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SEC Filings

VITAE PHARMACEUTICALS, INC filed this Form S-1 on 08/12/2014
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development efforts, our stage of development and business strategy and the likelihood of achieving a liquidity event such as an initial public offering or sale of our company.

        For each of the above valuations, we used the Hybrid approach, which combines the concepts of the option pricing method, or OM, and the Probability Weighted Expected Return Method, or PWERM, in a single framework.

        The OM treats common stock as call options on the enterprise's value, to be distributed among the common and convertible preferred security classes, with exercise prices based on the liquidation preference of the convertible preferred stock. Therefore, by extension, the common stock has value only if the funds available for distribution to the stockholders exceed the value of the liquidation preference at the time of a liquidity event such as a merger, sale or initial public offering, assuming the enterprise has funds available to make a liquidation preference meaningful and collectible by the stockholders. The common stock is modeled to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the convertible preferred stock is liquidated. The OM uses the Black-Scholes option pricing model to price the call option. The OM is appropriate to use when the range of possible future outcomes is so difficult to predict that forecasting discrete exit events would be highly speculative.

        The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the rights of each share class. PWERM estimates the common stock value to our stockholders under possible future scenarios. The value per share under each scenario is then probability weighted and the resulting weighted values per share are summed to determine the fair value per share of our common stock. In the IPO scenarios, it is assumed that all outstanding shares of our preferred stock will convert into common stock. Over time, as we achieve certain company-related milestones, the probability of each scenario is evaluated and adjusted accordingly.

        The Hybrid Method employs the concepts of the PWERM for a range of exit scenarios and OM for scenarios where the company remains private.

        In determining the estimated fair value of our common stock, our board of directors also considered the fact that our common stock is not freely tradable in the public market. The estimated fair value of our common stock at each grant date reflects a non-marketability discount partially based on the anticipated likelihood and timing of a future liquidity event.

Results of Operations

Comparison of Six Months Ended June 30, 2014 and 2013

  Six Months
Ended June 30,
  2014   2013  
  (in thousands)

Collaborative revenues

  $ 2,329   $ 1,962   $ 367  

Operating expenses:


Research and development

    9,425     7,584     1,841  

General and administrative

    2,629     2,680     (51 )

Total operating expenses

    12,054     10,264     1,790  

Operating income

    (9,725 )   (8,302 )   (1,423 )

Other income

    218     304     (86 )

Interest income

    29     43     (14 )

Interest expense

    (541 )   (768 )   227  

Net income

  $ (10,019 ) $ (8,723 ) $ (1,296 )