ARYx secures bridge financing, reports decrease in net loss to $3.6M for second-quarter 2010

ARYx Therapeutics, Inc. (NASDAQ:ARYX) today announced that it has secured bridge financing to allow ARYx time and resources to potentially complete a transaction that could create significant value for stockholders. ARYx also released its financial results for the second quarter of 2010.

“We also believe that the additional participation by Lighthouse further strengthens our ability to complete the on-going strategic process”

The bridge financing comes from two related loan transactions. The first is a bridge loan financing of up to $4 million from two existing investors, including entities affiliated with MPM Capital (the "Bridge Loan"). The closing of the initial tranche of $2.0 million of the Bridge Loan closed on August 13, 2010. Concurrent with the initial tranche closing of the Bridge Loan, ARYx also amended its existing loan agreement with Lighthouse Capital Partners V, L.P. ("Lighthouse"). The amendment of the Lighthouse loan allows approximately $2.3 million of required payments to Lighthouse to be deferred and extended as a new loan commitment to ARYx. Based on previously disclosed projections and supported by the financial results released today, ARYx believes the proceeds and anticipated proceeds from these financings, totaling up to $6.3 million, should allow ARYx to operate through the end of 2010.

"The securing of this bridge financing is significant to ARYx since it now gives us the time to complete a strategic transaction that, if finalized, could realize real value from our product portfolio. The participation of our existing investors in the bridge loan financing follows their conducting significant due diligence on the company and our progress to date towards a potential transaction. Therefore, we believe this financing is a vote of confidence by important current investors," said Dr. Paul Goddard, ARYx chairman and chief executive officer. "We also believe that the additional participation by Lighthouse further strengthens our ability to complete the on-going strategic process," concluded Dr. Goddard.

Loan Detail Description

Under the terms of the Bridge Loan, ARYx will borrow from two current ARYx investors, including entities affiliated with MPM Capital, an aggregate principal amount of up to $4.0 million, and issue warrants to purchase up to 2,000,000 shares of ARYx's common stock by these Bridge Loan participants, subject to certain terms and conditions. Interest to be paid on the Bridge Loan will be 12% per annum with principal and interest payments to be made over 24 months beginning January 1, 2011. Interest only payments are required to be paid by ARYx through December 31, 2010. Repayment may be required earlier should ARYx enter into certain strategic transactions.

On August 13, 2010, ARYx closed on the initial tranche of $2.0 million of the Bridge Loan and, as a result, issued warrants to the investors to purchase 1,000,000 shares of common stock. The second tranche of $2.0 million may occur at ARYx's option on September 30, 2010, subject to the satisfaction of certain conditions.

The warrants have a purchase price of $0.0125 per underlying share of common stock and will be exercisable for a term of five years from the date of issuance at an exercise price of $0.50 per share. ARYx is required to file, within 60 days after August 13, 2010 (or, in the event ARYx is required to file the registration statement on a Form S-1, within 90 days after August 13, 2010), a registration statement registering for resale the shares of common stock issuable upon exercise of the warrants.

Concurrently with the Bridge Loan, the terms of ARYx's existing loan arrangement with Lighthouse were amended to provide for the conversion of approximately $2.3 million of the loan payments scheduled to be paid by ARYx in the third quarter of 2010 into a new loan by Lighthouse to ARYx. This new Lighthouse loan is due and payable on December 31, 2010 in one lump sum payment equal to the aggregate principal amount plus accrued interest at a rate of 13.0% per annum. However, if the second tranche of the Bridge Loan does not occur, ARYx must repay the new Lighthouse loan by September 30, 2010. In addition, in the event ARYx enters into certain strategic transactions before the applicable loan due date, the new Lighthouse loan will be amortized and payable in equal monthly installments of principal and interest over the 18 months following the closing of such a strategic transaction. Upon the occurrence of an event of default or liquidation event, all outstanding amounts under the new Lighthouse loan shall be immediately due and payable.

The foregoing description of the terms of the Bridge Loan and new Lighthouse loan is not complete and qualified by reference to the definitive agreements pertaining to such transactions that are included as exhibits to the Form 8-K Current Report ARYx is filing with the Securities and Exchange Commission today.

Second Quarter Results of Operations

For the second quarter of 2010, ARYx reported a net loss of $3.6 million or $0.11 per share, compared to a net loss of $9.4 million or $0.34 per share in the same quarter in 2009. As of June 30, 2010, ARYx had cash, cash equivalents and marketable securities totaling approximately $1.4 million.

Research and development expense for the second quarter of 2010 was $1.0 million, compared to $6.3 million during the same quarter in 2009. The significant decrease in expense in 2010 is primarily due to substantial completion of the Phase 2/3 clinical study of tecarfarin in the second quarter of 2009 and a reduction in personnel and administrative costs following the company's restructuring of operations in October 2009 and February 2010.

ARYx's general and administrative expense during the second quarter of 2010 was $2.2 million compared with $2.6 million for the same quarter in 2009. The decrease in expense for 2010 was primarily due to savings realized from the company's restructuring of operations in October 2009 and February 2010, which were partially offset by one-time expenses related to severance costs incurred following the departure of an officer, Peter G. Milner, M.D., in June 2010 and expenses related to establishing the company's at market issuance financing arrangement with McNicoll, Lewis & Vlak LLC and Wm Smith & Co. in May 2010. ARYx has not utilized this financing arrangement to date.