10-K 1 d444328d10k.htm FORM 10-K Form 10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-K

 

 

 

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

For the fiscal year ended December 31, 2012

or

 

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

For the transition period from                      to                     

Commission file number: 033-17264-NY

 

 

IMMUNOCELLULAR THERAPEUTICS, LTD.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   93-1301885

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

21900 Burbank Boulevard, 3rd Floor

Woodland Hills, California

  91367
(Address of principal executive offices)   (Zip code)

Registrant’s telephone number, including area code: (818) 992-2907

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $0.0001 par value   NYSE MKT

Securities registered pursuant to Section 12(g) of the Exchange Act: None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes    x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.    ¨  Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.    x  Yes    ¨  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).    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

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

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2012 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $151,544,220.

There were 51,536,201 shares of the registrant’s common stock outstanding on March 1, 2013.

Documents incorporated by reference: None

 

 

 


Table of Contents

Table of Contents

Form 10-K

 

         Page  

PART I

       2   

Item 1.

  Business      2   

Item 1A.

  Risk Factors      13   

Item 1B.

  Unresolved Staff Comments      28   

Item 2.

  Properties      28   

Item 3.

  Legal Proceedings      28   

Item 4.

  Mine Safety Disclosures      28   
PART II        28   

Item 5.

  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      28   

Item 6.

  Selected Financial Data      30   

Item 7.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      30   

Item 7A.

  Quantitative and Qualitative Disclosures About Market Risk      36   

Item 8.

  Financial Statements and Supplementary Data      36   

Item 9.

  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      36   

Item 9A.

  Controls and Procedures      36   

Item 9B.

  Other Information      37   
PART III        38   

Item 10.

  Directors, Executive Officers and Corporate Governance      38   

Item 11.

  Executive Compensation      44   

Item 12.

  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      57   

Item 13.

  Certain Relationships and Related Transactions, and Director Independence      59   

Item 14.

  Principal Accounting Fees and Services      59   

PART IV

       60   

Item 15.

  Exhibits and Financial Statement Schedules      60   

 

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“SAFE HARBOR” STATEMENT

From time to time, we make oral and written statements that may constitute “forward-looking statements” (rather than historical facts) as defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission (the “SEC”) in its rules, regulations and releases, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We desire to take advantage of the “safe harbor” provisions in the Private Securities Litigation Reform Act of 1995 for forward-looking statements made from time to time, including the forward-looking statements made in this Annual Report, as well as those made in our other filings with the SEC.

All statements in this Annual Report, including under the captions “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” other than statements of historical fact are forward-looking statements for purposes of these provisions, including statements of our current views with respect to our business strategy, business plan and research and development activities, our future financial results, and other future events. These statements include forward-looking statements both with respect to us, specifically, and the biotechnology industry, in general. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential” or “could” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements.

All forward-looking statements involve inherent risks and uncertainties, and there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, those factors set forth in this Annual Report under the captions “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” all of which you should review carefully. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we anticipate. Please consider our forward-looking statements in light of those risks as you read this Annual Report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

 

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PART I.

Throughout this Annual Report, the terms “we,” “us,” “our,” “our company,” “Company” and “the Registrant” refer to ImmunoCellular Therapeutics, Ltd., a Delaware corporation, formerly known as Optical Molecular Imaging, Inc.

 

Item 1. Business.

ImmunoCellular Therapeutics, Ltd. is a clinical-stage biotechnology company that is developing immune-based therapies for the treatment of cancers, such as brain, ovarian and other solid tumors. Immunotherapy is an emerging approach to treating cancer in which a patient’s own immune system is stimulated to target tumor antigens, which are molecular signals that the immune system uses to identify foreign bodies. Unlike many other cancer immunotherapies, which only target a single cancer antigen, our technology can elicit an immune response against several antigens. Our cancer immunotherapies are also distinguished by the fact that they target cancer stem cells (CSCs), which are the primary drivers of tumor growth and disease recurrence. Our most advanced product candidate is in Phase II development, and we have a portfolio of potential therapeutic immunotherapies using our proprietary approach to treating cancer.

ICT-107, the lead pipeline product, is a Phase II therapeutic dendritic cell (DC) vaccine for the treatment of glioblastoma multiforme (GBM), the most common and lethal type of brain cancer. ICT-107 is designed to activate a patient’s immune system to target six different tumor-associated antigens. The company is currently conducting a Phase IIb, double-blind, placebo-controlled, 2:1 randomized, multicenter clinical trial to evaluate the safety and efficacy of ICT-107 in patients with newly diagnosed GBM. From January 2011 until September 2012, the clinical study enrolled 278 patients at 25 centers throughout the U.S. and 124 patients have been randomized. We anticipate interim results for safety and futility in the second quarter of 2013 and final results near the end of 2013.

Results from a single-center, uncontrolled Phase I trial with ICT-107 in 16 newly diagnosed GBM patients were very encouraging: median progression free survival (PFS) was 16.9 months, and median overall survival (OS) was 38.4 months. In comparison, the historic median PFS and OS for the current standard of care in newly diagnosed GBM patients (radiation and chemotherapy) are only 6.9 months and 14.6 months, respectively. Of the 16 patients, five continue to survive free of cancer—all five of these patients for more than four years and three of these five patients for more than five years. Less than 10% of newly diagnosed GBM patients treated with only radiation and chemotherapy typically survive more than five years. The initial Phase I ICT-107 results appear encouraging, but larger, well-controlled clinical trials will be required to obtain regulatory approval, in particular compared against approved competitive products and other products further along in development that may be approved prior to the time that the company initiates trials sufficient to support regulatory approval.

In addition to ICT-107, the company is also developing other therapeutic DC vaccines: ICT-140 for ovarian cancer and ICT-121 for recurrent GBM. ICT-140 targets seven tumor-associated antigens expressed on ovarian cancer cells. Some of the antigens utilized in ICT-140 were also used in ICT-107. We filed an investigational new drug (IND) application for ICT-140 at the end of 2012 and the IND was allowed by the FDA in January 2013. We expect to begin screening patients for this Phase 2a trial during the second half of 2013. ICT-121 specifically targets CD133, a CSC marker that is overexpressed in a wide variety of solid tumors, including ovarian, pancreatic, and breast cancers. We plan to initiate a Phase I trial for recurrent GBM patients in the second quarter of 2013 and possibly for other solid tumors in the future.

Compared to other cell-based immunotherapies, such as sipuleucel-T (Provenge) from Dendreon, our DC vaccines can be manufactured at a much lower expense. The cost of goods is expected to be in the range of complex biologics like antibodies. Moreover, our current estimates of competitive advantage in cost of goods against other immunotherapies may change by the time ICT-107 obtains regulatory approval, which could negatively impact our current, favorable cost of goods estimates. Also, our DCs can be stored in liquid nitrogen and administered via intradermal injection, which is much more convenient for both physician and patient than intravenous infusion of sipuleucel-T.

 

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While the company has a promising technology portfolio as well as potential clinical candidates, we do not currently anticipate that the company will derive any revenues from either product sales or licensing in the foreseeable future. The company has financed the majority of its prior operations through the sales of securities, including an underwritten public offering completed in January 2012 that generated $9.3 million of net proceeds and an underwritten public offering completed in October 2012 that generated $19.3 million of net proceeds. During 2012, the Company received approximately $3.2 million from the exercise of warrants.

The estimated cost of completing the development of any of the current or potential immunotherapy candidates will require the company to raise additional capital or enter into collaboration agreements with third parties. There are no assurances that the company will be able to obtain any additional funding, or if such funding is available, that the terms will be favorable. In addition, collaborations with third parties may not be available to us and may require us to surrender rights to many of our products, which may reduce the potential share of returns in any licensed products. If we are unable to raise sufficient capital, we will not be able to further develop our products and product candidates.

Company Information

We filed our original Certificate of Incorporation with the Secretary of State of Delaware on March 20, 1987 under the name Redwing Capital Corp. On June 16, 1989, we changed our name to Patco Industries, Ltd. and conducted an unrelated business under that name until 1994. On January 30, 2006, we amended our Certificate of Incorporation to change our name to Optical Molecular Imaging, Inc. in connection with our merger on January 31, 2006 with Spectral Molecular Imaging, Inc. On November 2, 2006, we amended our Certificate of Incorporation to change our name to ImmunoCellular Therapeutics, Ltd. to reflect the disposition of our Spectral Molecular Imaging subsidiary and the acquisition of our cellular-based technology from Cedars-Sinai.

Our principal executive offices are located at 21900 Burbank Boulevard, 3rd Floor, Woodland Hills, California 91367, and our telephone number at that address is (818) 992-2907.

Technology and Potential Products

The table below summarizes the status of our ICT-107, ICT-121, and ICT-140 product candidates and other technologies:

 

PRODUCT CANDIDATE    TARGET INDICATION    STATUS

Active Immunotherapies

     

ICT-107

(DC-based vaccine targeting

CSCs and cancer antigens)

   Newly diagnosed GBM    Phase IIb ongoing

ICT-121

(DC-based vaccine targeting

CD133+ CSCs)

  

Recurrent GBM and other solid tumor

cancers

   Phase I pending

ICT-140

(DC-based vaccine targeting

CSCs and cancer antigens)

   Recurrent ovarian cancer    Phase IIa pending

Cancer is caused by abnormal cells that grow in an uncontrolled manner. These cells proliferate and metastasize throughout the body causing tumors that can result in organ failure and death. Unfortunately, conventional cancer treatments, such as surgery, radiation, and chemotherapy, have limited therapeutic benefit and significant undesirable side effects. Our approach is to develop cancer therapies that activate the body’s

 

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immune system response to fight cancer. The U.S. Food and Drug Administration (FDA)-approved cancer

immunotherapies, such as sipuleucel-T and ipilimumab, have been shown to improve patient survival where conventional therapies failed.

We believe our approach of targeting multiple tumor-associated antigens, as well as CSCs, is critical for developing clinically effective drugs. Cancer is a complex disease often characterized by several cellular abnormalities. Targeting multiple cancer antigens not only increases the likelihood of an effective treatment, but can also prevent tumor escape mechanisms that are sometimes observed with single-targeted therapies.

Solid tumors commonly consist of different types of cancer cells. CSCs are a subset of cancerous cells, typically representing less than 5% of all cells in a tumor. They are believed to be responsible for growth and recurrence of primary and metastatic tumors. Like normal stem cells, CSCs have the ability to self-renew and make differentiated daughter cells. But, unlike normal stem cells, CSCs no longer have the ability to regulate their own growth. Scientists have shown that CSCs are resistant to radiation and chemotherapy. Thus, conventional therapies can eliminate most of the bulk tumor, but since the CSCs are not destroyed, the tumor can regrow after treatment. Complete eradication of the entire tumor mass requires elimination of the CSCs.

Active Immunotherapy

DCs are cells responsible for antigen processing and presentation to the immune system and play a central role in the body’s immune response. They act as first responders that initiate a T cell response to fight infections or foreign bodies. DCs do this by recognizing, processing and presenting foreign antigens to the T cells. Thus, they are powerful potentiators of acquired immunity through an effective presentation of the cancer antigens to T cells, which subsequently mediate the killing of cancer cells. The goal of DC-based vaccines is to (i) make use of and enhance the DC’s ability to trigger a T cell response and (ii) stimulate DCs to focus the T cell response to specifically target and destroy cancer cells.

DCs normally do not target malignant tumors, since they do not recognize the tumor as a foreign body that needs to be eliminated. Also, they are typically not present in sufficient numbers to permit an adequately potent immune response to fight cancer. DC therapy typically involves harvesting peripheral blood mononuclear cells (PBMCs) from a patient, culturing them and processing them in a laboratory to produce a sufficient number of highly potent DCs. The DCs are then cultured with tumor-associated antigens and injected back into the patient, where they can signal T cells to seek out and destroy cancer cells that express the tumor-associated antigens.

Sipuleucel-T was the first cell-based cancer immunotherapy to be approved by the FDA. The prostate cancer vaccine utilizes the patient’s antigen presenting cells (APCs) to target a single tumor antigen known as prostatic acid phosphatase. A randomized Phase III trial showed that sipuleucel-T was safe and extended the median overall survival of metastatic castrate-resistant prostate cancer patients by four months.

Manufacturing and logistical costs associated with sipuleucel-T have limited the drug’s commercial viability. Manufacturing is relatively inefficient as only about 25% of the final product actually consists of APCs. The APCs cannot be stored and must be administered within 18 hours. Also, patients must undergo three apheresis procedures every two weeks to harvest enough cells to manufacture three doses of sipuleucel-T. According to Dendreon, the margins associated with sipuleucel-T are less than 50%, although that may improve as manufacturing becomes more efficient over time.

In contrast, our DC technology overcomes many of sipuleucel-T’s shortcomings. As much as 90% of our final manufacturing product is DCs, which can stimulate a much stronger immune response than APCs. We have optimized manufacturing to produce at least 20 doses per patient, so patients only need to undergo a single apheresis procedure. The DCs can be stored, eliminating the need to ship the product back to patients within 18 hours. Also, DCs can be administered more conveniently by intradermal injection versus intravenous infusion for sipuleucel-T. As a result of technological improvements, the margins for our DC vaccines will probably be comparable to currently marketed biologics.

 

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Product Candidates

ICT-107

The American Cancer Society (ACS) estimates that about 23,130 malignant tumors of the brain and spinal cord will be diagnosed in the US in 2013. GBM is the most prevalent and aggressive form of brain cancer. Over 10,000 new patients are diagnosed with GBM in the US each year. Despite advances in surgery, radiation, and chemotherapy, recurrence is almost a certainty, occurring on average within 6.9 months. The median survival time for newly diagnosed GBM patients is only 14.6 months, and fewer than 10% of these patients live more than five years.

ICT-107 is a DC vaccine that targets six different tumor-associated antigens that are found on patients’ tumor cells; four of the six antigens are highly expressed on CSCs. The therapeutic vaccine is used subsequent to conventional therapy or concomitantly with chemotherapy in patients with newly diagnosed GBM. Results from a Phase I clinical trial at Cedars-Sinai showed that ICT-107 was well tolerated, with no significant adverse events reported. Of the 16 newly diagnosed patients treated with ICT-107, seven continue to survive. Of these seven patients who are still alive, five remain completely free of disease after four years, including three patients who have been free of disease for more than five years. The median PFS in the 16 newly diagnosed patients enrolled in the trial was 16.9 months, and median OS was 38.4 months—a two-year improvement compared to historical standard of care.

In January 2011, we commenced a randomized, placebo-controlled, double-blind, multicenter Phase IIb trial of ICT-107 in newly diagnosed GBM patients. Enrollment of 278 patients at 25 centers throughout the U.S. was completed in September 2012. An interim analysis to determine safety and futility is planned when 32 deaths have occurred. We believe interim results will be available in the second quarter of 2013. Final results from the Phase IIb study will be available once 64 deaths have occurred. Final results are projected to be available around the end of 2013.

In June 2010, ICT-107 was granted Orphan Drug status by the FDA, making the product candidate eligible, under certain circumstances, for marketing exclusivity and other potential benefits.

On September 1, 2010, we entered into a Master Services Agreement (MSA) with Aptiv Solutions (formerly Averion International Corp.), a clinical research organization. Under the MSA, Aptiv Solutions provides us with clinical trial support services in connection with and over the course of our Phase IIb clinical trial for ICT-107, including overseeing enrollment of patients and execution. The MSA, which may be terminated by us at any time, provides for a limit of approximately $5.0 million on the fees that we will be obligated to pay if all of the planned services are actually provided.

In January 2011, we entered into a sponsored research and vaccine production agreement with the University of Pennsylvania, which had helped us optimize the formulation of ICT-107 that we are using in the Phase IIb trial. The University of Pennsylvania is assisting us in the Good Manufacturing Practice (GMP) production of ICT-107 for the Phase IIb trial. In October 2011, we entered into an agreement with Progenitor Cell Therapy, LLC to serve as a second manufacturer of ICT-107 for the Phase IIb study.

ICT-140

The ACS estimated that in the U.S., about 22,280 women received a new diagnosis of ovarian cancer and about 15,500 will die from ovarian cancer in 2012. Ovarian cancer is the ninth most common cancer among women, excluding non-melanoma skin cancers. It ranks fifth in cancer deaths among women, accounting for more deaths than any other cancer of the female reproductive system. Ovarian cancer accounts for about 3% of all cancers in women, and the lifetime risk is approximately 1.5%. Women with a mutated BRCA1 gene carry a risk between 35% and 70%, and women with a mutated BRCA2 gene carry a risk between 10% and 30%.

Ovarian cancer usually spreads via local shedding into the peritoneal cavity followed by implantation on the peritoneum and via local invasion of bowel and bladder. The incidence of positive nodes at primary surgery has been reported to be as much as 24% in patients with stage I disease, 50% in patients with stage II

 

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disease, 74% in patients with stage III disease and 73% in patients with stage IV disease. The five-year survival rate for all stages of ovarian cancer is approximately 46%. For cases where a diagnosis is made early in the disease, when the cancer is still confined to the primary site, the five-year survival rate is 94%. However, only 15% of all ovarian cancers are found at this early stage.

Many ovarian cancers are spontaneously invaded by T cells, and patients whose tumors have tumor-infiltrating T cells survive longer. Therefore, cancer immunotherapies may improve the survival rate of patients with ovarian cancer.

ICT-140 is a DC vaccine that targets seven different ovarian cancer antigens. Some of the antigens included in ICT-140 are the same as in ICT-107. We filed an IND for ICT-140 at the end of 2012, the FDA allowed the IND in January 2013 and we anticipate initiating a multicenter Phase IIa clinical trial in the second half of 2013.

ICT-121

Dr. John Yu and his research team have discovered antigen peptides that can elicit a T cell immune response against CD133, a marker that is commonly present on CSCs. CD133-positive CSCs have been identified in a number of different cancers, including gliomas, colon cancer and pancreatic cancer.

ICT-121 is a DC vaccine that targets CD133 antigens; it has the potential to be a universal cancer vaccine because CD133 is widely expressed on CSCs from a majority of cancers. We plan to initiate a physician-sponsored Phase I clinical trial at Cedars-Sinai with ICT-121 in the second quarter of 2013. The open-label, nonrandomized study is expected to treat approximately 20 patients with recurrent GBM following tumor resection.

ICT-109

We acquired from Molecular Discoveries several monoclonal antibodies that have shown in vitro activity against SCLC cells.

SCLC is the most aggressive form of lung cancer associated with cigarette smoking; cases are estimated to constitute about 10% to 15% of all lung cancer cases. The ACS estimates that 228,190 new lung cancer cases, as well as 159,480 deaths, will occur in the U.S. in 2013. Early diagnosis of SCLC is very difficult, and consequently, the vast majority of patients manifest an established cancer with metastasis at the time of diagnosis. The survival rate is significantly higher when the disease is still localized, but only 16% of lung cancers are diagnosed at this early stage according to the ACS. Thus, the creation of new screening, monitoring and diagnostic tests for early detection and disease follow-up of SCLC may save many lives and prolong the survival of patients.

In collaboration with George Mason University, or GMU, we completed a pilot study evaluating the cancer detection abilities of one of our monoclonal antibody product candidates, ICT-109. Data from this small study demonstrated that ICT-109 had a statistically significant ability to discriminate between cancerous and non-cancerous samples, suggesting the potential to detect pancreatic and lung cancer in plasma and serum study sets. Researchers at GMU investigated the ability of ICT-109 to detect pancreatic and lung cancer by binding specifically to glycosylated epitopes of CEA-CAM6 and CEA-CAM5, two common markers that are over-expressed in a majority of cancers. We believe that these early results are promising for potential future development of this molecule.

 

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DIAAD

The DIAAD (differential immunization for antigen and antibody discovery) platform we acquired from Molecular Discoveries utilizes immunological tolerization to accelerate the discovery of the molecular differences between diseased cells and their normal counterparts. The monoclonal antibodies produced by DIAAD provide the basis for the discovery and development of our potential diagnostic and therapeutic products.

DIAAD enhances the antibody response of laboratory animals to disease-specific antigens. DIAAD focuses the immune response on the tumor antigens by first eliminating the immune response directed against antigens on normal cells. This is done by a process immunologists call tolerization, which is followed by immunizing the tolerized animals with specific cancer cells. This directs the immune response towards only those antigens that are present on cancer cells, but not on normal cells. Our current DIAAD product candidates are at a pre-clinical stage of development and will require further development before an IND can be potentially filed for human testing. We intend to seek potential partners or licensees to undertake this development work.

In June 2011, we entered into an agreement with BioWa, Inc., a wholly-owned subsidiary of Kyowa Hakko Kirin Co., Ltd., under which BioWa provided us with access to BioWa’s patented POTELLIGENT® technology platform for the development of antibody-dependent cellular cytotoxicity-enhanced antibodies, and, in turn, BioWa received a non-exclusive license to our DIAAD technology. Caerus Discovery LLC, a biotechnology company using proprietary methods for drug target discovery and antibody development, was launched with program support from BioWa and with certain antibody technologies from us. As part of this transaction, we received an approximately 19% equity interest in Caerus Discovery.

Intellectual Property Agreements

Cedars-Sinai Agreements

In November 2006, we entered into a license agreement with Cedars-Sinai under which we acquired an exclusive, worldwide license to technology for use as cellular therapies, including DC-based vaccines for neurological disorders, which include brain tumors, neurodegenerative disorders and other cancers. This technology is covered by a number of pending U.S. and foreign patent applications, and the term of the license will be until the last to expire of any patents that are issued covering this technology. We issued Cedars-Sinai 694,000 shares of our common stock and paid Cedars-Sinai $62,000 upon entry into the agreement. We will be required to pay to Cedars-Sinai additional specified milestone payments when we initiate patient enrollment in our first Phase III clinical trial for our first product and when we receive FDA marketing approval for our first product. If both of these milestones are met, the required milestone payments will total $1,250,000.

In June 2008, through an amendment to our original license agreement with Cedars-Sinai, we licensed an additional CSC vaccine technology in consideration for 100,000 shares of our common stock.

We have agreed to pay Cedars-Sinai a mid-single digit percentage of our gross revenues from sales of products and of all of our sublicensing income based on the licensed technology. To maintain our rights to the licensed technology, we must meet certain development and funding milestones.

In September 2010, we entered into a sponsored research agreement with Cedars-Sinai under which Cedars-Sinai will provide services to us in developing standard operating procedures for DC vaccine preparations at a total cost of up to $446,000. This agreement concluded in September 2012.

Molecular Discoveries Agreement

In February 2008, we entered into an agreement with Molecular Discoveries to acquire certain mAb-related technology owned by Molecular Discoveries. In connection with this acquisition, we retained Dr. Cohava Gelber, a key inventor of the Molecular Discoveries technology, as a consultant to assist us in further developing the acquired technology. The consulting agreement with Dr. Gelber expired in August 2009.

 

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Our acquisition under the Molecular Discoveries agreement consisted of (i) the DIAAD platform technology for the potentially rapid discovery of mAbs to detect and treat cancer and other chronic diseases and (ii) certain mAb candidates for the potential detection and treatment of multiple myeloma, small-cell lung, pancreatic and ovarian cancers. The consideration that we paid for the acquired technology consisted of (i) the issuance of 800,000 shares of our common stock to Molecular Discoveries and (ii) our reimbursement to Molecular Discoveries or its managing member of $250,000 of previously incurred patent expenses.

University of Pennsylvania Licensing Agreement

In February 2012, we entered into a license agreement with the University of Pennsylvania, pursuant to which we acquired an exclusive, worldwide license relating to technology for the production, use and cryopreservation of high-activity DC cancer vaccines, including ICT-107. The license covers the application of this technology to the development of therapeutics for all indications except breast cancer and ductal carcinoma in situ, and the term of the license will be until the later of the expiration or abandonment of the last patent included within the license and 10 years after the first sale of a product using the licensed technology. Pursuant to this license agreement, we paid an upfront licensing fee and will be obligated to pay annual license maintenance fees. In addition, we have agreed to make payments upon completion of specified milestones and to pay royalties of a specified percentage on net sales, subject to a specified minimum royalty, and sublicensing fees.

The Johns Hopkins University Licensing Agreement

In February 2012, we entered into a license agreement with The Johns Hopkins University (JHU), pursuant to which we received an exclusive, worldwide license to JHU’s rights in and to certain technology related to mesothelin-specific cancer immunotherapies. The license covers the application of this technology for all mesothelin peptide-based vaccines for cancer treatment and prevention, except bacteria-based, viral vector-based and nucleic acid-based vaccines. Unless earlier terminated, the term of the license extends in each country until the later of the expiration of the last patent related to the licensed technology in that country or ten years after the effective date of the license agreement. In order to maintain our license rights under the license agreement, we are required to meet certain diligence milestones and timelines.

Pursuant to the license agreement, we paid an upfront licensing fee, in cash and shares of common stock. We are obligated to pay milestone license fees upon completion of specified milestones, customary royalties based on a specified percentage of net sales and sublicensing payments as well as annual minimum royalties. We will also be responsible for reimbursing JHU for reasonable costs associated with the preparation, filing, maintenance and prosecution of the technology subject to the license.

Intellectual Property

The Company believes it owns or has rights to at least 26 patents and patent applications, with at least 13 patents issued or allowed, and more than 13 applications in prosecution. These patents and patent applications include, with respect to ICT-107, claims covering methods of use and the manufacturing process, claims with respect to the use of DCs with chemotherapy for neural cancers and immunotherapy targeting IL13Ra2 and CD133.

Competition

The biopharmaceutical industry is characterized by intense competition and significant technological advancements. Many companies, research institutions, and universities are conducting research and development in a number of areas similar to those that we focus on. The development of new products could compete with and be superior to our product candidates.

Many of the companies with which we compete have substantially greater financial, technical, manufacturing, marketing, distribution and other resources. A number of these companies may have or may develop technologies for products that could be superior to ours. We expect technological developments in the

 

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biopharmaceutical and related fields to occur at a rapid rate, and believe competition will intensify as these fields advance. Accordingly, we will be required to devote substantial resources and efforts to research and development activities in order to potentially achieve and maintain a competitive position. Products that we develop may become obsolete before we are able to market them or to recover all or any portion of our research and development expenses. We may be competing with companies that have significantly more experience in undertaking preclinical testing and human clinical trials with new or improved therapeutic products and obtaining regulatory approvals of such products. A number of these companies already market and may be in advanced phases of clinical testing of various drugs that may compete with our product candidates or any future product candidates. Competitors may develop or commercialize products more rapidly than we do, or that have significant advantages over products we develop. Therefore, our competitors may be more successful in commercializing their products, which could adversely affect our competitive position and business.

With the approvals of sipuleucel-T and ipilimumab, several major biopharmaceutical companies, including Roche/Genentech, Amgen, Novartis, GlaxoSmithKline and Bristol-Myers Squibb, in addition to smaller biotechnology companies, such as Dendreon, Oncothyreon, Galena, Bavarian Nordic and Immunovaccine, are developing cancer immunotherapies. A number of immunotherapy companies, including Northwest Biotherapeutics, Prima Biomed and DCPrime, also utilize DCs for their therapeutic cancer vaccines.

Several companies are developing immunotherapies to treat newly diagnosed GBM. For example, Celldex is conducting a Phase III clinical trial for its EGFRvIII-targeted cancer vaccine, rindopepimut. Northwest Biotherapeutics is also conducting a Phase III study with DCVax, a DC-based tumor lysate vaccine. Agenus has completed enrollment of a Phase II clinical trial with its heat shock protein and tumor-derived peptide vaccine (HSPPC-96).

In addition to the previously mentioned companies developing cancer immunotherapies, there are also several pharmaceutical companies, including OncoMed, Verastem, Boston Biomedical (acquired by Dainippon) and Infinity Pharmaceuticals, that are pursuing drugs that target CSCs. Stemline Therapeutics is currently developing a peptide treatment, SL-701, for brain cancer.

A number of monoclonal antibodies are currently being marketed for the treatment of cancer, including Rituxan, Herceptin, Campath, Avastin, Erbitux, Vectibix, Zevalin and Bexxar, and numerous other monoclonal antibody-based products are under development for the treatment of cancer. In the monoclonal antibody space, we will be directly competing against a several well-established biopharmaceutical companies, including as Roche/Genentech, Seattle Genetics, Bristol-Myers Squibb, Immunogen and others. Several of these companies are also developing antibodies to treat lung, pancreatic and colon cancer.

Colleges, universities, governmental agencies and other public and private research organizations are becoming more active in seeking patent protection and licensing arrangements to collect royalties for use of technologies that they have developed, some of which may directly compete with our product candidates or any future product candidates. Governments of a number of foreign countries are aggressively investing in cellular therapy research and promoting such research by public and private institutions within those countries. Domestic and foreign institutions and governmental agencies, along with pharmaceutical and specialized biotechnology companies, can be expected to compete with us in recruiting qualified scientific personnel.

Our competitive position will be significantly impacted by the following factors, among others:

 

   

our ability to obtain FDA marketing approval for our product candidates on a timely basis;

 

   

the level of acceptance of our products by physicians, compared to those of competing products or therapies;

 

   

our ability to have our products manufactured on a commercial scale;

 

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the effectiveness of sales and marketing efforts on behalf of our products;

 

   

our ability to meet demand for our products;

 

   

our ability to secure insurance reimbursement for our products candidates;

 

   

the price of our products relative to competing products or therapies;

 

   

our ability to recruit and retain appropriate management and scientific personnel; and

 

   

our ability to develop a commercial-scale research and development, manufacturing and marketing infrastructure, either on our own or with one or more future strategic partners.

Intellectual Property

The U.S. Patent and Trademark Office has recently issued two patents covering ICT-107 and certain other aspects of our cancer vaccine technology having expiration dates between about 2024 and 2028. Our dendritic cell-based vaccine and cancer stem cell vaccine product candidates are also currently covered by five patent applications that have been filed in the United States and by patent applications that have been filed in certain foreign countries.

In addition, we have acquired exclusive worldwide ownership rights to eight granted U.S. and ten other patents for various European and Asian territories as well as several U.S. and foreign patent applications through our acquisition of the monoclonal antibody related technology from Molecular Discoveries. The issued patents relate to monoclonal antibodies targeting various cancers, including human myeloma, ovarian cancer and small cell lung cancer and have expiration dates ranging from 2019 to 2023.

Scientific Advisory Board

To assist management, we have established a Scientific Advisory Board (“SAB”) whose members possess varied medical and scientific expertise.

Employees

We have five full-time employees, including our President and Chief Executive Officer, our Vice-President – Product Development and Manufacturing, our Director, Business Development and Licensing and two additional employees. Our Chief Scientific Officer and our Chief Financial Officer are part-time employees. In addition, we have a number of consulting agreements for clinical development, regulatory affairs, investor relations and business development. We outsource all of our drug discovery research, process development, manufacturing and clinical development to third parties with expertise in those areas as we believe it to be a more capital efficient solution.

Government Regulation

The United States and other developed countries extensively regulate the preclinical and clinical testing, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution of drugs and biologic products. The United States Food and Drug Administration, under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and other federal statutes and regulations, regulates pharmaceutical and biologic products.

To obtain approval of our product candidates from the FDA, we must, among other requirements, submit data supporting safety and efficacy for the intended indication as well as detailed information on the manufacture and composition of the product candidate. In most cases, this will require extensive laboratory

 

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tests and preclinical and clinical trials. The collection of these data, as well as the preparation of applications for review by the FDA involve significant time and expense. The FDA also may require post-marketing testing to monitor the safety and efficacy of approved products or place conditions on any approvals that could restrict the therapeutic claims and commercial applications of these products. Regulatory authorities may withdraw product approvals if we fail to comply with regulatory standards or if we encounter problems at any time following initial marketing of our products.

The first stage of the FDA approval process for a new biologic or drug involves completion of preclinical studies and the submission of the results of these studies to the FDA. This data, together with proposed clinical protocols, manufacturing information, analytical data and other information submitted to the FDA, in an investigational new drug application (“IND”), must become effective before human clinical trials may commence. Preclinical studies generally involve FDA regulated laboratory evaluation of product characteristics and animal studies to assess the efficacy and safety of the product candidate.

After the IND becomes effective, a company may commence human clinical trials. These are typically conducted in three sequential phases, but the phases may overlap. Phase I trials consist of testing of the product candidate in a small number of patients or healthy volunteers, primarily for safety at one or more doses. Phase I trials in cancer are often conducted with patients who are not healthy and who have end-stage or metastatic cancer. Phase II trials, in addition to safety, evaluate the efficacy of the product candidate in a patient population somewhat larger than Phase I trials. Phase III trials typically involve additional testing for safety and clinical efficacy in an expanded population at multiple test sites. A company must submit to the FDA a clinical protocol, accompanied by the approval of the Institutional Review Boards at the institutions participating in the trials, prior to commencement of each clinical trial.

To obtain FDA marketing authorization, a company must submit to the FDA the results of the preclinical and clinical testing, together with, among other things, detailed information on the manufacture and composition of the product candidate, in the form of a new drug application (“NDA”) or, in the case of a biologic, like dendritic cell-based vaccines for neurological disorders, a biologics license application (“BLA”).

The amount of time taken by the FDA for approval of an NDA or BLA will depend upon a number of factors, including whether the product candidate has received priority review, the quality of the submission and studies presented, the potential contribution that the compound will make in improving the treatment of the disease in question, and the workload at the FDA. The FDA has committed to reviewing standard BLAs in 10 months and priority BLAs in six months, but the actual time it takes to review any BLA that we may file could be substantially longer.

The FDA may, during its review of an NDA or BLA, ask for additional test data that may require the conduct of additional clinical trials. If the FDA does ultimately approve the product candidate for marketing, it may require post-marketing testing to monitor the safety and effectiveness of the product. The FDA also may in some circumstances impose restrictions on the use of the product, which may be difficult and expensive to administer and may require prior approval of promotional materials.

The FDA may, in some cases, confer upon an investigational product the status of a fast track product. A fast track product is defined as a new drug or biologic intended for the treatment of a serious or life-threatening condition that demonstrates the potential to address unmet medical needs for this condition. The FDA can base approval of an NDA or BLA for a fast track product on an effect on a surrogate endpoint, or on another endpoint that is reasonably likely to predict clinical benefit. If a preliminary review of clinical data suggests that a fast track product may be effective, the FDA may initiate review of entire sections of a marketing application for a fast track product before the sponsor completes the application.

We will also be subject to a variety of regulations governing clinical trials and sales of our products outside the United States. Whether or not FDA approval has been obtained, approval of a product candidate by the comparable regulatory authorities of foreign countries and regions must be obtained prior to the

 

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commencement of marketing the product in those countries. The approval process varies from one regulatory authority to another and the time may be longer or shorter than that required for FDA approval. In the European Union, Canada and Australia, regulatory requirements and approval processes are similar, in principle, to those in the United States.

Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facilities are in compliance with the FDA’s cGMP, which are regulations that govern the manufacture, holding and distribution of a product. Manufacturers of biologics also must comply with the FDA’s general biological product standards. Following approval, the FDA periodically inspects drug and biologic manufacturing facilities to ensure continued compliance with the good manufacturing practices regulations. We must ensure that any third-party manufacturers continue to comply with those requirements. Failure to comply with these requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing or recall or seizure of product. Adverse patient experiences with the product must be reported to the FDA and could result in the imposition of marketing restrictions through labeling changes or market removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.

The labeling, advertising, promotion, marketing and distribution of a drug or biologic product also must be in compliance with FDA and Federal Trade Commission, requirements, which include, among others, standards and regulations for off-label promotion, industry sponsored scientific and educational activities, promotional activities involving the internet, and direct-to-consumer advertising. We also will be subject to a variety of federal, state and local regulations relating to the use, handling, storage and disposal of hazardous materials, including chemicals and radioactive and biological materials. In addition, we will be subject to various laws and regulations governing laboratory practices and the experimental use of animals. In each of these areas, as above, the FDA has broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of product approvals, seize or recall products, and deny or withdraw approvals.

We also will be subject to federal regulation by the Occupational Safety and Health Administration and the Environmental Protection Agency and to regulation under the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other federal and state regulatory statutes, and may in the future be subject to other federal, state or local regulations.

Available Information

We file electronically with the SEC our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13 or 15(d) of the Exchange Act. The public may read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports on the day of filing with the SEC, on our website at www.imuc.com or by contacting the Investor Relations Department at our corporate offices at (818) 992-2907. The information found on our website is not part of this or any other report filed with or furnished to the SEC.

 

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Item 1A. Risk Factors.

In evaluating our business, you should carefully consider the following risks in addition to the other information in this report. Any of the following risks could materially and adversely affect our business, results of operations, financial condition or your investment in our securities, and many are beyond our control. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us, or that we currently see as immaterial, may also adversely affect our business.

Risks Related To Our Business

We are a development-stage company subject to all of the risks and uncertainties of a new business, including the risk that we may never successfully develop any products or generate revenues.

We are a development-stage company that has only recently commenced any significant research and development activity. We may be unable to satisfactorily develop or market any of our current or proposed product candidates, those product candidates may not generate any revenues, and any revenues generated may not be sufficient for us to become profitable or thereafter maintain profitability. Only one of our product candidates has been clinically tested in an early stage trial. We have not generated any recurring revenues to date, and we do not expect to generate any such revenues for a number of years.

Our cell-based vaccine technologies are our primary platform technologies, and our commercial prospects will be heavily dependent on the outcome of the current and any future clinical trials for our lead vaccine product candidate, ICT-107. We have only five full-time employees, including our Vice-President – Product Development and Manufacturing, have limited resources and may not possess the ability to successfully overcome many of the risks and uncertainties frequently encountered by early stage companies involved in the new and rapidly evolving field of biotechnology in general and cancer immunotherapies and monoclonal antibodies in particular. You must consider that we may not be able to:

 

   

obtain additional financial resources necessary to develop, test, manufacture and market our vaccine product candidates, our monoclonal antibody candidates or any future product candidates;

 

   

engage corporate partners to assist in developing, testing, manufacturing and marketing our vaccine product candidates, our monoclonal antibody product candidates or any future product candidates;

 

   

satisfy the requirements of acceptable pre-clinical and clinical trial protocols, including timely patient enrollment;

 

   

establish and demonstrate or satisfactorily complete the research to demonstrate at various stages the pre-clinical and clinical efficacy and safety of our vaccine product candidates, our monoclonal antibody product candidates or any future product candidates;

 

   

apply for and obtain the necessary regulatory approvals from the FDA and the appropriate foreign regulatory agencies;

 

   

market our vaccine product candidates, our monoclonal antibody candidates or any future product candidates to achieve acceptance and use by the medical community and patients in general and produce revenues; and

 

   

attract and retain, on acceptable terms, qualified technical, commercial and administrative staff for the continued development and growth of our business.

 

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Our current product candidates and any future product candidates will be based on novel technologies and are inherently risky.

We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our therapies creates significant challenges in regards to product development and optimization, manufacturing, government regulation, third-party reimbursement and market acceptance. For example, the FDA may have limited experience with cancer stem cell or dendritic cell-based therapeutics and, with the exception of one dendritic cell-based vaccine for the treatment of prostate cancer, has not yet approved any of these therapeutics for marketing, and the pathway to regulatory approval for our vaccine product candidates or any future vaccine product candidates may accordingly be more uncertain, complex and lengthy than the pathway for new conventional drugs. The targeting of cancer stem cells as a potential therapy is a recent development that may not become broadly accepted by scientists, pharmaceutical companies or the FDA. In addition, the manufacture of biological products, including cancer stem cell or dendritic cell-based vaccines, could be more complex and difficult, and therefore, these potential challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all.

We may elect to delay or discontinue preclinical studies or clinical trials based on unfavorable results. Any product candidate using a cellular therapeutic technology may fail to:

 

   

survive and persist in the desired location;

 

   

provide the intended therapeutic benefits;

 

   

properly integrate into existing tissue in the desired manner; or

 

   

achieve therapeutic benefits equal to or better than the standard of treatment at the time of testing.

In addition, our product candidates may cause undesirable side effects. Results of preclinical research with our vaccine product candidates or any other or future product candidates or clinical results with formulations used in earlier trials that are similar but not identical to our product candidate formulations may not be indicative of the results that will be obtained in later stages of preclinical or clinical research on our product candidates. In particular, the results generated in our Phase I trial of ICT-107 covered a small number of patients at a single trial site and may not be indicative of the results that will be obtained in our current multi-center Phase II trial of a new, optimized formulation of ICT-107.

If regulatory authorities do not approve our products or if we fail to maintain regulatory compliance, we would be unable to commercialize our products, and our business and results of operations would be harmed. Furthermore, because cancer stem cell and dendritic cell-based products represent new forms of therapy, the marketplace may not accept any products we may develop that utilize these technologies. If we do succeed in developing products, we will face many potential obstacles, such as the need to obtain regulatory approvals and to develop or obtain manufacturing, marketing and distribution capabilities. In addition, we will face substantial additional risks, such as product liability claims.

Because of the early stage of development of our vaccine product candidates, we do not know if we will be able to generate data that will support the filing of a biologics license or new drug application for these product candidates or the FDA’s approval thereof. If we experience substantial delays, we may not have the financial resources to continue development of these product candidates or the development of any of our other or future product candidates. Delays in clinical trials could reduce the commercial viability of our vaccine product candidates and any other or future product candidates. Delays in patient enrollment may be caused by a number of factors, including patient reluctance to participate in blinded trials where the patient is not assured of receiving the treatment being tested in the trial. Even if we successfully develop and gain regulatory approval for our products, we still may not generate sufficient or sustainable revenues or we may not become profitable, which could have a material adverse effect on our ability to continue our marketing and distribution efforts, research and development programs and operations.

 

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If we encounter difficulties enrolling patients in our clinical trials, our trials could be delayed or otherwise adversely affected.

Clinical trials for our product candidates may require that we identify and enroll a large number of patients with the disease under investigation. We may not be able to enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a study, to complete our clinical trials in a timely manner. We have in the past experienced some difficulty in enrollment in our clinical trials due to the criteria specified for eligibility for these trials, and we may encounter these difficulties in our ongoing clinical trials for our product candidates.

Patient enrollment is affected by factors including:

 

   

design of the trial protocol;

 

   

the size of the patient population;

 

   

eligibility criteria for the study in question;

 

   

perceived risks and benefits of the product candidate under study;

 

   

availability of competing therapies and clinical trials;

 

   

efforts to facilitate timely enrollment in clinical trials;

 

   

patient referral practices of physicians;

 

   

the ability to monitor patients adequately during and after treatment; and

 

   

proximity and availability of clinical trial sites for prospective patients.

If we have difficulty enrolling a sufficient number or diversity of patients to conduct our clinical trials as planned, we may need to delay or terminate ongoing or planned clinical trials, either of which would have a negative effect on our business.

Before we can market our vaccine product candidates or any other or future product candidates, we must obtain governmental approval for each of these product candidates, the application and receipt of which is time-consuming, costly and uncertain.

Our current product candidates and any future product candidates that we will be developing will require approval of the FDA before they can be marketed in the U.S. Although our focus at this time is primarily on the U.S. market, in the future similar approvals will need to be obtained from foreign regulatory agencies before we can market our current and proposed product candidates in other countries. The process for filing and obtaining FDA approval to market therapeutic products is both time-consuming and costly, with no certainty of a successful outcome. The historical failure rate for companies seeking to obtain FDA approval of therapeutic products, particularly vaccines for cancer, is high and, with the exception of Dendreon Corp.’s antigen presenting cell vaccine for the treatment of prostate cancer, no cancer stem cell or dendritic cell-based cancer vaccine has to date been approved by the FDA. This process includes conducting extensive pre-clinical research and clinical testing, which may take longer and cost more than we initially anticipate due to numerous factors, including without limitation, difficulty in securing appropriate centers to conduct trials, difficulty in enrolling patients in conformity with required protocols in a timely manner, unexpected adverse reactions by patients in the trials to our proposed product candidates and changes in the FDA’s requirements for our testing during the course of that testing.

The FDA may require pre-clinical work for our monoclonal antibody product candidates beyond what we currently plan to conduct, which could necessitate significant expenditures on our part that we have not budgeted and which could significantly delay the commencement of clinical trials for these product candidates. The formulation of ICT-121 candidate is complete. It has not been previously tested in patients, and we may encounter unexpected and adverse immune responses or other side effects in the patients whom we test with this product candidate.

 

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The time required to obtain FDA and other approvals is unpredictable but often can exceed five years following the commencement of clinical trials, depending upon the complexity of the product and other factors.

Any analysis we perform of data from preclinical and clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. We may also encounter unexpected delays or increased costs due to a variety of reasons, including new government regulations from future legislation or administrative action, or from changes in FDA policy during the period of product development, clinical trials and FDA regulatory review.

Failure to timely and successfully complete clinical trials, show that our products are safe and effective and timely file and receive approval of our biologics license application would have a material adverse effect on our business and results of operations. Even if approved, the labeling approved by the relevant regulatory authority for a product may restrict to whom we and our partners may market the product or in the manner in which our product may be administered, which could significantly limit the commercial opportunity for such product.

Prior to granting product approval, the FDA must determine that our third party contractors’ manufacturing facilities meet current good manufacturing practice (GMP) requirements before we can use them in the commercial manufacture of our products. We and all of our contract manufacturers are required to comply with the applicable GMP current regulations. Manufacturers of biologics must also comply with the FDA’s general biological product standards. Failure to comply with the statutory and regulatory requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing, seizure of product or voluntary recall of a product. GMP regulations require quality control and quality assurance as well as the corresponding maintenance of records and documentation sufficient to ensure the quality of the approved product.

Certain of our current product candidates may not be eligible for Orphan Drug status.

The United States and Europe may designate drugs for relatively small patient populations as orphan drugs. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process, but does make the product eligible for orphan drug exclusivity, reduced filing fees and specific tax credits. Generally, if a company receives the first marketing approval for a product with an orphan drug designation in the clinical indication for which it has such designation, the product is entitled to orphan drug exclusivity. Orphan drug exclusivity means that the FDA will not approve another application to market the same drug for the same indication, except in limited circumstances, for a period of seven years in the United States. This exclusivity, however, could block the approval of our proposed product candidates if a competitor obtains marketing approval before us. We have obtained orphan drug status for ICT-107 to treat GBM and may also seek this status for ICT-140 to treat ovarian cancer and for our cancer stem cell vaccine to treat GBM and other diseases if we meet the eligibility criteria. However, even if we obtain orphan drug exclusivity for any of our proposed product candidates, we may not be able to maintain it. For example, if a competitive product is shown to be clinically superior to our product, any orphan drug exclusivity we have will not block the approval of such competitive product.

Fast Track designation for development of our vaccine product candidates or any other potential product candidate may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA Fast Track designation for a particular indication. Marketing applications filed by sponsors of products in Fast Track development may qualify for priority review under the policies and procedures offered by the FDA, but

 

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the Fast Track designation does not assure any such qualification or ultimate marketing approval by the FDA. Receipt of Fast Track designation may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures. In addition, the FDA may withdraw any Fast Track designation at any time. We may seek Fast Track designation for our vaccine product candidates or any other product candidates, but the FDA may not grant this status to any of our proposed product candidates.

Because our current and our other future potential product candidates will represent novel approaches to the treatment of disease, there are many uncertainties regarding the development, manufacturing, market acceptance, third-party reimbursement coverage and commercial potential of our product candidates.

The approaches offered by our current product candidates or any future product candidates may not gain broad acceptance among doctors or patients and governmental agencies or third-party medical insurers may not be willing to provide reimbursement coverage for proposed product candidates. Moreover, we do not have internal marketing data research resources and are not certain of and have not attempted to independently verify the potential size of the commercial markets for our current product candidates or any future product candidates. Since our current product candidates and any future product candidates will represent new approaches to treating various conditions, it may be difficult, in any event, to accurately estimate the potential revenues from these product candidates. We may spend large amounts of money trying to obtain approval for these product candidates, and never succeed in doing so. In addition, these product candidates may not demonstrate in large sets of patients the pharmacological properties ascribed to them in the laboratory studies or smaller groups of patients, and they may interact with human biological systems in unforeseen, ineffective or even harmful ways either before or after they are approved to be marketed. We have not yet manufactured our product on a commercial scale and may not be able to achieve manufacturing efficiencies relative to our competitors. We do not yet have sufficient information to reliably estimate what it will cost to commercially manufacture our current product candidates or any future product candidates, and the actual cost to manufacture these products could materially and adversely affect the commercial viability of these products. Certain of our cell-based vaccine product candidates may be formulated with cells harvested and processed from individual target patients, which could limit the total patient population for these vaccines and could require complex and costly manufacturing processes to produce these vaccines on a commercial basis. As a result, we may never succeed in developing a marketable product. If we do not successfully develop and commercialize products based upon our approach, we will not become profitable, which would materially and adversely affect the value of our common stock. Finally, in order to have commercially viable markets for our products, we will need to obtain an adequate level of reimbursement by third party payors for our products.

The commercial success of our product candidates will depend upon the degree of market acceptance by physicians, patients, healthcare payers and others in the medical community.

Any product that we bring to market may not gain or maintain market acceptance by governmental purchasers, group purchasing organizations, physicians, patients, healthcare payors and others in the medical community. If any products that we develop do not achieve an adequate level of acceptance, we may not generate sufficient revenues to support continued commercialization of these products. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

 

   

the perceived safety and efficacy of our products;

 

   

the prevalence and severity of any side effects;

 

   

our ability to gain access to the entire market through distributor arrangements;

 

   

the willingness of the target patient population to try new products and of physicians to prescribe our products;

 

   

the effectiveness of our marketing strategy and distribution support;

 

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the timing of our receipt of any marketing approvals, the terms of any approvals and the countries in which approvals are obtained;

 

   

the availability of government and third-party payor reimbursement;

 

   

the pricing of our product candidates, particularly as compared to alternative treatments; and

 

   

the availability of alternative effective forms of treatments, at that time, for the diseases that the product candidates we are developing are intended to treat.

Adverse publicity regarding cellular therapies could impact our business.

Although we are not utilizing embryonic stem cells, adverse publicity due to the ethical and social controversies surrounding the use of such cells or any adverse reported side effects from any stem cell, dendritic or other cell therapy clinical trials or to the failure of such trials to demonstrate that these therapies are efficacious could materially and adversely affect our ability to raise capital or recruit managerial or scientific personnel or obtain research grants.

As an early stage small company that will be competing against numerous large, established companies that have substantially greater financial, technical, manufacturing, marketing, distribution and other resources than we have, we will be at a significant competitive disadvantage.

The pharmaceutical and biopharmaceutical industry is characterized by intense competition and rapid and significant technological changes and advancements. Many companies, research institutions and universities are doing research and development work in a number of areas similar to those that we focus on that could lead to the development of new products which could compete with and be superior to our product candidates.

Most of the companies with which we compete have substantially greater financial, technical, research, manufacturing, marketing, distribution and other resources than those of ours. A number of these companies may have or may develop technologies for developing products for treating various diseases, including brain cancers, which could prove to be superior to ours. We expect technological developments in the pharmaceutical and biopharmaceutical and related fields to occur at a rapid rate, and we believe competition will intensify as advances in these fields are made. Accordingly, we will be required to continue to devote substantial resources and efforts to research and development activities in order to potentially achieve and maintain a competitive position in this field. Products that we develop may become obsolete before we are able to market them or to recover all or any portion of our research and development expenses. We will be competing with respect to our products with companies that have significantly more experience and expertise in undertaking preclinical testing and human clinical trials with new or improved therapeutic products and obtaining regulatory approvals of such products. A number of these companies already market and may be in advanced phases of clinical testing of various drugs that will or may compete with our current product candidates or other future potential product candidates. Our competitors may develop or commercialize products more rapidly than we do or with significant advantages over any products we develop. Our competitors may therefore be more successful in commercializing their products than us, which could adversely affect our competitive position and business.

With the approvals of sipuleucel-T and ipilimumab, several major biopharmaceutical companies, including Roche/Genentech, Amgen, Novartis, GlaxoSmithKline, and Bristol-Myers Squibb, in addition to smaller biotechnology companies, such as Dendreon, Oncothyreon, Galena, Bavarian Nordic, and Immunovaccine, are developing cancer immunotherapies. A number of immunotherapy companies, including Northwest Biotherapeutics, Prima Biomed, and DCPrime, also utilize DCs for their therapeutic cancer vaccines.

 

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Several companies are developing immunotherapies to treat newly diagnosed GBM. For example, Celldex is conducting a Phase III clinical trial for its EGFRvIII-targeted cancer vaccine, rindopepimut. Northwest Biotherapeutics is also conducting a Phase III study with DCVax, a DC-based tumor lysate vaccine. Agenus has completed enrollment of a Phase II clinical trial with its heat shock protein and tumor-derived peptide vaccine (HSPPC-96).

In addition to the previously mentioned companies developing cancer immunotherapies, there are also several pharmaceutical companies, including OncoMed, Verastem, Boston Biomedical (acquired by Dainippon), and Infinity Pharmaceuticals, that are pursuing drugs that target CSCs. Stemline Therapeutics is currently developing a peptide treatment, SL-701, for brain cancer.

A number of monoclonal antibodies are currently being marketed for the treatment of cancer, including Rituxan, Herceptin, Compath, Avastin, Erbitux, Vectibix, Zevalin, and Bexxar, and numerous other monoclonal antibody-based products are under development for the treatment of cancer. In the monoclonal antibody space, we will be directly competing against a several well-established biopharmaceutical companies, including as Roche/Genentech, Seattle Genetics, Bristol-Myers Squibb, Immunogen, and others. Several of these companies are also developing antibodies to treat lung, pancreatic, and colon cancer.

Colleges, universities, governmental agencies, and other public and private research organizations are becoming more active in seeking patent protection and licensing arrangements to collect royalties for use of technologies that they have developed, some of which may directly compete with our product candidates or any future product candidates. Governments of a number of foreign countries are aggressively investing in cellular therapy research and promoting such research by public and private institutions within those countries. Domestic and foreign institutions and governmental agencies, along with pharmaceutical and specialized biotechnology companies, can be expected to compete with us in recruiting qualified scientific personnel.

Our competitive position will be significantly impacted by the following factors, among others:

 

   

our ability to obtain FDA marketing approval for our product candidates on a timely basis;

 

   

the level of acceptance of our products by physicians, compared to those of competing products or therapies;

 

   

our ability to have our products manufactured on a commercial scale;

 

   

the effectiveness of sales and marketing efforts on behalf of our products;

 

   

our ability to meet demand for our products;

 

   

our ability to secure insurance reimbursement for our products candidates;

 

   

the price of our products relative to competing products or therapies;

 

   

our ability to recruit and retain appropriate management and scientific personnel; and

 

   

our ability to develop a commercial-scale research and development, manufacturing and marketing infrastructure, either on our own or with one or more future strategic partners.

The market success of our current product candidates and any future product candidates will be dependent in part upon third-party reimbursement policies that will not be established for our product candidates until we are closer to receiving approval to market.

Our ability to successfully commercialize and penetrate the market for our current product candidates and any future product candidates is likely to depend significantly on the availability of reimbursement for our

 

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lead product candidate or any other or future product candidates from third-party payers, such as governmental agencies, private insurers and private health plans. Even if we are successful in bringing a proposed product candidate to the market, these product candidates may not be considered cost-effective, and the amount reimbursed for our products may be insufficient to allow us to sell any of our products on a competitive basis. We cannot predict whether levels of reimbursement for our product candidates, if any, will be high enough to allow the price of our product candidates to include a reasonable profit margin. Even with FDA approval, third-party payers may deny reimbursement if the payer determines that our particular product candidates are unnecessary, inappropriate or not cost effective. If patients are not entitled to receive reimbursements similar to reimbursements for competing products which currently are reimbursable, they may be unwilling to use our product candidates since they will have to pay for the unreimbursed amounts. The reimbursement status of newly approved health care products is highly uncertain. If levels of reimbursement are decreased in the future, the demand for our lead product candidate and any future product candidates could diminish or our ability to sell our products on a profitable basis could be adversely affected.

We believe that the efforts of governments and third-party payors to contain or reduce the cost of healthcare will continue to affect the business and financial condition of pharmaceutical and biopharmaceutical companies. Comprehensive health care reform legislation that was enacted in 2010 could adversely affect our business and financial condition. Among other provisions, the legislation provides that a “biosimilar” product may be approved by the FDA on the basis of analytical tests and certain clinical studies demonstrating that such product is highly similar to an existing, approved product and that switching between an existing product and the biosimilar product will not result in diminished safety or efficacy. This abbreviated regulatory approval process may result in increased competition if we are able to bring a biopharmaceutical product to market. The legislation also includes more stringent compliance programs for companies in various sectors of the life sciences industry with which we may need to comply and enhanced penalties for non-compliance with the new health care regulations. Complying with new regulations may divert management resources, and inadvertent failure to comply with new regulations may result in penalties being imposed on us.

A number of legislative and regulatory proposals to change the healthcare system in the United States and other major healthcare markets have been proposed at the state and federal levels in recent years. These proposals have included prescription drug benefit legislation recently enacted in the United States and healthcare reform legislation recently enacted by certain states. Further federal and state legislative and regulatory developments are likely, and we expect ongoing initiatives in the United States to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated revenues from any products that we may successfully develop.

We may be subject to product liability and other claims that could have a material negative effect on our operations and on our financial condition.

The development and sale of medical products in general, and vaccines in particular, expose us to the risk of significant damages from product liability and other claims. Product liability claims could delay or prevent completion of our clinical development programs. If we succeed in marketing our current lead products candidate or any future product candidates, such claims could result in an FDA investigation of the safety and effectiveness of our products or our marketing programs, and potentially a recall of our products or more serious enforcement action, or limitations on the indications for which they may be used, or suspension or withdrawal of approval. We plan to obtain and maintain product liability insurance for coverage of our clinical trial activities and obtained this coverage for the recently completed and current clinical trials of our dendritic cell-based vaccine product candidate. We may not be able to secure such insurance in the amounts we are seeking or at all for any of the future trials for our current product candidates or any future product candidates. We intend to obtain coverage for our products when they enter the marketplace (as well as requiring the manufacturers of our products to maintain insurance), but we do not know if insurance will be available to us at acceptable costs or at all. The costs for many forms of liability insurance have risen substantially in recent years and the costs for insuring a vaccine type product may be higher than other pharmaceutical products, and such costs may continue to increase in the future, which could materially impact our costs for clinical or product liability insurance. If the cost is too high, we will have to self-insure, and we

 

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may have inadequate financial resources to pay the costs of any claims. A successful claim in excess of our product liability coverage could have a material adverse effect on our business, financial condition and results of operations.

We will be dependent on our key personnel, and the loss of one or more of our key personnel would materially and adversely affect our business and prospects.

We are dependent on our officers and directors for their scientific or managerial skills, including Dr. John Yu, our Chairman of the Board and Chief Scientific Officer and Andrew Gengos, our President and Chief Executive Officer. Except for our President and Chief Executive Officer, our Vice President – Product Development and Manufacturing, and our Director, Business Development and Licensing, we do not have any full-time management personnel. We do not currently maintain key man life insurance on any of our scientific or management team. Dr. Yu or Mr. Gengos can terminate their services to us at any time. The loss of the services of Dr. Yu or Mr. Gengos would materially and adversely affect our business.

As we retain additional full-time senior personnel necessary to further our advanced development of product candidates, our expenses for salaries and related items will increase materially from current levels. Competition for such personnel is intense, and we may not be able to attract or retain qualified senior personnel and our failure to do so could have an adverse effect on our ability to implement our business plan.

Risks Relating to our Financial Position and Operations

We have a history of operating losses. We expect to continue to incur losses for the near future, and we may never become profitable.

With the exception of a one-time licensing fee payment that we previously received in connection with our entering into a research and license option agreement covering one of our monoclonal antibody product candidates with a third party who did not subsequently exercise that option, we have not generated any revenues and have incurred operating losses since our inception, and we expect to continue to incur operating losses for the foreseeable future. We do not have any products that generate revenue from commercial product sales. Our operating losses have resulted principally from costs incurred in pursuing our research and development programs, clinical trials, manufacturing, and general and administrative expenses in support of operations. We may be unable to develop or market products in the future that will generate revenues, and any revenues generated may not be sufficient for us to become profitable. In the event that our operating losses are greater than anticipated or continue for longer than anticipated, we will need to raise significant additional capital sooner, or in greater amounts, than otherwise anticipated in order to be able to continue development of our present or future product candidates and maintain our operations. There can be no assurances that capital will be available to us when and if we require additional capital on terms that are acceptable to us or favorable to our existing stockholders, or at all.

As our product candidates advance in clinical development, we will require significant additional funding, and our future access to capital is uncertain.

It is expensive to develop and commercialize cancer immunotherapy candidates. We plan to continue to simultaneously conduct clinical trials and preclinical research for a number of product candidates. Our product development efforts may not lead to commercial products, either because our product candidates fail to be found safe or effective in clinical trials or because we lack the necessary financial or other resources or relationships to pursue our programs through commercialization. Even if commercialized, a product may not achieve revenues that exceed the costs of producing and selling it. Our capital and future cash flow may not be sufficient to support the expenses of our operations and we may need to raise additional capital depending on a number of factors, including the following:

 

   

the need to conduct larger, more expensive and longer clinical trials to obtain the data necessary for submission for product approval to regulatory agencies;

 

   

the capability to manufacture product at the scale and quantities required to meet regulatory approval requirements and the development and commercial requirements for the product;

 

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the costs to obtain qualified commercial development of infrastructure and activities related to the commercialization of our products;

 

   

the rate of progress and cost of our research and development and clinical trial activities; and

 

   

the introduction into the marketplace of competing products and other adverse market developments.

We currently do not have arrangements to obtain additional financing. Any such financing could be difficult to obtain on favorable terms or at all. If we are unable to raise additional funds, we may have to delay, reduce or eliminate some of our clinical trials and our development programs. Even if we raise additional funds by issuing equity or equity-linked securities, such financings may only be available on unattractive terms and, in such event, the market price of our common stock may decline and further dilution to our existing stockholders will result. In addition, the expectation of future dilution as a result of our offering of securities convertible into equity securities may cause our stock price to decline.

We may seek Small Business Innovation Research or other government grants to conduct a portion of our planned research and development work in addition to certain equity financing. Except for one grant awarded under a federal tax credit/grant program for pharmaceutical research and development companies in 2010 and one grant application submitted under the Orphan Drug Act that was denied, we have not yet submitted any requests for these grants, the competition for obtaining these grants is intense and we may be unable to secure any grant funding on a timely basis or at all.

We are required to pay certain royalties under our license agreements with third party licensors, and we must meet certain milestones to maintain our license rights.

Under our license agreements with academic institutions generally, including our Cedars-Sinai license for ICT-107, we will be required to pay substantial royalties to that institution based on our revenues from sales of our products utilizing the technologies and products licensed from the institution, and these royalty payments could adversely affect the overall profitability for us of any products that we may seek to commercialize. In order to maintain our license rights under these license agreements, we will need to meet certain specified milestones, subject to certain cure provisions, in the development of our vaccine product candidates and in the raising of funding. In addition, many of these agreements contain diligence milestones and we may not be successful in meeting all of the milestones in the future on a timely basis or at all. We will need to outsource and rely on third parties for many aspects of the clinical development, manufacture, sales and marketing of our products covered under our license agreements, including the Cedars-Sinai license for ICT-107. Delay or failure by these third parties could adversely affect the continuation of our license agreements with their party licensors.

Risks Relating to Reliance on Third Parties

We outsource almost all of our operational and development activities, and if any party to which we have outsourced certain essential functions fails to perform its obligations under agreements with us, the development and commercialization of our lead product candidate and any future product candidates could be delayed or terminated.

We generally rely on third-party consultants or other vendors to manage and implement the day-to-day conduct of our operations, including conducting clinical trials and manufacturing our current product candidates or any future product candidates. Accordingly, we are and will continue to be dependent on the timeliness and effectiveness of their efforts. Our dependence on third parties includes key suppliers and third party service providers supporting the development, manufacture and regulatory approval of our products as well as support for our information technology systems and other infrastructure, including our network of leukapheresis providers and physician and patient call center. While our management team oversees these vendors, failure of any of these third parties to meet their contractual, regulatory and other obligations or the

 

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development of factors that materially disrupt the performance of these third parties could have a material adverse effect on our business. For example, all of the key oversight responsibilities for the development and manufacture of ICT-107, our lead product candidate, is conducted by our management team but all activities are the responsibility of third party vendors.

If a clinical research organization, or CRO, that we utilize is unable to allocate sufficient qualified personnel to our studies in a timely manner or if the work performed by it does not fully satisfy the requirements of the FDA or other regulatory agencies, we may encounter substantial delays and increased costs in completing our development efforts. Any manufacturer that we select may encounter difficulties in scaling-up the manufacture of new products in commercial quantities, including problems involving product yields, product stability or shelf life, quality control, adequacy of control procedures and policies, compliance with FDA regulations and the need for further FDA approval of any new manufacturing processes and facilities. The manufacture of clinical supplies for studies and commercial quantities of our current product candidates and any future product candidates are likely to be inherently more difficult and costly than typical chemical pharmaceuticals. This could delay commercialization of any of our product candidates or reduce the profitability of these candidates for us. If any of these occur, the development and commercialization of our product candidates could be delayed, curtailed or terminated because we may not have sufficient financial resources or capabilities to continue such development and commercialization on our own. If we rely on only one source for the manufacture of the clinical or commercial supplies of any of our product candidates or products, any production problems or supply constraints with that manufacturer could adversely impact the development or commercialization of that product candidate or product.

If we or our contractors or service providers fail to comply with regulatory laws and regulations, we or they could be subject to regulatory actions, which could affect our ability to develop, market and sell our product candidates and any other or future product candidates and may harm our reputation.

If we or our manufacturers or other third party contractors fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to regulatory actions, which could affect our ability to develop, market and sell our current product candidates or any future product candidates under development successfully and could harm our reputation and lead to reduced or non-acceptance of our proposed product candidates by the market. Even technical recommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make the manufacturing of a clinical product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost efficient manner. The mode of administration may make the product candidate not commercially viable. The required testing of the product candidate may make that candidate no longer commercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional Biosafety Committee; which may delay or make impossible clinical testing of a product candidate. The Data Safety Monitoring Committee for a clinical trial established by us may stop a trial or deem a product candidate unsafe to continue testing. This may have a material adverse effect on the value of the product candidate and our business prospects.

We will need to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of our current product candidates or any future product candidates, and our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.

We do not have the required financial and human resources to carry out on our own all the pre-clinical and clinical development for our vaccine product candidates or any other or future product candidates, and do not have the capability and resources to manufacture, market or sell our current product candidates or any future product candidates. Vaccines are often administered with one or more adjuvants, which if necessary we will have to procure from a third-party source. We will need to rely on a firm with expertise in producing a humanized form of our monoclonal antibody product candidates. Our business model calls for the partial or full outsourcing of the clinical and other development and manufacturing, sales and marketing of our product candidates in order to reduce our capital and infrastructure costs as a means of potentially improving our financial position. We currently are seeking a partner or licensee to be responsible for the early stage

 

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development of our monoclonal antibody product candidates. Since we do not have any significant efficacy data for these product candidates, it will be more difficult for us to obtain partners or licensees on attractive terms or at all at this stage. Accordingly, at the appropriate time, we will seek to enter into agreements with other companies that can assist us and provide certain capabilities that we do not possess. Even if we do succeed in securing these alliances, we may not be able to maintain them if, for example, development results are disappointing or approval of a product is delayed or sales of an approved product are below expectations. Furthermore, any delay in entering into agreements could delay the development and commercialization of our products and reduce their competitiveness even if they reach the market. Any such delay related to our agreements could adversely affect our business.

Risks Relating to our Intellectual Property

Our patents and maintenance of trade secrets may not protect the proprietorship of our products, impairing our competitive position, and our business, financial condition and results of operations could be adversely affected.

Our ability to compete successfully will depend significantly on our ability to obtain patent coverage for our products throughout their product lifetimes, defend patents that may have issued, protect trade secrets and operate without infringing the proprietary rights of others or others infringing on our proprietary rights. Although Cedars-Sinai as our licensor has filed applications relative to a number of aspects of our cancer vaccine technology, we are responsible going forward to prosecute these patent applications. The patent situation in the fields of cancer vaccine technology and monoclonal antibody and stem cell technologies is highly uncertain and involves complex legal and scientific questions.

The U.S. Patent and Trademark Office issued patents covering ICT-107 and certain other aspects of our cancer vaccine technology which we first licensed from Cedars-Sinai in 2006. We also have filed a U.S. provisional patent application and an international application covering our cancer stem cell vaccine product candidate, ICT-121. There is no assurance, however, that any patent will issue from this provisional patent application in the United States or any foreign jurisdiction. Moreover, the patents licensed from Cedars-Sinai and any patent that may issue to us in the future may be challenged, invalidated or circumvented by others.

Even if we have or are subsequently able to obtain patent protection for our vaccine product candidates or any of our other or future product candidates, there is no guarantee that the coverage of these patents or the existing patents we own covering our monoclonal antibody based technology will be sufficiently broad to protect us from competitors with the same or similar technologies, or that we will be able to enforce our patents against potential infringement by third parties. Patent litigation is expensive, and we may not be able to afford the costs. We may not become aware on a timely basis that products we are developing or marketing infringe the rights of others, nor may we be able to detect unauthorized use or take appropriate and timely steps to enforce our own intellectual property rights. We may not hold or be able to obtain all of the proprietary rights to certain patents, process patents, and use patents that may be owned or controlled by third parties. As a result, we may be required to obtain additional licenses under third party patents to market certain of our potential products. If licenses are not available to us on acceptable terms, or at all, we may not be able to market these products or we may be required to delay marketing until the expiration of such patents. Protecting our intellectual property rights may also consume significant management time and resources.

Dr. John Yu, a co-inventor of our cellular-based therapy technology who serves as our Chairman of the Board and Chief Scientific Officer, is employed by Cedars-Sinai, which may assert that future intellectual property generated by Dr. Yu belongs to that institution rather than to us, and we may be required to seek a license from Cedars-Sinai for any such rights.

Nondisclosure agreements with employees and third parties may not adequately prevent disclosure of trade secrets and other proprietary information.

In order to protect our proprietary technology and processes, we will also rely in part on nondisclosure agreements with our employees, licensing partners, consultants, agents and other organizations to which we

 

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disclose our proprietary information. These agreements may not effectively prevent disclosure of confidential information, may be limited as to their term, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such party. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. Since we will rely on trade secrets and nondisclosure agreements, in addition to patents, to protect some of our intellectual property, there is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. We may not be able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights.

The manufacture, offer for sale, use or sale of our current product candidates or any future product candidates may infringe on the patent rights of others, and we may be forced to take additional licenses, or litigate if an intellectual property dispute arises.

Should third parties patent specific cells, systems, receptors, monoclonal antibodies or other items that we are seeking to utilize in our development activities, we may be forced to license rights from these parties or abandon our development activities if we are unable to secure these rights on attractive terms or at all. In light of the large number of companies and institutions engaged in research and development in the cellular therapy and monoclonal antibody fields, we anticipate that many parties will be seeking patent rights for many cellular or monoclonal antibody based technologies and that licensing and cross-licensing of these rights among various competitors may arise. Specifically, our dendritic cell-based vaccine product candidates utilize multiple antigens for which we may be required to obtain licenses from one or more other parties before we can commercialize them. We may not be able to obtain all of the licenses that we may need on attractive terms or at all, which could result in our having to reformulate or abandon this product candidate or delay its development or commercialization until the expiration of third party patent rights.

If we infringe or are alleged to have infringed another party’s patent rights, we may be required to defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, do not successfully defend an infringement action or are unable to have infringed patents declared invalid, we may:

 

   

incur substantial monetary damages;

 

   

encounter significant delays in marketing our current product candidates or any future product candidates; or

 

   

be unable to conduct or participate in the manufacture, use, offer for sale or sale of product candidates or methods of treatment requiring licenses.

Parties making such claims may be able to obtain injunctive relief that could effectively block our ability to further develop or commercialize our current product candidates or any future product candidates in the United States and abroad and could result in the award of substantial damages. Defense of any lawsuit or failure to obtain any such license could substantially harm us. Litigation, regardless of outcome, could result in substantial cost to and a diversion of efforts by us.

 

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Risks Related our Common Stock

Our stock price may be volatile, and your investment in our common stock could decline in value.

The market prices for our common stock and the securities of other development state pharmaceutical or biotechnology companies have been highly volatile and may continue to be highly volatile in the future. If the market price of our common stock declines, the per share value of the common stock you purchase will decline. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:

 

   

the progress and success of clinical trials and preclinical activities (including studies and manufacture of materials) of our product candidates conducted by us or our collaborative partners or licensees;

 

   

the receipt or failure to receive the additional funding necessary to conduct our business;

 

   

selling by large stockholders;

 

   

presentations of detailed clinical trial data at medical and scientific conferences and investor perception thereof;

 

   

announcements of technological innovations or new commercial products by our competitors or us;

 

   

developments concerning proprietary rights, including patents by our competitors or us;

 

   

developments concerning our collaborations;

 

   

publicity regarding actual or potential medical results relating to products under development by our competitors or us;

 

   

regulatory developments in the United States and foreign countries;

 

   

manufacturing or supply disruptions at our contract manufacturers, or failure by our contract manufacturers to obtain or maintain approval of the FDA or comparable regulatory authorities;

 

   

litigation or arbitration;

 

   

economic and other external factors or other disaster or crisis; and

 

   

period-to-period fluctuations in financial results.

Furthermore, during the last few years, the stock markets have experienced extreme price and volume fluctuations and the market prices of some equity securities continue to be volatile. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may cause the market price of shares of our common stock to decline.

Future equity issuances or a sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

Because we will continue to need additional capital to continue to expand our business and our research and development activities, among other things, we may conduct additional equity offerings. If we or our stockholders sell substantial amounts of our common stock (including shares issued upon the exercise of options and warrants) in the public market, the market price of our common stock could fall. A decline in the market price of our common stock could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. Furthermore, if we obtain funds through a credit facility or through the issuance of debt or preferred securities, these securities would likely have rights senior to your rights as a common stockholder, which could impair the value of our common stock.

 

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If we fail to adhere to the strict listing requirements of the NYSE MKT LLC, we may be subject to delisting. As a result, our stock price may decline and our common stock may be delisted. If our stock were no longer listed on the NYSE MKT, the liquidity of our securities likely would be impaired.

Our common stock currently trades on the NYSE MKT under the symbol “IMUC.” If we fail to adhere to the NYSE MKT LLC’s strict listing criteria, our stock may be delisted. This could potentially impair the liquidity of our securities not only in the number of shares that could be bought and sold at a given price, which might be depressed by the relative illiquidity, but also through delays in the timing of transactions and the potential reduction in media coverage. As a result, an investor might find it more difficult to dispose of our common stock. We believe that current and prospective investors would view an investment in our common stock more favorably if it continues to be listed on the NYSE MKT.

Our existing directors, executive officers and principal stockholders hold a substantial amount of our common stock and may be able to prevent other stockholders from influencing significant corporate decisions.

As of February 1, 2013, our directors and executive officers, including Dr. John Yu, beneficially owned approximately 12.63% of our outstanding common stock. Dr. Yu also currently is entitled to serve as a director and to designate two of our other directors. These stockholders, if they act together, and Dr. Yu, through his right to name himself plus two of our directors, may be able to direct the outcome of matters presented to our stockholders, including the election of our directors and other corporate actions such as:

 

   

our merger with or into another company;

 

   

sale of substantially all of our assets; and

 

   

amendments to our certificate of incorporation.

We also may choose in the future to enter into agreements with one or more investors in which we would agree to change the size or composition of our board of directors.

The decisions of these stockholders or any investor — designated directors may conflict with our interests or those of our other stockholders.

Potential conflicts of interest could arise for certain members of our management team in the performance of their services for us.

Dr. John Yu, our Chairman of the Board and Chief Scientific Officer, is a full-time employee of Cedars-Sinai, which owns shares of our common stock and where we previously conducted and plan to conduct future research and development work, including clinical trials of our vaccine product candidates. Potential conflicts of interest could arise as a result, including for Dr. Yu in performing services for us and for Cedars-Sinai, in establishing the terms under which Cedars-Sinai performs work for us, and in Cedars-Sinai conducting the research. Dr. Yu and other scientists associated with Dr. Yu at Cedars-Sinai may perform research in the field of brain tumors that is sponsored by other third parties. We will not acquire any interest in the intellectual property generated by this research, including several clinical trials with dendritic cell-based vaccines that have been completed or are planned to be initiated. These studies may compete for patients to be enrolled in our current or future clinical trials.

Substantial sales of our common stock could cause our common stock price to fall.

As of February 1, 2013, we had 51,532,151 shares of common stock outstanding and another 22,706,009 shares of common stock issuable upon exercise of options or warrants, most of which are eligible to be publicly resold under current registration statements or pursuant to Rule 144. The possibility that substantial amounts of our common stock may be sold in the public market may adversely affect prevailing market prices for our common stock and could impair our ability to raise capital through the sale of our equity securities.

 

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Item 1B. Unresolved Staff Comments.

None.

 

Item 2. Properties.

We currently maintain our corporate office in Woodland Hills, California under an operating lease through June 30, 2013 at a monthly rental rate of $4,410. We do not lease or own any other real property.

 

Item 3. Legal Proceedings.

We are not a party to any material legal proceedings. We may occasionally become subject to legal proceedings and claims that arise in the ordinary course of our business. It is impossible for us to predict with any certainty the outcome of any disputes that may arise, and we cannot predict whether any liability arising from claims and litigation will be material in relation to our financial position or results of operations.

 

Item 4. Mine Safety Disclosures.

Not applicable.

PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock has been traded on the NYSE MKT since May 30, 2012 under the symbol “IMUC.” Our common stock previously traded on the OTC Bulletin Board over-the-counter market. The following price information reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions:

 

Quarter Ended

   High      Low  

March 31, 2011

     2.55         1.29   

June 30, 2011

     2.45         1.57   

September 30, 2011

     2.28         1.31   

December 31, 2011

     1.72         1.20   

March 31, 2012

     3.40         0.98   

June 30, 2012

     4.00         2.05   

September 30, 2012

     3.96         2.25   

December 31, 2012

     2.93         1.51   

Stockholders

As of March 1, 2013, there were approximately 133 holders of record of our common stock, not including any persons who hold their stock in “street name.”

Dividend Policy

We have not paid any dividends on our common stock to date and do not anticipate that we will pay dividends in the foreseeable future. Any payment of cash dividends on our common stock in the future will be dependent upon the amount of funds legally available, our earnings, if any, our financial condition, our

 

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anticipated capital requirements and other factors that the Board of Directors may think are relevant. However, we currently intend for the foreseeable future to follow a policy of retaining all of our earnings, if any, to finance the development and expansion of our business and, therefore, do not expect to pay any dividends on our common stock in the foreseeable future.

Sales of Unregistered Securities

The following table provides information about the Company’s repurchases of its common stock during the year ended December 31, 2012.

 

Month

   Shares
Deemed to be
Repurchased 
(1)
     Average price
paid
per share
     Total number  of
shares

purchased as
part of
Publicly announced
Plans or

Programs
     Maximum
Number of Shares
that May Yet be
Purchased Under
the Plans or
Maximum
Number of Shares
that May Yet be
Purchased Under
the Plans or
Programs
 

January

     —         $ —           —           —     

February

     37,163       $ —           —           —     

March

     212,388       $ —           —           —     

April

     4,321       $ —           —           —     

May

     95,589       $ —           —           —     

June

     96,416       $ —           —           —     

July

     63,805       $ —           —           —     

August

     19,675       $ —           —           —     

September

     —         $ —           —           —     

October

     —         $ —           —           —     

November

     —         $ —           —           —     

December

     241,927       $ —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
     771,284       $ —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) - These shares are deemed to be repurchased through the cashless exercise of warrants and stock options during 2012.

Equity Compensation Plan Information

See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” of this Annual Report for information regarding securities authorized for issuance under our equity compensation plans, which information is incorporated herein by reference.

 

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Item 6. Selected Financial Data.

The data set forth below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included under Item 8 of this annual report on Form 10-K.

 

     For the Years Ended December 31,  
     2012     2011     2010     2009     2008  

Income Statement Data

          

Revenue

   $ —        $ —        $ —        $ 300,000      $ —     

Income (loss) from continuing operations

     (14,495,139     (5,719,903     (6,150,142     (2,626,205     (3,059,730

Income (loss) from continuing operations per share

     (0.35     (0.21     (0.32     (0.19     (0.24

Net (loss) attributable to common stockholders

     (14,495,139     (5,719,903     (8,242,642     (2,626,205     (3,059,730

Net (loss) per share attributable to common stockholders

     (0.35     (0.21     (0.43     (0.19     (0.24

Cash divdends declared per common share

     —          —          —          —          —     

Balance Sheet Data (as of year end)

          

Total assets

     27,019,201        7,150,757        5,365,150        1,472,716        3,128,382   

Cash and cash equivalents

     26,216,668        6,653,168        5,319,776        331,353        85,290   

Long-term obligations and redeemable preferred stock

     —          —          —          —          —     

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the information in this Item 7 together with our financial statements and notes thereto that appear elsewhere in this Annual Report. This Annual Report contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those presented under “Risk Factors” included in Item 1.A of Part I and elsewhere in this Annual Report.

Overview

ImmunoCellular Therapeutics, Ltd. (the “Company”) is a development stage company that is seeking to develop and commercialize new therapeutics to fight cancer using the immune system.

Since the Company’s inception on February 25, 2004, the Company has been primarily engaged in the acquisition of certain intellectual property, together with development of its product candidates and the recent clinical testing activities for one of its vaccine product candidates, and has not generated any recurring revenues. As of December 31, 2012, the Company entered the 21st month of the Phase II trial for ICT-107. The Company has also received FDA acceptance for two investigational new drugs, ICT-121 and ICT-140. As a result, the Company has incurred operating losses and, as of December 31, 2012, the Company had an accumulated deficit of $43,168,830. The Company expects to incur significant research, development and administrative expenses before any of its products can be launched and recurring revenues generated.

On January 31, 2006, we completed a merger pursuant to which Spectral Molecular Imaging, Inc. became our wholly owned subsidiary. At the time of the merger, we had virtually no assets or liabilities, and we had not conducted any business operations for several years. In connection with the merger, we changed our name from Patco Industries, Ltd. to Optical Molecular Imaging, Inc. and replaced our officers and directors with those of Spectral Molecular Imaging. Although we acquired Spectral Molecular Imaging in the merger, for accounting purposes the merger was treated as a reverse merger since the stockholders of Spectral Molecular Imaging acquired a majority of our outstanding shares of common stock and the directors and executive officers of Spectral Molecular Imaging became our directors and executive officers. Accordingly, our financial statements contained in this Report and the description of our results of operations and financial condition reflect the operations of Spectral Molecular Imaging through September 2006, when we sold that subsidiary and all of its operations to a third party.

In November 2006, we acquired an exclusive, worldwide license from Cedars-Sinai Medical Center for certain cellular-based therapy technology that we are developing for the potential treatment of brain tumors and other forms of cancer and neurodegenerative disorders. We have completed a Phase I clinical trial of a vaccine product candidate for the treatment of glioblastoma multiforme based on this technology and in January 2011, we initiated a Phase II clinical trial. During 2012 we completed our patient enrollment for this trial.

 

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In February 2008, we acquired certain monoclonal antibody related technology owned by Molecular Discoveries LLC. This technology consists of (1) a platform technology referred to by Molecular Discoveries as DIAAD for the potentially rapid discovery of targets (antigens) and monoclonal antibodies for diagnosis and treatment of diverse human diseases and (2) certain monoclonal antibody candidates for the potential detection and treatment of multiple myeloma, small cell lung, pancreatic and ovarian cancers. These monoclonal antibody programs are at a pre-clinical stage of development and will require further development before an IND can be potentially filed for human testing. We expect our potential partners or licensees to do this development work.

In February 2012, we acquired an exclusive world-wide license from the University of Pennsylvania related to patent technology for the production, use and cryopreservation of high-activity dendritic cell cancer vaccines, including ICT-107, the company’s lead dentritic cell-based cancer vaccine candidate for the treatment of glioblastoma multiforme.

Also in February 2012, we acquired an exclusive, worldwide license from The John Hopkins University (“JHU”) to certain patent-pending technology related to mesothelin-specific cancer immunotherapies.

In January 2013, the US Food and Drug Administration allowed our IND for a clinical trial for ICT-140 Phase IIa open-label safety study and we expect to enroll approximately 20 patients with ovarian cancer who have previously been treated with standard chemotherapeutic agents. This trial is expected to include three or four clinical sites in the US and we expect to initiate the trial in the second half of 2013.

Plan of Operation

We are a development stage company that is seeking to develop and commercialize new therapeutics to fight cancer using the immune system.

Since our company’s inception on February 25, 2004, we have been primarily engaged in the acquisition of certain intellectual property, together with the recent clinical testing activities for our vaccine product candidates, and have not generated any recurring revenues. As a result, we have incurred operating losses and, as of December 31, 2012 we had an accumulated deficit of $43,168,830. We expect to incur significant research, development and administrative expenses before any of our products can be launched and recurring revenues, if ever, are generated.

For additional information about our plan of business operation, see the “Business” section of this Annual Report included in Item 1 of Part I.

Critical Accounting Policies

Management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to impairment of long-lived assets, including finite lived intangible assets, accrued liabilities, fair value of warrant derivatives and certain expenses. We base our estimates on historical experience and on various other assumptions that we believe 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 materially from these estimates under different assumptions or conditions.

Our significant accounting policies are summarized in Note 2 of our financial statements for the period from February 25, 2004 to December 31, 2012. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:

Development Stage Enterprise

We are a development stage enterprise as defined by FASB ASC Topic 915, “Accounting and Reporting by Development Stage Enterprises.” We are devoting substantially all of our present efforts to research and development. All losses accumulated since inception are considered as part of our development stage activities.

 

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Research and Development Costs

Although we believe that our research and development activities and underlying technologies have continuing value, the amount of future benefits to be derived from them is uncertain. Research and development costs are therefore expensed as incurred rather than capitalized. During the years ended December 31, 2012, 2011 and 2010, we recorded an expense of $7,711,233, $4,988,612 and $2,292,630, respectively, related to research and development activities. We expect our research and development expenses in 2013 to continue to accelerate.

Stock-Based Compensation

Stock-based compensation expense is estimated as of the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally equals the vesting period, based on the number of awards that are expected to vest. Estimating the fair value for stock options requires judgment, including the expected term of our stock options, volatility of our stock, expected dividends, risk-free interest rates over the expected term of the options and the expected forfeiture rate. In connection with our performance based programs, we make assumptions principally related to the number of awards that are expected to vest after assessing the probability that certain performance criteria will be met.

Income Taxes

The Company accounts for federal and state income taxes under the liability method, with a deferred tax asset or liability determined based on the difference between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates. The Company’s provision for income taxes represents the amount of taxes currently payable, if any, plus the change in the amount of net deferred tax assets or liabilities. A valuation allowance is provided against net deferred tax assets if recoverability is uncertain on a more likely than not basis. The Company recognizes in its financial statements the impact of an uncertain tax position if the position will more likely than not be sustained upon examination by a taxing authority, based on the technical merits of the position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as operating expenses. The Company is not currently under examination by any taxing authority nor has it been notified of an impending examination. The Company’s tax returns for the years ended December 31, 2012, 2011 and 2010, remain open for possible review.

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheets for cash, cash equivalents, and accounts payable approximate their fair values due to their quick turnover. The fair value of warrant liability is estimated using the Binomial Lattice option valuation model.

Results of Operations

For the Years Ended December 31, 2012 and 2011

Revenues

We did not have any revenue in the years ended December 31, 2012 or 2011 and we do not expect to have any revenue in 2013.

Expenses

Research and development expenses during the year ended December 31, 2012 were $7,711,233 compared to $4,988,612 for the year ended December 31, 2011, an increase of $2,722,621. During 2011, we began our Phase II clinical trial for ICT-107 and enrolled a total of 99 patients and during 2012, we enrolled 179 patients. Also, during 2012, we began our pre-clinical work to develop ICT-140.

Our general and administrative expenses for the years ended December 31, 2012 and 2011 were $3,619,291 and $2,446,757 respectively. During the latter half of 2011, we incurred additional expenses in the areas of investor relations, travel, personnel, board and professional fees to expand our infrastructure. During 2012, our expenses in these areas continued to increase.

Our stock based compensation decreased from $1,190,133 during the year ended December 31, 2011, to $496,007 during the year ended December 31, 2012. During 2012, the Company issued stock options to its employees and directors with longer vesting periods.

 

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Additionally, the decrease in stock based compensation expense reflects the 2012 forfeiture of unvested stock options. There were no material stock option forfeitures in 2011.

Other Income and Expenses

The warrants issued as part of the February 2011 financing contained a provision whereby the exercise price of those warrants, and the number of underlying warrants, would be adjusted in the event that we subsequently sold shares of our common stock at a price that was less than $1.55 per share. As part of the January and October 2012 financings, we sold shares of our common stock at a price that was less than $1.55 per share and the exercise price of the February 2011 warrants was decreased from $2.25 to $1.87 and the number of warrants outstanding was increased by 563,851. We recorded a non-cash financing expense charge of $397,294 during the year ended December 31, 2012 to account for the issuance of these additional warrants. There was no comparable charge during the year ended December 31, 2011.

During the year ended December 31, 2012, we incurred $3,219,047 in non-cash expenses, consisting of $496,007 of stock based compensation, $397,294 financing expense associated with warrant repricing, $45,823 of depreciation and $2,279,923 related to the revaluation of our warrant derivatives accounted for as a liability. The value of our warrant derivative is highly influenced by the price of our Company’s common stock. As of December 31, 2012, the price of our common stock increased to $1.92 per share compared to $1.36 at December 31, 2011. During the year ended December 31, 2011, we incurred $1,210,490 in non-cash expenses, consisting of $1,190,133 of stock based compensation and $20,357 of depreciation expense. Also, during 2011, we recorded a credit of $2,901,253 related to the revaluation adjustment of our warrant derivatives accounted for as a liability.

Net Loss

We incurred a net loss of $14,495,139 during the year ended December 31, 2012 compared to a net loss of $5,719,903 in the year ended December 31, 2011. The increase in the net loss reflects the expansion of our research and development activities, increased general and administrative expenses and the change in the fair value of our warrant derivatives.

For the Years Ended December 31, 2011 and 2010

Revenue

We did not have any revenue in the years ended December 31, 2011 or 2010.

Expenses

Research and development expenses during the year ended December 31, 2011 were $4,988,612 compared to $2,292,630 for the year ended December 31, 2010, an increase of $2,695,982. The increase was primarily caused by expenses associated with our Phase II clinical trial for ICT-107, which we started in early 2011. Also, during 2010, we received a grant under the Patent Protection and Affordable Care Act that totaled $244,479, which was accounted for as an offset to research and development costs.

Our general and administrative expenses for the years ended December 31, 2011 and 2010 were $2,446,757 and $2,035,526, respectively. The increase in general and administrative expenses is primarily due to increased personnel costs, investor relations expenditures and professional fees.

Other Income and Expenses

During the year ended December 31, 2011, we incurred $1,210,490 in non-cash expenses, consisting of $1,190,133 of stock based compensation and $20,357 of depreciation expense. Also, during 2011, we recorded a credit of $2,901,523 related to the valuation adjustment of our warrant derivatives. During the year ended December 31, 2010, we incurred $1,829,724 in non-cash expenses consisting of $807,853 of stock based compensation, $3,633 of depreciation expense and $1,018,238 related to the valuation adjustment of our warrant derivatives.

 

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Net Loss

We incurred a net loss of $5,719,903 during the year ended December 31, 2011, compared to a net loss of $6,150,142 during the year ended December 31, 2010. The increase in research and development and general and administrative expenses in 2011 was offset by a credit in the amount of $2,901,253 related to a reduction in our warrant liability.

Liquidity and Capital Resources

As of December 31, 2012, we had working capital of $25,832,869, compared to working capital of $4,983,165 as of December 31, 2011.

The estimated cost of completing the development of either of our current vaccine product candidates and of obtaining all required regulatory approvals to market either of those product candidates is substantially greater than the amount of funds we currently have available. However, we believe that our existing cash balances will be sufficient to fund our operations through the end of 2013, although there is no assurance that such proceeds will be sufficient.

We do not have any bank credit lines. In October 2012, we completed a $21,000,000 underwritten public offering, before commissions and costs of approximately $1.6 million, of 10 million units priced at $2.10 per unit. Each unit consisted of one share of common stock and a warrant to purchase .45 of a share of our common stock at an exercise price of $2.65 per share. In January 2012, we completed a $10,438,380 underwritten public offering, before commissions and costs of approximately $1.1 million, of 9,489,436 units at a price of $1.10 per unit. Each unit consists of one share of stock and a warrant to purchase 0.5 of a share of our common stock at an exercise price of $1.41 per share. In February 2011, we completed an $8,090,644 private placement, before commissions and costs of $630,000, of 5,219,768 units at a price of $1.55 per unit, with each unit consisting of one share of our common stock and a warrant to purchase 0.5 of a share of our common stock at an exercise price of $2.25 per share. In May 2010, we raised $2,716,308 (after commissions and offering expenses) from the sale of 2,490,910 shares of common stock and warrants to purchase 1,245,455 shares of common stock at an exercise price of $1.50 per share. In March 2010, we raised $1,654,686 (after commissions and offering expenses) from the sale of 1,740,000 shares of common stock and warrants to purchase 696,000 shares of common stock at an exercise price of $1.15 per share.

We may also in the future seek to obtain funding through strategic alliances with larger pharmaceutical or biomedical companies. We cannot be sure that we will be able to obtain any additional funding from either financings or alliances, or that the terms under which we may be able to obtain such funding will be beneficial to us. If we are unsuccessful or only partly successful in our efforts to secure additional financing, we may find it necessary to suspend or terminate some or all of our product development and other activities.

As of December 31, 2012, we had no long-term debt obligations, no capital lease obligations, or other similar long-term liabilities. We have various purchase commitments for sponsored research and license fees. We have no financial guarantees, debt or lease agreements or other arrangements that could trigger a requirement for an early payment or that could change the value of our assets, and we do not engage in trading activities involving non-exchange traded contracts.

 

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Contractual Obligations

The following is a summary of our contractual obligations including those entered into subsequent to December 31, 2012.

 

     Total      Less than
1 year
     1-3
years
     3-5
years
     More than
5 years
 

Unconditional purchase obligations

   $ 1,375,314       $ 1,064,757       $ 310,557       $ —         $ —     

Operating lease obligation

   $ 26,460         26,460         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,401,774       $ 1,091,217       $ 310,557       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash Flows

For the Year Ended December 31, 2012 and 2011

We used $12,380,013 of cash in our operations during the year ended December 31, 2012, compared to $6,383,742 during the year ended December 31, 2011. During 2012, we continued the patient enrollement of ICT-107 that started in 2011 and we incurred certain expenses associated with the pre-clinical development of ICT-140. We also incurred additional general and administrative expenses to expand our infrastructure. During 2012, we incurred a non-cash charge of $2,279,923 related to the revaluation of our warrant derivatives. In 2011, we recorded a non-cash credit of $2,901,253 to reflect the decrease in our warrant derivative liability. During 2012, we incurred a non-cash charge for stock based compensation of $496,007 compared to $1,190,133 during 2011. Also, during 2012, we incurred a non-cash charge of $397,294 related to the increase in the number of warrants outstanding that was triggered by the January and October 2012 financings.

During the year ended December 31, 2012, we used $9,828 of cash in our investing activities for the acquisition of computers. During the year ended December 31, 2011, we used $84,392 of cash in our investing activities for the acquisition of property and equipment, primarily to support our research and development activities.

We received $31,953,341 of cash from our financing activities during 2012, consisting of $20,500 from the exercise of stock options, $3,201,918 from the exercise of warrants and $28,730,923 of net proceeds from the sale of our common stock and warrants. We received $7,801,526 of cash from our financing activities during 2011, consisting of $388,379 from the exercise of stock options, $53,018 from the repayment of a promissory note previously issued for common stock and $7,360,129 net proceeds from the sale of common stock and warrants.

For the Year Ended December 31, 2011 and 2010

We used $6,383,742 of cash in our operations during the year ended December 31, 2011, compared to $4,253,560 during the year ended December 31, 2010. During 2011, we substantially expanded our research and development activities related to our Phase II trial of ICT-107. During 2011, we had a non-cash benefit reduction in our warrant liabilities of $2,901,253, whereas in 2010, we incurred a non-cash charge to the increase in the warrant liability of $1,018,238. During 2011, we incurred a non-cash charge for stock based compensation of $1,190,133 compared to $745,697 during 2010.

During the year ended December 31, 2011, we used $84,392 of cash in our investing activities for the acquisition of property and equipment, primarily to support our research and development activities. We provided $1,065,331 of cash from our investing activities for the year ended December 31, 2010, consisting of $1,075,903 in sales of certificates of deposit offset by $10,572 in purchases of equipment.

We received $7,801,526 of cash from our financing activities during 2011, consisting of $388,379 from the exercise of stock options, $53,018 from the repayment of a promissory note previously issued for common stock and $7,360,129 net proceeds from the sale of common stock and warrants. We received $8,176,652 of cash from financing activities for the twelve months ended December 31, 2010, consisting of $26,500 from the exercise of stock options, $3,779,158 from sales of preferred stock and $4,370,994 from the sale of common stock.

 

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Off-Balance Sheet Arrangements

We are not party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Our market risk consists principally of interest rate risk on our cash and cash equivalents. Our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in interest rates, particularly because the majority of our investments are in short-term certificates of deposit.

Our investment policy restricts our investments to high-quality investments and limits the amounts invested with any one issuer, industry, or geographic area. The goals of our investment policy are as follows: preservation of capital; assurance of liquidity needs and best available return on invested capital. Some of the securities in which we invest may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with an interest rate fixed at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. To minimize this risk, in accordance with our investment policy, we maintain our cash and cash equivalents in short-term marketable securities, including money market mutual funds and certificates of deposit. The risk associated with fluctuating interest rates is limited to our investment portfolio. Due to the short-term nature of our investment portfolio, we believe we have minimal interest rate risk arising from our investments. As of December 31, 2012 and 2011, a 10% change in interest rates would have had an immaterial effect on the value of our short-term marketable securities. We do not use derivative financial instruments in our investment portfolio. We do not hold any instruments for trading purposes.

To date, we have operated exclusively in the U.S. and have not had any material exposure to foreign currency rate fluctuations.

 

Item 8. Financial Statements and Supplementary Data.

Our financial statements and notes thereto and the related reports of Marcum LLP are included in this Annual Report on Form 10-K beginning at page F-1 and are incorporated herein by reference.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

 

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow for timely decisions regarding required disclosure. As required by SEC Rule 15d-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2012, which is the end of the period covered by this report. Based on the foregoing, our principal executive and financial officers concluded that our disclosure controls and procedures were effective as of December 31, 2012.

 

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Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, and for assessing the effectiveness of internal control over financial reporting.

Internal control over financial reporting is intended to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of our assets that could have a material effect on our financial statements.

Management, with the participation of our principal executive and financial officers, conducted an evaluation of the effectiveness of our internal control over financial reporting, as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon its evaluation, management concluded that, as of December 31, 2012, our internal control over financial reporting was effective.

Our registered independent public accounting firm, Marcum LLP, as auditors of the Company, have audited our internal controls over financial reporting as of December 31, 2012, and their report appears herein.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during the most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

None.

 

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PART III.

 

Item 10. Directors, Executive Officers and Corporate Governance.

Executive Officers and Directors

The following table sets forth the name, age and positions held by each of our executive officers and directors. Directors are elected for a period of one year and until the next annual meeting at which their successors are duly elected.

 

Name

  

Age

  

Position(s)

John S. Yu, M.D.

   49    Chairman of the Board and Chief Scientific Officer

Andrew Gengos

   48    President, Chief Executive Officer and Director

Richard Chin, M.D.(1)(3)(4) (5)

   46    Director

Richard A. Cowell(1)(2)(3) (5)

   65    Director

Helen S. Kim(2)(4) (5)

   50    Director

Rahul Singhvi, Sc.D.(1)(2)(3)(4) (5)

   48    Lead Director

Gary S. Titus(2)(3)(4) (5)

   53    Director

James Bender, Ph.D.

   63    Vice President – Product Development and Manufacturing

David Fractor

   53    Chief Financial Officer and Treasurer

 

(1) 

Member of our Compensation Committee

(2) 

Member of our Nominating and Corporate Governance Committee

(3) 

Member of our Audit Committee

(4) 

Member of our Finance Committee

(5) 

Denotes independent Director

Business Experience and Directorships

The following describes the backgrounds of current executive officers and directors. Our board of directors has determined that (a) all of our directors during the year ended December 31, 2012, other than Mr. Gengos and Dr. Yu are independent directors as defined in the NYSE MKT rules governing members of boards of directors and (b) the members of our Audit Committee are independent under applicable SEC rules. Under his current right to designate two other members of our board of directors, Dr. Yu has designated Helen Kim to serve as a director and has the right to designate one other member.

John S. Yu, M.D.

Dr. Yu has served as our Chief Scientific Officer and a director since November 2006 and Chairman of the Board since January 2007. Dr. Yu also served as Interim Chief Executive Officer from August 2012 until November 2012. He is a member of the full-time faculty in the Department of Neurosurgery at Cedars-Sinai Medical Center where he has worked since 1997. An internationally renowned neurosurgeon, Dr. Yu’s clinical focus is on the treatment of malignant and benign brain and spinal tumors. He is also conducting extensive research in immune and gene therapy for brain tumors. He has also done extensive research in the use of neural stem cells as delivery vehicles for brain cancers and neurodegenerative diseases. He was inducted into Castle and Connelly’s America’s Top Doctors in 2005. Dr. Yu has published articles in a number of prestigious journals, including The Lancet, Cancer Research, Cancer Gene Therapy, Human Gene Therapy, Journal of Neuroimmunology, Journal of Neurological Science and Journal of Neurosurgery. Dr. Yu earned his bachelor’s degree in French literature and biological sciences from Stanford University and spent a year at the Sorbonne in Paris studying French literature. He also pursued a fellowship in immunology at the Institut

 

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Pasteur in Paris. He earned his medical degree from Harvard Medical School and master’s degree from the Harvard University’s Department of Genetics. He completed his neurosurgical residency at Massachusetts General Hospital in Boston. In addition, he was a Neuroscience Fellow at the National Institutes of Mental Health in the Neuroimmunology Unit at Massachusetts General Hospital from 1988 to 1989 and was a Culpepper Scholar at the Molecular Neurogenetics Unit at that hospital from 1993 to 1995. His other honors include the Preuss Award, Joint Section on Tumors, American Association of Neurological Surgeons and Congress of Neurologic Surgeons in 1995. He received the Academy Award from the American Academy of Neurological Surgery at its 1996 annual meeting. Other honors include the Young Investigator Award from the Congress of Neurological Surgeons in 2000, the National Brain Tumor Foundation Grant in 2001, and the Mahaley Clinical Research award from the American Association of Neurological Surgeons in 2005.

Dr. Yu, as a recognized leader in the field of neurosurgery, has extensive knowledge of current therapies and therapies under development for the treatment of brain tumors and has participated in numerous clinical trials for potential therapies in this field. As our Chief Scientific Officer and the co-inventor of our brain tumor vaccine technologies, Dr. Yu brings to the Board significant scientific expertise directly relevant to our product research and development activities.

Andrew Gengos

Mr. Gengos has served as our President, Chief Executive Officer and as a director since December 2012. Mr. Gengos was most recently the President and Chief Executive Officer of Neuraltus Pharmaceuticals, where he led implementation of the company’s clinical, regulatory, fundraising and business development strategies while operating the company on a virtual business model. Previously, he served for more than seven years with Amgen where, as Vice President, Strategy and Corporate Development, he managed Amgen’s worldwide in-and-outbound business development activities, including a broad slate of acquisitions, licensing, spin-outs, divestitures, corporate venture capital investments, which included board of director positions, and alliance management. In addition, he led the execution of strategic projects and supported the long-range planning process for the company. Before joining Amgen, Mr. Gengos was Vice President, Chief Financial Officer, and Chief Business Officer of Dynavax Technologies, where he led the company’s business functions, including finance and accounting, fundraising, budgeting and planning, and business development. Earlier in his career, Mr. Gengos served as Vice President of Strategy at the Chiron Corporation and as Senior Engagement Manager at McKinsey & Company. Mr. Gengos holds an MBA degree from the Anderson School of Management at the University of California, Los Angeles and a BS degree in chemical engineering from the Massachusetts Institute of Technology.

With more than 20 years in the life science industry, Mr. Gengos’ experience includes executive leadership positions in both large and emerging companies, with broad expertise in corporate strategy, business development and transactions, including mergers and acquisitions, financing, operations, commercial planning and healthcare policy.

Richard Chin, M.D.

Dr. Chin was appointed as a director in March 2012. Dr. Chin is a physician with extensive expertise in drug and biologics development. He has overseen multiple investigational new drug applications and new drug applications/biologic license applications, and has authored several textbooks on clinical trial medicine. Currently, Dr. Chin is the CEO of Kindred Bio. From 2008 until 2011, Dr. Chin served as a director and CEO of OneWorld Health, a nonprofit pharmaceutical company largely funded by the Bill and Melinda Gates Foundation. OneWorld Health is engaged in developing drugs for neglected diseases in impoverished countries. From 2006 to 2008, he was the CEO and President of OXiGENE. From 2004 to 2006, Dr. Chin was at Elan Corporation, where he served, among other roles, as Senior Vice President of Global Development. Dr. Chin also held various clinical and scientific roles for Genentech between 1999 and 2004, including Head of Clinical Research for the Biotherapeutics Unit, overseeing approximately half of the clinical programs at Genentech. Dr. Chin began his career at Procter and Gamble Pharmaceuticals, where he served as Associate

 

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Medical Director. He received a B.A. in Biology, magna cum laude, from Harvard University and the equivalent of a J.D. with honors from Oxford University in England under a Rhodes Scholarship. Dr. Chin holds a Medical Degree from Harvard Medical School and is licensed to practice medicine in California. He currently serves on the Adjunct Faculty of UCSF Medical School, and serves on the Board of Directors of several biotechnology companies, including Galena Biopharma.

Dr. Chin is highly qualified to serve as a member of the Board because of Dr. Chin’s expertise with drug development, his experience as both an executive and director of drug development companies, and his scientific and academic qualifications.

Colonel Richard A. Cowell, USA, (Ret.)

Colonel Richard A. Cowell, USA, (Ret.) has served as a director since June 2007. Colonel Cowell retired in 2011 as a Principal at Booz Allen Hamilton, Inc., where he was involved in advanced concepts, technology experimentation and integration, and establishing new business operations. Prior to joining Booz Allen Hamilton in March 1996, Colonel Cowell served in the United States Army for 25 years. Mr. Cowell serves as a director and Chair of the Audit Committee for Microvision, Inc. He holds a Top Secret security clearance with special accesses based on a special background investigation. Mr. Cowell holds a B.S. degree in accounting from Ohio State University.

Mr. Cowell brings to the Board both financial and accounting expertise as well as experience in the handling of Audit Committee matters for a public company. As consultant with a major consulting firm in the fields of technology experimentation and establishing new business operations, he brings to the Board strategic and business planning experience.

Helen S. Kim

Ms. Kim has served as a director since August 2011. She has been Chief Business Officer of NGM Pharmaceuticals, Inc., a privately held drug discovery company, since 2009, where she is responsible for all business functions and is active in raising capital. Ms. Kim served as President & Chief Executive Officer of KOSAN Biosciences from 2007 to 2008 where she restructured and repositioned the company prior to the successful sale of the company to Bristol-Myers Squibb. Ms. Kim served as Chief Program Officer for the Gordon and Betty Moore Foundation from 2003 to 2007. Ms. Kim previously held senior positions with Affymax, Inc., Onyx Pharmaceuticals, Inc., Protein Design Labs, Inc., and Chiron Corporation. She currently serves on the board of directors of Sunesis Pharmaceuticals. Ms. Kim received a M.B.A. in Marketing/Finance from the University of Chicago and a B.S. in Chemical and Biomedical Engineering from Northwestern University.

Having spent over twenty years in the biotech industry in various marketing, development and strategy positions, Ms. Kim brings to the Board significant experience and contacts in the pharmaceutical and life sciences industry. She has extensive knowledge in pharmaceutical product development and strategic planning that is directly relevant to the company’s activities.

Rahul Singhvi, Sc.D.

Dr. Singhvi has served as a director since June 2010 and as our Lead Director since December 2010. He is Managing Partner of Caliber Biotherapeutics, LLC, a private biotechnology company in Texas and Managing Partner of Axella Solutions, LLC, a strategic advisory Firm in Maryland. Dr. Singhvi was with Novavax, Inc., a biopharmaceutical company focused on developing novel, highly potent recombinant vaccines beginning in 2004 and served as President, Chief Executive Officer and a director of Novavax from August 2005 to April 2011. Dr. Singhvi was the Senior Vice President and Chief Operating Officer of Novavax from April 2005 to August 2005 and Vice President – Pharmaceutical Development and Manufacturing Operations from April 2004 to April 2005. For ten years prior to joining Novavax, Dr. Singhvi served in various positions with Merck

 

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& Co., Inc., culminating as Director of the Merck Manufacturing Division, where he helped develop several vaccines, including Zostavax ® , the only vaccine on the market to prevent shingles. Dr. Singhvi received his M.S. and Sc.D. degree in Chemical Engineering from the Massachusetts Institute of Technology. He also holds an M.B.A. from the Wharton School.

Dr. Singhvi brings to the Board experience and knowledge in the operation and leadership of early stage public healthcare companies. He also has extensive expertise and experience in the development and manufacturing of vaccines, which may assist the Board in its oversight of our cancer vaccine programs.

Gary S. Titus

Mr. Titus was appointed as a director in December 2012. He is currently the Senior Vice President and Chief Financial Officer of SciClone Pharmaceuticals, Inc. and has more than 20 years of business experience in the healthcare and biopharmaceutical industries. Mr. Titus has held the position of Chief Financial Officer at SciClone since 2008. Prior to SciClone, Mr. Titus served as Senior Vice President of Finance and Chief Financial Officer at Kosan Biosciences, prior to its acquisition by Bristol-Myers Squibb, in which transaction he played a significant role. Prior to that, Mr. Titus was Chief Financial Officer and Vice President at Nuvelo, Inc. Earlier in his career, Mr. Titus held a variety of positions with increasing management responsibilities at other companies, including Metabolex, Inc., Intrabiotics Pharmaceuticals, Inc., and Johnson & Johnson’s healthcare division LifeScan, Inc. Mr. Titus earned a Bachelor of Science degree in Accounting from University of South Florida and a Bachelor of Science degree in Finance from University of Florida and is a Certified Public Accountant. He also completed the Global BioExecutive Program at UC Berkeley’s Haas School of Business and is a member of several professional organizations.

Mr. Titus has extensive experience in working with public corporations in a variety of areas, including accounting, financial planning and analysis, SEC reporting, investor relations, business development, and corporate strategy.

James Bender, Ph.D.

Dr. Bender served as our Vice President – Clinical Development on a part time basis from September 2008 to February 2010 and has served as our Vice President – Product Development and Manufacturing on a full-time basis since February 2010. From 2002 through 2008, Dr. Bender held various positions at IDM Pharma, most recently as director of product development where he led that company’s efforts relating to the clinical development of a cancer vaccine for the treatment of lung cancer. Prior to that, he held various positions at Nexell Therapeutics relating to the development of therapeutic stem cell and cancer vaccine products. Prior to that, Dr. Bender spent 10 years with Baxter Healthcare Corporation, eight years with the University of New Mexico School of Medicine and five years with St. Joseph’s Hospital in Albuquerque, New Mexico. He has over 75 scientific publications, is an inventor of 11 U.S. patents and holds a Ph.D. degree in immunology from the University of New Mexico and an M.P.H. in laboratory management from the University of Michigan.

David Fractor

Mr. Fractor has served as our Treasurer and Chief Financial Officer on a part-time basis since April 2011. Since 2003, Mr. Factor has been a consultant providing financial consulting and strategic planning services, including Sarbanes-Oxley compliance consulting services, to a variety of companies in a variety of industries. From 1999 through 2003, Mr. Fractor was the Chief Financial Officer of HemaCare Corporation, a publicly traded corporation which collects, manufactures, tests and distributes blood products to hospitals and provides blood services to patients in hospital settings on an outsourcing basis. Mr. Fractor received his B.S. in Accounting from the University of Southern California in 1982 and is a certified public accountant and a member of AICPA and the California Society of CPA’s.

 

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Committees of the Board of Directors

Our board of directors has established an Audit Committee, which currently consists of Mr. Cowell, as Chairman, and Drs. Chin and Singhvi. The Audit Committee assists the board of directors in fulfilling its oversight responsibilities relating to:

 

   

the quality and integrity of our financial statements and reports;

 

   

the independent registered public accounting firm’s qualifications and independence; and

 

   

the performance of our internal audit function and independent registered public accounting firm.

The Audit Committee appoints the independent registered public accounting firm, reviews with that accounting firm the plans and results of the audit engagement, approves permitted non-audit services provided by our independent registered public accounting firm and reviews that firm’s independence. Mr. Cowell has been designated as an “audit committee financial expert” as defined under Item 407(d)(5) of Regulation S-K of the Securities Exchange Act of 1934 (the “Exchange Act”).

Our board of directors has established a Compensation Committee, which currently consists of Dr. Chin as Chairman, Dr. Singhvi and Mr. Cowell. The Compensation Committee reviews, and makes recommendations to the full board of directors relating to, the compensation of our officers and directors, including our officers’ annual salaries and bonuses and the terms and conditions of option grants to our officers and directors under our 2006 Equity Incentive Plan.

Our board of directors has established a Finance Committee currently consisting of Dr. Singhvi, as Chairman, Dr. Chin and Ms. Kim. The Finance Committee has oversight responsibility for all material financial matters affecting us, including capital management, funding strategy and investing activities related to our financial position and financing activities.

Our board of directors has established a Nominating and Corporate Governance Committee, which currently consists of Ms. Kim, as Chairwoman, Mr. Cowell and Dr. Singhvi. The Nominating and Corporate Governance Committee develops and recommends corporate governance guidelines to the Board, selects or recommends for selection nominees to serve on the Board, and oversees the evaluation of the Board and its committees.

The Charters of the Audit, Compensation and Nominating and Corporate Governance Committees are available on our website at www.imuc.com. All of our committee members are independent directors as required by applicable securities law and regulation and as defined in the NYSE Marketplace rules governing members of boards of directors.

Scientific Advisory Board

We have established a Scientific Advisory Board (“SAB”) currently consisting of Dr. Ronald Levy, Dr. John Boockvar, Dr. Peter Brooks, Dr. Sherie Morrison, Dr. Cohava Gelber, Dr. George Peoples and Dr. Zvi Ram to assist our management in the areas of expertise of the members of our SAB. We have compensated the members of our SAB from time to time through the grant of options to purchase our stock. In September 2009, we granted a five-year option to purchase 10,000 shares of our common stock to each of four members of our SAB for service as members on the SAB for the coming year at an exercise price of $0.95 per share, with such option to vest quarterly for the one-year period following the date of grant. In May 2010, we also granted a five-year option to purchase 10,000 shares of our common stock to another member of our SAB for services as a member for the coming year at an exercise price of $1.20 per share, with such option to vest quarterly for the one-year period following the date of grant. In December 2012, we granted a five-year option

 

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to purchase 15,000 shares of common stock at an exercise price of $2.13 per share to Dr. Keith Black (formerly a member and Chairman of the SAB) and a five-year option to purchase 10,000 shares of common stock at an exercise price of $2.13 to each of Drs. Boockvar, Brooks, Gelber, Morrison, Peoples and Ram for their continued service on our SAB, with such options to fully vest upon the completion of specific tasks assigned to the SAB.

Code of Ethics

Our Board of Directors has adopted a code of ethics covering all of our executive officers and key employees. A copy of our code of ethics is available on our website www.imuc.com, and will be furnished without charge to any person upon written request. Requests should be sent to: Secretary, ImmunoCellular Therapeutics, Ltd., 21900 Burbank Boulevard, 3rd Floor, Woodland Hills, California 91367. We will disclose on our website any waivers of, or amendments to, our code of ethics within four business days following the date of such amendment or waiver.

Stockholder Recommendation of Nominees to the Company’s Board of Directors

The Nominating and Corporate Governance Committee will consider Board nominees recommended by stockholders. In order for a stockholder to nominate a candidate for director, timely notice of the nomination must be given in writing to us at our principal executive office at 21900 Burbank Boulevard, 3rd Floor, Woodland Hills, CA 91367, Attention: Corporate Secretary. To be timely, the notice must be received by us no later than 120 days prior to the date on which the proxy statement for the preceding year’s Annual Meeting of Stockholders was mailed to stockholders. Notice of a nomination must include the proposer’s name, address and number of shares he or she owns; the name, age, business address, residence address and principal occupation of the nominee; and the number of shares beneficially owned by the nominee. It must also include any other information that would be required to be disclosed in the solicitation of proxies for election of directors under the federal securities laws. A stockholder must submit the nominee’s consent to be elected and to serve. The Nominating and Corporate Governance Committee may require any nominee to furnish any other information that may be needed to determine the eligibility and qualifications of the nominee. Any recommendations in proper form received from stockholders will be evaluated in the same manner that potential nominees recommended by our Board members or management are evaluated.

The Nominating and Corporate Governance Committee has not established any specific minimum qualifications for director candidates or any specific qualities or skills that a candidate must possess in order to be considered qualified to be nominated as a director. Qualifications for consideration as a director nominee may vary according to the particular areas of expertise being sought as a complement to the existing Board composition. In making its nominations, our Nominating and Governance Committee generally will consider, among other things, an individual’s business experience, industry experience, financial background, breadth of knowledge about issues affecting our company, time available for meetings and consultation regarding company matters and other particular skills and experience possessed by the individual. Although the Nominating and Corporate Governance Committee believes that director nominees should add to the range of backgrounds and experiences of the Company’s directors, neither the Committee nor the Board of Directors has a policy regarding the consideration of diversity in identifying and evaluating director nominees.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers, and holders of more than 10% of our common stock to file initial reports of ownership and changes in ownership with the SEC. Based on a review of such forms furnished to us and written representations from our executive officers and directors, we believe that during 2012 our directors, executive officers and 10% stockholders complied with all Section 16(a) filing requirements, with the exceptions noted below.

 

   

A late Form 4 report was filed for James G. Bender on July 31, 2012 to report the grant of an option to purchase 75,000 shares of our common stock on June 11, 2012;

 

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A late Form 4 report was filed for John S. Yu on December 18, 2012 to report the grant of an option to purchase 50,000 shares of our common stock on September 24, 2012;

 

   

A late Form 4 report was filed for Richard Cowell on December 18, 2012 to report the grant of an option to purchase 60,000 shares of our common stock on September 24, 2012;

 

   

A late Form 4 report was filed for Rahul Singhvi on December 18, 2012 to report the grant of an option to purchase 75,000 shares of our common stock on September 24, 2012;

 

   

A late Form 4 report was filed for Helen S. Kim on December 18, 2012 to report the grant of an option to purchase 45,000 shares of our common stock on September 24, 2012; and

 

   

A late Form 4 report was filed for Richard Chin on December 18, 2012 to report the grant of an option to purchase 10,000 shares of our common stock on August 2, 2012 and the grant of an option to purchase 50,000 shares of our common stock on September 24, 2012.

 

Item 11. Executive Compensation

Compensation Discussion and Analysis

We have adopted a performance-based compensation strategy that is intended to focus our executive officers on the achievement of near-term corporate goals as well as long-term strategic objectives. The Compensation Committee of our Board is responsible for evaluating and administering our compensation programs and practices to ensure that they properly incentivize our work force and appropriately drive corporate performance while remaining competitive with comparable life sciences companies competing in the California labor market. Our Compensation Committee reviews and approves all of our compensation policies, including executive officer salaries and bonuses, and recommends, for approval by our Board, equity incentive compensation. For the year ended December 31, 2012, we have determined that our named executive officers were Andrew Gengos, our current President and Chief Executive Officer, John Yu, MD, our interim President and Chief Executive Officer and Chief Scientific Officer during 2012, Manish Singh, PhD., our former President and Chief Executive Officer who resigned in August 2012, David Fractor, our Chief Financial Officer in 2012 and currently our Vice President, Finance and Principal Accounting Officer, and James Bender, our Vice President – Product Development and Manufacturing.

Objectives of our Executive Compensation Programs

Our compensation programs for our named executive officers are designed to achieve the following objectives:

 

   

attract, engage and retain exceptionally talented and highly experienced executive officers in the competitive and dynamic life sciences industry;

 

   

motivate and reward executive officers whose knowledge, skills and performance contribute to our success;

 

   

encourage and inspire our executive officers to achieve key corporate strategic objectives by linking incentive award opportunities to the achievement of individual and company-wide short- and long-term goals; and

 

   

align the interests of our executives and stockholders by motivating executive officers to increase stockholder value and rewarding executive officers when stockholder value increases.

We do not believe that our compensation policies and practices, for either our executive or our non-executive employees, are reasonably likely to give rise to risks that would have a material adverse effect on the Company.

Our Executive Compensation Programs

The components of our executive compensation program consist primarily of base salary, annual cash incentive bonuses, equity awards, broad-based benefits programs and severance compensation. We use an array of short-term compensation components (such as base salaries and cash incentive bonuses) and long-term compensation components (such as equity incentive compensation) to provide an overall compensation structure that is designed to both attract and retain key executives as well as provide incentives for the achievement of short- and long-term corporate goals and objectives. Our Compensation Committee uses its judgment and experience along with the recommendations of our Chief Executive Officer (other than in connection with his own compensation) to determine the appropriate mix of long-term and short-term compensation elements for each executive officer. Our Compensation Committee analyzes each of the primary elements of our compensation program to ensure that our executive officers’ overall compensation is competitive with executive officers with similar positions at comparable life sciences companies in the

 

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California labor market based on the recommendations of our Chief Executive Officer, analysis and input from our compensation consultant, Mary Ann Rafferty, an experienced sole practitioner who advises on life sciences compensation matters, and our Committee’s and other members of the Board’s experience and knowledge within the life sciences industry. Additionally, upon the recommendation of our Compensation Committee, our Board also approves specific performance goals and metrics applicable to performance-based compensation for our executive officers and approves stock option grants. Consistent with the objectives of our compensation program, the Compensation Committee applies the elements of our compensation program to position compensation to our named executive officers as a group competitively with respect to comparable life sciences companies while individualizing compensation elements for each executive officer in light of his respective performance, responsibilities, experience in the position and his or her potential contributions to our future growth. Accordingly, we have in the past and may in the future provide our Chief Executive Officer or other executive officers with compensation awards that may be significantly different from other executive officers.

Our Compensation Committee has adopted a pay-for-performance compensation philosophy and works within the general framework of this philosophy to determine each component of an executive officer’s compensation package based on numerous factors, including:

 

   

performance, including achievement of goals and objectives, and other expectations for the position and the individual;

 

   

the individual’s particular background and relevant expertise, including training and prior relevant work experience;

 

   

the individual’s role with us and the compensation paid to similar officers at other life sciences companies with which our Compensation Committee members are familiar;

 

   

the demand and competition for the position in the marketplace;

 

   

comparison to other executive officers within our Company having similar levels of expertise and experience; and

 

   

the recommendations of our Chief Executive Officer (other than in connection with his own compensation).

Each of the primary elements of our executive compensation program is discussed in more detail below. While we have identified particular compensation objectives that each element of executive compensation serves, our compensation programs are designed to be flexible and complementary and collectively serve all of our executive compensation objectives described above. Accordingly, whether or not specifically mentioned below, we believe that, as a part of our overall executive compensation policy, each individual element serves each of our objectives.

On an annual basis our Compensation Committee meets to review the performance of our Chief Executive Officer and our other executive officers. At these meetings, the Compensation Committee typically invites our Chief Executive Officer to participate in the discussion (excluding the Chief Executive Officer when the discussion pertains to the Chief Executive Officer) and the Compensation Committee seeks our Chief Executive Officer’s input on progress against specific company-wide and individual performance goals and the overall performance of each of our executive officers. In addition, periodically throughout the year, our Compensation Committee meets to review and decide compensation matters. At our Board meetings, the Compensation Committee reports its findings and decisions. From time to time, the Compensation Committee seeks additional input from the other non-employee directors who are not members of the Compensation Committee. Consistent with its charter, the Compensation Committee determines whether to approve compensation decisions within its authority or to recommend approval by the Board.

Our Compensation Committee engaged Mary Ann Rafferty as a consultant to assist us in obtaining and analyzing compensation data that would be relevant for our executive compensation program. Comparative data was utilized from the Radford Global Life Sciences Survey for life science companies of fifty employees or less in the Northern California area. In addition, the Compensation Committee relied on their own experience as investors and board members in similarly situated life science companies, sought the input of the Chief Executive Officer and our consultant, reviewed and compared the relative salaries of our executive officers and also considered the amount of equity each executive then held, including the vesting schedules for each executive officer’s equity incentive plan holdings.

Based on the judgment and experience of its members and the input and analysis provided by our consultant and the Chief Executive Officer (except with regard to his own compensation), the Compensation Committee decided that the total 2012 compensation for our Chief Executive Officer and other executive officers should be targeted with a general target of the 50th percentile, other than cases where the existing compensation for that individual exceeded the 50th percentile at the time of review, of compensation for executives holding similar positions in our peer group of companies, with equity compensation targeted at market ownership in the Company of 0.75% to 1.0%. In determining an executive officer’s award, the Compensation Committee examined market benchmark equity compensation data provided by our consultant.

 

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Annual Cash Compensation

Base Salary

Base salaries are set at levels that are intended to be competitive with those of executives holding similar positions at companies in our peer group, according to peer group salary data provided by our compensation consultant. The base salaries of all executive officers are reviewed annually and adjusted to reflect individual roles, performance and competitive compensation levels. We may also increase the base salary of an executive officer at other times if a change in the scope of the executive officer’s responsibilities justifies such consideration or, in limited circumstances, to maintain salary equity within our competitive environment. We also evaluate general economic conditions and our cash position in determining base salaries. We believe that a competitive base salary is a necessary element of any compensation program designed to attract and retain talented and experienced executives. We also believe that competitive base salaries can retain, motivate and reward executive officers for their overall performance. Our Compensation Committee decided to increase the salary of Dr. Bender by 7% effective February 1, 2012. Our Compensation Committee decided to increase Mr. Fractor’s monthly salary by 34% effective September 1, 2012 due to an increase in the time commitment for his position. Our Compensation Committee reset Dr. Yu’s base salary effective August 16, 2012 for his service as our Interim Chief Executive Officer and Dr. Yu’s base salary returned to its previous level effective December 1, 2012. Our Compensation Committee also set Mr. Gengos’ base salary effective December 3, 2012.

Cash Incentive Bonuses

Our annual compensation program includes a cash incentive bonus plan with pre-defined target payouts as a percentage of salary based on achievement of company and individual goals. Additionally, our Compensation Committee uses its discretion to determine bonuses for our executive officers based on the overall attainment of individual and/or corporate goals. Our bonus plan is designed to drive stockholder value by fostering teamwork throughout our Company by tying incentive compensation to the company-wide performance measures that we believe are most important to the success of our Company as well as to individual performance. An executive officer’s bonus payment is based on the achievement of both corporate and/or individual goals, which may include, for example, research, development, operational and financial goals. The relative weighting of each goal in determining the total bonus is approved each year by the Compensation Committee and may also be approved by our Board. Underachievement or overachievement of the major corporate goals may result in lower or higher bonus payments. Our Board or our Compensation Committee approves corporate and individual executive goals at what they believe are aggressive levels so as to require substantial effort and commitment by our executive officers to attain the goals, with the belief that such efforts will significantly contribute to increased stockholder value. Our Compensation Committee uses its discretion to adjust the amount of the cash bonuses paid and the weightings of each of the goals, and may also, in its discretion, award bonuses to executive officers based upon such other terms and conditions as they may determine are appropriate. In 2012, the target amount for the performance-based cash bonus was $40,000 for Dr. Yu and $34,100 for Dr. Bender. These target amounts were determined by our Compensation Committee, and recommended to and approved by our Board, based in part on our consultant’s analysis and benchmarking of our executives’ cash compensation against the total cash compensation for executives in similar positions at companies in our peer group. The Compensation Committee approved a discretionary bonus of $20,000 for exceptional contributions by Mr. Fractor during 2012. In addition, our Compensation Committee and our Board relied on their members’ experience in the life sciences industry in establishing this target amount. Consistent with past practices, and upon the recommendation of our Compensation Committee, our Board decided that the annual cash bonus for Drs. Yu and Bender would be based entirely on the achievement of corporate goals. The Board approved a set of corporate goals and assigned weightings ranging from 10% to 40% for the achievement of each objective. The primary factor in establishing the weightings was their level of importance to our business, with the expectation that a majority of the goals were achievable with appropriate and diligent effort by our executive team and that achievement of all of the goals would represent extraordinary performance on their part. Specifically, the Compensation Committee believes that it would be a stretch for the executives to achieve the 100% target level of the Company goals.

The 2012 corporate goals, their target weightings and the achievement level for each, were as follows:

 

   

complete patient enrollment for Phase II clinical trial by Q32012 (40% weighting);

 

   

initiate a clinical trial (submit IND) for ovarian cancer (15% weighting);

 

   

initiate a recurrent GBM or another indication trial (15% weighting);

 

   

successfully transfer manufacturing process from University of Pennsylvania to PCT by April 2012 (10% weighting);

 

   

create an adjuvant strategy for off-the-shelf vaccination and license various pieces from other companies (10% weighting); and

 

   

beat NASDAQ Biotech index (NBI) by 10% (10% weighting).

 

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In November 2012, the Compensation Committee evaluated the achievement of the corporate performance goals for 2012. While each corporate goal was initially assigned a weighting for purposes of determining the amount of executive officer bonuses, the Compensation Committee, in its discretion, evaluated the achievement of the goals in the context of our overall business and determined that for goals that were either fully or partially achieved, we achieved a combined total of 100% of our stated corporate goals, based on the target weightings as set forth above. Based on the Compensation Committee’s recommendation that our overall achievement of our 2012 corporate goals was at 100% of target, Dr. Yu’s cash incentive bonus for 2012 was approved by our Board at $40,000, or 100% of his target amount and Dr. Bender’s cash incentive bonus for 2012 was approved by our Board at $34,100, or 100% of his target amount. In addition, based on the Compensation Committee’s recommendation, the Board awarded Mr. Fractor a discretionary bonus of $20,000 for his contributions to the 2012 corporate goals. The cash incentive bonuses for the achievement of the corporate goals are paid annually to each executive officer.

Equity Incentive Compensation

We believe that our long-term performance is best facilitated through a culture of executive ownership that aligns the executive officers’ interests with the interests of our stockholders. To encourage this ownership culture, we typically make an initial grant of stock options to new employees and have made awards of additional stock options from time to time. Our Compensation Committee is authorized to determine and approve or recommend to the Board option grants to all our employees including our executive officers. These grants have an exercise price that is not less than the fair market value of our common stock on the grant date. The size of the stock option award is determined based on the executive officer’s position with us and takes into account the executive officer’s performance, as well as base salary and other compensation. The Compensation Committee also examines market benchmark data provided by our compensation consultant and considers the grant and compensation practices of our peer group companies and other life sciences companies with which our Compensation Committee members are familiar. The stock option awards are intended to provide the executive officer with an incentive to build value in the organization over an extended period of time.

Consistent with the above criteria, upon the recommendation of the Compensation Committee, our Board approved grants of equity incentive awards to our executive officers for 2012. These equity incentive awards were determined by the Compensation Committee. In determining the size of the award for each named executive officer, our Chief Executive Officer and Compensation Committee considered such named executive officer’s relative job scope and responsibilities, individual performance history, prior contributions to us and importance to achievement of our upcoming objectives, as well as the size of the officer’s prior equity grants (including how much of the equity was vested) and our Compensation Committee members’ experience with the practices of other life sciences companies and executive compensation data for our peer group companies. For more information regarding the grants for 2012, see the “Summary Compensation Table” and “Stock Option Grants.”

In December 2012, in connection with his hiring, we granted a seven-year option to purchase 700,000 shares of our common stock at an exercise price of $2.13 to Andrew Gengos for his service as our President and Chief Executive Officer, with such option to vest as to 175,000 shares one year after grant, and the remaining shares to vest thereafter in 36 equal monthly installments following the first anniversary of the grant date.

In June 2012, we granted a seven-year option to purchase 75,000 shares of our common stock at an exercise price of $3.42 per share to Dr. James Bender for his continued service as our Vice President – Product Development and Manufacturing, with such option to vest in 48 equal monthly installments over four years following February 1, 2012.

In February 2012, we granted a seven-year option to purchase 10,000 shares of our common stock at an exercise price of $1.90 to David Fractor for his continued service as our principal finance executive, with such option to vest in four equal quarterly installments for the one-year period following the date of grant, and may be exercised within its term during the period the grantee provides services to us and the 24 months after the grantee ceases providing services for any reason other than termination by us for cause.

Severance Compensation

In connection with certain terminations of employment, certain of our named executive officers may be entitled to receive severance payments and benefits pursuant to their respective employment agreements that provide alternative severance payments and benefits in the event the officer is terminated without cause or resigns with good reason from 90 days prior to or 12 months following certain corporate transactions. We entered into these agreements to retain and motivate our officers and minimize management distraction created by uncertain job security surrounding potential beneficial transactions. The agreements also provide alternative

 

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severance payments and benefits in the event that the officer is terminated without cause or resigns for good reason in the absence of such corporate transactions, and we believe that these benefits provide some degree of certainty and reduce distractions created by concerns about job security generally. The Compensation Committee approved different durations of severance benefits for different levels of our senior management based on the Compensation Committee members’ experience with other life sciences companies. These severance benefits are described more fully in “Compensation Discussion and Analysis—Change of Control and Severance Agreements.” In setting the terms of and determining whether to approve such arrangements, our Compensation Committee recognized that executives often face challenges securing new employment following termination. The severance payments and benefits are typically composed of cash payments and continued health care coverage for a limited period of time.

Other Compensation

All of our executive officers are eligible to participate in benefit plans and arrangements offered to employees generally, including health, dental and 401(k) plans. Consistent with our compensation philosophy, we intend to continue to maintain our current benefits for our executive officers. Our Compensation Committee in its discretion may revise, amend or add to any executive officer’s benefits and perquisites as it deems advisable. We do not believe it is necessary for the attraction or retention of management talent to provide our executive officers with a substantial amount of compensation in the form of perquisites.

Tax and Accounting Considerations

Section 162(m) of the Code generally disallows a tax deduction for compensation in excess of $1.0 million paid to our Chief Executive Officer and our three other most highly paid executive officers other than our Chief Financial Officer. Qualifying performance-based compensation is not subject to the deduction limitation if specified requirements are met. We generally intend to structure the performance-based portion of our executive compensation, when feasible, to comply with exemptions in Section 162(m) so that the compensation remains tax deductible to us. However, our Board may, in its judgment, authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believes that such payments are appropriate to attract and retain executive talent.

Also, the Compensation Committee takes into account whether components of our compensation program may be subject to the penalty tax associated with Section 409A of the Code, and aims to structure the elements of compensation to be compliant with or exempt from Section 409A to avoid such potential adverse tax consequences.

We account for equity compensation paid to our employees under ASC Topic 718, which requires us to estimate and record an expense over the employee’s requisite service period for each award. Our cash compensation is recorded as an expense at the time the obligation is accrued.

Compensation of Executive Officers

The following table sets forth the compensation for services paid in all capacities for the two fiscal years ended December 31, 2012 to Mr. Andrew Gengos, who has served as our President and Chief Executive Officer since December 3, 2012, Dr. John Yu, who served as our Interim President and Chief Executive Officer from August 16, 2012 to November 30, 2012 and Dr. Manish Singh who served as our President and Chief Executive Officer from February 2008 to August 15, 2012. Additionally, the table sets for the compensation for services paid to Dr. James Bender who has served as our Vice President Development and Manufacturing since February 2010 and Mr. David Fractor, who has served as our Chief Financial Officer since April 2011.

In determining the compensation of executive officers, the Compensation Committee and the Board of Directors considered the performance of the executive officers, attainment of corporate goals, compensation of executive officers of similar biotechnology companies, and recommendations from a compensation consultant.

 

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Summary Compensation Table

 

      Year      Salary
($)
    Bonus
($)
     Stock
Awards
($)
     Option
Awards

($) (9)
    Non-Equity
Incentive

Plan
Compensation
($)
     Nonqualified
Deferred
Compensation
Earnings

($)
     All Other
Compensation
($)
 

Andrew Gengos,

President and Chief Executive Officer

     2012       $ 33,333 (1)      —          —        $ 791,429 (10)      —          —          —    
     2011         —         —          —          —         —          —           —    

John Yu, MD

President and Chief Executive Officer

     2012       $ 67,732 (2)    $ 40,000         —        $ 70,500 (11)      —          —         $  108,993 (17) 
     2011         —          —          —          —         —          —           —    

Manish Singh, PhD.

President and Chief Executive Officer

     2012       $ 202,781 (3)    $ —           —          —         —          —          —    
     2011       $ 313,125 (4)    $ 50,000         —        $ 393,500 (12)      —          —          —    

David Fractor

Chief Financial Officer

     2012       $ 116,417 (5)    $ 20,000         —        $ 10,300 (13)      —          —          —    
     2011       $ 62,000 (6)      —           —        $ 52,180 (14)      —          —          —    

James Bender

Vice President - Product Development and Manufacturing

     2012       $ 186,917 (7)    $ 34,100         —        $ 145,425 (15)      —          —          —    
     2011       $ 174,583 (8)    $ 20,000         —        $ 134,800 (16)      —          —          —    

 

(1) Includes $33,333 for month of December 2012 for services rendered to us as President and Chief Executive Officer.
(2) Includes $19,352 for the period from August 15, 2012 through November 30, 2012 for services rendered to us as President and Chief Executive Officer.
(3) Includes $26,250 per month for the period January 1, 2012 to March 31, 2012 and $27,563 for the period April 1, 2012 to August 15, 2012 per month for services rendered to us as President and Chief Executive Officer.
(4) Includes $25,000 per month for the period from January 1, 2011 through February 18, 2011 and $26,250 from February 19, 2011 through December 31, 2011 for services rendered to us as President and Chief Executive Officer.
(5) Includes $8,000 per month for the Period January 1, 2012 through July 31, 2012 and $12,083 per month for the period August 1, 2012 to December 31, 2012.
(6) Includes $6,000 per month for the period April 1, 2011 to September 30, 2011 and $8,000 per month for the period October 1, 2011 to December 31, 2011.
(7) Includes $14,583 per month for the month of January 2012 and $15,667 per month for the period from February 1, 2012 to December 31, 2012.
(8) Includes $14,167 per month for the month of January 2011 and $14,583 for the period February 1, 2011 to December 31, 2011.
(9) This column represents option awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions with respect to the option grants, refer to Note 2 of our financial statements. These amounts do not correspond to the actual value that will be recognized by the named executives from these awards.
(10) Includes a seven-year option to purchase 700,000 shares of our common stock granted December 3, 2012, at an exercise price of $2.13 per share, vesting 175,000 shares on December 2, 2013 and the remaining shares vesting in 36 equal monthly installments thereafter.
(11) Includes a seven-year option to purchase 50,000 shares of our common stock granted September 24, 2012, at an exercise price of $3.00 per share, vesting quarterly over a four-year period from the date of grant.
(12) Includes (i) a seven-year option to purchase 20,000 shares of our common stock granted on April 4, 2011, at an exercise price of $2.25 per share, that was fully vested at the grant date; (ii) a seven-year option to purchase 90,000 shares of our common stock granted on April 4, 2011, at an exercise price of $2.25 per share vesting semi-annually over a one year period from the date of grant; (iii) a seven-year option to purchase 100,000 shares of our common stock at a price of $2.25 per share vesting annually over a period of two years from the date of grant, (iv) a seven-year option to purchase 50,000 shares of our common stock at a price of $2.25 per share, vesting is subject to our stock price achieving a market capitalization of at least $100 million for a period of ten consecutive trading days; (v) a seven-year option to purchase 50,000 shares of our common stock at a price of $2.25 per share, vesting is subject to our stock price achieving a market capitalization of at least $150 million for a period of ten consecutive trading days and (vi) a seven-year option to purchase 50,000 shares of our common stock at a price of $2.25 per share, vesting is subject to our stock pricing achieving a market capitalization of at least $150 million for a period of ten consecutive trading days.
(13) Includes a seven-year option to purchase 10,000 shares of our common stock granted on February 24, 2012, at an exercise price of $1.90 per share, vesting quarterly over a one-year period.
(14) Includes (i) a seven-year option to purchase 42,000 shares of our common stock granted on April 4, 2011, at an exercise price of $2.25 per share, vesting monthly over a period of 36 months from the date of issuance and (ii) a seven-year option to purchase 10,000 shares of our common stock granted on October 24, 2011, to purchase 10,000 shares of our common stock at an exercise price of $1.42, vesting annually over a four-year period.
(15) Includes a seven-year option to purchase 75,000 shares of our common stock at an exercise price of $3.42 per share, vesting monthly over a period of four year from the date of issuance.
(16) Includes (i) a seven-year option to purchase 60,000 shares of our common stock granted on April 4, 2011 at an exercise price of $2.25 per share, vesting in three annual installments from the date of grant; (ii) a seven-year option to purchase 20,000 shares of our common stock at a price of $2.25 per share, vesting is subject to our stock price achieving a market capitalization of at least $100 million for a period of ten consecutive trading days; (iii) a seven-year option to purchase 20,000 shares of our common stock at a price of $2.25 per share, vesting is subject to our stock achieving a market capitalization of at least $150 million for a period of ten consecutive trading days and (iv) a seven-year option to purchase 20,000 shares of our common stock at a price of $2.25 per share, vesting is subject to our stock price achieving a market capitalization of at least $200 million for a period of ten consecutive trading days.
(17) Includes $58,125 in cash for serving on our board of director and $50,868 in cash for serving as our Chief Scientific Officer.

 

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Stock Option Grants

The following table sets forth information as of December 31, 2012 concerning unexercised options, unvested stock and equity incentive plan awards for the executive officers named in the Summary Compensation Table.

 

    

Option Awards

 

Name

   Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
    Equity
Incentive
Plan Award:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
   Option
Exercise
Price
($)
     Option
Expiration
Date
 

Andrew Gengos

     —          700,000 (1)       $ 2.13         12/2/2019   

Dr. John Yu

     5,933,424 (2)         $ 1.00         11/16/2016   
     25,000 (3)         $ 1.30         11/4/2014   
     25,000 (4)         $ 0.27         9/28/2015   
     300,000 (5)         $ 0.25         2/25/2014   
     76,068 (6)         $ 0.95         9/13/2016   
     75,000 (7)         $ 0.90         2/28/2017   
     50,000 (8)         $ 0.90         9/27/2010   
     50,000 (9)         $ 2.25         4/3/2018   
     55,000 (10)         $ 1.42         10/23/2018   
     4,097 (11)      45,903 (11)       $ 3.00         9/23/2019   

David Fractor

     14,004 (12)      18,660 (12)       $ 2.25         4/3/2018   
     3,333 (13)      6,667 (13)       $ 1.42         10/23/2019   
     7,500 (14)      2,500 (14)       $ 1.90         2/23/2019   

Dr. James Bender

     20,000 (15)         $ 0.95         8/31/2016   
     75,000 (16)         $ 0.90         1/31/2017   
     25,000 (17)         $ 0.90         1/31/2017   
     25,000 (18)         $ 0.90         1/31/2017   
     20,000 (19)      40,000 (19)       $ 2.25         4/3/2018   
     20,000 (20)         $ 2.25         4/3/2018   
       40,000         $ 2.25         4/3/2018   
     10,940        64,060         $ 3.42         6/10/2019   

 

(1) Vested 175,000 on the one year anniversary after grant and then in 36 equal monthly installments. following the grant date on December 3, 2012.
(2) Vested upon issuance on November 17, 2006.
(3) Vested in quarterly installments over a one year period following the grant date on November 5, 2007.
(4) Vested in quarterly installments over a one year period following the grant date on September 29, 2008.
(5) Vested in quarterly installments over a one year period following the grant date on February 26, 2009.
(6) Vested in quarterly installments over a one year period following the grant date on September 14, 2009.
(7) Vested in quarterly installments over a one year period following the grant date on March 1, 2010.
(8) Vested in quarterly installments over a one year period following the grant date on September 27, 2010.
(9) Vested in three equal annual installments following the grant date on April 4, 2011.
(10) Vested in quarterly installments over a one year period following the grant date on October 24, 2011.
(11) Vests in quarterly installments over a four year period following the grant date of September 24, 2012.
(12) Vests in quarterly installments over a three year period following the grant date of April 4, 2011.
(13) Vests in three annual installments following the grant date on October 24, 2011.
(14) Vests in quarterly installments over a three year period following the grant date of February 24, 2012.
(15) Vested in monthly installments over a one year period following the grant date of September 14, 2009.
(16) Vested in monthly installments over a one year period following the grant date of February 1, 2010.
(17) Vested pursuant to milestones contained in employment contract.
(18) Vested pursuant to milestones contained in employment contract.
(19) Vests in three annual installments following the grant date on April 4, 2011.
(20) Vested pursuant to milestones contained in employment contract.
(21) Vested in quarterly installments over a four year period following the grant date of June 11, 2012.

 

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Name

   Grant
Date (1)
     All Other
Option
Awards:
No of
Securities
Underlying
Options
     Exercise or
Base of
Option
Awards
     Grant Date
Fair Value of
Option
Awards (2)
 

Andrew Gengos

     12/3/2012         700,000       $ 2.13       $ 791,429   

John Yu, MD

     9/24/2012         50,000       $ 3.00       $ 70,500   
     10/24/2011         55,000       $ 1.42       $ 42,350   
     4/4/2011         50,000       $ 2.25       $ 52,000   
     9/27/2010         50,000       $ 0.90       $ 31,000   
     3/1/2010         125,000       $ 0.90       $ 77,500   

Manish Singh, PhD

     4/4/2011         360,000       $ 2.25       $ 393,585   
     9/27/2010         30,000       $ 0.90       $ 18,600   
     2/18/2010         600,000       $ 0.90       $ 372,000   

David Fractor

     2/24/2012         10,000       $ 1.90       $ 10,300   
     10/24/2011         10,000       $ 1.42       $ 8,500   
     4/4/2011         42,000       $ 2.25       $ 43,680   

James Bender, PhD

     6/11/2012         75,000       $ 3.42       $ 145,500   
     4/4/2011         120,000       $ 2.25       $ 134,835   
     2/18/2010         150,000       $ 0.90       $ 93,000   

 

(1) All options were granted and approved on the same date with an exercise price equal to the closing market price of the Company’s common stock on the date of grant.
(2) This column represents option awards computed in accordance with FASB ASC Topic 718 excluding the effect of estimated forfeitures related to service-based vesting conditions.

Option Exercises in 2012

The following table summarizes the option exercises for each of our named executive officers for the year ended December 31, 2012.

 

     Stock Option Awards  

Name

   Number of
Shares
Acquired on
Exercise
     Value
Realized on
Exercise
($)(1)
 

Manish Singh

     409,523         1,290,000   

Manish Singh

     354,455         765,625   

James Bender

     14,679         43,890   

 

(1) The value realized on the exercise of stock options reflects the price at which shares acquired upon exercise of the stock options were sold or valued for income tax purposes, net of the exercise price for acquiring the shares.

 

     Our named executive officers do not have any equity awards outstanding other than stock options.

 

     We do not maintain any pension benefit plans or any nonqualified deferred compensation plans.

Change of Control and Severance Agreements

Change of control and severance agreements. We have entered into change of control and severance agreements with certain of our named executive officers, as set forth in their respective employment agreements.

The employment agreement with Mr. Gengos provides that in the event that we terminate his employment agreement without cause (as defined in the employment agreement) or Mr. Gengos terminates his employment agreement for good reason (as defined in the employment agreement), in either case prior to the closing of a change of control or more than 12 months following the closing of a change of control (as defined in the employment agreement), then (i) we upon such termination will be required to make a lump sum payment to Mr. Gengos equal to twelve months of his base annual salary; (ii) provided that Mr. Gengos timely elects continued coverage under COBRA, we will pay Mr. Gengos’ COBRA premiums to continue his coverage through the period starting on the separation from service and ending on the earliest to occur of (a) 12 months following separation from service, or (b) the date Mr. Gengos ceases to be eligible for COBRA continuation coverage for any reason; notwithstanding (a) or (b), if we determine that we cannot pay the COBRA premiums without a substantial risk of violating applicable law, we will instead pay to Mr. Gengos, on the first day of each calendar month, a fully taxable cash payment equal to the applicable COBRA premiums for that month, subject to applicable tax withholdings, for the remainder of the COBRA premium period; and (iii) we will accelerate the vesting of Mr. Gengos’ options so that 100% of his options will vest as of his last day of employment and will be exercisable for 90 days after termination.

 

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The employment agreement with Dr. Yu provides that in the event we terminate his employment agreement without cause (as defined in the employment agreement), then (i) we immediately upon termination will be required to pay to Dr. Yu any accrued but unpaid base salary, any earned but unpaid bonus and any expense reimbursement amounts owed by the Company to Dr. Yu through the date of termination; and (ii) any stock options granted to Dr. Yu pursuant to the employment agreement, to the extent vested, will be retained by Dr. Yu and will be exercisable for 12 months after termination. In the event that Dr. Yu terminates his employment agreement for Good Reason (as defined in the employment agreement), then (i) we will be required to pay to Dr. Yu within five days after termination any accrued but unpaid base salary, any earned but unpaid bonus and any expense reimbursement amounts owed by the Company to Dr. Yu through the date of termination; and (ii) any stock options granted to Dr. Yu pursuant to the employment agreement, to the extent vested, will be retained by Dr. Yu and will be exercisable for 12 months after termination. In the event that Dr. Yu terminates his employment agreement without Good Reason, upon 60 days written notice, then, (i) we immediately upon termination will be required to pay to Dr. Yu any accrued but unpaid base salary, any earned but unpaid bonus and any expense reimbursement amounts owed by the Company to Dr. Yu through the date of termination; and (ii) any stock options granted to Dr. Yu pursuant to the employment agreement, to the extent vested, will be retained by Dr. Yu and will be exercisable for 90 days after termination.

The employment agreement with Dr. Bender provides that in the event that we terminate his employment agreement without cause (as defined in the employment agreement) or Dr. Bender terminates his employment for good reason (as defined in the employment agreement), then (i) we upon such termination will be required to make a lump sum payment to Dr. Bender equal to six months of his base annual salary, (ii) any stock options granted to Dr. Bender, to the extent vested, will be retained by Dr. Bender and will be exercisable on the terms described in his employment agreement, and (iii) the vesting of an additional number of shares subject to all options granted to Dr. Bender equal to 50% of all shares subject to such options that vest solely on the passage of time and that have not already vested will immediately accelerate and will be exercisable on the terms described above. If Dr. Bender terminates his employment for good reason (as defined in the employment agreement) following a merger or similar corporate transaction in which we are not the surviving entity and the surviving entity does not offer Dr. Bender an executive position at a compensation level at least equal to his then compensation under his employment agreement, he will receive the severance benefits described in the preceding sentence, except that he will also be entitled to receive a lump sum payment equal to one year of his base annual salary and 100% of his options (whether vesting based solely on the passage of time or otherwise) will immediately accelerate and will be exercisable.

Estimated Change of Control and Severance Benefits

The following charts present the approximate amount of the benefits that each of our named executive officers would have been entitled to have his employment terminated under the circumstances described in the preceding paragraphs on December 31, 2012.

Change of control benefits. The following chart presents our estimates of the dollar values of the benefits to which each of the named executive officers would have been entitled had benefits for termination in connection with a change of control been triggered on December 31, 2012:

 

     Change of Control(1)  

Name

   Salary
Continuation
($)(2)
     Continuation of
COBRA
($)
     Equity
Acceleration
($)(3)
     Total
($)
 

Andrew Gengos

   $ 400,000       $ 26,352       $ —         $ 426,352   

John Yu, MD

   $ —         $ —         $ —         $ —     

David Fractor

   $ —         $ —         $ —         $ —     

James Bender

   $ 94,000       $ —         $ —         $ 94,000   

Manish Singh(4)

   $ —         $ —         $ —         $ —     

 

(1) As described above, these severance amounts are generally payable if the executive officer’s employment is terminated without cause or for good reason from 90 days prior to or 12 months following a change of control.
(2) Amounts in this column are based upon salary in effect as of December 31, 2012.
(3) The aggregate dollar value to be realized in connection with the acceleration of the equity awards represents the difference between the aggregate market value of our common stock underlying the accelerated stock options, which was based on our common stock’s closing price of $1.92 per share as of December 31, 2012, and the aggregate exercise price of the accelerated stock options.
(4) Dr. Singh resigned from the Company on August 14, 2012. Amounts for Dr. Singh represent the actual amounts received in connection with his resignation.

 

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Severance benefits. The following chart presents our estimates of the dollar values of the benefits to which each of the named executive officers would have been entitled had his employment terminated by us under the circumstances described above without cause or by the executive for good reason (other than in connection with a change of control) on December 31, 2012:

 

     Termination by the Company
Without Cause or Involuntary
Termination for Good Reason
 

Name

   Salary
Continuation
($)(1)
     Continuation of
COBRA
($)
     Total
($)
 

Andrew Gengos

   $ 400,000       $ 26,352       $ 426,352   

John Yu, MD

   $ —         $ —         $ —     

David Fractor

   $ —         $ —         $ —     

James Bender

   $ 188,000       $ —         $ 188,000   

Manish Singh(2)

   $ —         $ —         $ —     

 

(1) Amounts in this column are based upon salary in effect as of December 31, 2012.
(2) Dr. Singh resigned from the Company on August 14, 2012. Amounts for Dr. Singh represent the actual amounts received in connection with his resignation.

Employment Agreements and Offer Letter Agreement

We entered into employment agreements with certain of our named executive officers in connection with their commencement of employment with us. These employment agreements typically include the named executive officer’s initial base salary and stock option grant along with vesting provisions with respect to such initial stock option grant, as well as change of control and severance arrangements. See “Change of Control and Severance Agreements” above. We entered into an offer letter agreement with David Fractor in connection with his commencement of employment by us, including his initial base salary and stock option grant along with vesting provisions with respect to such initial stock option grant.

401(k) Plan

We have a 401(k) Plan to allow eligible employees to elect to reduce the amount of their compensation that is currently subject to income taxes. We currently do not make matching or other contributions to the 401(k) Plan on behalf of eligible employees, including our named executive officers.

Limitation on Liability and Indemnification Matters

Our Amended and Restated Certificate of Incorporation provides that, to the full extent permitted by the Delaware General Corporation Law, no director will be personally liable to us or our stockholders for or with respect to any acts or omissions in the performance of his or her duties as a director.

Our Amended and Restated Certificate of Incorporation also provides that each person who is or was or had agreed to become a director or officer, and each such person who is or was serving or who had agreed to serve at our request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other entity, will be indemnified by us to the full extent permitted by the Delaware General Corporation Law and will be entitled to advancement of expenses in connection therewith. Our Bylaws have similar indemnification provisions.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

In our employment agreements Dr. James Bender and David Fractor, we agreed to indemnify each of these officers for all claims arising out of performance of his duties, other than those arising out of his breach of the agreement or his gross negligence or willful misconduct.

In addition, we have entered into indemnification agreements with our directors, whereby we have agreed to indemnify our directors to the fullest extent permitted by law, including advancement of expenses incurred in legal proceedings to which the director was, or is threatened to be made, a party by reason of the fact that such director is or was a director, officer, employee or agent of the Company, provided that such director acted in good faith and in a manner that the director reasonably believed to be in, or not opposed to, the best interest of the Company.

 

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Rule 10b5-1 Sales Plans

Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our common stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from them. A director or officer can only enter into a 10b5-1 plan when he or she is not in possession of material non-public information regarding the Company. Under certain circumstances, a broker may subsequently execute trades pursuant to such plan, even if the director or officer has subsequently come into possession of material non-public information. The director or officer may amend or terminate the plan in some circumstances. Our directors and executive officers may also buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information.

Compensation of Directors

On December 10, 2010, our board of directors determined that each non-employee director will receive compensation in the form of cash and stock options for serving on the board and on board committees. The cash compensation consists of an annual retainer of $10,000 for serving as a director, a fee of $1,500 for each quarterly board meeting attended, a fee of $1,000 for each non-quarterly board meeting attended and a fee of $500 for each committee meeting attended (other than committee chairpersons). In addition, the Chairman of the Board receives an additional $5,000 annual retainer, the Chairperson of the Audit Committee receives a $7,500 annual retainer, the Chairpersons of the Compensation Committee, Finance Committee, and Nominating and Corporate Governance Committee receives a $5,000 annual retainer. As of January 1, 2011, the Lead Director will receive an additional $5,000 annual retainer. Each member of the board also received an annual restricted stock grant of 10,000 shares. On October 24, 2011, the grant of restricted stock to board

 

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members was eliminated and the cash fees were revised as follows: annual retainer for serving as a director, $25,000; in-person board meeting attendance, $2,500 per meeting; telephonic board meeting attendance, $750 per meeting; Chairman of the Board receives an additional $5,000 per year; Lead Director receives an additional $5,000 per year; Audit Committee Chairperson receives an additional $10,000 per year; the Chairpersons of the Compensation Committee, Finance Committee, Nominating and Corporate Governance Committee and Product Strategy Committee receive a $5,000 annual retainer; and all Committee members (except Chairpersons) receive $500 for each meeting they attend. All fees are to be paid quarterly. In addition, seven-year non-qualified stock options to purchase shares of our common stock are to be granted annually on the date of the annual stockholders’ meeting to each non-employee director at an exercise price equal to the last reported trading price of our common stock on that date, with such option to vest quarterly over the one-year period following the date of grant in the following amounts: Chairman of the Board – 50,000 shares, Lead Director – 20,000 shares, board members (other than Chair) 30,000 shares, Audit Committee Chair – 20,000 shares, Compensation Committee and Nominating and Corporate Governance Committee Chairs each to receive 10,000 shares, and members of Committees (other than Chairs) to receive 5,000 shares, with all vested options to be exercisable for 24 months after termination for any reason except termination for cause by us.

On August 2, 2012, the board compensation was further revised. The cash compensation consists of an annual retainer for serving as a director, $30,000; in-person board meeting attendance, $2,500 per meeting; telephonic board meeting attendance, $750 per meeting lasting one hour or less or $1,500 per meeting lasting more than one hour; Chairman of the Board receives an additional $5,500 per year; Lead Director receives an additional $5,500 per year; Audit Committee Chairperson receives an additional $11,000 per year; the Chairpersons of the Compensation Committee and Nominating, Finance and Corporate Governance Committee receive a $5,500 annual retainer; each member of the Audit, Compensation, Finance and Nominating and Governance Committees receive a $2,000 annual retainer; and all Committee members and invited board members receive $500 per meeting lasting one hour or less or $1,000 per meeting lasting more than one hour for each meeting they attend. Upon formation of an Executive Committee, each member will receive a $5,250 annual retainer and $750 per meeting lasting one hour or less or $1,500 per meeting lasting more than one hour. All fees are to be paid quarterly. In addition, seven-year non-qualified stock options to purchase shares of our common stock are to be granted annually on the date of the annual stockholders’ meeting to each non-employee director at an exercise price equal to the last reported trading price of our common stock on that date, with such option to vest quarterly over the four-year period following the date of grant in the following amounts: Chairman of the Board – 50,000 shares, Lead Director – 50,000 shares, board members (other than Chair and Lead) 30,000 shares, Audit Committee Chair – 20,000 shares, Compensation Committee, Finance and Nominating and Corporate Governance Committee Chairs each to receive 10,000 shares, and members of Committees (other than Chairs) to receive 5,000 shares, with all vested options to be exercisable for 24 months after termination for any reason except termination for cause by us.

The following table sets forth information concerning the compensation paid to each of our non-employee directors during 2012 for their services rendered as directors. The compensation of Mr. Gengos, who serves as a director and as our President and Chief Executive Officer and Dr. Singh, who previously served as a director and as our President and Chief Executive Officer, is described in the Summary Compensation Table of Executive Officers.

 

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Director Compensation for Fiscal Year 2012

 

Name

   Fees
Earned
or Paid
in Cash
     Stock
Awards
   Option
Awards (1)(7)
    Non-Equity
Incentive
Plan
Compensation
   Nonqualified
Deferred
Compensation
Earnings
   All
Other
Compensation
   Total  

Jacqueline Brandwynne

   $ 44,250          $ 0               $ 44,250   

Richard Chin

   $ 61,370          $ 113,228 (2)             $ 174,598   

Richard A. Cowell

   $ 69,250          $ 84,443 (3)             $ 153,693   

Navdeep Jaikaria

   $ 60,000          $ 0               $ 60,000   

Helen Kim

   $ 61,875          $ 63,332 (4)             $ 125,207   

Rahul Sighvi

   $ 76,000          $ 105,553 (5)             $ 181,553   

Gary Titus

   $ 0          $ 0               $ 0   

John Yu

   $ 58,125          $ 70,369 (6)             $ 128,494   

 

(1) This column represents the aggregate grant date fair value of options awarded computed in accordance with FASB ASC topic 718, excluding the effect of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions with respect to the option grants, refer to Note 2 of our financial statements. These amounts do not correspond to the actual value that will be recognized by the named directors from these awards.
(2) On April 17, 2012, we granted to Dr. Chin a seven-year non-qualified option to purchase 22,500 shares of our common stock at an exercise price of $2.71 per share, vesting quarterly over a one-year period for his services as a director and on August 2, 2012, we granted to Dr. Chin a seven-year non-qualified option to purchase 10,000 shares of our common stock at an exercise price of $2.94 per share that vested upon issuance. Additionally, on September 24, 2012, we granted to Dr. Chin a seven-year non-qualified option to purchase 50,000 shares of our common stock at an exercise price of $3.00 per share that vest quarterly over a period of four years.
(3) On September 24, 2012, we granted to Mr. Cowell a seven-year non qualified option to purchase 60,000 shares of our common stock at an exercise price of $3.00 per share that vest quarterly over a period of four years.
(4) On September 24, 2012, we granted to Ms. Kim a seven-year non qualified option to purchase 45,000 shares of our common stock at an exercise price of $3.00 per share that vest quarterly over a period of four years.
(5) On September 24, 2012, we granted to Dr. Singhvi a seven-year non qualified option to purchase 75,000 shares of our common stock at an exercise price of $3.00 per share that vest quarterly over a period of four years.
(6) On September 24, 2012, we granted to Dr. Yu a seven-year non qualified option to purchase 50,000 shares of our common stock at an exercise price of $3.00 per share that vest quarterly over a period of four years.
(7) As of December 31, 2012, our non-employee directors held vested and unvested options, which they received as compensation for their services as directors to purchase the following number of shares of our common stock: Jacqueline Brandwynne - 290,401 shares, Richard Chin - 82,500 shares, Richard Cowell - 333,301 shares, Helen Kim - 90,000 shares, Rahul Singhvi - 181,250 and John Yu - 281,068 shares.

 

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Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee is currently, or ever has been, an officer or employee of the Company. No executive officer of the Company has served as a member of the Board of Directors or Compensation Committee of any entity that has one or more executive officers serving as a member of our Compensation Committee.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth certain information regarding beneficial ownership of our common stock as of February 1, 2013 (a) by each person known by us to own beneficially 5% or more of any class of our common stock, (b) by each of our executive officers named in the Summary Compensation Table and our directors and (c) by all executive officers and directors of this company as a group. As of February 1, 2013, there were 51,532,151 shares of our common stock issued and outstanding. Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all the shares beneficially owned by them.

 

Name and Address of Beneficial Owner(1)

   Shares
Beneficially
Owned (2)
    Percentage of
Class
 

John S. Yu, M.D.

     6,614,076 (3)      11.37

Andrew Gengos

     0            

James Bender, Ph.D.

     227,554 (4)          

David Fractor

     65,375 (5)          

Richard Chin, M.D.

     33,125 (9)          

Richard A. Cowell

     290,801 (6)          

Helen Kim

     52,292 (7)          

Rahul Singhvi, Sc.D.

     161,875 (8)          

Gary S. Titus

     0            

All executive officers and directors as a group (9 persons)(10)

     7,445,098        12.63

 

* Less than 1%.
(1) Unless otherwise indicated, the address of each of the persons shown is c/o ImmunoCellular Therapeutics, Ltd., 21900 Burbank Boulevard, 3rd Floor, Woodland Hills, California 91367.
(2) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options, warrants and convertible securities currently exercisable or convertible, or exercisable or convertible within 60 days of February 1, 2013, are deemed outstanding, including for purposes of computing the percentage ownership of the person holding such option, warrant or convertible security, but not for purposes of computing the percentage of any other holder.

 

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(3) Includes 6,604,076 shares of our common stock issuable upon exercise of options.
(4) Includes 226,875 shares of our common stock issuable upon exercise of options
(5) Includes 40,375 shares of our common stock issuable upon exercise of options
(6) Includes 280,801 shares of our common stock issuable upon exercise of options.
(7) Includes 50,625 shares of our common stock issuable upon exercise of options.
(8) Includes 156,875 shares of our common stock issuable upon exercise of options.
(9) All of the shares shown are subject to options.
(10) Includes 7,392,752 shares of our common stock issuable upon exercise of options.

Equity Compensation Plan Information

The following table summarizes, as of December 31, 2012, (i) the number of shares of our common stock that are issuable under our equity compensation plans upon the exercise of outstanding options, warrants and other rights, (ii) the weighted-average exercise price of such options, warrants and rights, and (iii) the number of securities remaining available for future issuance under our equity compensation plans.

 

Plan Category

   Number of
securities to  be
issued upon
exercise of
outstanding options,
warrants and rights
     Weighted-average
exercise price of
outstanding options,
warrants and rights
     Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
 
     (a)      (b)      (c)  

Equity compensation plans approved by stockholders

     9,481,193       $ 1.26         2,225,862   

Equity compensation plans not approved by stockholders

     1,321,174       $ 1.24         —     
  

 

 

       

 

 

 

Total

     10,802,367       $ 1.25         2,225,862   
  

 

 

       

 

 

 

 

Our stockholders approved our Equity Plan. The only awards that are outstanding under the Equity Plan as of December 31, 2012 are options to acquire 3,547,669 shares of our common stock. In September 2008 our stockholders increased the authorized number of shares of our common stock available to be issued under the Equity Plan from 1,500,000 shares to 3,400,000 shares. In March 2010, our Board approved an increase in the number of shares of our common stock available to be issued under our Equity Plan from 3,400,000 shares to 6,000,000 shares, which was approved by our stockholders in September 2010. In October 2011, our stockholders increased the authorized number of shares of our common stock available to be issued under the Equity Plan from 6,000,000 to 8,000,000 shares.

In November 2006, we granted to Dr. John Yu (1) an option to purchase 150,000 shares of our common stock in consideration for his relinquishment of his royalty interest in the cellular-based therapy technology that we licensed and (2) an option to purchase 5,783,424 shares of our common stock in consideration of his agreeing to serve as our Chief Scientific Officer for a one-year term. Both options have an exercise price of $1.00 per share, a term of ten years and were fully vested upon grant. In November 2006, our stockholders approved these option grants to Dr. Yu.

 

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Equity compensation plans not approved by stockholders include (a) a ten year option to purchase 1,500,000 shares at an exercise price of $1.10 per share (of which 400,000 have been exercised) issued to Dr. Keith Black, on January 8, 2007 in connection with his appointment to our Scientific Advisory Board, and (b) two year and five year warrants to purchase up to a total of 221,174 shares of our common stock at exercise prices ranging from $1.50 to $2.00 issued pursuant to individual compensation arrangements entered into by us since March 22, 2010 with various consultants in connection with placement agent and advisory services.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Transactions with Related Persons

The company did not engage in any “transactions with related persons” as described under Item 404 of rules promulgated by the Securities and Exchange Commission during the years ended December 31, 2012 or December 31, 2011.

Independent Directors

Information regarding our independent directors is set forth above in Item 10, above, under the captions “Business Experience and Directorships” and “Committees of the Board,” which information is incorporated herein by reference.

 

Item 14. Principal Accounting Fees and Services.

The Audit Committee appointed Marcum LLP as our independent registered public accounting firm for the fiscal years ended December 31, 2012 and 2011. The following table shows the fees that were paid or accrued by us for audit and other services provided by Marcum LLP during these two years.

 

     2012      2011  

Audit fees (1)

   $ 118,744       $ 66,166   

Audit -related fees (2)

     —           —     

Tax fees (3)

     3,905         5,200   

All other fees (4)

     119,023         91,807   
  

 

 

    

 

 

 

Total*

   $ 241,672       $ 163,173   
  

 

 

    

 

 

 

 

(1) Audit fees represent fees for professional services provided in connection with the audit of our annual financial statements and the review of our financial statements included in our Form 10-Q quarterly reports and services that are normally provided in connection with statutory or regulatory filings for the 2010 and 2011 fiscal years.
(2) Audit-related fees represent fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and not reported above under “Audit Fees.”
(3) Tax fees represent fees for professional services related to tax compliance, tax advice and tax planning.
(4) These fees primarily represent fees for professional services related to the filing of various registration statements with the Securities and Exchange Commission.
* All fees paid to Marcum LLP were preapproved by the Audit Committee.

 

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PART IV.

 

Item 15. Exhibits and Financial Statement Schedules

The company’s financial statements and related notes thereto are listed and included in this Annual Report beginning on page F-1, which information is incorporated herein by reference. The following exhibits are filed with, or are incorporated by reference into, this Annual Report.

 

Exhibit
Number

  

Description

    2.1    Agreement and Plan of Reorganization dated as of May 5, 2005, as amended, among Patco Industries Subsidiary, Inc., William C. Patridge, and Spectral Molecular Imaging, Inc., as amended on June 30, 2005, September 26, 2005 and January 20, 2006. (1)
    3.1    Amended and Restated Certificate of Incorporation of ImmunoCellular Therapeutics, Ltd. (2)
    3.2    Certificate of Amendment of Amended and Restated Certificate of Incorporation of ImmunoCellular Therapeutics, Ltd. (2)
    3.3    Certificate of Amendment of Amended and Restated Certificate of Incorporation of ImmunoCellular Therapeutics, Ltd. (3)
    3.4    Certificate of Amendment of the Amended and Restated Certificate of Incorporation. (30)
    3.5    Amended and Restated Bylaws of ImmunoCellular Therapeutics, Ltd. (25)
    3.6    Amendment to the Amended and Restated Bylaws of ImmunoCellular Therapeutics, Ltd. (33)
    4.1    Form of Common Stock Certificate for ImmunoCellular Therapeutics, Ltd. (5)
    4.2    Warrant dated December 3, 2009 issued by ImmunoCellular Therapeutics, Ltd. to Socius Capital Group, LLC d/b/a Socius Life Sciences Capital Group, LLC (20)
    4.3    Amended Certificate of Designations of Preferences, Rights and Limitations of Series A Preferred Stock dated May 3, 2010. (22)
    4.4    Form of Warrant issued to participants in the March 2010 private placement to purchase shares of common stock of ImmunoCellular Therapeutics, Ltd. (22)
    4.5    Form of Warrant issued to participants in the May 2010 private placement to purchase shares of common stock of ImmunoCellular Therapeutics, Ltd. (23)
    4.6    Warrant dated May 2, 2010 for 1,350,000 shares issued by ImmunoCellular Therapeutics, Ltd. to Socius CG II, Ltd. (22)
    4.7    Form of Warrant issued to participants in the February 2011 private placement to purchase shares of common stock of ImmunoCellular Therapeutics, Ltd. (26)
    4.8    Form of Warrant issued to participants in the January 13, 2012 underwritten public offering. (31)
    4.9    Form of Specimen Preferred Stock Certificate and Form of Certificate of Designation of Preferred Stock*
    4.10    Form of Debt Indenture, between Registrant and one or more trustees to be named (35)
    4.11    Form of Senior Note*
    4.12    Form of Subordinated Note*
    4.13    Form of Common Stock Warrant Agreement and Warrant Certificate (35)
    4.14    Form of Preferred Stock Warrant Agreement and Warrant Certificate (35)
    4.15    Form of Debt Securities Warrant Agreement and Warrant Certificate (35)
  10.1    Amended and Restated 2006 Equity Incentive Plan of ImmunoCellular Therapeutics, Ltd. (30)

 

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  10.2    Form of Non-Qualified Stock Option Agreement for the 2006 Equity Incentive Plan of ImmunoCellular Therapeutics, Ltd. (12)
  10.3    Form of Incentive Stock Option Agreement for the 2006 Equity Incentive Plan of ImmunoCellular Therapeutics, Ltd. (12)
  10.4    Exclusive License Agreement dated as of November 17, 2006 between Cedars-Sinai Medical Center and ImmunoCellular Therapeutics, Ltd.† (8)
  10.5    First Amendment to Exclusive License Agreement dated as of June 16, 2008, between Cedars-Sinai Medical Center and ImmunoCellular Therapeutics, Ltd.† (9)
  10.6    Stock Purchase Agreement dated as of November 17, 2006 between Cedars-Sinai Medical Center and ImmunoCellular Therapeutics, Ltd. (8)
  10.7    Registration Rights Agreement dated as of November 17, 2006 between Cedars-Sinai Medical Center and ImmunoCellular Therapeutics, Ltd. (8)
  10.8    Securities Purchase Agreement dated as of November 17, 2006 between Dr. John Yu and ImmunoCellular Therapeutics, Ltd. (8)
  10.9    Agreement dated as of November 17, 2006 between Dr. John Yu and ImmunoCellular Therapeutics, Ltd.** (8)
  10.10    Nonqualified Stock Option Agreement dated as of November 17, 2006 between Dr. John Yu and ImmunoCellular Therapeutics, Ltd.** (8)
  10.11    Registration Rights Agreement dated as of November 17, 2006 between Dr. John Yu and ImmunoCellular Therapeutics, Ltd. (8)
  10.12    Employment Agreement dated as of February 18, 2009, between Dr. Manish Singh and ImmunoCellular Therapeutics, Ltd.** (17)
  10.13    Agreement dated as of February 14, 2008 between Molecular Discoveries, LLC and ImmunoCellular Therapeutics, Ltd. (11)
  10.14    Registration Rights Agreement dated as of April 14, 2008, between Molecular Discoveries, LLC and ImmunoCellular Therapeutics, Ltd. (15)
  10.15    Agreement dated as of August 1, 2008 between Dr. Cohava Gelber and ImmunoCellular Therapeutics, Ltd. ** (17)
  10.16    Office lease dated April 28, 2008 between Regent Business Centers and ImmunoCellular Therapeutics, Ltd., as amended. (17)
  10.17    Second Amendment dated August 1, 2009 to Exclusive License Agreement dated as of November 1, 2006 between Cedars-Sinai Medical Center and ImmunoCellular Therapeutics, Ltd. (19)
  10.18    Agreement dated as of September 1, 2009 between James G. Bender and ImmunoCellular Therapeutics, Ltd. **(19)
  10.19    Amendment No. 1 to Employment Agreement dated as of September 14, 2009 between James G. Bender and ImmunoCellular Therapeutics, Ltd. **(19)
  10.20    Preferred Stock Purchase Agreement dated as of December 3, 2009 between ImmunoCellular Therapeutics, Ltd. and Socius Capital Group, LLC d/b/a Socius Life Sciences Capital Group, LLC. (20)
  10.21    Employment Agreement dated as of October 30, 2009 between C. Kirk Peacock and ImmunoCellular Therapeutics, Ltd. **(21)
  10.22    Employment Agreement dated as of February 1, 2010 between James G. Bender and ImmunoCellular Therapeutics, Ltd. ** (27)
  10.23    Employment Agreement dated as of February 18, 2010 between Dr. Manish Singh and ImmunoCellular Therapeutics, Ltd. ** (27)
  10.24    Agreement dated March 1, 2010 between Dr. John Yu and ImmunoCellular Therapeutics, Ltd. ** (27)
  10.25    Securities Purchase Agreement dated March 29, 2010 between participants in the March 2010 private placement and ImmunoCellular Therapeutics, Ltd. (23)

 

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  10.26    Form of Registration Rights Agreement dated as of March 29, 2010 between participants in the March 2010 private placement and ImmunoCellular Therapeutics, Ltd. (22)
  10.27    Agreement dated as of March 4, 2010 between Dr. Elma Hawkins and ImmunoCellular Therapeutics, Ltd.** (22)
  10.28    Office Lease dated April 1, 2010 between Regent Business Centers and ImmunoCellular Therapeutics, Ltd. (22)
  10.29    Modification Agreement dated May 2, 2010 among Socius CG II, Ltd., Socius Life Sciences Capital Group, LLC and ImmunoCellular Therapeutics, Ltd. (22)
  10.30    Third Amendment dated March 26, 2010 to Exclusive License Agreement dated as of November 1, 2006 between Cedars-Sinai Medical Center and ImmunoCellular Therapeutics, Ltd. (22)
  10.31    Securities Purchase Agreement dated May 12, 2010 between participants in the May 2010 private placement and ImmunoCellular Therapeutics, Ltd. (23)
  10.32    Form of Registration Rights Agreement between participants in the May 2010 private placement and ImmunoCellular Therapeutics, Ltd. (23)
  10.33    Employment Agreement dated as of October 30, 2010 between C. Kirk Peacock and ImmunoCellular Therapeutics, Ltd.** (24)
  10.34    Office Lease dated May 7, 2010 between Regent Business Centers and ImmunoCellular Therapeutics, Ltd. (23)
  10.35    Purchase Agreement, dated as of February 22, 2011, by and between the ImmunoCellular Therapeutics, Ltd. and each investor named therein. (26)
  10.36    Registration Rights Agreement, dated as of February 22, 2011, by and among ImmunoCellular Therapeutics, Ltd. and the investors named therein. (26)
  10.37    Exclusive Sublicense Agreement dated May 28, 2010 between Targepeutics, Inc. and ImmunoCellular Therapeutics, Ltd. † (28)
  10.38    Sponsored Research and Vaccine Production Agreement dated January 1, 2011 between The Trustees of the University of Pennsylvania and ImmunoCellular Therapeutics, Ltd. † (28)
  10.39    Placement agent agreement dated March 30, 2010 between Gilford Securities Incorporated and ImmunoCellular Therapeutics, Ltd. (28)
  10.40    Placement agent agreement dated April 7, 2010 between Scarsdale Equities LLC and ImmunoCellular Therapeutics, Ltd. (28)
  10.41    Consulting Agreement dated October 1, 2010 between JFS Investments and ImmunoCellular Therapeutics, Ltd. (28)
  10.42    Advisory services agreement dated October 1, 2010 between Garden State Securities Inc. and ImmunoCellular Therapeutics, Ltd. (28)
  10.43    Co-placement Agents Agreement dated January 31, 2011 among Summer Street Research Partners, Dawson James Securities, Inc. and ImmunoCellular Therapeutics, Ltd. (28)
  10.44    Employment Agreement dated as of April 4, 2011 between David Fractor and ImmunoCellular Therapeutics, Ltd. ** (29)
  10.45    Employment Agreement dated as of February 1, 2011 between Dr. James Bender and ImmunoCellular Therapeutics, Ltd. ** (29)
  10.46    Employment Agreement dated as of February 18, 2011 between Dr. Manish Singh and ImmunoCellular Therapeutics, Ltd. ** (29)
  10.47    Agreement dated as of March 1, 2011 between Dr. John Yu and ImmunoCellular Therapeutics, Ltd. ** (29)
  10.48    Agreement dated as of March 4, 2011 between Dr. Elma Hawkins and ImmunoCellular Therapeutics, Ltd. ** (29)
  10.49    Office Lease dated June 14, 2011 between Regent Business Centers and ImmunoCellular Therapeutics, Ltd. (29)

 

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  10.50    Patent License Agreement, effective February 10, 2012, among The Trustees of the University of Pennsylvania and ImmunoCellular Therapeutics, Ltd.†(32)
  10.51    Exclusive License Agreement, effective February 16, 2012, between the Johns Hopkins University and ImmunoCellular Therapeutics, Ltd.†(32)
  10.52    Office Lease dated July 1, 2012 between Regent Business Centers and ImmunoCellular Therapeutics, Ltd. (34)
  10.53    Form of Warrant issued to participants in the October 18, 2012 underwritten public offering.(36)
  10.54    Employment Agreement dated December 3, 2012 between Andrew Gengos and ImmunoCellular Therapeutics, Ltd.** ***
  10.55    Form of Stock Option Grant Notice for the 2006 Equity Incentive Plan of ImmunoCellular Therapeutics, Ltd.***
  23.1    Consent of Marcum LLP. ***
  24.1    Power of Attorney (included in the signature page hereto)***
  31.1    Certification of the registrant’s Principal Executive Officer under Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.***
  31.2    Certification of the registrant’s Principal Financial Officer under Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.***
  32.1    Certification of the registrant’s Principal Executive Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.***
  32.2    Certification of the registrant’s Principal Financial Officer under 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.***
101    The following financial information from the Annual Report on Form 10-K of ImmunoCellular, Ltd. for the year ended December 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (1) Balance Sheets as of December 31, 2012, and 2011; (2) Statements of Operations for the years ended December 31, 2012, 2011 and 2010 and from February 25, 2004 (Inception) to December 31, 2012; (3) Statements of Stockholders’ Equity (Deficit) from February 25, 2004 (Inception) through December 31, 2012; (4) Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010 and from February 25, 2004 (Inception) to December 31, 2012; and (5) Notes to Financial Statements.

 

Certain portions of the exhibit have been omitted based upon a request for confidential treatment filed by us with the Securities and Exchange Commission. The omitted portions of the exhibit have been separately filed by us with the Securities and Exchange Commission.
* To be filed by amendment.
** Indicates a management contract or compensatory plan or arrangement.
*** Filed with this Form 10-K.
(1) Previously filed by us on January 26, 2006 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.
(2) Previously filed by us on November 3, 2006 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.

 

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(3) Previously filed by us on May 9, 2007 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.
(4) Previously filed by us on February 6, 2006 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.
(5) Previously filed by us on February 12, 2007 as an exhibit to our Registration Statement on Form SB-2, File No. 333-140598, and incorporated herein by reference.
(6) Previously filed by us on May 1, 2007 as an exhibit to our Registration Statement on Form SB-2, File No. 333-142480, and incorporated herein by reference.
(7) Previously filed by us on July 12, 2007 as an exhibit to our Registration Statement on Form SB-2, File No. 333-144521, and incorporated herein by reference
(8) Previously filed by us on November 22, 2006 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.
(9) Previously filed by us on August 14, 2008 as an exhibit to our Quarterly Report on Form 10-Q and incorporated herein by reference.
(10) Previously filed by us on September 14, 2007 as an exhibit to our Registration Statement on Form SB-2/A, File No. 333-144521 and incorporated herein by reference.
(11) Previously filed by us on March 25, 2008 as an exhibit to our Annual Report on Form 10-KSB and incorporated herein by reference.
(12) Previously filed by us on November 9, 2007 as an exhibit to our Registration Statement on Form S-8, File No. 333-147278, and incorporated herein by reference.
(13) Previously filed by us on November 6, 2007 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.
(14) Previously filed by us on April 2, 2007 as an exhibit to our Annual Report on Form 10-KSB and incorporated herein by reference.
(15) Previously filed by us on April 16, 2008 as an exhibit to our Registration Statement on Form S-1, File No. 333-150277, and incorporated herein by reference.
(16) Previously filed by us on November 13, 2008 as an exhibit to our Quarterly Report on Form 10-Q and incorporated herein by reference.
(17) Previously filed by us on March 30, 2009 as an exhibit to our Annual Report on Form 10-K and incorporated herein by reference.
(18) Previously filed by us on August 14, 2009 as an exhibit to our Quarterly Report on Form 10-Q and incorporated herein by reference.
(19) Previously filed by us on November 13, 2009 as an exhibit to our Quarterly Report on Form 10-Q and incorporated herein by reference.
(20) Previously filed by us on December 7, 2009 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.
(21) Previously filed by us on December 23, 2009 as an exhibit to our Registration Statement on Form S-1 and incorporated herein by reference.

 

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Table of Contents
(22) Previously filed by us on May 12, 2010 as an exhibit to our Registration Statement on Form S-1 to SB-2, File No. 333-144521 and incorporated herein by reference.
(23) Previously filed by us on May 18, 2010 as an exhibit to our Quarterly Report on Form 10-Q and incorporated herein by reference.
(24) Previously filed by us on November 15, 2010 as an exhibit to our Quarterly Report on Form 10-Q and incorporated herein by reference.
(25) Previously filed by us on January 11, 2011 as an exhibit to our Registration Statement on Form S-8, File No. 333-171652 and incorporated herein by reference.
(26) Previously filed by us on February 25, 2011 as an exhibit to our current report on Form 8-K and incorporated herein by reference.
(27) Previously filed by us on March 31, 2010 as an exhibit to our Annual Report on Form 10-K and incorporated herein by reference.
(28) Previously filed by us on March 31, 2011 as an exhibit to our Annual Report on Form 10-K and incorporated herein by reference.
(29) Previously filed by us on August 18, 2011 as an exhibit to our Quarterly Report on Form 10-Q and incorporated herein by reference.
(30) Previously filed by us on November 14, 2011 as an exhibit to our Quarterly Report on Form 10-Q and incorporated herein by reference.
(31) Previously filed by us on January 10, 2012 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.
(32) Previously filed by us on March 21, 2012 as an exhibit to our Annual Report on Form 10-K and incorporated herein by reference.
(33) Previously filed by us on May 25, 2012 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.
(34) Previously filed by us on August 14, 2012 as an exhibit to our Quarterly Report on Form 10-Q and incorporated herein by reference.
(35) Previously filed by us on September 21, 2012 as an exhibit to our Registration Statement on Form S-3, File No. 333-184010 and incorporated herein by reference.
(36) Previously filed by us on October 19, 2012 as an exhibit to our Current Report on Form 8-K and incorporated herein by reference.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

 

    IMMUNOCELLULAR THERAPEUTICS, LTD.

Date: March 11, 2013

  By:  

/s/ Andrew Gengos

   

Andrew Gengos

President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Andrew Gengos and David Fractor or either of them, his or her attorney-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

  

Title

 

Date

/s/ Andrew Gengos

  

President, Chief Executive Officer and Director

 

  March 11, 2013
Andrew Gengos     

/s/ David Fractor

  

Principal Financial and Accounting Officer

  March 11, 2013
David Fractor     

/s/ Richard Chin

   Director   March 11, 2013
Richard Chin, M.D.     

/s/ Richard A. Cowell

   Director   March 11, 2013
Richard A. Cowell     

/s/ Helen S. Kim

   Director   March 11, 2013
Helen S. Kim     

/s/ Rahul Singhvi

   Director   March 11, 2013
Rahul Singhvi, Sc.D.     

/s/ Gary S. Titus

   Director   March 11, 2013
Gary S. Titus     

/s/ John S. Yu

   Director   March 11, 2013
John S. Yu, M.D.     

 

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ImmunoCellular Therapeutics, Ltd.

(a Development Stage Company)

Index to Financial Statements

 

      Page  

Financial Statements:

  

Reports of Independent Registered Public Accounting Firm – Marcum LLP

     F-2   

Balance Sheets as of December 31, 2012 and 2011

     F-4   

Statements of Operations for each of the three fiscal years in the period ended December  31, 2012 and from February 25, 2004 (Inception) to December 31, 2012

     F-5   

Statements of Shareholders Equity (Deficit) from February 25, 2004 (Inception) to December  31, 2012

     F-6   

Statements of Cash Flows for each of the three years in the period ended December  31, 2012 and from February 25, 2004 (Inception) to December 31, 2012

     F-9   

Notes to Financial Statements

     F-10   

 

F-1


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Audit Committee of the

Board of Directors and Shareholders of

ImmunoCellular Therapeutics, Ltd.

We have audited the accompanying balance sheets of ImmunoCellular Therapeutics, Ltd. (a Development Stage Company) (the “Company”) as of December 31, 2012 and 2011, and the related statements of operations, shareholders’ equity (deficit) and cash flows for the years ended December 31, 2012, 2011 and 2010 and for the period from February 25, 2004 (inception) to December 31, 2012. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2) as of and for the years then ended. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. The accompanying financial statements of the Company for the period from February 25, 2004 (inception) to December 31, 2009 were not audited by us. Those statements were audited by other auditors whose report, dated March 29, 2010, expressed an unqualified opinion on those financial statements. The financial statements for the period from February 25, 2004 (inception) to December 31, 2009 reflect a net loss of $14,711,146. Our opinion, insofar as it relates to the amounts included for such prior periods as indicated in the accompanying financial statements for such periods from February 25, 2004 (inception) to December 31, 2009, is based solely on the report of such other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ImmunoCellular Therapeutics, Ltd. (a Development Stage Company) as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years ended December 31, 2012, 2011 and 2010 and for the period from February 25, 2004 (inception) to December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), ImmunoCellular Therapeutics, Ltd.’s (a Development Stage Company) internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2013 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

 

/s/ Marcum LLP
Los Angeles, CA
March 11, 2013

 

F-2


Table of Contents

Report of Independent Registered Public Accounting Firm

on Internal Control Over Financial Reporting

To the Audit Committee of the

Board of Directors and Shareholders of

ImmunoCellular Therapeutics, Ltd.

We have audited ImmunoCellular Therapeutics, Ltd.‘s (a Development Stage Company) (the “Company”) internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.

In our opinion, ImmunoCellular Therapeutics, Ltd. (a Development Stage Company) maintained, in all material aspects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheets as of December 31, 2012 and 2011, and the related statements of operations, shareholders’ equity (deficit), and cash flows for each of the years ended December 31, 2012, 2011 and 2010, and for the period from February 25, 2004 (inception) to December 31, 2012 of the Company, and our report dated March 11, 2013 expressed an unqualified opinion on those financial statements.

/s/ Marcum LLP

Los Angeles, CA

March 11, 2013

 

F-3


Table of Contents

ImmunoCellular Therapeutics, Ltd.

(A Development Stage Company)

Balance Sheets

 

     December 31
2012
    December 31,
2011
 

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 26,216,668      $ 6,653,168   

Other assets

     714,508        91,286   
  

 

 

   

 

 

 

Total current assets

     26,931,176        6,744,454   

Property and equipment, net

     76,289        76,402   

Other assets

    

Deferred offering costs

     0        282,599   

Deposits

     11,736        47,302   
  

 

 

   

 

 

 

Total assets

   $ 27,019,201      $ 7,150,757   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current liabilities:

    

Accounts payable

   $ 732,851      $ 1,316,540   

Accrued compensation and benefits

     309,345        318,946   

Accrued expenses

     56,111        125,803   
  

 

 

   

 

 

 

Total current liabilities

     1,098,307        1,761,289   

Warrant Liability

     2,852,880        2,157,408   

Commitments and contingencies (Note 5)

    

Shareholders’ equity:

    

Common stock, $0.0001 par value; 99,000,000 shares authorized; 51,500,996 shares and 28,613,984 shares issued and outstanding as of December 31, 2012 and 2011, respectively

     5,150        2,861   

Additional paid-in capital

     66,231,694        31,902,890   

Deficit accumulated during the development stage

     (43,168,830     (28,673,691
  

 

 

   

 

 

 

Total shareholders’ equity

     23,068,014        3,232,060   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 27,019,201      $ 7,150,757   
  

 

 

   

 

 

 

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

 

F-4


Table of Contents

ImmunoCellular Therapeutics, Ltd.

(A Development Stage Company)

Statements of Operations

For the Years Ended December 31,

 

                       February 25,  
                       2004 (Inception)  
                       to December 31,  
     2012     2011     2010     2012  

Revenues

   $ 0      $ 0      $ 0      $ 300,000   

Expenses:

        

Research and development

     7,711,233        4,988,612        2,292,630        18,260,113   

Stock based compensation

     496,007        1,190,133        807,853        8,716,012   

General and administrative

     3,619,291        2,446,757        2,035,526        12,684,747   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     11,826,531        8,625,502        5,136,009        39,660,872   

Loss before other income (expense) and income taxes

     (11,826,531     (8,625,502     (5,136,009     (39,360,872

Interest income

     8,609        4,346        4,105        347,744   

Financing expense

     (397,294     0        0        (397,294

Change in fair value of warrant liability

     (2,279,923     2,901,253        (1,018,238     (1,665,908
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

     (14,495,139     (5,719,903     (6,150,142     (41,076,330

Income taxes

     0        0        0        0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (14,495,139     (5,719,903     (6,150,142     (41,076,330

Deemed dividend on redemption of preferred stock

     0        0        (2,092,500     (2,092,500
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   ($ 14,495,139   ($ 5,719,903   ($ 8,242,642   ($ 43,168,830
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (0.35   $ (0.21   $ (0.32   $ (2.48
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common shareholders, basic and diluted

   $ (0.35   $ (0.21   $ (0.43   $ (2.60
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of shares outstanding basic and diluted

     41,797,048        27,450,559        19,188,541        16,579,571   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

F-5


Table of Contents

ImmunoCellular Therapeutics, Ltd.

(A Development Stage Company)

Statements of Shareholders’ Equity (Deficit)

 

                                            Deficit        
                                            Accumulated        
                               Additional            During the        
     Preferred Stock      Common Stock     Paid-in     Promissory      Development        
     Shares      Amount      Shares     Amount     Capital     Note      Stage     Total  

Initial capitalization at $0.00002 per share

     0       $ 0         6,256,500      $ 10      $ 87      $ 0       $ 0      $ 97   

Common stock issued for cash at $0.00078 per share in April 2004

     0         0         193,500        15        135        0         0        150   

Net loss

     0         0         0        0        0        0         (11,741     (11,741
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at December 31, 2004

     0         0         6,450,000        25        222        0         (11,741     (11,494

Common stock issued for cash at $0.19 per share in April 2005

     0         0         387,000        659        74,341        0         0        75,000   

Common stock issued for cash at $0.32 per share in April 2005

     0         0         154,800        16        49,984        0         0        50,000   

Common stock issued for research and development at $0.99 per share in September 2005

     0         0         154,800        15        152,745        0         0        152,760   

Net loss

     0         0         0        0        0        0         (246,004     (246,004
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at December 31, 2005

     0         0         7,146,600        715        277,292        0         (257,745     20,262   

Common stock issued for services during 2006 at $0.50 per share

     0         0         73,093        7        36,539        0         0        36,546   

Common stock issued for cash in private placements at $1.00 per share, net of redemptions in December 2006

     0         0         1,510,000        151        549,249        0         0        549,400   

Common stock issued for research and development at $1.00 per share in November 2006

     0         0         694,000        69        693,931        0         0        694,000   

Shares issued in connection with reverse merger

     0         0         825,124        83        (83     0         0        0   

Shares cancelled in connection with the sale of Optical Molecular Imaging, Inc.

     0         0         (2,059,100     (206     (64,794     0         0        (65,000

Exercise of stock options

     0         0         10,062        1        3,521        0         0        3,522   

Stock based compensation (options)

     0         0         0        0        4,103,645        0         0        4,103,645   

Net loss

     0         0         0        0        0        0         (5,152,713     (5,152,713
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

F-6


Table of Contents
                                            Deficit        
                                            Accumulated        
                                Additional           During the        
     Preferred Stock      Common Stock      Paid-in     Promissory     Development        
     Shares     Amount      Shares      Amount      Capital     Note     Stage     Total  

Balance at December 31, 2006

     0        0         8,199,779         820         5,599,300        0        (5,410,458     189,662   

Common stock issued for cash in private placements at $1.50 per share in May 2007

     0        0         3,531,603         353         4,892,133        0        0        4,892,486   

Exercise of stock options

     0        0         51,111         5         (5     0        0        0   

Reclassification of warrant derivative

     0        0         0         0         2,233,600        0        0        2,233,600   

Stock based compensation (options)

     0        0         0         0         1,296,714        0        0        1,296,714   

Net loss

     0        0         0         0         0        0        (3,614,753     (3,614,753
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2007

     0        0         11,782,493         1,178         14,021,742        0        (9,025,211     4,997,709   

Common stock issued for research and development at $0.53 per share in February 2008

     0        0         800,000         80         423,920        0        0        424,000   

Common stock issued for research and development at $0.65 per share in June 2008

     0        0         100,000         10         64,990        0        0        65,000   

Stock based compensation (options)

     0        0         0         0         513,357        0        0        513,357   

Net loss

     0        0         0         0         0        0        (3,059,730     (3,059,730
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2008

     0        0         12,682,493         1,268         15,024,009        0        (12,084,941     2,940,336   

Exercise of warrants

     0        0         1,970,992         197         462,551        0        0        462,748   

Exercise of stock options

     0        0         214,357         22         64,460        (52,668     0        11,814   

Stock based compensation (options)

     0        0         0         0         308,302        0        0        308,302   

Net loss

     0        0         0         0         0        0        (2,626,205     (2,626,205
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2009

     0        0         14,867,842         1,487         15,859,322        (52,668     (14,711,146     1,096,995   

Common stock and warrants issued for cash at $1.00 per share, net of offering costs in May 2010

     0        0         4,230,910         423         3,248,315        0        0        3,248,738   

Preferred stock and warrants issued for cash at $10,000 per share, net of offering costs in May 2010

     400        0         0         0         0        0        0        0   

Exercise of warrants in exchange for promissory note

     0        0         2,700,000         270         5,399,730        (5,400,000     0        0   

Redemption of preferred stock for repayment of promissory note

     (400     0         0         0         0        5,400,000        (2,092,500     3,307,500   

Exercise of stock options

     0        0         50,000         5         26,495        0        0        26,500   

Cashless exercise of stock options

     0        0         297,156         30         (30     0        0        0   

Common stock issued for services during 2010 at $0.90 per share

     0        0         60,000         6         53,994        0        0        54,000   

Common stock issued for services during 2010 at $1.06 per share

     0        0         7,694         0         8,156        0        0        8,156   

Stock based compensation

     0        0         0         0         745,697        0        0        745,697   

Interest on promissory note

     0        0         0         0         0        (1,614     0        (1,614

Net loss

     0        0         0         0         0        0        (6,150,142     (6,150,142
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

F-7


Table of Contents
                                             Deficit        
                                             Accumulated        
                                 Additional           During the        
     Preferred Stock      Common Stock      Paid-in     Promissory     Development        
     Shares      Amount      Shares      Amount      Capital     Note     Stage     Total  

Balance at December 31, 2010

     0         0         22,213,602         2,221         25,341,679        (54,282     (22,953,788     2,335,830   

Common stock and warrants issued for cash at $1.55 per share, net of offering costs in February 2011

     0         0         5,219,768         522         4,982,817        0        0        4,983,339   

Exercise of stock options

     0         0         382,000         38         388,341        0        0        388,379   

Cashless exercise of stock options

     0         0         667,077         67         (67     0        0        0   

Stock based compensation

     0         0         131,537         13         1,190,120        0        0        1,190,133   

Interest on promissory note

     0         0         0         0         0        (352     0        (352

Redemption of promissory note

     0         0         0         0         0        54,634        0        54,634   

Net loss