Form 10-Q CEMPRA, INC. For: Sep 30

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

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FORM 10-Q

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For the quarterly period ended September�30, 2014

For the Transition Period from �������������������� to ��������������������

Commission File Number:�001-35405

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CEMPRA, INC.

(Exact name of registrant specified in its charter)

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6320 Quadrangle Drive, Suite 360

Chapel Hill, NC 27517

(Address of Principal Executive Offices)

(919) 313-6601

(Telephone Number, Including Area Code)

Securities Registered Pursuant to Section�12(b) of the Exchange Act:

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Securities Registered Pursuant to Section�12(g) of the Act: None

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule�12b-2 of the Exchange Act. (Check one):

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

As of October�24, 2014 there were 35,837,562 shares of the registrants common stock, $0.001 par value, outstanding.

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CEMPRA, INC.

TABLE OF CONTENTS

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PART IFINANCIAL INFORMATION

Item 1. Financial Statements

CEMPRA, INC.

Consolidated Balance Sheets

(Unaudited)

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

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CEMPRA, INC.

Consolidated Statements of Operations

(Unaudited)

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

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CEMPRA, INC.

Consolidated Statements of Cash Flows

(Unaudited)

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

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CEMPRA, INC.

September�30, 2014

Notes to Consolidated Financial Statements

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1. Description of Business

Cempra, Inc. (the Company or Cempra, previously known as Cempra Holdings, LLC) is the successor entity of Cempra Pharmaceuticals, Inc. which was incorporated on November�18, 2005 and commenced operations in January 2006. Cempra is located in Chapel Hill, North Carolina, and is a pharmaceutical company developing medicines to treat drug-resistant bacterial infections in the community and hospital.

On February�2, 2012, Cempra Holdings, LLC converted from a Delaware limited liability company to a Delaware corporation and was renamed Cempra, Inc. As a result of the corporate conversion, the holders of both common and preferred shares of Cempra Holdings, LLC became holders of shares of common stock of Cempra, Inc. Holders of options to purchase common shares of Cempra Holdings, LLC became holders of options to purchase shares of common stock of Cempra, Inc. Holders of notes convertible into preferred shares of Cempra Holdings, LLC and associated warrants exercisable for preferred shares of Cempra Holdings, LLC became holders of shares of common stock and warrants to purchase shares of common stock of Cempra, Inc.

The Company expects to continue to incur losses and require additional financial resources to advance its products to either commercial stage or liquidity events. There can be no assurance that the Company will be able to obtain additional debt or equity financing or generate revenues from collaborative partners on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Companys business, results of operations and financial condition.

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2. Basis of Presentation

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts and results of operations of Cempra and its wholly owned subsidiaries. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). All intercompany balances and transactions have been eliminated in consolidation.

Unaudited Interim Financial Data

The accompanying interim consolidated financial statements are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December�31, 2013 contained in the Companys Annual Report on Form 10-K. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the Companys financial position as of September�30, 2014 and the results of operations and cash flows for the three months and nine months ended September�30, 2013 and 2014. The December�31, 2013 consolidated balance sheet included herein was derived from audited consolidated financial statements, but does not include all disclosures including notes required by U.S. GAAP for complete financial statements.

Use of Estimates

The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Receivables

Receivables consist of amounts billed and amounts earned but unbilled under the Companys contract with the Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services (BARDA). Receivables under the BARDA contract are recorded as qualifying research activities are conducted and invoices from the Companys vendors are received. Unbilled receivables are also recorded based upon work estimated to be complete for which the Company has not received vendor invoices. The Company carries its accounts receivable at cost less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance based on its history of collections and write-offs and the current status of all receivables. The Company does not accrue interest on trade receivables. If accounts become uncollectible, they

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will be written off through a charge to the allowance for doubtful accounts. The Company has not recorded an allowance for doubtful accounts as management believes all receivables are fully collectible.

Clinical Trial Accruals

As part of the process of preparing financial statements, the Company is required to estimate its expenses resulting from its obligation under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials. The Companys objective is to reflect the appropriate clinical trial expenses in its financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. The Company determines accrual estimates through discussion with applicable personnel and outside service providers as to the progress of trials or the services completed. During the course of a clinical trial, the Company adjusts its rate of clinical trial expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low for any particular period. The Companys clinical trial accrual is dependent upon the timely and accurate reporting of fee billings and passthrough expenses from contract research organizations and other third-party vendors as well as the timely processing of any change orders from the contract research organizations.

Revenue Recognition

The Companys revenue generally consists of research related revenue under federal contracts and licensing revenue related to non-refundable upfront fees, milestone payments and royalties earned under license agreements. Revenue is recognized when the following criteria are met: (1)�persuasive evidence that an arrangement exists; (2)�delivery of the products and/or services has occurred; (3)�the selling price is fixed or determinable; and (4)�collectability is reasonably assured.

For arrangements that involve the delivery of more than one element, each product, service and/or right to use assets is evaluated to determine whether it qualifies as a separate unit of accounting. This determination is based on whether the deliverable has stand-alone value to the customer. The consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling prices of each deliverable. The consideration allocated to each unit of accounting is recognized as the related goods and services are delivered, limited to the consideration that is not contingent upon future deliverables. When an arrangement is accounted for as a single unit of accounting, the Company determines the period over which the performance obligations will be performed and revenue recognized.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09). The FASB issued ASU 2014-09 to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016, which is effective for the Company for the year ending December 31, 2017. The Company is currently evaluating the impact that the implementation of this standard will have on the Companys consolidated financial statements.

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3. Fair Value of Financial Instruments

The carrying values of cash equivalents, receivables, prepaid expenses, and accounts payable at September�30, 2014 approximated their fair values due to the short-term nature of these items.

The Companys valuation of financial instruments is based on a three-tiered approach, which requires that fair value measurements be classified and disclosed in one of three tiers. These tiers are: Level 1, defined as quoted prices in active markets for identical assets or liabilities; Level 2, defined as valuations based on observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable input data; and Level 3, defined as valuations based on unobservable inputs reflecting the Companys own assumptions, consistent with reasonably available assumptions made by other market participants.

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At December�31, 2013 and September�30, 2014, financial instruments and respective fair values have been classified as follows:

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The change in the fair value measurement using significant unobservable inputs (Level 3) is summarized below:

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The warrant liability was reclassified to additional paid-in capital in the second quarter of 2014 upon expiration of the pricing feature in the May 2013 amendment (see Note 8).��The Company calculated the fair value of the Hercules Warrants (defined and discussed in Note 8) at the expiration of the pricing feature (see Note 8) using a Binomial model.��For the nine months ended September 30, 2014, the Company applied the following assumptions:

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The December 2011 Note (defined and discussed in Note 8), which is classified as a level 2 liability has a variable interest rate and, accordingly, its carrying value approximates its fair value. At September�30, 2014, the carrying value was $18.3 million. There were no transfers between levels of the fair value hierarchy for any assets or liabilities measured at fair value in the nine months ended September�30, 2014.

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4. Significant Agreements and Contracts

License Agreements

Optimer Pharmaceuticals, Inc.

In March 2006, the Company, through its wholly owned subsidiary, Cempra Pharmaceuticals, Inc., entered into a Collaborative Research and Development and License Agreement (Optimer Agreement) with Optimer Pharmaceuticals, Inc. (Optimer). Under the terms of the Optimer Agreement, the Company acquired exclusive rights to further develop and commercialize certain Optimer technology worldwide, excluding member nations of the Association of Southeast Asian Nations. Optimer was acquired by Cubist Pharmaceuticals, Inc. in October 2013.

In exchange for this license, during 2006 and 2007, the Company issued an aggregate of 125,646 common shares with a total fair value of $190,418 to Optimer. These issuances to Optimer were expensed as incurred in research and development expense.

In July 2010, the Company paid a $500,000 milestone payment to Optimer after the successful completion of its first solithromycin Phase 1 program. In July 2012, the Company paid a $1,000,000 milestone after the successful completion of its first solithromycin Phase 2 program. Both milestones were expensed as incurred in research and development expense. Under the terms of the Optimer Agreement, the Company will owe Optimer additional payments, contingent upon the achievement of various development, regulatory and commercialization milestone events. The aggregate amount of such milestone payments the Company may need to pay is based in part on the number of products developed under the agreement and would total $27,500,000 (including payments made to date) if four products are developed through FDA approval. The Company will also pay tiered mid-single-digit royalties based on the amount of annual net sales of its approved products.

The Scripps Research Institute

In June�2012, the Company entered into a license agreement with The Scripps Research Institute (TSRI), whereby TSRI licensed to the Company rights, with rights of sublicense, to make, use, sell, and import products for human or animal therapeutic use that use or incorporate one or more macrolides as an active pharmaceutical ingredient and is covered by certain patent rights owned by TSRI claiming technology related to copper-catalysed ligation of azides and acetylenes. The rights licensed to the Company are exclusive as to the Peoples Republic of China (excluding Hong Kong), South Korea and Australia, and are non-exclusive in all other countries worldwide, except the member-nations of the Association of Southeast Asian Nations, which are not included in the territory of the license. Under the terms of the agreement with TSRI, the Company paid a one-time only, non-refundable license issue fee in the amount of $350,000 which was charged to research and development expense in the second quarter of 2012.

The Company is also obligated to pay annual maintenance fees to TSRI in the amount of (i)�$50,000 each year for the first three years (beginning on the first anniversary of the agreement), and (ii)�$85,000 each year thereafter (beginning on the fourth anniversary of the agreement). Each calendar years annual maintenance fees will be credited against sales royalties due under the agreement for such calendar year. Under the terms of the agreement, the Company must pay TSRI low single-digit percentage royalties on the net sales of the products covered by the TSRI patents for the life of the TSRI patents, a low single-digit percentage of non-royalty sublicensing revenue received with respect to countries in the nonexclusive territory and a mid-single-digit percentage of sublicensing revenue received with respect to countries in the exclusive territory, with the sublicensing revenue royalty in the exclusive territory and the sales royalties subject to certain reductions under certain circumstances. TSRI is eligible to receive milestone payments of up to $1.1 million with respect to regulatory approval in the exclusive territory and first commercial sale, in each of the exclusive territory and nonexclusive territory, of the first licensed product to achieve those milestones that is based upon each macrolide covered by the licensed patents. Each milestone is payable once per each macrolide. Each milestone payment made to TSRI with respect to a particular milestone will be creditable against any payment due to TSRI with respect to any sublicense revenues received in connection with the achievement of such milestone. Pursuant to the terms of the Optimer Agreement, any payments made to TSRI under this license for territories subject to the Optimer Agreement can be deducted from any sales-based royalty payments due under the Optimer Agreement up to a certain percentage reduction of the royalties due to Optimer.

Under the terms of the agreement, the Company is also required to pay additional fees on royalties, sublicensing and milestone payments if the Company, an affiliate with TSRI, or a sub licensee challenges the validity or enforceability of any of the patents licensed under the agreement. Such increased payments would be required until all patent claims subject to challenge are invalidated in the particular country where such challenge was mounted.��License and milestone payments received under the license agreement with Toyama (discussed below), have resulted in an accrual of $400,000 of fees to TSRI as of September 30, 2014.

Biomedical Advanced Research and Development Authority

In May�2013, the Company entered into an agreement with BARDA, for the evaluation and development of the Companys lead product candidate solithromycin for the treatment of bacterial infections in pediatric populations, segment III developmental toxicology, pediatric suspension and infections caused by bioterror threat pathogens.

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The agreement is a cost plus fixed fee development contract, with a base performance segment valued at approximately $17.7 million, and four option work segments that BARDA may request at its sole discretion pursuant to the agreement.��In August 2014, the contract was modified to increase the base performance segment $0.6 million. If all four option segments are requested, the cumulative value of the agreement would be approximately $58.6 million. Three of the options are cost plus fixed fee arrangements and one option is a cost sharing arrangement for which the Company would be responsible for a designated portion of the costs associated with that work segment. The estimated period of performance for the base performance segment is May�24, 2013 through May�23, 2015. If all option segments are requested, this estimated period of performance would be extended until approximately May�23, 2018.

Under the agreement, the Company is reimbursed and recognizes revenue as allowable costs are incurred plus a portion of the fixed-fee earned. The Company considers fixed-fees under cost reimbursable agreements to be earned in proportion to the allowable costs incurred in performance of the work as compared to total estimated agreement costs, with such costs incurred representing a reasonable measurement of the proportional performance of the work completed. For the three-month and nine-month periods ended September�30, 2014, the Company recognized $3.4 million and $8.3 million, respectively in revenue under this agreement.

The agreement provides the U.S. government the ability to terminate the agreement for convenience or to terminate for default if the Company fails to meet its obligations as set forth in the statement of work. The Company believes that if the government were to terminate the agreement for convenience, the costs incurred through the effective date of such termination and any settlement costs resulting from such termination would be allowable costs.

Toyama Chemical Co., Ltd.

In May 2013, Cempra Pharmaceuticals, Inc., the Companys wholly owned subsidiary, entered into a license agreement with Toyama Chemical Co., Ltd. (Toyama), whereby the Company licensed to Toyama the exclusive right, with the right to sublicense, to make, use and sell any product in Japan that incorporates solithromycin, the Companys lead compound, as its sole active pharmaceutical ingredient, or API, for human therapeutic uses, other than for ophthalmic indications or any condition, disease or affliction of the ophthalmic tissues. Toyama also has a nonexclusive license in Japan and certain other countries, with the right to sublicense, to manufacture or have manufactured API for solithromycin for use in manufacturing such products, subject to limitations and obligations of the concurrently executed supply agreement discussed below. Toyama granted the Company certain rights to intellectual property generated by Toyama under the license agreement with respect to solithromycin or licensed products for use with such products outside Japan or with other solithromycin-based products inside or outside Japan.

Following execution of the agreement, the Company received a $10.0 million upfront payment from Toyama. Toyama is also obligated to pay the Company up to an aggregate of $60.0 million in milestone payments, depending on the achievement of various regulatory, patent, development and commercial milestones. Under the terms of the license agreement, Toyama must also pay the Company a royalty equal to a low-to-high first double decimal digit percentage of net sales, subject to downward adjustment in certain circumstances. In August 2014, the Company received a $10.0 million milestone payment from Toyama, which was triggered by Toyamas progress of its solithromycin clinical development program in Japan. The payment was made following Toyamas receipt of regulatory clearance to begin a Phase 2 trial of solithromycin in Japan following successful completion of a Phase 1 study.

As part of the license agreement, Toyama and the Company also entered into a supply agreement, whereby the Company will be the exclusive supplier (with certain limitations) to Toyama and its sublicensees of API for solithromycin for use in licensed products in Japan, as well as the exclusive supplier to Toyama and its sublicensees of finished forms of solithromycin to be used in Phase 1 and Phase 2 clinical trials in Japan. Pursuant to the supply agreement, which is an exhibit to the license agreement, Toyama will pay the Company for such clinical supply of finished product and all supplies of API for solithromycin for any purpose, other than the manufacture of products for commercial sale in Japan, at prices equal to the Companys cost.�All API for solithromycin supplied by the Company to Toyama for use in the manufacture of finished product for commercial sale in Japan will be ordered from the Company at prices determined by the Companys manufacturing costs, and which may, depending on such costs, equal, exceed, or be less than such costs. Either party may terminate the supply agreement for uncured material breach or insolvency of the other party, with Toyamas right to terminate for the Companys breach subject to certain further conditions in the case of the Companys failure to supply API for solithromycin or clinical supply, but otherwise the supply agreement will continue until the expiration or termination of the license agreement.

The Company has determined that there are six deliverables under this agreement including (1)�the license to develop and commercialize solithromycin in Japan, (2)�the obligation of the Company to conduct Phase 3 studies and obtain regulatory approval in the United States and one other territory, (3)�participation in a Joint Development Committee, or JDC, (4)�participation in a Joint Commercialization Committee, or JCC, (5)�the right to use the Companys trademark, and (6)�a supply agreement. The amounts received under the license agreement have been allocated to the deliverables based on their relative fair values and will be recognized into income when the revenue recognition criteria have been achieved. ����������

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Milestone payments are recognized when earned, provided that (i)�the milestone event is substantive; (ii)�there is no ongoing performance obligation related to the achievement of the milestone earned; and (iii)�it would result in additional payments. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment is non-refundable; achievement of the milestone was not reasonably assured at the inception of the arrangement; substantive effort is involved to achieve the milestone; and the amount of the milestone appears reasonable in relation to the effort expended, the other milestones in the arrangement, and the related risk associated with the achievement of the milestone. Contingent-based payments the Company may receive under a license agreement will be recognized when received.

Royalties are recorded as earned in accordance with the contract terms when third party sales can be reliably measured and collectability is reasonably assured.

As of September 30, 2014, the license is the only unit of accounting that has been delivered.��The Company recognized $4.3 million in revenue associated with the delivery of the license in the nine months ended September 30, 2013.��Additionally because the milestone event triggering the August milestone payment was considered non-substantive for accounting purposes, this milestone payment will be recognized into revenue proportionately to the six deliverables in the agreement using the same allocation as the upfront payment.��Therefore, $4.3 million of the milestone payment was recognized into revenue in the three months ended September 30, 2014.��The��remainder of the upfront and milestone payments which aggregate to $11.4 million are recorded as deferred revenue at September 2014 and will be recognized as revenue when the revenue recognition criteria of each deliverable has been met.��

5. Prepaid Expenses

Prepaid expenses are comprised of the following as of:

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The $3.3 million prepaid development expenses consists of payments for active pharmaceutical ingredient (API) which will be used for the clinical development program of solithromycin in Japan.

6. Furniture, Fixtures and Equipment

Furniture, fixtures and equipment consist of the following as of:

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During the three-month periods ended September�30, 2013 and 2014, the Company recorded $7,641 and $15,163 in depreciation expense, respectively.��During the nine-month periods ended September 30, 2013 and 2014, the Company recorded $21,546 and $44,930 in depreciation expense, respectively.

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7. Accrued Expenses

Accrued expenses are comprised of the following as of:

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8. Long-term Debt�

In December 2011, the Company entered into a $20,000,000 loan and security agreement (the December 2011 Note) with Hercules Technology Growth Capital, Inc. (Hercules) and borrowed $10,000,000 upon closing. Borrowings under the December 2011 Note bear interest at the greater of (i)�9.55%, or (ii)�the sum of 9.55% plus the prime lending rate, as published by the Wall Street Journal, minus 3.25%�per annum. The terms of the December 2011 Note agreement provided that the Company could, at any time prior to October�1, 2012, request another borrowing in the aggregate amount of $10,000,000. The Company elected not to request the additional borrowing and let the option expire on September�30, 2012. In May 2013, the Company amended its December 2011 Note, increasing the initial loan amount to $15,000,000, and receiving an additional $5,238,327 upon closing. The Company also extended the date by which it could request the additional $10,000,000 to September�30, 2013. The Company elected not to request the additional borrowing and let the option expire on September�30, 2013.��In March 2014, the Company amended the December 2011 Note providing the Company the ability to request, at any time prior to December 26, 2014, another borrowing in the aggregate amount of $3,000,000.�� This amendment also provides for the Company to make interest only payments through May 31, 2015. In June 2014, the Company borrowed the additional $3,000,000 and amended the December 2011 Note to provide the Company the ability to request, at any time prior to June 30, 2015, additional borrowings of up to $10,000,000.��The additional borrowings will be made available to the Company as follows: $5,000,000 upon the receipt of a specified amount of milestone payments from Toyama and the remaining $5,000,000 upon the Companys receipt, by a specified date, of designated Phase 3 data for oral solithromycin. Principal and interest payments will start on June 1, 2015 over a 35-month amortization period.�� The principal balance outstanding on the loan agreement and all accrued but unpaid interest thereunder will be due and payable on April�1, 2018. In addition, the Company is to pay Hercules the following fees:

The Company granted Hercules a security interest in all of its assets, except intellectual property. The Companys obligations to Hercules include restrictions on borrowing, asset transfers, placing liens or security interests on the Companys assets including its intellectual property, mergers and acquisitions and distributions to stockholders.

In connection with the initial closing of the December 2011 Note, the Company entered into a warrant agreement with Hercules (the First Hercules Warrant), under which Hercules has the right to purchase 39,038 shares of the Companys common stock. The exercise price of the First Hercules Warrant was initially $10.25 per share, subject to adjustment in the event of a merger, reclassification, subdivision or combination of shares or stock dividend and subject also to antidilution protection. In connection with the May 2013 amendment to the loan agreement, the exercise price of the First Hercules Warrant was reduced to the lower of (a)�$6.11, and (b)�the effective price per share of the Companys common stock issued or issuable in any offering of the Companys equity or equity-linked securities prior to June�1, 2014, provided that such offering is effected principally for equity or debt-financing purposes. Since the May 2013 amendment to the warrant resulted in a variable exercise price, the fair value of the warrant as of the date of the amendment was reclassified from additional paid-in capital to a warrant liability. The Company did not offer any common stock between the amendment date and June 1, 2014 at a price below $6.11, therefore, the exercise price of the First Hercules Warrant became fixed at $6.11, which resulted in the warrant liability being reclassified to additional paid-in capital in the second quarter of 2014.

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Additionally, in connection with the May 2013 amendment of the December 2011 Note, the Company entered into a warrant agreement with Hercules (the Second Hercules Warrant), under which Hercules has the right to purchase an aggregate number of shares of the Companys common stock equal to the quotient derived by dividing $609,533 by the exercise price then in effect, which is defined as the lower of (a)�$6.11, and (b)�the effective price per share of the Companys common stock issued or issuable in any offering of the Companys equity or equity-linked securities prior to June�1, 2014, provided that such offering is effected principally for equity or debt-financing purposes. The Second Hercules Warrant expires on May�31, 2023. Proceeds equal to the fair value of the Second Hercules Warrant were recorded as a liability at the date of issuance and the borrowings under the December 2011 Note will be increased to equal the face amount of the borrowings through interest expense over the term of the loan using the effective interest method. The Company did not offer any common stock between the amendment date and June 1, 2014 at a price below $6.11, therefore, the exercise price of the Second Hercules Warrant became fixed at $6.11, which resulted in the warrant being fixed at 99,759 shares of common stock and the warrant liability being reclassified to additional paid-in capital in the second quarter of 2014.

9. Shareholders Equity

Common Stock

In March�2013, the Company entered into an at-the-market (ATM) sales agreement (the Sales Agreement) with Cowen and Company, LLC (Cowen) under which the Company may, at its discretion, from time to time sell shares of its common stock, with a sales value of up to $25.0 million. The Company has provided Cowen with customary indemnification rights, and Cowen is entitled to a commission at a fixed commission rate of 3.0% of the gross proceeds per share sold.� Sales of the shares under the Sales Agreement are to be made in transactions deemed to be at the market offerings as defined in Rule�415 under the Securities Act of 1933, as amended. In October 2014, the Company and Cowen amended the Sales Agreement (the Amended Agreement) to increase the aggregate gross sales proceeds that may be raised to $50 million.

The Company began the sale of ATM shares in July 2014. Through September�30, 2014, the Company sold 1,071,397 shares of common stock under the Sales Agreement resulting in net proceeds of $10.6 million after deducting commissions of $0.3 million.��In October 2014, the Company sold an additional 1,682,837 shares of common stock under the Amended Agreement resulting in net proceeds of $19.8 million after deducting commissions of $0.6 million.

During the first nine months of 2014, the Company issued 32,142 shares of common stock at a weighted average exercise price of $1.61 per share for the exercise of option grants and 12,644 shares of common stock at a weighted average exercise price of $6.00 per share for the exercise of warrants.

During 2013, the Company issued 13,685 shares of common stock at a weighted average exercise price of $0.60 per share for the exercise of option grants and 8,944 shares of common stock at a weighted average exercise price of $6.00 per share for the exercise of warrants.

During June 2013, the Company completed a public offering issuing 8,273,938 shares of common stock, at a price of $7.00 per share, resulting in net proceeds to the Company of approximately $54.2 million after deducting underwriting discounts of $3.5 million and offering costs of $0.2 million.

The following table presents common stock reserved for future issuance for the following equity instruments as of September�30, 2014 (Unaudited):

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10. Stock Option Plans

The Company adopted the 2006 Stock Plan in January�2006 (the 2006 Plan). The 2006 Plan provided for the granting of incentive share options, nonqualified share options and restricted shares to Company employees, representatives and consultants. As of September�30, 2014, there were options for an aggregate of 656,358 shares issued and outstanding under the 2006 Plan.

The Companys board of directors and stockholders adopted the 2011 Equity Incentive Plan in October 2011 (the 2011 Plan), which authorizes the issuance of up to 3,131,579 shares under the 2011 Plan. As of September�30, 2014, there were 1,790,601 options shares available under the 2011 Plan.

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Upon adoption of the 2011 Plan, the Company eliminated the authorization for any unissued shares previously reserved under the Companys 2006 Plan. The stock awards previously issued under the 2006 Plan remain in effect in accordance with the terms of the 2006 Plan.

The following table summarizes the Companys 2006 and 2011 Plan activity:

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The following table summarizes certain information about all options outstanding as of September�30, 2014:

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During the nine-month periods ended September�30, 2013 and 2014, the Company recorded $2,480,137 and $2,270,611 in share-based compensation expense, respectively. As of September�30, 2014, approximately $4,516,043 of total unrecognized compensation cost related to unvested share options is expected to be recognized over a weighted-average period of 2.99 years.

11. Income Taxes

The Company estimates an annual effective tax rate of 0% for the year ending December�31, 2014 as the Company incurred losses for the nine-month period ended September�30, 2014 and is forecasting additional losses through the fourth quarter, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December�31, 2014. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes have been accounted for using the liability method in accordance with FASB ASC 740.

Due to the Companys history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a valuation allowance, since it has been determined that it is more likely than not that all of the deferred tax assets will not be realized.

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12. Net Loss Per Share

Basic and diluted net loss per common share was determined by dividing net loss attributable to common shareholders by the weighted average common shares outstanding during the period. The Companys potentially dilutive shares, which include warrants and common share options, have not been included in the computation of diluted net loss per share for all periods as the result would be antidilutive.

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:

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Item�2. Managements Discussion and Analysis of Financial Condition and Results of Operation

The interim financial statements and this Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December�31, 2013, and the related Managements Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December�31, 2013.�In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section�27A of the Securities Act of 1933, as amended, and Section�21E of the Securities Exchange Act of 1934, as amended.�These forward-looking statements are subject to risks and uncertainties, including those set forth under Part I. Item�1. Business - Risk Factors in our Annual Report on Form 10-K for the year ended December�31, 2013, and elsewhere in this report, that could cause actual results to differ materially from historical results or anticipated results.

Overview

We are a clinical-stage pharmaceutical company focused on developing differentiated antibiotics for the acute care and community settings to meet critical medical needs in the treatment of bacterial infectious diseases, particularly respiratory tract infections and chronic staphylococcal infections. Our lead product, solithromycin (CEM-101), is in Phase 3 clinical trials. We are developing solithromycin in oral capsules, intravenous, or IV, and suspension formulations, initially for the treatment of community acquired bacterial pneumonia, or CABP, one of the most serious infections of the respiratory tract. We have also completed a Phase 2 study of solithromycin in uncomplicated bacterial urethritis (gonorrhea) and in August 2014 initiated a Phase 3 trial. Our second program is Taksta, which we are developing exclusively in the U.S. as a long term oral treatment for prosthetic joint infections, or PJI, caused by staphylococci, including Staphylococcus�aureus and methicillin-resistant S. aureus, or MRSA.��We have completed a Phase 2 trial for Taksta in patients with PJI and are in the process of determining the study design and dose of a planned Phase 3 trial.

We acquired worldwide rights (exclusive of Member Nations of the Association of Southeast Asian, or ASEAN, countries) to a library of over 500 macrolide compounds, including solithromycin, from Optimer Pharmaceuticals, Inc., or Optimer, in March 2006. Optimer was acquired by Cubist Pharmaceuticals Inc. in October 2013. We entered into a long-term supply arrangement with Ercros, S.A. in March 2011, pursuant to which we have the exclusive right to acquire fusidic acid for the production of Taksta. We believe Ercros is one of only two currently known manufacturers that can produce fusidic acid compliant with the purity required for human use. The United States Patent and Trademark Office, or USPTO, issued our patent, entitled Fusidic Acid Dosing Regimens for Treatment of Bacterial Infections, on May�28, 2013 with claims directed to our novel loading dose regimen for Taksta. This patent provides protection until 2029, excluding possible patent term extensions.��Additionally, in October 2013, fusidic acid was designated as an orphan drug for the treatment of PJI.

Financial Overview

Revenue

To date, we have not generated revenue from the sale of any products. All of our revenue to date has been derived from (1)�a government contract and (2)�the receipt of proceeds under our license agreement with Toyama Chemical Co., Ltd., or Toyama, a portion of which has been recognized in accordance with generally accepted accounting principles in the U.S., or U.S. GAAP.

In May�2013, we entered into an agreement with the Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services, or BARDA, for the evaluation and development of solithromycin for the treatment of bacterial infections in pediatric populations and infections caused by bioterror threat pathogens, specifically anthrax and tularemia.

The BARDA agreement is a cost plus fixed fee development contract, with a base performance segment valued at approximately $17.7 million, and four option work segments that BARDA may request in its sole discretion pursuant to the agreement.��In August 2014, the contract was modified to increase the base performance segment $0.6 million. If all four option segments are requested, the cumulative value of the agreement would be approximately $58.6 million. Three of the options are cost plus fixed fee arrangements and one option is a cost sharing arrangement for which we would be responsible for a designated portion of the costs associated with that work segment. The estimated period of performance for the base performance segment is May�24, 2013 through May�23, 2015. If all option segments are requested, this estimated period of performance would be extended until approximately May�23, 2018.

Under the contract, we are reimbursed and recognize revenue as allowable costs are incurred plus a portion of the fixed-fee earned. We consider fixed-fees under cost reimbursable contracts to be earned in proportion to the allowable costs incurred in performance of the work as compared to total estimated contract costs, with such costs incurred representing a reasonable measurement of the proportional performance of the work completed. Through September 30, 2014, we recognized $8.3 million in revenue under this agreement.

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In May 2013, Cempra Pharmaceuticals, Inc., our wholly owned subsidiary, entered into a license agreement with Toyama, whereby we licensed to Toyama the exclusive right, with the right to sublicense, to make, use and sell any product in Japan that incorporates solithromycin as its sole active pharmaceutical ingredient, or API, for human therapeutic uses, other than for ophthalmic indications or any condition, disease or affliction of the ophthalmic tissues. Toyama also has a nonexclusive license in Japan and certain other countries, with the right to sublicense, to manufacture or have manufactured API for solithromycin for use in manufacturing such products, subject to limitations and obligations of the concurrently executed supply agreement discussed below. Toyama has granted us certain rights to intellectual property generated by Toyama under the license agreement with respect to solithromycin or licensed products for use with such products outside Japan or with other solithromycin-based products inside or outside Japan.

Following execution of the agreement, we received a $10.0 million upfront payment from Toyama. Toyama is also obligated to pay us up to an aggregate of $60.0 million in milestone payments, depending on the achievement of various regulatory, patent, development and commercial milestones. Under the terms of the license agreement, Toyama must also pay us a royalty equal to a low-to-high first double decimal digit percentage of net sales, subject to downward adjustment in certain circumstances. In August 2014, we received a $10.0 million milestone payment from Toyama which was triggered by Toyamas progress of its solithromycin clinical development program in Japan, the worlds second largest antibiotic market. Cumulatively since inception of the arrangement and through September 30, 2014, we recognized $8.7 million in revenue under this agreement and the remainder, which is deferred, will be recognized when earned.

As part of the license agreement, we also entered into a supply agreement with Toyama, whereby we will be the exclusive supplier (with certain limitations) to Toyama and its sublicensees of API for solithromycin for use in licensed products in Japan, as well as the exclusive supplier to Toyama and its sublicensees of finished forms of solithromycin to be used in its clinical trials in Japan. Pursuant to the supply agreement, Toyama will pay us for such clinical supply of finished product and all supplies of API for solithromycin for any purpose, other than the manufacture of products for commercial sale in Japan, at prices equal to our costs.�All API for solithromycin supplied by us to Toyama for use in the manufacture of finished product for commercial sale in Japan will be ordered from us at prices determined by our manufacturing costs, and which may, depending on such costs, equal, exceed, or be less than such costs. Either party may terminate the supply agreement for uncured material breach or insolvency of the other party, with Toyamas right to terminate for our breach subject to certain further conditions in the case of our failure to supply API for solithromycin or clinical supply, but otherwise the supply agreement will continue until the expiration or termination of the license agreement.

In the future, we anticipate generating revenue from a combination of sales of our products, if approved, whether through our own or a third-party sales force, and license fees, milestone payments and royalties in connection with strategic collaborations regarding any of our product candidates. We expect that any revenue we generate will fluctuate from quarter to quarter. If we or our strategic partners fail to complete the development of solithromycin or Taksta in a timely manner or obtain regulatory approval for them, or if we fail to develop our own sales force or find one or more strategic partners for the commercialization of approved products, our ability to generate future revenue, and our financial condition and results of operations would be materially adversely affected.

Research and Development Expenses

Since our inception, we have focused our resources on our research and development activities, including conducting pre-clinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates. We recognize our research and development expenses as they are incurred. Our research and development expenses consist primarily of:

Our direct research and development expenses consist principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials, and related clinical trial fees. Our internal resources,

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employees and infrastructure are not directly tied to any individual research project and are typically deployed across multiple projects. Through our clinical development programs, we are advancing solithromycin and Taksta in parallel primarily for the treatment of CABP and prosthetic joint infections, respectively, as well as for other indications. Through our pre-clinical development programs, we are seeking to develop macrolide product candidates for non-antibacterial indications.

The following table sets forth costs incurred on a program-specific basis for solithromycin and Taksta, excluding personnel-related costs. Macrolide research includes costs for discovery programs. All employee-related expenses for those employees working in research and development functions are included in Research and development personnel cost in the table, including salary, bonus, employee benefits and share-based compensation. We do not allocate insurance or other indirect costs related to our research and development function to specific product candidates. Those expenses are included in Indirect research and development expense in the table.

The successful development of our clinical and pre-clinical product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or pre-clinical product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the Food and Drug Administration, or FDA, or another regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs, including share-based compensation, for employees in executive, operational, finance and human resources functions. Other significant general and administrative expenses include professional fees for accounting, legal, and information technology services, facilities costs, and expenses associated with obtaining and maintaining patents.

We expect that our general and administrative expenses will increase with the continued development and potential commercialization of our product candidates. We believe that these increases will likely include increased costs related to the hiring of additional personnel and increased fees for outside consultants, lawyers and accountants. We also expect to incur significant costs to comply with corporate governance, internal controls and similar requirements applicable to public companies.

Other Income (Expense), Net

Interest income consists of interest earned on our cash and equivalents as well as decreases in fair value of warrants issued in connection with the note issued to Hercules Technology Growth Capital, Inc., or Hercules, in December 2011, referred to as the December 2011 Note.

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Interest expense consists of interest incurred on the December 2011 Note as well as increases in fair value of warrants issued in connection with the May 31, 2013 amendment to the December 2011 Note.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in our financial statements. We evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation, on an ongoing basis. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

For a description of our critical accounting policies and estimates, please refer to the Critical Accounting Policies and Estimates section of the Managements Discussion and Analysis of Financial Condition and Results of Operations section in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission, or SEC, on February 28, 2014. We believe the following accounting policies to be most critical to the judgments and estimates used in preparation of our financial statements and such policies have been reviewed and discussed with our audit committee.

Accrued Expenses

As part of the process of preparing our financial statements, we are required to estimate accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with applicable vendor personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued expenses include:

We accrue our expenses related to clinical trials based on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we will adjust the accrual accordingly. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. We do not currently anticipate the future settlement of existing accruals to differ materially from our estimates.

Revenue Recognition

Our revenue generally consists of research related revenue under federal contracts and licensing revenue related to non-refundable upfront fees, milestone payments and royalties earned under license agreements. Revenue is recognized when the following criteria are met: (1)�persuasive evidence that an arrangement exists; (2)�delivery of the products and/or services has occurred; (3)�the selling price is fixed or determinable; and (4)�collectability is reasonably assured.

For arrangements that involve the delivery of more than one element, each product, service and/or right to use assets is evaluated to determine whether it qualifies as a separate unit of accounting. This determination is based on whether the deliverable has stand-alone value to the customer. The consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling prices of each deliverable. The consideration allocated to each unit of accounting is recognized as the related goods and services are delivered, limited to the consideration that is not contingent upon future deliverables. When an arrangement is accounted for as a single unit of accounting, we determine the period over which the performance obligations will be performed and revenue recognized. Management exercises significant judgment in the determination of whether a deliverable has stand-alone value, is considered to be a separate unit of accounting, and in estimating the relative fair value of each deliverable in the arrangement.

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Results of Operations

The following table summarizes the results of our operations for each of three-month and nine-month periods ended September�30, 2013 and 2014, together with the changes in those items in dollars:

Comparison of the Three Months Ended September 30, 2013 and September 30, 2014

Contract revenue

For the three months ended September�30, 2014, contract research revenue increased $2.3 million compared to the three months ended September 30, 2013 as we initiated our BARDA contract in May 2013. We expect contract research revenue to increase as the base performance segment of the contract progresses.

License revenue

For the three months ended September�30, 2014, license revenue increased $4.3 million compared to the three months ended September 30, 2013 due to revenue recognized upon receipt of the $10.0 million milestone payment from the Toyama license agreement; the remainder, which is deferred, will be recognized when earned.

Research and Development Expense

For the three months ended September�30, 2014, our research and development expense increased $3.7 million compared to the three months ended September�30, 2013.�The increase is primarily related to the following:

General and Administrative Expense

General and administrative expense increased by $0.7�million for the three months ended September�30, 2014 compared to the three months ended September�30, 2013 as a result of salary increases and increased headcount of $0.3 million, professional service expense of $0.3�million and an increase in franchise tax of $0.1 million.

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Other Income (Expense), Net

Other income (expense) decreased by $0.1�million for the three months ended September�30, 2014 compared to the three months ended September�30, 2013�due to higher interest expense on higher outstanding debt balances.

Comparison of the Nine Months Ended September 30, 2013 and September 30, 2014

Contract revenue

For the nine months ended September�30, 2014, contract research revenue increased $6.9 million compared to the nine months ended September 30, 2013 as we initiated our BARDA contract in May 2013. We expect contract research revenue to increase as the base performance segment of the contract progresses.

License revenue

For the nine months ended September�30, 2014, license revenue remained consistent compared to the nine months ended September 30, 2013 due to $4.3 million of revenue recognized upon receipt of the $10.0 million upfront payment from the execution of the Toyama license agreement in May 2013 and $4.3 million of revenue recognized upon receipt of the $10.0 million milestone payment from the Toyama license agreement in August 2014.

Research and Development Expense

For the nine months ended September�30, 2014, our research and development expense increased $21.6 million compared to the nine months ended September�30, 2013.�This increase is primarily related to the following:

General and Administrative Expense

General and administrative expense increased by $1.7�million for the nine months ended September�30, 2014 compared to the nine months ended September�30, 2013 as a result of salary increases and increased headcount of $0.8 million and professional service expense of $0.9�million.

Other Income (Expense), Net

Other income (expense) decreased by $0.1�million for the nine months ended September�30, 2014 compared to the nine months ended September�30, 2013�as a result of $0.1 million in interest expense related to the December 2011 Note.

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Liquidity and Capital Resources

Sources of Liquidity

In March�2013, we entered into an at-the-market (ATM) Sales Agreement with Cowen and Company, LLC, or Cowen, under which we may, at our discretion, from time to time sell shares of our common stock, with a sales value of up to $25.0 million. We have provided Cowen with customary indemnification rights, and Cowen is entitled to a commission at a fixed commission rate of 3.0% of the gross proceeds per share sold. Sales of the shares under the Agreement will be made in transactions deemed to be at the market offerings as defined in Rule�415 under the Securities Act of 1933, as amended. In October 2014, Cowen and we amended the Sales Agreement (the Amended Agreement) to increase the aggregate gross sales proceeds that may be raised to $50 million. We began the sales of ATM Shares in July�2014 and through September�2014, we sold 1,071,397 shares of common stock resulting in net proceeds of $10.6 million, which included Cowens commission of $0.3 million.��In October 2014, we sold an additional 1,682,837 shares of common stock under the Amended Agreement resulting in net proceeds of $19.8 million, which included Cowens commission of $0.6 million.

Since our inception in November 2005 through September�30, 2014, we have funded our operations primarily with $272.2 million from debt, and the sale of convertible notes, convertible preferred shares, common shares, common stock and from non-

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refundable upfront fees and milestone payments from a license agreement. As of September�30, 2014, we had cash and equivalents of approximately $74.2 million.

Cash Flows

The following table sets forth the major sources and uses of cash for the periods set forth below:

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Operating Activities. Cash used in operating activities of $18.6�million for the nine months ended September 30, 2013 was primarily a result of our $28.2�million net loss offset by changes in operating assets and liabilities of $6.5�million and non-cash items of $3.1�million. Cash used in operating activities of $35.9�million for the nine months ended September�30, 2014 was primarily a result of our $44.8�million net loss offset by changes in operating assets and liabilities of $6.1 million and non-cash items of $2.8�million.

Investing Activities. Net cash used in investing activities was $51,000 for the nine months ended September�30, 2013 and $37,000 for the nine months ended September�30, 2014. Cash used in investing activities during each of these periods reflected our purchases of equipment.

Financing Activities. Net cash provided by financing activities of $59.0�million for the nine months ended September�30, 2013 consisted of gross proceeds of $57.9�million from the June 2013 public offering offset by $3.5�million of underwriting discounts and $0.2�million of offering costs and $5.2 million from proceeds from the amendment of the 2011 December Note offset by $0.3 million of issuance costs less principal payments of $0.2 million to the 2011 December Note. Net cash provided by financing activities of $13.6�million for the nine months ended September�30, 2014 consisted of net proceeds of $10.6 million from proceeds from the ATM program plus $3.0 million from proceeds from the amendment of the 2011 December Note.

Funding Requirements

To date, we have not generated any product revenue from our clinical stage product candidates or from any other source. We do not know when, or if, we will generate any product revenue. We do not expect to generate product revenue unless and until we obtain marketing approval of, and commercialize solithromycin and/or Taksta or any of our other product candidates. At the same time, we expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, solithromycin and Taksta and our other product candidates. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We will need substantial additional funding in connection with our continuing operations.

We expect that our existing cash and equivalents, including interest thereon, and timely receipts under the BARDA contract and expected milestone payments from Toyama, will enable us to fund our operating expenses and capital expenditure requirements into 2016, which includes the completion of enrollment in our two Phase 3 clinical trials and the completion of the two auxiliary clinical studies currently expected to be necessary to support the planned NDA for solithromycin for the treatment of CABP, based on current assumptions. We will need to obtain additional financing for the continued development of solithromycin for indications other than CABP and gonorrhea, the continued development of Taksta and our other product candidates and prior to the commercialization of any of our product candidates. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect due to development times and/or expenses being greater than expected, or the initiation of studies and clinical trials earlier or later than anticipated. Due to the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of our product candidates and to launch these products.

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Our future capital requirements will depend on many factors, including:

Until we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds except for the $10.0 million available under the Hercules loan. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders ownership interests will be diluted, and the terms of any securities may include liquidation or other preferences that adversely affect our stockholders rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, such as currently imposed under the loan from Hercules. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.

We plan to seek partners or other sources of third-party funding, including government grants, for the continued development of solithromycin and Taksta and our other product candidates. If we are unable to raise additional funds when needed, whether on favorable terms or not, we may be required to delay, limit, reduce or terminate our development of our product candidates, or our commercialization efforts, or to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

We enter into contracts in the normal course of business with clinical research organizations for clinical trials and clinical supply manufacturing and with vendors for pre-clinical research studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice and therefore we believe that our non-cancelable obligations under these agreements are not material.

During the nine months ended September�30, 2014, there have been no material changes to our contractual obligations and commitments outside the ordinary course of business from those specified in our 2013 Annual Report on Form 10-K, except for:

December 2011 Note

In March 2014, we amended the December 2011 Note. The terms of the March 2014 amendment provided that we could, at any time prior to December 26, 2014, request another borrowing in the aggregate amount of $3,000,000.��In June 2014, we borrowed the additional $3,000,000 and amended the December 2011 Note to provide us the ability to request, at any time prior to June 30, 2015, additional borrowings of up to $10,000,000.��The additional borrowings will be made available to us as follows: $5,000,000 upon the receipt of a specified amount of milestone payments from Toyama and the remaining $5,000,000 upon our receipt, by a specified date, of designated Phase 3 data for oral solithromycin. Principal and interest payments will start on June 1, 2015 over a 35-month amortization period.�� The principal balance outstanding on the loan agreement and all accrued but unpaid interest thereunder will be due and payable on April�1, 2018.

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers, or ASU 2014-09. The FASB issued ASU 2014-09 to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016, which is effective for the year ending December 31, 2017. We are currently evaluating the impact that the implementation of this standard will have on our consolidated financial statements.

Item�3. Quantitative and Qualitative Disclosures about Market Risk

There have not been any material changes to our exposure to market risk during the quarter ended September�30, 2014. For additional information regarding market risk, refer to Item 7A. Quantitative and Qualitative Disclosure About Market Risk of our 2013 Annual Report on Form 10-K.

Item�4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act), are designed only to provide reasonable assurance that information to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide the reasonable assurance discussed above.

Changes in Internal Control over Financial Reporting

No change to our internal control over financial reporting occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART IIOTHER INFORMATION

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Item�6. Exhibits

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SIGNATURES

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

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Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Prabhavathi Fernandes, Ph.D., certify that:

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Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark W. Hahn, certify that:

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Exhibit 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S. C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Cempra, Inc. (the Company) for the period ended September�30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Prabhavathi Fernandes, Ph.D., Chief Executive Officer (Principal Executive Officer) of the Company, certify, pursuant to 18 U.S.C. Section�1350, as adopted pursuant to Section�906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

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Exhibit 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S. C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Cempra, Inc. (the Company) for the period ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Mark W. Hahn, Chief Financial Officer (Principal Financial Officer) of the Company, certify, pursuant to 18 U.S.C. Section�1350, as adopted pursuant to Section�906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

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