results were announced in the first quarter of 2017. Based on discussions with the FDA, a second Phase 3 study with a similar design to the first Phase 3 study could support potential approval of fusidic acid in patients with ABSSSI in the U.S.

The combined company plans to explore the potential use of fusidic acid for the long-term treatment of BJI, including prosthetic joint infections caused by staphylococci, including Staphylococcus aureus and MRSA. There are limited oral antibiotic treatment options that are suitable for chronic therapy. Cempra has completed enrollment in a 30 patient exploratory, open-label study to assess the safety of long term therapy and clinical success six months after the start of treatment.

Radezolid

Radezolid, a novel oxazolidinone discovered by Melinta, has completed a successful Phase 1 study pursuant to a collaboration agreement to develop a topical formulation for the treatment of Acne Vulgaris. Radezolid was designed to overcome resistance seen to linezolid, the macrolides and lincosamides. The acne market represents a strong commercial opportunity. There are approximately 15 million prescriptions for topical acne agents written each year in the United States. In addition, despite the availability of a number of generics, branded agents still hold an approximate 33% market share, which has remained stable for the past several years. There are a number of brands that are able to drive strong sales in the acne space even at relatively modest market shares. Aczone and Epiduo were two notable examples in 2016, driving $395 million and $528 million in sales, respectively, at mid-single-digit market shares.

ESKAPE Pathogen Program

Melinta has a late pre-clinical program with a novel antibacterial class that its discovery team designed and optimized to target bacterial “superbugs”. This is known as Melinta’s ESKAPE program. This program seeks to overcome the alarming emergence of untreatable bacteria, which have developed resistance to many and in certain cases all existing drug classes, by introducing completely novel classes of antibiotics. These multi-drug and extremely-drug-resistant pathogens include Enterococcus faecium, MRSA, Klebsiella pneumoniae, Acinetobacter baumanii, Pseudomonas aeruginosa, Enterobacter species, and Escherichia coli. In 2017, Melinta estimates 500,000 patients with pneumonia, complicated urinary tract infections, complicated intra-abdominal infections, or bloodstream infections will be infected with multi-drug resistant strains of these pathogens, or will fail two or three lines of therapy. This represents significant market opportunity for Melinta’s ESKAPE pathogen program.

Melinta has designed de novo an optimized class of antibiotics they have named the pyrrolocytosines. This class shows in vitro activity against the full panel of ESKAPE pathogens without cross-resistance to current therapies and has shown efficacy in animal models of infection. The combined company anticipates initiating IND-enabling studies for a nominated lead candidate compound in 2018.

 



 

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Key Combined Business Strategies

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

 

  1. Commercialize Baxdela for ABSSSI in the United States. Baxdela was approved by the FDA on June 19, 2017. The combined company plans to commercialize Baxdela in the U.S. with an efficient, targeted sales force initially consisting of approximately 50 sales representatives, prioritizing high-value hospital and community accounts, and over time plans to expand the number of sales representatives targeting other market channels to realize the full market potential of Baxdela.

 

  2. Pursue additional indications for Baxdela, leveraging its favorable attributes to optimize its minimum 10 year market exclusivity period in the United States. Due to provisions of the 2012 GAIN Act, specifically its QIDP designation, Baxdela has been granted at least 10 years of market exclusivity from first approval. Consequently, the combined company plans to develop Baxdela for additional indications where quinolones are established but unmet need continues to exist. Melinta is currently enrolling patients in a single Phase 3 clinical study for CABP, for which Melinta has secured FDA agreement on a Special Protocol Assessment. The plan for the post-closing company involves pursuing clinical development of Baxdela in cUTI with a Phase 2 program planned.

 

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

 

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

 

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

 

  6.

Progress fusidic acid for ABSSSI and potentially for Osteomyelitis / Bone and Join Infections. The combined company plans to continue to progress fusidic acid as an oral treatment for ABSSSI, which are frequently caused by MRSA. Fusidic acid has successfully completed one Phase 3 study in

 



 

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  ABSSSI patients and requires one additional Phase 3 study to secure FDA approval. In addition, the combined company plans to continue to explore the potential use of fusidic acid for the long-term oral treatment of refractory osteomyelitis / BJI. Currently, there is no optimal oral, chronic antibiotic for treating these infections.

 

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

Upon completion of the merger, the combined company plans to carefully evaluate its capital allocation strategy to maximize shareholder value around the launch of Baxdela while maintaining a capital efficient approach to investing in its development programs and other opportunities.

The 2017 Annual Meeting

The 2017 Annual Meeting will be held at [●] [a.m.], local time, on [●], at the [●] located at [●], to consider and act upon the following matters:

 

1. To approve the issuance of Cempra common stock pursuant to the Agreement and Plan of Merger and Reorganization, dated as of August 8, 2017, as amended on September 6, 2017 and as may be further amended from time to time, by and among Cempra, Castle Acquisition Corp., a wholly owned subsidiary of Cempra, and Melinta.

 

2. To approve three separate proposals to amend Cempra’s certificate of incorporation to:

 

  a. increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000, the approval of which is necessary to enable Cempra to issue the required number of shares of Cempra common stock to Melinta stockholders in connection with the merger;

 

  b. change the name of Cempra to “Melinta Therapeutics, Inc.”; and

 

  c. elect for Cempra not to be governed by or subject to Section 203 of the DGCL.

 

3. To approve amendments to Cempra’s certificate of incorporation to effect the reverse stock split.

 

4. To elect three Class III directors for a three-year term expiring in 2020.

 

5. To approve on a non-binding advisory basis Cempra’s 2016 executive compensation.

 

6. To ratify the appointment of PricewaterhouseCoopers LLP as Cempra’s independent registered public accounting firm for the fiscal year ending December 31, 2017.

 

7. To consider and vote on a proposal to adjourn the 2017 Annual Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2017 Annual Meeting in favor of Proposals 1, 2a, 2b, 2c or 3 above.

 

8. To transact such other business as may properly come before the 2017 Annual Meeting or any adjournment or postponement thereof.

Proposals 1 and 2a are conditioned upon each other, and the approval of each such proposal is a condition to the completion of the merger. Therefore, the completion of the merger cannot proceed without the approval of Proposals 1 and 2a.

 



 

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

Provided a quorum is present, the affirmative vote of the holders of a majority of the shares of Cempra common stock present in person or represented by proxy and entitled to vote on the matter at the 2017 Annual Meeting is required for the approval of each of Proposals 1, 5, 6 and 7 and the affirmative vote of the holders of a majority of the outstanding shares of Cempra common stock as of the record date are required to approve Proposals 2a, 2b, 2c and 3. Proposal 4, the election of the Class III directors, will be determined by a plurality of the votes cast at the 2017 Annual Meeting. Abstentions will be counted for purposes of determining whether there is a quorum and will have the same effect as a vote against the approval of Proposals 1, 2a, 2b, 2c, 3, 5, 6 and 7. Unvoted shares will have the same effect as a vote against Proposals 2a, 2b, 2c and 3.

If you hold shares beneficially in street name and do not provide your broker with voting instructions, your shares may constitute “broker non-votes.” Broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given. These matters are referred to as “non-routine” matters. Proposals 1, 2a, 2b, 2c, 3, 4, 5 and 7 are “non-routine” matters, but Proposal 6 to ratify the selection of PricewaterhouseCoopers LLP as Cempra’s independent registered public accounting firm for Cempra for the fiscal year ending December 31, 2017 is a “routine” matter. Broker non-votes will have the same effect as a vote against the approval of Proposals 2a, 2b, 2c and 3.

This solicitation is made on behalf of Cempra’s board of directors and Cempra will pay for the costs of solicitation. Copies of solicitation materials will be furnished to banks, brokerage firms and other custodians, nominees and fiduciaries holding shares in their names that are beneficially owned by others so that they may forward the solicitation materials to such beneficial owners upon request. You will need to obtain your own internet access if you choose to access the proxy materials and/or vote over the internet. In addition to soliciting proxies by mail, Cempra’s directors, executive officers and employees and Melinta’s directors and executive officers might solicit proxies personally and by telephone. None of these individuals will receive any additional compensation for this. Cempra has engaged Georgeson to assist Cempra in the distribution of proxy materials and the solicitation of votes described above for a fee of $15,000, plus additional fees based on the amount and types of services rendered and reimbursement of reasonable expenses. Cempra will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their principals and obtaining their proxies.

The Parties

Cempra, Inc.

6320 Quadrangle Drive, Suite 360

Chapel Hill, North Carolina 27517

Tel: (919) 313-6601

 



 

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Cempra is a clinical-stage pharmaceutical company focused on developing differentiated anti-infectives for the acute care and community settings to meet critical medical needs in the treatment of infectious diseases. To date, Cempra’s focus has been the development of solithromycin for the treatment of CABP, one of the most serious infections of the respiratory tract in adults and children, as well as for ophthalmic infections and other indications.

Melinta Therapeutics, Inc.

300 George Street, Suite 301

New Haven, Connecticut 06511

(312) 724-9407

Melinta is a commercial-stage biopharmaceutical company dedicated to introducing new antibiotics that meet the ever-present challenge posed by dangerous and increasingly resistant bacteria. In June 2017, Melinta received approval from the FDA of Melinta’s lead antibiotic, Baxdela (delafloxacin), for the treatment of adults with ABSSSI. In addition, Melinta is studying Baxdela in a Phase 3 clinical program in serious CABP, and may develop additional indications such as cUTI. Melinta is also developing, through the application of Nobel Prize-winning science and a proprietary drug discovery platform, novel classes of antibiotics to treat the multi- and extremely-drug-resistant pathogens for which there are few to no options, known collectively as ESKAPE pathogens (Enterococcus faecium, Staphylococcus aureus, Klebsiella pneumoniae, Acinetobacter baumannii, Pseudomonas aeruginosa, Enterobacter species and Escherichia coli), which cause the majority of life-threatening hospital infections.

Melinta is privately held with offices in New Haven, Connecticut and Lincolnshire, Illinois.

Summary of the Merger

Upon the terms and subject to the conditions of the merger agreement, Castle Acquisition Corp., or the acquisition subsidiary, a Delaware corporation and wholly-owned subsidiary of Cempra formed by Cempra in connection with the merger, will merge with and into Melinta. The merger agreement provides that upon the consummation of the merger the separate existence of the acquisition subsidiary shall cease. Melinta will continue as the surviving corporation, will be renamed and will be a wholly-owned subsidiary of Cempra. Immediately following the effective time of the merger, Melinta stockholders are expected to own, on a fully-diluted basis as calculated under the treasury stock method, approximately 51.9%, and Cempra stockholders are expected to own approximately 48.1%, of Cempra common stock immediately following the effective time of the merger. The final number of shares and the resulting ownership split between Cempra stockholders and Melinta stockholders will be subject to adjustments at the closing of the merger based on Cempra’s cash levels (net of debt and transaction expenses) and Melinta’s debt levels (above a permitted amount) and transaction expenses as described further in the section entitled “The Merger Agreement—Merger Consideration” beginning on page 115 of this proxy statement.

Reasons for the Merger (see page 77)

The board of directors of Cempra considered various reasons for the merger, as described herein.

Opinion of Cempra’s Financial Advisor (see page 82)

In connection with the proposed merger, at the meeting of Cempra’s board of directors on August 8, 2017, Morgan Stanley & Co. LLC, referred to herein as Morgan Stanley, rendered its oral opinion, which was subsequently confirmed by delivery of a written opinion, to Cempra’s board of directors to the effect that, as of the date of such opinion, and based upon and subject to the assumptions made, procedures followed, matters

 



 

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considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its written opinion, the merger consideration to be paid by Cempra pursuant to the merger agreement was fair, from a financial point of view, to Cempra.

The full text of Morgan Stanley’s written opinion to Cempra’s board of directors, dated August 8, 2017, is attached to this proxy statement as Annex C and is incorporated by reference in this proxy statement in its entirety. Holders of shares of Cempra common stock should read the opinion carefully and in its entirety. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley in rendering its opinion. Morgan Stanley’s opinion was directed to Cempra’s board of directors and addressed only the fairness, from a financial point of view, as of the date of the opinion, to Cempra of the merger consideration to be paid by Cempra pursuant to the merger agreement. Morgan Stanley’s opinion did not address any other aspects of the proposed merger or the other transactions contemplated by the merger agreement and did not address the prices at which shares of Cempra common stock would trade following completion of the proposed merger or at any time. Morgan Stanley’s opinion did not and does not constitute a recommendation as to how any holder of Cempra common stock or Melinta common stock should vote in connection with the proposed merger. The summary of Morgan Stanley’s opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion.

Overview of the Merger Agreement

Merger Consideration (see page 115)

At the effective time of the merger:

 

    any shares of Melinta common stock or preferred stock held as treasury stock or held or owned by Melinta or any of its subsidiaries or the acquisition subsidiary immediately prior to the effective time of the merger shall be cancelled and cease to exist and no consideration shall be delivered in exchange therefor; and

 

    each share of Melinta common stock outstanding immediately prior to the effective time of the merger (including shares of Melinta common stock issued upon the conversion, prior to the merger, of the convertible promissory notes and shares of Melinta preferred stock, but excluding shares to be cancelled as described above and excluding shares which are held by Melinta stockholders who have exercised and perfected appraisal rights or dissenters’ rights for such shares in accordance with the DGCL, if and to the extent applicable) shall be converted solely into the right to receive a number of shares of Cempra common stock equal to the “exchange ratio” (calculated as defined in the merger agreement); provided that stockholders of Melinta who are not “accredited investors” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act shall, in lieu of shares of Cempra common stock be paid a cash payment per share equal to the product obtained by multiplying the closing price of Cempra common stock on the NASDAQ Global Market on the closing date of the merger by the exchange ratio.

No fractional shares of Cempra common stock will be issuable pursuant to the merger to Melinta stockholders. Instead, each Melinta stockholder who would otherwise be entitled to receive a fraction of a share of Cempra common stock will be entitled to receive a cash payment determined in accordance with the merger agreement.

Stock Options and Warrants (see page 118)

Each outstanding option to purchase Melinta common stock and warrant to purchase Melinta common stock unexercised prior to the effective time of the merger will be assumed by Cempra in accordance with its terms.

 



 

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Each assumed option and warrant and their respective exercise price, if any, shall be adjusted based on the exchange ratio calculated in accordance with the merger agreement. Accordingly, from and after the effective time of the merger each option or warrant assumed by Cempra may be exercised solely for shares of Cempra common stock.

Conditions to Completion of the Merger (see page 120)

Consummation of the merger is subject to a number of conditions (subject to certain exceptions in the merger agreement), including, among others, the following:

 

    there must not have been issued any order preventing, challenging or seeking to restrain or prohibit the consummation of the merger, and no law, statute, rule, regulation, ruling or decree shall be in effect which has the effect of making the consummation of the merger illegal;

 

    obtaining requisite Melinta and Cempra stockholder approvals;

 

    all representations and warranties in the merger agreement must be true and correct, except in each case where failure of such representations and warranties to be so true and correct has not had, and would not reasonably be expected to have, a material adverse effect on the party making the representations and warranties (except that each party’s representations and warranties regarding such party’s capitalization must be true and correct, except in each case for inaccuracies that are de minimis in the aggregate);

 

    expiration of the applicable waiting period under the HSR Act;

 

    performance or compliance with in all material respects all covenants and obligations on or before the closing of the merger and delivery of certain certificates and other documents required under the merger agreement for the closing of the merger; and

 

    the board of directors and committees of the board of directors of Cempra must be constituted as set forth in Schedules C-1 and C-2 to the merger agreement.

In addition, the obligation of Cempra and the acquisition subsidiary to complete the merger is further subject to the satisfaction or waiver of the following conditions:

 

    Cempra must have received the opinion of Skadden, Arps, Slate, Meagher & Flom LLP or Willkie Farr & Gallagher LLP, or such other nationally recognized tax counsel reasonably satisfactory to Cempra, dated as of the closing date of the merger, to the effect that, on the basis of the facts, representations and assumptions set forth or referred to in such opinion, for U.S. federal income tax purposes, the merger will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code; and

 

    there shall have been no effect, change, event, circumstance, or development that is or could reasonably be expected to be materially adverse to, or has or could reasonably be expected to have or result in a material adverse effect on the business, financial condition, assets or operations of Melinta and its subsidiaries taken as a whole, or the ability of Melinta to consummate the merger or any of the other transactions contemplated by the merger agreement or to perform any of its covenants or obligations under the merger agreement in all material respects, each referred to as a material adverse effect as it relates to Melinta.

In addition, the obligation of Melinta to complete the merger is further subject to the satisfaction or waiver of the following conditions:

 

   

Melinta must have received the opinion of Willkie Farr & Gallagher LLP or Skadden, Arps, Slate, Meagher & Flom LLP, or such other nationally recognized tax counsel reasonably satisfactory to

 



 

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Melinta, dated as of the closing date of the merger, to the effect that, on the basis of the facts, representations and assumptions set forth or referred to in such opinion, for U.S. federal income tax purposes, the merger will constitute a reorganization within the meaning of Section 368(a) of the Code; and

 

    there shall have been no effect, change, event, circumstance, or development that is or could reasonably be expected to be materially adverse to, or has or could reasonably be expected to have or result in a material adverse effect on the business, financial condition, assets or operations of Cempra and its subsidiaries taken as a whole, or the ability of Cempra to consummate the merger or any of the other transactions contemplated by the merger agreement or to perform any of its covenants or obligations under the merger agreement in all material respects, each referred to as a material adverse effect as it relates to Cempra.

No Solicitation (see page 123)

Each of Melinta and Cempra agreed that, except as described below, Melinta and Cempra and any of their respective subsidiaries will not, nor will either party or any of its subsidiaries authorize or permit any of the officers, directors, investment bankers, attorneys or accountants retained by it or any of its subsidiaries to, and it will use its commercially reasonable efforts to cause its and its subsidiaries’ non-officer employees and other agents not to (and will not authorize any of them to) directly or indirectly:

 

    solicit, initiate, encourage, induce or knowingly facilitate the communication, making, submission or announcement of, any “acquisition proposal” or “acquisition inquiry” (both as defined in the merger agreement), or take any action that could reasonably be expected to lead to an acquisition proposal or acquisition inquiry;

 

    furnish to any person any information with respect to it in connection with or in response to an acquisition proposal or acquisition inquiry;

 

    engage in discussions or negotiations with respect to any acquisition proposal or acquisition inquiry;

 

    approve, endorse or recommend any acquisition proposal; or

 

    execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to an acquisition transaction (as defined in the merger agreement).

Termination of the Merger Agreement (see page 129)

Either Cempra or Melinta can terminate the merger agreement under specified circumstances, which would prevent the merger from being consummated.

Termination Fees (see page 130)

The merger agreement provides for the payment of a termination fee of $7.9 million by each of Cempra and Melinta to the other party upon termination of the merger agreement under specified circumstances. Additionally, if Cempra stockholders do not approve the issuance of shares in the merger or the amendment to the certificate of incorporation of Cempra described in Proposal 2a, Cempra will be required to pay to Melinta up to $2.0 million of out-of-pocket costs incurred by Melinta in connection with the transactions (and any termination fee subsequently payable by Cempra would be reduced by the amount of any such expense reimbursement).

Stockholder Agreements (see page 132)

Concurrently with the execution of the merger agreement, certain Cempra stockholders, including Cempra’s directors and executive officers, beneficially owning in the aggregate, as of August 8, 2017, approximately

 



 

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11.5% of Cempra’s outstanding common stock, entered into voting and lock-up agreements with Melinta, and certain Melinta stockholders, including Melinta’s directors and executive officers, beneficially owning in the aggregate, as of August 8, 2017, approximately 91.5% of Melinta’s outstanding capital stock, entered into voting and lock-up agreements with Cempra (which agreements are attached as Annexes D-1 and D-2, respectively, and which are referred to herein collectively as “the voting and lock-up agreements”). The voting and lock-up agreements provide, among other things, that the parties to the agreements will vote the shares of Cempra and Melinta capital stock held by them in favor of the transactions contemplated by the merger agreement. In addition, the voting and lock-up agreements place restrictions on the transfer of shares of Cempra and Melinta capital stock held by the respective signatory stockholders prior to the closing of the merger, and each such stockholder will also be subject to a 180-day lock-up on the sale of shares of capital stock of Cempra, which period shall begin upon consummation of the merger.

In addition, pursuant to the conditions of the merger agreement, holders of the number of shares of Melinta capital stock required to approve the merger have already approved the merger via written consent.

The Board of Directors and Management Following the Merger (see page 125)

At the effective time of the merger, the board of directors of Cempra will be reconstituted. The combined company will initially have a nine member board of directors, comprised of four directors designated by Cempra, four directors designated by Melinta (one of whom will be chairman of the board, designated by Melinta) and a newly appointed Chief Executive Officer, who will be jointly chosen by Cempra and Melinta pursuant to the terms of the merger agreement (provided that if a jointly chosen Chief Executive Officer is not appointed as of the closing of the merger, the initial chairman of the board (or another person unanimously agreed by the CEO selection committee) will serve as interim Chief Executive Officer). Each board committee will initially be comprised of two Cempra designees and two Melinta designees.

Interests of Cempra’s Directors and Executive Officers (see page 104)

In considering the recommendation of Cempra’s board of directors with respect to issuing shares of Cempra common stock pursuant to the merger agreement and the other matters to be acted upon by Cempra stockholders at the 2017 Annual Meeting, Cempra stockholders should be aware that members of the board of directors and executive officers of Cempra have interests in the merger that may be different from, or in addition to, interests they may have as Cempra stockholders.

As of August 31, 2017, all directors and executive officers of Cempra, together with their affiliates, beneficially owned approximately 12.2% of the shares of Cempra common stock. The affirmative vote of the holders of a majority of the shares of Cempra common stock present in person or represented by proxy and entitled to vote on such matter at the 2017 Annual Meeting is required for approval of Proposals 1, 5, 6 and 7. The affirmative vote of the holders of a majority of the outstanding shares of Cempra common stock as of the record date for the 2017 Annual Meeting is required for approval of Proposals 2a, 2b, 2c and 3. Proposal 4, the election of the Class III directors, will be determined by a plurality of the votes cast at the 2017 Annual Meeting.

Cempra has entered into severance agreements with each of its executive officers, David Zaccardelli, Mark Hahn, David Oldach and John Bluth, and senior officers David Pereira and Munir Abdullah. For more detail on the terms of these agreements and other interests of Cempra’s directors and executive officers, see “Interests of Cempra’s Directors and Executive Officers” on page 104.

Interests of Melinta’s Directors and Executive Officers (see page 108)

Cempra stockholders also should be aware that members of the board of directors and executive officers of Melinta have interests in the merger that may be different from, or in addition to, interests they may have as Melinta stockholders.

 



 

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Melinta has entered into severance agreements with each of Eugene Sun, John Temperato and Paul Estrem. For more detail on the terms of these agreements and other interests of Melinta’s directors and executive officers, see “Interests of Melinta’s Directors and Executive Officers” on page 108.

Certain U.S. Federal Income Tax Considerations (see page 110)

Except as with respect to cash received in lieu of a fractional share, Cempra stockholders generally will not recognize gain or loss as a result of the reverse stock split. Cempra stockholders that, pursuant to the reverse stock split, receive cash in lieu of a fractional share will recognize capital gain or loss in an amount equal to the difference, if any, between the amount of cash received and the portion of the Cempra stockholder’s aggregate adjusted tax basis in the shares of Cempra common stock surrendered that is allocated to such fractional share.

Cempra stockholders will not sell, exchange or dispose any shares of Cempra common stock as a result of the merger. Therefore, there will be no material U.S. federal income tax consequences to Cempra stockholders as a result of the merger.

Risk Factors (see page 39)

The merger, including the possibility that the merger may not be consummated, poses a number of risks to Cempra and its stockholders. In addition, both Cempra and Melinta are subject to various risks associated with their businesses and their industries, and the combined business will also be subject to those and other risks.

Regulatory Approvals (see page 119)

Cempra and Melinta must obtain clearance from United States antitrust regulatory authorities in order to consummate the merger. Additionally, Cempra must comply with applicable U.S. federal and state securities laws and NASDAQ rules and regulations in connection with the issuance of shares of Cempra common stock in the merger, including the filing with the SEC of this proxy statement.

Anticipated Accounting Treatment (see page 111)

It is anticipated that the merger will be accounted for by Cempra as a reverse merger under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States of America, or GAAP. Under this method, for accounting purposes, Melinta will be considered to be acquiring Cempra in this transaction. Melinta was preliminarily determined to be the accounting acquirer after consideration of the terms of the merger and other factors more fully described in the unaudited pro forma combined financial statements included herein. In addition, Melinta will be treated as the predecessor for financial reporting purposes going forward.

As a result, upon consummation of the merger, (1) the historical financial statements of Melinta will become the historical financial statements of the combined company and (2) Melinta will record the business combination in its financial statements and will apply the acquisition method to account for the assets acquired and liabilities assumed of Cempra as of the closing date of the transaction. Applying the acquisition method includes recording the identifiable assets acquired and liabilities assumed at their fair values, and recording goodwill for the excess of the purchase price over the aggregate fair value of the identifiable assets acquired and liabilities assumed, if any, or recording a bargain purchase gain if the aggregate fair value of the identifiable assets acquired and liabilities assumed exceeds the purchase price for the acquisition.

Appraisal Rights (see page 120)

Cempra stockholders are not entitled to appraisal rights in connection with the merger.

 



 

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Comparison of Stockholder Rights

Both Cempra and Melinta are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the DGCL. If the merger is completed, Melinta stockholders will become stockholders of Cempra, and their rights will be governed by the DGCL, the certificate of incorporation of Cempra and the bylaws of Cempra. The rights of Cempra stockholders contained in the certificate of incorporation and bylaws of Cempra will not materially change following the merger.

 



 

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SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA

The following tables present summary historical financial data for each of Cempra and Melinta, summary unaudited pro forma condensed combined financial data for Cempra and Melinta and comparative historical and unaudited pro forma per share data for Cempra and Melinta.

Selected Historical Consolidated Financial Data of Cempra

The following table presents selected historical consolidated financial data for Cempra as of and for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, and as of and for the six months ended June 30, 2017 and 2016. Cempra derived the following consolidated statements of operations data for the years ended December 31, 2016, 2015 and 2014, and the consolidated balance sheet data as of December 31, 2016 and 2015, from its audited consolidated financial statements and related notes included in Cempra’s Annual Report on Form 10-K for the year ended December 31, 2016, as amended by Amendment No. 1 on Form 10-K/A, which documents are attached as Annexes B-1 and B-2 to this proxy statement. The consolidated statements of operations data for the years ended December 31, 2013 and 2012, and the consolidated balance sheet data as of December 31, 2014, 2013 and 2012 have been derived from Cempra’s audited consolidated financial statements for such periods, which have not been incorporated into this document by reference. The consolidated statements of operations data for the six months ended June 30, 2017 and 2016, and the consolidated balance sheet data as of June 30, 2017, are derived from Cempra’s unaudited consolidated financial statements and related notes included in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, which is attached as Annex B-3 to this proxy statement. Cempra’s historical results are not necessarily indicative of the results that may be expected in the future and results of interim periods are not necessarily indicative of the results for the entire year. The following selected financial data should be read in conjunction with the section entitled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto appearing in Cempra’s Annual Report on Form 10-K for the year ended December 31, 2016, as amended by Amendment No. 1 on Form 10-K/A, which documents are attached as Annexes B-1 and B-2 to this proxy statement and Cempra’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, which is attached as Annex B-3 to this proxy statement.

 

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

Balance Sheet Data:

                 

Cash and equivalents

   $ 231,553      $ 153,765      $ 99,113      $ 96,503      $ 70,109      $ 187,005  

Working Capital

   $ 208,774      $ 144,086      $ 86,766      $ 87,675      $ 65,029      $ 174,619  

Total assets

   $ 238,515      $ 162,140      $ 105,311      $ 99,008      $ 70,738      $ 190,548  

Total debt

   $ 15,327      $ 19,702      $ 18,472      $ 14,739      $ 9,850      $ 12,009  

Total shareholders’ equity

   $ 183,348      $ 117,665      $ 61,021      $ 69,975      $ 57,770      $ 152,406  

 



 

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

Revenue:

             

Total revenue

  $ 18,016     $ 27,308     $ 15,216     $ 7,813     $ —       $ 5,732     $ 6,099  

Operating expenses:

             

Research and development

    81,686       93,353       62,539       41,300       16,869       23,955       39,547  

General and administrative

    53,538       22,871       12,077       9,433       6,069       13,424       20,312  

Restructuring

    —         —         —         —         —         3,553       —    

Total operating expenses

    135,224       116,224       74,616       50,733       22,938       40,932       59,859  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (117,208     (88,916     (59,400     (42,920     (22,938     (35,200     (53,760
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense), net

    (753     (2,197     (2,249     (2,114     (1,289     45       (451
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (117,961   $ (91,113   $ (61,649   $ (45,034   $ (24,227   $ (35,155   $ (54,211
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accretion of redeemable convertible preferred shares

    —         —         —         —         (313     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common shareholders

  $ (117,961   $ (91,113   $ (61,649   $ (45,034   $ (24,540   $ (35,155   $ (54,211
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted loss per share

  $ (2.34   $ (2.09   $ (1.81   $ (1.53   $ (1.23   $ (0.67   $ (1.12
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computation of basic and diluted loss per share

    50,313,614       43,565,518       34,130,901       29,449,716       19,882,585       52,451,237       48,375,420  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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Selected Historical Consolidated Financial Data of Melinta

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

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
     2016     2015     2017     2016  
     (in thousands)  

Statement of Operations Data:

        

Revenue

   $ —       $ —       $ 26,443     $ —    

Operating expenses:

        

Research and development

     49,791       62,788       26,992       23,601  

General and administrative

     19,410       14,159       15,672       10,710  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     69,201       76,947       42,664       34,311  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (69,201     (76,947     (16,221     (34,311

Other income (expense), net

     (4,731     (1,729     (4,278     (2,573 )
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (73,932   $ (78,676   $ (20,499   $ (36,884
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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

Balance Sheet Data:

      

Cash, cash equivalents and short-term investments

   $ 11,409     $ 30,158     $ 23,059  

Working capital (deficit)

   $ (8,331   $ 13,385     $ 5,009  

Total assets

   $ 16,634     $ 36,228     $ 40,676  

Convertible notes payable, net—related parties

   $ 45,127     $ —       $ 71,774  

Convertible preferred stock

   $ 218,343     $ 204,727     $ 217,220  

Deficit accumulated during the development stage

   $ (513,743   $ (439,811   $ (534,243

Total stockholders’ deficit

   $ (293,451   $ (222,099   $ (311,653

Selected Unaudited Pro Forma Combined Financial Data of Cempra and Melinta

The following summary unaudited pro forma condensed combined financial data is intended to show how the merger might have affected historical financial statements if the merger had been completed on January 1, 2016 for the purposes of the statements of operations and as of June 30, 2017 for the purposes of the balance sheet and was prepared based on the historical financial results reported by Cempra and Melinta. This unaudited pro forma combined financial data was prepared using the acquisition method of accounting with Melinta considered the acquirer of Cempra. The following should be read in conjunction with the section entitled “Unaudited Pro Forma Combined Financial Statements” beginning on page 185 of this proxy statement;

 



 

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Cempra’s audited and unaudited historical financial statements and notes thereto of Cempra’s Annual Report on Form 10-K for the year ended December 31, 2016, as amended by Amendment No. 1 on Form 10-K/A, which documents are attached as Annexes B-1 and B-2 to this proxy statement and Cempra’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, which is attached as Annex B-3 to this proxy statement; Melinta’s audited and unaudited historical financial statements and the notes thereto beginning on page F-2 of this proxy statement; the sections entitled “Cempra’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 162 of this proxy statement and “Melinta’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 163 of this proxy statement and the other information contained in this proxy statement. The following information does not give effect to the reverse stock split of Cempra common stock described in Proposal 3.

The merger will be accounted for as a reverse acquisition under the acquisition method of accounting. Under the acquisition method of accounting, Melinta will be treated as the accounting acquirer and Cempra will be treated as the “acquired” company for financial reporting purposes because, immediately upon completion of the merger, the Melinta stockholders prior to the merger will hold a majority of the voting interest of the combined company.

The unaudited pro forma condensed combined financial statements were prepared in accordance with the regulations of the SEC. The pro forma adjustments reflecting the completion of the merger are based upon the acquisition method of accounting in accordance with GAAP, and upon the assumptions set forth in the notes to the unaudited pro forma condensed combined financial statements.

The summary unaudited pro forma condensed combined statements of operations for the year ended December 31, 2016 and the six months ended June 30, 2017 combine the historical statements of operations of Cempra and Melinta and gives pro forma effect to the merger as if it had been completed on January 1, 2016.

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

 



 

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The unaudited pro forma condensed combined financial data is presented for illustrative purposes only and is not necessarily indicative of the financial condition or results of operations of future periods or the financial condition or results of operations that actually would have been realized had the entities been combined during the periods presented. In addition, as explained in more detail in the accompanying notes to the unaudited pro forma condensed combined financial statements (see the section entitled “Unaudited Pro Forma Combined Financial Statements” beginning on page 185 of this proxy statement), the preliminary acquisition-date fair value of the identifiable assets acquired and liabilities assumed reflected in the unaudited pro forma condensed combined financial statements is subject to adjustment and may vary from the actual amounts that will be recorded upon completion of the merger.

 

     Year Ended
December 31,
     Six Months Ended
June 30,
 
     2016      2017  
     (in thousands)  

Unaudited Pro Forma Condensed Combined Statements of Operations Data:

     

Revenue

   $ 18,016      $ 32,175  

Operating expenses

     

Research and development

   $ 131,477      $ 50,947  

General and administrative

   $ 72,948      $ 28,116  

Restructuring charge

   $ —        $ 3,553  

Total operating expenses

   $ 204,425      $ 82,616  

Net loss

   $ (190,430    $ (51,930
            As of June 30,  
            2017  

Unaudited Pro Forma Combined Balance Sheet Data:

     

Cash and cash equivalents

      $ 197,802  

Working capital

      $ 164,334  

Total assets

      $ 259,362  

Stockholders’ equity

      $ 160,195  

Comparative Historical and Unaudited Pro Forma Per Share Data

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

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

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

Melinta Pro Forma Equivalent Data: the unaudited pro forma Melinta equivalent share data, including net loss per common share and book value per share, is calculated by multiplying the unaudited pro forma combined company data by the assumed exchange ratio of 52%.

The following information does not give effect to the proposed reverse stock split of Cempra common stock described in Proposal 3. You should read the table below in conjunction with the financial statements of Cempra and Melinta beginning on pages F-1 and F-2, respectively, of this proxy statement, and the related notes thereto.

 



 

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You are urged to also read the section entitled “Unaudited Pro Forma Combined Financial Statements” beginning on page 185 of this proxy statement.

 

     Year Ended
December 31, 2016
     Six Months Ended
June 30, 2017
 

Cempra Historical Data

     

Basic and diluted net loss per common share:

   $ (2.34    $ (0.67

Book value per common share

      $ 2.90  

Melinta Historical Data

     

Basic and diluted net loss per common share:

   $ (94.34    $ (25.48

Book value per common share

      $ (241.31

Combined Company Pro Forma Data

     

Basic and diluted net loss per common share:

   $ (1.78    $ (0.48

Book value per common share

      $ 1.47  

Melinta Pro Forma Equivalent Data

     

Basic and diluted net loss per common share:

   $ (0.93    $ (0.25

Book value per common share

      $ 0.76  

 



 

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MARKET PRICE AND DIVIDEND INFORMATION

Cempra common stock began trading on the NASDAQ Global Market under the symbol “CEMP” on February 3, 2012. The following table details the high and low sales prices for the common stock as reported by the NASDAQ Global Market for the periods indicated.

 

     Price Range  
     High      Low  

Fiscal year ending December 31, 2017

     

3rd Quarter (through September [●], 2017)

   $ [●]      $ [●]  

2nd Quarter

   $ 4.75      $ 3.60  

1st Quarter

   $ 4.75      $ 2.75  

Fiscal year ended December 31, 2016

     

4th Quarter

   $ 24.48      $ 2.55  

3rd Quarter

   $ 26.95      $ 16.34  

2nd Quarter

   $ 20.02      $ 14.32  

1st Quarter

   $ 30.20      $ 14.03  

Fiscal year ended December 31, 2015

     

4th Quarter

   $ 34.79      $ 15.43  

3rd Quarter

   $ 46.99      $ 24.00  

2nd Quarter

   $ 39.68      $ 31.15  

1st Quarter

   $ 41.19      $ 21.52  

Melinta is a private company and its common stock is not publicly traded. There has never been, nor is there expected to be in the future, a public market for Melinta common stock. Following the merger, Melinta will be renamed and become a wholly owned subsidiary of Cempra, and Cempra will, in turn, be renamed “Melinta Therapeutics, Inc.”

On August 8, 2017, the last full trading day prior to the public announcement of the proposed merger, the closing price per share of Cempra common stock as reported on the NASDAQ Global Market was $3.80, for an aggregate market value of Cempra of approximately $205.3 million based on Cempra’s fully diluted shares outstanding as of August 8, 2017, as calculated under the treasury stock method. Accordingly, if the merger had been consummated on that day, the value attributable to the shares of Cempra common stock issued to holders of Melinta common stock and issuable to holders of Melinta’s outstanding options and warrants in connection with the merger would have been approximately $237.5 million, based on approximately 62.5 million shares of Cempra common stock issued or issuable to Melinta securityholders in the merger, multiplied by $3.80.

On [●] the last practicable date before the printing of this proxy statement, the closing price per share of Cempra common stock as reported on the NASDAQ Global Market was $[●], for an aggregate market value of Cempra of approximately $[●] million based on Cempra’s fully diluted shares outstanding as of [●], as calculated under the treasury stock method. Accordingly, if the merger had been consummated on that day, the value attributable to the shares of Cempra common stock issued to holders of Melinta common stock and issuable to holders of Melinta’s outstanding options and warrants in connection with the merger would have been approximately $[●] million, based on approximately [●] million shares of Cempra common stock issued or issuable to Melinta stockholders in the merger multiplied by $[●].

Because the market price of Cempra common stock is subject to fluctuation, the market value of the shares of Cempra common stock that holders of Melinta common stock will be entitled to receive in the merger may increase or decrease.

Following the consummation of the merger, and subject to successful application for initial listing with the NASDAQ Global Market, Cempra common stock will continue to be listed on the NASDAQ Global Market, but

 

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will trade under the symbol “MLNT” and under the combined company’s new name, “Melinta Therapeutics, Inc.”

Holders of Record

As of [●], Cempra had approximately [●] stockholders of record, which excludes stockholders whose shares were held in nominee or street name by brokers. Cempra believes that, when its record holders and stockholders whose shares are held in nominee or street name by brokers are combined, it has in excess of [2,000] stockholders.

As of [●], Melinta had approximately [●] stockholders of record of Melinta common stock and [●] stockholders of record of Melinta’s preferred stock.

Dividends

Cempra has never declared or paid any cash dividends on its common stock. Cempra currently does not plan to declare dividends on shares of its common stock in the foreseeable future. Cempra expects to retain its future earnings, if any, for use in the operation and expansion of its business. The payment of cash dividends in the future, if any, will be at the discretion of Cempra’s board of directors and will depend upon such factors as earnings levels, capital requirements, its overall financial condition and any other factors Cempra’s board deems relevant. Pursuant to the terms of the Loan and Security Agreement, dated as of July 10, 2015, among Comerica Bank, Cempra and certain subsidiaries of Cempra, for as long as such agreement is outstanding, Cempra may not pay any cash dividends on its common stock.

Melinta has never paid or declared any cash dividends on its common stock.

Securities Authorized for Issuance under Equity Compensation Plans

For information about Cempra’s equity compensation plans, see Item 12 of Part III of Cempra’s Annual Report on Form 10-K for the year ended December 31, 2016, as amended by Amendment No. 1 on Form 10-K/A, which documents are attached as Annexes B-1 and B-2 to this proxy statement.

 

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RISK FACTORS

If the merger is consummated, the combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement, you should carefully consider the risks described below before deciding how to vote your shares of common stock. In addition, you should read and consider the risks associated with the business of Cempra because these risks may also affect the combined company—these risks can be found in Cempra’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as amended by Amendment No. 1 on Form 10-K/A, which documents are attached as Annexes B-1 and B-2 to this proxy statement. You should also read and consider the other information in this proxy statement, including the other Annexes attached hereto.

Risks Related to the Merger

If the proposed merger with Melinta is not consummated, Cempra’s business could suffer materially and Cempra’s stock price could decline.

The consummation of the proposed merger with Melinta is subject to a number of closing conditions, including the approval of the stock issuance pursuant to the merger agreement by Cempra stockholders, expiration or termination of the applicable waiting period under the HSR Act and other customary closing conditions. Cempra is targeting a closing of the transaction in the fourth quarter of 2017.

If the proposed merger is not consummated, Cempra may be subject to a number of material risks, and its business and stock price could be adversely affected, as follows:

 

    Cempra has incurred and expects to continue to incur significant expenses related to the proposed merger with Melinta even if the merger is not consummated.

 

    The merger agreement contains covenants relating to Cempra’s solicitation of competing acquisition proposals and the conduct of Cempra’s business between the date of signing the merger agreement and the closing of the merger. As a result, significant business decisions and transactions before the closing of the merger require the consent of Melinta. Accordingly, Cempra may be unable to pursue business opportunities that would otherwise be in its best interest as a standalone company. If the merger agreement is terminated after Cempra has invested significant time and resources in the transaction process, Cempra will have a limited ability to launch any approved product candidates without obtaining additional financing to fund its operations.

 

    Cempra could be obligated to pay Melinta a $7.9 million termination fee in connection with the termination of the merger agreement, depending on the reason for the termination. Additionally, if Cempra stockholders do not approve the issuance of shares in the merger or the amendments to the certificate of incorporation of Cempra described in Proposal 2a, and either party thereafter terminates the merger agreement, Cempra will be obligated to pay up to $2.0 million of out-of-pocket costs incurred by Melinta in connection with the transactions (and any termination fee subsequently payable by Cempra would be reduced by the amount of any such expense reimbursement).

 

    Cempra’s prospective customers, collaborators and other business partners and investors in general may view the failure to consummate the merger as a poor reflection on Cempra’s business or prospects.

 

    The market price of Cempra common stock may decline to the extent that the current market price reflects a market assumption that the proposed merger will be completed.

In addition, if the merger agreement is terminated and Cempra’s board of directors determines to seek another business combination, it may not be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the merger. In such circumstances, Cempra’s board of directors may elect to, among other things, divest all or a portion of Cempra’s business, or

 

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take the steps necessary to liquidate all of Cempra’s business and assets, and in either such case, the consideration that Cempra receives may be less attractive than the consideration to be received by Cempra pursuant to the merger agreement.

The announcement and pendency of the proposed merger with Melinta could adversely affect Cempra’s business.

The announcement and pendency of the proposed merger could adversely affect Cempra’s business for a number of different reasons, many of which are not within Cempra’s control, including as follows:

 

    Some of Cempra’s suppliers, distributors, collaborators and other business partners may seek to change or terminate their relationships with Cempra as a result of the proposed merger;

 

    As a result of the proposed merger, current and prospective employees could experience uncertainty about their future roles within the combined company. This uncertainty may adversely affect Cempra’s ability to retain its key employees, who may seek other employment opportunities; and

 

    Cempra’s management team may be distracted from day-to-day operations as a result of the proposed merger.

Some of Cempra’s and Melinta’s officers and directors have conflicts of interest that may influence them to support or approve the merger.

Officers and directors of Cempra and Melinta participate in arrangements that provide them with interests in the merger that are different from yours, including, among others, to the extent applicable, their continued service as an officer or director of the combined company, retention and severance benefits, the acceleration of restricted stock and stock option vesting and continued indemnification. These interests, among others, may influence the officers and directors of Cempra and Melinta to support or approve the merger. For a more detailed discussion see “The Merger—Interests of Cempra’s Directors and Executive Officers in the Merger” and “The Merger—Interests of Melinta’s Directors and Executive Officers in the Merger” beginning on pages 104 and 108, respectively, of this proxy statement.

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

In general, either party can refuse to complete the merger if there is a material adverse change affecting the other party between August 8, 2017, the date of the merger agreement, and the closing. However, some types of changes do not permit either party to refuse to complete the merger, even if such changes would have a material adverse effect on Cempra or Melinta, to the extent they resulted from the following (unless, in some cases, they have a materially disproportionate effect on Cempra or Melinta, as the case may be):

 

    changes in general economic, business, financial or market conditions;

 

    changes or events affecting the industries or industry sectors in which the parties operate generally;

 

    changes in generally accepted accounting principles;

 

    changes in laws, rules, regulations, decrees, rulings, ordinances, codes or requirements issued, enacted, adopted or otherwise put into effect by or under the authority of any governmental body;

 

    changes caused by any action taken with the other party’s prior written consent or any action expressly required by the merger agreement;

 

    changes caused by any act of war, terrorism, national or international calamity or any other similar event;

 

    changes caused by the announcement or pendency of the merger;

 

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    with respect to Cempra, changes caused by any decision or action, or inaction, by the FDA or other comparable foreign governmental body, with respect to solithromycin, fusidic acid or any product of any competitor of Cempra or of any third-party company developing anti-infective products;

 

    with respect to Cempra, changes caused by any scientific, treatment or clinical trial results relating to solithromycin, fusidic acid or any product of any competitor of Cempra or of any third-party company developing anti-infective products; or

 

    with respect to Cempra, a decline in Cempra’s stock price.

If adverse changes occur but Cempra and Melinta must still complete the merger, the combined company’s stock price may suffer.

During the pendency of the merger, Cempra may not be able to enter into a business combination with another party because of restrictions in the merger agreement.

Covenants in the merger agreement impede the ability of Cempra or Melinta to make acquisitions or complete other transactions that are not in the ordinary course of business pending completion of the merger. As a result, if the merger is not completed, the parties may be at a disadvantage to their competitors. In addition, while the merger agreement is in effect and subject to limited exceptions, each party is prohibited from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition of Cempra common stock, a tender offer for Cempra common stock or a merger or other business combination outside the ordinary course of business, which transactions could be favorable to such party’s stockholders.

Cempra common stock could be delisted from the NASDAQ Global Market if Cempra does not comply with its initial listing standards at the time of the merger.

Pursuant to the NASDAQ Listing Rules, consummation of the merger requires the combined company to submit an initial listing application and, at the time of the merger, meet all of the criteria applicable to a company initially requesting listing (including a $4.00 per share minimum bid price for Cempra common stock). Cempra intends to apply for listing on the NASDAQ Global Market and is seeking stockholder approval of a reverse stock split in order to satisfy the initial listing criteria. While Cempra intends to obtain listing status for the combined company and maintain the same, no guarantees can be made about its ability to do so. In the event the merger is approved by Cempra stockholders but the reverse stock split is not, the merger could still be consummated and shares of Cempra common stock would not be listed on a national securities exchange.

If Cempra common stock is unable to be listed on NASDAQ or another national securities exchange, the common stock may be eligible to trade on the OTC Bulletin Board or another over-the-counter market. Any such alternative would likely result in it being more difficult for the company to raise additional capital through the public or private sale of equity securities and for investors to dispose of, or obtain accurate quotations as to the market value of, the common stock. In addition, there can be no assurance that the common stock would be eligible for trading on any such alternative exchange or markets.

The market price of the combined company’s common stock may decline as a result of the merger.

The market price of the combined company’s common stock may decline as a result of the merger for a number of reasons including if:

 

    the combined company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts;

 

    the effect of the merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or

 

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    investors react negatively to the effect on the combined company’s business and prospects from the merger.

Cempra stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.

If the combined company is unable to realize the strategic and financial benefits currently anticipated from the merger, Cempra stockholders will have experienced substantial dilution of their ownership interest without receiving any commensurate benefit. Significant management attention and resources will be required to integrate the two companies. Delays in this process could adversely affect the combined company’s business, financial results, financial condition and stock price following the merger. Even if the combined company were able to integrate the business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, innovation and operational efficiencies that may be possible from this integration and that these benefits will be achieved within a reasonable period of time.

Because the lack of a public market for the Melinta shares makes it difficult to evaluate the fairness of the merger, Melinta stockholders may receive consideration in the merger that is greater than or less than the fair market value of the Melinta shares.

The outstanding capital stock of Melinta is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Melinta. Since the percentage of Cempra’s equity to be issued to Melinta stockholders was determined based on negotiations between the parties, it is possible that the value of the Cempra common stock to be issued in connection with the merger will be greater than the fair market value of Melinta. Alternatively, it is possible that the value of the shares of Cempra common stock to be issued in connection with the merger will be less than the fair market value of Melinta.

The combined company will incur significant transaction costs as a result of the merger, including investment banking, legal and accounting fees. In addition, the combined company will incur significant consolidation and integration expenses which cannot be accurately estimated at this time. These costs could include the possible relocation of certain operations from North Carolina to other offices of the combined company as well as costs associated with shut down costs for certain operations, employee severance, terminating existing office leases and the loss of benefits of certain favorable office leases. Actual transaction costs may substantially exceed Cempra’s estimates and may have an adverse effect on the combined company’s financial condition and operating results.

Melinta’s principal stockholders, executive officers and directors will own a significant percentage of Cempra common stock and will be able to exert a significant control over matters submitted to the stockholders for approval.

Immediately following the effective time of the merger between Melinta and Cempra, Melinta stockholders are expected to own, on a fully-diluted basis as calculated under the treasury stock method, approximately 51.9%, and Cempra’s current stockholders are expected to own approximately 48.1%, of Cempra common stock. The final number of shares and the resulting ownership split between Cempra stockholders and Melinta stockholders will be subject to adjustments at the closing of the merger based on Cempra’s cash levels (net of debt and transaction expenses) and Melinta’s debt levels (above a permitted amount) and transaction expenses as described further in the section entitled “The Merger Agreement—Merger Consideration” beginning on page 115 of this proxy statement.

After the merger with Cempra, Melinta’s officers and directors, and stockholders who own more than 5% of Melinta common stock will beneficially own a significant percentage of Cempra common stock. This is further described below in the section entitled “Security Ownership of Principal Stockholders and Management of

 

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Melinta” beginning on page 225 of this proxy statement. This significant concentration of share ownership may adversely affect the trading price for Cempra common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. These stockholders, if they acted together, could significantly influence all matters requiring approval by the stockholders following the merger, including the election of directors and the approval of mergers or other business combination transactions. The interests of these stockholders may not always coincide with the interests of other stockholders.

The merger may limit the use of the NOL carryforwards and other tax attributes of both Cempra and Melinta to offset future taxable income of the combined company.

Under Section 382 of the Code, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss, which is referred to as NOL, carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited.

As of December 31, 2016, Cempra had federal NOL carryforwards of approximately $353.5 million and state NOL carryforwards of approximately $244.8 million. As of December 31, 2016 Melinta had federal NOL carryforwards of approximately $278.2 million, state NOL carryforwards of approximately $275.9 million, and federal research and development credits of approximately $6.2 million. The merger may result in an ownership change for both Cempra and Melinta under Section 382 of the Code and may limit the use of the NOL carryforwards and other tax attributes of both Cempra and Melinta to offset future taxable income of the combined company for both federal and state income tax purposes. These tax attributes are subject to expiration at various times in the future to the extent that they have not been applied to offset the taxable income of the combined company. These limitations may affect the combined company’s effective tax rate in the future.

If any of the events described in “Risks Related to Melinta” occur, those events could cause the potential benefits of the merger not to be realized.

Following the effective time of the merger, it is expected that certain of Cempra’s and Melinta’s officers and directors will direct the business and operations of the combined company. Melinta’s business is expected to constitute most, if not all, of the business of the combined company following the merger. As a result, the risks described below in the section entitled “Risks Related to Melinta’s Business” beginning on page 49 are among the most significant risks to the combined company if the merger is completed. To the extent any of the events in the risks described below in the sections entitled “Risks Related to Melinta’s Financial Position and Need for Additional Capital,” “Risks Related to Regulatory Review and Approval of Melinta’s Product Candidates,” and “Risks Related to Melinta’s Intellectual Property” beginning on page 56 occur, those events could cause the potential benefits of the merger not to be realized and the market price of the combined company’s common stock to decline.

The financial projections included in this proxy statement involve risks, uncertainties and assumptions, many of which are beyond the control of Cempra and Melinta. As a result, they may not prove to be accurate and are not necessarily indicative of current values or future performance.

The financial projections contained in this proxy statement involve risks, uncertainties and assumptions and are not a guarantee of future performance. The future financial results of Cempra and, if the merger is completed, the combined company, may materially differ from those expressed in the financial projections due to factors that are beyond Cempra’s or Melinta’s ability to control or predict. Neither Cempra nor Melinta can provide any assurance that any of the financial projections will be realized or that Cempra’s or, if the merger is completed, the combined company’s, future financial results will not materially vary from the financial projections. The financial projections cover multiple years, and the information by its nature becomes subject to greater

 

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uncertainty with each successive year. The financial projections do not take into account any circumstances or events occurring after the date on which they were prepared. More specifically, the financial projections:

 

    necessarily make numerous assumptions, many of which are beyond the control of Cempra or Melinta and may not prove to be accurate;

 

    do not necessarily reflect revised prospects for Cempra’s or Melinta’s businesses, changes in general business or economic conditions or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the projections were prepared;

 

    are not necessarily indicative of current values or future performance, which may be significantly less favorable than is reflected in the projections; and

 

    should not be regarded as a representation that the financial projections will be achieved.

Risks Related to the Reverse Stock Split

The reverse stock split may not increase Cempra’s stock price over the long-term.

The principal purpose of the reverse stock split is to increase the per-share market price of Cempra common stock above the minimum bid price requirement under the NASDAQ Listing Rules so that the listing of the combined company and the shares of Cempra common stock being issued in the merger on NASDAQ Global Market (or, alternatively, the NASDAQ Capital Market) will be approved. It cannot be assured, however, that the reverse stock split will accomplish this objective for any meaningful period of time. While it is expected that the reduction in the number of outstanding shares of common stock will proportionally increase the market price of Cempra common stock, it cannot be assured that the reverse stock split will increase the market price of Cempra common stock by a multiple of the reverse stock split ratio chosen by Cempra’s board of directors in its sole discretion, or result in any permanent or sustained increase in the market price of Cempra common stock, which is dependent upon many factors, including Cempra’s business and financial performance, general market conditions, and prospects for future success. Thus, while the stock price of the combined company might meet the continued listing requirements for the NASDAQ Global Market initially, it cannot be assured that it will continue to do so.

The reverse stock split may decrease the liquidity of the common stock.

Although Cempra’s board of directors believes that the anticipated increase in the market price of Cempra common stock could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for Cempra common stock.

The reverse stock split may lead to a decrease in Cempra’s overall market capitalization.

Should the market price of Cempra common stock decline after the reverse stock split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the reverse stock split. A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in Cempra’s overall market capitalization. If the per share market price does not increase in proportion to the reverse stock split ratio, then the value of the combined company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of Cempra common stock will remain the same after the reverse stock split is effected, or that the reverse stock split will not have an adverse effect on Cempra’s stock price due to the reduced number of shares outstanding after the reverse stock split.

 

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Risks Related to Cempra

For risks related to the business of Cempra, please refer to the section entitled “Item 1A. Risk Factors” set forth in Cempra’s Annual Report on Form 10-K for the year ended December 31, 2016, as amended by Amendment No. 1 on Form 10-K/A, which documents are attached as Annexes B-1 and B-2 to this proxy statement.

Risks Related to Melinta

Because Cempra and Melinta operate similar businesses and both are pharmaceutical companies in the anti-infectives space, many of the risks related to the business of Cempra, disclosed in the section Risk Factors—Risks Related to Cempra are applicable to Melinta as well. It is noted and acknowledged that Melinta’s product Baxdela has received approval from the FDA, whereas no product of Cempra has reached this stage and that certain risks may differ as to their likelihood of occurring or the impact of such an occurrence as between Melinta and Cempra. This section should be read in conjunction with the section “Risk Factors—Risks Related to Cempra.”

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

Melinta has incurred net losses since inception and anticipates that it will continue to incur net losses for the foreseeable future.

Melinta has until recently been a development stage company and has incurred losses since its inception. Based on its operating plans, Melinta does not currently have sufficient working capital to fund planned operating expenses through the next 12 months without additional sources of cash. Pursuant to the terms of the merger agreement, Melinta is permitted to incur up to $15.0 million in additional debt prior to the close of the merger before adjustment of the exchange ratio. As of June 30, 2017, Melinta had an accumulated deficit of $534.2 million. Melinta recorded net losses of $73.9 million and $78.7 million during the years ended December 31, 2016 and 2015, respectively. Melinta anticipates that a substantial portion of its capital resources and efforts in the foreseeable future will be focused on commercialization of Baxdela. As a result, Melinta expects to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future. These losses have had and will continue to have an adverse effect on stockholders’ deficit and working capital.

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

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

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

 

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

 

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

 

    the time and cost necessary to obtain regulatory approvals;

 

    the costs of manufacturing clinical and commercial supplies of Baxdela and its other product candidates;

 

    payments of milestones and royalties to third parties;

 

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

 

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

 

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

Melinta has to date not generated any revenue from the sale of any products and does not know when, or if, it will generate any revenue. Until Melinta can generate a sufficient amount of revenue, it may raise additional funds through collaborations and public or private debt or equity financings. Additional funds may not be available when needed on terms that are acceptable, or at all. To the extent that Melinta raises additional capital through the sale of equity or convertible debt securities, the ownership interest of existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting its ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends. Further, as of June 30, 2017, Melinta had $30.0 million aggregate principal amount outstanding under a Loan and Security Agreement with Oberland Capital and, under the terms of the merger agreement, may borrow an additional $15.0 million prior to closing of the merger. In August 2017, Melinta borrowed an additional $10.0 million under the Loan and Security Agreement. The underlying terms of the Loan and Security Agreement may limit the ability of Melinta to raise additional capital or its capacity to incur more debt or service additional debt payments.

If Melinta is unable to obtain funding on a timely basis, Melinta will be unable to fund the commercialization of Baxdela or complete ongoing and planned clinical trials for Baxdela, radezolid and any of its other product candidates and Melinta may be required to significantly curtail some or all of its activities. Melinta also could be required to seek funds through arrangements with collaborative partners or otherwise that may require Melinta to relinquish rights to its product candidates or some of its technologies or otherwise agree to terms unfavorable to Melinta.

The timing of milestone, royalty and other payments Melinta is required to make under its license agreements is uncertain and could adversely affect its cash flows and results of operations.

Melinta has the following licensing agreements in place: an exclusive license and supply agreement with CyDex Pharmaceuticals, Inc. (now a wholly owned subsidiary of Ligand Pharmaceuticals Incorporated), an exclusive license agreement with Wakunaga Pharmaceutical Co., Ltd., or Wakunaga, an exclusive license agreement with Medical Research Council, and an exclusive license agreement with Yale University, in each case pursuant to which it is obligated to make milestone payments and pay royalties and other fees in connection with the development and commercialization of its product candidates. The timing of Melinta’s achievement of these milestones and the corresponding milestone payments is subject to factors relating to the clinical and regulatory development and commercialization of its product candidates, which are difficult to predict and for which many are beyond its control. Melinta may become obligated to make a milestone or other payment at a time when it does not have sufficient funds to make such payment, which could result in the loss of required intellectual property rights to further develop or commercialize one or more product candidates, or at a time that would otherwise require Melinta to use funds needed to continue to operate its business, which could delay Melinta’s clinical trials, curtail its operations, necessitate a scaling back of its commercialization and marketing efforts or cause Melinta to seek funds to meet these obligations on terms unfavorable to it. In addition, disputes with a licensor regarding compliance with the requirements of its agreements could result in its making milestone, royalty or other payments when it does not believe such payments are due to avoid potentially expensive litigation or termination of or a loss of rights under the agreement. If Melinta is unable to make any payment when due or if it fails to use commercially reasonable efforts to achieve certain development and commercialization milestones within the timeframes required by these agreements, the other party may have the right to terminate the agreement and all of Melinta’s rights to develop and commercialize product candidates using the applicable technology.

 

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Furthermore, the counterparty to a license agreement may fail to properly maintain or defend the intellectual property subject to the license agreement, leading to the potential invalidation of Melinta’s intellectual property or subjecting it to litigation or arbitration, any of which would be time-consuming and expensive. Additionally, in the event the counterparty commits a material breach of the license agreement, Melinta’s recourse is to terminate the agreement. If Melinta terminates its collaboration, the development or commercialization of the product or product candidate subject to the license agreement could be materially delayed or harmed. If disputes with the counterparty prevent or impair Melinta’s ability to maintain its current licensing and development arrangements on acceptable terms, Melinta may be unable to successfully develop and commercialize its products or product candidates.

Risks Related to Regulatory Review and Approval of Melinta’s Product Candidates

Melinta cannot be certain that Baxdela, radezolid, its ESKAPE pathogen program product candidates or any of its other product candidates will receive regulatory approval for additional uses, and without regulatory approval it will not be able to market its product candidates.

Melinta’s lead product, Baxdela, is a commercial-stage fluoroquinolone antibiotic that received FDA approval for both IV and tablet formulations in June 2017 for the treatment of adults with serious skin infections known as acute bacterial skin and skin structure infections. Melinta is evaluating Baxdela in a Phase 3 clinical program for serious CABP and plans to initiate a clinical trial in patients with cUTI. Beyond the commercial launch and potential label expansion of Baxdela, Melinta will continue to pursue other pipeline opportunities. Melinta is conducting clinical studies for radezolid for the treatment of acne vulgaris, plans to deliver compounds of antibiotics for bacterial “superbugs” for human clinical trials under its ESKAPE pathogen program, and is in pre-clinical phase for its compounds in the macrolide program, which have potential to treat the bacteria typically identified in skin and lung infections. Melinta’s business is substantially dependent on its ability to complete the development of, obtain regulatory approval for, and successfully commercialize such current and future products and product candidates in a timely manner. The process to develop, obtain regulatory approval for and commercialize product candidates is long, complex, uncertain and costly.

The development of a product candidate and issues relating to its approval and sale are subject to extensive regulation by the FDA in the U.S. and regulatory authorities in other countries, with regulations differing from country to country. Melinta is not permitted to commercialize, market or sell Melinta’s product candidates in the U.S. until it receives approval of an NDA from the FDA. An NDA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product. Melinta is currently dependent on the work conducted by contract organizations for these activities. Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and may not be obtained. The FDA review process typically has defined timelines, but may take significantly longer if additional development work is required by the FDA. FDA approvals are never guaranteed. If Melinta submits an NDA to the FDA, the FDA must decide whether to accept or reject the submission for filing. Melinta cannot be certain that any submissions will be accepted for filing and review by the FDA. Even if a product is approved, the FDA may limit the indications for which the product may be marketed, include extensive warnings on the product labeling or require expensive and time-consuming post-approval clinical trials or reporting as conditions of approval. Foreign regulatory authorities also have requirements for approval of drug candidates with which Melinta must comply prior to marketing. Obtaining regulatory approval for marketing of a product candidate in one country does not ensure that Melinta will be able to obtain regulatory approval in other countries. In addition, delays in approvals or rejections of marketing applications in the U.S. or foreign countries may be based upon many factors, including:

 

    Melinta’s inability to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for any indication;

 

    the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

 

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    the FDA or comparable foreign regulatory authority may make requests for additional analyses, reports, data and studies;

 

    the FDA’s or comparable foreign regulatory authority’s disagreement regarding Melinta’s interpretation of data and results;

 

    inability to demonstrate that the clinical and other benefits of a product candidate outweigh its safety risks;

 

    the potential for changes in regulatory policy during the period of product development that may render Melinta’s clinical data insufficient for approval;

 

    inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indication as Melinta’s product candidates; or

 

    the emergence of new information regarding Melinta’s product candidates or other products.

Compounds developed in the ESKAPE pathogen program and the macrolide program are still under preclinical development and may never advance to clinical testing or be successfully commercialized. The failure to enter clinical development and ultimately successfully commercialize one or more of the compounds could adversely affect the business and prospects of Melinta.

If Melinta fails to develop Baxdela for additional indications, its commercial opportunities will be limited.

To date, Melinta has focused primarily on the development of Baxdela for the treatment of ABSSSI. A key element of its strategy is to pursue clinical development of Baxdela for other indications, including CABP and/or cUTI. Melinta’s ability to broaden its revenue mix will be highly dependent on its ability to successfully develop and commercialize Baxdela for the treatment of additional indications. The development of Baxdela for additional indications will require additional funding beyond that needed to commercialize Baxdela for the treatment of ABSSSI and will face the same risks of failure inherent in drug development. Melinta cannot provide assurance that it will be successful in advancing any of these programs through the development process. Even if it is able to gain FDA approval to market Baxdela for the treatment of any of these additional indications, Melinta cannot provide assurance that any such additional indications will be successfully commercialized or widely accepted in the marketplace. If Melinta is unable to successfully develop and commercialize Baxdela for these additional indications, its commercial opportunities will be limited and its business prospects will suffer.

Melinta’s approved products or product candidates may have undesirable side effects which may delay or prevent marketing approval, or if approval is received, require them to be taken off the market, require them to include safety warnings, become subject to FDA required Risk Evaluation and Mitigation Strategies or other remediation activities.

If any of Melinta’s approved products or product candidates that receive marketing approval and Melinta or another party later identifies undesirable or unacceptable side effects caused by such products:

 

    regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

 

    Melinta may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;

 

    Melinta may be subject to limitations on how it may promote the product;

 

    regulatory authorities may require Melinta to take its approved product off the market;

 

    Melinta may be subject to litigation or product liability claims;

 

    Melinta’s reputation may suffer;

 

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    relationships with Melinta’s licensing partners may be harmed; and

 

    Sales of the product may decrease significantly or fail to gain market acceptance.

Risks Related to Melinta’s Business

The commercial success of Baxdela for treatment of ABSSSI and any additional indications and of any future product of Melinta will depend upon the degree of market acceptance among physicians, patients, patient advocacy groups, health care payors and the medical community.

It cannot be assured that Baxdela for treatment of ABSSSI or any additional indication or any Melinta product candidate that may be approved in the future will gain market acceptance among physicians, patients, health care payors and the medical community. The degree of market acceptance for Melinta’s products will depend on a number of factors, including:

 

    the effectiveness of such products as compared to other products pertaining to their respective indications;

 

    the prevalence and severity of any side effects;

 

    the market price and patient out-of-pocket costs of the product relative to other treatment options, including any generics;

 

    relative convenience and ease of administration;

 

    willingness by clinicians to stop using current treatments and adopt a new treatment;

 

    restriction on healthcare provider prescribing of and patient access to its product due to a Risk Evaluation Mitigation Strategy;

 

    the strength of its marketing and distribution organizations; and

 

    sufficient third-party coverage or reimbursement.

If Melinta fails to achieve market acceptance for its products, its revenue will be more limited and it will be more difficult to achieve profitability.

If Melinta fails to obtain and sustain an adequate level of reimbursement for its products by third-party payors, sales would be adversely affected.

There will be no commercially viable market for Melinta’s products, without reimbursement from third-party payors. Even if there is a commercially viable market, if the level of reimbursement is below its expectations, its revenue and gross margins will be adversely affected.

Third-party payors, such as government or private health care insurers, carefully review and increasingly question the coverage of, and challenge the prices charged for, drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. A current trend in the U.S. health care industry is toward cost containment. Large public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, are questioning the coverage of, and challenging the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved health care products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price Melinta might establish for products, which could result in product revenues being lower than anticipated. If the prices for its products decrease or if governmental and other third-party payors do not provide adequate coverage and reimbursement levels, its revenue and prospects for profitability will suffer. Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis.

 

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Reimbursement in the European Union must be negotiated on a country-by-country basis and in many countries the product cannot be commercially launched until reimbursement is approved. The negotiation process in some countries can exceed 12 months.

Melinta is subject to existing and potential additional regulation and government inquiry, which can impose burdens on its operations and narrow the markets for its products.

Melinta is subject, both directly and indirectly, to the adverse impact of existing and potential future government regulation of its operations and markets. Its product candidates are, and any future approved product candidates will be, subject to regulation by the FDA and equivalent foreign regulatory authorities. These regulations govern a wide variety of product related activities, from quality management, design and development to labeling, manufacturing, promotion, sales and distribution. If Melinta or any of its suppliers or distributors fail to comply with the FDA and other applicable regulatory requirements, or are perceived to potentially have failed to comply, it may face, among other things, warning letters; adverse publicity affecting both Melinta and its customers; investigations or notices of non-compliance, fines, injunctions, and civil penalties; import or export restrictions; partial suspensions or total shutdown of production facilities or the imposition of operating restrictions; increased difficulty in obtaining required FDA clearances or approvals or foreign equivalents; seizures or recalls of its products or those of its customers; or the inability to sell such products. Any such FDA actions could disrupt Melinta’s business and operations, lead to significant remedial costs and have a material adverse impact on Melinta’s financial position and results of operations.

If Melinta is unable to establish a direct sales force for its products and product candidates, if approved, in the United States, its business may be harmed.

Melinta currently does not have an established sales organization. Melinta may market Baxdela and any product candidates that may be approved in the future directly to physicians in the United States through its own sales force. Melinta will need to incur significant additional expenses and commit significant additional management resources to establish and train a sales force to market and sell. Melinta may not be able to successfully establish these capabilities despite these additional expenditures. Melinta will also have to compete with other pharmaceutical and life sciences companies to recruit, hire, train and retain sales and marketing personnel. In the event Melinta is unable to successfully market and promote its products, its business may be harmed.

The successful commercialization of Melinta’s product candidates will depend on the pricing it is able to achieve for its product candidates, both inside and outside the U.S.

Melinta’s ability to successfully commercialize its product candidates will be dependent on whether it can obtain adequate pricing for any particular product candidate. Pricing may be substantially dependent on Melinta’s ability to obtain reimbursement from third-party payors, both in the U.S. and in foreign countries. Outside the U.S., certain countries, including a number of European Union members, set prices and reimbursement for pharmaceutical products, or medicinal products as they are commonly referred to in the E.U., with limited participation from those marketing the products. Melinta cannot be sure that any prices and reimbursement will be acceptable to it or its strategic commercial partners. If the regulatory authorities in these foreign jurisdictions set prices or reimbursement that are not commercially attractive for Melinta or its strategic commercial partners, its revenues from sales by Melinta or its collaborators, and the potential profitability of its product candidates, in those countries would be negatively affected. Further, through contractual or other arrangements, the price Melinta may be able to obtain in foreign countries may be dependent on the price it can achieve in the U.S.

 

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Melinta’s estimates of the market for and commercialization of Baxdela as a treatment for ABSSSI, CABP or cUTI or for any other product candidate may be inaccurate or vary significantly in regard to the potential market size.

The potential market opportunities for Baxdela and any other product candidate are difficult to estimate precisely. Melinta’s estimates of the potential market opportunities are predicated on many assumptions, including industry knowledge and publications, third-party research reports and other surveys. While Melinta believes that its internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of Melinta’s management, are inherently uncertain and the reasonableness of these assumptions has not been assessed by an independent source. If any of the assumptions proves to be inaccurate, the actual markets for Melinta’s product candidates could be smaller than its estimates of the potential market opportunities.

In addition, Melinta estimates regarding the timing and amount of acceptance of any product candidate, and the pricing achievable for any product candidate may prove incorrect. Further, Melinta’s plans for commercialization of any product candidate may not materialize in the time or manner it anticipates and may be adversely impacted by any required label warnings, as will be the case for ABSSSI, and if Baxdela is approved for CABP or cUTI, or any perceived safety or efficacy concerns. Finally, Melinta may underestimate the demand for a product candidate, which could lead to lack of commercial quantities when needed and result in market backlash against the product candidate. Any of these occurrences could have a material adverse effect on its plans for commercialization of and the generation of any revenue from any product candidate.

Bacteria might develop resistance to Baxdela and any of Melinta’s product candidates, which could decrease the efficacy and commercial viability of Baxdela and those product candidates.

Bacteria develop resistance to antibiotics over time due to the genetic mutation of the bacteria. Many current and previous antibiotics have suffered reduced efficacy over time due to the development of resistance to such drugs. It is probable that, over time, bacteria will also develop resistance to Baxdela and Melinta’s drug candidates. If resistance were to develop rapidly to Baxdela or Melinta’s drug candidates, this would reduce the commercial potential for Melinta’s business.

Melinta is building its own marketing and sales organization for Baxdela for ABSSSI, which may expand to CABP and cUTI, if approved, but has no experience as a company in marketing drug products. If it is unable to successfully establish its own marketing and sales capabilities, or enter into agreements with third parties to market and sell its products after they are approved, it may not be able to generate product revenues.

If Melinta receives regulatory approval of Baxdela for CABP and cUTI and a sufficient market for Baxdela for ABSSSI, CABP, or cUTI is likely, it would expect to build its U.S. sales organization for the marketing, sales and distribution of Baxdela as a treatment for ABSSSI, CABP, or cUTI, the size and nature of which would be determined by approved labeling and the potential market for Baxdela in light of that label. The establishment and development of Melinta’s own sales force will be expensive and time consuming and could delay the planned launch of Baxdela, and Melinta cannot be certain that it will be able to successfully develop this capability. The timing of building any sales force will be dependent on many factors, including the anticipated approval date and its financial resources. Melinta may seek one or more licensing partners to handle some or all of the sales and marketing of Baxdela for ABSSSI, CABP, or cUTI in the U.S. In order to successfully commercialize any other products, Melinta must develop these capabilities on its own or make arrangements with third parties for the marketing, sales and distribution of its products. There also may be certain markets within the U.S. for Baxdela for which Melinta may seek a co-promotion arrangement. If Melinta is not successful in building its own sales force, it may not be able to enter into arrangements with third parties to sell Baxdela on favorable terms or at all. Melinta would not have control over a third-party sales organization and would be dependent on that organization for successfully selling any of its products. Such a third-party organization may not devote the necessary manpower, time, resources or priority to Melinta’s products, which would negatively

 

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impact its results of operations. In the event Melinta is unable to develop its own marketing and sales force or collaborate with a third-party marketing and sales organization, it would not be able to commercialize Baxdela or any other product candidates that it develops, which would negatively impact its ability to generate product revenues. Further, whether Melinta commercializes products on its own or relies on a third party to do so, its ability to generate revenue will be dependent on the effectiveness of the sales force. In addition, to the extent Melinta relies on third parties to commercialize its approved products, it will likely receive less revenues than if it commercialized these products itself.

A failure to maintain optimal inventory levels to meet commercial demand for any product that may be approved, including Baxdela, could harm Melinta’s reputation and subject it to financial losses.

Because accurate product planning is necessary to ensure that Melinta maintains optimal inventory levels for any product candidate that might be approved, including Baxdela, significant differences between its estimates and judgments and future actual demand for any approved products and the shelf life of inventory may result in significant charges for excess inventory or purchase commitments in the future. If Melinta is required to recognize charges for excess inventories, such charges could have a material adverse effect on its financial condition and results of operations. Melinta’s ability to maintain optimal inventory levels also depends on the performance of third-party contract manufacturers. If its manufacturers are unsuccessful in either obtaining raw materials, if Melinta is unable to release inventory on a timely and consistent basis, if Melinta fails to maintain an adequate level of product inventory, if inventory is destroyed or damaged, or if Melinta’s inventory reaches its expiration date, patients might not have access to Melinta’s products, sales could be lost, its reputation and brands could be harmed, and physicians may be less likely to prescribe its products in the future, each of which could have a material adverse effect on Melinta’s business, financial condition, results of operations and cash flows.

If Melinta obtains approval to commercialize any of its product candidates outside of the United States, a variety of risks associated with international operations could materially adversely affect its business.

If any of Melinta’s product candidates are approved outside the United States, Melinta has entered into and will likely enter into additional agreements with third parties to commercialize such product outside the United States. Melinta expects that it will be subject to additional risks related to entering into or maintaining these international business relationships, including:

 

    different regulatory requirements for drug approvals in foreign countries;

 

    differing U.S. and foreign drug import and export rules;

 

    reduced protection for intellectual property rights in foreign countries;

 

    unexpected changes in tariffs, trade barriers and regulatory requirements;

 

    different reimbursement systems;

 

    economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

    compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

    foreign taxes, including withholding of payroll taxes;

 

    foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

 

    workforce uncertainty in countries where labor unrest is more common than in the United States;

 

    production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;

 

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    potential liability resulting from development work conducted by these distributors; and

 

    business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters.

If Melinta markets any of its product candidates that receive approval in a manner that violates applicable health care laws, including laws prohibiting off-label promotion, disclosure laws or other similar laws, it may be subject to civil or criminal penalties.

Any regulatory approval of drug products is limited to those specific diseases and indications for which a product is deemed to be safe and effective by the FDA. In addition to the FDA approval required for new formulations, any new indication for an approved product also requires FDA approval. While physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical studies and approved by the regulatory authorities, Melinta’s ability to promote the products is limited to those indications that are specifically approved by the FDA. Regulatory authorities in the United States generally do not regulate the behavior of physicians in their choice of treatments, and such off-label uses by healthcare professionals are common. Regulatory authorities do, however, restrict communications by pharmaceutical companies on the subject of off-label use. If Melinta is not able to obtain FDA approval for any desired future indications for solithromycin, fusidic acid or any other product candidates that may be approved, its ability to market and sell such products will be limited and Melinta’s business may be adversely affected.

In addition, in recent years, several states and localities have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state or make periodic public disclosures on sales, marketing, pricing, clinical trials, health care provider payments and other activities. Additionally, the federal government has enacted the Physician Payment Sunshine Act which requires pharmaceutical manufacturers to report annually to the Secretary of Health and Human Services payments or other transfers of value made by that entity to physicians and teaching hospitals. If any of Melinta’s product candidates are approved, it will be required to report certain information with respect to such payments. Melinta also expects to have to comply with similar reporting obligations in foreign countries. Melinta will need to expend significant efforts to establish, maintain and enhance such reporting systems and processes in order to comply with these regulations. Failure to comply with the reporting requirements would result in significant civil monetary penalties. The Affordable Care Act also includes various provisions designed to strengthen significantly fraud and abuse enforcement, such as increased funding for enforcement efforts and the lowering of the intent requirement of the federal anti-kickback statute and criminal health care fraud statute such that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it.

Melinta is subject to extensive and costly government regulation.

Antibiotics, including those Melinta is developing and plans to develop in the future, are subject to extensive and rigorous domestic government regulation including regulation by the FDA, the Centers for Medicare and Medicaid Services, other divisions of the U.S. Department of Health and Human Services, the U.S. Department of Justice, state and local governments and their respective foreign equivalents. The FDA regulates the research, development, pre-clinical and clinical testing, manufacture, safety, effectiveness, record keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import and export of pharmaceutical products. If any products Melinta develops are tested or marketed abroad, they will also be subject to extensive regulation by foreign governments, whether or not Melinta has obtained FDA approval for a given product and its uses. Such foreign regulation may be equally or more demanding than corresponding U.S. regulation. Government regulation substantially increases the cost and risk of researching, developing, manufacturing and selling products. Melinta’s failure to comply with these regulations could result in significant fines or the inability of its product candidates to obtain and maintain regulatory approval, which would have a materially adverse effect on Melinta’s business, financial condition, results of operations and prospects.

 

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Melinta expects to rely upon third-party manufacturers for the commercial supply of Baxdela for ABSSSI and any of its product candidates that may be approved in the future. If third-party manufacturers fail to comply with manufacturing regulations, Melinta’s financial results and financial condition will be adversely affected.

Melinta does not have its own manufacturing facilities. Melinta expects to rely upon third-parties for the manufacture and supply of the active pharmaceutical ingredients contained in its products, as well as the preparation of finished products and their packaging. Even if Melinta receives approval for the commercialization of its product candidates, it will not be able to launch such product until Melinta has the appropriate commercial and manufacturing arrangements in place.

Before they can begin commercial manufacture of Melinta’s products, contract manufacturers must obtain regulatory approval of their manufacturing facilities, processes and quality systems. In addition, pharmaceutical manufacturing facilities are continuously subject to inspection by the FDA and foreign regulatory authorities, before and after product approval. Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, any potential third-party manufacturer may be unable to continue to pass or initially pass federal, state or international regulatory inspections in a cost-effective manner.

If a third-party manufacturer with whom Melinta contracts is unable to comply with manufacturing regulations, Melinta may be subject to fines, unanticipated compliance expenses, recall or seizure of its products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions would adversely affect its financial results and financial condition.

If Melinta’s competitors are able to develop and market products that are preferred over Baxdela or any future approved products, its commercial opportunity for such products will be reduced.

Melinta faces competition from established pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions, which may in the future develop products to treat ABSSSI, CABP, cUTI or other diseases or conditions that Melinta’s product candidates target. With respect to Baxdela for treatment of ABSSSI, Melinta faces competition from both established and early-stage pharmaceutical and biotechnology companies, among them, Paratek Pharmaceuticals, Inc., Motif Bio plc and Basilea Pharmaceutica Ltd., each of which currently have drugs in Phase 3 development for treatment of ABSSSI. In addition, researchers are continually learning more about treatments and new discoveries may lead to new therapies. As a result, Baxdela and any of Melinta’s future products may be rendered less competitive. Other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

Melinta’s commercial opportunity will be reduced if its competitors develop and commercialize products that are safer, more effective, have fewer side effects, are more convenient or are less expensive than Melinta’s products. Melinta expects that its ability to compete effectively will depend upon, among other things, its ability to:

 

    successfully and rapidly complete clinical trials and obtain all required regulatory approvals in a timely and cost-effective manner;

 

    maintain patent protection for and otherwise prevent the introduction of generics;

 

    attract and retain key personnel;

 

    build an adequate sales and marketing infrastructure;

 

    obtain adequate reimbursement from third-party payors; and

 

    maintain positive relationships with patient advocacy groups.

 

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Melinta may not be successful in establishing and maintaining development and commercialization collaborations, which could adversely affect Melinta’s ability to develop certain of its product candidates and its financial condition and operating results.

Developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities and marketing approved products is expensive. Melinta has established significant commercial relationships to market Baxdela outside the United States with Menarini, Eurofarma, and Malin Life Sciences Holdings Limited, or Malin. Melinta has also entered into a collaboration agreement with a clinical research organization for the development of radezolid. Melinta plans to establish additional collaborations for development and commercialization of product candidates and research programs, including funding the continued development of Baxdela, radezolid and potentially other products and indications. Additionally, Melinta intends to enter into sales and marketing arrangements with third parties for international sales, and to develop its own sales force in the U.S. If Melinta is unable to maintain its existing arrangements or enter into any new such arrangements on acceptable terms, if at all, Melinta may be unable to effectively market and sell its products in its target markets. Melinta expects to face competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement and may require substantial resources to maintain. Melinta may not be successful in its efforts to establish and implement collaborations or other alternative arrangements for the development of its product candidates.

If Melinta partners with a third party for development and commercialization of a product candidate, Melinta can expect to relinquish some or all of the control over the future success of that product candidate to the third party. Melinta’s collaboration partner may not devote sufficient resources to the commercialization of its product candidates or may otherwise fail in its commercialization. The terms of any collaboration or other arrangement that Melinta establishes may not be favorable to Melinta. In addition, any collaboration that Melinta enters into may be unsuccessful in the development and commercialization of its product candidates. In some cases, Melinta may be responsible for continuing preclinical and initial clinical development of a partnered product candidate or research program, and the payment Melinta receives from its collaboration partner may be insufficient to cover the cost of this development. If Melinta is unable to reach agreements with suitable collaborators for its product candidates, it would face increased costs, it may be forced to limit the number of its product candidates it can commercially develop or the territories in which it commercializes them and it might fail to commercialize products or programs for which a suitable collaborator cannot be found. If Melinta fails to achieve successful collaborations, its operating results and financial condition will be materially and adversely affected.

If Melinta fails to comply with environmental, health and safety laws and regulations, it could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of its business.

Melinta is subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, its operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if it contracts with third parties for the disposal of these materials and wastes, Melinta cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from its use of hazardous materials, Melinta could be held liable for any resulting damages, and any liability could exceed its resources. Melinta also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

Although Melinta maintains workers’ compensation insurance to cover it for costs and expenses it may incur due to injuries to its employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. Melinta does not maintain insurance for environmental liability or toxic tort claims.

 

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In addition, Melinta may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair its research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Melinta relies on certain third-party software in its business, including in the operation of its research and development operations, and the loss of such rights or the disruption of the software could result in a material disruption of its product development programs.

Melinta licenses and uses certain third-party software, including but not limited to programs licensed from Cemcomco LLC, which Melinta uses in its research and development operations. Cemcomco LLC may terminate the license should Melinta fail to pay licenses fees, which could cause material disruption to Melinta’s research operations. Furthermore, any such third-party software may include bugs or failures, may fail to continue to be compatible with Melinta’s systems, as necessary, or may be found to infringe other third-party rights, such that Melinta may be unable to continue to use the software for its current purposes. While alternative software is commercially available, implementing new software and related systems could have a material impact on Melinta’s business and specifically its research and development operations.

Melinta’s internal computer systems, or those of its CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of its product development programs.

Despite the implementation of security measures, Melinta’s internal computer systems and those of its CROs and other contractors and consultants are vulnerable to damage or disruption from computer viruses, software bugs, unauthorized access, natural disasters, terrorism, war, and telecommunication, equipment and electrical failures. While Melinta has not, to its knowledge, experienced any significant system failure, accident or security breach to date, if such an event were to occur and cause interruptions in its operations, it could result in a material disruption of its programs. For example, the loss of clinical trial data from completed or ongoing clinical trials for any of its product candidates could result in delays in its regulatory approval efforts and significantly increase its costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to its data or applications, or inappropriate disclosure or theft of confidential or proprietary information, Melinta could incur liability, the further development of its product candidates could be delayed or its competitive position could be compromised.

Risks Related to Melinta’s Intellectual Property

Melinta’s ability to pursue the development and commercialization of Baxdela depends upon the continuation of its license from Wakunaga.

Melinta relies on certain licenses to certain patent rights and proprietary technology from third parties that are important or necessary to the development of its technology and products. For example, its license agreement with Wakunaga provides it with a worldwide exclusive license to develop and sell Baxdela. In particular, Melinta obtained an exclusive license to certain patents, patent applications and proprietary information, including patents and proprietary information owned by AbbVie Inc. and licensed to Wakunaga, covering the composition of matter to Baxdela, its manufacturing process, salt forms, pharmaceutical compositions containing Baxdela, methods of using Baxdela, and other proprietary information. Melinta’s license agreement with Wakunaga further grants it non-exclusive rights to other patents and applications. The license requires Melinta to make certain milestone and royalty payments to Wakunaga. If Melinta is unable to make any of these required payments under the license agreement, or if Melinta does not use commercially reasonable efforts to achieve certain development and commercialization milestones for Baxdela within the timeframes required by the license agreement, Melinta’s rights to develop and commercialize Baxdela could be terminated. In addition, Wakunaga may terminate the license agreement on a product-by-product and country-by-country basis based upon Melinta’s material breach of the license agreement if not cured within 90 days from written notice of breach. If Melinta’s

 

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license agreement with Wakunaga were terminated, it would lose its rights to develop and commercialize Baxdela, and would have to grant Wakunaga a perpetual, non-royalty bearing, exclusive license to its proprietary information reasonably necessary to commercialize Baxdela. Loss of its license agreement would materially and adversely affect its business, results of operations and future prospects.

In addition, disputes may arise regarding intellectual property subject to a licensing agreement, including:

 

    the scope of rights granted under the license agreement and other interpretation-related issues;

 

    the extent to which Melinta’s technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

    the sublicensing of patent and other rights under the license agreement;

 

    Melinta’s diligence obligations under the license agreement and what activities satisfy those diligence obligations; and

 

    the priority of invention of patented technology.

If disputes over intellectual property that Melinta has licensed prevent or impair its ability to maintain its current licensing arrangements on acceptable terms, Melinta may be unable to successfully develop and commercialize the affected product candidates.

In addition, the agreements under which Melinta currently licenses intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what Melinta believes to be the scope of its rights to the relevant intellectual property or technology, or increase what it believes to be its financial or other obligation under the relevant agreement, either of which could have a material adverse effect on its business, financial condition, results of operations and prospects.

Melinta has not yet registered its trademarks in all of its potential markets, and failure to secure those registrations could adversely affect its business.

Melinta has filed trademark applications with the United States Patent and Trademark Office (“USPTO”) for its marks, including “MELINTA,” “MELINTA THERAPEUTICS,” “MELINTA THE ANTIBIOTICS COMPANY” and “BAXDELA” for use in connection with its goods and services. The MELINTA, MELINTA THERAPEUTICS and MELINTA THE ANTIBIOTICS COMPANY marks have matured to registration in the U.S. Melinta also anticipates filing foreign trademark applications for the same marks for goods and services outside the United States. Melinta has obtained registrations for the MELINTA THERAPEUTICS mark in Mexico, the European Union, Canada and Japan. The registrations will be subject to use and maintenance requirements. Melinta has not yet registered all of its trademarks in all of its potential markets, and it is also possible that there are names or symbols other than “MELINTA,” “MELINTA THERAPEUTICS,” “MELINTA THE ANTIBIOTICS COMPANY” and “BAXDELA” that may be protectable marks for which Melinta has not sought registration, and failure to secure those registrations could adversely affect its business. Melinta cannot assure you that opposition or cancellation proceedings will not be filed against its trademarks or that its trademarks would survive such proceedings.

Melinta has not yet registered trademarks for any of its product candidates in jurisdictions outside of the United States. The “BAXDELA” and any other future trademark applications for its product candidates in the U.S., its trademark applications in the U.S. and any other jurisdictions where it may file may not be allowed for registration, and registered trademarks may not be obtained, maintained or enforced. During trademark registration proceedings, Melinta may receive rejections. Although Melinta is given an opportunity to respond to those rejections, it may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against its trademarks, and its trademarks may not survive such proceedings.

 

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FORWARD-LOOKING STATEMENTS

This proxy statement includes forward-looking statements within the meaning of Section 21E of the Exchange Act. For this purpose, any statements contained herein, other than statements of historical fact, including statements regarding the proposed merger with Melinta, including the expected timetable for completing the transaction; future financial and operating results, including targeted product milestones and potential revenues; benefits and synergies of the transaction; future opportunities of the combined company; the progress and timing of product development programs and related trials; the potential efficacy of products and product candidates; and the strategy, projected costs, prospects, plans and objectives of management of either Cempra, Melinta or the combined company, may be forward-looking statements under the provisions of The Private Securities Litigation Reform Act of 1995. In this proxy statement, words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “should,” “target,” “will,” “would” or other words that convey uncertainty of future events or outcomes are used to identify these forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including “critical accounting estimates” and risks relating to (with respect to Cempra, Melinta and/or the combined company, as applicable): the ability to consummate the proposed merger; the ability to maintain compliance with NASDAQ listing standards; the liquidity and trading market for shares prior to and following the consummation of the proposed merger; clinical trials, including difficulties or delays in the completion of patient enrollment, data collection or data analysis; uncertainties in obtaining successful pre-clinical and clinical results for product candidates and unexpected costs that may result therefrom; ability to obtain required regulatory approvals for product candidates; costs, timing and regulatory review of the combined company’s studies and clinical trials, including its ability to address the issues identified by the FDA in the CRL relating to Cempra’s NDAs for solithromycin for CABP; failure to realize any value of certain product candidates developed and being developed, in light of inherent risks and difficulties involved in successfully bringing product candidates to market; the ability to develop new product candidates and support existing products; the ability to commercialize and launch any product candidate that receives regulatory approval, including Baxdela; the risk that the market for the combined company’s products, including Baxdela, may not be as large as expected; the ability to attain market acceptance among physicians, patients, patient advocacy groups, health care payors and the medical community for Baxdela and any future products of the combined company; the ability to continue marketing Baxdela or any approved drug successfully or at all once it is on the market in light of challenges relating to regulatory compliance, pricing, market acceptance and competition; the ability to obtain the substantial additional funding required to conduct development and commercialization activities; and the ability to obtain, maintain and enforce patent and other intellectual property protection for currently marketed products and product candidates. These and other risks are described in greater detail in the section entitled “Risk Factors” beginning on page 39 of this proxy statement. Many of these factors that will determine actual results are beyond Cempra’s, Melinta’s, or the combined company’s ability to control or predict. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition, any forward-looking statements in this proxy statement represent Cempra’s views only as of the date of this proxy statement and should not be relied upon as representing Cempra’s views as of any subsequent date. Cempra anticipates that subsequent events and developments will cause its views to change. However, while Cempra may elect to update these forward-looking statements publicly at some point in the future, Cempra specifically disclaims any obligation to do so, except as may be required by law, whether as a result of new information, future events or otherwise. Cempra’s forward-looking statements generally do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments it may make. In particular, unless otherwise stated or the context otherwise requires, Cempra has prepared this proxy statement as if it were going to remain an independent, standalone company. If Cempra consummates the merger with Melinta, the descriptions of its strategy, future operations and financial position, future revenues, projected costs and prospects and the plans and objectives of management in this proxy statement may no longer be applicable.

 

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THE 2017 ANNUAL MEETING

Cempra is furnishing this proxy statement to its stockholders as part of the solicitation of proxies by Cempra’s board of directors for use at the 2017 Annual Meeting and at any adjournments or postponements thereof.

Date, Time and Place

The 2017 Annual Meeting will be held at [●] [a.m.], local time, on [●], at the [●] located at [●].

If you are a holder of record and plan to attend the 2017 Annual Meeting, please bring your proxy or a photo identification to confirm your identity. If you are a beneficial owner of common stock held by a bank or broker, i.e., in “street name,” you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or letter from a bank or broker are examples of proof of ownership. If you want to vote in person your common stock held in “street name,” you must get a proxy in your name from the registered holder.

Purposes of the 2017 Annual Meeting

The purposes of the 2017 Annual Meeting are to consider and act upon the following matters:

 

1. To approve the issuance of Cempra common stock pursuant to the merger agreement.

 

2. To approve three separate proposals to amend Cempra’s certificate of incorporation to:

 

  a. increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000, the approval of which is necessary to enable Cempra to issue the required number of shares of Cempra common stock to Melinta stockholders in connection with the merger;

 

  b. change the name of Cempra to “Melinta Therapeutics, Inc.”; and

 

  c. elect for Cempra not to be governed by or subject to Section 203 of the DGCL.

 

3. To approve amendments to Cempra’s certificate of incorporation to effect the reverse stock split.

 

4. To elect three Class III directors for a three-year term expiring in 2020; provided, however, that, if the merger is completed, the board of directors of Cempra will be reconstituted as set forth in the merger agreement.

 

5. To approve on a non-binding advisory basis Cempra’s 2016 executive compensation.

 

6. To ratify the appointment of PricewaterhouseCoopers LLP as Cempra’s independent registered public accounting firm for the fiscal year ending December 31, 2017.

 

7. To consider and vote on a proposal to adjourn the 2017 Annual Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2017 Annual Meeting to approve items 1, 2a, 2b, 2c or 3 above.

 

8. To transact such other business as may properly come before the 2017 Annual Meeting or any adjournment or postponement thereof.

Proposals 1 and 2a are conditioned upon each other, and the approval of each such proposal is a condition to the completion of the merger. Therefore, the completion of the merger cannot proceed without the approval of Proposals 1 and 2a.

The merger agreement is attached as Annex A-1 and the merger agreement amendment is attached as Annex A-2 to this proxy statement.

 

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Recommendation of Cempra’s Board of Directors

After careful consideration, Cempra’s board of directors unanimously recommends that Cempra stockholders vote:

 

    FOR Proposal 1 to approve the issuance of Cempra common stock in connection with the merger;

 

    FOR Proposal 2a to approve an amendment to Cempra’s certificate of incorporation to increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000.

 

    FOR Proposal 2b to approve an amendment to Cempra’s certificate of incorporation to change the name of Cempra to “Melinta Therapeutics, Inc.”

 

    FOR Proposal 2c to approve an amendment to Cempra’s certificate of incorporation to elect for Cempra not to be governed by or subject to Section 203 of the DGCL.

 

    FOR Proposal 3 to approve amendments to Cempra’s certificate of incorporation to effect the reverse stock split and related matters;

 

    FOR Proposal 4 to elect three Class III directors for a three-year term expiring in 2020;

 

    FOR Proposal 5 to approve on a non-binding advisory basis Cempra’s 2016 executive compensation;

 

    FOR Proposal 6 to ratify the appointment of PricewaterhouseCoopers LLP as Cempra’s independent registered public accounting firm for the fiscal year ending December 31, 2017; and

 

    FOR Proposal 7 to approve an adjournment of the 2017 Annual Meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposals 1, 2a, 2b, 2c or 3.

Record Date and Stockholders Entitled to Vote

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

Voting Procedures

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

 

    via the internet by accessing the proxy materials on the secure website, www.investorvote.com, and following the voting instructions on that website;

 

    via telephone by calling toll free 1-800-652-8683 in the United States or 1-800-962-4284 outside the United States and following the recorded instructions; or

 

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

The internet and telephone voting procedures are designed to authenticate stockholders’ identities by use of a control number to allow stockholders to vote their shares and to confirm that stockholders’ instructions have been properly recorded. Voting via the internet or telephone must be completed by 1:00 a.m., Eastern time on [●], 2017. Of course, you can always come to the meeting and vote your shares in person. If you submit or return a proxy card without giving specific voting instructions, your shares will be voted as recommended by Cempra’s board of directors.

 

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

Whether or not you plan to attend the 2017 Annual Meeting in person, please vote as soon as possible to ensure your vote is counted.

Revoking Your Proxy Instructions

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

 

    Filing a written notice of revocation bearing a later date than the proxy with Cempra’s Corporate Secretary at 6320 Quadrangle Drive, Suite 360, Chapel Hill, North Carolina 27517 at or before the taking of the vote at the meeting;

 

    Duly executing a later-dated proxy relating to the same shares and delivering it to Cempra’s Corporate Secretary at 6320 Quadrangle Drive, Suite 360, Chapel Hill, North Carolina 27517 at or before the taking of the vote at the meeting; or

 

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

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

Counting Votes

Consistent with state law and Cempra’s bylaws, the presence, in person or by proxy, of at least a majority of the shares outstanding and entitled to vote at the meeting will constitute a quorum for purposes of voting on a particular matter at the meeting. On the record date, there were [●] shares of common stock outstanding and entitled to vote. Accordingly, the holders of [●] shares must be present at the 2017 Annual Meeting to have a quorum.

Once a share is represented for any purpose at the meeting, it is deemed present for quorum purposes for the remainder of the meeting and any adjournment thereof unless a new record date is set for the adjournment. Shares held of record by stockholders or their nominees who do not vote by proxy or attend the meeting in person will not be considered present or represented and will not be counted in determining the presence of a quorum. Signed proxies that withhold authority or reflect abstentions or “broker non-votes” will be counted for purposes of determining whether a quorum is present. “Broker non-votes” are proxies received from brokerage firms or other nominees holding shares on behalf of their clients who have not been given specific voting instructions from their clients with respect to non-routine matters. If there is no quorum, the chairperson of the meeting or any officer entitled to preside at or to act as secretary of the meeting may adjourn the 2017 Annual Meeting to another date.

Assuming the presence of a quorum at the meeting:

 

    The approval of the issuance of Cempra common stock pursuant to the merger agreement requires the affirmative vote of the holders of a majority of the shares of Cempra common stock present in person or represented by proxy and entitled to vote on the matter at the 2017 Annual Meeting. An abstention will have the same effect as a vote against the approval of this proposal. A “broker non-vote” will have no effect on the outcome of this proposal as it is not entitled to vote on the matter.

 

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    The approval of an amendment to Cempra’s certificate of incorporation to increase the number of authorized shares of Cempra common stock from 80,000,000 to 250,000,000 requires the affirmative vote of the holders of a majority of the outstanding shares of Cempra common stock as of the record date for the 2017 Annual Meeting. An abstention or “broker non-vote” will have the same effect as a vote against the approval of this proposal.

 

    The approval of an amendment to Cempra’s certificate of incorporation to change the name of Cempra to “Melinta Therapeutics, Inc.” requires the affirmative vote of the holders of a majority of the outstanding shares of Cempra common stock as of the record date for the 2017 Annual Meeting. An abstention or “broker non-vote” will have the same effect as a vote against the approval of this proposal.

 

    The approval of an amendment to Cempra’s certificate of incorporation to elect for Cempra not to be governed by or subject to Section 203 of the DGCL requires the affirmative vote of the holders of a majority of the outstanding shares of Cempra common stock as of the record date for the 2017 Annual Meeting. An abstention or “broker non-vote” will have the same effect as a vote against the approval of this proposal.

 

    The approval of the amendments to Cempra’s certificate of incorporation to effect a reverse stock split of Cempra common stock requires the affirmative vote of the holders of a majority of the outstanding shares of Cempra common stock as of the record date for the 2017 Annual Meeting. An abstention or “broker non-vote” will have the same effect as a vote against the approval of this proposal.

 

    The election of directors will be determined by a plurality of the votes cast at the meeting. This means that the three nominees receiving the highest number of “FOR” votes will be elected as directors. Withheld votes and “broker non-votes,” if any, are not treated as votes cast, and therefore will have no effect on the outcome of this proposal.

 

    The approval of the compensation of Cempra’s named executive officers (as defined on page 106 of this proxy statement) requires the affirmative vote of the holders of a majority of the shares of Cempra common stock present in person or represented by proxy and entitled to vote on the matter at the 2017 Annual Meeting. An abstention will have the same effect as a vote against the approval of this proposal. A “broker non-vote” will have no effect on the outcome of this proposal as it is not entitled to vote on the matter. Further, because your vote on the ratification of compensation of Cempra’s named executive officers is advisory, it will not be binding on Cempra’s board of directors or Cempra. However, Cempra’s board of directors and the compensation committee of Cempra’s board of directors, or the Compensation Committee, will consider the outcome of the vote when making future decisions regarding the compensation of the named executive officers.

 

    The approval of the ratification of the appointment of Cempra’s independent registered public accounting firm requires the affirmative vote of the holders of a majority of the shares of Cempra common stock present in person or represented by proxy and entitled to vote on the matter at the 2017 Annual Meeting. An abstention will have the same effect as a vote against the approval of this proposal. Because this is a “routine” matter for which brokers are entitled to vote, “broker non-votes” will not exist as to this proposal. Further, because your vote on the ratification of the appointment of Cempra’s independent registered public accounting firm is advisory, it will not be binding on Cempra’s board of directors or Cempra. However, Cempra’s board of directors and the audit committee of Cempra’s board of directors, or the Audit Committee, will consider the outcome of the vote when making future decisions regarding the selection of Cempra’s independent registered public accounting firm.

 

   

The approval of the proposal to adjourn the 2017 Annual Meeting, if necessary, if a quorum is present, to solicit additional proxies, in the event that there are not sufficient votes at the time of the 2017 Annual Meeting to approve items 1, 2a, 2b, 2c or 3 above requires the affirmative vote of the holders of a majority of the shares of Cempra common stock present in person or represented by proxy and

 

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entitled to vote on the matter at the 2017 Annual Meeting. An abstention will have the same effect as a vote against the approval of this proposal. A “broker non-vote” will have no effect on the outcome of this proposal as it is not entitled to vote on the matter.

With respect to “routine” matters, such as the ratification of the selection of Cempra’s independent registered public accounting firm, a bank, brokerage firm, or other nominee has the authority (but is not required) under the rules governing self-regulatory organizations, or the SRO rules, including NASDAQ, to vote its clients’ shares if the clients do not provide instructions. When a bank, brokerage firm, or other nominee votes its clients’ shares on routine matters without receiving voting instructions, these shares are counted both for establishing a quorum to conduct business at the meeting and in determining the number of shares voted FOR, AGAINST or ABSTAINING with respect to such routine matters.

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

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

 

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

 

    leave your shares unvoted altogether.

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

No Dissenters’ Rights or Appraisal Rights

Holders of Cempra common stock will not be entitled to any dissenters’ rights or appraisal rights with respect to any of the proposals to be voted on at the 2017 Annual Meeting.

Solicitation of Proxies

Cempra will pay the cost of this proxy solicitation. You will need to obtain your own internet access if you choose to access the proxy materials and/or vote over the internet. In addition to soliciting proxies by mail, Cempra’s directors, executive officers and employees and Melinta’s directors and executive officers might solicit proxies personally and by telephone. None of these individuals will receive any additional compensation for this. Cempra has engaged Georgeson to assist Cempra in the distribution of proxy materials and the solicitation of votes described above for a fee of $15,000, plus additional fees based on the amount and types of services rendered and reimbursement of reasonable expenses. Cempra will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their principals and obtaining their proxies.

Adjournments and Postponements

The 2017 Annual Meeting may be adjourned, recessed or postponed if a quorum is not present.

If the time, date and place of an adjourned meeting are announced at the original convening of the 2017 Annual Meeting, no notice of an adjourned meeting need be given unless, after the adjournment, a new record date is fixed for the adjourned meeting, in which case notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. At any subsequent reconvening of the 2017 Annual Meeting at which a quorum is present in person or represented by proxy, any business may be transacted that might have

 

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been transacted at the original meeting, and all proxies will be voted in the same manner as they would have been voted at the original convening of the 2017 Annual Meeting, except for any proxies that have been validly revoked or withdrawn prior to the reconvened meeting.

Voting by Cempra’s Directors, Executive Officers and Principal Stockholders

As of the close of business on the record date for the 2017 Annual Meeting, Cempra’s directors and executive officers beneficially owned, in the aggregate [●] shares of Cempra common stock, or collectively approximately [●] of the issued and outstanding shares of Cempra common stock. In connection with the execution of the merger agreement, holders beneficially owning, as of August 8, 2017, approximately 11.5% of the shares of Cempra’s outstanding common stock, including Cempra’s directors and executive officers, have entered into voting and lock-up agreements with Melinta that provide, among other things, that such stockholders shall vote in favor of the adoption of the merger agreement and against any proposal made in opposition to, or in any competition with, the merger. For more information on the voting and lock-up agreements, please see the section of this proxy statement entitled “Agreements Related to the Merger” beginning on page 132. Cempra’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of Cempra stockholders generally. For more information, please see the section of this proxy statement entitled “The Merger—Interests of Cempra’s Directors and Executive Officers in the Merger” beginning on page 104.

Assistance

If you need assistance in completing your enclosed proxy card or have questions regarding the 2017 Annual Meeting, please contact Georgeson, which is acting as Cempra’s proxy solicitation agent in connection with the merger, toll free at (866) 821-2550.

 

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THE PARTIES

Cempra, Inc.

6320 Quadrangle Drive, Suite 360

Chapel Hill, North Carolina 27517

Tel: (919) 313-6601

Cempra is a clinical-stage pharmaceutical company focused on developing differentiated anti-infectives for the acute care and community settings to meet critical medical needs in the treatment of infectious diseases. To date, Cempra’s focus has been the development of solithromycin for the treatment of community-acquired bacterial pneumonia, one of the most serious infections of the respiratory tract in adults and children, as well as for ophthalmic infections and other indications.

Melinta Therapeutics, Inc.

300 George Street, Suite 301

New Haven, Connecticut 06511

(312) 724-9407

Melinta is a commercial-stage biopharmaceutical company dedicated to introducing new antibiotics that meet the ever-present challenge posed by dangerous and increasingly resistant bacteria. Melinta received FDA approval of Melinta’s lead antibiotic, Baxdela (delafloxacin), for the treatment of adults with serious skin infections known as acute bacterial skin and skin structure infections. In addition, Melinta is studying Baxdela in a Phase 3 clinical program in serious community-acquired bacterial pneumonia, and may develop additional indications such as complicated urinary tract infections. Melinta is also developing, through the application of Nobel Prize-winning science and a proprietary drug discovery platform, novel classes of antibiotics to treat the multi- and extremely-drug-resistant pathogens for which there are few to no options, known collectively as ESKAPE pathogens (Enterococcus faecium, Staphylococcus aureus, Klebsiella pneumoniae, Acinetobacter baumannii, Pseudomonas aeruginosa, Enterobacter species and Escherichia coli), which cause the majority of life-threatening hospital infections.

Melinta is privately held with offices in New Haven, Connecticut and Lincolnshire, Illinois.

 

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THE MERGER

This section and the section entitled “The Merger Agreement” beginning on page 115 of this proxy statement describe the material aspects of the merger, including the merger agreement. While Cempra believes that this description covers the material terms of the merger and the merger agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement, including the merger agreement, which is attached as Annex A-1 to this proxy statement, as amended by the merger agreement amendment attached as Annex A-2 hereto, and the other Annexes attached hereto.

Background of the Merger

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

On November 25, 2016, Ms. Cecilia Gonzalo, a member of Melinta’s board of directors, emailed Garheng Kong, M.D., Ph.D., Chairman of Cempra’s board of directors, to request a call. Dr. Kong responded with an email referring Ms. Gonzalo to Mr. P. Sherrill Neff, a member of Cempra’s board of directors, and on November 28, 2016, Mr. Neff had a teleconference with Ms. Gonzalo and Thomas Koestler, Ph.D., chairman of Melinta’s board of directors. On the call, Ms. Gonzalo and Dr. Koestler discussed Melinta’s business and discussed the business idea of combining the companies. On December 7, 2016, Mr. Neff provided Cempra’s board of directors with an email summary of his discussion with Ms. Gonzalo and Dr. Koestler and suggested Cempra’s board of directors discuss the opportunity further at an upcoming board of directors meeting.

On December 20, 2016, Mr. Neff called Ms. Gonzalo to report that he had discussed a potential combination with the Cempra board of directors and that he would be introducing her to David Zaccardelli, PharmD, Cempra’s Acting Chief Executive Officer. One the same day, Mr. Neff introduced Dr. Zaccardelli, via email, to Ms. Gonzalo and Dr. Koestler, and suggested the companies enter into a confidential disclosure agreement, or CDA, to facilitate further discussions. Ms. Gonzalo responded via email and agreed that a CDA would be a productive next step.

On December 22, 2016, Cempra entered into a mutual CDA with Melinta.

On December 23, 2016, an introductory teleconference was held between Cempra and Melinta. Mr. Neff, Dr. Zaccardelli, David Moore, former President and Chief Commercial Officer, and Mark Hahn, Chief Financial Officer, participated from Cempra, and Eugene Sun, M.D., Chief Executive Officer of Melinta, and members of Melinta’s board of directors, including Kevin Ferro, Dr. Koestler and Ms. Gonzalo, participated from Melinta. On the call, Melinta and Cempra discussed a potential strategic transaction and agreed to meet in person for further discussions in San Francisco in January.

On December 27, 2016, Cempra received a CRL from the FDA relating to Cempra’s NDAs for oral and IV formulations of solithromycin for the treatment of CABP in adults. The CRL stated that the FDA could not approve the NDAs in their present form and noted that additional clinical safety information and the satisfactory resolution of manufacturing facility inspection deficiencies were required before the NDAs could be approved.

On January 4, 2017, Mr. Moore and Mr. Hahn held a conference call with Stifel, Nicolaus & Company, Incorporated, or Stifel, to discuss potential strategic alternatives and related process and timing considerations.

On January 10, 2017, members of Cempra’s senior management team met with the leadership of Melinta in San Francisco to explore potential areas of mutual interest between the two companies. The potential clinical and commercial benefits of Baxdela (delafloxacin) and the Melinta pipeline were introduced by the Melinta team, and the potential clinical and commercial benefits of solithromycin, fusidic acid and the Cempra pipeline were presented by the Cempra team. In addition, there was discussion surrounding the solithromycin CRL and

 

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potential next steps and potential synergies between the two companies that could be realized in a strategic collaboration. Present at the meeting for Cempra were Dr. Zaccardelli, Mr. Moore, Mr. Hahn, David Oldach, M.D., Chief Medical Officer, and John Bluth, Executive Vice President of Investor Relations and Corporate Communications. Present at the meeting for Melinta were Dr. Sun, and other members of Melinta’s board of directors, including Mr. Ferro, Dr. Koestler, Ms. Gonzalo, Sundar Kodiyalam and Sean Murphy.

On January 14, 2017, members of Cempra’s management team and board of directors had a phone call with members of Melinta’s management team and board of directors as a follow-up to the January 10, 2017, meeting in San Francisco and to discuss next steps. On the same day, Cempra received a non-binding proposal from Melinta, or the initial Melinta proposal, proposing a business combination with Cempra, in which Melinta stockholders would own approximately 66.7% of the combined company following the transaction and Cempra stockholders would own approximately 33.3% of the combined company.

On January 15, 2017, Dr. Zaccardelli had a teleconference with members of the Melinta board of directors to acknowledge receipt of the initial Melinta proposal and to communicate that the proposal would be discussed with the full Cempra board of directors later in the day. On the same day, at a teleconference of Cempra’s board of directors, Dr. Zaccardelli reviewed a history of the discussions with Melinta regarding a possible business combination, including the January 10, 2017, meeting in San Francisco, receipt of the initial Melinta proposal and the vision for the combined company and product portfolios. Mr. Moore provided a commercial review of Melinta’s lead product, Baxdela, and discussed the potential capital needs of Melinta to support commercialization. At the meeting, attorneys from Skadden, Arps, Slate, Meagher & Flom LLP, or Skadden, Cempra’s legal advisor, discussed certain legal aspects of the potential transaction and process. After discussion, Cempra’s board of directors concluded to defer discussing valuation and specific terms with Melinta until further diligence had been performed and a financial advisor had been retained to advise Cempra’s board of directors. On January 15, 2017, Mr. Moore contacted representatives of Morgan Stanley (with whom Cempra had a prior relationship as a result of a previous engagement pursuant to which Morgan Stanley provided shareholder relations advisory services to Cempra) notifying them of the receipt of Melinta’s proposal and inquiring whether Morgan Stanley had any interest in advising on the transaction.

On January 17, 2017, Dr. Zaccardelli, Mr. Moore, Mr. Hahn and Dr. Oldach held a conference call with Stifel to discuss a list of potential partners for Cempra to consider in a strategic process.

On January 17, 2017, Mr. Moore received an unsolicited call from the chief executive officer of a clinical-stage antibiotic company to discuss potential interest in a business combination. Cempra did not advance with any further discussions with this company.

On January 18, 2017, Dr. Zaccardelli and Mr. Neff had a call with members of Melinta’s board of directors to communicate that further due diligence would be required for Cempra to adequately assess and respond to the initial Melinta proposal. On the same day, members of the Cempra management team held a call with Morgan Stanley to discuss the process and next steps for identifying potential business opportunities.

On January 18, 2017, a representative from JP Morgan Securities LLC, or JP Morgan, Melinta’s financial advisor, reached out to a representative from Skadden to inquire about a possible strategic transaction and conveyed Melinta’s continued interest. Skadden shared a summary of the conversation with Mr. Neff and Dr. Zaccardelli and Mr. Neff reiterated that Cempra would need to conduct significant due diligence in order to understand the appropriate value of Melinta.

On January 19, 2017, members of the Cempra management team and board of directors had a call with members of Melinta’s board of directors to discuss next steps and required due diligence items. On the same day, Dr. Zaccardelli sent Mr. Ferro a list of corporate, legal, financial, intellectual property, manufacturing, clinical and commercial due diligence items that Cempra required for conducting its due diligence of Melinta in connection with evaluating the potential merger, and Ms. Gonzalo provided Dr. Zaccardelli with a list of

 

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requested corporate, legal, financial, intellectual property, manufacturing, clinical and commercial due diligence items from Cempra. Cempra and Melinta agreed to establish confidential data rooms to facilitate due diligence, and the future addition of additional materials, as requested by both companies as due diligence proceeded.

On January 19, 2017, Dr. Zaccardelli, Mr. Moore, Mr. Hahn and Dr. Oldach held a follow-up conference call with Stifel to discuss additional potential partners for Cempra. The result of this and the prior discussion was a further refined list of potential partners that was sent to Dr. Zaccardelli, Mr. Moore, Mr. Hahn and Dr. Oldach on January 24, 2017.

On January 19, 2017, Dr. Oldach and Mr. Bluth had a call with members of the management team of a clinical-stage anti-infective company, or Company A. The purpose of the call was to discuss potential opportunities for business collaborations.

On January 20, 2017, a representative from JP Morgan called Mr. Neff to confirm Melinta’s continued interest in pursuing a transaction and Mr. Neff likewise noted Cempra’s interest in evaluating the opportunity. Mr. Neff communicated that Cempra would need to complete its due diligence to assess an appropriate ownership split.

On January 25, 2017, Dr. Sun and members of Melinta’s management team and members of Cempra’s management team had a call for Melinta to review clinical safety and efficacy information on Baxdela.

On January 27, 2017, Cempra’s board of directors approved the engagement of Morgan Stanley as Cempra’s financial advisor in connection with any potential strategic transaction involving Cempra. An engagement letter was subsequently executed by Dr. Zaccardelli on February 6, 2017.

On January 30, 2017, members of the Melinta management team and members of the Cempra management team had a call for Melinta to review its commercial and financial assumptions on Baxdela. On the same date, participants from Melinta including Dr. Sun, Mr. John Temperato, President and Chief Operating Officer of Melinta, Mr. Paul Estrem, Chief Financial Officer of Melinta, Mr. Ferro and Ms. Gonzalo, and participants from Cempra including Dr. Zaccardelli, Mr. Moore, Dr. Oldach, Mr. Bluth and Mr. Hahn, held a call to discuss the status of due diligence and specific items Cempra required to complete its due diligence.

Between February 2, 2017, and April 3, 2017, members of Cempra’s management held a series of teleconferences and in-person meetings to discuss potential product and corporate partnership opportunities with various potential strategic partners, which potential partners were identified through various ways, including by introductions from Stifel and by such potential partners reaching out to Cempra directly. Nine of these potential strategic partners ultimately became part of the process to explore strategic opportunities described further below and were invited by Cempra to submit an initial proposal; however, only one potential partner, Company B, advanced beyond phase one of the process.

On February 2, 2017, Dr. Zaccardelli and Mr. Ferro spoke via phone regarding the status of due diligence and next steps. Dr. Zaccardelli communicated that, based on Cempra’s due diligence to date, Cempra believed valuations supported an ownership split closer to 50%/50%.

On February 3, 2017, members of Cempra management and Company B held a meeting at Cempra’s offices in North Carolina to discuss potential product and corporate partnership opportunities.

On February 4, 2017, Mr. Ferro sent an email to Dr. Zaccardelli advising that the ownership split proposed by Dr. Zaccardelli on their February 2, 2017 call was not acceptable and asking whether the initial Melinta proposal of a 66.7%/33.3% ownership split would be acceptable to Cempra. Mr. Ferro noted in the email that Melinta may have difficulty continuing to support this proposal as Cempra’s cash levels continued to decline over time.

 

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On February 5, 2017, Dr. Zaccardelli replied to Mr. Ferro that he would speak with Cempra’s board of directors regarding the initial Melinta proposal and would respond in the following week.

At a February 6, 2017, teleconference of Cempra’s board of directors, Dr. Zaccardelli provided an overview of activities related to the management team’s review of the initial Melinta proposal, including a review of key factors with respect to valuation and process. Morgan Stanley presented its preliminary financial analyses regarding Cempra and Melinta, including a relative valuation contribution analysis comparing Cempra and Melinta valuations utilizing a series of valuation methods based on projections prepared by Cempra and Melinta management in January 2017. Morgan Stanley indicated that a key difference between the Melinta and Cempra valuations was differing views of Cempra’s and Melinta’s management regarding each company’s lead product and sales potential. Cempra’s board of directors considered a number of factors with respect to the initial Melinta proposal, including Melinta’s lead product’s projected sales forecast variances and underlying assumptions and the impact on Melinta’s value. Cempra’s board of directors determined to reject the initial Melinta proposal and instructed Dr. Zaccardelli to communicate the same to Melinta as well as the relative valuation ranges that could be acceptable to Cempra.

On February 6, 2017, Dr. Zaccardelli called Mr. Ferro to inform him that Cempra’s board of directors had rejected the initial Melinta proposal and provided guidance on relative valuation ranges that would be required if discussions were to continue between the two companies.

On February 9, 2017, Mr. Ferro sent an email to Dr. Zaccardelli and Mr. Neff to inform them that Cempra’s ownership split proposal was unacceptable and that Melinta would be discontinuing discussions with Cempra.

At a February 16, 2017, meeting of Cempra’s board of directors, Mr. Moore provided an overview of potential opportunities for new products and combinations and a summary of several top partnering candidate companies. Cempra’s board of directors discussed these potential partnering opportunities and process, as well as the strategic direction of Cempra.

At a February 23, 2017, teleconference, Cempra’s board of directors decided to initiate company-wide cost and personnel reductions due to the delay of the potential approval of solithromycin resulting from the solithromycin CRL received by Cempra. At such time, Cempra’s board of directors also instructed management to engage in a process to evaluate and assess external assets and other potential strategic business opportunities to determine the best use of Cempra’s significant cash resources and clinical programs to deliver value to patients and stockholders through internal and/or potential external opportunities.

On February 27, 2017, Mr. Ferro emailed Dr. Zaccardelli requesting an opportunity to speak via phone, which was scheduled for February 28, 2017. On the call, Mr. Ferro requested an opportunity to meet with Mr. Neff and Cempra’s management team to re-engage discussions on a potential strategic transaction in light of Cempra’s February 23, 2017 announcement. A meeting was scheduled for March 8, 2017 at Cempra’s offices in North Carolina.

On February 28, 2017, Cempra issued a press release announcing its fourth quarter 2016 financial results. The press release noted that as Cempra progressed its internal programs, it was also actively engaged in a process to evaluate and assess potential strategic business opportunities.

On March 8, 2017, Dr. Zaccardelli, Mr. Moore, Mr. Hahn, Dr. Oldach and Mr. Neff met with Dr. Sun, Mr. Ferro, Mr. Kodiyalam, and Ms. Gonzalo from Melinta at Cempra’s offices in Chapel Hill, North Carolina. At the meeting, the parties discussed re-engaging discussions and due diligence relating to a potential strategic transaction. Cempra indicated that it would welcome a revised proposal from Melinta and communicated that Cempra had also now engaged in a structured process to explore strategic opportunities and would like to include Melinta in that process. Melinta indicated that, under the current circumstances, it may be open to improving the proposed ownership split from the initial Melinta proposal.

 

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On March 9, 2017, Cempra received a non-binding proposal from Melinta, or the second Melinta proposal, proposing a merger of Melinta with and into a subsidiary of Cempra, in which, following the merger, Melinta stockholders would own approximately 57% of the combined company and Cempra stockholders would own approximately 43% of the combined company. On the same day, Ms. Gonzalo sent a follow-up email to Dr. Zaccardelli, copying everyone present at the March 8, 2017 meeting, regarding Melinta’s assumptions and financial basis for the second Melinta proposal.

On March 10, 2017, Dr. Zaccardelli sent an email to Mr. Ferro reiterating that Cempra was proceeding with its comprehensive process to explore strategic opportunities and that he looked forward to Melinta being part of that process.

On March 13, 2017, Cempra issued a press release announcing that it had retained Morgan Stanley as financial advisor to Cempra to lead Cempra’s process to review strategic business options.

During the period from March 13, 2017, to April 7, 2017, Morgan Stanley contacted on behalf of Cempra 93 total parties, including 55 private companies, 18 public companies, and 20 venture capital firms to identify potential counterparties who might have interest in a potential transaction. Based on those discussions, Morgan Stanley sent bid letters on behalf of Cempra to 50 companies, which outlined the procedures and guidelines for submitting a preliminary, non-binding proposal for a potential transaction with Cempra. The deadline for submitting bids was April 7, 2017, at 5:00 p.m. Eastern time.

Cempra received proposals from 30 companies in response to its bid letter, and also received three other proposals that proposed transaction structures that differed from that requested in the bid letter. All proposals were considered and reviewed by Cempra’s board of directors.

On April 5, 2017, Mr. Moore and representatives from Morgan Stanley held a meeting at Morgan Stanley’s offices in New York with members of management from Company A. The companies discussed potential product and corporate partnership opportunities. On the same day, Stifel was retained to provide advice to Cempra’s board of directors and management with respect to a strategic process.

On April 7, 2017, in response to the bid letter sent by Morgan Stanley on behalf of Cempra, Melinta submitted a non-binding proposal, or the third Melinta proposal, for a merger of Melinta with and into a subsidiary of Cempra, with Melinta stockholders owning, following the merger, approximately 52% of the combined company and Cempra stockholders owning approximately 48% of the combined company. The third Melinta proposal did not propose a governance structure and was predicated on Cempra having at least $175.0 million of unencumbered cash at closing.

At an April 13, 2017, teleconference of Cempra’s board of directors, Morgan Stanley provided an overview of activities related to the sales process and reviewed the process to date, including parties contacted, results from such contact, the status of each party contacted, and key questions raised by bidders during this phase of the process. Additionally, Morgan Stanley summarized a system by which initial bids could be evaluated, scored and ranked, but noted that each specific proposal should be evaluated separately and in its entirety and that the purpose of the system was to assist the Cempra board of directors in identifying key criteria relevant in evaluating proposals and determining value to Cempra stockholders. Morgan Stanley then reviewed a summary of the received bids based upon the scoring methodology. Cempra management then proposed a series of candidates to proceed to the next phase of the process. In evaluating each of the 30 bids received, as well as the 3 non-conforming proposals, Cempra’s board of directors considered certain economic and non-economic measures related to the initial indications of interest, including, but not limited to, (i) the equity value assigned to Cempra; (ii) the equity value assigned to the company; (iii) the stage of development of the company’s development assets; (iv) the likelihood of future dilutive financing needs and the adequacy of the combined company’s cash balance to fund future operations; (v) the timing of key value inflection points relating to clinical milestones and the FDA approval process; (vi) the potential of the company’s clinical portfolio, including the

 

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addressable market size and estimated peak sales of the company’s products; (vii) the company’s ability to consummate a transaction; (viii) the overall transaction rationale and the ability to utilize Cempra’s in-house expertise to improve the company’s research and development operations, commercialization strategy, and other areas; (ix) the differentiation of the company’s products, technology, and platform; and (x) the management and board of directors of the company. Skadden reviewed legal issues related to conflicts of interest and fiduciary duties. Cempra’s board of directors indicated support to move forward to the next phase of the process with 11 companies, consisting of Melinta and Companies A-C and Companies E-K.

Beginning on April 19, 2017, Morgan Stanley responded on behalf of Cempra to the companies that had submitted phase one proposals, and notified the 11 companies that had been selected to advance to the second phase of bidding. Morgan Stanley detailed criteria for participation in the second phase of the process and communicated information regarding next steps, including mutual access to confidential data rooms and the availability for a half-day face-to-face meeting with Cempra’s senior management team.

On April 19, 2017, Company D submitted a phase one proposal to Morgan Stanley. Company D’s phase one proposal was reviewed with Cempra management, including Dr. Zaccardelli, Mr. Moore, Mr. Hahn, Dr. Oldach, and Mr. Bluth, on April 21, 2017. Following these discussions, Cempra management determined that Company D should be included in the second phase of bidding. On behalf of Cempra, Morgan Stanley invited Company D to participate in the second phase of bidding on April 24, 2017.

Between May 1 and May 19, 2017, Dr. Zaccardelli, Mr. Hahn, Dr. Oldach and Mr. Bluth, along with representatives of Morgan Stanley, held half-day, in-person meetings with the senior management teams of the 12 companies participating in the second phase of the process to explore strategic opportunities. At these meetings, Cempra’s management presented a comprehensive overview of Cempra’s assets and objectives for a transaction that would maximize value for Cempra stockholders, and received a comprehensive presentation from the bidding companies on their assets and perspectives on how their proposal could deliver value to Cempra’s stockholders. At these meetings, there was significant opportunity for both companies’ management teams to interact with each other and ask questions of the other party. At the conclusion of each meeting, Morgan Stanley, on behalf of Cempra, advised the bidders that they would be receiving a process letter with details and requirements to submit their next proposal.

On May 2, 2017, Melinta and Company B were granted access to Cempra’s data room for due diligence purposes and Cempra was granted reciprocal access to the respective data rooms of Melinta and Company B.

On May 3, 2017, Company C, Company D and Company E were granted access to Cempra’s data room for due diligence purposes and Cempra was granted reciprocal access to the respective data rooms of Company C, Company D and Company E.

On May 4, 2017, Company A and Company F were granted access to Cempra’s data room for due diligence purposes and Cempra was granted reciprocal access to the respective data rooms of Company A and Company F.

At a May 4, 2017, meeting of Cempra’s board of directors, Dr. Zaccardelli provided an overview of activities related to Cempra’s ongoing process to explore strategic opportunities, reviewed the list of the 12 candidates selected for second phase diligence and summarized next steps in the process. Mr. Hahn and Mr. Moore provided an overview of a sales and operating income forecast under a series of assumptions, which were discussed in detail with Cempra’s board of directors, and Skadden discussed certain legal aspects of the process to explore strategic opportunities.

On May 8, 2017, Company H was granted access to Cempra’s data room for due diligence purposes and Cempra was granted reciprocal access to Company H’s data room.

On May 12, 2017, Company J was granted access to Cempra’s data room for due diligence purposes and Cempra was granted reciprocal access to Company J’s data room.

 

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On May 15, 2017, members of Stifel held a teleconference with members of the Cempra management team to provide their analysis of the 12 companies being considered in the strategic review process, and provided perspective on how to differentiate the bids that were received.

At a May 17, 2017, meeting of Cempra’s board of directors, Skadden discussed certain legal aspects of the process to explore strategic opportunities and Mr. Hahn reviewed stand-alone and combined forecasts and assumptions for solithromycin and fusidic acid. After extensive discussion, adjustments were suggested to the assumptions and Cempra’s board of directors unanimously resolved to approve the forecasts subject to the aforementioned assumptions. For more information on these and other projections prepared by Cempra in connection with the process to explore strategic opportunities, see the section below entitled “The Merger—Certain Financial Projections” beginning on page 91 of this proxy statement.

On May 18, 2017, Company G was granted access to Cempra’s data room for due diligence purposes and Cempra was granted reciprocal access to Company G’s data room.

On May 18, 2017, Michael Dougherty, a member of Cempra’s board of directors, discussed with Skadden and Dr. Kong recusing himself due to a potential conflict of interest. From that time, Mr. Dougherty was recused and did not participate in the process.

On May 19, 2017, Company I and Company K were granted access to Cempra’s data room for due diligence purposes and Cempra was granted reciprocal access to the respective data rooms of Company I and Company K.

On May 19, 2017, Morgan Stanley sent a letter on behalf of Cempra to Melinta and Companies A through K advising them to submit their next proposals no later than 5:00 p.m. Eastern time on June 1, 2017.

On May 24, 2017, Mr. Hahn and Dr. Oldach from Cempra’s management team, along with representatives of Morgan Stanley, had a general due diligence call with members of Company G’s management team. On the same day, members of Company J’s management team and financial advisor had a general due diligence call with Dr. Zaccardelli, David Pereira, Dr. Oldach, Kara Keedy, Ph.D., Cempra’s Associate Vice President of Drug Development, and Morgan Stanley representatives.

On May 31, 2017, members of Cempra’s management team, including Mr. Hahn and Mr. Bluth, and representatives from Wyrick Robbins Yates & Ponton LLP, or Wyrick, Cempra’s legal counsel, and Morgan Stanley held a due diligence call with Company A and Company A’s financial and legal advisors to discuss Company A’s corporate structure.

By June 4, 2017, Morgan Stanley had received updated proposals from 11 of the 12 phase two companies. One company, Company F, declined to submit a revised proposal.

On June 6, 2017, members of Stifel held a teleconference with members of the Cempra management team to provide their analysis of the 11 bids received and provided perspective on how to differentiate the bids that were received.

At a June 7, 2017, teleconference of Cempra’s board of directors, Morgan Stanley provided an update on phase two of the strategic process, including contacts, proposals, meetings and prospects. Morgan Stanley reviewed a summary of the proposals received during the second phase of the process. In addition, Morgan Stanley provided a preliminary analysis of the net present value of Cempra’s projected revenues on a standalone basis and compared such amount to the net present values of the counterparty forecasts based on forecasts prepared by counterparty management as well Cempra management’s projections for each counterparty. Dr. Zaccardelli briefed Cempra’s board of directors on discussions with the FDA and BARDA regarding the development of solithromycin, and Cempra’s board of directors also discussed the alternative of continuing Cempra as a stand-alone entity and the probability of successful commercialization of its current products. Cempra’s board of directors determined, based on the criteria required in the bid letter and described above, to advance Company A, Company D and Melinta in the process.

 

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On June 9, 2017, Cempra disengaged with Companies B, C, E and G through K. Melinta, Company A and Company D were progressed to phase three of the process. On that same day, Company C’s financial advisors verbally provided a revised proposal for a 60%/40% ownership split in favor of Cempra.

On June 12, 2017, Company B’s financial advisors provided a revised proposal letter improving the ownership split to 52.5%/47.5% in favor of Cempra.

At a June 13, 2017, teleconference of Cempra’s board of directors, Morgan Stanley provided an update on phase two of the strategic process and reviewed the revised proposals provided by Company C and Company B. After discussion regarding the terms of the revised proposals and a comparison of the revised proposals to the proposals previously received by Company A, Company D and Melinta, Cempra’s board of directors determined to decline to advance each of Company B and Company C.

On June 16, 2017, at Skadden’s offices in New York, members of Cempra’s board of directors, including Mr. Neff, Dov Goldstein, Richard Kent, David Gill and Dr. Kong, along with Dr. Zaccardelli, Mr. Hahn, Dr. Oldach, Mr. Bluth and representatives from Morgan Stanley and Skadden, held separate meetings with the management teams of Company A, Company D and Melinta in which the parties discussed (i) their phase 2 proposals, including key valuation methodologies and assumptions supporting the proposed pro forma equity ownership split; (ii) their pipeline capabilities, timing of value creating milestones, and related commercial opportunities; and (iii) the vision for the combined company’s strategy, including use of the combined company’s cash. Following the meetings, Cempra’s board of directors, management and advisors discussed their impressions of the three meetings and potential next steps with each finalist company. On the same day, at a teleconference of Cempra’s board of directors, the directors offered feedback regarding the management team meetings, provided their assessments of candidates, and discussed relevant transaction considerations, including relative management team strengths and weaknesses, potential reaction from investors to various business combinations and the risks of each potential transaction. Cempra’s board of directors considered the size of the pool of leading candidates and ultimately determined to maintain the target group size at three candidates. Representatives of Morgan Stanley discussed potential next steps with the phase three candidates and timelines. Dr. Zaccardelli briefed Cempra’s board of directors on discussions with the FDA and BARDA regarding the development of solithromycin and the directors discussed the alternative of continuing Cempra as a stand-alone entity that proceeded with the development of its current products towards commercialization.

On June 21, 2017, Morgan Stanley distributed on behalf of Cempra bid letters to Company A, Company D and Melinta, which outlined the procedures and guidelines for submitting revised proposals. Copies of the auction draft merger agreement accompanied the bid letters sent to Company A, Company D and Melinta. The deadline for submitting bids, including a markup of the auction draft merger agreement, was July 12, 2017, at 5:00 p.m. Eastern time.

On June 26, 2017, a call was held between Mr. Hahn, Mr. Bluth and Dr. Zaccardelli and representatives from Wyrick, Skadden and Morgan Stanley with Company A and its financial and legal counsel advisors regarding the due diligence of certain legal items.

On June 26, 2017, Morgan Stanley received an unsolicited proposal from a publicly-held international pharmaceutical company, or Company L, seeking to merge one of its controlled private subsidiaries with Cempra. The proposal did not contain specific economic terms. On June 27, 2017, Dr. Zaccardelli forwarded the proposal to Cempra’s board of directors and advised Cempra’s board of directors that, in the absence of a specific financial proposal, management planned to continue with Cempra’s ongoing process to explore strategic opportunities.

On July 5, 2017, the Chief Executive Officer of Company A, or Company A’s CEO, at his request, had a call with Dr. Zaccardelli to review the benefits to Cempra by merging with Company A and reiterating the importance of timing to completing any transaction with Company A.

 

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On July 6, 2017, at PwC’s New York office, a due diligence call regarding accounting and tax matters was held by Company D, its majority stockholder, and its auditor with members of Cempra management and representatives from PwC and Morgan Stanley. On the same day, at PwC’s Boston office, Company A held a due diligence call with respect to accounting and tax matters with representatives of its auditor and financial advisor and members of Cempra’s management team along with Morgan Stanley and representatives of PwC.

On July 7, 2017, Company D held a call with Dr. Zaccardelli, representatives of Morgan Stanley and the majority stockholder of Company D to introduce the new CEO of Company D.

On July 12, 2017, the requested due date for the return of the markup requested in connection with the third phase of the strategic process, Cempra received a non-binding proposal from Melinta, or the fourth Melinta proposal, to merge with a subsidiary of Cempra, which would result in Melinta stockholders owning, following the closing of the merger, approximately 52% of the combined company and Cempra stockholders owning approximately 48% of the combined company, subject to adjustments if Cempra’s cash balance were less than $175.0 million at closing. The proposal was accompanied by a markup to the auction draft merger agreement and contemplated, among other things, a nine member board of directors, five of whom would be Melinta designees, three of whom would be Cempra designees and one of whom would be the jointly selected chief executive officer. The proposal also stated that Melinta’s radezolid assets were included as part of the proposal, whereas prior Melinta proposals had excluded Melinta’s radezolid assets from such proposals. On the same date, Cempra also received revised proposals from Company A and Company D, each of which included markups of the auction draft merger agreement. Company A’s proposal contemplated that, among other things, Cempra’s stockholders would own, following the closing of the merger, an approximate 41% ownership interest in the combined company, with an adjustment to the ownership split if Cempra’s cash balance were more or less than $150.0 million, a closing condition requiring a to-be-agreed minimum net cash balance at closing, and combined company board representation proportional to the ownership split. Company D’s proposal contemplated, among other things, that Cempra’s stockholders would own, following closing of the merger, an approximate 24.75% ownership interest in the combined company, with an adjustment to the ownership split based on net cash balance at closing, a minimum net cash balance at closing of $120.0 million, and a seven member board of directors, four of whom would be Company D’s designees, two of whom would be current members of Cempra’s board, designated by Cempra and one of whom would be Company D’s Chief Executive Officer, or the Company D CEO. Company D’s proposal also contemplated a spin-off of Cempra’s antibiotic assets and associated liabilities with the value of such spin-off to accrue solely to Cempra stockholders.

On July 13, 2017, members of Cempra’s management team including Mr. Hahn, Dr. Oldach and Mr. Bluth held a teleconference call with members of Company L’s senior management team and its advisors to perform mutual due diligence and to discuss with Company L the required timeline and content of any further proposal in the context of Cempra’s ongoing process to explore strategic opportunities, with representatives of Morgan Stanley also attending the call. Company L stated it would be submitting a revised proposal with specific economic terms.

On July 14, 2017, representatives of Stifel held a teleconference with members of the Cempra management team to provide their analysis of the three companies under consideration in phase three of the process and provided perspective on how to differentiate the bids that were received. On the same day, representatives of Melinta and its financial advisor held a general due diligence call with Mr. Hahn and representatives of Morgan Stanley.

On July 18, 2017, Morgan Stanley received a revised proposal from Company L proposing a merger with Cempra and providing a proposed Cempra stockholder ownership range of 14% to 28%, with the specific exchange ratio to be refined based on further due diligence and negotiations.

At a July 20, 2017 meeting of Cempra’s board of directors, Morgan Stanley reviewed Cempra’s ongoing process to explore strategic opportunities and the bids of Melinta, Company A and Company D and discussed

 

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key elements of the three proposals, including the amount of cash required to fund the future operations of the combined company, management teams and board of directors composition. Additionally, Morgan Stanley presented a preliminary financial analysis with respect to Cempra’s standalone valuation and the resulting counterparty valuations based on forecasts provided by the counterparties and Cempra management. Morgan Stanley also conducted a review of pro forma financial considerations, including an illustrative market-based analysis. Morgan Stanley also reviewed scenarios of illustrative potential combined company market capitalizations in relation to comparable publicly traded companies and reviewed a preliminary analysis of retained stockholder value for each proposed transaction under a set of assumptions regarding valuations, combination synergies, cash forecast and financing expectations. Cempra’s board of directors discussed a number of key factors under consideration, including counterparty management teams and their potential to execute on their plans. The directors also reviewed and discussed alternatives to a transaction, including remaining a stand-alone entity without a strategic transaction and a liquidation dissolution scenario. In addition, Morgan Stanley reviewed the updated proposal received from Company L. After extensive discussion, Cempra’s board of directors determined that it was not in a position to make a decision at this time as no party had clearly distinguished itself as the superior alternative. Cempra’s board of directors instructed Morgan Stanley to contact each of Company A, Company D and Melinta with feedback on how each party could improve their proposal and requesting that each party submit a revised proposal.

On July 21, 2017, based on instructions from Cempra’s board of directors, Morgan Stanley contacted on behalf of Cempra Company A, Company D and Melinta with individualized feedback on their respective proposals and requested that each party submit a revised proposal by 5:00 pm Eastern time on July 26, 2017. On the same day, Dr. Kong spoke via phone with Mr. Ferro as a follow-up to Morgan Stanley’s call to reiterate Cempra’s position on open issues, in particular the post-closing ownership split.

On July 23, 2017, Mr. Goldstein contacted Skadden, as well as fellow board members Dr. Kong and Dr. Zaccardelli, recusing himself due to a potential conflict of interest.

On July 24, 2017, at the request of Company A’s CEO, Dr. Zaccardelli and Company A’s CEO had a call to discuss the potential ownership split in a transaction between Company A and Cempra. Company A’s CEO indicated that he did not think Company A would be willing to propose an ownership split that would be acceptable to Cempra and Dr. Zaccardelli suggested that Company A’s CEO should submit based on Company A’s best proposal.

On July 25, at the request of the chairman of the board of directors of Cempra, Dr. Zaccardelli had a call with a representative of the majority stockholder of Company D to discuss the merits of Company D’s proposal and outline the current timing of the overall process.

On July 26, 2017, final proposals were submitted to Morgan Stanley from Melinta, Company A and Company D, which proposals were accompanied, in the case of Melinta and Company D, by revised markups to the auction draft merger agreement. Melinta’s final proposal remain unchanged from its July 12, 2017 proposal with respect to ownership split and governance terms, providing for post-closing ownership by Cempra stockholders in the combined company of approximately 48%, with an adjustment to the ownership split if net cash at closing is less than $175.0 million, and a nine member board of directors, with five members being Melinta designees, three members being Cempra designees and one member being the jointly selected chief executive officer. Company A proposed, among other things, that Cempra’s stockholders receive an approximate 45% ownership interest in the combined company, with an adjustment to the ownership split if net cash at closing is less than or greater than $150.0 million, and combined company board representation proportional to the ownership split. Company D proposed, among other things, that Cempra’s stockholders receive an approximate 32% ownership interest in the combined company, with an adjustment to the ownership split if net cash at closing is less than $135.0 million or greater than $150.0 million, a seven member board of directors, with four members being Company D designees and one member being the Company D CEO immediately prior to the closing, no minimum net cash closing condition and no contemplated spin-off.

 

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At a July 28, 2017, teleconference of Cempra’s board of directors, Dr. Zaccardelli updated Cempra’s board of directors on the process and Morgan Stanley provided an update on finalist counterparty discussions since the last Cempra board of directors meeting based on Cempra’s board of directors’ directed messaging to each counterparty. Dr. Kong and Dr. Zaccardelli provided additional commentary regarding their interactions with Melinta and Company A as noted above. Morgan Stanley reviewed a comparison of updated finalist counterparty proposals and reviewed projections prepared by Cempra in connection with the process to explore strategic opportunities described further in the section below entitled “The Merger—Certain Financial Projections” beginning on page 91 of this proxy statement. Morgan Stanley also reviewed a comparison of preliminary relative valuations for each proposed counterparty transaction based on such projections, reviewed a preliminary market based and cash based valuation analysis, and reviewed a preliminary analysis of value impact to Cempra of the proposed transactions. In addition to discussing the alternative of remaining a stand-alone company, Cempra’s board of directors discussed each of the three proposed counterparty transactions, including key transaction factors, but no decisions were made at this time. Instead, the Cempra board agreed to discuss further at the next meeting of the Cempra board of directors.

At a July 31, 2017, teleconference of Cempra’s board of directors, Dr. Zaccardelli updated Cempra’s board of directors on the process to explore strategic opportunities and summarized the discussions he had over the previous weekend with directors who were not able to attend the July 28, 2017 meeting. Morgan Stanley summarized each of the counterparty proposals and key terms. In addition to other considerations, Cempra’s board of directors considered the relative valuation analysis prepared by management and Morgan Stanley, director and management views of the current and long term value of each potential combination, and qualitative factors, including management team capability and corporate strategies. After considerable discussion, Cempra’s board of directors instructed Morgan Stanley to approach Melinta with proposals related to relative valuation, governance, and management that, if agreed, would form the basis for an acceptable transaction. Cempra’s board of directors instructed Morgan Stanley to approach Company A and Company D to advise them of the insufficiency of their most recent proposals.

On August 1, 2017, representatives of Morgan Stanley, on behalf of Cempra, spoke with Mr. Ferro to propose the economic and governance terms discussed at the July 31, 2017, board meeting, which among other things, related to the net cash level upon which the Cempra valuation was predicated and representation on the board of directors and CEO selection committee. On the same day, Dr. Kong spoke with Mr. Ferro by phone to further discuss Cempra’s economic and governance proposals. During such call, Melinta agreed to fixed economics whereby Cempra stockholders would receive an approximate 48% ownership interest in the combined company following provided the closing cash balance was not less than $145.0 million, Cempra board designees being increased to four and equal representation on the CEO selection committee. Also on August 1, 2017, Cempra entered into an exclusivity agreement with Melinta covering the period from July 31, 2017 and August 9, 2017.

Between July 31, 2017, and August 8, 2017, Cempra and Melinta, with the assistance of their respective outside legal counsel and financial advisors, continued their mutual due diligence and engaged in negotiations regarding the merger agreement. By August 8, 2017, these negotiations had completed, with among other things, the parties agreeing to equal representation on board of director committees and Cempra stockholders’ ownership percentage being adjusted upward in the event that Melinta incurs debt above a permitted amount between signing and closing.

At an August 8, 2017, teleconference of Cempra’s board of directors, Dr. Zaccardelli, Morgan Stanley and Skadden reviewed the progress of negotiations with Melinta and advised Cempra’s board of directors that all outstanding points had been resolved to the companies’ mutual satisfaction. Morgan Stanley provided a detailed review of the Melinta proposal, including relative valuations, potential drivers for long-term value creation for Cempra’s stockholders and the comparative view of Cempra’s stand-alone business case. A representative of Skadden reviewed the terms of the merger agreement, which had been previously provided to Cempra’s board of directors, and advised Cempra’s board of directors of the fiduciary obligations in considering the offer.

 

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Representatives of Morgan Stanley reviewed with the Cempra board of directors Morgan Stanley’s financial analysis of the merger consideration and rendered to the Cempra board of directors its oral opinion, which was subsequently confirmed by delivery of a written opinion dated August 8, 2017, to the effect that, as of the date of such opinion, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its written opinion, the merger consideration to be paid by Cempra pursuant to the merger agreement was fair, from a financial point of view, to Cempra. After discussion, Cempra’s board of directors adopted resolutions declaring that the merger agreement and the transactions contemplated thereby were advisable, fair and in the best interests of Cempra and its stockholders, approved the merger agreement and the transactions contemplated thereby and authorized Cempra to enter into the merger agreement and the transaction with Melinta.

On August 8, 2017, Cempra and Melinta executed the merger agreement and certain Cempra and Melinta stockholders entered into voting agreements Cempra and Melinta.

On August 9, 2017, prior to market open, Cempra and Melinta issued a joint press release, and held a conference call for the investment community, announcing the companies had entered into a definitive agreement under which Melinta will merge with a subsidiary of Cempra.

On September 6, 2017, the parties entered into the merger agreement amendment, which, among other matters, amends the schedule to the merger agreement listing the Melinta stockholders who will be receiving cash in the merger.

Cempra’s Reasons for the Merger

In reaching its determination that the merger agreement and the transactions contemplated thereby were advisable, fair and in the best interests of Cempra and its stockholders, the board of directors based its determination on its assessment of the following factors:

Comprehensive Strategic Review Process. The board of directors of Cempra, with the assistance of its legal and financial advisors, had undertaken a comprehensive and thorough process of reviewing and analyzing potential strategic partners to identify opportunities to create the best value for Cempra stockholders. Potential strategic partner outreach was not limited to any specific therapeutic area or phase of development and resulted in identification of 96 companies to be explored through receipt of both inbound and outbound interest during the entire course of the strategic review process. In connection with the strategic review process, 32 indications of interest were received, including 31 initial indications of interest received as a result of Cempra’s initial outreach in solicitation of initial indications of interest plus one additional indication of interest received after completion of solicitations of initial indications of interest. Cempra’s board of directors, with the assistance of its legal and financial advisors, evaluated certain economic and non-economic measures related to the initial indications of interest, including, but not limited to, (i) the equity value assigned to Cempra; (ii) the equity value assigned to the company; (iii) the stage of development of the company’s development assets; (iv) the likelihood of future dilutive financing needs and the adequacy of the combined company’s cash balance to fund future operations; (v) the timing of key value inflection points relating to clinical milestones and the FDA approval process; (vi) the potential of the company’s clinical portfolio, including the addressable market size and estimated peak sales of the company’s products; (vii) the company’s ability to consummate a transaction; (viii) the overall transaction rationale and the ability to utilize Cempra’s in-house expertise to improve the company’s research and development operations, commercialization strategy, and other areas; (ix) the differentiation of the company’s products, technology, and platform; and (x) the management and board of directors of the company. After review of the initial indications of interests, the Cempra board of directors invited 12 companies to participate in detailed mutual due diligence prior to submission of revised indications of interests. Cempra management met with the corporate teams of all 12 companies, and mutual management presentations were provided. 11 of the 12 companies invited to submit revised indications of interest submitted revised indications of interest. Based on evaluation findings and continued mutual interest, further in depth due diligence was conducted with three companies.

 

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Product and Product Candidates. Melinta’s portfolio of antibiotics is led by Baxdela, a commercial-stage asset with the potential to address multiple types of infections that offers a new option for monotherapy treatment of adult patients with ABSSSI in oral and IV formulations. Baxdela is a novel fluoroquinolone that exhibits activity against both gram-positive and gram-negative pathogens, including MRSA, and is available in both IV and oral formulations. On June 19, 2017, Baxdela received approval from the FDA for treatment of adult patients with ABSSSI. With Baxdela’s approval, the FDA also confirmed Baxdela’s status as a QIDP under the provisions of the 2012 GAIN Act, which extends the market exclusivity period by five years for a total of at least ten years in the United States. Consequently, and because Melinta believes Baxdela has utility across many different infection types, Melinta has commenced Phase 3 clinical development for CABP and intends to pursue Phase 2 clinical development for cUTI. Together, these three indications compose the majority of bacterial infections requiring initial hospitalization in the United States.

Melinta has completed a successful Phase 1 study for radezolid, a novel oxazolidinone discovered by Melinta, pursuant to a collaboration agreement to develop a topical formulation for the treatment of Acne Vulgaris. Radezolid was designed to overcome resistance seen to linezolid, the macrolides and lincosamides. Melinta also has a late pre-clinical program with a novel antibacterial class targeting bacterial “superbugs,” its ESKAPE pathogen program, which resulted from its discovery platform. This program seeks to overcome the alarming emergence of untreatable bacteria, which have developed resistance to all existing drug classes, by introducing completely novel classes of antibiotics. These multi-drug resistant pathogens include Enterococcus faecium, MRSA, Klebsiella pneumoniae, Acinetobacter baumanii, Pseudomonas aeruginosa, Enterobacter species, and Escherichia coli.

Market Opportunity and Competition.

Baxdela. More than 14 million patients in the U.S. are treated for ABSSSI on an annual basis. While the majority of these patients are treated successfully in the community, many patients will require treatment in ED and urgent care centers on an outpatient basis (estimated by Melinta to be 1.6 million), and a significant portion will receive treatment as hospital inpatients (2.9 million). In addition, patients with obesity and diabetes, two conditions of high and increasing prevalence in the U.S., are more susceptible to development of more complex skin infections that tend to have more gram-negative or mixed pathogens, typically requiring treatment with broader spectrum antibiotics. Many current treatments lack MRSA coverage, which is an important treatment consideration because more than 35% of all skin infections are believed to have MRSA involvement.

Cempra believes that the combined company has a differentiated commercialization strategy for the launch of Baxdela, which will lead to a more successful outcome than some recent antibiotic launches. Cempra believes that certain recent antibiotic launches have performed suboptimally because the products lack clinical and economic differentiation over established lower cost agents. As a result, undifferentiated, higher-priced antibiotics are often relegated to later lines of treatment due to the availability of generics that are perceived to be effective for first-line treatment at a lower cost. In the growing segment of patients who have co-morbidities such as obesity and diabetes, and are at risk for a broad range of gram-positive and gram-negative pathogens, Baxdela represents a simplified treatment approach due to the following features:

 

    broad-spectrum coverage, including MRSA, to provide confidence that empiric treatment with Baxdela will cover the range of potential gram-negative and gram-positive pathogens in these patients with co-morbidities;

 

    IV and oral formulations, with the flexibility to initiate therapy with either option;

 

    no dosage adjustments due to weight, hepatic impairment, or mild-moderate renal impairment;

 

    no clinically significant drug-drug interactions;

 

    attractive safety and tolerability profile; and

 

    pricing which simplifies prescribing for physicians and enables greater access for patients.

 

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Cempra believes that Baxdela’s clinical profile, coupled with a differentiated and focused commercial strategy, has the potential to optimize uptake among challenging, co-morbid patient populations, which account for approximately 70% of the addressable population, across multiple sites of care. Cempra believes Baxdela has the potential to achieve over $400 million in peak year sales for the treatment of ABSSSI in the U.S.

Radezolid. The acne market represents a strong commercial opportunity for radezolid. There are approximately 15 million prescriptions for topical acne agents written each year in the United States. In addition, despite the availability of a number of generics, branded agents still hold an approximate 33% market share, which has remained stable for the past several years.

ESKAPE Pathogen Program. In 2017, Melinta estimates 500,000 patients with pneumonia, complicated urinary tract infections, complicated intra-abdominal infections, or bloodstream infections will be infected with multi-drug resistant strains of these pathogens, or will fail two or three lines of therapy. This represents significant market opportunity for Melinta’s ESKAPE Pathogen Program.

Strategic Alliance Opportunity. Cempra believes the merger of Cempra and Melinta is a value-creating transaction that will result in a leading commercial-stage anti-infectives company. The combined company has a deep pipeline of commercial, clinical and preclinical antibiotic assets across multiple potential indications. As such, the combined company will have a platform for long-term, durable growth and a strategy to expand the anti-infective portfolio over time, providing the opportunity for multiple layers of revenue growth. See “Summary—Combined Business Strategy” beginning on page 13 of this proxy statement for an overview of the combined company’s portfolio and near- and long-term business strategy.

Cempra Stockholders’ Ownership Percentage in Combined Company. Immediately following the effective time of the merger, Cempra stockholders are expected to own, on a fully-diluted basis as calculated under the treasury stock method, approximately 48.1% of the combined company, while Melinta stockholders are expected to own approximately 51.9% of the combined company. The final number of shares will be subject to adjustments at the closing of the merger based on Cempra’s cash levels (net of debt and transaction expenses) and Melinta’s debt levels (above a permitted amount) and transaction expenses as described further in the section entitled “The Merger Agreement—Merger Consideration” beginning on page 115 of this proxy statement.

Management. It is expected that the combined company will be led by the experienced senior management from Melinta and Cempra and a board of directors with equal representation from each of Cempra and Melinta.

In addition to the factors outlined above, the Cempra board of directors considered the following criteria in reaching its conclusion to approve the merger and to recommend that the Cempra stockholders approve the issuance of shares of Cempra common stock in the merger, all of which it viewed as supporting its decision to approve the business combination with Melinta:

 

    the strategic alternatives of Cempra to the merger, including the discussions that Cempra management and the Cempra board of directors had during the previous eight months with other potential merger candidates;

 

    the oral opinion of Morgan Stanley rendered to Cempra’s board of directors on August 8, 2017, which was subsequently confirmed by delivery of the written opinion of Morgan Stanley dated August 8, 2017 to Cempra’s board of directors to the effect that as of the date of such opinion, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its written opinion, the merger consideration to be paid by Cempra pursuant to the merger agreement was fair, from a financial point of view, to Cempra, as more fully described below under the caption “The Merger—Opinion of Cempra’s Financial Advisor;”

 

   

the receipt by Cempra of a CRL in December 2016, from the FDA on Cempra’s NDAs for solithromycin, and subsequent communication from the FDA in 2017 that stated that the FDA could

 

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not approve the NDAs in their present form and noted that additional clinical safety information and the satisfactory resolution of manufacturing facility inspection deficiencies were required before the NDAs may be approved;

 

    the risks of continuing to operate Cempra on a stand-alone basis and the belief that the combination of Cempra’s and Melinta’s businesses would create more value for Cempra stockholders in the long-term than Cempra could create as an independent, stand-alone company, given the anticipated costs, timing and risks associated with continuing the development of Cempra products in development and/or in-licensing or acquiring additional technologies or product candidates;

 

    the opportunity for Cempra stockholders to participate in the long-term value of Baxdela and Melinta’s product candidate portfolio, in addition to their participation in the long-term value of Cempra’s assets, as a result of the merger;

 

    historical and current financial market conditions and stock prices and historical stock prices and trading volumes of Cempra common stock;

 

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

 

    the voting and lock-up agreements entered into by stockholders of Melinta beneficially owning in the aggregate, as of August 8, 2017, approximately 91.5% of the outstanding capital stock of Melinta, pursuant to which those stockholders agreed, solely in their capacity as stockholders, to vote all of their shares of Melinta capital stock and securities in favor of adoption of the merger agreement;

 

    the agreement of Melinta to provide written consent of its stockholders necessary to approve the merger and related transactions within 48 hours of signing the merger agreement;

 

    the likelihood of retaining key Cempra and Melinta employees to manage the combined company;

 

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

 

    the possibility that the combined entity would be able to take advantage of the potential benefits resulting from the combination of the Cempra public company infrastructure and experienced Cempra and Melinta management teams;

 

    its understanding of the business of Melinta, including its products and product candidates, the expenses and fixed costs associated with the Cempra operations and the Cempra cash position, and of the Melinta business, including its product candidates, the experienced Melinta management team, the Melinta need for financing to continue development of its product candidates, and the prospects for value creation for Cempra stockholders in connection with the merger;

 

    the fact that four directors designated by Cempra will be directors of the combined company after the merger;

 

    the terms and conditions of the merger agreement, including the following related factors:

 

    the exchange ratio in the merger, which improved substantially to the benefit of Cempra stockholders during negotiations and which is intended to result in the Cempra stockholders holding, on a fully-diluted basis as calculated under the treasury stock method, approximately 48.1% of the outstanding shares of the combined company immediately following the effective time of the merger before the impact of any adjustments for changes in Cempra’s cash levels (net of debt and transaction expenses) and Melinta’s debt levels (above a permitted amount) and transaction expenses as described further in the section entitled “The Merger Agreement—Merger Consideration” beginning on page 115 of this proxy statement;

 

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    the merger is intended to be treated as a reorganization for U.S. federal income tax purposes, and in the merger, neither the Cempra stockholders nor Melinta stockholders will generally recognize taxable gain or loss for U.S. federal income tax purposes;

 

    the limited number and nature of the conditions to Melinta’s obligation to consummate the merger and the limited risk of non-satisfaction of such conditions;

 

    the Cempra rights under the merger agreement to consider certain unsolicited acquisition proposals under certain circumstances should Cempra receive a superior proposal;

 

    the conclusion of the Cempra board of directors that the potential termination fee of $7.9 million, which occurs upon termination of the merger agreement under certain specified circumstances, was reasonable;

 

    the no-solicitation provisions governing the ability of Melinta to engage in negotiations with, provide any confidential information or data to, and otherwise have discussions with, any person relating to an alternative acquisition proposal; and

 

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

In the course of its deliberations, the Cempra board of directors also considered a variety of risks and other countervailing factors related to entering into the merger agreement and the proposed business combination with Melinta, including:

 

    the potential effect of the $7.9 million termination fee in deterring other potential acquirors from proposing an alternative transaction that may be more advantageous to Cempra stockholders;

 

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

 

    the substantial expenses to be incurred in connection with the merger, including transaction expenses that would be incurred whether or not the merger is completed;

 

    the possible volatility and potential decline, at least in the short term, of the trading price of Cempra common stock resulting from the merger announcement;

 

    the risk that the merger might not be consummated in a timely manner or at all and the potential adverse effect of the public announcement of the merger or on the delay or failure to complete the merger with Melinta on the reputation of Cempra;

 

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

 

    the restrictions on the conduct of Cempra’s business prior to completion of the merger, which require Cempra to carry on its business in the ordinary course and consistent with past practice, subject to specific additional restrictions, which may delay or prevent Cempra from pursuing business opportunities that otherwise would be in its best interests as an independent, stand-alone company;

 

    the risks, challenges and costs associated with successfully integrating two companies;

 

    the strategic direction of the combined board and the related ability of Melinta stockholders and management to significantly influence the combined company’s business following completion of the merger; and

 

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

The foregoing discussion of the factors considered by Cempra’s board of directors is not intended to be exhaustive, but does set forth the principal factors considered by Cempra’s board of directors. Cempra’s board of

 

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directors collectively reached the unanimous conclusion to approve the merger agreement in light of the various factors described above and other factors that each member of Cempra’s board of directors deemed relevant. In view of the wide variety of factors considered by the members of Cempra’s board of directors in connection with their evaluation of the merger agreement and the complexity of these matters, Cempra’s board of directors did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Cempra’s board of directors made its decision based on the totality of information presented to and considered by it. In considering the factors discussed above, individual directors may have given different weights to different factors.

CEMPRA’S BOARD OF DIRECTORS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER ARE ADVISABLE, FAIR AND IN THE BEST INTERESTS OF CEMPRA STOCKHOLDERS AND UNANIMOUSLY APPROVED THE MERGER AGREEMENT. CEMPRA’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT CEMPRA STOCKHOLDERS APPROVE THE ISSUANCE OF CEMPRA COMMON STOCK PURSUANT TO THE MERGER AGREEMENT; THE AMENDMENTS TO CEMPRA’S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF CEMPRA COMMON STOCK FROM 80,000,000 TO 250,000,000, TO CHANGE CEMPRA’S NAME TO “MELINTA THERAPEUTICS, INC.,” AND TO ELECT FOR CEMPRA NOT TO BE GOVERNED BY OR SUBJECT TO SECTION 203 OF THE DGCL; AND THE REVERSE STOCK SPLIT.

Opinion of Cempra’s Financial Advisor

Morgan Stanley was retained by Cempra to act as its financial advisor and to render a financial opinion in connection with the proposed merger. Cempra selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation and its knowledge of the business and affairs of Cempra. At the meeting of Cempra’s board of directors on August 8, 2017, Morgan Stanley rendered its oral opinion, which was subsequently confirmed by delivery of a written opinion, dated August 8, 2017, to Cempra’s board of directors to the effect that, as of the date of such opinion, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in its written opinion, the merger consideration to be paid by Cempra pursuant to the merger agreement was fair, from a financial point of view, to Cempra.

The full text of Morgan Stanley’s written opinion to Cempra’s board of directors, dated August 8, 2017, is attached as Annex C to this proxy statement and is hereby incorporated into this proxy statement by reference in its entirety. Holders of shares of Cempra common stock should read the opinion carefully and in its entirety. The opinion sets forth, among other things, a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley in rendering its opinion. Morgan Stanley’s opinion was directed to Cempra’s board of directors and addressed only the fairness, from a financial point of view, as of the date of the opinion, to Cempra of the merger consideration to be paid by Cempra pursuant to the merger agreement. Morgan Stanley’s opinion did not address any other aspects of the proposed merger or the other transactions contemplated by the merger agreement and did not address the prices at which shares of Cempra common stock would trade following completion of the proposed merger or at any time. Morgan Stanley’s opinion did not and does not constitute a recommendation as to how any holder of Cempra common stock or Melinta common stock should vote in connection with the proposed merger. The summary of Morgan Stanley’s opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion.

For purposes of rendering its opinion, Morgan Stanley:

 

  1) Reviewed certain publicly available business and financial information of Melinta and Cempra, respectively;

 

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  2) Reviewed certain internal financial statements and other financial and operating data concerning Melinta and Cempra, respectively;

 

  3) Reviewed certain financial projections prepared by the managements of Melinta and Cempra, respectively;

 

  4) Reviewed information relating to certain strategic, financial and operational benefits anticipated from the proposed merger, prepared by the managements of Melinta and Cempra, respectively;

 

  5) Discussed the past and current operations and financial condition and the prospects of Melinta, including information relating to certain strategic, financial and operational benefits anticipated from the proposed merger, with senior executives of Melinta;

 

  6) Discussed the past and current operations and financial condition and the prospects of Cempra, including information relating to certain strategic, financial and operational benefits anticipated from the proposed merger, with senior executives of Cempra;

 

  7) Reviewed the pro forma impact of the proposed merger on Cempra’s cash flow, consolidated capitalization and certain financial measures;

 

  8) Reviewed the reported prices and trading activity for Cempra common stock;

 

  9) Reviewed the financial performance and the prices and trading activity of certain publicly traded companies comparable with Melinta and Cempra, respectively;

 

  10) Reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;

 

  11) Participated in certain discussions and negotiations among representatives of Melinta and Cempra and their financial and legal advisors;

 

  12) Reviewed a draft of the merger agreement dated August 8, 2017, and certain related documents; and

 

  13) Performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Morgan Stanley by Melinta and Cempra, and formed a substantial basis for its opinion. With respect to the financial projections of Cempra and Melinta, including information relating to certain strategic, financial and operational benefits anticipated from the proposed merger, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the respective managements of Melinta and Cempra of the future financial performance of Melinta and Cempra. Morgan Stanley assumed no responsibility for and expressed no view as to any such projections or the assumptions on which they are based. Morgan Stanley noted that it did not perform certain analyses that it would customarily prepare in connection with a fairness opinion because of Cempra’s determination that such analyses are not meaningful as a result of the extraordinary circumstances of Cempra. In addition, Morgan Stanley assumed that the proposed merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions, including, among other things, that the proposed merger will be treated as a tax-free reorganization, pursuant to the Code, and that the definitive merger agreement would not differ in any material respect from the draft merger agreement furnished to Morgan Stanley. Morgan Stanley did not express any view on, and its opinion did not address, any other term or aspect of the merger agreement or the transactions contemplated thereby or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection therewith. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the

 

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proposed merger. Morgan Stanley relied upon, without independent verification, the assessment by the management of Cempra of: (1) the strategic, financial and other benefits expected to result from the proposed merger and (2) the timing and risks associated with the integration of Melinta and Cempra. Morgan Stanley’s opinion did not address the relative merits of the proposed merger as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are available, nor did it address the underlying business decision of Cempra to enter into the merger agreement. Morgan Stanley noted that it is not a legal, tax or regulatory advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of Cempra and Melinta and their legal, tax or regulatory advisors with respect to legal, tax or regulatory matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of Melinta’s or Cempra’s officers, directors or employees, or any class of such persons, relative to the merger consideration to be paid by Cempra to the holders of shares of Melinta common stock in the proposed merger. Morgan Stanley also expressed no view or opinion as to the relative fairness of the amount or form of any portion of the merger consideration to be paid to or received by holders of any series of common or preferred stock of Melinta or otherwise. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of Melinta or Cempra, nor was it furnished with any such valuations or appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, the date of its opinion. Events occurring after such date may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

Summary of Financial Analyses

The following is a summary of the material financial analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion to Cempra’s board of directors. The following summary is not a complete description of Morgan Stanley’s opinion or the financial analyses performed and factors considered by Morgan Stanley in connection with its opinion, nor does the order of the financial analyses described represent the relative importance or weight given to those financial analyses. Unless stated otherwise, the following quantitative information, to the extent that it is based on market data, is based on market data as of August 4, 2017, and is not necessarily indicative of current market conditions. In performing its financial analyses summarized below and in arriving at its opinion, with the consent of Cempra’s board of directors, Morgan Stanley used and relied upon the following financial projections, in each case as more fully described in the section entitled “The Merger—Certain Financial Projections:” (i) the Cempra Management Case, (ii) the Cempra Management Case ex-BJI Usage, (iii) the Melinta Management Case, (iv) the Cempra Sensitivity/Melinta Strategy Case, (v) the Cempra Sensitivity/Alternative Strategy Case, (vi) the Pro-Forma – Cempra Management Case + Melinta Management Case, (vii) the Pro-Forma – Cempra Management Case + Cempra Sensitivity/Melinta Strategy Case, (viii) the Pro-Forma – Cempra Management Case + Cempra Sensitivity/Alternative Strategy Case, (ix) the Pro-Forma – Cempra Management Case ex-BJI Usage + Melinta Management Case, (x) the Pro-Forma – Cempra Management Case ex-BJI Usage + Cempra Sensitivity/Melinta Strategy Case and (xi) the Pro-Forma – Cempra Management Case ex-BJI Usage + Cempra Sensitivity/Alternative Strategy Case. For purposes of its analysis, Morgan Stanley used and relied upon the probability of clinical and regulatory success, or PoS, scenarios determined by Cempra’s management based on their experience and judgment and as informed by historical precedents, as more fully described in the section entitled “The Merger—Certain Financial Projections.” Some of the financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. The analyses listed in the tables and described below must be considered as a whole. Assessing any portion of such analyses and of the factors reviewed, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanley’s opinion.

Standalone Discounted Cash Flow Analysis

Morgan Stanley performed a discounted cash flow analysis on each of Cempra and Melinta, which analysis is designed to provide an implied value of a company on a standalone basis by calculating the present value of the estimated future cash flows of that company.

 

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Cempra Discounted Cash Flow Analysis. Morgan Stanley calculated a range of implied equity values to existing Cempra stockholders and the related implied equity values per share of Cempra common stock to existing Cempra stockholders based on estimates of future cash flows from September 30, 2017 through December 31, 2032. Morgan Stanley performed this analysis on the estimated future cash flows contained in the projections representing the Cempra Management Case and the Cempra Management Case ex-BJI Usage, adjusted for certain assumptions and a probability of success, as further described below (see “—Description of Certain Standalone Discounted Cash Flow Assumptions” and “The Merger—Certain Financial Projections—Methodology for Estimating Probability of Success (PoS) Adjustments”). Morgan Stanley first calculated the estimated unlevered free cash flows of Cempra (calculated as tax-effected earnings before interest and taxes less capital expenditures, plus depreciation and amortization, less the increase in net working capital or plus the decrease in net working capital, as appropriate, and plus the tax benefit of net operating losses), in each case as directed by Cempra’s management. The unlevered free cash flows, as used by Morgan Stanley in its analysis, are provided in the section entitled “The Merger—Certain Financial Projections.” Morgan Stanley then discounted the unlevered free cash flows to present value as of September 30, 2017, using the mid-year discount convention and a range of discount rates of 11.5% to 13.4% (which Morgan Stanley derived based on Cempra’s assumed weighted average cost of capital under the capital asset pricing model using its experience and professional judgment). Morgan Stanley did not conduct a terminal value calculation for Cempra as the assumed loss of patent and / or statutory protection for solithromycin and fusidic acid products makes any value associated with a future exit terminal value unlikely.

Morgan Stanley then deducted the net debt or added the net cash, as applicable, of Cempra from the resulting value to derive gross equity value. Net debt (cash) was based on Cempra’s debt and cash and cash equivalents as of September 30, 2017, and included the present value of projected proceeds from a future equity financing transaction needed to fund projected cash shortfalls, with such future equity financing proceeds discounted using the mid-year discount convention and a range of discount rates of 12.0% to 14.0% (which Morgan Stanley derived based on Cempra’s assumed cost of equity calculated under the capital asset pricing model using its experience and professional judgment).

Morgan Stanley then multiplied the gross equity value calculated in accordance with the description above by the expected ownership of Cempra by existing Cempra stockholders after taking into account the dilutive effect associated with a future equity financing transaction in order to calculate equity value to existing stockholders.

Based on the above-described analysis, Morgan Stanley derived the following ranges of equity value to existing stockholders and value per share, rounded to the nearest $0.05, for Cempra common stock as of September 30, 2017:

 

Projections Scenario    Equity Value
to Existing
Stockholders
($MM)
     Implied Value
Per Share
Range
 

Cempra Management Case

     317 - 357      $ 5.80 - $6.55  

Cempra Management Case ex-BJI Usage

     229 - 255      $ 4.25 - $4.70  

Melinta Discounted Cash Flow Analysis. Morgan Stanley calculated a range of implied equity values to existing Melinta stockholders based on estimates of future cash flows from September 30, 2017 through December 31, 2030. Morgan Stanley performed this analysis on the estimated future cash flows contained in the projections representing the Melinta Management Case, the Cempra Sensitivity/Melinta Strategy Case and the Cempra Sensitivity/Alternative Strategy Case, adjusted for certain assumptions and a probability of success, as further described below (see “—Description of Certain Standalone Discounted Cash Flow Assumptions” and “The Merger—Certain Financial Projections—Methodology for Estimating Probability of Success (PoS) Adjustments”). Morgan Stanley first calculated the estimated unlevered free cash flows of Melinta (calculated as tax effected earnings before interest and taxes less capital expenditures, plus depreciation and amortization, less

 

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the increase in net working capital or plus the decrease in net working capital, as appropriate, and plus the tax benefit of net operating losses), in each case as directed by Cempra’s management. The unlevered free cash flows, as used by Morgan Stanley in its analysis, are provided in the section entitled “The Merger—Certain Financial Projections.” Morgan Stanley then discounted the unlevered free cash flows to present value as of September 30, 2017, using the mid-year discount convention and a range of discount rates of 11.5% to 13.4% (which Morgan Stanley derived based on Cempra’s assumed weighted average cost of capital, which in Morgan Stanley’s professional judgment reasonably approximated Melinta’s assumed weighted average cost of capital). Morgan Stanley did not conduct a terminal value calculation for Melinta as the assumed loss of patent and / or statutory protection for Baxdela and ESKAPE pathogen program products makes any value associated with a future exit terminal value unlikely.

Morgan Stanley then deducted the net debt or added the net cash, as applicable, of Melinta from the resulting value to derive gross equity value. Net debt (cash) was based on Melinta’s debt and cash and cash equivalents as of September 30, 2017, and included the present value of projected proceeds from a future equity financing transaction needed to fund projected cash shortfalls, with such future equity financing proceeds discounted using the mid-year discount convention and a range of discount rates of 12.0% to 14.0% (which Morgan Stanley derived based on Cempra’s assumed cost of equity, which in Morgan Stanley’s professional judgment reasonably approximated Melinta’s assumed cost of equity).

Morgan Stanley then multiplied the gross equity value calculated in accordance with the description above by the expected ownership of Melinta by existing Melinta stockholders after taking into account the dilutive effect associated with a future equity financing transaction in order to calculate equity value to existing stockholders.

Based on the above-described analysis, Morgan Stanley derived the following ranges of implied equity values to existing stockholders of Melinta as of September 30, 2017:

 

Projections Scenario    Equity Value
to Existing
Stockholders
($MM)

Melinta Management Case

   1,405 - 1,618

Cempra Sensitivity/Melinta Strategy Case

   192 - 215

Cempra Sensitivity/Alternative Strategy Case

   247 - 277

Description of Certain Standalone Discounted Cash Flow Assumptions. In performing its discounted cash flow analysis of Cempra and Melinta on a standalone basis, respectively, Morgan Stanley assumed at the direction of Cempra management that the existing net operating losses of Cempra and Melinta as of September 30, 2017 are limited under Section 382 of the Code and as such were not included in the standalone discounted cash flow analysis conducted for each of Cempra and Melinta.

Morgan Stanley also assumed that projected cash shortfalls for each of Cempra and Melinta would be funded through a single dilutive equity issuance by each of Cempra and Melinta in the year prior to the first negative projected cash balance, assuming a $25.0 million minimum cash requirement. Morgan Stanley discounted the proceeds from such dilutive equity issuance by the cost of equity, and included such proceeds in the current net debt (cash) of Cempra and Melinta for the purposes of the discounted cash flow analysis. For purposes of determining the resulting dilution on a standalone basis, Morgan Stanley assumed price per share and equity values, respectively, as of September 30, 2017, of $3.85 per share and $300.0 million for Cempra and Melinta, respectively. Cempra’s September 30, 2017, price per share was assumed to be equal to Cempra’s price per share as of August 4, 2017, while Melinta’s equity value, in Morgan Stanley’s professional judgment, reasonably approximated the equity value obtainable by Melinta through an initial public offering process based on a review of comparative Phase 3 and registration-stage initial public offering precedents. For purposes of the future equity financing transaction, the Cempra price per share and the Melinta equity value were then grown by

 

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the cost of equity using the mid-year discount convention and a range of cost of equity rates of 12.0% to 14.0% (which Morgan Stanley derived based on Cempra’s assumed cost of equity calculated under the capital asset pricing model using its experience and professional judgment). Such financings further assumed that shares of Cempra common stock and Melinta common stock, as appropriate, sold in the financing would be issued at a 10% file-to-offer discount and 6% gross spread. For the purpose of the probability of success application, Morgan Stanley allocated the dilutive financing needs of each of Cempra and Melinta to their respective products based on the cumulative revenue contribution of each of their respective products over each of Cempra’s and Melinta’s projections periods.

For purposes of its analysis, Morgan Stanley used and relied upon the PoS scenarios determined by Cempra’s management based on their experience and judgment and as informed by historical precedents, as more fully described in the section entitled “The Merger—Certain Financial Projections.”

Analysis of Value Impact to Cempra

Morgan Stanley performed an illustrative analysis of the pro forma impact of the proposed merger on Cempra’s equity value, which compared (1) Cempra’s potential standalone per share value to existing stockholders based on each of the Cempra Management Case and the Cempra Management Case ex-BJI Usage to (2) the combined company’s potential per share value on a pro forma basis and the resultant value to existing Cempra stockholders based on a PoS-adjusted discounted cash flow analysis (derived from each of (i) the Pro-Forma – Cempra Management Case + Melinta Management Case, (ii) the Pro-Forma – Cempra Management Case + Cempra Sensitivity/Melinta Strategy Case, (iii) the Pro-Forma – Cempra Management Case + Cempra Sensitivity/Alternative Strategy Case, (iv) the Pro-Forma – Cempra Management Case ex-BJI Usage + Melinta Management Case, (v) the Pro-Forma – Cempra Management Case ex-BJI Usage + Cempra Sensitivity/Melinta Strategy Case and (vi) the Pro-Forma – Cempra Management Case ex-BJI Usage + Cempra Sensitivity/Alternative Strategy Case, as applicable, as further described in the section entitled “The Merger—Certain Financial Projections—May 2017 Projections—Synergized Projections,” in each case assuming a pro forma equity split of 48.1% Cempra / 51.9% Melinta and reflecting the impact of future dilutive equity financings to address projected cash shortfalls). This analysis indicated the following equity value to existing Cempra stockholders and the implied value per share, rounded to the nearest $0.05, to existing Cempra stockholders:

 

     Equity Value to
Existing Stockholders
($MM)
     Implied Value Per
Share Range
 

Value Impact Assuming Cempra Management Case

     

Standalone View of Cempra

     317 - 357        $5.80 - $6.55  

Pro-Forma – Cempra Management Case + Melinta Management Case

     1,045 - 1,198      $ 18.50 -$21.15  

Pro-Forma – Cempra Management Case + Cempra Sensitivity/Melinta Strategy Case

     279 - 319        $5.10 - $5.80  

Pro-Forma – Cempra Management Case + Cempra Sensitivity/Alternative Strategy Case

     315 - 358        $5.75 - $6.50  

Value Impact Assuming Cempra Management Case ex-BJI Usage

     

Standalone View of Cempra

     229 - 255        $4.25 - $ 4.70  

Pro-Forma – Cempra Management Case ex-BJI Usage + Melinta Management Case

     1,011 - 1,158      $ 17.90 - $20.45  

Pro-Forma – Cempra Management Case ex-BJI Usage + Cempra Sensitivity/Melinta Strategy Case

     248 - 283        $4.50 - $5.15  

Pro-Forma – Cempra Management Case ex-BJI Usage + Cempra Sensitivity/Alternative Strategy Case

     285 - 324        $5.20 - $5.90  

 

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Description of Certain Pro Forma Discounted Cash Flow Assumptions. In performing its discounted cash flow analysis on a pro forma basis, Morgan Stanley assumed at the direction of Cempra management that the proposed merger would result in a change-of-control under Section 382 of the Code either resulting from the proposed merger or due to future dilutive equity financing transactions to fund cash shortfalls and, as such, Morgan Stanley assumed that pre-existing net operating losses would not be utilized due to the assumed change-of-control and the uncertainty regarding the availability of limited net operating losses under Section 382 of the Code, while newly created net operating losses would be applied in full.

Morgan Stanley also assumed that projected cash shortfalls of the pro forma company would be funded through a single dilutive equity issuance in the year prior to the first negative projected cash balance, assuming a $25.0 million minimum cash requirement. Morgan Stanley discounted the proceeds from such dilutive equity issuance by the cost of equity, and included such proceeds in the current net debt (cash) of the pro forma company for the purposes of the pro forma discounted cash flow analysis. For purposes of determining the resulting dilution on a pro forma basis, Morgan Stanley assumed a pro forma price per share as of September 30, 2017 of $3.85 per share. The pro forma price per share as of September 30, 2017 was assumed to be equal to Cempra’s price per share as of August 4, 2017, based on Morgan Stanley’s professional judgment. For purposes of the future equity financing transaction, the pro forma price per share was then grown by the cost of equity using the mid-year discount convention and a range of cost of equity rates of 12.0% to 14.0% (which Morgan Stanley derived based on Cempra’s assumed cost of equity calculated under the capital asset pricing model using its experience and professional judgment). Such financings further assumed that shares of the pro forma company’s common stock sold in the financing would be issued at a 10% file-to-offer discount and 6% gross spread.

For the purpose of the probability of success application, Morgan Stanley allocated the dilutive financing needs of each of Cempra and Melinta products based on the cumulative revenue contribution of each of their respective products on a pro forma basis over the pro forma projections period. For purposes of its analysis, Morgan Stanley used and relied upon the PoS scenarios determined by Cempra’s management based on their experience and judgment and as informed by historical precedents, as more fully described in the section entitled “The Merger—Certain Financial Projections.”

The pro forma discounted cash flow analysis also included the impact of certain operational synergies expected to be achieved as a result of the merger as provided by Cempra management.

Other Information

Contribution Analysis. Morgan Stanley performed a relative contribution analysis of Cempra and Melinta, in which Morgan Stanley reviewed the standalone equity values to existing stockholders as derived under each respective discounted cash flow analysis for each of Cempra and Melinta to determine the relative contribution of Cempra and Melinta to the combined company. In particular, Morgan Stanley analyzed the implied ownership percentage range of Cempra stockholders in the combined company based on the respective standalone equity values to existing stockholders of each of Cempra and Melinta derived from the discounted cash flow analyses conducted by Morgan Stanley (see “Summary of Financial Analyses—Cempra Discounted Cash Flow Analysis” and “Summary of Financial Analyses—Melinta Discounted Cash Flow Analysis”), in each case before taking into account any synergies that may be produced as a result of the proposed merger.

 

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Morgan Stanley calculated the implied standalone equity values to existing stockholders shown below for each of Cempra and Melinta and the implied ownership percentage range of Cempra stockholders in the combined company based on the respective contributions of Cempra and Melinta. The analysis indicated the following:

 

     Standalone Equity Value to
Existing Stockholders ($MM)
     Implied
Cempra
Ownership
Range
 
     Cempra      Melinta     

Cempra Management Case PoS-Adjusted DCF Analysis

        

Melinta Management Case

     317 - 357        1,405 - 1,618        16% - 20%  

Cempra Sensitivity/Melinta Strategy Case

     317 - 357        192 - 215        60% -65%  

Cempra Sensitivity/Alternative Strategy Case

     317 - 357        247 - 277        53% - 59%  

Cempra Management Case ex-BJI Usage PoS-Adjusted DCF Analysis

        

Melinta Management Case

     229 - 255        1,405 - 1,618        12% - 15%  

Cempra Sensitivity/Melinta Strategy Case

     229 - 255        192 - 215        52% - 57%  

Cempra Sensitivity/Alternative Strategy Case

     229 - 255        247 - 277        45% - 51%  

Morgan Stanley also compared the equity value of Cempra of $208.0 million as of August 4, 2017, against an illustrative Melinta pre-money equity valuation range of $275.0 million to $325.0 million based on comparative Phase 3 and registration-stage initial public offering precedents. Such illustrative market proxy analysis implied an ownership percentage of Cempra stockholders in the combined company of between 39% and 43%.

The contribution analysis was presented for reference purposes only, and was not relied upon for valuation purposes.

Historical Trading Range Analysis. Morgan Stanley reviewed the historical trading range of shares of Cempra common stock for the 52-week period ending August 4, 2017. Morgan Stanley observed that, during such period, the maximum intra-day trading price for shares of Cempra common stock was $26.95 and the minimum intra-day trading price for shares of Cempra common stock was $2.55. Morgan Stanley also noted that the closing trading price for shares of Cempra common stock on August 4, 2017, was $3.85.

The historical trading range analysis was presented for reference purposes only, and was not relied upon for valuation purposes.

Equity Research Analyst Price Targets. Morgan Stanley reviewed the undiscounted price targets for shares of Cempra common stock prepared and published by the seven equity research analysts with price targets that had been published by Bloomberg as of August 4, 2017. These targets reflect each analyst’s estimate of the future public market trading price of shares of Cempra common stock. The range of equity analyst undiscounted price targets for shares of Cempra common stock was $2.00 to $9.00.

The public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for Cempra common stock and these estimates are subject to uncertainties, including the future financial performance of Cempra and future financial market conditions.

The equity research stock price targets were presented for reference purposes only, and were not relied upon for valuation purposes.

General

The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the

 

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particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. Morgan Stanley arrived at its opinion based on the results of all analyses undertaken and assessed as a whole, and it did not ascribe a specific range of values to Cempra or Melinta or draw, in isolation, conclusions from or with regard to, and did not attribute any particular weight to, any one factor or method of analysis, but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the particular transaction. Accordingly, the summary set forth above does not purport to be a complete description of the financial analyses performed or factors considered by, and underlying the opinion of, Morgan Stanley, nor does the order of the financial analyses described represent the relative importance or weight given to those financial analyses by Morgan Stanley. The analyses listed in the tables and described above must be considered as a whole; considering any portion of such analyses and of the factors considered, without also considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanley’s opinion. In addition, in rendering its opinion, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of implied valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of Cempra or Melinta.

In performing its financial analyses, Morgan Stanley considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond Cempra’s and Melinta’s control. The assumptions and estimates contained in the financial analyses and the ranges of implied valuations resulting from any particular analysis are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than those suggested by such analyses. In addition, financial analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities (including shares of Cempra common stock) actually may be sold. Accordingly, the assumptions and estimates used in, and the results derived from, the financial analyses are inherently subject to substantial uncertainty.

The merger consideration was determined by Cempra and Melinta, rather than by any financial advisor, and was approved by Cempra’s board of directors. The decision by Cempra to enter into the merger agreement was solely that of Cempra’s board of directors. As described in the section entitled “The Merger—Cempra’s Reasons for the Merger” beginning on page 77, Morgan Stanley’s analyses were only one of the many factors considered by Cempra’s board of directors in its evaluation of the proposed merger and should not be viewed as determinative of the views of Cempra’s board of directors or management with respect to the proposed merger or the merger consideration.

Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with its customary practice. No limitations were imposed by Cempra’s board of directors upon Morgan Stanley with respect to the investigations made or procedures followed by it in rendering its opinion. Morgan Stanley did not recommend any specific amount or form of consideration to Cempra or that any specific amount or form of consideration constituted the only appropriate consideration for the proposed merger.

Cempra retained Morgan Stanley based upon Morgan Stanley’s qualifications, experience and expertise. Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate, estate and other purposes.

As compensation for Morgan Stanley’s services relating to its engagement, Cempra has agreed to pay Morgan Stanley a total fee currently estimated to be $5.0 million, $1.5 million of which became payable upon execution of the merger agreement and the remainder of which is contingent upon the completion of the proposed

 

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merger. In addition, Cempra may elect, in Cempra’s sole discretion to pay Morgan Stanley an additional discretionary fee of up to $1.0 million. Cempra has also agreed to reimburse Morgan Stanley for its reasonable expenses including, without limitation, professional and legal fees and disbursements, regardless of whether the proposed merger is consummated. In addition, Cempra has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Morgan Stanley’s engagement.

In the two years prior to the date of Morgan Stanley’s opinion, Morgan Stanley or its affiliates have provided financing services and financial advisory services to Cempra and its affiliates, for which Morgan Stanley or its affiliates have received compensation of between $300,000 and $400,000. Morgan Stanley and its affiliates may also seek to provide financial advisory and financing services to Cempra and Melinta and their respective affiliates in the future and would expect to receive fees for the rendering of any such services.

Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of Cempra, Melinta or any other company, or any currency or commodity, that may be involved in the proposed merger, or any related derivative instrument.

Certain Financial Projections

While Cempra has from time to time provided limited quarterly and full-year financial guidance in its regular earnings press release and other investor materials, which may have covered, among other items, research and development and general and administrative expenses, Cempra’s management team has not, as a matter of course, otherwise publicly disclosed internal projections as to future performance, earnings or other results due to the unpredictability of the underlying assumptions and estimates. Cempra is including selected projections in this proxy statement to provide its stockholders with access to certain non-public unaudited projected financial information about Cempra that was made available to Melinta and additional financial information about Cempra and Melinta that was made available to Cempra’s board of directors in connection with its consideration of the merger. The projections reviewed by Cempra’s board of directors were adjusted by Cempra to reflect PoS assumptions based on Cempra management’s analysis of a number of factors, including management’s experience and judgment as informed by historical precedents and, in some cases, industry guidelines. Cempra provided its projections to Melinta without any PoS adjustments reflected, as described further below. Melinta did not participate in the preparation of any of the financial projections set forth in this “Certain Financial Projections” section other than Figure 3 (the “Melinta Financial Summary-January 2017”) and Figure 9 (the “Melinta Management Case”), each of which were subsequently adjusted by Cempra as described herein, and the projections presented in Figure 3 and Figure 9 reflect such adjustments made by Cempra.

Following are a series of financial projections on Cempra’s and Melinta’s potential sales, profits and cash flows which were provided to Cempra’s board of directors between January 2017 and August 2017. As assumptions changed during the course of the year based on input from due diligence, or additional facts, such as market research analyses, dialogue with the FDA or the achievement of clinical and regulatory milestones, updated projections were prepared based on the updated assumptions. The assumptions underlying each projection are described below. Cempra’s board of directors also considered financial projections of the combined companies which reflected potential synergies between the companies. The final synergized projection described in Figure 17, which was presented to Cempra’s board of directors on August 8, 2017, based on the most current assumptions at that time, was utilized to inform the board of directors as they reached their decision that the proposed merger was in the best interest of Cempra shareholders. However, as noted herein, Figure 17

 

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models a cash spend level that may not reflect the operating decisions and associated spend level of the combined company. Readers should refer to “Important Information about the Financial Projections” for further cautionary statements regarding the financial projections.

The estimates of EBIT, net income (alternatively referred to as cash net income in certain projections) and unlevered free cash flow included in the following financial projections were calculated by Cempra management using GAAP and other measures which are derived from GAAP, but such estimates constitute non-GAAP financial measures within the meaning of applicable rules and regulations of the SEC. These non-GAAP financial measures do not include estimates for non-cash stock compensation and include the cash impact of the utilization of tax net operating losses. Unlevered free cash flow is calculated as tax-effected earnings before interest and taxes less capital expenditures, plus depreciation and amortization, less the increase in net working capital or plus the decrease in net working capital, as appropriate, and plus the tax benefit of net operating losses.

Methodology for Estimating Probability of Success (PoS) Adjustments

In order for a prescription drug to reach the market, that drug must successfully complete various phases of clinical trials and then must be approved by a regulatory agency (such as the FDA) for marketing. Typically, a drug progresses from preclinical (non-human) testing into and through clinical (human) testing in a serial manner culminating in the regulatory review and potential approval.

In order to calculate the probability of success for a drug to gain regulatory approval, one must consider both the probability of achieving individual clinical milestones as well as the total cumulative probability of the drug progressing from the current phase of clinical development through approval. Because each phase of development has its own individual probability of success, in order to calculate the total cumulative probability of success through approval at any given point in development, one typically uses the product of multiplying all of the probabilities of success of each individual phase to be completed to arrive at a total cumulative probability of success for marketing approval. Collectively, these likelihoods of achieving certain outcomes on both an individual and collective basis are referred to as the drug’s probability of success, or the PoS.

The cumulative PoS for an individual product is applied directly to all future revenues and is similarly applied to expenses that are projected to occur post-marketing approval if the existence of such expenses is dependent upon the future approval of the product. For any expenses that are projected to occur before marketing approval, expenses associated with the completion of ongoing activities devoted to progressing to the next phase are considered sunk costs and are not adjusted. For expenses that occur in the phase following the current phase of an individual product, the appropriate cumulative probability from the current phase to the appropriate projected stage of development is applied to the expense.

January 2017 Projections

Cempra Projections

In January 2017, Cempra’s management team prepared projections for solithromycin and fusidic acid for the fiscal years 2017 through 2032 (referred to herein as the “Cempra Financial Summary-January 2017”) to assist Cempra’s board of directors in its review of the initial proposal received from Melinta—see Figure 1 below. In general, the Cempra Financial Summary-January 2017 presented the most optimistic case for the clinical and regulatory paths of both solithromycin and fusidic acid. The Cempra Financial Summary-January 2017 assumed that Cempra would successfully develop, receive regulatory approval for, and market both solithromycin and fusidic acid (approval achieved in 2021 and 2020, respectively). The Cempra Financial Summary-January 2017 also assumed that Cempra would be able to rapidly secure non-dilutive funding.

In this projection, Cempra management assumed approval of solithromycin based on a response to the CRL with safety data from an initial cohort of 2,000 CABP patients treated for five days with oral solithromycin with

 

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data from an additional 7,000 patients treated with solithromycin on a post-approval basis. The forecast assumed the FDA would agree to this approach to respond to the CRL and that Cempra would be able to rapidly secure sufficient non-dilutive funding to support this study.

The Cempra Financial Summary-January 2017 included revenue projections for solithromycin and fusidic acid that were adjusted for PoS as follows:

 

    Solithromycin. 88.7% likelihood of approval, or LOA.

 

    Fusidic acid. 72.7% PoS for successful completion of a Phase 3 clinical trial and 88.7% PoS following submission of an NDA for a cumulative LOA of 64.5%.

The following table summarizes the projections included in the Cempra Financial Summary-January 2017:

Figure 1—Cempra Financial Summary-January 2017 (in millions)

 

    Fiscal Year Ending December 31,  
    2017     2018     2019     2020     2021     2022     2023     2024     2025     2026     2027     2028     2029     2030     2031     2032  

Solithromycin Sales

  $ –       $ 0     $ 3     $ 17     $ 59     $ 177     $ 271     $ 355     $ 427     $ 492     $ 543     $ 573     $ 602     $ 633     $ 666     $ 701  

Fusidic Acid Sales

  $ –       $ –       $ –       $ 0     $ 12     $ 38     $ 66     $ 96     $ 129     $ 154     $ 167     $ 176     $ 186     $ –       $ –       $ –    

Other Sales

  $ 20     $ 28     $ 32     $ 53     $ 85     $ 117     $ 169     $ 169     $ 169     $ 169     $ 169     $ 169     $ 169     $ 169     $ 169     $ 169  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Net Sales

  $ 20     $ 28     $ 36     $ 70     $ 156     $ 332     $ 505     $ 620     $ 725     $ 816     $ 879     $ 918     $ 957     $ 802     $ 835     $ 869  

Gross Profit

  $ 20     $ 24     $ 28     $ 56     $ 133     $ 279     $ 431     $ 524     $ 610     $ 685     $ 739     $ 773     $ 807     $ 681     $ 709     $ 738  

EBIT

  $ (94   $ (102   $ (92   $ (83   $ (7   $ 137     $ 284     $ 373     $ 464     $ 535     $ 584     $ 613     $ 642     $ 511     $ 534     $ 558  

Net Income

  $ (94   $ (102   $ (92   $ (83   $ (7   $ 137     $ 284     $ 250     $ 283     $ 326     $ 356     $ 374     $ 392     $ 312     $ 326     $ 340  

Unlevered Free Cash Flow

  $ (93   $ (102   $ (93   $ (86   $ (13   $ 133     $ 282     $ 248     $ 282     $ 326     $ 356     $ 374     $ 392     $ 315     $ 326     $ 340  

Cempra provided a non-PoS adjusted version of Figure 1 to Melinta. See Figure 2 below.

Figure 2—Cempra Financial Summary-January 2017 (in millions)—Unadjusted

 

    Fiscal Year Ending December 31,  
    2017     2018     2019     2020     2021     2022     2023     2024     2025     2026     2027     2028     2029     2030     2031     2032  

Solithromycin Sales

  $ –       $ 0     $ 4     $ 19     $ 67     $ 199     $ 305     $ 400     $ 481     $ 555     $ 612     $ 646     $ 679     $ 714     $ 751     $ 790  

Fusidic Acid Sales

  $ –       $ –       $ –       $ 1     $ 18     $ 58     $ 102     $ 148     $ 200     $ 239     $ 259     $ 273     $ 288     $ –       $ –       $ –    

Other Sales

  $ 20     $ 29     $ 34     $ 60     $ 96     $ 133     $ 191     $ 191     $ 191     $ 191     $ 191     $ 191     $ 191     $ 191     $ 191     $ 190  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Net Sales

  $ 20     $ 29     $ 38     $ 79     $ 181     $ 390     $ 598     $ 740     $ 872     $ 985     $ 1,062     $ 1,110     $ 1,158     $ 905     $ 942     $ 980  

Gross Profit

  $ 20     $ 25     $ 29     $ 64     $ 154     $ 328     $ 507     $ 622     $ 730     $ 824     $ 889     $ 931     $ 973     $ 766     $ 798     $ 831  

EBIT

  $ (94   $ (109   $ (98   $ (91   $ (1   $ 168     $ 343     $ 453     $ 567     $ 656     $ 716     $ 752     $ 789     $ 576     $ 602     $ 629  

Net Income

  $ (94   $ (109   $ (98   $ (91   $ (1   $ 168     $ 336     $ 276     $ 346     $ 400     $ 437     $ 459     $ 481     $ 352     $ 367     $ 384  

Unlevered Free Cash Flow

  $ (93   $ (109   $ (100   $ (93   $ (8   $ 164     $ 333     $ 274     $ 344     $ 399     $ 436     $ 459     $ 481     $ 357     $ 367     $ 384  

In addition to the Cempra Financial Summary-January 2017, Cempra management created two additional forecasts, one model which assumed only solithromycin was approved and one model which assumed that only fusidic acid was approved. In each of these models, the sales and identifiable costs of the unapproved compound were removed. All other key assumptions in the model remained consistent with those used in the Cempra Financial Summary-January 2017.

Melinta Projections

In the initial Melinta proposal to Cempra in January 2017, Melinta management provided projections reflecting Melinta management’s then best estimates for the financial performance which included revenue projections for Baxdela and the ESKAPE pathogen program. These projections were driven by Melinta

 

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management’s commercialization strategy focusing on the hospital market with a premium pricing approach. Cempra management adjusted those projections to reflect PoS assumptions made by Cempra management (referred to herein as the “Melinta Financial Summary-January 2017”). See Figure 3 below. The Melinta Financial Summary-January 2017 assumed loss of exclusivity for Baxdela would not occur until 2027 (based on Hatch Waxman protection plus the extra five year extension of Hatch Waxman protection provided under the 2012 GAIN Act).

The Melinta Financial Summary-January 2017 included revenue projections that were adjusted by Cempra for PoS as follows:

 

    ABSSSI. 88.7% LOA.

 

    CABP. 64.5% LOA.

 

    cUTI. 27.5% LOA.

 

    ESKAPE: 9.6% LOA.

The following table summarizes the projections included in the Melinta Financial Summary-January 2017:

Figure 3—Melinta Financial Summary-January 2017 (in millions)

 

    Fiscal Year Ending December 31,  
    2017     2018     2019     2020     2021     2022     2023     2024     2025     2026     2027     2028     2029     2030  

Baxdela ABSSSI

  $ 8     $ 67     $ 150     $ 259     $ 376     $ 478     $ 559     $ 626     $ 691     $ 758     $ 829     $ 207     $ 52     $ 52  

Baxdela CABP

  $ –       $ –       $ 2     $ 39     $ 87     $ 141     $ 192     $ 229     $ 259     $ 288     $ 315     $ 79     $ 20     $ 20  

Baxdela cUTI

  $ –       $ –       $ –       $ –       $ 6     $ 24     $ 44     $ 65     $ 81     $ 94     $ 105     $ 26     $ 7     $ 7  

ESKAPE

  $ –       $ –       $ –       $ –       $ –       $ –       $ 7     $ 47     $ 84     $ 119     $ 145     $ 161     $ 172     $ 177  

Baxdela Royalties

  $ –       $ –       $ 4     $ 7     $ 10     $ 14     $ 18     $ 20     $ 22     $ 23     $ 24     $ 24     $ 6     $ 2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Net Sales

  $ 8     $ 67     $ 156     $ 305     $ 479     $ 658     $ 819     $ 987     $ 1,137     $ 1,282     $ 1,418     $ 497     $ 256     $ 257  

Gross Profit

  $ 7     $ 61     $ 143     $ 284     $ 450     $ 617     $ 767     $ 924     $ 1,066     $ 1,201     $ 1,329     $ 471     $ 246     $ 246  

EBIT

  $ (109   $ (53   $ 31     $ 169     $ 326     $ 480     $ 617     $ 761     $ 889     $ 1,012     $ 1,184     $ 365     $ 147     $ 146  

Net Income

  $ (111   $ (55   $ 27     $ 158     $ 260     $ 286     $ 369     $ 457     $ 534     $ 607     $ 710     $ 219     $ 88     $ 87  

Unlevered Free Cash Flow

  $ (110   $ (60   $ 18     $ 143     $ 241     $ 266     $ 339     $ 411     $ 491     $ 572     $ 704     $ 292     $ 101     $ 104  

Through its own work evaluating the commercial opportunities in the CABP and ABSSSI markets, Cempra management has developed a deep understanding of those anti-infectives markets. Based on that knowledge, Cempra management performed a sensitivity analysis on Melinta’s potential sales given its stated commercial launch strategy and provided that analysis to Cempra’s board of directors—See Figure 4 below. In this sensitivity analysis, sales were significantly lowered based on Cempra’s estimates of the potential market penetration of Melinta’s product candidates and estimated operating costs were increased based on Cempra’s knowledge of the cost to build and maintain a commercial operation.

Figure 4—Melinta Financial Summary-January 2017—Cempra Sensitivity Analysis (in millions)

 

     Fiscal Year Ending December 31,  
     2017     2018     2019     2020     2021      2022      2023      2024      2025      2026      2027      2028  

ABSSSI Sales

   $ 3     $ 29     $ 68     $ 101     $ 128      $ 148      $ 166      $ 180      $ 196      $ 212      $ 231      $ 250  

CABP Sales

   $ –       $ –       $ 2     $ 16     $ 32      $ 44      $ 54      $ 60      $ 66      $ 72      $ 78      $ 85  

Other Sales

   $ –       $ –       $ –       $ –       $ 2      $ 8      $ 15      $ 22      $ 27      $ 31      $ 35      $ 9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Net Sales

   $ 3     $ 29     $ 70     $ 117     $ 161      $ 200      $ 234      $ 262      $ 289      $ 316      $ 344      $ 344  

Gross Profit

   $ (4   $ 26     $ 62     $ 104     $ 144      $ 178      $ 208      $ 221      $ 258      $ 281      $ 306      $ 306  

EBIT

   $ (117   $ (103   $ (63   $ (15   $ 32      $ 73      $ 101      $ 112      $ 145      $ 165      $ 187      $ 183  

Net Income

   $ (121   $ (107   $ (67   $ (19   $ 28      $ 69      $ 97      $ 108      $ 91      $ 98      $ 112      $ 109  

Unlevered Free Cash Flow

   $ (117   $ (105   $ (67   $ (19   $ 26      $ 68      $ 96      $ 107      $ 91      $ 98      $ 111      $ 112  

 

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May 2017 Projections

In February 2017, as a consequence of the solithromycin CRL Cempra received and subsequent discussions with the FDA, resulting in the delay of the potential approval of solithromycin, Cempra management began actively pursuing, and engaged Morgan Stanley to assist them in, a process to evaluate and assess external assets and other potential strategic business opportunities to determine the best use of Cempra’s significant cash resources and late stage clinical programs to deliver value to patients and shareholders through internal and/or potential external opportunities. In connection with the strategic process undertaken by Cempra, in May 2017, Cempra’s management team prepared a series of updated projections based on its continued progress on the clinical and regulatory activities for solithromycin and fusidic acid.

Cempra Projections

Cempra management provided a preliminarily updated forecast to Cempra’s board of directors, on a non-PoS adjusted basis, for solithromycin and fusidic acid for the fiscal years 2017 through 2032 (referred to herein as the “Cempra Management Case—Preliminary”) for feedback from Cempra’s board of directors on the underlying assumptions—See Figure 5 below.

Solithromycin. Cempra management believes that solithromycin provides hospital and community monotherapy treatment by covering appropriate CABP pathogens including macrolide resistant pathogens. Cempra management included sales for the following indications for solithromycin: adult CABP, bronchitis, sinusitis, gonorrhea and CABP for pediatric. Below summarizes the rationale behind the forecast for each indication.

 

    Adult CABP (Hospital). Cempra management assumed a 2% share for first-line therapy and 10% share for second-line therapy in the hospital. The hospital market for CABP is highly-genericized, but is facing increasing resistance to those therapies. Solithromycin offers monotherapy and discharge from the hospital on the same therapy.

 

    Adult CABP (Community). Cempra management assumed a 4% share for first-line therapy as current treatment guidelines recommend that CABP in the community be treated with a macrolide. Increasing resistance to existing macrolides is limiting the usage of generic macrolides. Current CABP therapies fail 20% of the time. Cempra management assumed a 5% share for failures.

 

    Bronchitis/Sinusitis. Even though the predicted label is for CABP, the pathogens responsible for bronchitis and sinusitis are largely the same, and as such Cempra management assumed a 1% share for first-line therapy and a 3% share for second-line therapy for both bronchitis and sinusitis.

 

    Gonorrhea. Cempra management assumed a 30% share for treatment failures and a 10% share for first-line therapy as solithromycin’s pathogen coverage includes macrolide resistant pathogens which allows for substantial penetration in a market with few treatment options.

 

    Pediatric CABP. A 5% share for first-line therapy was assumed as macrolides are considered a first line agent for pediatric CABP. Additionally, Cempra management assumed a 20% share for patient failures as the current treatment of choice is either Amoxicillin/Clavulanic acid or azithromycin which are becoming increasingly less effective.

Fusidic Acid. Cempra management included sales for the following indications for fusidic acid: ABSSSI (hospital), ABSSSI (community), osteomyelitis and BJI, including prosthetic joint infections. Below summarizes the rationale behind the forecast for each indication.

 

    ABSSSI (Hospital). Cempra management assumed a 1.5% share for first-line therapy and 3% share for failures. Currently, while some newer branded products are available, generic vancomycin is commonly used. Fusidic acid would be priced competitively compared to newer agents, but still at a premium versus generics.

 

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    ABSSSI (Community). Cempra management assumed a 5% share for first-line therapy and 6% share for failures. Cempra management assumed an opportunity to develop an oral drug that is effective against MRSA with a safety profile that supports out-patient use, use for chronic indications and use in children.

 

    Osteomyelitis/BJI. Cempra management assumes that about 20% of total fusidic acid sales will come from bone and joint infection. Fusidic acid is an oral treatment option that has a safety profile to support long-term use. Since bone and joint infections are generally considered difficult to treat and are primarily treated with a combination of IV and oral drugs, fusidic acid would enable out-patient treatment of many patients who would otherwise require hospitalization and/or cumbersome outpatient intravenous therapy. In all cases, receiving an explicit label for BJI was not assumed.

Figure 5—Cempra Management Case – Preliminary (in millions) – Unadjusted

 

    Fiscal Year Ending December 31,  
    2017     2018     2019     2020     2021     2022     2023     2024     2025     2026     2027     2028     2029     2030     2031     2032  

Solithromycin Sales

  $ –       $ –       $ 19     $ 55     $ 89     $ 164     $ 283     $ 386     $ 454     $ 525     $ 604     $ 666     $ 702     $ 739     $ 777     $ 817  

Fusidic Acid Sales

  $ –       $ –       $ –       $ 28     $ 102     $ 174     $ 262     $ 368     $ 430     $ 456     $ 481     $ 507     $ 535     $ 565     $ 99     $ –    

Other Sales

  $ 33     $ 51     $ 66     $ 15     $ 37     $ 20     $ 37     $ 44     $ 45     $ 46     $ 47     $ 48     $ 48     $ 48     $ 48     $ 48  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Net Sales

  $ 33     $ 51     $ 85     $ 98     $ 228     $ 358     $ 582     $ 798     $ 929     $ 1,027     $ 1,132     $ 1,221     $ 1,285     $ 1,352     $ 924     $ 865  

Gross Profit

  $ 33     $ 51     $ 83     $ 90     $ 208     $ 324     $ 522     $ 709     $ 825     $ 909     $ 1,002     $ 1,079     $ 1,136     $ 1,194     $ 791     $ 731  

EBIT

  $ (57   $ (58   $ (50   $ (18   $ 102     $ 198     $ 393     $ 576     $ 698     $ 779     $ 867     $ 941     $ 994     $ 1,048     $ 640     $ 577  

Net Income

  $ (57   $ (58   $ (50   $ (18   $ 102     $ 137     $ 239     $ 351     $ 426     $ 475     $ 529     $ 574     $ 606     $ 639     $ 390     $ 352  

In addition to the Cempra Management Case—Preliminary, Cempra management created two additional forecasts, one model which assumed only solithromycin was approved and one model which assumed that only fusidic acid was approved. In each of these models, the sales and identifiable costs of the unapproved compound were removed. All other key assumptions in the model remained consistent with those used in the Cempra Management Case—Preliminary.

Upon review of the Cempra Management Case—Preliminary with Cempra’s board of directors, the directors questioned several of the commercial and operating assumptions and requested management to reconsider the underlying assumptions in light of their concerns.

Upon further analysis and considering the feedback from Cempra’s board of directors, and based upon additional feedback from the FDA, Cempra’s management team prepared updated projections for solithromycin and fusidic acid for the fiscal years 2017 through 2032 (referred to herein as the “Cempra Management Case”) to assist Cempra’s board of directors in its review of potential strategic alternatives—See Figure 6 below. The Cempra Management Case assumed that Cempra would successfully develop, receive regulatory approval for, and market both solithromycin and fusidic acid (approval achieved in 2021 and 2020, respectively).

Solithromycin. Based upon feedback from the FDA regarding the solithromycin safety trial, Cempra management assumed approval of solithromycin based on a response to the CRL with safety data from an initial cohort of 6,000 CABP patients treated for five days with oral solithromycin, along with 1,200 CABP patients treated with the standard of care (5:1 randomization), at the time of the response to the CRL. Subsequently, Cempra would provide follow-on data from an additional 3,000 CABP patients. The forecast assumed this safety study would be fully funded by non-dilutive funding and result in a 2021 launch.

Cempra management included sales for the following indications for solithromycin: adult CABP, bronchitis, sinusitis, gonorrhea and CABP for pediatric. Below summarizes the rationale behind the forecast for each indication.

 

    Adult CABP (Community). Cempra management assumed the same 4% share for first-line therapy, and 5% share for failures as outlined above. Cempra management believes that solithromycin will only be used in the community due to an oral only formulation.

 

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    Bronchitis/Sinusitis. For bronchitis, Cempra management assumed the same 1% share for first-line therapy and a 3% share for second-line therapy as discussed above. For sinusitis, Cempra management assumed a reduced share of 0.5% share for first-line therapy and a 1% share for second-line therapy due to sinusitis being a less severe indication.

Gonorrhea. Cempra management assumed the same 30% share for treatment failures and a 10% share for first-line therapy as discussed above.

 

    Pediatric CABP. Cempra management assumed the same 5% share for first-line therapy and 20% share for patient failures as discussed above.

Fusidic Acid. Cempra management included sales for the following indications for fusidic acid: ABSSSI (hospital), ABSSSI (community), osteomyelitis and bone and joint infections, or BJI, including prosthetic joint infections. One request from Cempra’s board of directors was to evaluate the risk of commercial success given the recent launch of other ABSSSI drugs. As a response to the board’s suggestion, management developed two additional scenarios for fusidic acid. One scenario (low) resembles recently launched ABSSSI products and the other scenario (high) presumed slightly higher shares than the original assumptions described above. The revised forecast numbers reflect forecast weights of 50%, 30% and 20% for the original, low and high scenarios, respectively.

The Cempra Management Case revenue projections for solithromycin and fusidic acid were then adjusted to reflect the following PoS assumptions:

 

    Solithromycin. 11.3% PoS for successful completion of the 6,000 patient clinical safety trial and 88.7% PoS following submission of an NDA for a cumulative LOA of 10.0%. Due to the clinical and operational risk associated with the expanded size of the safety study and the financing risk related to the larger need for non-dilutive capital, management determined the PoS for successful funding and completion of the study was considerably lower than previously assumed.

 

    Fusidic acid. 67.6% PoS for successful completion of a Phase 3 clinical trial and 88.7% PoS following submission of an NDA for a cumulative LOA of 60.0%.

The Cempra Management Case also assumed a single dilutive equity issuance to occur in the year prior to the first negative projected cash balance. Loss of exclusivity would not occur until 2032 with current patents (longer with QIDP designation) for solithromycin and 2031 for fusidic acid. For tax assumptions, Cempra management assumed that newly created NOLs would be applied in full. Pre-existing NOLs would not be utilized due to limitations under Section 382 of the Code from an assumed previous change-of-control.

The following table summarizes the projections included in the Cempra Management Case:

Figure 6—Cempra Management Case (in millions)

 

    Q4
2017
    Fiscal Year Ending December 31,  
      2018     2019     2020     2021     2022     2023     2024     2025     2026     2027     2028     2029     2030     2031     2032  

Solithromycin Sales

  $ –       $ –       $ –       $ –       $ 1     $ 3     $ 8     $ 15     $ 27     $ 38     $ 47     $ 55     $ 59     $ 62     $ 65     $ 69  

Fusidic Acid Sales

  $ –       $ –       $ –       $ 14     $ 50     $ 85     $ 129     $ 181     $ 211     $ 224     $ 236     $ 249     $ 263     $ 278     $ 49     $ –    

Other Sales

  $ 13     $ 53     $ 48     $ 1     $ 2     $ 0     $ 3     $ 2     $ 3     $ 3     $ 3     $ 3     $ 4     $ 4     $ 4     $ 4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Net Sales

  $ 13     $ 53     $ 48     $ 15     $ 53     $ 89     $ 140     $ 198     $ 241     $ 265     $ 287     $ 307     $ 326     $ 343     $ 118     $ 72  

Gross Profit

  $ 13     $ 53     $ 48     $ 14     $ 50     $ 83     $ 131     $ 184     $ 223     $ 245     $ 264     $ 283     $ 299     $ 315     $ 104     $ 61  

EBIT

  $ (7   $ (48   $ (44   $ (33   $ (9   $ 20     $ 65     $ 116     $ 157     $ 176     $ 192     $ 208     $ 222     $ 235     $ 21     $ (25

Cash Net Income

  $ (7   $ (48   $ (44   $ (33   $ (9   $ 20     $ 65     $ 92     $ 96     $ 107     $ 117     $ 127     $ 135     $ 143     $ 13     $ (25

Unlevered Free Cash Flow

  $ (5   $ (46   $ (41   $ (34   $ (12   $ 17     $ 61     $ 83     $ 88     $ 103     $ 114     $ 123     $ 132     $ 140     $ 44     $ (17

 

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Cempra provided a non-PoS version of Figure 6 to Melinta—See Figure 7 below.

Figure 7—Cempra Management Case (in millions)—Unadjusted

 

    Q4
2017
    Fiscal Year Ending December 31,  
      2018     2019     2020     2021     2022     2023     2024     2025     2026     2027     2028     2029     2030     2031     2032  

Solithromycin Sales

  $ –       $ –       $ –       $ –       $ 8     $ 32     $ 80     $ 153     $ 266     $ 379     $ 470     $ 546     $ 590     $ 620     $ 652     $ 685  

Fusidic Acid Sales

  $ –       $ –       $ –       $ 23     $ 83     $ 142     $ 214     $ 301     $ 352     $ 373     $ 394     $ 416     $ 439     $ 463     $ 81     $ –    

Other Sales

  $ 13     $ 53     $ 48     $ 11     $ 22     $ 4     $ 35     $ 16     $ 27     $ 33     $ 33     $ 34     $ 35     $ 36     $ 36     $ 36  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Net Sales

  $ 13     $ 53     $ 48     $ 34     $ 113     $ 178     $ 329     $ 470