As filed with the Securities and Exchange Commission on June 3, 2013.

Registration No. 333-        

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________________

FORM S-1

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

_________________________________________

CELLULAR DYNAMICS INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in its Charter)

_________________________________________

Wisconsin	2836	26-1737267
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

_________________________________________

Cellular Dynamics International, Inc.

525 Science Drive

Madison, Wisconsin 53711

(608) 310-5100

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

_________________________________________

Robert J. Palay

Chairman of the Board and Chief Executive Officer

Cellular Dynamics International, Inc.

525 Science Drive

Madison, Wisconsin 53711

(608) 310-5100

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

_________________________________________

Copies of communications to:

Anna M. Geyso	Arthur D. Robinson
Dennis F. Connolly	Lesley C. Peng
Godfrey & Kahn, S.C.	Simpson Thacher & Bartlett LLP
780 North Water Street	425 Lexington Avenue
Milwaukee, Wisconsin 53202	New York, New York 10017
(414) 273-3500	(212) 455-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ _______

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.¨ _______

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨ _______

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:

¨Large accelerated filer¨Accelerated filerýNon-accelerated filer ¨ Smaller reporting company

________________________________________

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities To Be Registered	Proposed Maximum Aggregate Offering Price(1)(2)	Amount of Registration Fee(1)
Common Stock, $0.0001 par value per share	$57,250,000	$7,809

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended.

(2) Includes offering price of shares of common stock that the underwriters have the option to purchase.

_________________________________________

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to completion, dated June 3, 2013
Prospectus
shares
Common stock
This is the initial public offering of common stock by Cellular Dynamics International, Inc. We are offering shares of common stock pursuant to this prospectus. We expect the initial public offering price to be between $ and $ per share.
No public market currently exists for our common stock. We have applied to have our common stock listed on the NASDAQ Global Market under the symbol “ICEL.”
		Per share	Total
Initial public offering price		$	$
Underwriting discounts and commissions		$	$
Proceeds, before expenses, to us(1)		$	$
(1) We have agreed to reimburse the underwriters for certain FINRA-related expenses. See "Underwriting."
We have granted the underwriters an option for a period of 30 days to purchase up to additional shares of common stock.
We are an “emerging growth company” as that term is defined under the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements.
Investing in our common stock involves a high degree of risk. See “Risk factors” beginning on page 11.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Delivery of the shares will be made on or about , 2013.
Sole book–running manager
J.P. Morgan
Co-managers
Cowen and Company	Leerink Swann
, 2013

Table of contents

Prospectus summary	2
Risk factors	11
Special note regarding forward-looking statements	32
Use of proceeds	33
Dividend policy	34
Capitalization	35
Dilution	37
Selected financial data	39
Management's discussion and analysis of financial condition and results of operations	41
Business	65
Management	83
Certain relationships and related transactions	100
Principal shareholders	105
Description of capital stock	108
Material United States federal income and estate tax consequences to non-United States holders of our common stock	114
Shares eligible for future sale	118
Underwriting	120
Legal matters	125
Experts	125
Where you can find more information	125
Index to financial statements	F-1

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with additional information or information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common stock.

We own or have rights to use a number of registered and common law trademarks, service marks and trade names that we use in connection with our business including Cellular Dynamics International, Inc., our logo, iCell, MyCell and Essential 8. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are included without the ® and TM symbols, but such references are not intended to indicate in any way that we will not assert to the fullest extent under applicable law our rights to use those trademarks, service marks and trade names. All other trademarks, service marks and trade names referred to in this prospectus are, to our knowledge, the property of their respective owners. Unless the context requires otherwise, the words “Cellular Dynamics,” “CDI,” “we,” the “Company,” "us” and “our” refer to Cellular Dynamics International, Inc.

Prospectus summary

This summary highlights selected information appearing elsewhere in this prospectus and does not contain all the information you should consider before investing in our common stock. You should carefully read this prospectus in its entirety before investing in our common stock, including the section entitled “Risk factors,” and our financial statements and related notes included elsewhere in this prospectus.

Overview

We develop and manufacture fully functioning human cells in industrial quantities to precise specifications. Our proprietary iCell Operating System (iCell O/S) includes true human cells in multiple cell types (iCell products), human induced pluripotent stem cells (iPSCs) and custom iPSCs and iCell products (MyCell products). Our iCell O/S products provide standardized, easy-to-use, cost-effective access to the human cell, the smallest fully functioning operating unit of human biology. Customers use our iCell O/S products, among other purposes, for drug discovery and screening; to test the safety and efficacy of their small molecule and biologic drug candidates; for stem cell banking; and in researching cellular therapeutics.

Our iCell product line currently includes four different cell types: cardiomyocytes, neurons, hepatocytes and endothelial cells. We are actively developing an additional seven different cell types, and we expect to use our platform to continue to expand the iCell product line. iCell products are a consumable designed to be used once and then reordered. We manufacture our iCell products from our iPSCs. An iPSC is a cell that has the ability both to replicate indefinitely and to be transformed into any cell type in the human body. We develop and manufacture our iPSCs from ordinary blood or skin using proprietary techniques that expand upon those pioneered by our founder Dr. James A. Thomson. Once we produce an iPSC, it becomes a renewable source of starting material for our iCell products and stem cell banks.

Scientists need access to cellular models that accurately represent the human biology they want to study. Our human cells reproduce, rather than approximate, the operation of the fully functioning human cell. We design our iCell O/S products to empower our customers to:

• Increase the productivity of their in vitro therapeutic research and development.

• Pursue novel avenues of biological discovery.

• Accelerate the regulatory analysis and market introduction of clinical products.

• Improve quality control of manufactured clinical products.

• Perform more precise applied and environmental testing.

• Build or augment stem cell banks.

• Develop and commercialize in vivo cellular therapeutics.

Our customers include biopharmaceutical companies, government research institutions, academic and nonprofit research institutions, clinical research organizations and stem cell banks. In 2012, we sold our products to 18 of the top 20 biopharmaceutical companies (based on worldwide revenue) and grew our customer base to 128 from 60 in 2011.

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We attribute our growing success to the following differentiating factors:

•     Enabling unparalleled access to human cellular biology. We believe our iCell O/S products: afford researchers superior insight into how human cells react to drug candidates and other chemicals; enable customers to build or augment stem cell banks; and will allow us to design and manufacture cells to precise specifications for developers of cellular therapeutics for their therapeutic candidates.

•     Disruptive technology addressing multiple, large markets. Our iCell O/S products displace existing surrogate models. Our products are currently sold into the $3.5 billion market for cells for in vitro experiments, as well as the $1.3 billion stem cell banking market. Our products position us well to participate in the growing $5.0 billion global human stem cell, tissue and organ therapy market, first as a provider of cells for research, then as a provider of cells for therapeutic trials and potentially for therapeutic use on a collaborative basis. We believe our products will contribute to the growth of our target markets.

•     Full product solution. Our iCell O/S products are designed to be easy-to-use. Our iCell products are standardized, highly pure and manufactured in large volumes to precise specifications. iCell products are packaged as units that fill industry standard 96-well plates. Currently, three of the four iCell products are cryopreserved and may be stored for extended periods of time. Our cells are also validated on life science research platforms commonly used in laboratories. Lastly, we offer training and support for all of our products.

•     Broad and deep intellectual property portfolio. We own or license a portfolio of intellectual property rights related to our technology that exceeds 700 patents and patent applications in the United States and around the world. From our inception, our intellectual property strategy has been designed to afford our customers and ourselves freedom to operate for all the products we sell. In addition, we have exclusively licensed and developed intellectual property and technical know-how that we maintain as trade secrets. We believe that our intellectual property portfolio will provide significant competitive advantages for future business operations.

Our target markets

The target markets for our products include cells for in vitro drug discovery, toxicity testing and chemical safety; stem cell banking; and in vivo and cell-based therapeutic research. Total expenditures in these markets were approximately $17.1 billion in 2011 and are expected to increase to $40.5 billion by 2020, according to Adivo Associates.

Cells for in vitro use in drug discovery, toxicity testing and chemical safety

Cells for in vitro use refers to cells studied under laboratory culture conditions for the purpose of drug discovery, toxicity testing and chemical safety analysis. The total spent on cell-based technologies for in vitro use was approximately $10.8 billion in 2011, of which $3.5 billion was spent on cells. By 2020, these markets are expected to grow to $14.7 billion and $5.6 billion, respectively. Customers in this market include: biopharmaceutical companies; government research institutions; academic and nonprofit research institutions; and clinical research organizations.

Stem cell banking

The stem cell banking market was approximately $1.3 billion in 2011, and is expected to grow to $4.4 billion in 2020. Currently, government entities, academic institutions and industry are building banks of iPSCs derived from different genetic backgrounds. We intend to manufacture iPSCs for this segment of the market. In March 2013, the California Institute for Regenerative Medicine (CIRM) awarded us a $16.0 million grant to derive three iPSC lines from each of 3,000 different individuals, as required by California's $32.3 million stem cell banking initiative. We will also be the primary subcontractor on the $10.0 million grant that the Coriell Institute for Medical Research received from CIRM to store and expand the Coriell iPSC bank. In addition, we are positioned to augment the product offering of cord blood banks by creating iPSC lines for their existing and prospective customers.

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Cells for in vivo and cell-based therapeutic research
Cells for in vivo use in humans generally refers to inserting cells, tissue or whole organs into living persons to cure debilitating disorders or to regenerate damaged organs. The global human stem cell, tissue and organ therapy market was $5.0 billion in 2011 and is expected to grow to $21.4 billion in 2020. Our cellular reprogramming technologies, intellectual property portfolio and manufacturing capabilities position us to support our customers who are seeking to design, develop and manufacture cell-based therapeutics, first as a provider of cells for research, then as a provider of cells for therapeutic trials and potentially for therapeutic use on a collaborative basis.
The limitations of existing models
Each of our target markets currently utilizes models that are poorly suited to the emerging needs of the field:
•In vitro use for therapeutic research. Existing surrogate models include primary cells derived from human cadavers or sacrificed animals, transformed (immortalized) cells and live animals. We believe these surrogate models are imprecise and inaccurate substitutes for human biology and have contributed to the high failure rates in human trials in the development of new therapeutics.
•     Stem cell banking. Current stem cell and tissue banks suffer from limitations in the number of cells and type of tissue that can be derived from the presently available starting samples.
•Cells for therapeutic use. Current cell and tissue therapies are based on harvested cells and tissues. The variable quality and limited expandability of such sources of sample restrict the reproducibility and effectiveness of these therapies.
The CDI solution: iCell O/S
Our iCell and MyCell products reproduce, rather than approximate, the operation of the fully functioning human cell. We intend to replace existing surrogate models with the standardized, easy-to-use and fully functioning human cells of the iCell O/S.
Our iCell O/S currently consists of six products:
Products	Product description	Applications
iCell Cardiomyocytes	Highly purified human heart cells	Model systems for pre-clinical drug discovery, toxicity testing, disease modeling and other life science research
iCell Neurons	Highly purified human neurons
iCell Endothelial Cells	Highly purified human blood vessel cells
iCell Hepatocytes	Highly purified human liver cells
MyCell	Human iPSCs reprogrammed from customer-sourced samples	Make iPSCs for stem cell banking and cell modeling of specific populations
	Human iCell products derived from MyCell iPSCs
Media and reprogramming kit	Combination of three reagents used for reprogramming tissue into iPSCs	Making iPSCs for limited research use only

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Our strategy

We intend to become the industry standard for manufactured human cells, displace imprecise and inaccurate existing surrogate models and enable unparalleled access to human cellular biology. We plan to pursue the following strategies to accomplish these objectives:

•     Continue to advance our iCell O/S platform to maintain our leadership position in developing and manufacturing human cells to precise specifications in high volume and at low cost.

•     Become an integral part of our customers' workflow from discovery through regulatory analysis to product commercialization.

•     Enhance our iCell O/S product portfolio to reflect a wide range of human biology by offering new iCell product cell types and expanding the genetic background of each of our iCell products.

•     Develop novel applications and experimental assays to extend the utility of our iCell O/S products in an expanding set of end markets.

•     Use our expertise in iPSC reprogramming in combination with our MyCell products to fulfill the growing iPSC stem cell banking needs of government, academia and industry.

•     Employ our years of experience in cell differentiation and manufacturing to collaborate with biopharmaceutical partners in the development and manufacture of the next generation of cell-based therapeutics.

Risk factors

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully under the caption "Risk factors" and include, but are not limited to, the following:

•     We have incurred significant losses since inception, and we expect to continue to incur significant losses for the foreseeable future.

•     If our products fail to achieve and sustain sufficient market acceptance, our revenue will be adversely affected.

•     Our financial results may vary significantly from quarter-to-quarter due to a number of factors, which may lead to volatility in our stock price.

•     Our future success is dependent upon our ability to expand our customer base and introduce new products.

•     Our products may not be meaningfully more predictive of the behavior of a human cell than existing products.

•     The life sciences field undergoes rapid technological changes, frequent new product introductions, changing customer needs and preferences, emerging competition, evolving standards and strong price competition.

•     We have limited experience in marketing, selling and distributing our products, and we need to expand our direct sales and marketing force and distribution capabilities for our products to gain market acceptance.

•     We utilize certain technologies that are licensed to us. If we are unable to maintain these licenses, our business could be adversely affected.

•     Our ability to protect our intellectual property and proprietary technology through patents and other means is uncertain and we may be involved in lawsuits to protect or enforce our patents and proprietary rights or to defend against intellectual property infringement claims.

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Implications of being an emerging growth company

As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company,

•     We will present only two years of audited financial statements and only two years of related management's discussion & analysis of financial condition and results of operations.

•     We may avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002.

•     We will provide less extensive disclosure about our executive compensation arrangements.

•     We will not require shareholder non-binding advisory votes on executive compensation or golden parachute arrangements.

Corporate information

Cellular Dynamics International, Inc., incorporated in 2007, is the successor to a corporation of the same name founded in 2004. Our principal executive offices are located at 525 Science Drive, Madison, Wisconsin 53711, and our telephone number is (608) 310-5100. We maintain a website at http://www.cellulardynamics.com. The information contained on our website is not incorporated into and does not constitute a part of this prospectus, and the only information that you should rely on in making your decision whether to invest in our common stock is the information contained in this prospectus.

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The offering
Common stock offered by Cellular Dynamics International, Inc.	shares
Underwriters' option to purchase additional common stock	We have granted the underwriters an option for a period of 30 days to purchase up to additional shares of common stock.
Common stock to be outstanding after this offering	shares
Use of proceeds	We intend to use the net proceeds from this offering for funding our operations as follows: approximately $ for research and product development activities; approximately $ for sales and marketing activities, including expansion of our sales force to support the ongoing commercialization of our products; approximately $ for property, plant and equipment, including the build-out of our laboratory in California, and intellectual property; and approximately $ for working capital and other general corporate purposes. We may also acquire or invest in complementary businesses or other assets; however, we currently have no agreements or commitments to complete any such transaction.
Dividend policy	We have never declared or paid and do not anticipate declaring or paying any cash dividends on our common stock in the near future. You should read the "Dividend policy" section of this prospectus for more information on future declarations and payments of dividends.
Proposed NASDAQ Global Market symbol	ICEL
The number of shares of common stock to be outstanding after this offering is based on shares outstanding as of , 2013 and excludes:
Ÿ     15,751,743 shares of common stock issuable upon the exercise of outstanding options, at a weighted-average exercise price of approximately $0.86 per share and a weighted-average remaining contractual term of 7.4 additional years as of March 31, 2013;
Ÿ     4,048,918 shares of common stock reserved for issuance under our 2008 Equity Incentive Plan, as amended; and
Ÿ               shares of common stock reserved for issuance under our 2013 Equity Incentive Plan, as amended.

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Immediately prior to the consummation of this offering, we expect that:

Ÿ     all of our outstanding shares of Series A preferred stock will convert into an aggregate of 28,413,291 shares of common stock;

Ÿ     all of our outstanding shares of Series B preferred stock will convert into an aggregate of 70,512,809 shares of common stock; and

Ÿ     warrants to purchase 80,000 shares of common stock will be exercised at a price of $0.01 per share.

In addition, except for the financial statements, or when otherwise indicated, information in this prospectus reflects or assumes the following:

Ÿ     a -for-one reverse stock split of our common stock, immediately upon the conversion of the Series A preferred stock and the Series B preferred stock into common stock; and

Ÿ     no exercise by the underwriters of their option to purchase additional shares.

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Summary financial data
The following table presents summary financial data for the periods indicated. The summary statements of operations data for the years ended December 31, 2011 and 2012 and the balance sheet data as of December 31, 2011 and 2012 have been derived from our audited financial statements and notes thereto, which are included elsewhere in this prospectus. The unaudited summary statements of operations data for the three months ended March 31, 2012 and 2013 and the unaudited balance sheet data as of March 31, 2013 have been derived from our unaudited financial statements included elsewhere in this prospectus. We have prepared the unaudited financial information on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim results are not necessarily indicative of the results to be expected for the full fiscal year. You should read this information together with our financial statements and related notes, “Management’s discussion and analysis of financial condition and results of operations,” "Use of proceeds" and "Capitalization" included elsewhere in this prospectus.
	Year ended December 31,						Three months ended March 31,
(Dollars in thousands, except per share data)	2011			2012			2012			2013
Statements of operations:
Revenues:
Product sales	$	1,460		$	5,178		$	643		$	1,754
Collaborations, partnerships and other revenues	1,137			1,404			503			636
Total revenues	2,597			6,582			1,146			2,390
Costs and expenses:
Cost of product sales	727			2,089			143			577
Research and development	13,660			14,301			3,058			3,856
Sales and marketing	3,031			4,398			914			1,527
General and administrative	6,482			8,024			1,819			2,109
Total costs and expenses	23,900			28,812			5,934			8,069
Loss from operations	(21,303		)	(22,230		)	(4,788		)	(5,679		)
Other (expense) income:
Interest expense	(44		)	(34		)	(10		)	(7		)
Other income	3			—			1			—
Total other expense	(41		)	(34		)	(9		)	(7		)
Net loss	$	(21,344	)	$	(22,264	)	$	(4,797	)	$	(5,686	)
Net loss per share of common stock, basic and diluted	$	(1.28	)	$	(1.32	)	$	(0.29	)	$	(0.34	)
Shares used in computing net loss per share of common stock, basic and diluted	16,687,782			16,839,087			16,713,509			16,903,125
Pro forma net loss per share of common stock, basic and diluted(1)	$	(0.23	)	$	(0.22	)	$	(0.05	)	$	(0.05	)
Shares used in computing pro forma net loss per share of common stock, basic and diluted	93,564,894			102,356,945			99,533,718			115,909,225
(1) The number of weighted-average common shares used in computing pro forma net loss per share attributable to common stock in the table above gives effect to (i) the conversion of all outstanding shares of our Series A preferred stock and Series B preferred stock into shares of common stock on a one-for-one basis and (ii) the exercise of warrants to purchase 80,000 shares of common stock at an exercise price of $0.01 per share immediately prior to the closing of this offering.

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	December 31,						March 31,			Pro forma
(Dollars in thousands)	2011			2012			2013			as adjusted(1)
Balance sheet data:
Cash and cash equivalents	$	36,729		$	33,900		$	28,488
Total current assets	40,717			39,601			34,413
Total assets	51,524			51,496			46,287
Total current liabilities	3,432			3,771			4,141
Long-term debt, less current portion	1,070			734			636
Accumulated deficit	(59,800		)	(82,064		)	(87,750		)
Shareholders' equity	47,022			46,991			41,510
(1) The pro forma as adjusted balance sheet data reflects (i) a -for-one reverse stock split of our common stock, immediately upon the conversion of the Series A preferred stock and the Series B preferred stock into common stock, (ii) the exercise of warrants to purchase 80,000 shares of common stock at an exercise price of $0.01 per share immediately prior to the closing of this offering and (iii) the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the range on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses.

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Risk factors

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including our financial statements and related notes, before deciding whether to purchase shares of our common stock. If any of the following risks is realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the price of our common stock could decline and you could lose part or all of your investment.

Risks related to our business and strategy

We have a limited operating history and have incurred significant losses since inception that we expect to continue for the foreseeable future.

We have a limited operating history and have incurred significant and increasing losses in each fiscal year since our inception, including net losses of $21.3 million and $22.3 million during 2011 and 2012, respectively. We incurred net losses of $4.8 million and $5.7 million during the three months ended March 31, 2012 and 2013, respectively. As of March 31, 2013, we had an accumulated deficit of $87.8 million. These losses have resulted principally from costs incurred in our research and development programs and from our sales and marketing and general and administrative expenses. We expect to continue to incur operating and net losses and negative cash flow from operations, which may increase, for the foreseeable future due in part to anticipated increases in expenses for research and product development and significant expansion of our sales and marketing activities. Additionally, following this offering, we expect that our general and administrative expenses will increase due to the additional operational and reporting costs associated with being a public company. We anticipate that our business will generate operating losses until we successfully implement our commercial development strategy and generate significant additional revenues to support our level of operating expenses. Because of the numerous risks and uncertainties associated with our commercialization efforts and future product development, we are unable to predict when we will become profitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase our profitability.

If our products fail to achieve and sustain sufficient market acceptance, our revenue will be adversely affected.

Our success depends, in part, on our ability to develop and market products that are recognized and accepted as reproducing rather than approximating the operation of the fully functioning human cell. "Fully functioning" means that a cell functions much like a human cell of the same type in specified ways that are relevant to the product's intended uses. Most of our customers already use long-established models for research and testing in their laboratories and may be reluctant to replace those models. Market acceptance of our products will depend on many factors, including the price of our products relative to alternative models and our ability to convince potential customers that our products are an attractive alternative to existing models. Compared to most competing models, use of functional human cells in testing and research is relatively new, and most potential customers have limited knowledge of, or experience with, our products. Prior to adopting our products, our customers will need to devote significant time, effort and resources to testing and validating our cells. Further, we devote significant time, effort and resources to train and assist new and potential customers in becoming familiar with and adopting our products. Any failure of our products to meet customer benchmarks could result in customers choosing to retain their existing research and testing models or to purchase cells other than ours.

In addition, our customers have published and intend to publish the results of their experiments in scientific journals. Therefore, it is important that our products be perceived as reproducing the operation of the fully functioning human cell by the scientific and medical research community. Many factors influence the perception of our cells, including their use by leading biopharmaceutical companies and research groups and the publication of their results in well regarded journals. Historically, a significant

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part of our sales and marketing efforts have been directed at convincing industry leaders of the advantages of our products and encouraging such leaders to publish or present the results of their evaluation of our cells. If we are unable to continue to induce leading researchers to use our cells or if such researchers are unable to achieve and publish or present significant experimental results using our cells, acceptance and adoption of our cells will be slowed.

Our financial results may vary significantly from quarter-to-quarter due to a number of factors, which may lead to volatility in our stock price.

Our quarterly revenue and results of operations have varied in the past and may continue to vary significantly from quarter-to-quarter. This variability may lead to volatility in our stock price as research analysts and investors respond to these quarterly fluctuations. These fluctuations are due to numerous factors, including: fluctuations in demand for our products; changes in customer budget cycles; variations in customer purchasing strategies including bulk purchases; tendencies among some customers to defer purchase decisions to the end of a quarter or end of a year; changes in our pricing and sales policies or the pricing and sales policies of our competitors; timing of revenue recognition, which may be based on a variety of factors including milestone achievements and progress against experimental work plans; our ability to achieve milestones, progress against experimental work plans and meet other benchmarks under contracts with our customers; our ability to design, manufacture and deliver products to our customers in a timely and cost-effective manner; quality control or yield problems in our manufacturing operations; our ability to obtain in a timely manner adequate quantities of the components used in our products; product mix; new product introductions and enhancements by us and by our competitors; and unanticipated increases in costs or expenses. Between the first quarter of 2011 and the first quarter of 2013, we experienced percentage changes in consecutive quarterly revenues ranging from a decline of 22% to an increase of 139% as a result of one or more of the factors described above. The foregoing factors are difficult to forecast, and these, as well as other factors, could materially and adversely affect our quarterly and annual results of operations. Any failure to adjust spending quickly enough to compensate for a revenue shortfall or decision not to do so could magnify the adverse impact of such revenue shortfall on our results of operations.

Our revenue depends on production of a small group of products.

We generate revenue from sales of our proprietary products, which we call the iCell Operating System (iCell O/S), consisting of the iCell products currently being marketed and sold, together with our MyCell products and media and reprogramming kits. We also generate revenue under collaboration agreements with our customers, which includes revenue from the sale of new products under development. There is no assurance that we will generate revenues from these products, or any products under development, in the future. Our success is highly dependent on market acceptance of our products, which is uncertain. Because we are dependent on a small group of products, factors such as changes in customer preferences and specifications and general market conditions in our industry may have a significant impact on us. If the demand for our products fails to grow, develops more slowly than expected, decreases in response to customer preferences or new specifications we are unable to satisfy or becomes saturated with competing products, then our business, financial condition and results of operation will be materially adversely affected.

We currently rely on a relatively small number of customers to produce a significant amount of our total revenue.

During 2011 and 2012, three of our large biopharmaceutical customers individually accounted for greater than 10% of our total revenue in one or both years. Eli Lilly and Company (Lilly) accounted for 10% of total revenue in 2011 and 18% of total revenue in 2012. Hoffmann-La Roche Inc. accounted for 13% of total revenue in 2011 and GlaxoSmithKline plc accounted for 11% of our total revenue in 2012. During the three months ended March 31, 2013, Lilly and AstraZeneca UK Limited (AstraZeneca) each accounted for 16% of total revenue.Typically our customers, including these three customers, purchase our products pursuant to purchase orders, or purchase under contracts for specified periods of time and

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which may be terminated by our customer. A portion of the revenues attributable to Lilly during the periods described above were pursuant to minimum purchase requirements. See "Business—Customers." If we lose one or more of our significant customers or any of our significant customers experiences financial difficulty, then our business and results of operations could be materially adversely affected.

Our future success is dependent upon our ability to expand our customer base and introduce new products.

Our customer base is primarily composed of biopharmaceutical companies, government research institutions, academic and nonprofit research institutions, clinical research organizations and stem cell banks that use our products to perform analyses for research and commercial purposes. Our success will depend in part upon our ability to increase our sales to these core customers, attract additional customers outside of these markets and market new products to existing and new customers as we develop such products. Attracting new customers and introducing new products requires substantial time and expense. For example, it may be difficult to identify, engage and market to customers who are unfamiliar with our iCell O/S. Any failure to expand sales to our existing customer base, attract new customers or launch new products would adversely affect our ability to increase our revenues.

Our sales cycles are lengthy and variable, which makes it difficult for us to forecast revenue and other operating results.

The lengthy and variable sales cycles for our iCell O/S products make it difficult for us to accurately forecast revenues in a given period, and may cause revenue and operating results to vary significantly from period to period.

Due in part to the novelty of our products and the implications for established research and testing models, potential customers for our products typically need to commit significant time and resources to evaluate our technology, and their decision to purchase our products may be further limited by budgetary constraints and several layers of internal review and approval, which are beyond our control. In addition, the novelty and complexity of our products often require us to spend substantial time and effort assisting potential customers in evaluating our products, including providing demonstrations and benchmarking our products against other available research and testing models. Even after initial approval by appropriate decision makers, the negotiation and documentation processes for a purchase can be lengthy. As a result of these factors, our sales cycle has varied widely and, in certain instances, has been longer than 12 months. The complexity and variability of our sales cycle has made it difficult for us to accurately project quarterly and annual revenues, and we have frequently failed to meet our internal quarterly and annual projections. We expect that our sales will continue to fluctuate on a quarterly basis and that our financial results for some periods may be below those projected by securities analysts. Such fluctuations could have a material adverse effect on our business and on the price of our common stock.

New market opportunities may not develop as quickly as we expect.

The application of human cell biology to drug and chemical safety and toxicology, drug discovery and disease research, cell therapy and stem cell banking are new market opportunities. We believe these opportunities will take several years to develop or mature, and we cannot be certain that these market opportunities will develop as we expect. Although we believe that there will be applications of our technologies in these markets, there can be no certainty of the technical or commercial success our technologies will achieve in such markets. Our success in these markets may depend to a large extent on our ability to successfully demonstrate the efficacy of our products relative to existing research and testing models.

We may decide to invest in new products for which there proves to be no demand.

To remain competitive and increase revenue, we must retain, increase and engage our customer base, which will depend heavily upon our ability to create successful, new products, both independently and in

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conjunction with third parties. We may introduce new and unproven products, including products with which we have little or no prior experience. If new or enhanced products fail to prove useful to customers or if we misinterpret trends, underestimate development costs and/or pursue the wrong products, we may fail to generate sufficient revenue, operating margin or other value to justify our investments, and our business may be adversely affected.

Our research and product development efforts may not result in commercially viable products within the timeline anticipated, if at all.

We intend to devote significant personnel and financial resources to research and development activities designed to expand our iCell O/S. Our technology is new and complex and the time and resources necessary to develop new cell types are difficult to predict in advance. For example, one of our iCell products was in development for approximately 15 months whereas other products have been in development for two or more years. In the past, product development projects have been significantly delayed when we encountered unanticipated difficulties in differentiating iPSCs into new cell types. We may have similar delays in the future, and we may not obtain any benefits from our research and development activities. Any delay or failure by us to develop new products would have a substantial adverse effect on our business and results of operations.

Our products may not be meaningfully more predictive of the behavior of a human cell than existing products.

Our products may fail to provide a meaningful difference over existing or new models in predicting the behavior of the human cell in drug discovery, research and other applications and, as a result, may not meaningfully displace such models. Failure to achieve market acceptance would limit our ability to generate revenue and would have a material adverse effect on our business.

If we are unable to keep up with rapid technological changes in our field or compete effectively, we will be unable to operate profitably.

We are engaged in activities in the life sciences field, which is characterized by rapid technological changes, frequent new product introductions, changing customer needs and preferences, emerging competition, evolving industry standards and strong price competition. If we fail to anticipate or respond adequately to technological developments, demand for our products will not grow and may decline, and our business, revenue, financial condition and operating results could suffer materially. We cannot assure you that research and discoveries by other companies will not render our existing or potential products uneconomical or result in products superior to those we develop. We also cannot assure you that any technologies or products that we develop will be preferred to any existing or newly developed technologies or products.

We anticipate that we will face increased competition in the future as existing companies and competitors develop new or improved products and as new companies enter the market with new technologies. Competitors may have significant financial, manufacturing, sales and marketing resources and may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. In addition, our competitors may enter into collaborative relationships with our current or potential customers that may provide those competitors with access to greater financial and development resources than we have and opportunities to establish market leading positions. In light of these advantages, even if our technology is more effective than the product offerings of our competitors, current or potential customers might accept competitive products or develop their own products in lieu of purchasing our products. We may not be able to compete effectively against these organizations. Increased competition is likely to result in pricing pressures, which could harm our sales, profitability or market share. Our failure to compete effectively could materially and adversely affect our business, financial condition and results of operations.

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We have limited experience in marketing, selling and distributing our products, and we need to expand our direct sales and marketing force and distribution capabilities for our products to gain market acceptance.

We have limited experience in marketing, selling and distributing our products. Our iCell Cardiomyocytes, iCell Endothelial Cells and iCell Neurons were first launched as products in December 2009, September 2011 and December 2011, respectively, and in 2012 we began selling iCell Hepatocytes under early access agreements to research collaborators. Our MyCell product was first offered for sale in June 2012. We may not be able to market, sell and distribute our products effectively enough to support our planned growth.

We sell our products primarily through our own sales force and through a distributor in Japan. Our future sales will depend in large part on our ability to develop and substantially expand our direct sales force and to increase the scope of our marketing efforts. Our products are technically complex and used for highly specialized applications. As a result, we believe it is necessary to develop a direct sales force with specific scientific backgrounds and expertise and a marketing group with technical sophistication. Competition for such employees is intense. We may not be able to attract and retain personnel or be able to build an efficient and effective sales and marketing force, which could negatively impact sales of our products, and reduce our revenues and profitability.

In addition, we may enlist one or more sales representatives and distributors to assist with sales, distribution and customer support globally or in certain regions of the world. If we do seek to enter into such arrangements, we may not be successful in attracting desirable sales representatives and distributors, or we may not be able to enter into such arrangements on favorable terms. If our sales and marketing efforts, or those of any third-party sales representatives and distributors, are not successful, our products may not gain market acceptance, which would materially impact our business operations.

We may experience difficulty in manufacturing our products.

Manufacturing iPSCs and the differentiation of iPSCs into cell types are technically complex processes. We have developed protocols for the manufacture of iPSCs and differentiated cell types. We may encounter difficulties in manufacturing iPSCs from particular donor samples or differentiated cell types from particular iPSCs, even when following these protocols. These difficulties may result in delays in production and customer fulfillment, loss of revenue and reputational harm.

Due to heavy reliance on manufacturing and related operations to produce, package and distribute our products, our business could be adversely affected by disruptions of these operations.

We rely upon our manufacturing operations to produce products accounting for substantially all of our sales. Our quality control, packaging and distribution operations support all of our sales. Any significant disruption of those operations for any reason, such as labor unrest, power interruptions, fire or other events beyond our control, could adversely affect our sales and customer relationships and, therefore, adversely affect our business. While insurance coverage may reimburse us, in whole or in part, for profits lost from such disruptions, our ability to provide these products in the longer term may affect our sales growth expectations and results.

If we experience a significant disruption in our information technology systems or if we fail to implement new systems and software successfully, our business could be adversely affected.

We depend on information systems to control our manufacturing processes, process orders, manage inventory, process and bill shipments to and collect cash from our customers, respond to customer inquiries, contribute to our overall internal control processes, maintain records of our property, plant and equipment, and record and pay amounts due vendors and other creditors. Our systems could be subject to viruses, break-ins, sabotage, acts of terrorism, acts of vandalism, hacking, cyber-terrorism and similar misconduct. If we were to experience a prolonged disruption in our information systems that involve

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interactions with customers and suppliers, it could result in the loss of sales and customers and/or increased costs, which could adversely affect our business.

Our business depends on research and development spending levels of biopharmaceutical companies, government research institutions, academic and nonprofit research institutions, clinical research organizations and stem cell banks, and any reduction in such spending could limit our ability to sell our products.

We expect that our revenue in the foreseeable future will be derived primarily from sales of our iCell O/S products to biopharmaceutical companies, government research institutions, academic and nonprofit research institutions, clinical research organizations and stem cell banks in the United States, Europe and Japan. Our success will depend upon their demand for and use of our products. Accordingly, the spending policies of these customers could have a significant effect on the demand for our technology. These policies may be based on a wide variety of factors, including the resources available to make purchases, policies regarding spending during recessionary periods and changes in the political climate. In addition, academic, governmental and other research institutions that fund research and development activities may be subject to stringent budgetary constraints that could result in spending reductions, reduced allocations or budget cutbacks, which could jeopardize the ability of these customers to purchase our iCell O/S products. Our operating results may fluctuate substantially due to reductions and delays in research and development expenditures by these customers. For example, reductions in expenditures by these customers may result in lower than expected sales of our iCell O/S products. These reductions and delays may result from factors that are not within our control, such as:

• changes in economic conditions;

• changes in government programs that provide funding to research institutions and companies;

• changes in the regulatory environment affecting biopharmaceutical companies engaged in research and commercial activities;

• differences in budget cycles across various governmental entities and industries;

• market-driven pressures on companies to consolidate operations and reduce costs;

• mergers and acquisitions in the biopharmaceutical and life sciences industries; and

• other factors affecting research and development spending.

Any decrease in our customers' budgets or expenditures or in the size, scope or frequency of operating expenditures as a result of the foregoing or other factors could materially and adversely affect our operations or financial condition.

Some of our programs are partially supported by government grants, which may be reduced, withdrawn or delayed.

We have received and may continue to receive funds under research and economic development programs funded by state and federal governmental agencies. Funding by these governments may be significantly reduced or eliminated in the future for a number of reasons. For example, some programs are subject to a yearly appropriations process in Congress. In addition, we may not receive funds under existing or future grants because of budgeting constraints of the agency administering the program. A restriction on the government funding available to us would reduce the resources that we would be able to devote to existing and future research and development efforts. Such a reduction could delay the introduction of new products and hurt our competitive position.

We may rely on strategic collaborations for research and development and commercialization purposes.

We have entered into and may continue to enter into strategic collaborations, which we sometimes refer to as center of excellence agreements, with biopharmaceutical companies, academic institutions and life science research institutions. For example, in 2012, we entered into two center of excellence agreements

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with pharmaceutical companies. If any of our strategic collaboration participants were to change their business strategies or development priorities, or encounter research and development obstacles, they may no longer be willing or able to participate in such strategic collaborations, which could have a material adverse effect on our product development. In addition, we may not control the strategic collaborations in which we participate. We may be required to relinquish or license important rights, including intellectual property rights, and relinquish or share control over the development of the products during the collaboration, or otherwise be subject to terms unfavorable to us.

Our center of excellence agreements are subject to numerous conditions, contingencies, development challenges, milestones, indemnification obligations, termination rights and default provisions. There can be no assurance that these collaborations will lead to technology, products, that such technology, products will receive market acceptance, that we will realize any material revenue or other benefits from these collaborations or that the benefits will exceed our costs.

Our future capital needs are uncertain and we may need to raise additional funds in the future.

We believe that the net proceeds from this offering, together with our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements for at least the next 24 months. However, we may need to raise substantial additional capital to:

• expand the commercialization of our products;

• fund our operations; and

• further our research and development.

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

• market acceptance of our products;

• the cost of our research and development activities;

• the cost of acquiring and maintaining the intellectual property necessary to preserve our freedom to operate in the stem cell industry;

• the cost of defending, in litigation or otherwise, any claims that we infringe third-party patents or violate other intellectual property rights;

• the cost and timing of regulatory clearances or approvals, if any;

• the cost and timing of establishing additional sales, marketing and distribution capabilities;

• the cost and timing of establishing additional technical support capabilities;

• the effect of competing technological and market developments; and

• the extent to which we acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

We cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity securities, our shareholders may experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or additional equity financing that we raise may contain terms that are not favorable to us or to our shareholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we are unable to raise adequate funds, we may have to liquidate some or all of our assets, or delay, reduce the scope of or eliminate some or all of our research and development programs.

If we do not have, or are not able to obtain, sufficient funds, we may have to delay research and development or commercialization of our products or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize. We also may have to reduce

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marketing, customer support or other resources devoted to our products or cease operations. Any of these factors could harm our operating results.

If we cannot provide quality technical support, we could lose customers and our operating results could suffer.

The adoption of our products by our customers and ongoing customer support can be complex. Accordingly, we need highly trained technical support personnel. Hiring technical support personnel is very competitive in our industry due to the limited number of people available with the necessary scientific background and ability to understand our products at a technical level. To effectively support potential new customers and the expanding needs of current customers, we will need to substantially expand our technical support staff. If we are unable to attract, train or retain the number of highly qualified technical services personnel that our business needs, our business and prospects will suffer.

If we are unable to recruit and retain key executives and highly skilled employees, we may be unable to achieve our goals.

Our performance is substantially dependent on the performance of our senior management. We do not maintain fixed term employment contracts with any of our employees. The loss of the services of any member of our senior management might significantly delay or prevent the development of our products or achievement of other business objectives by diverting management's attention to transition matters and identification of suitable replacements, if any, and could have a material adverse effect on our business. We do not maintain significant key man life insurance on any of our employees.

In addition, our research and product development efforts could be delayed or curtailed if we are unable to attract, train and retain highly skilled employees, particularly senior scientists. To expand our research and product development efforts, we need additional people skilled in areas such as molecular and cellular biology and manufacturing. Competition for these people is intense. Because of the complex and technical nature of our system and the dynamic market in which we compete, any failure to attract and retain a sufficient number of qualified employees could materially harm our ability to develop and commercialize our technology.

Adverse conditions in the global economy and disruption of financial markets may significantly harm our revenue, profitability and results of operations.

The global economy has been experiencing a significant economic downturn, and global credit and capital markets have experienced substantial volatility and disruption. Volatility and disruption of financial markets could limit our customers' ability to obtain adequate financing or credit to purchase and pay for our products in a timely manner or to maintain operations, which could result in a decrease in sales volume that could harm our results of operations. General concerns about the fundamental soundness of domestic and international economies may also cause our customers to reduce their purchases. Changes in governmental banking, monetary and fiscal policies to address liquidity and increase credit availability may not be effective. Significant government investment and allocation of resources to assist the economic recovery of sectors that do not include our customers may reduce the resources available for government grants and related funding for life science research and development. Continuation or further deterioration of these financial and macroeconomic conditions could significantly harm our sales, profitability and results of operations.

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Our business is subject to complex and evolving laws and regulations regarding privacy and informed consent matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, increased cost of operations or otherwise harm our company.

We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including obligations to seek informed consent from donors for the use of their blood and other tissue as well as state and federal laws that protect the privacy of donors. U.S. federal and state and foreign laws and regulations are constantly evolving and can be subject to significant change. When we engage in business in markets in countries other than the United States, we may become subject to foreign laws and regulations relating to human subjects research and other laws and regulations that are often more restrictive than those in the United States. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate. These laws and regulations can be costly to comply with and can delay or impede the development of new products, result in negative publicity, increase our operating costs, require significant management time and attention and subject us to claims or other remedies, including fines or demands that we modify or cease existing business practices.

Our business in markets outside of the United States may become subject to political, economic, legal and social risks, which could adversely affect our business.

For the year ended December 31, 2012, 34% of our revenues were generated outside of the United States. When we engage in business in countries other than the United States, we may become subject to the burden of complying with a wide variety of national and local laws, including multiple and possibly overlapping and conflicting laws. We may also experience difficulties adapting to new cultures, business customs and legal systems. Any sales and operations outside of the United States would be subject to political, economic and social uncertainties including, among others:

• changes and limits in import and export controls;

• increases in custom duties and tariffs;

• changes in currency exchange rates;

• economic and political instability;

• changes in government regulations and laws;

• absence in some jurisdictions of effective laws to protect our intellectual property rights; and

• currency transfer and other restrictions and regulations that may limit our ability to sell certain products or repatriate profits to the United States.

Any changes related to these and other factors could adversely affect our business in markets outside of the United States.

Demand for our technology could be reduced by legal, social and ethical concerns surrounding the manufacture of biological materials and use of genetic information.

Our products involve the use and manipulation of tissue and genetic information from humans. Our products and the information derived from our products could be used in a variety of applications, which may have underlying legal, social and ethical concerns, including the genetic engineering or modification of human cells, testing for genetic predisposition for certain medical conditions and stem cell banking. Governmental authorities could, for safety, social or other purposes, call for limits on or impose regulations on the use of genetic testing or the manufacture or use of certain biological materials. Such concerns or governmental restrictions could limit the use of our products, which could have a material adverse effect on our business, financial condition and results of operations.

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Our products, although not currently subject to regulation by the U.S. Food and Drug Administration or other regulatory agencies as biological products or drugs, could become subject to regulation in the future.

Our products are currently labeled and sold to biopharmaceutical companies, government research institutions, academic and nonprofit research institutions, medical research organizations and stem cell banks for research purposes only, and not therapeutic procedures. As research use only products, they are not subject to regulation as biological products or drugs by the U.S. Food and Drug Administration (FDA) or comparable agencies of other countries. However, if we change the labeling of our products in the future to include therapeutic applications, our products or related applications could be subject to the FDA's pre- and post-market regulations. For example, if we wish to label and market our products for use in performing cell therapy or regenerative medicine, such as tissue engineering or organ replacement, we would first need to obtain FDA premarket clearance or approval. Obtaining FDA clearance or approval can be expensive and uncertain, generally takes several months to years to obtain, and may require detailed and comprehensive scientific and clinical data. Notwithstanding the expense, these efforts may never result in FDA approval or clearance. Even if we were to obtain regulatory approval or clearance, it may not be for the uses that we believe are important or commercially attractive.

Finally, we may be required to proactively achieve compliance with certain FDA regulations as part of our contracts with customers or as part of our collaborations with third parties. In addition, we may voluntarily seek to conform our manufacturing operations to the FDA's current good manufacturing practices for biological and drug products, known as the Quality System Regulation (QSR) or FDA's Good Tissue Practices for human cell and tissue-based products. The QSR is a complex regulatory scheme that governs the methods and documentation covering the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of products. The FDA enforces the QSR through periodic unannounced inspections of registered manufacturing facilities. The failure to take satisfactory corrective action in response to an adverse QSR inspection could result in enforcement actions, including a public warning letter, a shutdown of manufacturing operations, a product recall, civil or criminal penalties or other sanctions, which could in turn cause our sales and business to suffer. FDA's Good Tissue Practices create regulatory requirements for establishments that manufacture human cells, tissues and cellular and tissue-based products (HCT/Ps) and to establish donor-eligibility, current good tissue practice and other procedures to prevent the introduction, transmission and spread of communicable diseases by HCT/Ps. The FDA has the authority to inspect such establishments and take enforcement action including ordering a manufacturing stoppage if it finds sufficient regulatory violations. See "Business–Government regulation."

Bacterial or viral contamination of our production suites may damage our reputation and otherwise harm our business.

Laboratories that work with human tissue are subject to bacterial or viral contamination. If our procedures for preventing this type of contamination fail, one or both of our production suites may become contaminated. In that event, we would need to cease production in the affected suite to eliminate the contamination, during which time we would be required to rely on our inventory to fulfill customer orders and, if uncontaminated, our other production suite. If our inventories and remaining production capacity are not sufficient to satisfy customer demand, we may lose product orders, which would harm our results of operations. Furthermore, if our products become bacterially or virally contaminated and as a result contaminated products are shipped to our customers, those products may contaminate our customers' laboratories. Such contamination could harm our reputation among our customers and potential customers.

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Our products could have unknown defects or errors, which may give rise to claims against us and adversely affect market adoption of our systems.

We use novel and complex technology to manufacture our cells and such cells may develop or contain undetected defects or errors. We cannot assure you that material performance problems, defects or errors will not arise, and as we expand the types of cells we manufacture, the populations from which we develop iPSCs and our ability to edit genes in the genome, these risks may increase. We provide limited express warranties that certain of our cells will meet certain specifications to foster continued customer adoption and use of our systems. The costs incurred in correcting any defects or errors may be substantial and could adversely affect our business.

If our products contain defects, we may experience:

• a failure to achieve market acceptance or expansion of our product sales;

• loss of customer orders and delay in order fulfillment;

• damage to our brand reputation;

• increased cost of our warranty program due to product replacement;

• product recalls or replacements;

• inability to attract new customers;

• diversion of resources from our manufacturing and research and development into our customer services and support; and

• legal claims against us, including product liability claims, which could be costly and time consuming to defend and result in substantial damages.

The occurrence of any one or more of the foregoing could negatively affect our business, financial condition and results of operations.

We may experience delays and increased costs in conversion from a manufacturing technology that uses viral reprogramming to one that uses episomal reprogramming and the conversion may not render the expected benefits.

We believe that manufacturing iPSCs using a footprint free reprogramming method will be desirable for the research market and essential for the therapeutic market. The iPSCs we currently manufacture for direct sale are made by reprogramming blood using our episomal reprogramming technology, which is footprint free. However, the iPSC line we use in our current iCell products was made in 2008 using the only method then available, viral reprogramming of skin. Our viral reprogramming technology is not footprint free and makes insertions into the genome of the resulting iPSCs. We expect that at some time in the future we will manufacture our iCell products from iPSCs made by reprogramming blood using our episomal reprogramming technology. Our efforts to execute this conversion have required and will continue to require significant expenditures of management and other personnel time. Our business could be materially harmed if we are unable to successfully execute the manufacture of our iCell products using this technology within the time frame or in the quantities demanded by our customers.

We believe that certain of our customers may desire to have consistent cells over time for their research and other uses. Following the conversion to the episomal reprogramming technology, our customers may desire to purchase iCell products manufactured from the iPSCs we derived from the viral reprogramming of skin cells from which our iCell products have been made to date. To meet this customer demand would require us to manufacture iCell products from both these iPSCs and from a new iPSC line reprogrammed from blood using our episomal reprogramming technology. By doing so we would experience additional costs associated with maintaining both manufacturing runs. Alternatively, we may lose revenues or customers if we fail to maintain both manufacturing runs.

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The requirements of being a public company will increase our costs and may strain our resources and distract our management.

We have historically operated our business as a private company. As a public company, we will face increased legal, accounting, administrative and other costs and expenses that we have not incurred as a private company, particularly, after we are no longer an “emerging growth company.” After the consummation of this offering, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (Exchange Act), which requires that we file annual, quarterly and current reports with respect to our business and financial condition, and the rules and regulations implemented by the Securities and Exchange Commission (SEC), the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act, the Public Company Accounting Oversight Board and the NASDAQ Market, each of which imposes additional reporting and other obligations on public companies. As a public company, we will be required to:

• prepare and distribute periodic public reports and other shareholder communications in compliance with federal securities laws and the rules of NASDAQ Stock Market;

• expand the roles and duties of our board of directors and committees thereof;

• institute more comprehensive financial reporting and disclosure compliance functions;

• involve and retain to a greater degree outside counsel and accountants in the activities listed above;

• enhance our investor relations function;

• establish new internal policies, including those relating to trading in our securities and disclosure controls and procedures; and

• comply with the Sarbanes-Oxley Act of 2002, in particular Section 404 and Section 302.

We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. A number of these requirements will require us to carry out activities we have not done previously and complying with such requirements may divert management's attention from other business concerns, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

However, for as long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” See—"We are an 'emerging growth company' and we cannot be certain if the reduced disclosure requirements and relief from certain other significant obligations that are applicable to emerging growth companies will make our common stock less attractive to investors."

These increased costs will require us to divert a significant amount of money that we could otherwise use to expand our business and achieve our strategic objectives. We also expect that it will be difficult and expensive to maintain director and officer liability insurance, and we may be required to accept reduced

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policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements and relief from certain other significant obligations that are applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, but we have elected to irrevocably opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(B) of the JOBS Act. As an "emerging growth company," we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, less extensive disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements to hold a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We may remain an “emerging growth company” for up to five years, although we could lose that status sooner if (1) our revenues exceed $1.0 billion, (2) we issue more than $1.0 billion in non-convertible debt in a three year period, or (3) (a) the market value of our common stock held by non-affiliates exceeds $700.0 million as of any June 30, (b) we have been required to file annual and quarterly reports under the Exchange Act, and (c) we have filed at least one annual report pursuant to the Exchange Act. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will be required to disclose changes made in our internal control over financial reporting on a quarterly basis and management will be required to assess the effectiveness of our controls annually. Under the recently enacted JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 until we are no longer an “emerging growth company.” We could be an “emerging growth company” for up to five years. See "Summary—Implications of being an emerging growth company."

Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act of 2002, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

As a privately held company, we have not been required to maintain internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act of 2002, or Section 404(a). We anticipate being required to meet these standards in the course of preparing our financial statements as of and for the year ended December 31, 2013, and our management will be required to report on the effectiveness of our internal control over financial reporting for such year. Additionally, once we are no longer an “emerging growth company,” our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting on an annual basis. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.

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 in accordance with GAAP. We are currently in the process of reviewing, documenting and testing our internal control over financial

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reporting, but we are not currently in compliance with, and we cannot be certain when we will be able to implement, the requirements of Section 404(a). We may encounter problems or delays in implementing any changes necessary to make a favorable assessment of our internal control over financial reporting. In addition, we may encounter problems or delays in completing the implementation of any requested improvements in connection with the attestation provided by our independent registered public accounting firm. If we cannot favorably assess the effectiveness of our internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls when required, investors could lose confidence in our financial information and the price of our common stock could decline.

Our ability to use net operating losses to offset future taxable income is subject to certain limitations.

If we do not generate sufficient taxable income we may not be able to use a material portion, or any portion, of our existing net operating losses (NOLs). Furthermore, our existing NOLs are subject to limitations under Section 382 of the Internal Revenue Code of 1986, as amended, which in general provides that a corporation that undergoes an “ownership change” is limited in its ability to utilize its pre-change NOLs to offset future taxable income. Our existing NOLs are subject to limitations arising from previous ownership changes, and if we undergo an ownership change in connection with or after this offering, our ability to utilize NOLs could be further limited by Section 382 of the Internal Revenue Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Internal Revenue Code.

Risks related to intellectual property

We utilize certain technologies that are licensed to us. If we are unable to maintain these licenses, our business could be adversely affected.

We currently use certain licensed technologies to make the products that are material to our business, including our core iPSC reprogramming technologies, and we may enter into additional license agreements in the future. Our rights to use such licensed technologies are subject to the negotiation of, continuation of and compliance with the terms of the applicable licenses, including payment of any royalties and diligence, insurance, indemnification and other obligations.

Our license rights are further subject to the validity of the owner's intellectual property rights. We cannot be certain that drafting and/or prosecution of the licensed patents and patent applications by the licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. Legal action could be initiated by or against the owners of the intellectual property that we license. Even if we are not a party to these legal actions, an adverse outcome could harm our business because it might prevent these other companies or institutions from continuing to license intellectual property that we may need to operate our business. In some cases, we do not control the prosecution, maintenance or filing of the patents to which we hold licenses, or the enforcement of these patents against third parties.

Certain of our license agreements are subject to termination by the licensor in specific circumstances. Any such termination of these licenses could prevent us from producing, selling or marketing some or all of our products. Because of the complexity of our products and the patents we have licensed, determining the scope of the license and related royalty obligation can be difficult and can lead to disputes between us and the licensor. An unfavorable resolution of such a dispute could lead to an increase in the royalties payable pursuant to the license. If a licensor believed we were not paying the royalties due under the license or were otherwise not in compliance with the terms of the license, the licensor might attempt to revoke the license. If such an attempt were successful, our business could be adversely affected.

We engage in discussions regarding possible commercial, licensing and cross-licensing agreements with third parties from time to time. There can be no assurance that these discussions will lead to the

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execution of commercial license or cross-license agreements or that such agreements will be on terms that are favorable to us. If these discussions are successful, we could be obligated to pay license fees and royalties to such third parties. If these discussions do not lead to the execution of mutually acceptable agreements, we may be limited or prevented from producing and selling our existing products and developing new products. One or more of the parties involved in such discussions could resort to litigation to protect or enforce its patents and proprietary rights or to determine the scope, coverage and validity of the proprietary rights of others. In addition, if we enter into cross-licensing agreements, there is no assurance that we will be able to effectively compete against others who are licensed under our patents.

Our ability to protect our intellectual property and proprietary technology through patents and other means is uncertain.

Our commercial success depends in part on our ability to protect our intellectual property and proprietary technologies. We rely on patents, where appropriate and available, as well as a combination of copyright, trade secret and trademark laws, license agreements and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Pending patent applications of ours or our licensors may not issue as patents or may not issue in a form that will be sufficient to protect our proprietary technology and gain or maintain our competitive advantage. Any patents we have obtained or may obtain in the future, or the rights we have licensed, may be subject to re-examination, reissue, opposition or other administrative proceeding, or may be challenged in litigation, and such challenges could result in a determination that the patent is invalid or unenforceable. In addition, competitors may be able to design alternative methods or products that avoid infringement of these patents or technologies. To the extent our intellectual property, including licensed intellectual property, offers inadequate protection, or is found to be invalid or unenforceable, we are exposed to a greater risk of direct competition. If our intellectual property does not provide adequate protection against our competitors' products, our competitive position could be adversely affected, as could our business. Both the patent application process and the process of managing patent disputes can be time consuming and expensive.

The patent positions of companies in the life sciences industry can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. A number of life sciences, biopharmaceutical and other companies, universities and research institutions have filed patent applications or have been issued patents relating to cell therapy, stem cells, use of stem cells and other modified cells to treat disease, disorder or injury, and other technologies potentially relevant to or required by our existing and planned products. We cannot predict which, if any, of such pending applications will issue as patents or the claims that might be allowed. No consistent policy regarding the breadth of claims allowed in life sciences patents has emerged to date in the United States. The laws of some non-U.S. countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to prevent the infringement of our patents. Proceedings to enforce our intellectual property rights could result in substantial cost and divert our efforts and attention from other aspects of our business and we may not prevail. Changes in either the patent laws or in interpretations of patent laws in the United States or in other countries may diminish the value of our intellectual property. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. For example:

• We or our licensors might not have been the first to make the inventions covered by each of our owned or licensed pending patent applications;

• We or our licensors might not have been the first to file patent applications for these inventions;

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• Others may independently develop similar or alternative products and technologies or new methods that are outside the scope of our patents;

• It is possible that none of our owned or licensed pending patent applications will result in issued patents, and even if they issue as patents, they may not provide a basis for commercially viable products, they may not provide us with any competitive advantages, or they may be challenged and invalidated by third parties;

• We may not develop additional proprietary products and technologies that are patentable;

• The patents of others may have an adverse effect on our business; and

• We apply for patents or seek licenses covering our products and technologies and uses thereof, as we deem appropriate. However, we may fail to apply for patents or obtain licenses on important products and technologies in a timely fashion or at all.

Certain of our technology may not be eligible for patent protection, which leaves us vulnerable to theft of the technology we protect under trade secret law. We take steps to protect such intellectual property and proprietary technology, including by limiting access to the materials embodying such intellectual property and by entering into confidentiality agreements and intellectual property assignment agreements with our employees, consultants, collaborators and, when needed, our advisors. Such agreements may not be enforceable or may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure. Monitoring unauthorized disclosure is difficult, and we cannot ensure that the steps we have taken to prevent such disclosure are, or will be, adequate. In addition, courts outside the United States may be less willing or unwilling to protect trade secrets. Further, others may independently discover or invent trade secrets and proprietary information similar to ours, and in such cases we could not assert any trade secret rights against such party.

We may be involved in lawsuits to protect or enforce our patents and proprietary rights, to determine the scope, coverage and validity of others' proprietary rights or to defend against third party claims of intellectual property infringement, which in each case could require us to spend significant time and money and could prevent us from selling our products or impact our stock price.

Litigation or other proceedings may be necessary for us to enforce our patent and proprietary rights and/or to determine the scope, coverage and validity of others' proprietary rights. To determine the priority of inventions, which is determinative of patent rights, we may have to initiate and participate in interference proceedings declared by the U.S. Patent and Trademark Office that could result in substantial legal fees and could substantially affect the scope of our patent protection. Also, our intellectual property may be subject to significant administrative and litigation proceedings such as invalidity, unenforceability, re-examination or opposition proceedings against our patents; we cannot be certain that we do not and will not infringe on the intellectual property rights of others. The outcome of any litigation or other proceeding is inherently uncertain and might not be favorable to us, and we might not be able to obtain licenses to technology that we require. Even if such licenses are obtainable, they may not be available at a reasonable cost or on otherwise favorable terms. We could therefore incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect our gross margins. Further, we could encounter delays in product introductions, or interruptions in product sales, as we develop alternative methods or products.

In addition, if we resort to legal proceedings to enforce our intellectual property rights or to determine the validity, scope and coverage of the intellectual property or other proprietary rights of others, the proceedings could be burdensome and expensive, even if we were to prevail.

Our commercial success may depend in part on our non-infringement of the patents or proprietary rights of third parties. Numerous significant intellectual property issues have been litigated, and will likely continue to be litigated, between existing and new participants in the stem cell market, and competitors may assert that our products infringe their intellectual property rights as part of a business strategy to

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impede our successful entry into those markets. Third parties may assert that we are employing their proprietary technology without authorization.

In addition, our competitors and others may have patents or may in the future obtain patents that broadly apply to the manufacture of human cells and their uses and claim that the manufacture or use of our products infringes these patents. As we move into new markets and applications for our products, incumbent participants in such markets may assert their patents and other proprietary rights against us as a means of slowing our entry into such markets or as a means to extract substantial license and royalty payments from us.

Patent infringement suits can be expensive, lengthy and disruptive to business operations. We could incur substantial costs and divert the attention of our management and technical personnel in prosecuting or defending against any claims, and these claims may harm our reputation. There can be no assurance that we will prevail in any suit. Furthermore, parties making claims against us may be able to obtain injunctive or other relief, which could block our ability to develop, commercialize and sell products, and could result in the award of substantial damages against us, including treble damages and attorneys' fees and costs in the event that we are found to be a willful infringer of third party patents.

In the event of a successful claim of infringement against us, we may be required to obtain one or more licenses from third parties, which we may not be able to obtain at a reasonable cost or on otherwise favorable terms, if at all. In addition, we could encounter delays in product introductions while we attempt to develop alternative methods or products to avoid infringing third-party patents or proprietary rights. Defense of any lawsuit or failure to obtain any required licenses on favorable terms could prevent us from commercializing our products, and the risk of a prohibition on the sale of any of our products could adversely affect our ability to grow and gain market acceptance for our products.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

In addition, our agreements with some of our suppliers, distributors, customers and other entities with whom we do business may require us to defend or indemnify these parties to the extent they become involved in infringement claims against us, including the claims described above. We could also voluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine that it would be important to our business relationships. If we are required or agree to defend or indemnify any of these third parties in connection with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, operating results or financial condition.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our employees' former employers.

Many of our employees were previously employed at biopharmaceutical companies, including our competitors or potential competitors, and certain of these employees may have executed invention assignments, nondisclosure agreements and/or non-competition agreements in connection with such previous employment. Although no claims against us are currently pending, we may be subject to claims that we, or these employees, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property or personnel. A loss of key research personnel or their work product could hamper or prevent our ability to commercialize certain potential products, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

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Risks related to our common stock and this offering

We do not know whether an active, liquid and orderly trading market will develop for our common stock or what the market price of our common stock will be and, as a result, it may be difficult for you to sell your shares of our common stock.

Prior to this offering, there has been no public market for shares of our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the NASDAQ Global Market or otherwise or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of our shares of common stock that you buy. We and the underwriters will determine the initial public offering price of our common stock through negotiation. This price will not necessarily reflect the price at which investors in the market will be willing to buy and sell our shares following this offering. In addition, the trading price of our common stock following this offering may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include:

• actual or anticipated quarterly variation in our results of operations or the results of our competitors;

• announcements by us or our competitors of new commercial products, significant contracts, commercial relationships or capital commitments;

• financial projections we may provide to the public, any changes to those projections or our failure to meet those projections;

• issuance of new or changed securities analysts' reports or recommendations for our stock;

• developments or disputes concerning our intellectual property or other proprietary rights;

• commencement of, or our involvement in, litigation;

• market conditions in the biopharmaceutical and life sciences sectors;

• failure to complete significant sales;

• changes in legislation and government regulation;

• public concern regarding the safety, efficacy or other aspects of our products;

• entering into, changing or terminating collaborative relationships;

• any shares of our common stock or other securities eligible for future sale;

• any major change to the composition of our board of directors or management; and

• general economic conditions and slow or negative growth of our markets.

The stock market in general, and market prices for the securities of technology-based companies like ours in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. A certain degree of stock price volatility can be attributed to being a newly public company. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In several recent situations where the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our shareholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results.

If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. We do not currently have and may never obtain research coverage by equity research analysts. Equity research analysts may elect not to provide research

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coverage of our common stock after the completion of this offering, and such lack of research coverage may adversely affect the market price of our common stock. In the event we obtain equity research analyst coverage, we will not have any control of the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock immediately prior to this offering. Therefore, if you purchase our common stock in this offering, you will incur an immediate dilution of $ in pro forma as adjusted net tangible book value per share as of March 31, 2013 from the price you paid, based on the initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, because the price that you pay will be substantially greater than the pro forma net tangible book value per share of the common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. New investors who purchase shares in this offering will contribute approximately % of the total amount of equity capital raised by us through the date of this offering, and will own approximately % of the outstanding share capital and approximately % of the voting rights. In addition, we have issued options and warrants to acquire common stock at prices below the initial public offering price. To the extent outstanding options and warrants are ultimately exercised, or if we issue restricted stock to our employees under our equity incentive plans, there will be further dilution to investors who purchase shares in this offering. In addition, if the underwriters exercise their option to purchase additional shares or if we issue additional equity securities, investors purchasing shares in this offering will experience additional dilution. For a further description of the dilution that you will experience immediately after this offering, see “Dilution.”

Future sales of shares by existing shareholders could cause our stock price to decline.

Prior to this offering, there has been no public market for shares of our common stock. Future sales of substantial amounts of shares of our common stock, including shares issued upon the exercise of outstanding options, in the public market after this offering, or the possibility of these sales occurring, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capital in the future. Upon the completion of this offering, based on the number of shares outstanding as of , 2013, we will have shares of common stock outstanding, assuming no exercise of the underwriters' option to purchase additional shares and no exercise of outstanding options. Of these outstanding shares, all shares of common stock sold by us in this offering, plus any shares sold upon exercise of the underwriters option to purchase additional shares, will be freely tradable in the public market without restriction or further registration under the Securities Act, except that shares of common stock held by our affiliates, as that term is defined in Rule 144 under the Securities Act, may only be sold in compliance with the limitations described below.

The remaining shares of common stock outstanding after this offering will be deemed restricted because of securities laws, the registration rights agreement or lock-up agreements. After the lock-up agreements expire, based on shares outstanding as of , 2013, up to an additional shares of common stock will be eligible for sale in the public market, of which are held by directors and executive officers and will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements. In addition, shares of common stock that are subject to outstanding options as of , 2013 will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the lock-up agreements and Rules 144 and 701 under the Securities Act. See "Shares eligible for future sale."

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Our directors and executive officers will continue to have substantial control over us after this offering and could limit your ability to influence the outcome of key transactions, including changes of control.

Following the completion of this offering, our executive officers, directors and their affiliates will beneficially own or control approximately % of the outstanding shares of our common stock, assuming no exercise of the underwriters' option to purchase additional shares. Accordingly, these executive officers, directors and their affiliates, acting as a group, will have substantial influence over the outcome of corporate actions requiring shareholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. These shareholders may also delay or prevent a change of control of us, even if such a change of control would benefit our other shareholders. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors' perception that conflicts of interest may exist or arise. For information regarding the ownership of our outstanding stock by our executive officers and directors and their affiliates, see “Principal shareholders.”

Anti-takeover provisions in our charter documents and under Wisconsin law could make an acquisition of us, which may be beneficial to our shareholders, more difficult and may prevent attempts by our shareholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our articles of incorporation and bylaws, as amended and restated upon the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated articles of incorporation and amended and restated bylaws to become effective upon completion of this offering include provisions that:

• authorize our board of directors to issue, without further action by the shareholders, up to shares of undesignated preferred stock;

• establish an advance notice procedure for shareholder approvals to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our board of directors;

• establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered three year terms;

• provide that our directors may be removed only for cause;

• provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

• specify that no shareholder is permitted to cumulate votes at any election of directors; and

• require approval by 75% of our outstanding common stock to amend our articles of incorporation and approval by a majority of our board of directors or 75% of our outstanding common stock to amend our bylaws.

These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Wisconsin, the Wisconsin control share acquisition statute and Wisconsin's “fair price” and “business combination” provisions, in addition to other provisions of Wisconsin law, would apply and limit the ability of an acquiring person to engage in certain transactions or to exercise the full voting power of acquired shares under certain circumstances. As a result, offers to acquire us, which may represent a premium over the available market price of our common stock, may be withdrawn or otherwise fail to be realized.

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We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

We will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. We intend to use the net proceeds from this offering for funding our operations; research and product development activities; sales and marketing activities, including expansion of our sales force to support the ongoing commercialization of our products; for property, plant and equipment, including the build-out of our laboratory in California, and intellectual property; and for working capital and other general corporate purposes. We may also use a portion of our net proceeds to acquire or invest in complementary businesses or other assets; however, we currently have no agreements or commitments to complete any such transaction. We have not allocated these net proceeds for any specific purposes. We might not be able to yield a significant return, if any, on any investment of these net proceeds. You will not have the opportunity to influence our management's decisions on how to use the net proceeds from this offering, and our failure to apply these funds effectively could have a material adverse effect on our business, delay the development of our product candidates and cause the price of our common stock to decline.

We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.

We have paid no cash dividends on any of our classes of capital stock to date and currently intend to retain our future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

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Special note regarding forward-looking statements

This prospectus includes forward-looking statements. All statements contained in this prospectus other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk factors” section. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of these forward-looking statements after the date of this prospectus or to conform these statements to actual results or revised expectations. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

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Use of proceeds

We estimate that our net proceeds from the sale of the shares of common stock that we are offering will be approximately $ , or approximately $ if the underwriters exercise their option to purchase additional shares in full, based on an assumed initial public offering price of $ per share, which is the midpoint of the price range on the cover of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from our initial public offering by $ , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions.

The principal purposes of this offering are to obtain additional capital and to create a public market for our common stock. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds of this offering. However, we intend to use the net proceeds from this offering for funding our operations as follows: (1) approximately $ million for research and product development activities; (2) approximately $ million for sales and marketing activities, including expansion of our sales force to support the ongoing commercialization of our products; (3) approximately $ million for property, plant and equipment, including the build-out of our laboratory in California, and intellectual property; (4) and approximately $ million for working capital and other general corporate purposes. We may also acquire or invest in complementary businesses or other assets; however, we currently have no agreements or commitments to complete any such transaction.

Pending other uses, we intend to invest our proceeds in short-term investments or hold them as cash. We cannot predict whether the proceeds invested will yield a favorable return. Our management will have broad discretion in the use of the net proceeds, and investors will be relying on the judgment of our management regarding the application of the net proceeds.

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Dividend policy

We have never declared or paid and do not anticipate declaring or paying any cash dividends on our common stock in the near future. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors, subject to applicable law, and will depend on then existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

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Capitalization

The following table sets forth our capitalization as of March 31, 2013, which is derived from our unaudited financial information and our unaudited pro forma financial information included elsewhere in this prospectus:

• on an actual basis;

• on a pro forma basis giving effect to (i) the conversion of all outstanding shares of our Series A preferred stock and Series B preferred stock into shares of common stock on a one-for-one basis and (ii) the exercise of all outstanding warrants to purchase 80,000 shares of common stock.

• on a pro forma as adjusted basis to give further effect to the issuance and sale by us of common stock in our initial public offering at an assumed initial public offering price of $ per share, the midpoint of the price range on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

As of March 31, 2013 (Dollars in thousands, except per share amounts)	Actual			Pro forma			Pro forma as adjusted(1)
Cash and cash equivalents	$	28,488		$	28,489		$
Long-term debt	974			974
Shareholders’ equity:
Series A preferred stock, $0.01 par value, 28,413,291 shares authorized, 28,413,291 shares issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted	28,191			–
Series B preferred stock, $0.01 par value, 70,512,809 shares authorized, 70,512,809 shares issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted	91,413			–
Common stock, $0.0001 par value, 135,715,623 shares authorized; 16,908,864 shares issued and outstanding, actual; 135,715,623 shares authorized, 115,914,964 shares issued and outstanding, pro forma; shares issued and outstanding, pro forma as adjusted	2			11,591
Additional paid-in capital	9,654			117,670
Accumulated deficit	(87,750		)	(87,750		)
Total shareholders’ equity	41,510			41,511
Total capitalization	$	42,484		$	42,485		$

(1) Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) the amount of pro forma as adjusted additional paid-in capital, total shareholders’ equity and total capitalization that we receive in this offering by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of common stock offered by us would increase (decrease) additional paid-in capital, total shareholders’ equity and total capitalization by approximately $ million, assuming the initial public offering price remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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The table above excludes the following shares as of March 31, 2013:

• 15,751,743 shares of common stock issuable upon the exercise of outstanding options, at a weighted-average exercise price of approximately $0.86 per share and a weighted-average remaining contractual term of 7.4 additional years;

• 4,048,918 shares of common stock reserved for issuance under our 2008 Equity Incentive Plan, as amended; and

• shares of common stock reserved for issuance under our 2013 Equity Incentive Plan, as amended.

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Dilution

If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering. As of March 31, 2013, our actual net tangible book value was approximately $28.9 million, or $1.71 per share of common stock. As of March 31, 2013, our pro forma net tangible book value was approximately $28.9 million, or $0.25 per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by shares of common stock outstanding after giving effect to (i) the conversion of all outstanding shares of our Series A preferred stock and Series B preferred stock into shares of common stock on a one-for-one basis and (ii) the exercise of all outstanding warrants to purchase 80,000 shares of common stock at an exercise price of $0.01 per share, immediately prior to the closing of this offering.

Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by buyers of shares of our common stock in this offering and the pro forma net tangible book value per share of our common stock immediately following this offering. After giving effect to the receipt of the net proceeds from our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of March 31, 2013, would have been approximately $ million, or $ per share of common stock. This data represents an immediate increase in pro forma net tangible book value of $ per share to existing shareholders and an immediate dilution of $ per share to new investors purchasing shares at the initial public offering price.

The following table illustrates the per share dilution:

Assumed initial public offering price per share			$
Historical net tangible book value per share as of March 31, 2013	$	1.71
Conversion of Series A preferred stock and Series B preferred stock into common stock	1.46
Exercise of common stock warrants	—
Pro forma net tangible book value as of March 31, 2013	0.25
Increase in pro forma net tangible book value attributable to new investors as of March 31, 2013
Pro forma net tangible book value as of March 31, 2013, as adjusted to give effect to this offering
Dilution to new investors			$

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share by $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares in full, the pro forma net tangible book value per share after giving effect to our initial public offering would be approximately $ per share, and the dilution in pro forma net tangible book value per share to investors in our initial public offering would be approximately $ per share.

The following table shows, on the pro forma basis described above, the difference between existing shareholders and new investors in this offering with respect to the number of shares of common stock

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purchased from us, the total consideration paid and the average price paid per share, before deducting underwriting discounts and commissions and estimated offering expenses.

	Shares purchased			Total consideration
	Number	Percent		Amount	Percent		Average price per share
Existing shareholders		%		$	%		$
New investors
Total		100.0	%	$	100.0	%	$

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) total consideration paid by new investors by $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

After giving effect to the sale of shares in this offering by us, if the underwriters exercise their option to purchase additional shares in full, our existing shareholders would own % and our new investors would own % of the total number of shares of our common stock outstanding after our initial public offering.

The outstanding share information set forth above is as of March 31, 2013 and excludes:

• 15,751,743 shares of common stock issuable upon the exercise of outstanding options, at a weighted-average exercise price of approximately $0.86 per share and weighted-average remaining contractual term of 7.4 additional years as of March 31, 2013;

• 4,048,918 shares of common stock reserved for issuance under our 2008 Equity Incentive Plan, as amended; and

• shares of common stock reserved for issuance under our 2013 Equity Incentive Plan, as amended.

To the extent that any outstanding options are exercised, new investors will experience further dilution.

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Selected financial data

We have derived the selected statement of operations data for the years ended December 31, 2011 and 2012, and the selected balance sheet data as of December 31, 2011 and 2012 from our audited financial statements included elsewhere in this prospectus. The unaudited statements of operations data for the three months ended March 31, 2012 and 2013 and the unaudited balance sheet data as of March 31, 2013 have been derived from our unaudited financial statements included elsewhere in this prospectus. We have prepared the unaudited financial information on the same basis as the audited consolidated financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim results are not necessarily indicative of the results to be expected for the full fiscal year. The following selected financial data should be read in conjunction with “Management's discussion and analysis of financial condition and results of operations” and our financial statements and related notes included elsewhere in this prospectus.

	Year ended December 31,						Three Months Ended March 31,
(Dollars in thousands, except per share data)	2011			2012			2012			2013
Statements of operations:
Revenues:
Product sales	$	1,460		$	5,178		$	643		$	1,754
Collaborations, partnerships and other revenues	1,137			1,404			503			636
Total revenues	2,597			6,582			1,146			2,390
Costs and expenses:
Cost of product sales	727			2,089			143			577
Research and development	13,660			14,301			3,058			3,856
Sales and marketing	3,031			4,398			914			1,527
General and administrative	6,482			8,024			1,819			2,109
Total costs and expenses	23,900			28,812			5,934			8,069
Loss from operations	(21,303		)	(22,230		)	(4,788		)	(5,679		)
Other (expense) income:
Interest expense	(44		)	(34		)	(10		)	(7		)
Other income	3			—			1			0
Total other expense	(41		)	(34		)	(9		)	(7		)
Net loss	$	(21,344	)	$	(22,264	)	$	(4,797	)	$	(5,686	)
Net loss per share of common stock, basic and diluted	$	(1.28	)	$	(1.32	)	$	(0.29	)	$	(0.34	)
Shares used in computing net loss per share of common stock, basic and diluted	16,687,782			16,839,087			16,713,509			16,903,125
Pro forma net loss per share of common stock, basic and diluted(1)	$	(0.23	)	$	(0.22	)	$	(0.05	)	$	(0.05	)
Shares used in computing pro forma net loss per share of common stock, basic and diluted	93,564,894			102,356,945			99,533,718			115,909,225

(1) The number of weighted-average common shares used in computing pro forma net loss per share attributable to common stock in the table above gives effect to (i) the conversion of all outstanding shares of our Series A preferred stock and Series B preferred stock into shares of common stock on a one-for-one basis and (ii) the exercise of warrants to purchase 80,000 shares of common stock at an exercise price of $0.01 per share immediately prior to the closing of this offering.

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	December 31,			December 31,			March 31,
(dollars in thousands)	2011			2012			2013
Balance sheet data:
Cash and cash equivalents	$	36,729		$	33,900		$	28,488
Total current assets	40,717			39,601			34,413
Total assets	51,524			51,496			46,287
Total current liabilities	3,432			3,771			4,141
Long-term debt, less current portion	1,070			734			636
Accumulated deficit	(59,800		)	(82,064		)	(87,750		)
Shareholders’ equity	47,022			46,991			41,510

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Management's discussion and analysis of financial condition and results of operations

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk factors.”

Overview

We develop and manufacture fully functioning human cells in industrial quantities to precise specifications. Our proprietary iCell Operating System (iCell O/S) includes true human cells in multiple cell types (iCell products), human induced pluripotent stem cells (iPSCs) and custom iPSCs and iCell products (MyCell products). Our iCell O/S products provide standardized, easy-to-use, cost-effective access to the human cell, the smallest fully functioning operating unit of human biology. Customers use our iCell O/S products, among other purposes, for drug discovery and screening; to test the safety and efficacy of their small molecule and biologic drug candidates; for stem cell banking; and in researching cellular therapeutics.

We market our products for use in in vitro research and development as well as applied product testing, stem cell banking and in vivo cellular therapeutics research. Our customers include biopharmaceutical companies, government research institutions, academic and nonprofit research institutions, clinical research organizations and stem cell banks. In 2012, we sold our products to 18 of the top 20 biopharmaceutical companies (based on worldwide revenue).

We are in the early stages of commercializing the products developed through our significant research and development activities. In March 2010, we sold our first commercial product, iCell Cardiomyocytes. Throughout 2010 and 2011 we pursued the development of three additional differentiated cell types: endothelial cells, neurons and hepatocytes. We launched iCell Endothelial Cells as a product line in the third quarter of 2011 and released iCell Neurons as a product line in the fourth quarter of 2011. In 2012, we began selling iCell Hepatocytes under early-access agreements to research collaborators. In mid-2012, we launched a new product line, MyCell products. MyCell products are custom iPSCs manufactured from a customer-provided biological sample. The iPSCs generated in this process are often genetically engineered to meet customer designated specifications. These iPSCs can subsequently be differentiated into any of our iCell product types.

In addition to product sales, we also enter into revenue generating collaborations with biopharmaceutical companies, academic researchers and other entities. These activities are often designed to understand the requirements for new product types and often grant our collaborator priority access to new products. Through these collaborations we gain insight into how our customers will use new products and generate data demonstrating the utility of our products in those applications. Other collaborations include the custom development of novel differentiated tissue cells or the derivation of iPSCs from populations of specific interest. We anticipate that these collaboration or service agreements may lead to new iCell O/S products.

We market and distribute our products through our direct sales force in all countries except Japan. In Japan, we sell iCell products through a third-party distributor. Sales within the United States represented 74% of total revenue in 2011, 66% of total revenue in 2012 and 57% of total revenue for the three months ended March 31, 2013. Sales to European customers were 17% , 24% and 34% of total revenue in those same time periods. Sales to our Japanese distributor were 8% of total revenue in 2011 and 5% of

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total revenue in 2012 and 8% of total revenue for the three months ended March 31, 2013. Sales to the rest of the world were 1%, 5% and 1% in those same periods.

As of March 31, 2013, we had $28.5 million of cash and cash equivalents.

Factors affecting our performance

Our total revenue grew from $2.6 million in 2011 to $6.6 million in 2012, an increase of 154%. This growth was driven by a 247% increase in sales of our iCell products which grew from $1.5 million in 2011 to $5.2 million in 2012. At December 31, 2011, our backlog of revenue expected to be recognized in 2012 was $1.1 million. At December 31, 2012, our backlog of revenue expected to be recognized in 2013 had grown to $4.1 million.

For the three months ended March 31, 2013 our total revenue was $2.4 million, an increase of 109% over the corresponding period in 2012. This growth was driven primarily by an increase in iCell product sales, which grew from $0.6 million for the three months ended March 31, 2012 to $1.8 million for the three months ended March 31, 2013, an increase of 173%. As of March 31, 2013, our backlog of revenue expected to be recognized in the remainder of 2013 was $3.1 million. Backlog figures do not include amounts from the recently announced grant awarded to us by the California Institute for Regenerative Medicine (CIRM).

A portion of our backlog is subject to contractual arrangements which require our performance of certain agreed upon experimental work plans, the achievement of certain research milestones and/or other factors. In addition, certain of these contractual arrangements are terminable at our customers' discretion. If our customers terminate these contractual arrangements or we are unable to perform or experience delays in performing our obligations, then the recognition of this backlog as revenue may be delayed or may not occur.

We intend to grow revenue by selling our existing products to new customers and in greater volume to current customers. Many of our customers have initially purchased small quantities of our products in order to perform functional product and technical qualification experiments and to perform high throughput assay development. Subsequent to these initial purchases, a number of our customers have then purchased in higher volumes.

During 2011, 60 customers purchased from us. This number increased to 128 customers who purchased from us in 2012. During the trailing four quarters ended March 31, 2013, 130 customers purchased from us.

Annual average revenue for our top 10 customers increased from $179,000 for the year ended December 31, 2011 to $445,000 for the year ended December 31, 2012 and to $516,000 for the trailing twelve months ended March 31, 2013.

During 2011 and 2012, we had three large biopharmaceutical customers that individually accounted for greater than 10% of our total revenue in one or both years. Eli Lilly and Company (Lilly) accounted for 10% of total revenue in 2011 and 18% of total revenue in 2012. Hoffmann-La Roche Inc. (Roche) accounted for 13% of total revenue in 2011 and GlaxoSmithKline plc (GSK) accounted for 11% of our total revenue in 2012.

During the three months ended March 31, 2013, Lilly and AstraZeneca UK Limited (AstraZeneca) each accounted for 16% of total revenue.

We also intend to grow revenue through the introduction of new products. In 2011, our product sales were comprised principally of iCell Cardiomyocytes. In 2012, iCell Neurons became a significant portion of our product mix. In 2012, we also had sales of iCell Hepatocytes, media and iCell Endothelial Cells.

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During the three months ended March 31, 2013 there were no new iCell products included in product sales. We now have a number of new products under development, which we believe will generate strong interest from our existing customers as well as from new customers.

We intend to achieve profitability as a result of ongoing sales growth in excess of the growth in our operating expenses. Considered in the aggregate, our total operating expenses (excluding cost of product sales) grew 15% between 2011 and 2012. This compares favorably to our revenue growth rate of 154% over this same period. For the trailing four quarters ended March 31, 2013 our total operating expenses (excluding cost of goods sold) grew 6% over the year ended December 31, 2012.

Factors affecting period-to-period comparability

Revenues

We believe that our future sales will be volatile and hard to predict because our products are a novel category and new to the marketplace. It is too early in our corporate life to make accurate predictions about the timing and product mix of future revenue. Volatility in quarterly product sales may arise because large orders from our biopharmaceutical customers are subject to the timing of and coordination with the customer's internal experimental work flow. Our revenue from collaborations, partnerships and other revenues has historically been comprised of fewer customers but with larger arrangements than typically found in our revenue from product sales. Those factors affecting the timing of revenue recognition, such as milestone achievements and varied progress against experimental work plans, can have a large effect on period-to-period revenue.

Costs and expenses

Historically the largest component of our expenses has been research and development expenses and the most significant driver of these expenses has been staffing.

Research and development. We had 54 employees within our research and development department at December 31, 2011, 59 at December 31, 2012 and 56 at March 31, 2013. These employees have developed our existing portfolio of products and are actively performing research and development activities to enhance our existing products and develop new products for sale in the future. Research and development spending represented 57% of total costs and expenses in 2011 and declined to 50% of total costs and expenses in 2012.

Sales and marketing. The largest component of sales and marketing expense is also staffing, which grew from 16 at December 31, 2011 to 25 at December 31, 2012 and to 26 at March 31, 2013. The continued increase in staffing was necessary to build the sales, marketing and technical support infrastructure needed to support our expanding commercial activity including the development of a worldwide sales organization.

General and administrative. Staffing within our general and administrative department grew from 10 employees at December 31, 2011 to 13 employees at both December 31, 2012 and March 31, 2013. However, total departmental spending grew 24% in 2012, primarily due to the costs of managing our intellectual property portfolio. We expect our general and administrative staffing and expenses to continue to grow to support our expanding commercial activity and to meet the legal, accounting and other compliance obligations of being a public company.

Components of results of operations

Revenues

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We classify revenues from the sale of our products as either product sales or as collaborations, partnerships and other revenues as further described below.

Product sales. Product sales represent the sale of iCell O/S products for which there is a well-defined manufacturing and quality review protocol. Products so characterized are produced within our manufacturing organization and are subject to a rigorous set of quality control metrics and other industrial controls. These products are packaged in units sufficient to fill a 96-well plate, a common format that researchers use to perform high throughput experiments and screens within the research departments of our biopharmaceutical and academic customer base. Our products are typically priced by the unit, and revenue is recognized upon delivery of the units. Our standard price lists provide for discounts on individual orders that reach specified quantity-based pricing tiers.

Beginning in June 2012, product sales include media and reprogramming kits, which can be used to make iPSCs for limited research use only. In the future, product sales will also include MyCell products (custom iPSCs and iCell products), which will be produced from specific customer-provided donor samples. In 2012, our initial revenue from MyCell-type activities was reported in other revenues.

Product sales also include nominal freight charges to the customer.

Collaborations, partnerships and other revenues. Collaborations, partnerships and other revenues consist of fees earned under early access and technology license arrangements, services rendered under experimental work plans, grants and milestone payments received under license and collaboration agreements. Under this caption, we also report revenue associated with the sale of differentiated cells which we have not yet chosen to characterize as product sales (the criteria for which are discussed above).

From time to time we enter into collaborations or agreements with biopharmaceutical companies, academic researchers and other entities. These activities are often designed to collaboratively understand the requirements for new product types and often grant our partner priority access to new cell types under development. Through these collaborations we gain insight into how our customers will use new products, and we generate data demonstrating the utility of our products in those applications. Other collaborations include the custom development of novel differentiated tissue cells or the derivation of iPSCs from populations of specific interest. We anticipate that these collaborations or service agreements may lead to new iCell O/S products.

The recognition of revenue for these collaborations and agreements depends upon the unique nature of each agreement. Many of these agreements are characterized as multiple-element arrangements. See our discussion of multiple-element arrangements in "—Critical accounting policies, significant judgments and estimates" below and in the notes to the financial statements contained elsewhere in this prospectus. Our first significant collaboration called for an upfront licensing payment and several milestone payments. We recognized the licensing amount over the term of the agreement and the milestones upon their achievement. Other arrangements have required the delivery of materials or cells that are not part of our iCell O/S. In those instances, we recognized revenue as we progressed on the agreement with progress measured either by hours worked or units delivered. Deferred revenue is recorded when funds are received in advance of products to be delivered or services to be performed.

Cost of product sales

Cost of product sales includes: (i) salaries and related personnel expenses of production related activity, including stock-based compensation; (ii) material, royalties and shipping and handling; and (iii) infrastructure and overhead. Cost of product sales also includes costs associated with quality assurance, scrap and production variances. Cost of product sales includes the costs associated with the sale of products which we report as product sales. The costs associated with revenue from collaborations,

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partnerships and other revenue are included in research and development expenses. See "—Research and development" below.

We believe that the difference between product sales and cost of product sales (gross margin from product sales) is an important measurement of our performance.  Our gross margin from product sales is likely to vary from period to period because of changes in product costs, product pricing and product mix.  Product costs will fluctuate due to: (i) reductions in material costs as products are produced in higher volume;  (ii) cost variances in material, labor and overhead attributable to the natural volatility of yield in biological manufacturing processes; (iii) systematic improvements in yield from increased scale and improving methods within our manufacturing processes; and (iv) technical innovation leading to product obsolescence.  Gross margin may also be impacted by pricing pressure from competitors entering our market and by sales and promotion activities. Lastly, our product mix in each reporting period will impact our product gross margin.  Our costs and pricing currently varies across our product portfolio. And, in addition, our future product portfolio will include new products the costs and pricing which as of now are unknown. 

Research and development

Research and development expenses include: (i) lab supplies, chemical reagents and finished goods internally consumed; (ii) salaries and related personnel expenses, including stock-based compensation, related to our research and development staffing; (iii) allocated and direct overhead and facilities expenses; and (iv) minimum royalties, royalties related to collaborations, partnerships and other revenues, amortization of licenses and other license maintenance fees. Costs associated with delivering revenue identified as collaborations, partnerships and other revenues are expensed as research and development costs. We do not track research and development expenses by individual product, nor do we capitalize any research and development expenses.

Sales and marketing

Our sales and marketing expenses include: (i) salaries, commissions and related personnel expenses, including stock-based compensation, related to our sales, marketing and technical support and training staff; (ii) marketing programs, trade shows and associated professional fees; (iii) travel, lodging and other out-of-pocket expenses associated with our commercial activity; and (iv) other related overhead.

General and administrative

Our general and administrative expenses include: (i) salaries and related personnel expenses, including stock-based compensation, related to our executive, finance, human resource and information technology staffing; (ii) audit, legal, valuation and other professional services fees; and (iii) unallocated occupancy expenses. General and administrative includes the compensation of all executives other than the Chief Commercial Officer, whose compensation is included in sales and marketing.

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Results of operations

	Year ended						Three Months Ended
	December 31,						March 31,
(Dollars in thousands)	2011			2012			2012			2013
Revenues:
Product sales	$	1,460		$	5,178		$	643		$	1,754
Collaborations, partnerships and other revenues	1,137			1,404			503			636
Total revenues	2,597			6,582			1,146			2,390
Costs and expenses:
Cost of product sales	727			2,089			143			577
Research and development	13,660			14,301			3,058			3,856
Sales and marketing	3,031			4,398			914			1,527
General and administrative	6,482			8,024			1,819			2,109
Total costs and expenses	23,900			28,812			5,934			8,069
Loss from operations	(21,303		)	(22,230		)	(4,788		)	(5,679		)
Other (expense) income:
Interest expense	(44		)	(34		)	(10		)	(7		)
Other income	3			0			1			0
Total other expense	(41		)	(34		)	(9		)	(7		)
Net loss	$	(21,344	)	$	(22,264	)	$	(4,797	)	$	(5,686	)

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Comparison of three months ended March 31, 2012 and March 31, 2013

Product sales:

	Three Months Ended
	March 31,
(Dollars in thousands)	2012			2013			$ Change		% Change
Product sales	$	643		$	1,754		$	1,111	173	%
Percentage of total revenue	56		%	73		%

The following table provides product sales revenue by product:

(Dollars in thousands)	Three months ended March 31,
	2012	2013
iCell Cardiomyocytes	$470	$1,115
iCell Neurons	139	558
Other	34	81
Total	$643	$1,754

The growth in product sales for the three months ended March 31, 2013 over the three months ended March 31, 2012 is attributable primarily to an increase in unit volume sales of our iCell Cardiomyocytes and iCell Neurons. Our weighted average prices over this period increased by 5% from the prior period.

Collaborations, partnerships and other revenues:

	Three Months Ended
	March 31,
(Dollars in thousands)	2012			2013			$ Change		% Change
Collaborations, partnerships and other revenues	$	503		$	636		$	133	26	%
Percentage of total revenue	44		%	27		%

The revenue from, and the nature of, our arrangements captioned as collaborations, partnerships and other revenues has varied from quarter to quarter and from year to year. The three months ended March 31, 2013 included $239,000 and $167,000 of revenue recognized on components of the Lilly and AstraZeneca collaborations, respectively, neither of which generated revenues until the latter half of 2012. The three months ended March 31, 2012 included a one-time custom cell development project for $200,000.

Our revenues also included $200,000 for the three months ended March 31, 2012 and $100,000 for the three months ended March 31, 2013 relating to a grant awarded by the National Institute of Health – National Heart Lung and Blood Institute (NHLBI) to the Medical College of Wisconsin (MCOW) involving the derivation and use of iPS-derived cardiomyocytes. We are a subrecipient of the grant. The grant was awarded in July 2011 and the project period runs through June 2016. The grant is subject to annual budgetary approval. Following each annual budgetary approval, we enter into a subaward agreement with MCOW relating to the work to be performed during that period. The initial phases of the agreement called for $600,000 of research and development activity from July 2011 to June 2013, while the third phase, of approximately $3.5 million, will involve the production of 250 iPSC lines. The first two phases are expected to be completed in June 2013. The production of cells for phase three, which has not yet

47

received final budgetary approval, is expected to begin in the latter half of 2013 and continue until the end of the project period.

Cost of product sales:

	Three Months Ended
	March 31,
(Dollars in thousands)	2012			2013			$ Change		% Change
Cost of product sales	$	143		$	577		$	434	303	%
Gross margin of product sales	78		%	67		%

The gross margin of product sales in the three months ended March 31, 2012 reflected costs for certain batches of iCell Cardiomyocytes whose manufacturing yields exceeded historical results. Our gross margin of product sales for the three months ended March 31, 2013 is more comparable to our pattern of gross margins over the past four quarters which (excluding the $413,000 write-off in the fourth quarter of 2012 related to specific units no longer held for sale) have ranged from 64% to 73%.

Royalty expense related to product sales totaled $128,000 or 20% of product sales for the three months ended March 31, 2012 and $199,000 or 12% of product sales for the three months ended March 31, 2013. The decrease in royalties as a percentage of product sales reflects the generally lower royalty obligation on our current portfolio of iCell products including a lower royalty obligation on our currently marketed version of iCell Cardiomyocytes.

Research and development:

	Three Months Ended
	March 31,
(Dollars in thousands)	2012			2013			$ Change		% Change
Research and development	$	3,058		$	3,856		$	798	26	%
Percentage of total revenue	267		%	161		%
Headcount	56			56

Materials and supplies expenses accounted for nearly 90% of the increase in research and development spending from the three months ended March 31, 2012 to the same period this year. These expenses were 45% of total research and development spending in the three months ended March 31, 2012 compared to 53% for the current period. While the materials and supplies spending for the three months ended March 31, 2013 significantly exceeded such activity in the three months ended March 31, 2012, the amounts were consistent with the second through fourth quarters of 2012.

Compensation and benefits increased by $24,000 from the three months ended March 31, 2012 to the current period and was 40% of total research and development for the three months ended March 31, 2012, compared to 32% for the three months ended March 31, 2013. Research and development compensation and benefits included $29,000 and $31,000 of stock compensation in the three months ended March 31, 2012 and 2013, respectively. Overhead and facilities expenses as a percentage of research and development expenses was 12% for the three months ended March 31, 2012 and 11% for the three months ended March 31, 2013.

Amortization expense increased $41,000 from 2012 to 2013 due to the addition of licenses in late 2012. Royalties related to collaborations, partnerships and other revenues also increased $10,000 from period to period.

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We expect, in the latter half of 2013, to begin incurring costs related to the additional staff, facilities and operations necessary to complete the work specified by the recently announced grant from CIRM. Other than the growth in expenses related to the CIRM award, we expect to incur only modest increases in research and development expenditures for the remainder of 2013 as we pursue the planned new products mentioned elsewhere in this prospectus, progress on workplans associated with current and new collaborations, support and upgrade our current cell types and continue additional research initiatives.

Sales and marketing:

	Three Months Ended
	March 31,
(Dollars in thousands)	2012			2013			$ Change		% Change
Sales and marketing	$	914		$	1,527		$	613	67	%
Percentage of total revenue	80		%	64		%
Headcount	17			26

In the three months ended March 31, 2012 and 2013, compensation and benefits accounted for 53% and 57% of sales and marketing expenses, respectively. Approximately $390,000, or 64%, of the period over period increase of the total sales and marketing expense related to the growth in compensation and benefits. Variable compensation to our field sales force also increased $86,000. Advertising, public relations and tradeshows increased period over period by $103,000.

Sales and marketing compensation and benefits included $24,000 and $39,000 of stock compensation in the three months ended March 31, 2012 and 2013, respectively.

We anticipate continued growth in sales and marketing staff related expenses and other sales expenses as we pursue the planned activity and growth initiatives of 2013.

General and administrative:

	Three Months Ended
	March 31,
(Dollars in thousands)	2012			2013			$ Change		% Change
General and administrative	$	1,819		$	2,109		$	290	16	%
Percentage of total revenue	159		%	88		%
Headcount	10			13

Approximately $270,000, or 93%, of the period over period increase in general and administrative costs related to professional fees for the ongoing maintenance of our intellectual property portfolio and to certain expenses incurred in anticipation of this offering. During the three months ended March 31, 2013, we also had $45,000 of rent expense for a facility in California that will be utilized for work performed under the recently announced grant from CIRM.

General and administrative expenses included $212,000 and $127,000 of stock compensation for the three months ended March 31, 2012 and 2013, respectively.

Upon the consummation of this offering, we anticipate increases in general and administrative expenses due to newly issued non-cash compensation, investor relations, legal compliance, insurance, listing fees and other costs associated with being a publicly traded company. We also anticipate modest growth in staffing to support our overall expansion.

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Comparison of 2011 and 2012

Product sales:

	Year ended
	December 31,
(Dollars in thousands)	2011			2012			$ Change		% Change
Product sales	$	1,460		$	5,178		$	3,718	255	%
Percentage of total revenue	56		%	79		%

The following table provides product sales revenue by product:

(Dollars in thousands)	Year ended
	2011	2012
iCell Cardiomyocytes	$1,350	$2,610
iCell Neurons	45	2,256
Other	65	312
Total	$1,460	$5,178

The growth in product sales is attributable to an increase in sales of our iCell Cardiomyocytes and a full year of sales from iCell Neurons. Growth in product sales arose principally through increasing the number of customers and increasing unit sales to existing customers, partially offset by discounts provided to customers purchasing in larger volumes. Revenue from new customers in 2012 was $990,000. Overall, weighted average sales price per unit declined 14% due to discounts provided to customers purchasing in larger volumes.

Collaborations, partnerships and other revenues:

	Year ended
	December 31,
(Dollars in thousands)	2011			2012			$ Change		% Change
Collaborations, partnerships and other revenues	$	1,137		$	1,404		$	267	23	%
Percentage of total revenue	44		%	21		%

The amount and nature of arrangements in collaborations, partnerships and other revenues has varied from year to year. 2011 revenue included a $216,000 grant from the Wisconsin Department of Commerce (the WDOC) (currently known as the Wisconsin Economic Development Corporation (the WEDC)). The grant was awarded by the WEDC as a 20% match to the 2010 federal grant we received under the Qualifying Therapeutic Discovery Project program created as part of the Affordable Care Act. The WEDC made the grant under two agreements, (1) an agreement entered into in 2005 between Cellular Dynamics International, Inc., our predecessor by merger, and the WDOC and (2) an agreement entered into in 2006 between Stem Cell Products, Inc., our predecessor by merger, and the WDOC. We are not subject to any funding conditions and do not have any continuing obligations to the WEDC under these grants and the WEDC did not receive any intellectual property rights under these grant agreements. Otherwise, 2011 revenue included smaller arrangements for early access to cell types under development and custom cell development.

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In 2012, we recognized $318,000 related to custom cell development activity under the Lilly agreement. In addition, we recognized $440,000, including a $40,000 match from WEDC, as a subrecipient under the grant from the NHLBI to MCOW. We also recognized $200,000 for a one-time custom cell development project and $200,000 for another custom cell development project. The second of the two custom cell projects has $50,000 remaining as of December 31, 2012. The remainder of 2012 revenue included smaller arrangements for early access to cell types under development.

Cost of product sales:

	Year ended
	December 31,
(Dollars in thousands)	2011			2012			$ Change		% Change
Cost of product sales	$	727		$	2,089		$	1,362	187	%
Gross margin of product sales	50		%	60		%

Cost of product sales improved as a percentage of product sales due to a decrease in raw material prices related to increased purchasing volume, a steady improvement in manufacturing yields and decreases in royalty expenses as a percentage of product sales. In the fourth quarter of 2012 we wrote off $413,000 for specific units no longer held for sale.

The write-off primarily relates to cells manufactured in 2010 and 2011. During this time we manufactured iCell Cardiomyocytes using two alternative methods, each of which produced cells in full conformity with our quality control release specifications. However, due to emerging production efficiencies and customer preference we have since elected to standardize manufacturing on one method. In the fourth quarter of 2012 we determined that we no longer expected to sell those cells manufactured under the discontinued method and wrote off their value.

Total royalty expense related to products sales totaled $349,000 or 23% of product sales in 2011 and $683,000 or 13% of product sales in 2012. This decrease reflects a product mix favoring those products bearing lower royalties.

Research and development:

	Year ended
	December 31,
(Dollars in thousands)	2011			2012			$ Change		% Change
Research and development	$	13,660		$	14,301		$	641	5	%
Percentage of total revenue	526		%	217		%
Headcount	54			59

Compensation and benefits as a percentage of research and development expenses was 36% in 2011 and 36% in 2012. Materials and supplies as a percentage of research and development expenses was 48% for 2011 and 49% for 2012. Materials and supplies expense in 2012 was driven largely by development and technology transfer costs associated with iCell Hepatocytes. Overhead and facilities expenses as a percentage of research and development expenses was 11% in both years.

Research and development compensation and benefits included $109,000 and $112,000 of stock compensation in 2011 and 2012, respectively.

Research and development expenses included amortization of license agreements. Amortization expense increased $90,000 from 2011 to 2012 as we added additional licenses necessary for the conduct of our business. See "—Investing activities" below. Royalties related to collaborations, partnerships and

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other revenues are also included in research and development and remained at just over $300,000 for both years.

Sales and marketing:

	Year ended
	December 31,
(Dollars in thousands)	2011			2012			$ Change		% Change
Sales and marketing	$	3,031		$	4,398		$	1,367	45	%
Percentage of total revenue	117		%	67		%
Headcount	16			25

Compensation and benefits accounted for 61% and 59% of sales and marketing expenses in 2011 and 2012, respectively. Over $750,000, or half, of the total sales and marketing increase in 2012 from 2011 related to the growth in headcount. Variable compensation to our field sales force also increased $160,000. Advertising, public relations and tradeshows increased year over year by $240,000 in support of a growing number of initiatives and new products.

Sales and marketing compensation and benefits included $115,000 and $114,000 of stock compensation in 2011 and 2012, respectively.

General and administrative:

	Year ended
	December 31,
(Dollars in thousands)	2011			2012			$ Change		% Change
General and administrative	$	6,482		$	8,024		$	1,542	24	%
Percentage of total revenue	250		%	122		%
Headcount	10			13

Approximately $619,000 of the increase in general and administrative expenses related to resolution of a dispute regarding the terms of one of our licenses. We also incurred approximately $222,000 in incremental expenses attributable to the ongoing maintenance of our intellectual property portfolio. The remaining year over year increase is due to increases in compensation and benefits and to certain expenses incurred in anticipation of this offering.

General and administrative expenses included $670,000 and $857,000 of stock compensation in 2011 and 2012, respectively.

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Quarterly results of operations data (unaudited)

The tables below present our unaudited quarterly statements of operations data for each of the nine quarters ended March 31, 2013. We have prepared the quarterly data on a basis consistent with the audited financial statements included in this prospectus. In the opinion of management, the financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data. This information should be read in conjunction with the audited financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

	2011								2012								2013
(Dollars in thousands)	Q1		Q2		Q3		Q4		Q1		Q2		Q3		Q4		Q1
Revenues:
Product sales	$	243	$	406	$	321	$	490	$	643	$	1,174	$	1,075	$	2,286	$	1,754
Collaborations, partnerships and other revenues	353		205		154		425		503		86		158		657		636
Total revenues	596		611		475		915		1,146		1,260		1,233		2,943		2,390
Operating expenses:
Cost of product sales	158		229		188		152		143		418		287		1,241		577
Research and development	3,208		3,272		3,588		3,592		3,058		3,765		3,529		3,949		3,856
Sales and marketing	599		852		712		868		914		1,078		1,083		1,323		1,527
General and administrative	1,618		1,668		1,616		1,580		1,819		2,173		1,805		2,227		2,109
Total operating expenses	5,583		6,021		6,104