S-1 1 d250494ds1.htm FORM S-1 FORM S-1
Table of Contents

As filed with the Securities and Exchange Commission on November 7, 2011

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

TVAX BIOMEDICAL, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2836   45-2762525

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

8006 Reeder Street

Lenexa, Kansas 66214

(913) 492-2221

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Rex E. Wiggins

Chief Financial Officer

8006 Reeder Street

Lenexa, Kansas 66214

(913) 492-2221

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Craig L. Evans

Scott D. Claassen

Stinson Morrison Hecker LLP

1201 Walnut, Suite 2900

Kansas City, Missouri 64106

(816) 842-8600

  

John D. Hogoboom

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, New Jersey 07068

(973) 597-2500

 

 

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 of 1933, 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 under the Securities Exchange Act of 1934 (Check one):

 

Large Accelerated Filer   ¨    Accelerated Filer   ¨
Non-Accelerated Filer   ¨  (Do not check if a smaller reporting company)    Smaller Reporting Company   x

CALCULATION OF REGISTRATION FEE

 

 

Title of each Class of

Securities to be Registered

 

Proposed

Maximum

Aggregate

Offering Price(1)(2)

 

Amount of

Registration Fee

Common Stock, par value $0.01 per share

  $40,000,000   $4,584

 

(1) 

Estimated solely for the purpose of determining the registration fee in accordance with to Rule 457(o) under the Securities Act.

(2) 

Including shares of common stock which may be purchased by the underwriters to cover over-allotments, if any.

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 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

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 it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED NOVEMBER 7, 2011

PROSPECTUS

TVAX BIOMEDICAL, INC.

             Shares of Common Stock

 

 

TVAX Biomedical, Inc. is offering              shares of its common stock. This is our initial public offering. We anticipate that the initial public offering price will be between $         and $         per share.

Prior to this offering, there has been no public market for our common stock. We intend to apply to list our common stock on the NASDAQ Global Market under the symbol “TVAX.”

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 10 of this prospectus to read about factors you should consider before buying shares of our common stock.

 

     Per Share      Total  

Initial public offering price

   $                $            

Underwriting discounts and commissions

   $         $     

Proceeds, before expenses, to us

   $         $     

We have granted the underwriters an option to purchase up to an additional              shares of our common stock from us at the public offering price, less underwriting discounts and commissions, within 30 days from the date of this prospectus, to cover over-allotments of the shares.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock on or about             .

 

 

Sole Book-Running Manager

Roth Capital Partners

Co-Managers

 

Cantor Fitzgerald & Co.    Morgan Joseph TriAtrisan

The date of this prospectus is                     .


Table of Contents

TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     10   

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     35   

USE OF PROCEEDS

     37   

DIVIDEND POLICY

     37   

CAPITALIZATION

     38   

DILUTION

     40   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

     42   

BUSINESS

     51   

MANAGEMENT

     76   

EXECUTIVE AND DIRECTOR COMPENSATION

     80   

CERTAIN RELATIONSHIPS AND TRANSACTIONS

     82   

PRINCIPAL STOCKHOLDERS

     84   

DESCRIPTION OF CAPITAL STOCK AND WARRANTS

     86   

SHARES ELIGIBLE FOR FUTURE SALE

     96   

UNDERWRITING

     98   

NOTICE TO INVESTORS

     101   

LEGAL MATTERS

     103   

EXPERTS

     103   

INTERESTS OF NAMED EXPERTS AND COUNSEL

     103   

WHERE YOU CAN FIND MORE INFORMATION

     103   

GLOSSARY

     104   

INDEX TO FINANCIAL STATEMENTS

     F-1   

 

 

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date, and we do not intend to update the information contained in this prospectus except to the extent required by applicable law. This prospectus may only be used where it is legal to offer and sell these securities.

For investors outside the United States: Neither we nor any of the underwriters has done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States.

 

 


Table of Contents

PROSPECTUS SUMMARY

This summary highlights key information contained elsewhere in this prospectus. It may not contain all of the information that is important to you in making your investment decision. You should read the entire prospectus, including “Risk Factors” and the financial statements and the related notes thereto, appearing elsewhere herein, before making an investment decision. This prospectus does not include our historical financial statements because we have only been formed recently for the purpose of effecting the offering and prior to the reorganization described below held no material assets and did not engage in any operations. This prospectus contains the financial statements of our predecessor company, TVAX Biomedical I, LLC. Certain technical terms used in this prospectus are defined in the Glossary contained at the end of this prospectus.

Overview

We are a biotechnology company focused on the development of targeted cell-based immunotherapies for the treatment of cancer. We use two cell-based technologies: cancer cell vaccination and the activation and infusion of killer T cells to treat cancer. Our proprietary immunologic treatment, TVAX Immunotherapy®, uses a patient’s cells to create activated, genetically unique cancer-killing T cells that can destroy the patient’s cancer cells, including cancer stem cells, which are widely believed to be responsible for cancer growth, spread and metastasis. Our clinical data show that our proprietary treatment, either alone or combined with surgical tumor removal, can improve patient outcomes by destroying cancer cells and, in some cases, eliminating any detectable evidence of cancer. Our lead treatment candidate, TVI-Brain-1, is intended to be used in conjunction with surgery as a treatment for astrocytoma, a type of glioma, the most prevalent form of brain cancer. Upon completion of this offering, we plan to initiate patient enrollment in a pivotal 396 patient Phase III clinical trial of TVI-Brain-1, in combination with surgery and radiotherapy, in newly-diagnosed grade 4 astrocytoma patients.

We believe TVAX Immunotherapy may be effective against a wide range of cancers, including renal cell carcinoma, the most prevalent form of kidney cancer. Our TVAX Immunotherapy candidate, TVI-Kidney-1, is intended to be used in conjunction with surgery in the treatment of stage 4 renal cell carcinoma.

TVAX Immunotherapy®

TVAX Immunotherapy is a proprietary method for treating cancer using large numbers of activated, genetically unique cancer-specific killer T cells. We vaccinate a patient with his or her irradiated cancer cells and an immunological adjuvant. This vaccination generates an immune response in the patient, which produces a large number of cancer-specific T cells. In the body of a vaccinated patient, these cancer-specific T cells can recognize, but generally cannot kill, cancer cells. We harvest these cancer-specific T cells from the vaccinated patient’s blood and convert them into activated killer T cells which are then infused back into the patient. The activated killer T cells trigger the body’s immune system to destroy cancer cells, including cancer stem cells.

 

 

1


Table of Contents

Our treatment has a favorable safety profile compared to chemotherapy and radiotherapy. Our immunologic therapy has been tested and well tolerated in approximately 200 patients. Treatment-related adverse events generally have consisted of inflammatory responses resulting in flu-like symptoms that typically lasted only one to two days. Less than 1% of patients treated with TVAX Immunotherapy have experienced any treatment-related serious adverse events.

 

Treatment candidate

  

Indication

 

Clinical Trial Status

TVI-Brain-1    Grade 4 astrocytoma (brain cancer)   Planned pivotal Phase III with
initiation of enrollment expected
following completion of the
offering
   Grade 4 glioma (brain cancer)   Phase II ongoing
TVI-Kidney-1    Stage 4 renal cell carcinoma
(kidney cancer)
  Phase III ready

TVI-Brain-1

TVI-Brain-1 is intended to be used in conjunction with surgery in the treatment of grade 4 astrocytoma, which is a type of glioma, the most prevalent form of brain cancer. In Phase I/II clinical trials, a single course of our immunologic therapy improved patient outcomes by destroying cancer cells and, in some cases, eliminating any detectable evidence of cancer in patients with advanced grade 3 and 4 gliomas. Those trials included patients with recurrent gliomas that had failed standard of care treatments. Patients in those trials had increased median overall survival of more than six months compared to historical controls, including several patients who were alive at the time data were collected for publication. Our immunologic therapy has been tested and well tolerated in approximately 75 brain cancer patients, none of whom experienced a treatment-related serious adverse event. Treatment-related adverse events generally consisted of inflammatory responses resulting in flu-like symptoms that typically lasted only one to two days.

Following the completion of this offering, we intend to commence a pivotal 396-patient Phase III clinical trial of TVI-Brain-1, in combination with surgery and radiotherapy, in newly-diagnosed grade 4 astrocytoma patients. Patients in our Phase III clinical trial will receive two courses of TVAX Immunotherapy and will be treated earlier in the progression of their disease, when their cancers are relatively small and their immune systems are not compromised by chemotherapy. We expect this trial to be completed approximately four years after initiation of enrollment. We expect to have the first interim analysis of data approximately 24-30 months following commencement of enrollment.

The American Cancer Society estimates that approximately 17,000 primary brain tumors will be diagnosed in the United States in 2011. Approximately 60% will be gliomas, of which we believe approximately 80% will be astrocytomas. While overall survival time varies with grade, gliomas are aggressive cancers, and even when detected very early and/or at low-grade, cannot be cured. Average survival of aggressively treated grade 4 glioma patients is 12-14 months and the five-year survival rate is approximately 5%. Although surgery, radiotherapy and cytotoxic chemotherapy result in a modest increase in overall survival, the benefit is limited and almost invariably associated with high toxicity.

TVI-Kidney-1

Our research has demonstrated that our immunologic therapy may be effective against renal cell carcinoma. In studies conducted by third parties, a single course of personalized immunotherapy combining irradiated autologous cancer cell vaccination and activated killer T cell infusion destroyed cancer cells and, in some cases, eliminated any detectable evidence of cancer in patients with metastatic (stage 4) renal cell carcinomas. Patients

 

 

2


Table of Contents

in those trials had increased median overall survival of more than six months compared to historical controls, including several patients who were alive at the time data were collected for publication. Sixty-nine patients were treated with the combination of vaccination and activated T cell infusion. Treatment-related adverse events generally consisted of inflammatory responses resulting in flu-like symptoms that typically lasted only one to two days One patient experienced a treatment-related grade 3 serious adverse event. Based on those trials and our research, we developed TVI-Kidney-1 to be used in conjunction with surgery in the treatment of renal cell carcinoma, the most prevalent form of kidney cancer.

The American Cancer Society estimates that approximately 60,920 new cases of kidney cancer will be diagnosed in the United States in 2011. Approximately 90% of those will be renal cell carcinomas, of which 25% will be stage 4 at diagnosis. Currently there are no safe, effective treatments for patients who have failed surgery or who are diagnosed with stage 4 renal cell carcinoma.

Other Cancer Treatments

All types of cancer tested by us and third parties have produced immune responses in patients who were vaccinated with their irradiated cancer cells and an immunological adjuvant. These cancers included blood (leukemia), brain, breast, colon, kidney, lung, ovary, pancreas, prostate and skin (melanoma). We believe TVAX Immunotherapy may be effective against any cancers that generate such an immune response.

Investment Highlights

We believe the following are the key attributes of our company:

 

   

Proprietary platform. TVAX Immunotherapy® is a proprietary platform treatment comprised of: (1) the manufacture and delivery of a vaccine made from the patient’s irradiated cancer cells and an immunological adjuvant, and (2) the creation and delivery of activated, genetically unique cancer-killing T cells. We retain exclusive ownership of the TVAX Immunotherapy technology and all associated intellectual property rights.

 

   

Encouraging clinical trial data. Clinical trials have shown that our proprietary treatment can improve patient outcomes compared to historical controls by destroying cancer cells and, in some cases, eliminating any detectable evidence of cancer.

 

   

Favorable side effect profile. Our proprietary immunologic treatment has been tested in approximately 200 patients and has been well tolerated. Treatment-related adverse events generally have consisted of inflammatory responses resulting in flu-like symptoms that typically lasted only one to two days.

 

   

Outpatient therapy. TVAX Immunotherapy is performed on an outpatient basis using standard medical techniques. Patients in our planned Phase II and III clinical trials will complete two full cycles of the treatment within a period of approximately ten weeks.

 

   

Phase III ready. We intend to begin a pivotal Phase III clinical trial of TVI-Brain-1 in combination with surgery and radiotherapy in newly-diagnosed grade 4 astrocytoma patients following the completion of this offering.

 

   

Strong clinical pipeline. We believe that TVAX Immunotherapy may be effective against any cancer that generates an immune response, such as blood (leukemia), brain, breast, colon, kidney, lung, ovarian, pancreas, prostate and skin (melanoma) cancer. Studies conducted by us and third parties have demonstrated that a high proportion of patients with those cancers develop immune responses against their cancers following vaccination.

 

 

3


Table of Contents
   

Established regulatory pathway. We believe that the United States Food and Drug Administration (“FDA”) approval of the first active cellular immunotherapy, Provenge®, for the treatment of prostate cancer has established a regulatory approval pathway for TVAX Immunotherapy.

 

   

Easily scalable manufacturing. Our manufacturing process uses commercially-available technology that is easily scalable and compliant with current good manufacturing practice (“cGMP”).

Strategy

Our strategy is to develop applications for TVAX Immunotherapy. The critical components of our strategy include:

 

   

Complete clinical testing of TVI-Brain-1 and obtain FDA approval for its commercialization.

 

   

Evaluate potential commercialization and partnership options for TVAX Immunotherapy.

 

   

Investigate and develop the use of TVAX Immunotherapy in additional oncology indications such as kidney, blood (leukemia), breast, colon, lung, ovarian, pancreatic, prostate and skin (melanoma) cancer.

Risks

We are a development stage biotechnology company and have generated no revenues from treatment sales to date. Since our inception, we have incurred substantial losses related to the development of TVAX Immunotherapy. Our business and our ability to execute our business strategy are subject to a number of risks of which you should be aware before you decide to buy our common stock. In particular, you should carefully consider the following risks, which are discussed more fully in “Risk Factors” beginning on page 10.

 

   

To date, we have not completed clinical development for any of our treatment candidates and we do not have a treatment candidate that has been approved for sale by the FDA.

 

   

All treatments which we intend to produce require regulatory approval before they can be sold, and we have not yet received regulatory approval to sell any of our treatments or sold any treatments.

 

   

We have a limited operating history upon which to base an investment decision.

 

   

We will need to develop or acquire additional capabilities in order to commercialize treatments that obtain FDA approval, if any, and we may encounter unexpected costs or difficulties in doing so.

 

   

Failure to attract and retain key personnel could impede our ability to develop our treatments and to obtain new collaborators or other sources of funding.

 

   

We can provide no assurance of the successful and timely development of new treatments.

 

   

Our prospects are highly dependent on our TVI-Brain-1 and other TVAX Immunotherapy treatment candidates. If we fail to complete, or demonstrate safety and efficacy in, clinical trials, fail to obtain regulatory approval or fail to successfully commercialize TVI-Brain-1 and/or other TVAX Immunotherapy treatments, our business would be materially harmed and the value of our securities would likely decline significantly.

 

   

If our treatment candidates do not demonstrate safety and efficacy sufficient to obtain regulatory approval, they will not receive regulatory approval and we will be unable to market them. We have not tested any of our treatment candidates in controlled clinical trials or in the populations that we intend to seek approval for.

 

   

Regulatory authorities may not approve our treatment candidates even if they demonstrate safety and efficacy in clinical trials.

 

 

4


Table of Contents
   

We may have delays in completing our clinical trials and we may not complete them at all. If we experience delays or difficulties in the enrollment of patients in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

 

   

If serious or unexpected adverse side effects are identified during the development of our treatment candidates, we may need to abandon or limit our development of some or all of our treatment candidates.

 

   

Our TVAX Immunotherapy treatment candidates are based on a novel technology, which may raise development issues that we may not be able to resolve, regulatory issues that could delay or prevent approval or personnel issues that may keep us from being able to develop our treatment candidates.

 

   

We have never manufactured our treatments or their components at commercial scale and there can be no assurance that they can be manufactured in compliance with regulations at a cost or in quantities necessary to make them commercially viable.

 

   

We have never marketed or sold any treatments and there can be no assurance that our treatments, if approved, can be marketed or sold in quantities necessary to make them commercially viable.

 

   

The industry within which we operate and our business are subject to extensive regulation, which is costly, time consuming and may subject us to unanticipated delays.

 

   

We have a history of net losses, including net losses of $565,000, $1,976,000 and $3,578,000 for the years ended December 31, 2009 and December 31, 2010 and the six months ended June 30, 2011, respectively. As of June 30, 2011, we had an accumulated deficit of $11,195,000. We have had no revenue from treatment sales and expect to continue to incur increasing net losses for the foreseeable future, and we may never achieve or maintain profitability.

 

   

We will need substantial additional funding. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our product development programs or our commercialization efforts.

 

   

Our competitors may develop and market products that are less expensive, more effective, safer or reach the market sooner than our treatment candidates, which may diminish or eliminate the commercial success of any treatments we may commercialize.

Corporate Information

TVAX Biomedical I, LLC, formerly TVAX Biomedical, LLC, was organized as a Missouri limited liability company on November 1, 2004. On July 14, 2011 we incorporated TVAX Biomedical, Inc., a Delaware corporation. On July 15, 2011, we effected a reorganization pursuant to which TVAX Biomedical I, LLC became our wholly-owned subsidiary and the membership interests in TVAX Biomedical I, LLC were exchanged for shares of our capital stock. Our principal executive offices are located at 8006 Reeder Street, Lenexa, Kansas 66214, and our telephone number is (913) 492-2221. Our website is www.tvaxbiomedical.com. The information that appears on our website is not part of, and is not incorporated into, this prospectus.

TVAX Immunotherapy and TVAX are our registered service marks, and we have applied to register our “TVAX BIOMEDICAL” logo as a service mark, with the United States Patent and Trademark office. All other trademarks or trade names appearing in this prospectus are the property of their respective owners.

Unless the context indicates otherwise, as used in this prospectus, the terms “TVAX,” the “Company,” “we,” “us” and “our” refer to TVAX Biomedical, Inc. and our subsidiary, TVAX Biomedical I, LLC.

 

 

5


Table of Contents

The Offering

 

Common stock offered by us

             shares

 

Common stock to be outstanding after this offering

             shares (             shares if the underwriters’ over-allotment option is exercised in full).

 

Use of proceeds

We estimate that the net proceeds from this offering, without exercise of the over-allotment option, will be approximately $         million assuming an initial public offering price of $         per share, the midpoint of the range set forth on the cover of this prospectus. We intend to use the net proceeds from this offering for general corporate purposes and to continue clinical testing of TVI-Brain-1.

 

Risk factors

See “Risk Factors” beginning on page 10 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

 

Proposed NASDAQ Global Market symbol

TVAX

The number of shares of common stock to be outstanding after this offering is based on 10,701,000 shares of common stock outstanding as of November 1, 2011, plus shares to be issued upon (1) the automatic conversion upon completion of this offering of all shares of Series A Preferred Stock into          shares of common stock (which assumes a closing date of the offering of         ), (2) the automatic conversion of Series B Preferred Stock into          shares of common stock (which assumes an initial offering price of $         per share, the midpoint of the range set forth on the cover of this prospectus), and (3) the automatic conversion of Series C Preferred Stock into          shares of common stock (which assumes a closing date of the offering of         ), and excludes

 

   

1,333,594 shares of common stock issuable upon exercise of warrants to purchase common stock at an exercise price of $1.50 per share, and

 

   

109,148 shares of common stock issuable upon exercise of warrants to purchase common stock at an exercise price of $1.50 per share that are not currently exercisable and will expire if this offering is completed prior to September 30, 2012.

Unless otherwise indicated, all of the information in this prospectus:

 

   

gives effect to the reorganization,

 

   

assumes no exercise of the underwriters’ over-allotment option, and

 

   

assumes an initial offering price of $         per share, the midpoint of the range set forth on the cover of this prospectus.

 

 

6


Table of Contents

SUMMARY FINANCIAL DATA

Set forth below is our summary historical financial data, at the dates and for the periods indicated. We have prepared this financial information using the financial statements of TVAX Biomedical I, LLC (formerly TVAX Biomedical, LLC) as of December 31, 2009 and 2010 and for each of the three years in the period ended December 31, 2010, and as of and for the six months ended June 30, 2010 and 2011, which are included elsewhere in this prospectus. The financial statements for the three years in the period ended December 31, 2010 have been audited by Ernst & Young LLP, independent registered public accounting firm. The financial statements for the six month periods ended June 30, 2010 and 2011 have not been audited, and include, in the opinion of management, all adjustments (consisting only of normal nonrecurring adjustments) necessary to present fairly the data for those periods. Operating results for the six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for any other interim period or the entire year ending December 31, 2011.

You should read the data set forth below in conjunction with the TVAX Biomedical I, LLC financial statements and the related notes thereto, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Capitalization” and other financial information included elsewhere in this prospectus.

 

     Year Ended December 31     Six Months Ended June 30  
     2008     2009     2010             2010                     2011          
                       (unaudited)  

Statement of Operations Data (amounts in thousands, except per share amounts):

          

Grant revenue

   $ —        $ —        $ 244      $ —        $ —     

Operating expenses:

          

Research and development

     353        266        1,080        366        472   

General and administrative

     196        224        468        303        773   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     549        490        1,548        669        1,245   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (549     (490     (1,304     (669     (1,245

Interest income

     1        —          —          —          —     

Interest expense

     —          (3     (769     (343     (432

Change in fair value of warrant liability

     (168     (72     97        (115     (1,901
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     (167     (75     (672     (458     (2,333
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (716     (565     (1,976     (1,127     (3,578

Preferred members’ interest preferred return

     (144     (159     (291     (137     (828

Member distribution from conversion of Series B preferred units to Series C preferred units

     —          —          (151     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common members

   $ (860   $ (724   $ (2,418   $ (1,264   $ (4,406
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common unit – basic and diluted (1)

   $ (0.10   $ (0.08   $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per profits unit – basic and diluted (1)

       $ (2.11   $ (1.13   $ (3.69
      

 

 

   

 

 

   

 

 

 

Unaudited pro forma net loss attributable to common shareholders (2)

       $ (1,811     $ (3,019
      

 

 

     

 

 

 

Unaudited pro forma common shares outstanding – basic and diluted (2)

         10,713          10,892   
      

 

 

     

 

 

 

Unaudited net loss per common share – basic and diluted (2)

       $ (0.17     $ (0.28
      

 

 

     

 

 

 

 

 

7


Table of Contents
     June 30, 2011  
     Actual     Pro Forma (2)(3)      Pro Forma
As Adjusted (4)
 
           (unaudited)         

Balance Sheet Data (dollars in thousands):

       

Cash and cash equivalents

   $ 4,565      $                $            

Total assets

     5,249        

Total liabilities

     5,506        

Redeemable convertible preferred member interests

     8,324        

Total members’ deficit

     (8,582     

 

(1) Although the preferred units represent participating securities because they participate equally with common units in distributions of net cash flow after receiving their preferred returns, the holders do not have a contractual obligation to share in the losses of the Company. Accordingly, the preferred units are not included in the computation of net loss per share under the two-class method. In addition, the common units and the profits units issued in 2010 represent two classes of common units. Accordingly, for 2010 and subsequent periods the net loss attributable to common units is allocated between the two classes of common units giving effect to the distribution preference that the common units have over the profits units.

 

(2) Unaudited pro forma data gives effect to the transactions identified below assuming they occurred on June 30, 2011, in each case as if they had occurred at the beginning of the period presented for the statement of operations data and as of the balance sheet date for the balance sheet data.

 

  (i) the conversion of $2,230,572 of principal and interest of Convertible Notes on July 15, 2011 at the election of the holders of such notes into 995,791 shares of common stock (on a pro forma basis at the date of issuance in 2010, January 1, 2011, and June 30, 2011 there was $2,000,391, $2,143,444, and $2,223,904 of principal and interest, which was convertible into 893,032, 956,895 and 992,814 shares of common stock respectively), excluding nonrecurring charges of $1,154,242 directly related to the conversion

 

  (ii) the issuance of contingent warrants to purchase 109,148 Series C Preferred Units to holders of Convertible Notes as an inducement for the conversion of the notes and in lieu of foregone interest payments,

 

  (iii) the issuance of 805,000 restricted profits units to certain officers, key employees and consultants immediately prior to the reorganization on July 15, 2011,

 

  (iv) the consummation of the July 15, 2011 reorganization of our predecessor TVAX Biomedical I, LLC pursuant to an exchange of equity as follows:

 

   

each Series A Preferred Unit was exchanged for an equal number of shares of Series A Preferred Stock, plus additional shares determined by dividing the undistributed incentive return of the Series A Preferred Unit calculated through July 15, 2011 by the original issue price of $1.00 per unit,

 

   

each Series A Warrant was exchanged for an equal number of shares of Series B Preferred Stock,

 

   

each Series C Preferred Unit was exchanged for an equal number of shares of Series C Preferred Stock, plus additional shares determined by dividing the undistributed incentive return of the Series C Preferred Unit calculated through July 15, 2011 by the original issue price of $2.24 per unit,

 

   

each common unit was exchanged for one share of common stock, and

 

   

each profits unit was exchanged for one share of junior common stock, and with respect to those profits units which were issued with vesting requirements, such profits units were exchanged for junior common stock having identical vesting requirements, and

 

 

8


Table of Contents
  (v) the exchange of 2,000,000 shares of junior common stock for 1,900,000 shares of common stock on September 30, 2011, and

 

  (vi) the outstanding warrants to purchase an aggregate of 1,333,594 Series C Preferred Units, which will become, according to their terms, warrants to purchase common stock at an exercise price of $1.50 per share upon the closing of this offering and the reclassification of the related warrant liability to additional paid-in capital.

 

(3) Unaudited pro forma balance sheet data additionally reflects the issuance of          shares of common stock upon conversion of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, and the expiration of contingent warrants described in (ii) above, which will take place automatically upon the closing of this offering. Because the number of shares of common stock issuable upon automatic conversion of the Series A Preferred Stock and Series C Preferred Stock depends upon the date of the closing of the offering due to the preferential incentive return on the preferred instruments, and the number of shares of common stock issuable upon automatic conversion of the Series B Preferred Stock depends upon the initial public offering price per share in this offering, the actual number of shares of common stock issuable upon such exercise will likely differ from the respective number of shares set forth above.

 

(4) Unaudited pro forma as adjusted balance sheet data additionally reflects the receipt by us of $         from 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 price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and the receipt by us of the net proceeds of such sale.

 

 

9


Table of Contents

RISK FACTORS

Investing in our common stock involves a high degree of risk. We are a development stage biotechnology company, and our business and ability to execute our business strategy are subject to a number of risk factors that you should carefully consider in addition to the other information set forward in this prospectus before purchasing any shares of our common stock. Each of these risks could harm our business, operating results and financial condition, as well as decrease the value of an investment in our common stock. You may lose part or all of your investment.

Business Risks

All treatments which we intend to produce require regulatory approval before they can be sold, and we have not yet received regulatory approval to sell any of our treatments or sold any treatments.

We are a clinical development stage biotechnology company. We have engaged primarily in research and development activities since our inception, and have not received any revenues from treatment sales. We have no treatments approved for commercial sale by regulatory authorities and may never have such treatments. We have very limited experience interacting with regulatory authorities on late stage development programs and in the design of pivotal clinical trials sufficient to obtain regulatory approval. Failure to receive approval for treatment candidates, to manufacture a treatment or to sell a treatment could result in the failure of our business and a loss of all of your investment in our company.

We have a limited operating history upon which to base an investment decision.

We have not demonstrated our ability to perform the functions necessary for the successful commercialization of any treatments. The successful commercialization of any treatment will require us to perform a variety of functions, including:

 

   

continuing to undertake pre-clinical development and clinical trials;

 

   

participating in regulatory approval processes;

 

   

formulating and manufacturing treatments; and

 

   

conducting sales and marketing activities.

Our operations to date have been limited to organizing and staffing our company, acquiring, developing and securing the proprietary technology for, and undertaking pre-clinical development and clinical trials of our treatment candidates. These operations provide a limited basis for our stockholders and prospective investors to assess our ability to commercialize TVI-Brain-1 or any other future treatments and the advisability of investing in our securities.

We will need to develop or acquire additional capabilities in order to commercialize treatments that obtain FDA approval, if any, and we may encounter unexpected costs or difficulties in doing so.

We will need to acquire additional capabilities and effectively manage our operations and facilities to successfully pursue and complete future research, development and, if any of our treatment candidates receive regulatory approval, commercialization efforts. Currently, we have no experience in preparing applications for marketing approval, commercial-scale manufacturing, managing of large-scale information technology systems or managing a large-scale distribution system. We will need to add personnel and expand our capabilities, which may strain our existing managerial, operational, regulatory compliance, financial and other resources. To do this effectively, we must:

 

   

train, manage and motivate a growing employee base;

 

   

accurately forecast demand for our treatments; and

 

   

expand existing operational, financial and management information systems.

 

10


Table of Contents

We plan to increase our manufacturing capacity prior to seeking approval for the sale of our TVI-Brain-1 treatment. If we are not successful in establishing a regulatory-compliant manufacturing process, we may not obtain approval of TVI-Brain-1 or our ability to obtain regulatory approval for sale could be delayed, which would further delay the period of time when we would be able to generate revenues from the sale of such treatments, if we are even able to generate revenues at all.

Failure to attract and retain key personnel could impede our ability to develop our treatments and to obtain new collaborators or other sources of funding.

Because of the specialized scientific nature of our business, our success is highly dependent upon our ability to attract and retain qualified scientific and technical personnel, consultants and advisors. We are highly dependent on the principal members of our scientific and management staff, particularly Gary W. Wood. The loss of his services might significantly delay or prevent the achievement of our research, development and business objectives. We currently are required to maintain a $2 million key-person life insurance policy on Gary W. Wood for the benefit of certain investors, and are not therefore the primary beneficiary of that policy.

We will need to recruit a significant number of additional personnel in order to achieve our strategic goals. In order to pursue our treatment development and marketing and sales plans, we will need to hire additional qualified scientific personnel to perform research and development, as well as personnel with expertise in clinical testing, government regulation, manufacturing, marketing and sales. We also rely on consultants and advisors to assist in formulating our research and development strategy and universities, medical centers and other research institutions. There can be no assurance that we will be able to attract and retain such individuals or institutions on acceptable terms, if at all.

If we are able to attract and retain additional personnel, our overhead expenses for salaries and related items will increase substantially from current levels.

Additionally, our facilities are located in the Kansas City metropolitan area, which may make attracting and retaining qualified scientific and technical personnel from outside our region difficult. The failure to attract and retain qualified personnel, consultants and advisors could have a material adverse effect on our business, financial condition and the results of our operations.

We may lose control over the development, marketing and distribution of TVAX Immunotherapy® treatments, if we enter into third party arrangements to perform or assist us in performing any of those functions.

We may seek alliances or strategic partnerships for one or more TVAX Immunotherapy treatments to maximize our regulatory, clinical and commercialization efforts. We may also have to depend on third parties to market and distribute our treatments. We currently do not have the resources to develop fully, market or distribute TVI-Brain-I or any other TVAX Immunotherapy treatments that we may develop in the future.

If we enter into alliances, strategic partnerships or distribution agreements with third parties, we may have less control over the development, marketing and distribution activities performed by third parties than if we were performing those functions with our own facilities and employees. This lack of direct control could adversely affect the results of these activities.

We expect to expand our development, regulatory, manufacturing and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of treatment development, regulatory affairs, manufacturing and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company

 

11


Table of Contents

with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

Risks Relating to Clinical Development and Commercialization of Our Treatments

We can provide no assurance of the successful and timely development of new treatments.

Our treatment candidates are at various stages of clinical research and development. Further development and extensive clinical trials will be required to determine their technical feasibility and commercial viability and obtain regulatory approvals. Our success will depend on our ability to achieve scientific and technological advances, to translate such advances into reliable, commercially competitive treatments on a timely basis and to successfully conduct the studies necessary for approval. We intend to begin a pivotal Phase III clinical trial of TVI-Brain-1 in combination with surgery and radiotherapy in newly-diagnosed grade 4 astrocytoma patients following the completion of this offering. Even if the planned Phase III clinical trial of our TVI-Brain-1 treatment candidate is successful, TVI-Brain-1 treatments will not likely be commercially available for four to six years, or more, if at all. If the planned Phase III trial of TVI-Brain-1 is not successful, cellular immunotherapy treatments that we may develop are not likely to be commercially available for five to ten or more years, if at all. The proposed development schedules for our treatments may be affected by a variety of factors, including technological difficulties, proprietary technology of others, and changes in governmental regulation, many of which will not be within our control. Any delay in the development, introduction or marketing of our treatments could result either in such treatments being marketed at a time when their cost and performance characteristics would not be competitive in the marketplace or in the shortening of their commercial lives. In light of the long-term nature of our projects, the unproven technology involved and the other factors described elsewhere in “Risk Factors,” there can be no assurance that we will be able to successfully complete the development or marketing of any new treatments.

Our prospects are highly dependent on our TVI-Brain-1 and other TVAX Immunotherapy® treatment candidates. If we fail to complete, or demonstrate safety and efficacy in, clinical trials, fail to obtain regulatory approval or fail to successfully commercialize TVI-Brain-1 and/or other TVAX Immunotherapy® treatments, our business would be materially harmed and the value of our securities would likely decline significantly.

Our lead treatment candidate is TVI-Brain-1. The FDA must approve TVI-Brain-1 before it can be marketed and sold. Our ability to obtain FDA marketing approval for TVI-Brain-1 and/or any other treatment candidates depends on, among other things, demonstrating their safety and efficacy to the satisfaction of the FDA in one or more adequate and well-controlled clinical trials. We may fail to obtain data that satisfy FDA requirements. In addition, our ability to obtain marketing approval for these treatments depends on obtaining the final results of required non-clinical testing, including characterization of the manufactured components of our treatment candidate and validation that our manufacturing process consistently generates safe, potent those treatment components. The FDA may determine that our manufacturing processes, testing procedures or facilities are insufficient to justify approval. We may need to conduct additional clinical trials that are not currently anticipated. Moreover, even if we do receive FDA marketing approval, we may not be successful in marketing TVI-Brain-1 and/or any other TVAX Immunotherapy treatment candidates. If any of these adverse events occur, our business could be materially harmed and the value of our common stock would most likely decline.

If our treatment candidates do not demonstrate safety and efficacy sufficient to obtain regulatory approval, they will not receive regulatory approval and we will be unable to market them. We have not tested any of our treatment candidates in controlled clinical trials or in the populations that we intend to seek approval for.

The therapeutic treatment development and regulatory approval process is expensive, uncertain and time-consuming. The timing of any future regulatory approval, if any, for any of our treatment candidates cannot be accurately predicted. If we fail to obtain regulatory approval for one of our current or future treatment candidates, we will be unable to market and sell them and we may never be profitable.

 

12


Table of Contents

As part of the regulatory process, we must conduct clinical trials, including Phase III clinical trials, for each of our treatment candidates to demonstrate safety and efficacy in humans to the satisfaction of the FDA and regulatory authorities in other countries. The number and design of the clinical trials that will be required will vary depending on the treatment candidate, the indication for which the treatment candidate is being tested, the trial results and the regulations and policies that are applicable to a particular treatment candidate.

A failure of one or more of our clinical trials can occur at any stage of testing. Previous results obtained in uncontrolled clinical trials of our treatment candidates or other similar products may not be predictive of future results obtained in adequate and well-controlled clinical trials. Interim results obtained in clinical trials may not be confirmed upon full analysis of the results of a clinical trial. Treatment candidates being tested in later stage clinical trials may fail to show the desired safety and efficacy despite having progressed through initial clinical trials with acceptable results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses and many companies that have believed their product candidates performed satisfactorily in preclinical and clinical trials have nonetheless failed to obtain marketing approval of their treatments.

Specifically, we have not compared our treatment candidates against placebo or any other active therapy control group. While comparisons of outcomes to results from other reported clinical trials can provide some insight into the efficacy of our TVI-Brain-1 and our other treatment candidates, there are many factors that affect the outcome of clinical trials, some of which are not apparent in published reports, and results from two different trials cannot always be reliably compared. As a result, we will be studying TVI-Brain-1 as a systemic adjuvant treatment in direct comparison with the current standard of care systemic adjuvant treatment alone for the selected indication and will need to show a statistically significant benefit for our treatment candidate in order for our treatment candidate to be approved for marketing. Patients in our planned Phase III study who do not receive our treatment may not have results similar to patients studied in the historical trials that we have used for comparison in our Phase I/II studies. If the patients in our Phase III study who receive standard of care treatments have results that are better than the results predicted by the studies that have been performed in the past, we may not demonstrate a sufficient clinical benefit with our treatment to merit the regulatory authorities approving our treatment for marketing.

Regulatory authorities may not approve our treatment candidates even if they demonstrate safety and efficacy in clinical trials.

Our treatment candidates may not be approved even if they achieve positive results in clinical trials. Regulatory agencies, including the FDA or their advisors may disagree with our trial design and our interpretations of data from preclinical studies and clinical trials. We have not obtained an agreement with the FDA that the design of our planned TVI-Brain-1 Phase III study is sufficient to lead to product approval if the results are positive. Moreover, we have not developed or reached an agreement with the FDA on the detailed statistical analysis plan that will be used to analyze the Phase III data. Regulatory agencies also may approve a treatment candidate for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our treatment candidates.

If we experience delays or difficulties in the enrollment of patients in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for our treatment candidates, including our ongoing Phase II clinical trial and our pivotal Phase III clinical trial of TVI-Brain-1, if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities in other countries. Many of our competitors have ongoing clinical trials for product candidates that could be competitive with our clinical trials, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.

 

13


Table of Contents

Patient enrollment is affected by many factors including:

 

   

severity of the disease under investigation;

 

   

eligibility criteria for the study in question;

 

   

perceived risks and benefits of the product candidate under study;

 

   

efforts to facilitate timely enrollment in clinical trials;

 

   

patient referral practices of physicians;

 

   

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

 

   

proximity and availability of clinical trial sites for prospective patients.

Enrollment delays in the ongoing Phase II clinical trial of TVI-Brain-1 and in our planned pivotal Phase III trial of TVI-Brain-1 or in any of our other clinical trials may result in increased development costs for our treatment candidates, which would cause the value of the company to decline and limit our ability to obtain additional financing. Our inability to enroll a sufficient number of patients in a timely manner for these or any of our other clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.

If serious or unexpected adverse side effects are identified during the development of our treatment candidates, we may need to abandon or limit our development of some or all of our treatment candidates.

All of our treatment candidates are in preclinical or clinical development and their risk of failure is high. If our treatment candidates are associated with serious or unexpected adverse effects, we may need to abandon their development or limit development to certain uses or subpopulations in which these effects are less prevalent, less severe or more acceptable from a risk-benefit perspective.

Our TVAX Immunotherapy® treatment candidates are based on a novel technology, which may raise development issues that we may not be able to resolve, regulatory issues that could delay or prevent approval or personnel issues that may keep us from being able to develop our treatments.

Regulatory approval of treatment candidates that utilize novel technology such as ours can be more expensive and take longer than for other treatments that are based on more well-known or more extensively studied technology, due to our and the regulatory agencies’ lack of experience with them. This may lengthen the regulatory review process, require us to perform additional studies, including clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval limitations or restrictions. For example, the irradiated cancer cell component of TVI-Brain-1 is a complex biologic product that is manufactured from the patient’s own cancer that must be appropriately assayed so that its identity, strength, quality, purity and potency may be characterized prior to release for treatment. No treatment including an irradiated cancer cell product or an activated T cell product has yet been approved for marketing by the FDA or any other regulatory agency. The tests that we use to make identity, strength, quality, purity and potency determinations on these products may not be sufficient to satisfy the FDA’s expectations regarding the criteria required for release of products for patient treatment and the regulatory agency may require us to employ additional testing measures for this purpose, which could require us to undertake additional testing and/or additional clinical trials.

The novel nature of our treatment candidates also means that fewer people are trained in or experienced with treatments of this type, which may make it difficult to recruit, hire and retain capable personnel for the research, development and manufacturing positions that will be required to continue development and commercialization of our treatment candidates.

 

14


Table of Contents

We may expend our limited resources to pursue a particular treatment candidate or indication and fail to capitalize on treatment candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we have focused on research programs and treatment candidates for specific indications. As a result, we may forego or delay pursuit of opportunities with other treatment candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial treatments or profitable market opportunities. Our spending on current and future research and development programs and treatment candidates for specific indications may not yield any commercially viable treatments.

We have based our research and development efforts on our TVAX Immunotherapy treatments. Notwithstanding our large investment to date and anticipated future expenditures in our TVAX Immunotherapy treatments, we have not yet developed, and may never successfully develop, any marketed treatments using this approach. As a result of pursuing the development of TVAX Immunotherapy treatment candidates, we may fail to develop treatment candidates or address indications based on other scientific approaches that may offer greater commercial potential or for which there is a greater likelihood of success.

Our long-term business plan is to develop TVAX Immunotherapy for the treatment of various cancers. We may not be successful in our efforts to identify or discover additional treatment candidates that may be manufactured using our TVAX Immunotherapy platform. Research programs to identify new treatment candidates require substantial technical, financial and human resources. These research programs may initially show promise in identifying potential treatment candidates, yet fail to yield treatment candidates for clinical development.

If we do not accurately evaluate the commercial potential or target market for a particular treatment, we may relinquish valuable rights to that treatment through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such treatment.

We may have delays in completing our clinical trials and we may not complete them at all.

We have not completed the clinical trials necessary to support a Biologics License Application, or BLA, with the FDA for approval to market TVI-Brain-1. We have not initiated any Phase III studies. Our current Phase II and planned Phase III clinical trials of TVI-Brain-1may be delayed or terminated as a result of many factors, including the following:

 

   

delays or failure in reaching agreement on acceptable clinical trial contracts or clinical trial protocols with prospective clinical testing sites;

 

   

regulators or Institutional Review Boards may not authorize us to commence a clinical trial;

 

   

regulators or Institutional Review Boards may suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or concerns about patient safety;

 

   

the FDA or other regulatory authorities may place a clinical trial on clinical hold;

 

   

we may suspend or terminate our clinical trials if we believe that they expose the participating patients to unacceptable risks or for other reasons;

 

   

slower than expected patient enrollment or lack of a sufficient number of patients that meet the enrollment criteria for our clinical trials;

 

   

patients failing to complete clinical trials due to safety issues, side effects, dissatisfaction with the treatment candidate, or other reasons;

 

   

difficulty in maintaining contact with patients after treatment may prevent us from collecting the data required by our study protocols;

 

15


Table of Contents
   

treatment candidates demonstrating a lack of efficacy during clinical trials;

 

   

governmental or regulatory delays, changes in regulatory requirements, policy and guidelines;

 

   

competition with ongoing clinical trials and scheduling conflicts with participating clinicians; and

 

   

delays in completing data collection and analysis for clinical trials.

In addition, we rely on academic institutions, hospitals and medical centers, physician practices and clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials involving our treatment candidates. We have less control over the timing and other aspects of these clinical trials than if we conducted the monitoring and supervision entirely on our own. Third parties may not perform their responsibilities for our clinical trials on our anticipated schedule or consistent with a clinical trial protocol, applicable regulations or good clinical practices. We also may rely on clinical research organizations to perform our data management and analysis. They may not provide these services as required or in a timely or compliant manner.

Moreover, our development costs will increase if we are required to complete additional or larger clinical trials for the TVAX Immunotherapy treatment candidates prior to regulatory approval. If the delays or costs are significant, our financial results and ability to commercialize the TVAX Immunotherapy treatment candidates will be adversely affected.

We may be required to repeat or terminate our clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive or the trials are not well designed.

Clinical trials must be performed in accordance with the FDA’s current Good Clinical Practices, or cGCP, or applicable regulatory guidelines in other countries and are subject to oversight by the FDA or regulatory agencies in other countries and Institutional Review Boards at the medical institutions where the clinical trials are conducted. Changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes or to submit new clinical trial protocols, which may impact the costs, timing or successful completion of a clinical trial. Due to these and other factors, our TVAX Immunotherapy treatment candidates could take a significantly longer time to gain regulatory approval, if any, for any additional indications than we expect or may never gain approval for additional indications, which could reduce our revenue by delaying or terminating the commercialization of TVAX Immunotherapy treatments.

Even if approved, TVAX Immunotherapy® treatment candidates or any other treatment candidates that we may develop and market may be later withdrawn from the market or subject to promotional limitations.

We may not be able to obtain the labeling claims necessary or desirable for the promotion of our treatment candidates if approved. We may also be required to undertake post-marketing clinical trials. If the results of such post-marketing studies are not satisfactory or if adverse events or other safety issues arise after approval, the FDA or a comparable regulatory agency in another country may withdraw marketing authorization or may condition continued marketing on commitments from us that may be expensive and/or time consuming to complete. In addition, if we or others identify adverse side effects after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of our products, additional clinical trials, changes in labeling of our products and additional marketing applications may be required. Any reformulation or labeling changes may limit the marketability of our products if approved.

Our treatments, even if approved, may not be accepted in the marketplace; therefore, we may not be able to generate significant revenue, if any.

Even if TVAX Immunotherapy treatments or any other potential treatments that we develop in the future are approved for sale, physicians and the medical community may not ultimately use them or may use them only in applications more restricted than we anticipate. Our treatments, if successfully developed, will compete with a

 

16


Table of Contents

number of traditional products manufactured and marketed by major pharmaceutical and biotechnology companies. Our treatments may also compete with new products currently under development by such companies and others. Physicians will prescribe a product only if they determine, based on experience, clinical data, side effect profiles and other factors, that it is beneficial as compared to other products currently available and in use. Physicians also will prescribe a product based on their traditional preferences. Many other factors influence the adoption of new products, including patient perceptions and preferences, marketing and distribution restrictions, adverse publicity, product pricing, views of thought leaders in the medical community and reimbursement by government and private payers. Any of these factors could have a material adverse effect on our business, financial condition, and results of operations.

Adoption of TVI-Brain-1 for the treatment of patients with brain cancer, even if approved, may be slow or limited for a variety of reasons including competing therapies, perceived difficulties in the treatment process and access to reimbursement. If TVI-Brain-1 is not successful in broad acceptance as a treatment option for brain cancer, our business would be harmed.

The rate of adoption of TVI-Brain-1 as a treatment for brain cancer, if approved, and the ultimate market size will be dependent on several factors including educating treating physicians on how to use TVI-Brian-1. As a first in class therapy, TVI-Brain-1 utilizes a unique treatment approach, which can have associated challenges in practice for treating physicians. Acceptance by treating physicians of TVI-Brain-1 as a treatment option may require more educational effort by us. In addition, the manufacturing and infusion timelines required for treatment with TVI-Brain-1 will require treating physicians to adjust practice mechanics, which may delay or prevent market adoption of TVI-Brain-1 as a preferred therapy, if approved.

Risks Related to Manufacturing Activities

We have never manufactured our treatments or their components at commercial scale and there can be no assurance that they can be manufactured in compliance with regulations at a cost or in quantities necessary to make them commercially viable.

We have no experience in commercial-scale manufacturing, the management of large-scale information technology systems or the management of a large-scale distribution system. We may develop our manufacturing capacity in part by expanding our current facilities and/or by setting up additional facilities in other regions of the country. These activities would require substantial additional funds and we would need to hire and train significant numbers of qualified employees to staff these facilities. We may not be able to develop commercial-scale facilities that are sufficient to produce the treatment candidates or their components for later-stage clinical trials or commercial use.

Furthermore, we must supply all necessary documentation, including product characterization and process validation, to regulatory authorities in support of our BLA on a timely basis and must adhere to cGMP regulations and current Good Tissue Practices, or GTP, enforced by the regulatory authority through its facilities inspection program. We have not fully characterized any of our treatment candidate components and have not validated our manufacturing process. If the FDA determines that the products used in our Phase III trials were not sufficiently characterized, we may be required to repeat all or a portion of those trials. If our facilities cannot pass a pre-approval plant inspection, the regulatory approval of the treatment candidates will not be granted.

We are subject to significant regulation with respect to manufacturing of our treatments.

All entities involved in the preparation of a therapeutic biological for clinical trials or commercial sale are subject to extensive regulation. The various components of a finished therapeutic treatment candidate that is used in late-stage clinical trials, such as our pivotal Phase III clinical trial of TVI-Brain-1, or approved for commercial sale must be manufactured in accordance with cGMP and GTP. These regulations govern manufacturing processes and procedures and the implementation and operation of quality systems to control and assure the quality of investigational treatment candidates and treatments, including treatment component characterization

 

17


Table of Contents

and process validation, approved for sale. Our facilities and quality systems and the facilities and quality systems of some or all of our third party suppliers must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of TVAX Immunotherapy treatment candidates. If any inspection or audit of our manufacturing facilities identifies a failure to comply with applicable regulations, or if a violation of applicable regulations occurs independent of an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales of the temporary or permanent closure of a facility. Any such remedial measures imposed on us or third parties with whom we contract could materially harm our business.

We use a single manufacturing site to manufacture our clinical treatment candidates. Any disruption in the operations of our manufacturing facility would have a significant negative impact on our ability to manufacture the treatment candidates for clinical testing and would result in delays and increased costs and losses.

We perform all manufacturing processes internally. In the event of a disruption of our operations at our manufacturing facility, we would experience costly delays in reestablishing manufacturing capacity due to a lack of redundancy in manufacturing capability. Certain events, such as natural disasters, fire, political disturbances, sabotage or business accidents, which could impact our current or future facilities, could have a significant negative impact on our operations by disrupting our treatment development efforts until such time as we are able to repair our facility or put in place third party contract manufacturers to assume this role.

We currently carry business personal property insurance in the amount of $350,000 in the aggregate. We may not have adequate insurance to cover our losses resulting from natural disasters, fire, political disturbances, sabotage, business accidents or other similar significant business interruptions, and we do not plan to purchase additional insurance to cover such losses due to the cost of obtaining such coverage. Any significant losses that are not recoverable under our insurance policies could seriously impair our business and financial condition.

Lack of coordination internally among our employees and externally with physicians, hospitals and third-party suppliers and carriers, could cause manufacturing difficulties, disruptions or delays and cause us to not have sufficient supply of product to meet our expected clinical trial requirements or potential commercial requirements.

Manufacturing the TVAX Immunotherapy treatment candidates requires coordination internally among our employees and externally with physicians, hospitals and third-party suppliers and carriers. For example, a patient’s physician or clinical site will need to coordinate with us for the shipping of a patient’s biological specimen to our manufacturing facility, and we will need to coordinate with them for the shipping of the treatment components to them. Such coordination involves a number of risks that may lead to failures or delays in manufacturing our TVAX Immunotherapy treatment candidates, including:

 

   

failure to obtain a sufficient supply of key raw materials of suitable quality;

 

   

difficulties in manufacturing our treatment candidates for multiple patients simultaneously;

 

   

difficulties in obtaining adequate patient-specific material, such as tumor samples, from physicians;

 

   

difficulties in completing the development and validation of the specialized assays required to ensure the consistency of our treatment candidates;

 

   

failure to ensure adequate quality control and assurances in the manufacturing process as we increase production quantities;

 

   

difficulties in the timely shipping of patient-specific materials to us or in the shipping of the treatment candidates to the treating physicians due to errors by third-party carriers, transportation restrictions or other reasons;

 

18


Table of Contents
   

loss or destruction of, or damage to, patient-specific materials or our treatment candidates during the shipping process due to improper handling by third-party carriers, hospitals, physicians or us;

 

   

loss or destruction of, or damage to, patient-specific materials or our treatment candidates during storage at our facilities; and

 

   

loss or destruction of, or damage to, patient-specific materials or our treatment candidates stored at clinical and future commercial sites due to improper handling or holding by clinicians, hospitals or physicians.

If we are unable to coordinate appropriately, we may encounter delays or additional costs in achieving our clinical and commercialization objectives, including in obtaining regulatory approvals of our treatment candidates and supplying products, which could materially damage our business and financial position.

Risks Related to Sales and Distribution

We have never marketed or sold any products and there can be no assurance that our treatments, if approved, can be marketed or sold in quantities necessary to make them commercially viable.

We have no experience marketing or selling treatments. The TVAX Immunotherapy treatments are personalized cellular immunotherapies, not pharmaceuticals or biopharmaceuticals. Only one personalized cellular cancer immunotherapy has been approved by the FDA for commercial sale. As a result, there are no clear methods for the marketing, sales and distribution of personalized cellular cancer immunotherapies. There is no assurance that we or anyone that we may contract with will be able to market and or sell our treatments in quantities or at a price that are sufficient to insure that our treatments are commercially viable.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our treatments, we may be unable to generate significant treatment revenue.

We do not have a sales organization and have no experience in treatment sales and distribution. There are risks involved with establishing our own sales capabilities and increasing our marketing capabilities, as well as entering into arrangements with third parties to perform these services. Attempting to develop an internal sales force is expensive and time consuming, and there is no assurance that we will be able to do so successfully or that our efforts will not delay any treatment launch. However, if we enter into arrangements with third parties to perform sales, marketing and distribution services, our treatment revenues or the profitability of these treatment revenues to us are likely to be lower than if we market and sell any treatments that we develop ourselves. In addition, those third parties might not have adequate experience with the marketing, sales and distribution of personalized cellular immunotherapies and that lack of experience could lead to expenses and time delays that would slow or prevent any treatment launch.

We may establish our own specialty sales force and/or engage other biotechnology or other healthcare companies with established marketing, sales and distribution capabilities to market, sell and distribute any future treatments. We may not be able to establish a specialty sales force or establish sales, marketing and distribution relationships on favorable terms.

Risks Related to Regulations of Our Industry

The industry within which we operate and our business are subject to extensive regulation, which is costly, time consuming and may subject us to unanticipated delays.

The research, design, testing, manufacturing, labeling, marketing, distribution and advertising of biological therapeutics such as our treatments are subject to extensive regulation by governmental regulatory authorities in the United States and other countries. Regardless of the time and resources we devote to development of a treatment, there can be no assurance that regulatory approval will be obtained for that treatment. To date, regulatory authorities have approved only one active cellular immunotherapy product for cancer treatment, even

 

19


Table of Contents

though several others have been, and currently are, in clinical development. Further, even if such regulatory approval is obtained, we, our treatments, and any contract manufacturers or commercial collaborators of ours will be subject to continued regulatory review in both the United States and other countries. Later discovery of previously unknown problems with regard to a product, distributor or manufacturer may result in restrictions, including withdrawal of the treatment from the market and/or disqualification or decertification of the distributor or manufacturer.

Regulatory authorities in the United States and comparable regulatory agencies in other countries impose substantial requirements on the introduction of new biological therapeutics through lengthy and detailed preclinical and clinical testing procedures, sampling activities and other costly and time-consuming compliance procedures. Clinical trials are vigorously regulated and must meet requirements for regulatory review and oversight and requirements under cGCP guidelines. A new therapeutic agent may not be marketed in the United States until the FDA has approved it. A delay in obtaining or failure to obtain such approval would have a material adverse effect on our business, financial condition and results of operations.

Even if regulatory approval were obtained, it would be limited as to the indicated uses for which the treatment may be promoted or marketed. If marketing approval is granted, we would be required to comply with regulatory requirements for manufacturing, labeling, advertising, record keeping and reporting of adverse experiences and other information. In addition, we would be required to comply with federal and state anti-kickback and other health care fraud and abuse laws that pertain to the marketing of approved therapeutic treatments. Failure to comply with regulatory requirements and other factors could subject us to regulatory or judicial enforcement actions, including product recalls or seizures, injunctions, withdrawal of treatment from the market, civil penalties, criminal prosecution, refusals to approve new treatments and withdrawals of existing approvals, as well as enhanced product liability exposure, any of which could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, assessment by regulatory authorities of the data and results required to demonstrate safety and efficacy can change over time and can be affected by many factors, such as the emergence of new information, including on other treatments, changing policies and agency funding, staffing and leadership. In addition, if approved, our treatment candidates may be subject to post-approval marketing restrictions that result in warnings, label restrictions or changes, product reformulation, additional marketing applications, additional clinical trials or the withdrawal of marketing authorization. We cannot be sure whether future changes to the regulatory environment will be favorable or unfavorable to our business prospects.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and radioactive and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

 

20


Table of Contents

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

The availability and amounts of reimbursement for our treatments, if approved, and the manner in which government and private payers may reimburse for our potential treatment, are uncertain.

In both the United States and elsewhere, sales of medical therapeutics are dependent in part on the availability of reimbursement to the consumer from third-party payers such as government and private insurance plans. Third-party payers are increasingly challenging the price and cost-effectiveness of medical products and services. Significant uncertainty exists as to the reimbursement status of newly approved health care products. There can be no assurance that our treatments will be considered cost-effective or that adequate third-party reimbursement will be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in the development of our treatments. Legislation and regulations affecting the pricing of therapeutic medical products may change before any of our treatments are approved for marketing. Adoption of such legislation could further limit reimbursement for medical products and services. As a result, our financial condition and results of operations could be materially adversely affected.

Health care reform measures could adversely affect our business.

In the United States and other jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations. Specifically, there have been and continue to be a number of initiatives at the United States federal and state levels that seek to reduce healthcare costs. Most recently, in March, 2010, the Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the PPACA, was enacted, which includes measures to significantly change the way that health care is financed by both governmental and private insurers.

Many of the details regarding the implementation of the PPACA are yet to be determined, and at this time, it remains unclear what effect PPACA would have on our business. Specifically, there is uncertainty surrounding the applicability of the biosimilars provisions under the PPACA to TVAX Immunotherapy treatments. The legislation provides that a “biosimilar” product may be approved by the FDA on the basis of analytical tests and certain clinical studies demonstrating that such product is highly similar to an existing, approved product and that switching between an existing product and the biosimilar product will not result in diminished safety or efficacy. The PPACA provides 12 years of exclusivity for reference products and an additional six months of exclusivity if pediatric studies are conducted. In Europe, the European Medicines Agency has issued guidelines for approving products through an abbreviated pathway and biosimilars have been approved in Europe. This abbreviated regulatory approval process may result in increased competition if we are able to obtain regulatory approval for one or more of our treatments. The FDA is currently soliciting public comment and conducting hearings to assist it in drafting regulations under the PPACA. The regulations that are ultimately promulgated and their implementation may have considerable impact on the way that we conduct our business.

Individual states have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, designed to encourage importation from other countries and bulk purchasing. Also, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. These initiatives could reduce the demand for our products or result in lower than expected product pricing, which could negatively affect our business, results of operations, financial condition and prospects.

 

21


Table of Contents

In addition, given recent federal and state government initiatives directed at lowering the overall cost of healthcare, Congress and state legislatures will likely continue to focus on healthcare reform, the cost of prescription drugs and biologics and the reform of the Medicare and Medicaid programs. While we cannot predict the full outcome of any such legislation, it may result in decreased reimbursement for drugs and biologics. This could harm our ability to generate revenues.

Failure to comply with foreign regulatory requirements governing human clinical trials and marketing approval for treatments could prevent us from selling our treatments in foreign markets, which may adversely affect our operating results and financial condition.

The requirements governing the conduct of clinical trials, manufacturing, testing, approvals for treatments, pricing and reimbursement outside the United States vary greatly from country to country. In addition, the time required to obtain approvals outside the United States may differ significantly from that required to obtain FDA approval. We may not obtain foreign regulatory approvals on the timeframe we may desire, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and foreign regulatory authorities could require additional testing. Failure to comply with these regulatory requirements or obtain required approvals could impair our ability to develop foreign markets for our treatments and may have a material adverse effect on our business and future prospects.

We may not be able to control the pricing of our treatments in other countries.

Virtually all countries regulate or set the prices of pharmaceutical products, which is a separate determination from whether a particular product will be subject to reimbursement under that government’s health plans. There are systems for reimbursement and pricing approval in each country and moving a product through those systems is time consuming and expensive.

Financial Risks

We have a history of net losses and have had no revenue from treatment sales. We expect to continue to incur increasing net losses for the foreseeable future and we may never achieve or maintain profitability.

We have had no revenues from treatment sales and have incurred significant net losses in each year since our inception, including net losses of $716,484, $564,887 and $1,975,669 for the years ended December 31, 2008, 2009, and 2010, respectively, and $3,578,493 for the six months ended June 30, 2011. As of June 30, 2011, we had an accumulated deficit of $11,195,323. Our losses have resulted principally from costs incurred in our treatment discovery and development activities, interest expense on our Convertible Notes and the change in fair value of our outstanding warrants. We anticipate that we will continue to generate significant losses for the next several years as we incur expenses to complete clinical trials of TVI-Brain-1, build commercial capabilities, further develop our pipeline and expand our corporate infrastructure.

Because of the numerous risks and uncertainties associated with biotherapeutic treatment development and commercialization, we are unable to accurately predict the timing or amount of future expenses or when, or if, we will be able to achieve or maintain profitability. Currently, we have no treatments approved for commercial sale and, to date, we have not generated any treatment revenue. We have financed our operations primarily through the sale of equity securities and government grants. We have devoted substantially all of our efforts to research and development, including clinical trials. We have not completed the development of any treatments. The size of our future net losses will depend, in part, on the rate of growth or contraction of our expenses and the level and rate of growth, if any, of our revenues. Our ability to achieve profitability is dependent on our ability, alone or with others, to complete clinical testing of TVI-Brain-1, obtain required regulatory approvals, manufacture and market TVI-Brain-1 successfully, gain market acceptance for TVI-Brain-1 and continue development of other treatments. We are only in the preliminary stages of some of these activities. There can be no assurance as to whether or when we will achieve such profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and

 

22


Table of Contents

remain profitable would decrease the value of the company and could impair our ability to raise capital, expand our business, maintain our research and development efforts or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We will need substantial additional funding. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our product development programs or our commercialization efforts.

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our treatments. In addition, if we obtain regulatory approval of any of our treatments, we expect to incur significant commercialization expenses for treatment sales, marketing, manufacturing and distribution. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our product development programs or our commercialization efforts.

As of June 30, 2011, we had cash, cash equivalents and short-term investments of $4.6 million and working capital of $3.6 million. We expect that the anticipated net proceeds of this offering, together with our existing cash, cash equivalents and short-term investments, will enable us to fund our operations and capital expenditure requirements through the end of 2013. We intend to use the net proceeds from this offering for general corporate purposes and to continue the clinical testing of TVI-Brain-1. We will need to obtain additional financing prior to the completion of our Phase III clinical trial of TVI-Brain-1.

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

 

   

the progress and results of the ongoing Phase II clinical trial and our pivotal Phase III clinical trial of TVI-Brain-1;

 

   

the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for our other treatments;

 

   

the costs, timing and outcome of regulatory review of our treatments;

 

   

the costs of commercialization activities, including treatment sales, marketing, manufacturing and distribution, for any of our treatments for which we receive regulatory approval;

 

   

revenue, if any, received from commercial sales of our treatments, should any of our treatments be approved by the FDA or a similar regulatory authority outside the United States;

 

   

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

 

   

the extent to which we acquire or invest in other businesses, treatments and technologies;

 

   

our ability to obtain government or other third-party funding; and

 

   

our ability to establish collaborations on favorable terms, if at all, particularly arrangements to market and distribute our treatments outside North America.

Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve treatment sales. In addition, our treatments, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of treatments that we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. We may raise additional funds from time to time through equity or debt financing, including future issuances of our common stock. The future sale by us of any shares of our

 

23


Table of Contents

common stock may have the following effects: our existing common stockholders’ proportionate ownership interest in us will decrease; our existing common stockholders may suffer significant dilution; and the market price of our common stock may decline. Additional financing may not be available to us on acceptable terms, or at all.

Risks Relating to Competitive Factors

Our competitors may develop and market products that are less expensive, more effective, safer or reach the market sooner than our treatments, which may diminish or eliminate the commercial success of any products we may commercialize.

The biotherapeutics industry is highly competitive. There are many public and private biotechnology companies, public and private universities and research organizations actively engaged in the discovery and development of candidates for the treatment of cancer. Given the significant unmet patient need for new therapies, oncology is an area of focus for large and small companies as well as research institutions. As a result, there are and will likely continue to be extensive research and substantial resources invested in the discovery and development of new oncology products. In addition, there are a number of multinational pharmaceutical companies and large biotechnology companies currently marketing and/or pursuing the development of treatments targeting the same cancer indications as our treatments, including Bristol-Myers Squibb Company, Dendreon Corporation, GlaxoSmithKline, Merck & Co., Inc., Merck KGaA and Sanofi-Aventis.

There are several currently marketed products for gliomas, including Schering-Plough’s Temodar, Eisai Inc.’s Gliadel and Roche’s Avastin. There also are numerous products that are marketed for renal cell carcinoma, including Prometheus Laboratories Inc.’s Proleukin, Wyeth’s Torisel, Novartis AG’s Afinitor, Pfizer Inc.’s Sutent, Roche’s Avastin and Bayer’s Nexavar.

In addition, there are a number of companies with clinical trials ongoing to test product candidates for brain cancer, including, but not limited to Abbott Laboratories, Bayer, Celldex Therapeutics, Genzyme, GlaxoSmithKline, ImmunoCellular Therapeutics, Ltd., Novartis AG, Novocure, Schering-Plough and Wyeth.

Many of our competitors, either alone or with their strategic partners, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of therapeutics, obtaining FDA and other regulatory approvals and the commercialization of those treatments. Accordingly, our competitors may be more successful in obtaining approval for product candidates and achieving widespread market acceptance. Our competitors’ treatments may be more effective or more effectively marketed or sold than any treatment that we may commercialize and may render our treatments obsolete or non-competitive before we can recover the significant expenses of developing and commercializing any of our treatments. We anticipate that we will face intense and increasing competition as new medical treatments enter the market and advanced technologies become available.

There are many different approaches to using the immune system to treat cancer, including cytokines, antibodies, vaccines, immune cells, non-specific immune stimulants and others. Many of these approaches are currently in commercial development and could yield treatments that are safer, more effective, less expensive, and easier to manufacture, market or deliver than ours. Such discoveries or commercial developments by our competitors could render some or all of our treatments obsolete or non-competitive, which would have a material adverse effect on our business, financial condition, and results of operations.

In addition, our competitors may obtain patent protection or FDA approval and commercialize treatments more rapidly than we do, which may impact future sales of any of our treatments that receive marketing approval. If the FDA approves the commercial sale of any of our treatments, we will also be competing with respect to marketing capabilities and manufacturing efficiency, areas in which we have limited or no experience. We expect that competition among treatments approved for sale will be based, among other things, on efficacy, price, safety, reliability, availability, patent protection, and sales, marketing and distribution capabilities.

 

24


Table of Contents

Risks Related to Our Arrangements with Third Parties

We rely on third parties to help us perform our clinical trials. If these third parties do not perform as contractually required or expected, we may not be able to obtain regulatory approval for our treatments, or we may be delayed in doing so.

We rely on third parties, such as contract research organizations, medical institutions, academic institutions, clinical investigators and contract laboratories, to conduct our preclinical studies and clinical trials. We are responsible for confirming that our preclinical studies are conducted in accordance with applicable regulations and that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Regulatory agencies require us to comply with current Good Laboratory Practices, or cGLP, for conducting and recording the results of our preclinical studies and cGCP for conducting, monitoring, recording and reporting the results of clinical trials, to assure that data and reported results are accurate and that the clinical trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities. If the third parties conducting our clinical trials do not perform their contractual obligations or duties, do not meet expected deadlines, fail to comply with cGCP, do not adhere to our clinical trial protocols or otherwise fail to generate reliable clinical data, our clinical trials may be more costly than expected or budgeted, extended, delayed or terminated or may need to be repeated and we may not be able to obtain regulatory approval for or commercialize the treatment being tested in the clinical trials.

If we fail to enter into any needed collaboration agreements for our treatments, we may be unable to commercialize them effectively or at all.

To successfully commercialize the TVAX Immunotherapy treatments, we will need substantial financial resources as well as expertise and physical resources and systems. We may elect to develop some or all of these physical resources and systems and expertise ourselves or we may seek to collaborate with another company that can provide some or all of such physical resources and systems as well as financial resources and expertise. If we are not able to enter into a collaboration for the TVAX Immunotherapy treatments on acceptable terms, we might elect to delay or scale back the commercialization of TVAX Immunotherapy treatments in order to preserve our financial resources or to allow us adequate time to develop the required physical resources and systems and expertise ourselves.

The risks in a collaboration agreement include the following:

 

   

the collaborator may not apply the expected financial resources, efforts or required expertise in developing the physical resources and systems necessary to successfully commercialize the TVAX Immunotherapy treatments;

 

   

the collaborator may not invest in the development of a sales and marketing force and the related infrastructure at levels that ensure that sales of the TVAX Immunotherapy treatments reach their full potential;

 

   

we may be required to undertake the expenditure of substantial operational, financial and management resources;

 

   

we may be required to issue equity securities that would dilute our existing stockholders’ percentage ownership;

 

   

we may be required to assume substantial actual or contingent liabilities;

 

   

strategic partners could decide to move forward with a competing treatment developed either independently or in collaboration with others, including our competitors

 

   

disputes may arise between us and a collaborator that delay the commercialization or adversely affect its sales or profitability of the TVAX Immunotherapy treatments; or

 

   

the collaborator may independently develop, or develop with third parties, treatments that could compete with the TVAX Immunotherapy treatments.

 

25


Table of Contents

In addition, a collaborator for the TVAX Immunotherapy treatments may have the right to terminate the collaboration at its discretion. Any termination may require us to seek a new collaborator, which we may not be able to do on a timely basis, if at all, or require us to delay or scale back the commercialization efforts. The occurrence of any of these events could adversely affect the commercialization of the TVAX Immunotherapy treatments and materially harm our business and stock price by delaying the sale of any treatments that may be approved by the FDA, by slowing the growth of such sales, by reducing the profitability of the treatment and/or by adversely affecting the reputation of the treatment.

We rely on single source vendors for some key components for our treatments, which could impair our ability to manufacture and supply those treatments.

The manufacturing process for TVAX Immunotherapy treatments has several components that we obtain from single sources. If we use alternative source materials, we may be required to demonstrate comparability, including through additional clinical trials, of those materials before releasing treatment components for use. In addition, there is no guarantee that alternative source materials could be integrated into our existing manufacturing process without significant additional cost and delay. Therefore, the loss of any of our current suppliers could result in manufacturing delays and have a material adverse effect on our business.

Risks Related to Protecting Our Intellectual Property

If we are unable to protect our proprietary rights or to defend against infringement claims, we may not be able to compete effectively or operate properly.

Our success will depend, in part, on our ability to obtain and maintain patents, operate without infringing on the proprietary rights of others and maintain trade secrets, both in the United States and in other countries. Patent matters in the biotechnology and pharmaceutical industries can be highly uncertain and involve complex legal and factual questions. Accordingly, the validity, breadth and enforceability of our patents and the existence of potentially blocking patent rights of others cannot be predicted, either in the United States or in other countries.

There can be no assurance that we will discover or develop patentable products or processes or that patents will issue from any patent that is currently pending or that we may file in the future or that claims granted on issued patents will be sufficient to protect our technology or adequately cover the actual products we may actually sell. Potential competitors or other researchers in the field may have filed patent applications, been issued patents, published articles or otherwise created prior art that could restrict or block our efforts to obtain additional patents. There also can be no assurance that our issued patents, pending patent applications or applications that we may file in the future, if issued, will not be challenged, invalidated, rendered unenforceable or circumvented or that the rights granted hereunder will provide us with proprietary protection or competitive advantages.

If patents issued to other companies contain blocking, dominating or conflicting claims and such claims are ultimately determined to be valid, we may be required to obtain licenses to these patents or to develop or obtain alternative non-infringing technology and cease practicing those activities, including potentially manufacturing or selling any products deemed to infringe on these patents. If any licenses are required, there can be no assurance that we will be able to obtain any such licenses on commercially favorable terms, if at all, and if these licenses are not obtained, we might be prevented from pursuing the development and commercialization of certain of our potential treatments. Our failure to obtain a license to any technology that we may require to commercialize our products on favorable terms may have a material adverse impact on our business, financial condition and results of operations.

In addition, competitors may manufacture and sell our potential products in those foreign countries where we have not filed for patent protection or where patent protection may not be available, not obtainable or ultimately not enforceable. In addition, even where patent protection is obtained, third party competitors may challenge our patent claims in the various patent offices for example via opposition in the European Patent Office

 

26


Table of Contents

or reexamination or interference proceedings in the United States Patent and Trademark Office, or USPTO. The current nature of our products may preclude sale of comparable products manufactured in other countries where patent protection may have been, in one way or another, circumvented in the United States, but does not preclude their manufacture in those countries, nor does it preclude patients traveling to those countries to receive treatment with those products that might conceivably be sold at a significantly lower price than the comparable product was being sold in the United States or other countries where our patent protection may have been maintained as valid.

The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Therefore, enforceability or scope of our patents in the United States or in foreign countries cannot be predicted with certainty, and, as a result, any patents that we own or license may not provide sufficient protection against competitors.

We will incur significant ongoing expenses in expanding and maintaining our patent portfolio. Should we lack the funds to maintain our patent portfolio or to enforce our rights against infringers, we could be adversely impacted.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

We may be subject to litigation with respect to the ownership and use of intellectual property that will be costly to defend or pursue and uncertain in its outcome.

Litigation, which could result in substantial costs to us (even if determined in our favor), may be necessary to enforce any patents issued to us or to determine the scope and validity of the proprietary rights of others. In addition, if our competitors file patent applications in the United States that claim technology also claimed by us, we may have to participate in interference proceedings to determine the priority of the invention. These proceedings, if initiated by the USPTO, could result in substantial cost to us, even if the eventual outcome is favorable to us. Such proceedings can be lengthy, and are costly to defend and involve complex questions of law and fact the outcomes of which are difficult to predict. An adverse outcome with respect to a third party claim or in an interference proceeding could subject us to substantial liabilities, require us to license disputed rights from third parties or require us to cease using such technology, any of which could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.

In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, know-how and confidential and proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants, collaborators and potential collaborators upon the commencement of their relationships with us. These confidentiality agreements require that all confidential information made known to the individual or entity by us during the course of the individual/entity’s relationship with us be kept confidential and not disclosed to third

 

27


Table of Contents

parties. Our agreements with employees and certain key consultants and collaborators also provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, in some circumstances the term of confidentiality and non-use may be limited, and individuals with whom we have these agreements may not comply with their terms. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions.

Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations.

Some foreign jurisdictions may require us to grant licenses to third parties. Such compulsory licenses could be extended to include some of our treatments, which may limit our potential revenue opportunities.

Many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties for commercialization of a patented product if the government concludes that the product is not sufficiently developed or not meeting the health needs of the population. In addition, most countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may be limited to monetary relief and may be unable to enjoin infringement, which could materially diminish the value of the patent. Compulsory licensing of life-saving products is also becoming increasingly popular in developing countries, either through direct legislation or international initiatives. Such compulsory licenses could be extended to include some of our treatments, which may limit our potential revenue opportunities.

Risks Relating to Our Exposure to Litigation

We are exposed to potential product liability or similar claims and insurance against these claims may not be available to us at a reasonable rate in the future.

Our business exposes us to potential liability risks that are inherent in the testing, manufacturing and marketing of human therapeutic products. Clinical trials involve the testing of treatment candidates on human subjects or volunteers under a research plan and carry a risk of liability for personal injury or death to patients due to unforeseen adverse side effects, improper administration of the product candidate, or other factors. Many of these patients are already seriously ill and are therefore particularly vulnerable to further illness or death.

We have clinical trial liability insurance in the amount of $3.0 million in the aggregate, but there can be no assurance that we will be able to maintain such insurance or that the amount of such insurance will be adequate to cover such claims. We could be materially and adversely affected if we were required to pay damages or incur defense costs in connection with a claim outside the scope of insurance coverage or if our liability exceeds the amount of the applicable insurance.

We will face an even greater risk if we commercially sell any treatments that we may develop. None of our treatments has been widely used over an extended period of time, and therefore our safety data are limited. We derive the raw materials for manufacturing of our TVAX Immunotherapy treatments from human cell sources, and therefore the manufacturing process and handling requirements are extensive and stringent, which increases the risk of quality failures and subsequent product liability claims.

 

28


Table of Contents

If we cannot successfully defend ourselves against claims that our treatments or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

   

decreased demand for any treatments or products that we may develop;

 

   

injury to our reputation and significant negative media attention;

 

   

withdrawal of clinical trial participants;

 

   

significant costs to defend the related litigation;

 

   

substantial monetary awards to trial participants or patients;

 

   

loss of revenue; and

 

   

the inability to commercialize any products that we may develop.

We may become involved in securities class action litigation that could divert management’s attention and adversely affect our business and could subject us to significant liabilities.

The stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of biotechnology companies. These broad market fluctuations as well as a broad range of other factors, including the realization of any of the risks described in these “Risk Factors,” may cause the market price of our common stock to decline. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and pharmaceutical companies generally experience significant stock price volatility. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect our business. Any adverse determination in any such litigation of any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.

Offering Risks

We do not know whether a 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.

Before this offering, there was no public trading market for our common stock and there can be no assurance that a regular trading market will develop and continue after this offering or that the market price of our common stock will not decline, perhaps substantially, below the initial public offering price. The initial public offering price has been determined through negotiations between us and the representative of the underwriters and may not be indicative of the market price of our common stock following this public offering. 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 a market for our common stock does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at an attractive price or at all. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration. We cannot predict the prices at which our common stock will trade.

The market price of our common stock may be highly volatile, and you may not be able to resell your shares at or above the initial public offering price.

The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuation in price in response to various factors, many of which are beyond our control, including those described elsewhere in this “Risk Factors” section of this prospectus and the following:

 

   

new treatments, or new uses for existing treatments introduced or announced by our strategic partners or our competitors, and the timing of these introductions or announcements;

 

29


Table of Contents
   

actual or anticipated results and any delays in our clinical trials, including our clinical trials of our TVI-Brain-1 treatment candidate and our other clinical trials of our TVI treatment candidates, as well as the results of regulatory reviews relating to the approval of our treatment candidates;

 

   

variations in the level of expenses related to any of our treatments or clinical development programs, including relating to the timing of invoices from, and other billing practices of, our clinical research organizations and clinical trial sites;

 

   

the results of our efforts to discover, develop, acquire or in-license additional treatment candidates or treatments;

 

   

disputes or other developments relating to proprietary rights, including, patents, litigation matters and our ability to obtain patent protection for our technologies;

 

   

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures and capital commitments;

 

   

actions or departures of key scientific or managerial personnel;

 

   

conditions or trends in the biotechnology and biopharmaceutical industries;

 

   

actual or anticipated changes in earnings estimates, development timelines or recommendations by securities analysts; actual and anticipated fluctuations in our quarterly operating results;

 

   

deviations from securities analysts’ estimates or the impact of other analyst ratings downgrades by any securities who follow our common stock;

 

   

other events or factors, including those resulting from war, incidents of terrorism, natural disasters or responses to these events;

 

   

changes in accounting principles;

 

   

discussion of us or our stock price by the financial and scientific press and in online investor communities;

 

   

general economic and market conditions and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies; and

 

   

sales of common stock by us or our stockholders in the future, as well as the overall trading volume of our common stock.

In addition, the stock market in general and the market for biotechnology and biopharmaceutical companies in particular have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance.

Members of our management own a significant percentage of our stock and will be able to exercise significant influence over matters subject to stockholder approval.

As of November 1, 2011, our executive officers, directors and proposed directors, together with their respective affiliates, beneficially owned approximately 97.2% of our common stock, and we expect that upon completion of this offering, that same group will continue to hold at least     % of our outstanding common stock. Accordingly, even after this offering, these stockholders will be able to exercise significant influence over our management and affairs and over matters subject to stockholder approval, including the election of our Board of Directors, future issuances of our common stock or other securities, declarations of dividends on our common stock and approval of other significant corporate transactions. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to gain control of us, which in turn could have a material and adverse effect on the fair market value

 

30


Table of Contents

of our common stock. In addition, sales of shares by executive officers and directors and their affiliates could be viewed negatively by third parties and have a negative impact on our stock price. Moreover, we cannot assure you as to how these shares may be distributed and subsequently voted.

Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of existing or any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

A significant portion of our total outstanding shares may be sold into the public market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time after the expiration of the lock-up agreements described in the “Underwriting” section of this prospectus. These sales, or the market perception that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering we will have          shares of common stock outstanding based on the number of shares outstanding as of November 1, 2011. This includes the          shares that we are selling in this offering, which may be resold in the public market immediately. The remaining          shares, or     % of our outstanding shares after this offering, are currently restricted as a result of securities laws or lock-up agreements but will be able to be sold, subject to any applicable volume limitations under federal securities with respect to affiliate sales, in the near future as set forth below.

 

Number of Shares and % of Total Outstanding

  

Date Available for Sale into Public Market

             shares, or     %    On the date of this prospectus
             shares, or     %    180 days after the date of this prospectus, subject to extension in specified instances, due to lock up agreements between the holders of these shares and the underwriters. However, the representative of the underwriters can waive the provisions of these lock-up agreements and allow these stockholders to sell their shares at any time, subject to certain conditions.

Moreover, after this offering, holders of common stock issued upon conversion of 995,791 shares of Series C Preferred Stock and the exercise of Series C Warrants to purchase 1,333,594 shares of common stock, or their transferees, will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. If such holders, by exercising their registration rights, cause a large number of securities to be registered and sold into the public market, these sales could have an adverse effect on the market price for our common stock. We also intend to register all shares of common stock that we may issue under our employee benefit plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements and the restrictions imposed on our affiliates under Rule 144.

You will incur immediate and substantial dilution as a result of this offering

If you purchase common stock in this offering, you will incur immediate and substantial dilution of $         per share, representing the difference between the assumed initial offering price of $         per share, the midpoint of the range set forth on the cover of this prospectus and our pro forma net tangible book value per share after giving effect to this offering and the conversion of all outstanding shares of our convertible preferred stock upon the closing of this offering. Moreover, we issued warrants in the past to acquire common stock at prices

 

31


Table of Contents

significantly below the assumed initial public offering price. As of June 30, 2011, there were 1,333,594 shares issuable upon exercise of outstanding warrants at a price of $1.50, which excludes contingent warrants to purchase 109,148 shares that are currently outstanding, but which will expire upon the completion of this offering. To the extent that these outstanding warrants are ultimately exercised, you will incur further dilution.

We will incur significant increased costs as a result of operating as a public company and our management will be required to devote substantial time to meet compliance obligations.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Securities and Exchange Act of 1934, or Exchange Act, the Sarbanes-Oxley act of 2002, or the Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission, or SEC, and the NASDAQ Global Market that impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. The Exchange Act will require, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. In addition, on July 21, 2010, the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. The requirements of these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems and resources. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. In addition, we expect these rules and regulations to make it more difficult and expensive for us to obtain director and officer liability insurance and we may be required to accept reduced 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 people to serve on our Board of Directors, our board committees or as executive officers.

We have had a material weakness in our internal control over financial reporting.

In connection with the preparation of our financial statements for inclusion in this prospectus, we and our independent registered public accounting firm identified a material weakness in internal control over financial reporting with respect to accounting for our more complex transactions which required adjustment, specifically: (i) accounting for research and development costs and contributed intellectual property, (ii) accounting for detachable warrants, embedded derivatives and beneficial conversion features associated with certain debt and equity instruments, (iii) accounting for debt and equity instruments requiring accretion of interest and fair value measurements, (iv) accounting for issuance, modification and conversion of certain equity instruments, (v) accounting for share-based payments, (vi) accounting for leases and related leasehold improvements, (vii) accounting for noncash equity contributions, and (viii) revenue recognition for a grant received subject to certain repayment contingencies. The nature of these adjustments indicate that we had not applied sufficient resources to prepare financial statements in accordance with accounting principles generally accepted in the United States.

Under standards established by the Public Company Accounting Oversight Board, a deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or personnel, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis. While we believe that we have remediated the material weakness identified by us and our independent registered public accounting firm, we cannot assure that there will not be additional material weaknesses and significant deficiencies that our independent registered public accounting firm or we will identify. If we identify such issues or if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with applicable listing requirements.

 

32


Table of Contents

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes Oxley Act could have a material adverse effect on our ability to produce accurate financial statements and on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we will be required to publish a report by our management on our internal control over financial reporting. We have not been subject to these requirements in the past. The internal control report must contain (a) a statement of management’s responsibility for establishing and maintaining adequate internal control over financial reporting, (b) a statement identifying the framework used by management to conduct the required evaluation of the effectiveness of our internal control over financial reporting, (c) management’s assessment of the effectiveness of our internal control over financial reporting as of the end of our most recent fiscal year, including a statement as to whether or not internal control over financial reporting is effective, and (d) if applicable, a statement that our independent registered public accounting firm has issued an attestation report on internal control over financial reporting.

We will be required to achieve compliance with Section 404 by the time we file our second annual report. In order to do so, we have to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to dedicate internal resources, engage outside consultants and adopt a detailed work plan to (a) assess and document the adequacy of internal control over financial reporting, (b) take steps to improve control processes where appropriate, (c) validate through testing that controls are functioning as designed and documented, and (d) implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, we can provide no assurance as to our or, if applicable, our independent registered public accounting firm’s conclusions with respect to the effectiveness of our internal control over financial reporting under Section 404. There is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed time frame that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial documents.

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

We intend to use the net proceeds from this offering for general corporate purposes and to continue clinical trials of TVI-Brain-1. However, our management 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. The failure by management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our treatments. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

Our governing documents provide indemnification for officers, directors and employees.

Our governing instruments provide that officers, directors, employees and other agents and their affiliates shall only be liable to us for losses, judgments, liabilities and expenses that result from the negligence, misconduct, fraud or other breach of fiduciary obligations. Thus certain alleged errors or omissions might not be actionable by us. The governing instruments also provide that, under the broadest circumstances allowed under law, we must indemnify our officers, directors, employees and other agents and their affiliates for losses, judgments, liabilities, expenses and amounts paid in settlement of any claims sustained by them in connection with our Company, including liabilities under applicable securities laws.

Provisions in our certificate of incorporation, our by-laws or Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Provisions of our certificate of incorporation, our by-laws or Delaware law may have the effect of deterring unsolicited takeovers or delaying or preventing a change in control of our company or changes in our

 

33


Table of Contents

management, including transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve transactions that they may deem to be in their best interests. These provisions include:

 

   

the division of our Board of Directors into three classes with staggered, three year terms;

 

   

advance notice requirements for stockholder proposals and nominations;

 

   

the inability of stockholders to act by written consent or to call special meetings;

 

   

limitation on the ability of stockholders to remove directors or amend our by-laws; and

 

   

the ability of our Board of Directors to designate the terms of and issue new series of preferred stock without stockholder approval, which could include the right to approve an acquisition or other change in our control or could be used to institute a rights plan, also known as a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our Board of Directors.

In addition, Section 203 of the Delaware General Corporation Law prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last three years, has owned 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

The existence of the forgoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.

The death of Dr. Gary Wood would result in a change of control.

On November 1, 2011, Dr. Gary Wood and his affiliates beneficially own approximately 89.9 % of the Company’s outstanding shares of common stock. The death of Dr. Wood would result in a change of control.

 

34


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this prospectus, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “contemplate” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this prospectus include, among other things, statements about:

 

   

our plans to develop and commercialize TVI-Brain-1 and our other treatments;

 

   

our ongoing and planned clinical trials of TVI-Brain-1, particularly the timing for completion of enrollment, interim data analysis and outcome;

 

   

the expected timing of release of data from ongoing clinical studies;

 

   

the expected timing of and our ability to obtain and maintain regulatory approvals for our treatments;

 

   

the clinical utility of our treatments;

 

   

our plans to leverage our existing technologies to discover and develop additional treatments;

 

   

our ability to identify and develop treatment candidates;

 

   

our commercialization, marketing and manufacturing capabilities and strategy;

 

   

our intellectual property position;

 

   

the potential benefits of strategic collaboration agreements and our ability to enter into strategic arrangements;

 

   

our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; and

 

   

other risks and uncertainties, including those listed under the caption “Risk Factors.”

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part completely and with the understanding that our actual future results may be materially different from what we expect.

The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, we do not intend to update the information contained in this prospectus except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.

 

35


Table of Contents

We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from industry and general publications and research surveys and studies conducted by third parties. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. While we believe that our internal company research is reliable and the market definitions we use are appropriate, neither such research nor these definitions have been verified by any independent source.

 

36


Table of Contents

USE OF PROCEEDS

We expect that the net proceeds from this offering will be approximately $         million (approximately $         million, if the underwriters’ overallotment option is exercised in full), assuming an initial public offering price of $         per share, which is the midpoint of the price range listed on the cover page of this prospectus and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering for general corporate purposes and to continue clinical testing of TVI-Brain-1.

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) our net proceeds from this offering by approximately $         million, 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 the underwriting discounts and commissions and estimated offering expenses payable by us.

The expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures depend on numerous factors, including the ongoing status and results from clinical trials and other studies, as well as any strategic collaboration that we may enter into with third parties for our treatment candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds of this offering.

Pending use of the proceeds from this offering, we intend to invest the proceeds in a variety of capital preservation investments, including short-term, investment-grade and interest-bearing instruments.

DIVIDEND POLICY

We have never declared or paid any dividends on our common stock. We anticipate that we will retain all of our future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Subject to the foregoing, the payment of cash dividends in the future, if any, will be at the discretion of our Board of Directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition and any other factors deemed relevant by our Board of Directors.

 

37


Table of Contents

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2011:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to the following transactions as if they had occurred on June 30, 2011:

 

  (i) the conversion of $2,230,572 of principal and interest of Convertible Notes on July 15, 2011 at the election of the holders of such notes into 995,791 shares of common stock (on a pro forma basis at June 30, 2011 there was $2,223,904 of principal and interest, which was convertible into 992,814 shares of common stock),

 

  (ii) the issuance of contingent warrants to purchase 109,148 Series C Preferred Units to holders of Convertible Notes as an inducement for the conversion of the notes and in lieu of foregone interest payments,

 

  (iii) the issuance of 805,000 restricted profits units to certain officers, key employees and consultants immediately prior to the reorganization on July 15, 2011,

 

  (iv) the consummation of our July 15, 2011 reorganization of our predecessor TVAX Biomedical I, LLC pursuant to an exchange of equity as follows:

 

   

each Series A Preferred Unit was exchanged for an equal number of shares of Series A Preferred Stock, plus additional shares determined by dividing the undistributed incentive return of the Series A Preferred Unit calculated through July 15, 2011 by the original issue price of $1.00 per unit,

 

   

each Series A Warrant was exchanged for an equal number of shares of Series B Preferred Stock,

 

   

each Series C Preferred Unit was exchanged for an equal number of shares of Series C Preferred Stock, plus additional shares determined by dividing the undistributed incentive return of the Series C Preferred Unit calculated through July 15, 2011 by the original issue price of $2.24 per unit,

 

   

each common unit was exchanged for one share of common stock, and

 

   

each profits unit was exchanged for one share of junior common stock, and with respect to those profits units which were issued with vesting requirements, such profits units were exchanged for junior common stock having identical vesting requirements; and

 

  (v) the exchange of 2,000,000 shares of junior common stock for 1,900,000 shares of common stock on September 30, 2011,

 

  (vi) the outstanding warrants to purchase an aggregate of 1,333,594 Series C Preferred Units, which will become, according to their terms, warrants to purchase common stock at an exercise price of $1.50 per share upon the closing of this offering and the reclassification of the related warrant liability to additional paid-in capital,

 

  (vii) the issuance of          shares of common stock upon conversion of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock and the expiration of contingent warrants described in (ii) above, which will take place automatically upon the closing of this offering. Because the number of shares of common stock issuable upon automatic conversion of the Series A Preferred Stock and Series C Preferred Stock depends upon the date of the closing of the offering due to the preferential incentive return on the preferred instruments, and the number of shares of common stock issuable upon automatic conversion of the Series B Preferred Stock depends upon the initial public offering price per share in this offering, the actual number of shares of common stock issuable upon such exercise will likely differ from the respective number of shares set forth above; and

 

38


Table of Contents
   

on a pro forma as adjusted basis to give effect to the receipt by us of $         from 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 price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and the receipt by us of the net proceeds of such sale.

Our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with our financial statements and the related notes appearing at the end of this prospectus, the sections entitled “Summary Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information contained in this prospectus.

 

     As of June 30, 2011  
     Actual     Pro Forma
(2)
     Pro Forma
As Adjusted
(1)(2)
 
     (unaudited)  
     (in thousands, except share data)  

Cash and cash equivalents

   $ 4,565      $ 4,565       $                
  

 

 

   

 

 

    

 

 

 

Capitalization:

       

Due to member

   $ 45      $ 45      $     

Warrant liability

     3,078        —        

Long-term debt, including current portion

     1,366        297      

Redeemable convertible preferred members interests

       

Series A redeemable preferred units: 1,200,000 units issued and outstanding, actual; no units issued or outstanding, pro forma and pro forma as adjusted

     1,961        —        

Series C redeemable preferred units: 2,505,241 units issued and outstanding, actual; no units issued or outstanding, pro forma and pro forma as adjusted

     6,363        —        

Members’ / Stockholders’ equity (deficit)

       

Common units: 8,800,000 units issued and outstanding, actual; no units issued and outstanding, pro forma and pro forma as adjusted

     1,320        —        

Profits units: 1,195,000 units issued and outstanding, actual; no units issued and outstanding, pro forma and pro forma as adjusted

     154        —        

Common stock, $0.01 par value: no shares issued and outstanding, actual;          shares issued and outstanding, pro forma; and          shares issued and outstanding, pro forma as adjusted

     —          

Other contributed capital / additional paid-in capital

     1,139       

Deficit accumulated during the development stage

     (11,195 )     
  

 

 

   

 

 

    

 

 

 

Total members’ / shareholders’ equity (deficit)

     (8,582 )     
  

 

 

   

 

 

    

 

 

 

Total capitalization

   $ 4,231      $         $     
  

 

 

   

 

 

    

 

 

 

 

(1) A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range listed on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and marketable securities, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $         million, 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 underwriting discounts and commissions and estimated offering expenses payable by us.
(2) Assumes an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus.

 

39


Table of Contents

DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

Our net tangible book value (deficit) as of June 30, 2011 was $(8,886,000) or $         per common share. Our net tangible book value (deficit) per share represents the amount of our total tangible assets less total liabilities and convertible preferred stock, divided by the number of shares of common stock outstanding.

Our pro forma net tangible book value (deficit) as of June 30, 2011 was $         or $         per common share. Pro forma net tangible book value (deficit) per share represents the amount of our total tangible assets less total liabilities, divided by the total number of shares of common stock outstanding, assuming all of our outstanding preferred stock has been converted into common stock and the other changes described under “Capitalization” have occurred as of June 30, 2011.

After giving effect to the issuance and sale by us of          shares of common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the price range listed on the cover page of this prospectus, less underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2011 would have been $         million, or $         per share. This represents an immediate increase in pro forma net tangible book value per share of $         to existing stockholders and immediate dilution of $         in pro forma net tangible book value per share to new investors purchasing common stock in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:

 

Assumed initial public offering price per share of common stock

      $            

Pro forma net tangible book value per share as of June 30, 2011

   $               

Increase per share attributable to new investors

   $        

Pro forma as adjusted net tangible book value per share after this offering

      $     

Dilution per share to new investors

      $     

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range listed on the cover page of this prospectus, would increase (decrease) our pro forma net tangible book value per share by approximately $        , our pro forma as adjusted net tangible book value per share by approximately $         and dilution per share to new investors by approximately $        , 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 underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their over-allotment option, the pro forma as adjusted net tangible book value will increase to $         per share, representing an immediate increase to existing stockholders of $         per share and an immediate dilution of $         per share to new investors. If any shares are issued upon exercise of outstanding warrants, you will experience further dilution.

 

40


Table of Contents

The following table summarizes, on the pro forma as adjusted basis described above as of June 30, 2011, the difference between the number of shares of common stock purchased from us, the total effective cash consideration paid to us and the average price per share paid to us by our existing stockholders and by investors purchasing shares of our common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the price range listed on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us. As the table below shows, investors purchasing shares of our common stock in this offering will pay an average price per share substantially higher than our existing stockholders paid.

 

     Shares Purchased     Total Consideration     Average
Price  per
Share
 
     Number    Percentage     Amount      Percentage    

Existing stockholders

               $                         $            

New investors

        100           100     

Total

            
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

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

The number of shares purchased from us by existing stockholders is based on          common shares outstanding as of June 30, 2011, after giving effect to the transactions described in the section entitled “Capitalization” and used to calculate our pro forma capitalization, and excludes 1,333,594 shares of common stock issuable upon the exercise of warrants at an exercise price of $1.50 per share.

To the extent that outstanding warrants are exercised, you will experience further dilution. If all our outstanding warrants had been exercised as of June 30, 2011, assuming the treasury stock method, our pro forma net tangible book value as of June 30, 2011 would have been approximately $         million or $         per share of our common stock, and the pro forma as adjusted net tangible book value after giving effect to this offering would have been $         per share, representing dilution in our pro forma net tangible book value per share to new investors of $        .

In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital by issuing equity securities or convertible debt, your ownership will be further diluted.

 

41


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of our operations together with the financial statements of our wholly-owned subsidiary, TVAX Biomedical I, LLC (formerly TVAX Biomedical, LLC), and the related notes to those statements included elsewhere in this prospectus. This prospectus does not include the historical financial statements of TVAX Biomedical, Inc. (the successor to TVAX Biomedical I, LLC) because it has only been formed recently for the purpose of effecting the offering and prior to the reorganization on July 15, 2011, held no material assets and did not engage in any operations. In addition to historical financial information, this discussion contains forward-looking statements reflecting our current plans, estimates, beliefs and expectations that involve risks and uncertainties. As a result of many important factors, particularly those set forth under “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors,” our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements. Dollar amounts provided in this discussion and analysis of our financial condition and results of our operations have been rounded to the nearest $1,000.

Overview

We are a development-stage biotechnology company focused on the development of targeted cell-based immunotherapies for the treatment of cancer. Our proprietary treatment, TVAX Immunotherapy, uses a patient’s cells to create activated, genetically unique cancer-killing T cells that can destroy the patient’s cancer cells.

Our lead treatment candidate, TVI-Brain-1, is intended to be used in conjunction with surgery in the treatment of grade 4 astrocytoma, which is a type of glioma, the most prevalent form of brain cancer.

Since our inception on November 1, 2004, we have devoted our efforts to business planning, raising capital, treatment research and development, recruiting management and technical staff, and acquiring operating assets. Our founder, Gary Wood has been studying cancer immunotherapy for over 20 years. TVAX Immunotherapy was developed by Dr. Wood, and substantially all of the preclinical and early clinical testing was performed under his direction, primarily through university sponsored and funded studies. As a result, the costs and expenses of that research and testing are not reflected in our financial statements. Since inception, we have funded our operations primarily through the sale of equity securities and long-term borrowings. In addition, we have obtained funding of $432,000 from two government grants. We have not generated any revenue from treatment sales. We completed Phase I/II clinical trials for grade 3 and 4 gliomas in March 2011, we have one Phase II trial ongoing, and we plan to initiate enrollment for Phase III clinical trials in early 2012, following completion of this offering.

As of June 30, 2011, we had an accumulated deficit of $11,195,000. We incurred a net loss of $3,578,000 for the six months ended June 30, 2011 and net losses of $716,000, $565,000, and $1,976,000 for the years ended December 31, 2008, 2009 and 2010, respectively. We expect our losses to increase over the next several years as we continue clinical testing of TVI-Brain-1, pursue regulatory approval of TVI-Brain-1, and add the necessary infrastructure to support our operations as a public company. In addition, if TVI-Brain-1 is approved for marketing, we expect to incur significant costs for the initiation of commercialization activities, including the payment of royalties on future sales of TVI-Brain-1. These royalties are payable to two educational institutions for 20 years following the first commercial sale of the therapeutic treatment.

Financial Overview

Revenues

From our inception through June 30, 2011, we have not generated any revenue from treatment sales. During 2010, we received $244,000 in grant revenue from the federal Qualifying Therapeutic Discovery Project grant program. A grant received from the Kansas Biosciences Authority in 2008 in the amount of $188,000 has been recorded as long-term debt and will continue to be reflected as debt until all contingencies related to potential repayment of the grant have been satisfied.

 

42


Table of Contents

In the future, we may generate revenue from a variety of sources, including treatment sales, if we develop treatments that are approved for sale, license fees, and milestone, research and development and royalty payments in connection with strategic collaborations or licenses of our intellectual property. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, research and development reimbursements, milestone and other payments that we may receive under potential strategic collaborations, and the amount and timing of payments that we may receive upon the sale of any treatments, if approved, to the extent that any are successfully commercialized. We do not expect to generate revenue from treatment sales for several years. If we fail to complete the development of our treatment candidates in a timely manner or to obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Research and Development Expense

A large portion of our operating expenses to date have been for research and development activities. Research and development expense consists of costs associated with research activities, our treatment development efforts, and conducting clinical trials. All research and development costs are expensed as incurred. These consist primarily of:

 

   

Technology and intellectual property contributed by our founder in March 2006 for use in developing our treatment candidates valued at $1,320,000 and expensed as research and development;

 

   

Employee-related costs, which include salaries, bonuses and benefits;

 

   

Facilities, depreciation of fixed assets used in research and development activities, and other related expenses, which include direct and allocated expenses for rent and maintenance of facilities and equipment;

 

   

Costs of acquiring and manufacturing clinical trial materials;

 

   

Expenses incurred under agreements with third party contract research organizations, investigational sites and consultants that conduct our clinical trials; and

 

   

Costs associated with non-clinical activities and regulatory approvals.

Treatment candidates in late stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size, duration and complexity of later stage clinical trials. Assuming we complete the sale of securities in this offering, we plan to increase our research and development expenses for the foreseeable future as we seek to complete clinical testing of TVI-Brain-1, our most advanced treatment candidate.

The following table summarizes the components of our research and development expense for the periods indicated:

 

(amounts in thousands)    Year Ended December 31      Six Months Ended
June 30
     Period from
November 1, 2004
(Inception) through
June 30, 2011
 
       2008            2009          2010            2010              2011         

Compensation

   $ 142       $ 138       $ 266       $ 130       $ 193       $ 1,138   

Equipment, supplies, and facilities

     123         115         340         108         123         906   

Outside clinical and other

     88         13         474         128         156         2,119   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total research and development

   $ 353       $ 266       $ 1,080       $ 366       $ 472       $ 4,163   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

We expect research and development expense to increase significantly in future periods due to the Phase II and Phase III clinical trials of TVI-Brain-1. At this time, we cannot accurately estimate or know the nature, specific timing or costs necessary to complete clinical trial activities. This is particularly the case because a significant proportion of the treatment development that the company is taking advantage of was performed in universities and the costs of that development were not incurred by us.

 

43


Table of Contents

We do not expect TVI-Brain-1 to be commercially available before 2016, if at all. We expect that the anticipated net proceeds of this offering, together with our existing cash, cash equivalents and short-term investments, will enable us to fund our operations and capital expenditure requirements through the end of 2013.We will need to raise additional capital to complete the clinical trials of TVI-Brain-1. Depending on the availability of additional capital in the future, we may choose to accelerate or delay the timing of development of our other treatment candidates.

General and Administrative Expense

General and administrative expense consists principally of salaries and related costs for personnel in executive, finance, and business development. Other general and administrative expenses include facility costs not attributable to research and development, and professional fees for legal, consulting, auditing and tax services. We expect that our general and administrative expenses will increase over the next several years as we add the necessary infrastructure to support operating as a public company.

Interest Expense

Interest expense consists of interest incurred on our 8% Convertible Notes (the “Notes”) and other debt financing, and amortization of discount on the Notes. In the future, we expect our interest expense to change significantly. On July 15, 2011, the holders of the Notes agreed to exercise their conversion option and convert the Notes to Series C Preferred Stock which resulted in the recognition of $1,090,000 for the remaining unamortized discount and deferred financing costs on the conversion date. Concurrently, as an inducement for the conversion and in lieu of interest that would accrue on the Notes from July 15, 2011 to January 15, 2013, the Company issued a five-year contingent warrant to purchase up to 109,148 Series C Preferred Units of TVAX Biomedical I, LLC which resulted in the recognition of $64,000 of debt conversion expense on the conversion date. Depending on the availability of additional capital in the future, we may choose to obtain additional debt financing in order to fund our research and development which could result in increased interest expense.

Results of Operations

Comparison of the Six Months Ended June 30, 2010 and 2011

 

     Six Months Ended June 30      Increase
(Decrease)
     % Increase
(Decrease)
 
(amounts in thousands)            2010                      2011                

Research and development expense

   $ 366       $ 472       $ 106         29

General and administrative expense

     303         773         470         155

Interest expense

     343         432         89         26

Change in fair value of warrant liability

     115         1,901         1,786                     

 

* percent not meaningful

Research and development expense increased $106,000, or 29%, to $472,000 for the six months ended June 30, 2011, as compared to $366,000 for the same period in 2010. This increase was primarily due to $63,000 of additional staffing and personnel related costs to support the Phase I/II clinical trial that was initiated in May 2010 and substantially completed in February 2011, $29,000 of increased clinical trial site costs and $9,000 of increased depreciation.

General and administrative expense increased $470,000, or 155%, to $773,000 for the six months ended June 30, 2011, as compared to $303,000 for the same period in 2010. This increase was primarily due to $610,000 of professional fees for legal and accounting services principally related to our corporate reorganization activities, partially offset by a decrease in executive bonuses of $149,000 which were paid in 2010 upon the successful completion of our Convertible Notes offering.

 

44


Table of Contents

Interest expense increased $89,000, or 26%, to $432,000 for the six months ended June 30, 2011, as compared to $343,000 for the same period in 2010. This increase was primarily due to expenses related to our 8% Convertible Notes, of which $1,700,000 and $300,000 were issued in January and July 2010, respectively, including $72,000 for increased accretion expense and $17,000 for increased interest charges and the related amortization of discount on the notes.

The Series A and Series C warrants are required to be adjusted to estimated fair value at each reporting period and the change in fair value is recognized in the statement of operations. The $1,901,000 increase in fair value for the six months ended June 30, 2011 resulted from an overall increase in the valuation of the Company, as determined by an independent valuation.

Comparison of Years Ended December 31, 2009 and 2010

 

     Year Ended December 31     Increase
(Decrease)
    % Increase
(Decrease)
 
(amounts in thousands)            2009                      2010              

Grant revenue

   $   —         $ 244      $ 244                    

Research and development expense

     266         1,080        814        307

General and administrative expense

     224         468        244        109

Interest expense

     3         769        766                    

Change in fair value of warrant liability

     72         (97     (169     (234 %) 

 

* percent not meaningful

Grant revenue was $244,000 for the year ended December 31, 2010 due to a grant received from the federal government for a Qualifying Therapeutic Discovery Project.

Research and development expense increased $814,000, or 307%, to $1,080,000 for the year ended December 31, 2010, as compared to $266,000 for the same period in 2009. This increase was primarily due to the costs of the TVI-Brain-1 Phase I/II clinical trial, which began in May 2010, including $462,000 for increased outside clinical services, $225,000 for increased equipment maintenance, treatment supply costs and clinical consultants and $127,000 for compensation and payroll-related expenses resulting from increased staffing.

General and administrative expense increased $244,000, or 109%, to $468,000 for the year ended December 31, 2010, as compared to $224,000 for the same period in 2009. This increase was primarily due to $154,000 for bonuses paid in 2010 to certain executives for successful completion of the Convertible Notes offering, $42,000 for compensation and payroll-related expenses resulting from increased staffing, $39,000 for increased professional fees related to legal and accounting services associated with the audit of our financial statements and general corporate matters, and $9,000 for marketing and other activities.

Interest expense increased $766,000 to $769,000 for the year ended December 31, 2010, as compared to $3,000 for the same period in 2009. This increase was primarily due to expenses related to our 8% Convertible Notes, of which $1,700,000 and $300,000 were issued in January and July 2010, respectively, including $524,000 for accretion expense, $143,000 for interest charges, and $99,000 for increased amortization of deferred financing costs.

The Series A and Series C warrants are required to be adjusted to estimated fair value at each reporting period and the change in fair value is recognized in the statement of operations. The $97,000 decrease in fair value for the year ended December 31, 2010 resulted from a decline in the value of our warrants, as determined by an independent valuation, due to dilution resulting from the issuance of our Convertible Notes and Series C Preferred Units, offset in part by an increase in the valuation of the Company.

 

45


Table of Contents

Comparison of Years Ended December 31, 2008 and 2009

 

     Year Ended December 31      Increase
(Decrease)
    % Increase
(Decrease)
 
(amounts in thousands)            2008                      2009               

Research and development expense

   $ 353       $ 266       $ (87     (25 %) 

General and administrative expense

     196         224         28        14

Interest income

     1         —           (1     (100 %) 

Interest expense

     —           3         3                    

Change in fair value of warrant liability

     168         72         (96     (57 %) 

 

* percent not meaningful

Research and development expense decreased $87,000, or 25%, to $266,000 for the year ended December 31, 2009, as compared to $353,000 for the same period in 2008. This decrease was primarily due to fewer expenses incurred for our TVI-Brain-1 Phase I/II clinical trial activities, including $75,000 lower outside clinical services, $17,000 lower equipment maintenance, treatment supply costs and clinical consultants, and $3,000 lower compensation and payroll-related expenses. These were offset in part by an increase of $8,000 in depreciation expense.

General and administrative expense increased $28,000, or 14%, to $224,000 for the year ended December 31, 2009, as compared to $196,000 for the same period in 2008. This increase was primarily due to $22,000 increased professional fees for legal services, and $8,000 for increased compensation and payroll-related expenses, offset in part by decreases in various other miscellaneous expenses.

The change in fair value of our Series A warrants represents an increase in the fair value of our warrants, as determined by an independent valuation, which resulted from an overall increase in the valuation of the Company.

Liquidity and Capital Resources

Since our inception in 2004, we have funded our operations primarily with $8,338,000 in net proceeds from the sale of equity and debt securities and $432,000 in cash received from federal and state grants. As of June 30, 2011, we had $4,565,000 in cash and cash equivalents.

From inception through June 30, 2011, we received net proceeds of $975,000 from the sale of Series A Preferred Units, $377,000 from the sale of Series B Preferred Units, $4,987,000 from the sale of Series C Preferred Units, $1,643,000 from the sale of Convertible Notes, and $357,000 from the issuance of other long-term debt. We have incurred $146,000 in capitalized public offering costs, of which, $70,000 have been paid. These are incremental costs and directly attributable to the Company’s initial public offering. Upon completion of this offering, such costs will be applied to the offering proceeds, however, in the event the offering is not consummated, these costs will be expensed.

Our future cash requirements will significantly exceed historical levels. We will have significant requirements for cash in order to conduct our ongoing operations, including the completion of clinical testing for TVI-Brain-1. We expect that the anticipated net proceeds of this offering, together with our existing cash, cash equivalents and short-term investments, will enable us to fund our operations and capital expenditure requirements through the end of 2013. The amounts and timing of our actual expenditures depend on numerous factors, including the ongoing status and results from clinical trials and other studies, as well as any strategic collaboration that we may enter into with third parties for our treatment candidates and any unforeseen cash needs.

On July 15, 2011, immediately prior to the reorganization described below, holders of the 8% Convertible Notes agreed to exercise their conversion option and convert the Notes to Series C Preferred Stock. As an inducement for the conversion and in lieu of interest that would accrue on the Notes from July 15, 2011 to January 15, 2013, the original maturity date, the Company issued a five-year contingent warrant to purchase up

 

46


Table of Contents

to 109,148 Series C Preferred Units of TVAX Biomedical I, LLC at $1.50 per unit. The warrant becomes exercisable only for such period of time (i) commencing on the earlier of either (A) the close of business on September 30, 2012 if we have not completed a public offering of common equity securities prior to that time, or (B) the date of a change of control of the Company or TVAX Biomedical, Inc. that occurs prior to September 30, 2012, and (ii) ending on the earlier of July 15, 2016 or the consummation of a public offering prior to September 30, 2012. On July 15, 2011, the Company recognized $64,000 as a debt conversion expense which represents the amount by which the fair value of all securities and other consideration transferred in the transaction exceeds the fair value of the consideration issuable in accordance with the Notes original conversion terms and $1,090,000 of expense which represents the unamortized discount on the Notes at the date of conversion.

On July 15, 2011, the Company completed a reorganization which resulted in TVAX Biomedical I, LLC becoming a wholly-owned subsidiary of TVAX Biomedical, Inc, a newly-formed holding company. In connection with the reorganization, TVAX Biomedical, Inc. issued 8,800,000 shares of common stock, 2,000,000 shares of junior common stock, including 805,000 shares issued with restrictions requiring forfeiture if an initial public offering is not completed prior to September 30, 2012, 1,968,566 shares of Series A Preferred Stock, 900,000 shares of Series B-1 Preferred Stock, 300,000 shares of Series B-2 Preferred Stock and 3,663,136 shares of Series C Preferred Stock. In exchange for the issued shares, a subsidiary of TVAX Biomedical, Inc. received membership interests in TVAX Biomedical I, LLC in an amount and class equal to the amount and class of shares issued.

On August 25, 2011, the stockholders of TVAX Biomedical, Inc. approved an amendment to its Certificate of Incorporation which provides that the Series C Preferred Stock will automatically convert into common stock upon the consummation of an underwritten public offering and all shares of Series C Preferred Stock issued after an underwritten public offering upon exercise of Series C warrants will automatically convert into common stock. In addition, an amendment was approved which modifies the definition of “Supermajority of the Series C Preferred Stock” to exclude Series C warrants from voting on matters requiring a supermajority of the Series C Preferred Stock after consummation of an underwritten public offering.

On September 30, 2011, TVAX Biomedical, Inc. exchanged 2,000,000 outstanding shares of Junior common stock for 1,900,000 shares of common stock. All shares remain subject to the same restrictions in place prior to the exchange, including the forfeiture provisions on the 805,000 shares of restricted junior common stock. Upon exchange, the difference in fair value of the common stock issued as compared to the junior common stock converted is required to be recognized as an expense.

TVAX Biomedical I, LLC has never paid cash distributions on its preferred members’ interests. In connection with the restructuring described above, those preferred members’ interests were exchanged for shares of Series A and Series C Preferred Stock of TVAX Biomedical Inc., which has never paid cash dividends on such preferred stock. Dividends on the Series A and Series C Preferred Stock are payable only when, as and if authorized and declared by our Board of Directors out of legally available funds, on a cumulative basis on the relevant per share liquidation preference amount plus the amount of accrued and unpaid dividends for any prior dividend periods, at a rate of 10% and 12% per annum, respectively. Dividends on the Series A and Series C Preferred Stock are cumulative. Upon completion of this offering, the Series A and Series C Preferred Stock will automatically convert, together with all accrued unpaid dividends, into shares of common stock.

TVAX Biomedical I, LLC has never paid cash distribution on its common member’s interests. In connection with the restructuring described above, those common member’s interests were exchanged for shares of common stock of TVAX Biomedical Inc., which has never paid cash dividends on such common stock. We anticipate that we will retain all of our future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Subject to the foregoing, the payment of cash dividends in the future, if any, will be at the discretion of our Board of Directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition and any other factors deemed relevant by our Board of Directors.

 

47


Table of Contents

Cash Flows

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

 

     Year Ended December 31     Six Months Ended June 30     Period from
November 1,
2004
(Inception)
Through
June 30,

2011
 
     2008     2009     2010             2010                     2011            

Net cash provided by (used in):

            

Operating activities

   $ (387   $ (170   $ (1,299   $ (489   $ (477   $ (3,189

Investing activities

     (179     (1     (195     (128     (88     (505

Financing activities

     564        108        3,160        2,088        3,452        8,259   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ (2   $ (63   $ 1,666      $ 1,471      $ 2,887      $ 4,565   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in operating activities during each of the periods presented resulted primarily from our net operating losses, offset, in part, by an increase in non-cash accretion on our Convertible Notes and an increase in other non-cash expenses. Net cash used in operating activities during the six months ended June 30, 2011 decreased $12,000 as compared June 30, 2010 due to higher levels of research and development spending on our treatment development efforts, coupled with increasing general and administrative costs primarily due to our corporate reorganization activities that were completed on July 15, 2011, offset by a $149,000 decrease in executive bonuses which were paid in 2010 upon the successful completion of our Convertible Notes offering. Net cash used in operating activities in 2010 increased $1,129,000 primarily due to increased development costs as we conducted our Phase II clinical trial activities. Net cash used in operating activities in 2009 decreased $217,000 mainly due to lower levels of research and development spending on our treatment development efforts.

Net cash used in investing activities during each of the periods presented consisted of purchases of equipment and leasehold improvements.

Net cash provided by financing activities in the six months ended June 30, 2011 consisted of $3,525,000 in net proceeds from the issuance of Series C Preferred Units, offset by $70,000 in payments for deferred offering costs. Net cash provided by financing activities in the six months ended June 30, 2010 consisted of $675,000 in net proceeds from the issuance of Series C Preferred Units and $1,397,000 in net proceeds from the issuance of Convertible Notes. Net cash provided by financing activities in 2010 consisted of $1,461,000 in net proceeds from the sale of Series C Preferred Units, and $1,686,000 in net proceeds from the issuance of Convertible Notes. Net cash provided by financing activities in 2009 consisted of $151,000 in proceeds from the issuance of notes payable, partially offset by $43,000 in cash payments for debt issuance costs. Net cash provided by financing activities in 2008 consisted primarily of $377,000 in net proceeds from the issuance of Series B Preferred Units and $188,000 in proceeds from a grant received that is recorded as long-term debt instead of revenue because it is repayable if certain events occur prior to July 2018.

Critical Accounting Estimates and Judgments

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for

 

48


Table of Contents

making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

Clinical Trial Accruals

We record costs for clinical trial activities performed for us by third parties, including clinical research organizations that conduct and manage clinical trials on our behalf, based upon estimates of the percentage of contracted work completed at each reporting date. Our estimates are determined based on internal reviews, correspondence and discussions with research institutions, patient enrollment levels and an evaluation of progress or stage of completion of trials or services. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. While we believe these estimates to be accurate, the actual costs and timing of clinical trials are highly uncertain, subject to risk and may change depending upon a number of factors, including our clinical development plan. On a periodic basis, we adjust our estimated clinical trial costs to reflect actual expenses incurred to date and in the future, such adjustments could be material.

Long-Term Debt

In 2010, we issued $2,000,391 in principal amount of our 8% Senior Secured Convertible Notes and warrants to purchase an aggregate of 1,333,394 Series C Preferred Units at $1.50 per unit. The accounting for the notes at the date of issuance required us to make certain estimates and assumptions, including the determination of the value for the warrants (discussed below) and the beneficial conversion feature which are both required to be bifurcated and accounted for separately. After allocating a portion of the note proceeds to the warrants, the effective conversion rate was less than the contractual conversion rate which is required to be bifurcated from the notes and classified as equity. The remaining proceeds were recorded as long-term debt and are being accreted up to the note principal amount over the contractual life of the notes.

Warrant Liability

We account for the warrants to purchase Series A preferred units and Series C preferred units in accordance with ASC Topic 480-10, Distinguishing Liabilities from Equity, which requires that a financial instrument, other than an outstanding share, that, at inception, includes an obligation to repurchase the issuer’s equity shares regardless of the timing or likelihood of the redemption, shall be classified as a liability. We measure the fair value of the warrant liability using an option-pricing model determined by an independent valuation at the balance sheet date with changes in fair value recognized in earnings. The significant inputs used in estimating the fair value of the warrant liability include the exercise price, estimate for volatility, risk-free interest rate, and the expected life of the warrant.

In connection with our reorganization on July 15, 2011, the Series A warrants were exchanged for Series B Preferred Stock of TVAX Biomedical, Inc. In accordance with ASC 480-10, the preferred stock will be classified as temporary equity on the balance sheet.

Upon completion of this offering, the Series B Preferred Stock will automatically convert to common stock at the preferred stock’s fair value on the closing date and the Series C warrants which have not expired will become exercisable for shares of our common stock.

Preferred Member Interests

We account for the Series A Preferred Units and the Series C Preferred Units in accordance with ASC Topic 480-10, Distinguishing Liabilities from Equity, which requires the use of cash to repurchase the shares, resulting in the instruments being classified as temporary equity on the balance sheet. We measure the fair value of the Series C Preferred Units using an option-pricing model determined by an independent valuation at the balance sheet date with changes in fair value recognized in deficit accumulated during the development stage each period

 

49


Table of Contents

if fair value exceeds the face amount of the preferred interest plus the preferred incentive returns. The significant inputs used in estimating the fair value of the preferred member interests include the conversion price, estimate for volatility, risk-free interest rate, and estimated life of the interests.

In connection with our reorganization on July 15, 2011, the preferred member interests in TVAX Biomedical I, LLC were exchanged for substantially equivalent shares of preferred stock in TVAX Biomedical, Inc. which will continue to be accounted for in a manner similar to the redeemable preferred member interests. Upon the completion of this offering, the preferred stock will automatically convert to common stock.

 

50


Table of Contents

BUSINESS

We are a development stage biotechnology company, and our business and ability to execute our business strategy are subject to a number of risk factors that you should carefully consider in addition to the other information provided in this prospectus before purchasing any shares of our common stock. See “Risk Factors.” In the following discussion, we describe our current and forecasted business, including our treatment candidates, the scientific studies that form the basis for our treatment candidates and the preclinical and clinical trials of those candidates, comparisons of our treatment candidates with current cancer therapies, our commercialization strategy, our manufacturing and distribution strategy, the expected market for our leading treatment candidate, our competition and the regulatory requirements applicable to our business. In this discussion, we express our beliefs regarding the treatment candidates and the underlying science, which statements are in many cases forward looking. These forward looking statements are based upon our understanding and analysis of independent scientific research and our preclinical and clinical studies. No regulatory authority overseeing food and drug law in any jurisdiction has yet indicated its agreement with our views regarding our treatments, including the efficacy of TVAX Immunotherapy®.

Overview

We are a biotechnology company focused on the development of targeted cell-based immunotherapies for the treatment of cancer. We use two cell-based technologies: cancer cell vaccination and the activation and infusion of killer T cells to treat cancer. Our proprietary immunologic treatment, TVAX Immunotherapy, uses a patient’s cells to create activated, genetically unique cancer-killing T cells that can destroy the patient’s cancer cells, including cancer stem cells, which are widely believed to be responsible for cancer growth, spread and metastasis. Our clinical data show that our proprietary treatment, either alone or combined with surgical tumor removal, can improve patient outcomes by destroying cancer cells and, in some cases, eliminating any detectable evidence of cancer. Our lead treatment candidate, TVI-Brain-1, is intended to be used in conjunction with surgery as a treatment for astrocytoma, a type of glioma, the most prevalent form of brain cancer. Upon completion of this offering, we plan to initiate patient enrollment in a pivotal 396 patient Phase III clinical trial of TVI-Brain-1, in combination with surgery and radiotherapy, in newly-diagnosed grade 4 astrocytoma patients.

We believe TVAX Immunotherapy may be effective against a wide range of cancers, including renal cell carcinoma, the most prevalent form of kidney cancer. Our TVAX Immunotherapy candidate, TVI-Kidney-1, is intended to be used in conjunction with surgery in the treatment of stage 4 renal cell carcinoma.

TVAX Immunotherapy®

TVAX Immunotherapy is a proprietary method for treating cancer using large numbers of activated, genetically unique cancer-specific killer T cells. We vaccinate a patient with his or her irradiated cancer cells and an immunological adjuvant. This vaccination generates an immune response in the patient, which produces a large number of cancer-specific T cells. In the body of a vaccinated patient, these cancer-specific T cells can recognize, but generally cannot kill, cancer cells. We harvest these cancer-specific T cells from the vaccinated patient’s blood and convert them into activated killer T cells which are then infused back into the patient. The activated killer T cells trigger the body’s immune system to destroy cancer cells, including cancer stem cells.

 

51


Table of Contents

Our treatment has a favorable safety profile compared to chemotherapy and radiotherapy. Our proprietary treatment has been tested and well tolerated in approximately 200 patients. Treatment-related adverse events generally have consisted of inflammatory responses resulting in flu-like symptoms that typically lasted only one to two days. Patients treated with TVAX Immunotherapy have not experienced any treatment-related common toxicity criteria, or CTC, grade 4 serious adverse events and less than 1% of treated patients have experienced CTC grade 3 serious adverse events.

 

Treatment candidate

  

Indication

  

Clinical Trial Status

TVI-Brain-1    Grade 4 astrocytoma (brain cancer)    Planned pivotal Phase III with initiation of enrollment expected following completion of the offering
   Grade 4 glioma (brain cancer)    Phase II ongoing
TVI-Kidney-1    Stage 4 renal cell carcinoma (kidney cancer)    Phase III ready

TVI-Brain-1

TVI-Brain-1 is intended to be used in conjunction with surgery in the treatment of grade 4 astrocytoma, which is a type of glioma, the most prevalent form of brain cancer. In Phase I/II clinical trials, a single course of our immunologic therapy improved patient outcomes by destroying cancer cells and, in some cases, eliminating any detectable evidence of cancer in patients with advanced grade 3 and 4 gliomas. Those trials included patients with recurrent gliomas that had failed standard of care treatments. Patients in those trials had increased median overall survival of more than six months compared to historical controls, including several patients who were alive at the time data were collected for publication. Our immunologic therapy has been tested and well tolerated in approximately 75 brain cancer patients, none of whom experienced any treatment-related CTC grade 3 or 4 serious adverse events. Treatment-related adverse events generally consisted of inflammatory responses resulting in flu-like symptoms that typically lasted only one to two days.

Following the completion of this offering, we intend to commence a pivotal 396-patient Phase III clinical trial of TVI-Brain-1, in combination with surgery and radiotherapy, in newly-diagnosed grade 4 astrocytoma patients. Patients in our Phase III clinical trial will receive two courses of TVAX Immunotherapy and will be treated early in the progression of their disease, when their cancers are relatively small and their immune systems are not compromised by chemotherapy. We expect this trial to be completed approximately four years after initiation of enrollment. We expect to have the first interim analysis of data approximately 24-30 months of commencement of enrollment.

The American Cancer Society estimates that approximately 17,000 primary brain tumors will be diagnosed in the United States in 2011. Approximately 60% will be gliomas, of which we believe approximately 80% will be astrocytomas. While overall survival time varies with grade, gliomas are aggressive cancers, and even when detected very early and/or at low-grade, cannot be cured. Average survival of aggressively treated grade 4 glioma patients is 12-14 months and the five-year survival rate is approximately 5%. Although surgery, radiotherapy and cytotoxic chemotherapy result in a modest increase in overall survival, the benefit is limited and almost invariably associated with high toxicity.

TVI-Kidney-1

Our research has demonstrated that our immunologic therapy may be effective against renal cell carcinoma. In studies conducted by third parties, a single course of personalized immunotherapy combining irradiated autologous cancer cell vaccination and activated killer T cell infusion destroyed cancer cells and, in some cases, eliminated any detectable evidence of cancer in patients with metastatic (stage 4) renal cell carcinomas. Patients in those trials had increased median overall survival of more than six months compared to historical controls,

 

52


Table of Contents

including several patients who were alive at the time data were collected for publication. Sixty-nine patients were treated with the combination of vaccination and activated T cell infusion with no treatment-related CTC grade 4 serious adverse events. One renal cell carcinoma patient experienced a treatment-related CTC grade 3 serious adverse event. Treatment-related adverse events generally consisted of inflammatory responses resulting in flu-like symptoms that typcially lasted only one to two days. Based on those trials and our research, we developed TVI-Kidney-1 to be used in conjunction with surgery in the treatment of renal cell carcinoma, the most prevalent form of kidney cancer.

The American Cancer Society estimates that approximately 60,920 new cases of kidney cancer will be diagnosed in the United States in 2011. Approximately, 90% of those will be renal cell carcinomas, of which 25% will be stage 4 at diagnosis. Currently there are no safe, effective treatments for patients who have failed surgery or who are diagnosed with stage 4 renal cell carcinoma.

Other Cancer Treatments

All types of cancer tested by us and third parties have produced immune responses in patients who were vaccinated with their irradiated cancer cells and an immunological adjuvant. These cancers included blood (leukemia), brain, breast, colon, kidney, lung, ovary, pancreas, prostate and skin (melanoma). We believe TVAX Immunotherapy may be effective against any cancers that generate such an immune response.

Cancer Market

The American Cancer Society estimates that approximately 1.6 million new cases of cancer will be diagnosed in 2011. The annual number of cancer deaths will be approximately 571,950 in 2011 according to American Cancer Society statistics.

Cancer is a systemic disease that is characterized by genetically abnormal cells that multiply and spread out of control, forming local masses called tumors. Under certain circumstances and with high frequency, multiplying cancer cells can metastasize or spread away from their site of origin, forming new tumors virtually anywhere in the body. As the cancers grow and spread, they may cause tissue and organ failure and, ultimately, death. Some cancers that remain localized or are detected early before they have metastasized may be permanently cured by surgery. Cancers that cannot be completely removed surgically must be treated with agents that are able to gain access to and stop or slow growth wherever in the body the cancer cells are growing. Those distant sites may not be easily detectable. To be highly effective, therefore, individual therapies or combinations of therapies have to eliminate and/or control cancer growth wherever in the body it is occurring.

There are many different types of cancer, which usually are grouped according to the organs or tissues in which they arise. While some types of cancers, most notably some leukemias and lymphomas, testicular cancers and breast cancers are effectively treated with radiotherapy and/or chemotherapy, the vast majority of cancers cannot be effectively treated by using radiotherapy and chemotherapy. Current therapies, such as surgery, radiotherapy, chemotherapy, hormone treatments, anti-angiogenesis treatments and growth factor inhibitor treatments, generally do not kill all cancer stem cells, which are widely believed to be responsible for cancer growth, spread and metastasis.

Many cancer treatments such as cytotoxic chemotherapies are very toxic to the human body and frequently cause a variety of side effects, which may include nausea and vomiting, chronic fatigue, bleeding, anemia and mucositis. Targeted chemotherapies may have less systemic toxicity, but still tend to have off-target effects such as gastrointestinal inflammation, severe skin reactions and breathing difficulties. Many patients may not be able to tolerate the required cancer therapy.

We believe that the market for a safer, less toxic, more effective systemic treatment for cancers of all types is considerable. Such a treatment would be applicable not only in situations where current therapies are inadequate but also in situations where current therapies are effective but are associated with significant morbidity and/or mortality.

 

53


Table of Contents

The following table shows the number of new cancer cases and cancer-related deaths as projected for 2011 by the American Cancer Society.

Annual New Cancer Cases and Cancer Related Deaths

 

Type of Cancer

   New Cases       Deaths  

Brain/central nervous system

     22,340         13,110   

Breast

     232,620         39,970   

Colon

     101,340         49,380   

Kidney

     60,920         13,120   

Lung

     221,130         156,940   

Leukemia

     12,950         9,050   

Ovary

     21,990         15,460   

Pancreatic

     44,030         37,660   

Prostate

     240,890         33,720   

Skin

     76,330         11,980   

Projections for 2011 from the American Cancer Society database.

Brain Cancer Market Opportunity

The American Cancer Society estimates that approximately 17,000 malignant tumors of the brain will be diagnosed in the United States in 2011. Approximately 60% will be gliomas, of which we believe approximately 80% will be astrocytomas. While overall survival time varies with grade, gliomas are aggressive cancers, and even when detected very early and/or at low-grade, cannot be cured. Average survival of aggressively treated grade 4 glioma patients is 12-14 months and the five-year survival rate is approximately 5%. Although surgery, radiotherapy and cytotoxic chemotherapy result in a modest increase in overall survival, the benefit is limited and almost invariably associated with high toxicity.

Gliomas are so named because they are derived from glial cells in the brain. The glioma subtypes are astrocytomas (most common), ependymomas, oligodendrogliomas and mixed gliomas. Pathologists grade gliomas from 1-4, based on World Health Organization (WHO) grading classifications. Grade 4 gliomas are the most malignant and carry the poorest prognosis. Average survival of aggressively-treated grade 4 patients is 12-14 months and the 5-year survival rate is approximately 5%. Grade 4 gliomas are the most common both because the majority of patients are diagnosed as having grade 4 cancers when the cancer is first detected and because lower grade gliomas generally progress to grade 4 status.

Kidney Cancer Market Opportunity

The American Cancer Society estimates that approximately 60,920 new cases of kidney cancer will be diagnosed in the United States in 2011. Approximately 90% will be renal cell carcinomas. A high proportion of renal cell carcinomas become symptomatic or are detected as incidental findings in imaging studies performed for other reasons when they are still relatively small and have not yet spread beyond the kidney. A high proportion of those cancers can be surgically cured. If the cancer is not surgically curable, the patient’s prognosis is poor. Surgery is curative for some stage 1 (90%), stage 2 (60%) and stage 3 (30%) renal cell carcinomas but has little or no effect on stage 4 renal cell carcinomas. Approximately 25% of renal cell carcinoma patients are initially diagnosed with stage 4 cancers. There are no highly effective treatments for patients with stage 4 renal cell carcinomas. We believe that TVI-Kidney-1 may be effective as a treatment for renal cell carcinoma patients whose cancers are either stage 4 at diagnosis or are at risk for metastasizing.

Current Cancer Therapies

Cancer is produced by abnormal cells that multiply out of control. Cancer cells spread locally and/or metastasize throughout the body producing tumors in distant organs and tissues. In the absence of medical intervention, the multiplying masses of malignant cells cause tissue and organ failure and, ultimately, death.

 

54


Table of Contents

In order to be effective, cancer therapies must eliminate the cancer both at its site of origin and in the sites to which it has spread. Current cancer therapies include surgery, radiotherapy, an array of chemotherapies and immunotherapy.

Surgery

Currently, surgery is the most effective therapy, accounting for the vast majority of true cures. Surgery is the only current therapy that can be viewed as potentially applicable to virtually any type of solid cancer. However, surgery is not effective if the cancer has spread beyond a localized mass. Most cancer deaths occur because the cancer has already spread beyond what can be removed surgically.

Radiotherapy

Radiotherapy is generally used to control cancer that has spread locally beyond surgical margins but may also be used as a standalone treatment in place of surgery or chemotherapy for localized cancers. Radiotherapy may not be effective for cancers that have metastasized. In addition, radiotherapy may have toxic effects and is not well tolerated by all patients.

Chemotherapy

Chemotherapy is generally used as a systemic treatment. Some chemotherapies have the capacity to control cancers that have spread beyond the reach of surgery and/or radiotherapy, regardless of where the cancers are located. However, many chemotherapies are very toxic to the human body and frequently cause a variety of side effects, which may include nausea and vomiting, chronic fatigue, bleeding, anemia and mucositis. Targeted chemotherapies may have less systemic toxicity, but still tend to have off-target effects such as gastrointestinal inflammation, skin reactions and breathing difficulties. Many patients may not be able to tolerate the required cancer therapy.

Immunotherapy

Most immunotherapies are designed to use the patient’s immune system to slow or eliminate growing cancer. Some immunotherapies however make use of externally-manufactured immunologic agents to treat cancers. The two key approaches to immunotherapy are active immunotherapy, which potentially stimulates the immune system to fight disease, and passive immunotherapy, which fights disease with immunological agents that are manufactured outside of the body.

Active Immunotherapy

Active immunotherapies stimulate the immune system, the body’s natural defense for fighting disease. Active immunotherapies have no direct therapeutic action, but instead rely on activation of the patient’s immune system. The objective is to induce the immune system to produce agents that then find and kill the disease-causing agents. Active immunotherapy comes in two forms, specific and non-specific.

Specific active immunotherapy seeks to stimulate the adaptive immune system to produce an antigen-specific immune response and is often paired with an immunological adjuvant to help accomplish that goal. Vaccination is a form of specific active immunotherapy. Vaccination is an interventional medical strategy that attempts to heighten the adaptive immune system’s awareness of specific foreign threats and prevent them from gaining a foothold in the body and causing disease. Cancer, however, already has a foothold before vaccination can be performed, which means that in order for the immune system to be used against cancer, the system has to be manipulated for therapeutic, not preventative, benefit. As a result, vaccination alone has minimal therapeutic effects on growing cancers. The main reason for this lack of efficacy against established cancers seems to be that vaccination does not generate a sufficiently high number of the killer T cells that are required for the body to eliminate the growing cancer. In April 2010, the FDA approved Provenge® for the treatment of prostate cancer. Provenge is the first specific active immunotherapy approved by the FDA for the treatment of any type of cancer.

 

55


Table of Contents

Non-specific active immunotherapies stimulate the innate immune system to fight disease. Examples of non-specific immune stimuli that have been FDA approved for the treatment of disease are Bacillus Calmette-Guerin (BCG) for bladder cancer, Roferon-A® (interferon alpha-2a) for melanoma and hepatitis and Proleukin® (interleukin-2 [IL-2]) for renal cell carcinoma and melanoma.

Passive Immunotherapy

Passive immunotherapies do not rely on active stimulation of the immune system to fight disease but rather use immunological agents that are manufactured outside of the body to treat disease. Most passive immunotherapies currently in use are monoclonal antibodies that target a single disease-specific enzyme or protein located in or on disease-causing cells. However, a wide array of passive cellular immunotherapies have also been developed and tested. Those include tumor infiltrating lymphocyte (TIL) therapy, which is a passive immunotherapy using antigen specific killer T cells and cytokine induced killer (CIK) therapy, which is a passive immunotherapy using non-specific immune killer cells. Usually, the objective of both antibody-based and cell-based passive immunotherapies is to directly prevent diseased cells from dividing or to cause their death. While not as toxic as chemotherapies, passive immunotherapies may be toxic to the human body and frequently cause a variety of side effects.

The FDA approval of Rituximab® for the treatment of B-cell non-Hodgkin lymphoma occurred in 1997. Subsequently, in 1998, the FDA approved Herceptin® for the treatment of metastatic breast cancer. Since then, a wide range of therapeutic monoclonal antibodies have been approved for a variety of oncology indications. Passive immunotherapies have also been approved for the treatment of infectious diseases.

Limitations of Current Cancer Therapies

We believe current cancer treatment options suffer from a number of limitations that impair their ability to improve patient outcomes, including:

Toxicity

Chemotherapies are very toxic to the human body and frequently cause a variety of side effects, which may include nausea and vomiting, chronic fatigue, bleeding, anemia and mucositis. Targeted chemotherapies may have less severe toxicities, but still tend to have off-target effects such as gastrointestinal inflammation, severe skin reactions and breathing difficulties. Radiotherapy also may have toxic effects and is not well tolerated by all patients. Many patients may not be able to tolerate the required cancer therapy.

Mechanism of action

While many current therapeutic approaches may be effective against a certain target in a cancer cell or a certain type of cancer, the overall impact of these therapies is limited because of the complexity of individual cancer cells. The diversity of cancer cells in a growing cancer frequently enables cancers to escape the overall effect of the agent. The underlying reasons why most cancers ultimately escape the effects of conventional therapies remain poorly understood but are believed to result from the fact that the agent only kills a portion of the cancer-forming cells, or the cancer is able to adapt to the treatment and become resistant over time.

Cancer genetics

The genetic composition of cancers can differ from patient to patient even between patients with the same type of cancer, which is part of the explanation for the variable susceptibility of cancers to most anti-cancer agents. At the same time, that genetic diversity results in cancers expressing multiple cancer antigens and expressing different antigens for different patients.

 

56


Table of Contents

Short-term approach

Incremental survival benefit is the primary objective of many currently marketed and developmental-stage cancer therapies. In general, many drugs show only modest impact on overall survival or only affect progression-free survival, having little or no effect on overall survival. Other than surgical removal of locally circumscribed cancers, curative intent is often not a focus or even a realistic potential outcome of most current cancer therapies.

Immune system suppression

Cancer is difficult to treat in part because most anti-cancer agents have to be used at dose levels that, while killing significant numbers of cancer cells, also kill or inhibit the growth of significant numbers of normal cells. In addition to the overall toxicities associated with these effects, these agents generally have a particularly strong negative effect on cells of the innate and adaptive immune systems, thereby suppressing immune function. A weakened immune system not only further inhibits the body’s natural ability to fight cancer, but also causes patients to become more susceptible to infections and other diseases, including other cancers.

Our Solution: TVAX Immunotherapy®

TVAX Immunotherapy is a proprietary method for treating cancer using large numbers of activated, genetically unique cancer-specific killer T cells. We vaccinate a patient with his or her irradiated cancer cells and an immunological adjuvant. This vaccination generates an immune response in the patient, which produces a large number of cancer-specific T cells. In the body of a vaccinated patient, these cancer-specific T cells can recognize, but generally cannot kill, cancer cells. We harvest these cancer-specific T cells from the vaccinated patient’s blood and convert them into activated killer T cells which are then infused back into the patient. The activated killer T cells trigger the body’s immune system to destroy cancer cells, including cancer stem cells. Each of these steps is described in more detail below:

Manufacture of the Cancer Cell Vaccine

To manufacture our vaccine, we must obtain an adequate number of cancer cells from the patient. We have developed a proprietary process that allows us to obtain an adequate number of cancer cells from cancer tissue that has been surgically removed. Surgery is the standard of care treatment for gliomas and renal cell carcinomas, and we believe we can treat most brain cancer and kidney cancer patients.

The cancer cells that are obtained from the patient are irradiated to prevent them from forming tumors at the vaccination site and then are combined with the immunological adjuvant, granulocyte macrophage colony stimulating factor (GM-CSF) to form the vaccine. GM-CSF is a readily-available FDA-approved drug that strengthens immune responses by improving presentation of cancer cell associated antigens to the patient’s immune system. The patient is vaccinated with the irradiated cancer cell/GM-CSF vaccine using standard intradermal vaccination techniques.

Cancer cell vaccination stimulates an immune response against the growing cancer, but we believe that vaccination alone fails to generate sufficient cancer-antigen-specific killer T cells in the body to produce significant therapeutic benefit. We believe that an additional step is necessary to create a therapeutically-effective treatment.

Manufacture and Delivery of Fully-Activated Cancer Antigen-Specific Killer T Cells

We obtain T cells from vaccinated patients using apheresis, a standard medical procedure that separates a portion of the mononuclear white blood cells, including immune cells, from the vaccinated patient’s blood. We grow the immune T cells in the laboratory in the presence of T cell activating agents, which convert those immune cells into a large number of fully-activated cancer antigen-specific killer T cells. Once we have generated a sufficient quantity of fully-activated cancer antigen-specific killer T cells, those T cells are infused

 

57


Table of Contents

into the patient’s blood stream using standard intravenous infusion techniques. Patients other than those with glioma are also given low dose injections of Interleukin 2 (“IL-2”) to stimulate continued multiplication of the infused T cells after they are in the body. IL-2 is not used in TVI-Brain-1 to reduce the risk of brain swelling.

Current TVAX Immunotherapy® Treatment

TVI-Brain-1 and TVI-Kidney-1 consist of two courses of TVAX Immunotherapy, each course of which consists of two vaccinations with the patient’s irradiated cancer cells and GM-CSF and an infusion of cancer-antigen-specific killer T cells. Patients receiving TVI-Kidney-1 also receive low dose injections of IL-2 following each infusion of T cells. The full treatment is delivered over a period of approximately ten weeks.

We believe that TVAX Immunotherapy works by exploiting the adaptive immune system, which is capable of recognizing cancer cells as foreign because of the multiple genetic changes that occur during malignant transformation and subsequent cancer growth. Studies have demonstrated that the adaptive immune system is capable of specifically recognizing and killing cancer cells in the same way that it recognizes and kills virus-infected cells. As a result, we believe that the immune system has the ability to eliminate cancer cells from the body in the same way that it eliminates viruses from the body by killing virus-infected cells and leaving normal cells relatively unaffected.

The immunological approach to cancer treatment that is embodied in TVAX Immunotherapy has been extensively tested in both animal and human studies. These studies demonstrated that cancer-antigen-specific killer T cells selectively kill cancer cells in vitro and have no effect either on normal cells or on genetically-unrelated cancer cells. These studies, involving a wide range of cancers, including gliomas, leukemias, lymphomas, melanomas, breast, colon, kidney and lung cancers growing in brain, blood, bone marrow, liver, lung, skin and other sites to which cancers normally spread, have demonstrated that cancer-antigen-specific killer T cells can destroy growing cancers and, in certain cases, eliminate any detectable evidence of cancer.

Benefits of the TVAX Immunotherapy® Approach

Vaccination is a safe and effective strategy used to prevent many infectious diseases. Scientists and medical practitioners have theorized that the power of the immune system to fight off active infectious disease could be exploited for therapeutic purposes in situations where the body’s natural ability to fight disease fails. TVAX Immunotherapy is a medical application of those theories and we believe it offers several advantages compared to other interventional medical strategies. Those advantages include the following:

 

   

Potential wide applicability. We believe TVAX Immunotherapy may be effective against any cancer that generates an immune response. All types of cancer tested by us and third parties have produced immune responses in patients when vaccinated with their irradiated cancer cells and an immunological adjuvant. These cancers included blood (leukemia), brain, breast, colon, kidney, lung, ovary, pancreas, prostate and skin (melanoma). In addition, we believe that we could use TVAX Immunotherapy to treat infectious diseases by substituting the infectious agent or a currently available infectious disease vaccine for the cancer cells that are included in the vaccine that is used to generate the immune cells that are needed to create activated disease-killing T cells.

 

   

Powerful adaptive immune response. TVAX Immunotherapy fights cancer by exploiting the human immune system’s ability to generate antigen-specific T lymphocytes, the immune cells that selectively recognize, respond against and then destroy agents that are genetically foreign.

 

   

Minimal side effects. The side effects experienced by patients generally have consisted of inflammatory responses resulting in flu-like symptoms that typically last only one to two days. Using methods that the FDA and other regulatory agencies employ to assess treatment toxicities, there have been no CTC grade 4 or 5 adverse events attributed to cancer patients being treated with TVAX Immunotherapy and less than 1% of patients thus treated experienced treatment-related CTC grade 3 toxicities. Each of those who experienced grade 1-3 toxicities recovered fully and had no long term side effects associated with the treatment.

 

58


Table of Contents
   

Outpatient therapy. TVAX Immunotherapy employs medical techniques that are standard procedures in cell harvesting, vaccination, blood processing and infusion/transfusion. Patients undergo vaccinations, cell harvesting procedures (intravenous blood collection), and infusion of activated T cells in an outpatient setting. Patients in our planned Phase II and III clinical trials will complete two full cycles of the treatment within a period of approximately ten weeks.

 

   

Applicability to cancers growing anywhere in the body. The activated killer T cells created with TVAX Immunotherapy have the ability to travel through the blood to sites of disease activity wherever cancer cells are in the body and kill those cancer cells. We believe that there is no cancer so remote or so small that killer T cells cannot reach it because, in order to survive, spread and grow, cancers need a blood supply and that blood supply provides access for T cells to the growing cancer. Treatments based on TVAX Immunotherapy may be particularly useful for the treatment of minimal residual disease because the technology has already been demonstrated to be able to completely and permanently eliminate small remote cancers in rodents.

 

   

Cost-effective manufacturing process. We have developed a manufacturing process that enables us to produce the patient’s vaccine and the patient’s genetically unique cancer-killing T cells on a cost-effective basis using commercially available technology that could be replicated in cancer treatment centers world-wide. Using our standardized process, we believe that cancer treatment centers could manufacture and deliver TVAX Immunotherapy on a widespread basis in a cost-effective manner.

Our Current Treatment Development Strategy

Our business strategy is to develop applications for TVAX Immunotherapy. The critical components of our business strategy are:

 

   

Complete clinical testing of TVI-Brain-1 and obtain regulatory approval. Following the completion of this offering, we intend to commence a pivotal, Phase III clinical trial of TVI-Brain-1 in combination with surgery and radiotherapy in 396 newly-diagnosed grade 4 astrocytoma patients. We expect this trial to be completed approximately four years after initiation of enrollment. We expect to have the first interim analysis of data approximately 24-30 months after commencement of the Phase III trial. In May 2011, we initiated a Phase II clinical trial to test TVI-Brain-1 as a treatment for grade 4 gliomas that have recurred following standard of care treatment and that have not received any additional chemotherapy or biological therapy for their recurrent cancers. We commenced the Phase II study because we lacked the resources to undertake the pivotal Phase III study. We expect enrollment in the Phase II trial to be completed in approximately one year and we expect the Phase II trial to be completed in approximately 18 to 24 months. A portion of the net proceeds of this offering will be used to complete the Phase II trial. Completing the Phase II trial would provide additional confirmatory data that could be used to obtain regulatory approval for TVI-Brain-1 as a treatment for grade 4 astrocytomas. The initiation of the Phase III trial is not conditioned upon the completion of the Phase II trial and we expect that both trials will proceed concurrently following completion of this offering.

We selected brain cancer as the initial target for regulatory marketing approval because (1) we have more preclinical and human clinical safety and efficacy data with brain cancer patients than any other type of cancer patients, (2) surgery is the universally accepted front-line treatment for all stages and all forms of primary brain cancer, (3) due to the rapid progression of the disease, clinical trial outcomes can be measured relatively rapidly, (4) safe and effective treatment of many types of brain cancer, especially gliomas, is a serious unmet medical need, (5) there is a limited number of competing therapies being used to treat the disease and under development, and (6) the absence of safe, effective treatments should allow relatively rapid market penetration, if necessary regulatory approvals are obtained.

 

   

Evaluate potential commercialization and partnership options. We may choose to develop an internal sales and marketing infrastructure to commercialize TVI-Brain-1 in the United States or establish commercial partnerships in the United States or other regions of the world to market TVI-Brain-1.

 

59


Table of Contents
   

Investigate and develop our other TVAX Immunotherapy candidates. We intend to perform additional clinical studies of other treatment candidates in our pipeline. Our pipeline treatment candidate furthest along in clinical development is TVI-Kidney-1, which is designed to be used as a surgical adjuvant treatment for newly-diagnosed stage 4 renal cell carcinoma patients. While we have regulatory authorization to commence a Phase III trial of TVI-Kidney-1, we do not intend to use the proceeds of this offering to begin that Phase III study of TVI-Kidney-1 and may not begin that Phase III study until after we receive regulatory approval for TVI-Brain-1. We will require significant additional funding in order to conduct the Phase III study of TVI-Kidney-1. In addition, we intend to perform Phase II and III clinical trials aimed at obtaining data that could be used to obtain regulatory approvals for TVAX Immunotherapy in additional oncology indications such as blood (leukemia), breast, colon, lung, ovarian, pancreatic, prostate and skin (melanoma) cancers. We do not intend to use the proceeds of this offering to begin those studies and may not begin those studies until after we receive regulatory approval for TVI-Brain-1.

Clinical Development of TVAX Immunotherapy®

Overview

During the 1950s, scientists demonstrated that cancers were immunogenic. Scientific investigations subsequently demonstrated that T lymphocytes are responsible for cancer immunity and that fully-activated cancer antigen-specific killer T cells could selectively kill cancer cells without harming normal cells. During the 1980s and 1990s, scientists, including our founder, Gary Wood, demonstrated that cancer-antigen-specific killer T cells can destroy growing cancers and eliminate any detectable evidence of cancer in cancer-bearing animals with no apparent toxic effect on the treated animals. These studies involved a wide range of cancers, including gliomas, leukemias, lymphomas, melanomas, breast, colon, kidney and lung cancers growing in brain, blood, bone marrow, liver, lung, skin and other sites to which cancers normally spread in humans.

Human studies of this immunotherapeutic approach to cancer began during the 1980s. Building on the results of earlier animal studies, these studies demonstrated that human cancers interact with the human immune system in the same way that animal cancers interact with animal immune systems. The human cancers that have been tested have all been shown to be immunogenic. Finally, a number of human studies have shown that human cancers can be safely and effectively treated with cancer-antigen-specific killer T cells.

Gary Wood has been studying cancer immunotherapy for over 20 years. TVAX Immunotherapy was developed by Dr. Wood, and substantially all of the preclinical and early clinical testing of TVAX Immunotherapy was performed under his direction, primarily through university sponsored and funded studies.

In May 1992, Dr. Wood obtained an IND from the FDA for Phase I/II studies of an earlier version of our immunologic therapy for cancer. Pursuant to the IND, from 1992 through 2000, Dr. Wood evaluated the safety of our immunologic therapy in approximately 180 patients with a wide array of advanced cancers, including 60 patients with grade 3 and 4 gliomas. This study was performed at, and funded by, Wayne State University and the University of Kansas. The purpose of this study was to obtain preliminary evidence of the safety and efficacy of our immunologic treatment to support the initiation of definitive Phase III studies to support regulatory approval. This study demonstrated that our immunologic therapy was well tolerated at specific dosages.

Three separate studies published between 1996 and 2000 reported on 43 patients with grade 3 and 4 gliomas from our 180-patient study. The 43 patients included in these studies had advanced untreatable grade 3 and 4 gliomas that had recurred following receipt of surgery, radiotherapy and chemotherapy, which is the current standard of care front-line treatment for grade 3 and 4 gliomas. Two efficacy measures were assessed in those patients: (1) objective response rate, and (2) overall survival. In addition, cancer immunogenicity was measured as a surrogate marker for the feasibility of an immunologic treatment.

 

60


Table of Contents

Our immunologic treatment approach produced objective partial and complete responses in some patients, which resulted in increased median patient survival. In a 2000 study of a one course form of our current formulation of TVAX Immunotherapy, objective clinical responses (cancer regression) were observed in eight of 19 treated grade 3 and 4 glioma patients. Of the other patients, nine had stable disease, which was defined as progression-free survival of at least three months, and two had progressive disease. Objective responses were seen among both the grade 3 and grade 4 glioma patients. We believe that, in addition to its value as a near-term surrogate indicator of efficacy, objective response rate is important because, in general, cancer treatments are unlikely to produce long-term survivors unless they produce durable cancer shrinkage. Although, for that reason, the response data are important, we believe that our overall survival data, discussed below, are the most important efficacy data that we have collected thus far.

The overall survival data that were generated using our immunologic treatment approach on patients with recurrent grade 3 and 4 gliomas demonstrated that median overall survival was increased compared to published historical control data for grade 3 and 4 glioma patients whose cancers recurred following standard of care treatment. A total of 43 recurrent grade 3 and 4 glioma patients were treated in these studies. The median overall survival for those patients was 13 months, several of whom were alive at the time data were collected for publication. The Kaplan Meier plot below compares the overall survival of patients treated with our immunologic treatment with a historical population of 143 grade 4 glioma patients who received surgery alone for their recurrent glioma. Median overall survival in the historical control group was eight months.

Survival of Glioma Patients Following Surgery for Recurrence:

Immunologic Treatment vs. Historical Control

LOGO

Clinical Development – TVI-Brain-1

In March 2011, we completed a safety study of TVI-Brain-1 that had two major objectives. The first, which had been required by the FDA as a prerequisite for initiating our Phase III clinical trial of TVI-Brain-1, was to provide evidence of the safety of using two courses of TVAX Immunotherapy in TVI-Brain-1. The second was to demonstrate that we could manufacture and deliver TVAX Immunotherapy in a form that was comparable to what had been used to treat patients in the university-sponsored clinical studies. These safety studies involved 13 patients, 12 of whom had recurrent gliomas that had failed standard of care treatments and one of whom had cervical cancer with brain metastases that had failed all available treatments for that disease. The study demonstrated that the side effects of TVI-Brain-1 were similar to those that were observed in previous studies involving a single course of treatment.

 

61


Table of Contents

In May 2011, we initiated a Phase II clinical trial to test the current two course protocol of TVI-Brain-1 as a treatment for grade 4 glioma patients whose cancers have progressed following standard of care treatment and that have not received any additional chemotherapy or biological therapy for their recurrent cancers. The Phase II study is a multi-site, single-arm trial that is designed to reproduce and potentially improve upon outcomes that were obtained earlier using one course versions of TVAX Immunotherapy using manufacturing processes that can be commercialized. The primary endpoint for the trial is progression-free survival (“PFS”). The secondary endpoints are overall survival, safety and immunological response. The Phase II study is an 86-subject trial that is designed to enable us to demonstrate statistically-significant PFS compared to a historical control group. Three patients have been entered into this trial to date and we expect that the trial will be completed in approximately 18 to 24 months.

Following the completion of this offering, we plan to initiate enrollment in a pivotal, registering Phase III clinical trial to test the current two-course protocol of TVI-Brain-1 as a treatment for newly-diagnosed grade 4 astrocytomas. This Phase III trial will be an open-label, randomized, multi-center study to evaluate the safety and efficacy of TVI-Brain-1. The primary endpoint of the clinical trial will be overall survival, with secondary endpoints being PFS and time to tumor progression. The trial will also monitor response rate, safety/toxicity and immunological response. This clinical trial is a two-arm study wherein patients will be randomly entered at a 1:1 ratio into a control arm consisting of maximal surgical resection, conformal radiotherapy and cytotoxic chemotherapy with temozolomide and a test arm consisting of maximal surgical resection, conformal radiotherapy and TVI-Brain-1. There will be three interim analyses. The first analysis will be performed when approximately 25% of the estimated required number of deaths has been observed (approximately 18-24 months following enrollment of the first patient). We plan to enroll up to 396 patients into the two arms and believe that this number of patients will enable us to demonstrate statistically significant improvement in median overall survival at the end of the trial. Additional patients will be added, if necessary to assure statistical significance of the outcomes.

This trial is a head-to-head study to compare relative safety of two systemic adjuvant treatments, chemotherapy with temozolomide and immunotherapy with TVI-Brain-1. The study is specifically designed to test the safety and efficacy of TVI-Brain-1 in a population of patients who have minimal residual disease at the time of treatment by virtue of having had maximal surgical reduction of the cancer followed by focused high dose radiotherapy and whose immune systems have not been compromised by the presence of advanced cancers and having received cytotoxic chemotherapy. This Phase III clinical trial is designed specifically to provide the clinical evidence of safety and efficacy needed for FDA approval for TVI-Brain-1 as a front-line treatment for grade 4 astrocytomas. We expect that the trial will be completed approximately four years after enrollment has been initiated. The initiation of the Phase III trial is not conditioned upon the completion of the Phase II trial and we expect both trials will proceed concurrently.

Clinical Development – TVI-Kidney-1

Three clinical trials published by a third party between 1993 and 2003 demonstrated that the treatment of metastatic renal cell carcinoma with an immunologic therapy that combined vaccination with irradiated cancer cells and an immunological adjuvant with infusion of activated killer T cells could improve patient outcomes. In those studies, 54 metastatic renal cell carcinoma patients were treated with a treatment regimen similar to TVAX Immunotherapy but using a less effective vaccination strategy. These data along with similar unpublished data that we have using our immunologic treatment for renal cell carcinoma provided the basis for TVI-Kidney-1.

We chose the treatment of renal cell carcinoma with our TVI-Kidney-1 treatment candidate because (1) surgery is the universally accepted front-line treatment for stage 1-3 renal cell carcinomas and an accepted treatment in combination with adjuvant therapy for stage 4 renal cell carcinomas, (2) a significant proportion of stage 1-3 patients progress to stage 4 after surgery, (3) the absence of safe, effective treatments for stage 4 renal cell carcinoma should allow relatively rapid market penetration, if necessary regulatory approvals are obtained, (4) because late-stage renal cell carcinomas are so deadly, we believe that any treatment that achieves increased

 

62


Table of Contents

overall survival and reduced toxicity would have a relatively low barrier to regulatory approval, and (5) as a result of the treatment deficiencies noted above, we believe that our immunotherapeutic treatment, if successful, could meet a currently unmet medical need.

Although we treated a number of renal cell carcinoma patients in our early 180-patient study, we have not performed any published studies of the safety or efficacy of TVI-Kidney-1 as a treatment for renal cell carcinoma patients.

Clinical Development – Other Cancer Treatments

All types of cancer tested by us and others have produced immune responses in patients who were vaccinated with their irradiated cancer cells and an immunological adjuvant. Our immunologic treatment has produced immune responses in over 70% of patients treated in our 180-patient study with breast, colon, lung, ovarian or skin (melanoma) cancer. We believe that these unpublished observations are similar to published clinical observations by third party scientists demonstrating that colon, blood (leukemia), lung, ovarian, prostate and skin (melanoma) cancer patients vaccinated with their irradiated cancer cells and an immunological adjuvant develop immune responses against their cancer cells. We believe TVAX Immunotherapy may be effective against any cancer that generates such an immune response. Although we treated a number of patients with these various cancers in our early 180-patient study, we have not performed any published studies of the safety or efficacy of TVAX Immunotherapy as a treatment for these other cancers.

Manufacturing Considerations

The FDA requires that all products manufactured for testing in pivotal Phase III trials be manufactured under cGMP conditions using the manufacturing process intended for commercial production. Our manufacturing development plan is designed to be compliant with cGMP requirements. We have a cGMP production facility whose main component is two ISO class 7 clean rooms containing ISO class 5 biological safety cabinets. One of the clean rooms is designed exclusively for the sterile manufacture of the irradiated cancer cell vaccines. The second clean room is designed exclusively for the sterile manufacture of activated T cells.

 

   

Generating safe, well-characterized and potent products. We have established and tested processes to ensure that safe, well-characterized and potent products can be consistently manufactured and delivered to patients. Those processes were reviewed and deemed acceptable by the FDA as part of our clinical studies, although we will be subject to further review before commercialization.

 

   

Product manufacture. The manufacture of cancer cell vaccines for TVI-Brain-1 is a simple process that can be completed by a single individual in approximately eight hours. Similarly, the manufacture of the activated T cell product for TVI-Brain-1 also is a simple process that, while taking five to six days to complete, can be performed by a single individual working for a total of approximately ten hours. We believe that there are no significant hurdles to generating a fully-validated manufacturing process for TVI-Brain-1 that would meet the criteria for market approval by regulatory authorities because no significant obstacles have been encountered in generating safe, well-characterized, potent and effective products for our clinical trials.

The manufacture of each treatment is exactly the same. Therefore, scaling up a manufacturing unit in order to accommodate an increase in the number of patients that would be treated either in future clinical trials or during post-approval commercialization would involve only the acquisition of additional commercially-available equipment and trained personnel to operate the equipment. The cGMP manufacturing units in which the TVAX Immunotherapy treatments are manufactured are small modular units that could be readily duplicated either at a central facility or at other facilities throughout the United States and the rest of the world. This expansion would accommodate increased numbers of patients both during scale up of clinical trials and during the post-approval commercialization period.

 

63


Table of Contents
   

Product distribution. Live human cells have a relatively limited shelf life unless frozen, and freezing may negatively affect the biological activity of some cellular products. In addition, we believe product stability was a major issue with the first FDA approved cellular product for the treatment of cancer (Dendreon Corporation’s Provenge®). However, T cells have been shown to be more stable than the dendritic cells used in Provenge®. All of the required tumors and other materials necessary to create vaccines can be shipped by overnight transport under refrigeration conditions from the treatment site to our manufacturing site using recognized couriers, such as FedEx and UPS. While tissue samples cannot be frozen without affecting their condition, human tissue is routinely shipped under refrigeration without loss of viability or biological function, as is currently the case with other human tissue and organ transplants. Once the tissue is used to manufacture irradiated cancer cells for the vaccine, the irradiated cancer cells can be safely frozen and stored for months or even years without losing potency. The frozen cells can be shipped to treatment sites where they can be stored until they are thawed for formulation into the vaccine. Blood cells obtained by apheresis can be stored without loss of viability or functional activity for at least 96 hours at refrigerator temperature. Thus, apheresis products can be shipped by overnight transport under refrigeration conditions from the treatment site to our manufacturing site. Similarly, the activated T cell product can be stored without loss of viability or functional activity for at least 96 hours at refrigerator temperature and can be shipped by overnight transport under refrigeration conditions from our manufacturing site to the treatment site.

 

   

Product delivery. TVAX Immunotherapy is an individualized immunotherapy, which does not fit into the prevailing pharmaceutical industry business model. However, we believe that the treatment can be delivered within the present health care system, including the network of surgeons, oncologists, hospitals, and clinics that presently treat cancer patients. The cells used to create the vaccine component of TVAX Immunotherapy can be obtained in almost any hospital where cancer surgery is performed. Cancer tissue can be shipped to the TVAX processing facility. The TVAX vaccine can be shipped back to the hospital or health clinic where patients would receive their vaccinations. Harvesting the activated T cells can take place at any hospital or outpatient blood collection facility. The patient’s white blood cells can then be shipped to our processing facility or to a closer cancer center licensed to perform TVAX Immunotherapy. The processed immune killer T cells can be shipped back to the hospital or health clinic where patients would receive the cellular intravenous infusion. If any of our TVAX Immunotherapy treatments are approved for marketing, TVAX would likely manufacture treatment components directly and license hospitals or cancer centers to deliver the treatment.

Competition

The biotechnology and pharmaceutical industries are highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in the research and development of products that may be similar to or competitive with our products. There are a number of multinational pharmaceutical companies and large biotechnology companies currently marketing or pursuing the development of treatments or treatment candidates targeting the same indications as our treatment candidates. It is probable that the number of companies seeking to develop products and therapies for the treatment of unmet needs in these indications will increase. Some of these competitive products and therapies are based on scientific approaches that are similar to our approach, and others are based on entirely different approaches.

Many of our competitors, either alone or with their strategic partners, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of treatments and the commercialization of those treatments. Accordingly, our competitors may be more successful than us in obtaining approval for treatments and achieving widespread market acceptance. Our competitors’ treatments may be more effective, or more effectively marketed and sold, than any treatment we may commercialize and may render our treatments obsolete or non-competitive before we can recover the expenses of developing and commercializing any of our treatments.

 

64


Table of Contents

We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. We expect any treatments that we develop and commercialize to compete on the basis of, among other things, efficacy, safety, convenience of administration and delivery, price, the level of generic competition and the availability of reimbursement from government and other third-party payors.

There are several marketed products for gliomas, including Schering-Plough’s Temodar®, Eisai Inc.’s Gliadel® and Roche’s Avastin®. In addition, there are a number of companies in clinical trials to test product candidates for brain cancer, including, but not limited to Abbott Laboratories, Bayer, Celldex Therapeutics, Genzyme, GlaxoSmithKline, ImmunoCellular Therapeutics, Ltd., Northwest Biotherapeutics, Inc., Novartis AG, Novocure, Schering-Plough and Wyeth. Several of those companies, including Celldex Therapeutics, ImmunoCellular Therapeutics, Ltd. and Northwest Biotherapeutics, Inc. are testing immunotherapies for glioma.

In the event that TVI-Kidney-1 is approved, we believe we would face similarly intense competition from several other companies in clinical trials to test product candidates for kidney cancer.

Intellectual Property

We believe that patent protection and trade secret protection are important to the success of our business and further that our future success will depend, in part, on our ability to maintain trade secret protection, obtain and maintain additional patents and operate without infringing the proprietary rights of others both in the United States and in other countries. We believe that obtaining patents and protection periods for a given technology throughout all markets of the world will be difficult because of the differences in patent laws between countries and the costs involved.

Our patent portfolio includes several patents on TVAX Immunotherapy technology as applied to cancer. These patents have been issued in the United States, Canada, and have been validated in several European countries (Austria, Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Spain, Sweden and the United Kingdom) The claims in U.S. Patent No. 6,406,699, European Patent No. 1,225,870, and Canadian Patent No. 2,388,221 have varying scope. More specifically, in the U.S., the claims are directed to the overall cancer immunotherapy method, including steps involving vaccination, removal of primed T-lymphocytes, differentiation into effector T-lymphocytes, proliferation of those effector T-lymphocytes, and infusion of the effector T-lymphocytes into the patient. The claims validated in Europe are directed to use of the effector T-lymphocytes for manufacturing a pharmaceutical composition for the treatment of cancer and compositions comprised of effector T-lymphocytes obtainable by the claimed process. In Canada, the claims are directed to a method for manufacturing effector T lymphocytes, a pharmaceutical composition comprising effector T lymphocytes made by that manufacturing method, use of that pharmaceutical composition for immunotherapy of cancer, use of the pharmaceutical composition for the manufacture of a medicament for immunotherapy of cancer, and a commercial package comprising the pharmaceutical composition and instructions for use for immunotherapy of cancer.

TVAX filed an international patent application (PCT application) for the TVAX Immunotherapy technology as a general approach to the treatment of infectious diseases on March 9, 2010. National and regional office patent filings were made in Canada and the United States in September 2011 and was made in the European Union prior to October 9, 2011. These patent applications are currently pending, and no issued patents have been granted on this particular use of the TVAX Immunotherapy technology.

TVAX possesses significant trade secrets and know-how with respect to the manufacturing methods and treatment protocols related to the TVAX Immunotherapy technology. In order to protect the confidentiality of our technology, including trade secrets and know-how and other proprietary technical and business information, we require all of our employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the use or disclosure of confidential information, in some cases for a specified period of time. The

 

65


Table of Contents

agreements oblige our employees, and certain key consultants, advisors, and collaborators to assign to us any ideas, developments, discoveries and inventions by such persons in connection with their work with us. We cannot be sure that these agreements will maintain confidentiality, will prevent disclosure, or will protect our proprietary information or intellectual property; or that others will not independently develop substantially equivalent proprietary information or intellectual property.

The biotechnology and biopharmaceutical industries are highly competitive and patents may be applied for by and issued to other parties relating to products or new technologies that may be competitive with those being developed by us. Therefore, our treatments may give rise to claims that they infringe the patents or proprietary rights of other parties now or in the future. Furthermore, to the extent that we, our consultants, or manufacturing and research collaborators, use intellectual property owned by others in work performed for us, disputes may also arise as to the rights to such intellectual property in related or resulting know-how. An adverse claim could subject us to significant liabilities to such other parties and and/or require disputed rights to be licensed from such other parties. A license required under any such patents or proprietary rights may produce delays in treatment market introductions, or we may find that we are prevented from the development, manufacture or sale of products requiring such licenses. In addition, we could incur substantial costs in defending ourselves in legal proceedings instituted before patent and trademark offices in the United States, the European Union or other non-United States territories or in a suit brought against us by a private party based on such patents or proprietary rights or in a suit by us asserting our patent or proprietary rights against another party, even if the outcome is not adverse to us.

Technology Transfer Agreements

University Technology Transfers: The TVAX Immunotherapy technology was developed by our founder, Dr. Gary W. Wood, at the University of Kansas Medical Center (KUMC). KUMC subsequently transferred its ownership rights in the TVAX Immunotherapy technology to Dr. Wood in exchange for future royalty considerations. Phase I and Phase II clinical trials were performed at Wayne State University (WSU). WSU transferred any ownership rights it had in TVAX Immunotherapy to Dr. Wood in exchange for future royalty considerations. The total royalties owed to KUMC and WSU are 6.5% of net sales for 20 years following the first sale of commercial product.

Ownership of TVAX Immunotherapy Technology: Gary Wood transferred ownership of the TVAX Immunotherapy technology and royalty obligations to us in 2006. The patents and patent applications discussed above have been assigned to us. We retain exclusive ownership of the TVAX Immunotherapy technology, including exclusive ownership rights in the associated trade secrets world wide. There are no licensing agreements from TVAX granting rights to third parties in any of the TVAX Immunotherapy technology.

Service Marks

TVAX Immunotherapy and TVAX have been registered as service marks in the United States. We have also applied to register our “TVAX BIOMEDICAL” logo as a service mark, and that trademark application is currently pending before the United States Trademark Office.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, including any manufacturing changes, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import and export of pharmaceutical and biological products such as those we market and are developing. The processes for obtaining regulatory approvals in the United States and in foreign countries, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources

 

66


Table of Contents

FDA Approval Process

In the United States, pharmaceutical products are subject to extensive regulation by the U.S. Food and Drug Administration, or the FDA. The Federal Food, Drug, and Cosmetic Act, or the FDC Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products.

Biological products, including cell-based therapies, used for the prevention, treatment, or cure of a disease, or condition, of a human being are subject to regulation under the FDC Act, except the section of the FDC Act which governs new drug applications, or NDAs, under which pharmaceutical products are approved for marketing. Biological products are approved for marketing under provisions of the Public Health Service Act, or PHSA, via a Biologic Licensing Application, or BLA. However, the application process and requirements for approval of BLAs are very similar to those for NDAs.

Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending NDAs or BLAs, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.

Pharmaceutical product development in the U.S. typically involves preclinical laboratory and animal tests, the submission to the FDA of either a notice of claimed investigational exemption or an investigational new drug application, or IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity, and novelty of the product or disease.

Preclinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.

A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.

Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical practice, or GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors; as well as (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.

The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.

 

67


Table of Contents

Clinical trials to support NDAs or BLAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase I, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses, and, if possible, early evidence on effectiveness. Phase II usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance, and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase II evaluations, Phase III trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug.

After completion of the required clinical testing, a BLA is prepared and submitted to the FDA. FDA approval of the BLA is required before marketing of the product may begin in the U.S. The BLA must include the results of all preclinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting a BLA is substantial. Under federal law, the submission of most BLAs is additionally subject to a substantial application user fee, currently exceeding $1.84 million, and the manufacturer and/or sponsor under an approved BLA is also subject to annual product and establishment user fees, currently exceeding $98,000 per product and $520,000 per establishment. These fees are typically increased annually.

The FDA has 60 days from its receipt of a BLA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of new drug applications. Most such applications for standard review drug products are reviewed within ten months; most applications for priority review drugs are reviewed in six months. These goals are expected to lengthen after 2012. Priority review can be applied to drugs that the FDA determines offer major advances in treatment, or provide a treatment where no adequate therapy exists. For biologics, priority review is further limited only to drugs intended to treat a serious or life-threatening disease relative to currently approved products. The review process for both standard and priority review may be extended by FDA for up to three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission. The FDA may also refer applications for novel drug products, or drug products which present difficult questions of safety or efficacy, to an advisory committee—typically a panel that includes clinicians and other experts—for review, evaluation, and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving a BLA, the FDA will typically inspect one, or more, clinical sites to assure compliance with cGCP. Additionally, the FDA will inspect the facility or the facilities at which the product is manufactured. FDA will not approve the product unless compliance with current good manufacturing practice, or cGMP—a quality system regulating manufacturing—is satisfactory and the BLA contains data that provide substantial evidence that the product is safe and effective in the indication studied.

After FDA evaluates the BLA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the BLA, the FDA will issue an approval letter. FDA has committed to reviewing such resubmissions in two to six months depending on the type of information included.

An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. As a condition of BLA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the product outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing,

 

68


Table of Contents

dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the product. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the treatment’s safety or efficacy. Once granted, marketing approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

Advertising and Promotion

Once a BLA is approved, a product will be subject to certain post-approval requirements. For instance, FDA closely regulates the post-approval marketing and promotion of medical products, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet.

Products may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new BLA or BLA supplement before the change can be implemented. A BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing BLA supplements as it does in reviewing BLAs.

Adverse Event Reporting and cGMP Compliance

Adverse event reporting and submission of periodic reports is required following FDA approval of a BLA. The FDA also may require post-marketing testing, known as Phase IV testing, risk minimization action plans, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control, drug manufacture, packaging, and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.

Fast Track Designation

FDA is required to facilitate the development, and expedite the review, of treatments that are intended to address a serious or life-threatening condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Under the fast track program, the sponsor of a new product candidate may request that FDA designate the product candidate for a specific indication as a fast track drug concurrent with, or after, the filing of the IND for the drug candidate. FDA must determine if the product candidate qualifies for fast track designation within 60 days of receipt of the sponsor’s request.

In addition to other benefits such as the ability to use surrogate endpoints and have greater interactions with FDA, FDA may initiate review of sections of a fast track product’s BLA before the application is complete. This rolling review is available if the applicant provides, and FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, FDA’s time period goal for reviewing an application does not begin until the last section of the BLA is submitted. Additionally, the fast track designation may be withdrawn by FDA if FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

 

69


Table of Contents

The company has not determined whether it will seek Fast Track status for TVI-Brain-1 or any of its other product candidates.

Accelerated Approval

Under FDA’s accelerated approval regulations, FDA may approve a treatment for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit. In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase IV or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, will allow FDA to withdraw the product from the market on an expedited basis. All promotional materials for product candidates approved under accelerated regulations are subject to prior review by FDA.

Orphan Product Designation

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs or biologics, including cell-based therapies, intended to treat a rare disease or condition—generally a disease or condition that affects fewer than 200,000 individuals in the U.S. Orphan drug designation must be requested before submitting a NDA or BLA. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first BLA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the U.S. for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same product for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent FDA from approving a different product for the same disease or condition, or the same product for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the BLA application user fee.

TVAX was granted Orphan Product designation for TVI-Brain-1 as a treatment for primary central nervous system malignancies on April 27, 2007.

Orphan Product designation does not shorten the regulatory review and approval process for an orphan product, nor does it give that product any advantage in the regulatory review and approval process. Although obtaining approval to market a product with orphan product designation may be advantageous, we cannot be certain:

 

   

that we will obtain approval for any other products or indications for which we obtain Orphan Product designation,

 

   

that Orphan Product designation will result in any commercial advantage or reduce competition, or

 

   

that the limited exceptions to this exclusivity will not be invoked by the FDA.

Pediatric Information

Under the Pediatric Research Equity Act, or PREA, NDAs and BLAs or supplements to NDAs and BLAs must contain data to assess the safety and effectiveness of the treatment for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the treatment is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA does not apply to any product for an indication for which orphan designation has been granted.

 

70


Table of Contents

The Best Pharmaceuticals for Children Act, or BPCA, provides BLA holders a six-month extension of any exclusivity—patent or non-patent—for a product if certain conditions are met prior to, or within nine-months after, approval. Conditions for exclusivity include the FDA’s determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.

Additional Biologics Considerations

To help reduce the risk of the introduction of adventitious agents with use of biologics, the PHSA emphasizes the importance of manufacturing control for products whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend licenses in situations where there exists a danger to public health, to prepare or procure products in the event of shortages and critical public health needs, and to authorize the creation and enforcement of regulations to prevent the introduction, or spread, of communicable diseases in the US and between states.

After a BLA is approved, the product may also be subject to official lot release. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by FDA, the manufacturer submits samples of each lot of product to FDA together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot. FDA may also perform certain confirmatory tests on lots of some products, such as viral vaccines, before releasing the lots for distribution by the manufacturer. In addition, FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency, and effectiveness of biological products. As with drugs, after approval of biologics, manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing, and are subject to periodic inspection after approval.

The Patient Protection and Affordable Care Act, or Affordable Care Act, signed into law on March 23, 2010 includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCI Act, which created an abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an FDA-licensed reference biological product. This is conceptually similar to the Hatch-Waxman Act in that it attempts to minimize duplicative testing. Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study. Interchangeability requires that a product must demonstrate that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. However, complexities associated with the larger, and often more complex, structures of biological products, as well as the process by which such products are manufactured, pose significant hurdles to implementation which are still being worked out by the FDA.

A reference biologic is granted twelve years of exclusivity from the time of first licensure of the reference product. The first biologic product submitted under the abbreviated approval pathway that is determined to be interchangeable with the reference product has exclusivity against other biologics submitting under the abbreviated approval pathway for the lesser of (i) one year after first commercial marketing, (ii) eighteen months after the initial application if there is no legal challenge, (iii) eighteen months after the resolution in the applicant’s favor of a lawsuit challenging the biologics’ patents if an application has been submitted, or (iv) 42 months after the application has been approved if a lawsuit is ongoing within the 42 month period.

Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries.

 

71


Table of Contents

Cell and Tissue Based Biologics

Manufacturers of cell and tissue based products must comply with the FDA’s current good tissue practices, or cGTP, which are FDA regulations that govern the methods used in, and the facilities and controls used for, the manufacture of such products. The primary intent of the cGTP requirements is to ensure that cell and tissue based products are manufactured in a manner designed to prevent the introduction, transmission and spread of communicable disease.

Other Regulatory Requirements

Once a BLA is approved, a therapeutic product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promoting of therapeutic products, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet.

Therapeutic products may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of the conditions established in an approved application, including changes in indications, labeling or manufacturing processes or facilities, require submission and FDA approval of a new BLA or BLA supplement, before the change can be implemented. A BLA supplement for a new indication typically requires clinical data similar to that in the original application and the FDA uses the same procedures and actions in reviewing BLA supplements as it does in reviewing BLAs. We cannot be certain that the FDA or any other regulatory agency will grant approval for our treatment candidates for any other indications or any other treatment candidate for any indication on a timely basis, or at all.

Adverse event reporting and submission of periodic reports is required following FDA approval of a BLA. The FDA may also require post-marketing Phase IV testing, risk evaluation and mitigation strategies and surveillance to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control as well as product manufacture, packaging and labeling procedures must continue conform to cGMPs after approval. Therapeutic product manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA during which the FDA inspects manufacturing facilities to access compliance with cGMP. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMP. Regulatory authorities may withdraw product approvals or request product recalls, if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or previously unrecognized problems are subsequently discovered.

Priority Review

Under the FDA policies, a therapeutic product candidate is eligible for priority review or review within a six month time frame from the time a complete BLA is submitted, if the therapeutic product provides a significant improvement compared to marketed therapeutic products in the treatment of a disease. A Fast Track designated therapeutic product would ordinarily meet the FDA’s criteria for priority review.

Pharmaceutical Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any products for which we may obtain regulatory approval. Sales of any of our treatment candidates, if approved, will depend, in part, on the extent to which the costs of the treatments will be covered by third-party payors, including government health programs such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.

 

72


Table of Contents

In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. Our treatment candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Third party reimbursement may not be sufficient to enable us to maintain price levels high enough to realize an appropriate return on our investment in product development.

The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort. Third party payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs to limit the growth of government-paid health care costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for products such as the treatment candidates that we are developing and could adversely affect our net revenue and results.

Pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. There can be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricing arrangements for any of our products.

The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on drug pricing. Coverage policies, third-party reimbursement rates and drug pricing regulation may change at any time. In particular, the PPACA and a related reconciliation bill, which we collectively refer to as the Affordable Care Act or ACA, contain provisions that may reduce the profitability of drug products, including, for example, increased rebates for covered outpatient drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries, and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

United States Foreign Corruption Practices Act

The U.S. Foreign Corruption Act, to which we are subject, prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity.

 

73


Table of Contents

It is illegal to pay, offer to pay or authorize the payment of anything of value to any official of another country, government staff member, political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in that capacity.

Federal and State Fraud and Abuse Laws

In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain marketing practices in the pharmaceutical and medical device industries in recent years. These laws include anti-kickback statutes and false claims statutes.

The federal health care program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny, if they do not qualify for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability.

Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would fill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the company’s marketing the product for unapproved, and thus non-reimbursable, uses. The majority of states also have statutes or regulations similar to the federal anti-kickback and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines and imprisonment.

Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Such a challenge could have material adverse effects on our business, financial condition and results of operations.

Regulation in the European Union

Therapeutic agents are also subject to extensive regulation outside of the United States. In the European Union, or E.U., for example, there is a centralized approval procedure that authorizes marketing of a product in all countries of the E.U. (which includes most major countries in Europe). If this procedure is not used, approval in one country of the E.U. can be used to obtain approval in another country of the E.U., under two simplified application processes, the mutual recognition procedure or the decentralized procedure, both of which rely on the principle of mutual recognition. After receiving regulatory approval through any of the European registration procedures, pricing and reimbursement approvals also are required in most countries.

Similar to the United States, a system for Orphan Product designation exists in the E.U. Orphan designation does not shorten the regulatory review and approval process for an orphan product, nor does it give that product any advantage in the regulatory review and approval process. However, if an orphan product later receives approval for the indication for which it has designation, the relevant regulatory authority may not approve any other applications to market the same product for the same indication, except in very limited circumstances for ten years in the E.U.

 

74


Table of Contents

Price Controls

In many of the markets where we may do business in the future, the prices of therapeutic products are subject to direct price controls (by law) and to reimbursement programs with varying price control mechanisms. In the United States, the Medicare program is administered by the Centers for Medicare and Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services. Coverage and reimbursement for products and services under Medicare are determined pursuant to regulations promulgated by CMS and pursuant to CMS’s subregulatory coverage and reimbursement determinations. It is difficult to predict how CMS may apply those regulations and subregulatory determinations to newly approved products, especially novel products and those regulations and interpretative determinations are subject to change. Moreover, the methodology under which CMS makes coverage and reimbursement determinations is subject to change, particularly because of budgetary pressures facing the Medicare program. For example, the Modernization Act provides for a change in reimbursement methodology that reduces the reimbursement rates for many therapeutic agents, including oncology therapeutic agents. Medicare regulations and interpretive determinations also may determine who may be reimbursed for certain services.

In the E.U., governments influence the price of therapeutic products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of such products to consumers. The approach taken varies from member state to member state. Some jurisdictions operate positive or negative list systems under which products may only be marketed once a reimbursement price has been agreed upon. Other member states allow companies to fix their own prices for therapeutic products, but monitor and control company profits. The downward pressure on health care costs in general, particularly for prescription therapeutic products, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products, as exemplified by the role of the National Institute for Health and Clinical Excellence in the United Kingdom, which evaluates the data supporting new therapeutic products and passes reimbursement recommendations to the government. In addition, in some countries, cross-border imports from low-priced markets (parallel imports) exert commercial pressure on pricing within a country.

Other Regulations

We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances and biological materials. We may incur significant costs to comply with such laws and regulations now or in the future.

Legal Proceedings

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our financial position or results of operations.

Employees

As of November 1, 2011, we had six full and part-time employees. None of our employees are subject to a collective bargaining agreement or represented by a labor or trade union and we believe that our relations with our employees are good.

Facilities

Our executive offices and manufacturing facilities are located at 8006 Reeder Street, Lenexa, Kansas. The 5,783 square foot facility includes executive office space and approximately 3,123 square feet dedicated to manufacturing, testing and product storage. The manufacturing portion of the facility became operational on April 23, 2010. The lease expires on April 30, 2015, and we have the option to extend the lease for two additional five-year periods on the same terms as the base lease.

 

75


Table of Contents

MANAGEMENT

Executive Officers, Significant Employees and Members of the Board of Directors

Our business and affairs are governed by our board of directors. The board of directors currently consists of three directors. Prior to the completion of the offering, the current board of directors expects to elect the four additional directors identified below, each of whom has consented to being named herein. The board of directors has full authority to act on behalf of our Company, and will act collectively through meetings, committees and executive officers it appoints. In addition, we employ a staff of executives to manage our day-to-day operations. The members of our board of directors, our executive officers and significant employees are identified below. We anticipate that we will add a new Chief Operating Officer, Chief Medical Officer, Director of Clinical Trials and Director of Manufacturing upon the completion of this offering.

 

Name

   Age     

Position

   Term Expires after
Fiscal
 

Gary W. Wood

     70      

President and Chief Executive Officer, and

Chairman of the Board of Directors

     2013   

Rex E. Wiggins

     59      

Chief Operating Officer, Chief Financial

Officer and Director

     2011   

Catherine E. Lucasey

     56      

Vice President for Communications and

Marketing and Director

     2012   

Timothy A. Wurst

     50       Vice President for Clinical Trials and Regulatory Affairs   

Frank P. Holladay

     58       Chief Medical Officer   

Patrick E. Fields

     47       Chief Science Officer   

Peter C. Brown

     53       Proposed Director   

Wesley E. Griffitt

     48       Proposed Director   

Lowell L. Tilzer

     61       Proposed Director   

Barry S. Skikne

     66       Proposed Director   

Gary W. Wood, Ph.D. is our founder and has served as the Chairman of the board of directors and our President and Chief Executive Officer since July 2011. Dr. Wood founded our predecessor TVAX Biomedical I, LLC (“TVAX LLC”) in 2004 and has served as its President, Chief Executive Officer, and Chairman of the Board of Managers since its inception. Dr. Wood is the inventor and principal developer of the TVAX Immunotherapy technology. Dr. Wood guided the development of TVAX Immunotherapy from concept through its most recent human clinical trials. Dr. Wood organized and coordinated the Phase I/II clinical trials performed at University of Kansas Medical Center and at Wayne State University and managed the scientific/clinical teams that performed the trials. Dr. Wood was Professor of Pathology, Director of the Diagnostic Immunology Laboratory and Director of the Cancer Immunotherapy Laboratory at KU Medical Center. Dr. Wood also was Professor of Medicine and Director of the Cancer Immunotherapy Laboratory at Wayne State University. Dr. Wood has a B.A. from Kalamazoo College and a Ph.D. from the State University of New York at Buffalo. We believe that Dr. Wood is qualified to serve on our board of directors due to his extensive experience with the Company since inception, his scientific background, his unique understanding of TVAX Immunotherapy, and his strategic vision for the Company.

Rex E. Wiggins has served as a director and our Chief Operating Officer and Chief Financial Officer since July 2011. Since January 2010, Mr. Wiggins has served as a member the Board of Managers, Chief Operating Officer and Chief Financial Officer of TVAX LLC. From August 2006 through January 2008, Mr. Wiggins served as the Manager of Private Equity Investments for Midland Properties, Inc. where he conducted professional valuation of 42 private equity companies. Mr. Wiggins has extensive venture capital experience and considerable experience with guiding the successful development of early stage companies. Mr. Wiggins has

 

76


Table of Contents

held a series of senior management positions in start-up companies, including a Kansas City-based vaccine company. Mr. Wiggins was President and CEO of Kansas Venture Capital for thirteen years. He has a B.S. and M.B.A. from the University of Missouri in Columbia. We believe that Mr. Wiggins is qualified to serve on our board of directors due to his financial expertise and extensive experience with early stage companies.

Catherine E. Lucasey is a co-founder and has served as a director and our Vice President for Communications and Marketing since July 2011. Ms. Lucasey has served the Director of Communications and Marketing of TVAX LLC since August 2010. From 1990 through August, 2011, Ms. Lucasey worked as the nurse manager of the Endocrine Division at the University of Kansas Medical Center. Ms Lucasey is a registered nurse with 25 years of experience in the health care industry and with research, consumer education and direct patient care experience. She has a B.S.N. and M.A.s in Marketing and Management from Webster University. We believe that Ms. Lucasey is qualified to serve on our board of directors due to her extensive experience with the Company since inception and her experience in the health care industry.

Timothy A. Wurst has served as our Vice President for Clinical and Regulatory Affairs since July 2011, and as the Vice President for Clinical Development and Director of Business Development of TVAX LLC since January 2010. Prior to December 2009, Mr. Wurst founded Eriban Research, Inc. a contract research organization (CRO) that designed and managed clinical studies for a variety of human therapeutics in 2004. Mr. Wurst served as CEO for Eriban from May 2004 through December 2009. He has broad experience in oncology and infectious disease therapeutic areas. He has a B.A. from the University of Colorado and an MBA from San Diego State University.

Frank P. Holladay, M.D. is a co-founder and has served as our Chief Medical Officer since July 2011. Dr. Holladay has served as the Chief Medical Officer of TVAX LLC since 2004. Dr. Holladay is a co-developer with Dr. Wood of TVAX Immunotherapy and is an expert on the delivery of the treatment. Dr. Holladay is a board-certified neurosurgeon and brain cancer immunologist in private practice since July, 1991. Dr. Holladay is not an employee of the Company. He has a B.A. from the University of California, Berkley, and an M.D. from Creighton University Medical School. He did his Neurosurgery residency at the University of Kentucky School of Medicine.

Patrick E. Fields, Ph.D. has served as our Chief Science Officer since July 2011 and as the Chief Science Officer of TVAX LLC from January 2010 to July 2011. Dr. Fields is a cancer immunologist and an expert in T cell activation. Since October, 2004, he has been a research scientist in the Cancer Division, Department of Pathology at the University of Kansas Medical Center since October 2004. Upon completion of this offering, we expect Dr. Fields to become a part-time employee spending approximately 50% of his time serving as our Chief Science Officer. Dr. Fields is extensively published in the area of T cell biology, having over thirty peer-reviewed scientific publications. He has a B.A. from Louisiana State University, a Ph.D. from the University of Chicago and post-doctoral training from the University of Chicago and Yale University.

Peter C. Brown is expected to become a director prior to the completion of this offering. Mr. Brown is Chairman of Grassmere Partners, LLC, a private investment firm he founded in 2009. Prior to Grassmere Partners, Mr. Brown served as chairman of the board, chief executive officer and president of AMC Entertainment Inc. (“AMC”), one of the world’s leading theatrical exhibition companies, from July 1999 until his retirement in February 2009. He joined AMC in 1990 serving as AMC’S president from January 1997 to July 1999 and senior vice president and chief financial officer from 1991 to 1997. Mr. Brown currently serves as a director of Entertainment Properties Trust (NYSE:EPR), a specialty real estate investment trust, CenturyLink (NYSE: CTL), the third largest telecommunications company in the United States, and Cinedigm Digital Cinema Corp. (NASD: CIDM), a provider of services, technology and content to companies in the entertainment industry. Mr. Brown is a graduate of the University of Kansas. We believe that Mr. Brown is qualified to serve on our board of directors due to his financial expertise and his extensive experience as an executive and director of several publicly traded companies.

 

77


Table of Contents

Wesley E. Griffitt, M.D. is expected to become a director prior to the completion of this offering. Dr. Griffitt is a board-certified neurosurgeon and has been in private practice since August 1996. He has been a Clinical Assistant Professor at the University of Wisconsin in Madison since June 2010. Dr. Griffitt received his B.A. from the University of Kansas, his M.D. from the University of Kansas School of Medicine and his Neurosurgical Residency from Loyola University School of Medicine in Chicago. We believe that Dr. Griffitt is qualified to serve on our board of directors due to his extensive experience as a practicing neurosurgeon.

Lowell L. Tilzer, M.D., Ph.D. is a co-founder and is expected to become a Director prior to the completion of this offering. Dr. Tilzer has served as the Medical Director of the Clinical Laboratories at the University of Kansas Medical Center since 2004. In May 2009, Dr. Tilzer became Interim Chairperson of the Department of Pathology and Laboratory Medicine at the University of Kansas Medical Center, and became the Chairperson in November 2009. Dr. Tilzer is a board-certified clinical pathologist, and is an expert in blood processing. Prior to May 2009, Dr. Tilzer held a series of senior management positions within the Blood Services division of the American Red Cross, including service as Chief Executive Officer of the American Red Cross Southwest Region. Dr. Tilzer received his B.A. from the University of Kansas and his M.D., Ph.D. and Pathology Residency from the University of Kansas Medical Center. We believe that Dr. Tilzer is qualified to serve on our board of directors due to being a co-founder of the Company and his extensive experience as a pathologist and blood expert.

Barry S. Skikne, M.D. is expected to become a Director prior to the completion of this offering. Dr. Skikne has served as the Executive Director of Clinical Research at Celgene Pharmaceuticals since April, 2008. At Celgene, Dr. Skikne oversees several large international Phase III clinical trials. Prior to joining Celgene, Dr. Skikne was a Full Professor of Internal Medicine in the Division of Hematology and Oncology at the University of Kansas Medical Center from July, 1978 to April, 2008. From July, 1993 to July, 2007, he was the Director of the Bone Marrow Transplantation Program at the University of Kansas Medical Center. Dr. Skikne is the author of more than ninety journal articles and book chapters. He has a B.S. (M.B.B.Ch.,) from the University of Witwatersrand, Johannesburg, SA and an M.D. and residency in Hematology and Oncology from the College of Physicians of South Africa. We believe that Dr. Skikne is qualified to serve on our board of directors due to his extensive experience as an executive in the pharmaceutical industry and his clinical trial expertise.

Our Board of Directors

Prior to the completion of this offering, the size of our board of directors will be increased to seven persons, each of whom, other than Dr. Wood, Mr. Wiggins and Ms. Lucasey, will satisfy the independence requirements of the NASDAQ Global Market. There are no family relationships among any of our directors or executive officers.

Our certificate of incorporation provides that our board of directors is divided into three classes with staggered terms. The term of office of directors assigned to Class I will expire at the annual meeting of stockholders following the end of fiscal year 2011 and at each third succeeding year thereafter. The term of office of directors assigned to Class II will expire at the annual meeting of stockholders following the end of fiscal year 2012 and at each third succeeding annual meeting thereafter. The term of office of directors assigned to Class III will expire at the annual meeting of stockholders following the end of fiscal year 2013 and at each third succeeding annual meeting thereafter. Currently, Mr. Wiggins serves as a Class I director, Ms. Lucasey serves as a Class II director and Dr. Wood serves as a Class III director.

This classification of the board of directors may delay or prevent a change of control of our company or in our management. See “Description of Capital Stock and Warrants—Delaware Anti-Takeover Law and Certain Provisions of Our Certificate of Incorporation and Bylaws.”

Our board of directors has the power to appoint officers. Each officer will hold office for the term determined by the board of directors and until such person’s successor is chosen and qualified or until such person’s resignation, removal or death.

 

78


Table of Contents

Committees of the Board

Prior to the completion of the offering, the board of directors expects to establish an Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, the members of which will serve at the pleasure of the board of directors.

Audit Committee. The Audit Committee will be responsible for reviewing our financial statements, audit reports, internal financial controls and the services performed by the independent registered public accounting firm, and for making recommendations with respect to those matters to the Board of Directors. We expect that Peter C. Brown will be chairman of the Audit Committee. The Audit Committee must include at least one member who qualifies as an “audit committee financial expert” within the meaning of that term as defined by the SEC pursuant to Section 407 of the Sarbanes-Oxley Act of 2002. We believe that Mr. Brown meets such qualification. Each member of the Audit Committee will be independent as defined by NASDAQ Global Market independence standards.

Compensation Committee. The Compensation Committee will be responsible for reviewing and making recommendations to the board of directors with respect to compensation of executive officers, other compensation matters and awards.

Nominating and Corporate Governance Committee. The board of directors will establish a Nominating and Corporate Governance Committee consisting of Messrs. Brown and Tilzer and Drs. Griffitt and Skikne. Each of the members of the Nominating and Corporate Governance Committee will be independent as defined in the listing standards for the NASDAQ Global Market.

Code of Ethics

Prior to the completion of the offering, and after we have added the independent members of the board of directors, we will adopt a code of professional ethics for all officers, employees and directors of our company.

Compensation Committee Interlocks and Insider Participation

None of our proposed directors who will be eligible for participation on or Compensation Committee is currently or was formerly a Company officer or employee. We expect that there will be no compensation committee interlocks and no insider participation in compensation decisions that will be required to be reported under the rules and regulations of the Securities Exchange Act of 1934, as amended.

 

79


Table of Contents

EXECUTIVE AND DIRECTOR COMPENSATION

Summary Compensation Table

The following summary compensation table summarizes compensation information with respect to our Chief Executive Officer, our Chief Financial Officer and our other executive officer whose compensation exceeded $100,000 for our most recent fiscal year. In this prospectus, these individuals are referred to as our “named executive officers.”

 

Name and Principal Position

   Year      Salary      Bonus      Option
Awards
     All Other
Compensation
     Total  

Gary W. Wood

     2010       $ 117,000         —           —           —         $ 117,000   

Chairman of the Board, Chief Executive Officer and President

                 

Rex E. Wiggins

     2010         117,000         —           —           —           117,000   

Chief Operating Officer and Chief Financial Officer

                 

Timothy A. Wurst

     2010         117,000         —           —           —           117,000   

Vice President for Clinical Trials and Regulatory Affairs

                 

Grants of Plan-Based Awards

The following table provides information about grants of plan-based awards under equity incentive plans to the Named Executive Officers in 2010. These grants were made under the Company’s Third Amended and Restated Operating agreement and consisted of grants of fully vested profits units. On July 15, 2011, the profits units were exchanged for shares of the Company’s junior common stock pursuant to the reorganization.

 

          Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards
    Estimated Future Payouts
Under Equity Incentive
Plan Awards
    All Other
Shares
Awards:
Number of
Shares or
Units
(1)(2)
    All
Other
Option
Awards:
Number of
Securities
Underlying
Options
    Exercise
or Base
Price of
Option
Awards
    Grant
date
Fair
Value of
Stock
and
Option
Awards
 

Name

  Grant Date     Thres-
hold
    Target     Maximum     Thres-
hold
    Target     Maximum          

Gary W. Wood

    1/8/2010        —          —          —          —          —          —          678,000        —          —        $ 88,140   

Rex E. Wiggins

    1/8/2010        —          —          —          —          —          —          258,000        —          —          33,540   

Timothy A. Wurst

    1/8/2010        —          —          —          —          —          —          129,000        —          —          16,770   

 

(1) On January 8, 2010, TVAX Biomedical I, LLC issued these profits units to the individuals indicated. Such profits units were fully vested. On July 15, 2011, the profits units were exchanged for an equal number of shares of junior common stock and on September 30, 2011, each share of junior common stock was exchanged for 0.95 shares of common stock.
(2) On July 15, 2011, TVAX Biomedical I, LLC granted Dr. Wood, Mr. Wiggins and Mr. Wurst restricted profits units which were exchanged for 180,000, 150,000 and 150,000 shares of junior common stock of the Company, respectively, and which are subject to vesting requirements, forfeiture upon the termination of employment or the failure of the company to complete this offering before September 30, 2012 and certain restrictions on transfer. On September 30, 2011, each share of restricted junior common stock was exchanged for 0.95 shares of restricted common stock.

Outstanding Equity Awards at Fiscal Year-End

As of December 31, 2010, there were no outstanding options, unvested share awards or other equity incentive plan awards held by our Named Executive Officers.

Employment Agreements

We have entered into employment agreements, dated January 15, 2010, with a three-year term ending January 15, 2013 with Gary W. Wood, our Chief Executive Officer, or CEO and Rex Wiggins, our Chief Financial Officer, or CFO. The material terms of these agreements include a three-year term, a minimum base salary of $175,000 (in the

 

80


Table of Contents

case of the CEO) or $150,000 (in the case of the CFO), a covenant not to compete and benefits. These officers have elected to take reduced salaries of $150,000 and $140,000 respectively. Each executive’s employment will continue for successive one year periods following the expiration of the initial three year term unless we or the executive provide written notice of nonrenewal at least 30 days prior to the expiration of the initial term or any renewal period. Under the agreement, the executive’s employment may be terminated by our company for cause or without cause, by our company for lack of performance by the executive or upon the death or disability of the executive. If the executive’s employment is terminated by our company without cause (excluding a termination for lack of performance or the expiration of an employment period), the executive will be entitled to receive his base salary in effect immediately prior to the termination for a period of six months. There is no provision of the agreements that provide for any other severance payments to the CEO or CFO upon termination of the agreement. If the executive fails to fulfill the full term of his employment (other than as a result of his death or disability), he will be liable to our company for any loss, expense and damages (including a diminution of the value of our company and consequential damages) resulting from the failure to complete the term of employment.

None of our other named executive officers have written employment agreements.

Compensation of Directors

The Company expects to compensate non-employee directors for their service on the board and on committees. Prior to the completion of the offering, and after we have added the independent members of the board of directors, the board of directors expects to adopt a director compensation program.

 

81


Table of Contents

CERTAIN RELATIONSHIPS AND TRANSACTIONS

The following is a description of transactions since January 2009 and certain transactions prior to that date to which we have been a party, in which the amount involved exceeded $12,901, which is approximately 1% of the average of our total assets at December 31, 2009 and 2010, and in which any of our directors, executive officers or to our knowledge, beneficial owners of more than 5% of any class of our capital stock, including any of their immediate family members and any entity owned or controlled by such persons, had or will have a direct or indirect material interest, other than compensation, termination and change-in-control arrangements, which are described under “Executive and Director Compensation.”

TVAX Founders, LLC

Gary Wood, a director and executive officer of the Company, owns 85.5% of the membership interests of TVAX Founders, LLC (“TVAX Founders”), an entity that owns 82.2% of the issued and outstanding common stock of the Company. On May 1, 2009, TVAX Founders loaned TVAX LLC $100,000 pursuant to the terms of a promissory note at a rate of 4% per annum. Principal and accrued interest on the note were originally due on November 1, 2009. In January 2010, TVAX Founders agreed to subordinate the payment of all amounts due and owing under the promissory note to TVAX LLC’s obligations to TVAX Investors, LLC. On June 30, 2011, TVAX paid interest totaling $5,777 to TVAX Founders. On September 27, 2010, TVAX LLC paid $103,255 to TVAX Founders in full satisfaction of all amounts due under the November 2009 promissory note.

Rex E. Wiggins

On January 3, 2009, the Company entered into a consulting agreement with Rex E. Wiggins, pursuant to which it paid $82,500 to Mr. Wiggins. The consulting agreement was terminated on January 15, 2010.

Kip A. Wiggins

Kip A. Wiggins is the brother of Rex Wiggins, a director and executive officer of the Company. On December 22, 2009, TVAX LLC borrowed $20,001 from Mr. Wiggins pursuant to the terms of a promissory note at an interest rate of a 4% per annum. Mr. Wiggins assigned the note to TVAX Investors, LLC on January 7, 2010. From April 9, 2010 through March 10, 2011, TVAX LLC sold 30,000 Series C Preferred Units to Mr. Wiggins for a total of $67,200.

TVAX Investors, LLC

Prior to its dissolution on July 27, 2011, TVAX Investors, LLC (“TVAX Investors”) owned more than 5% of Series C Preferred Common Stock of the Company. On January 15, 2010, TVAX LLC received gross proceeds of $1,700,386.46 from the sale of a convertible note and granted a detachable warrant (described below) in a private placement to TVAX Investors. On July 23, 2010, TVAX LLC received gross proceeds of $300,005.03 from the sale of a convertible note and granted a detachable warrant (described below) in a private placement to TVAX Investors. The Convertible Notes accrued interest at a rate equal to 8% per annum, and had an original maturity date of January 15, 2013, unless converted prior thereto. The Convertible Notes were automatically convertible into Series C Preferred Units at a conversion price equal to $2.24. No payments of principal or interest were made under the notes prior to July 15, 2011, when TVAX Investors converted all principal and unpaid interest on the notes into 995,791.12 Series C Preferred Units of TVAX LLC. The Series C Preferred Units were subsequently exchanged for Series C Preferred Stock in the Company in an exchange offering with TVAX LLC.

On January 15, 2010, TVAX LLC granted TVAX Investors a warrant to purchase 1,133,591 Series C Units in connection with the sale of a convertible note (described above). On July 23, 2010, TVAX LLC granted TVAX Investors a warrant to purchase 200,003 Series C Units in connection with the sale of a convertible note

 

82


Table of Contents

(described above). The warrants have an exercise of $1.50 per share, and at July 15, 2011 are convertible into 1,333,594 shares of Series C Preferred Stock. At the date of issuance, these warrants were valued at $876,912.

On July 15, 2011, TVAX LLC issued TVAX Investors a Contingent Warrant to purchase 109,148 of its Series C Preferred Units at a price per unit of $1.50. The Contingent Warrant was issued to the holders of the Convertible Notes as an inducement for the conversion and in lieu of interest that would accrue on the Notes from July 15, 2011 to the original Note termination date. The Warrant becomes exercisable for such period of time (i) commencing on the earlier of (A) the close of business on September 30, 2012 if the Company has not completed a Public Offering prior to that time, or (B) the date of a Change in Control of TVAX LLC or the Company that occurs prior to September 30, 2012, and ending on the earlier of July 15, 2016 or the consummation of a Public Offering prior to the close of business on September 30, 2012. At the date of issuance, the Contingent Warrant was valued at $64,397.

On July 15, 2011, the Company paid $130,000 in legal fees on behalf of TVAX Investors, LLC. The payment was made pursuant to the terms of the Note and Warrant Purchase Agreement and the Amended and Restated Warrant Purchase Agreement, both of which require TVAX LLC to pay attorneys’ fees incurred by TVAX Investors in connection with the consummation of all of the transactions contemplated by the warrant agreements and certain other investment documents.

The Convertible Notes were secured by all of the Company’s assets, including U.S. patent 6,406,699. TVAX Investors, LLC terminated its security interests in the Company’s assets by filing a UCC termination statement on July 20, 2011. In addition, the holders of the Convertible Notes and Warrants were named as beneficiaries to a $2,000,000 life insurance policy on Gary W. Wood.

 

83


Table of Contents

PRINCIPAL STOCKHOLDERS

The table below sets forth information, as of November 1, 2011 (unless otherwise indicated below), with respect to the beneficial ownership of shares of common stock by: (a) each person known to us to own beneficially more than 5% of the aggregate shares of common stock outstanding, (b) each director and proposed director, (c) each named executive officer in the Summary Compensation Table, and (d) the executive officers and directors of our company as a group. Each of the persons, or group of persons, in the table below has sole voting power and sole dispositive power as to all of the shares of common stock shown as beneficially owned by them, except as otherwise indicated. TVAX Founders, LLC, a limited liability company with seven members, holds 8,801,000 shares, or 82.2%, of our outstanding common stock. Dr. Wood is the sole manager of TVAX Founders and owns 85.5% of its membership interests. We expect that TVAX Founders will be liquidated following completion of this offering and the shares of our common stock held by TVAX Founders will be distributed to its members in proportion to their interests.

 

            Percent of Shares of Common
Stock Beneficially Owned
 

Name of Beneficial Owner

   Number of Shares      Before
Offering
    After
Offering (1)
 

TVAX Founders LLC (2)

     8,801,000         82.2     %   

Gary W. Wood (3)

     9,616,100         89.9     %   

Rex E. Wiggins (4)

     347,363         3.2     %   

Frank Holladay (5)

     —           *        *   

Patrick Fields (6)

     4,316         *        *   

Catherine E. Lucasey (7)

     213,750         2.0     %   

Timothy A. Wurst (8)

     265,050         2.5     %   

Peter C. Brown (9)

     235,915         2.2     %   

Wesley Griffitt (10)

     11,560         *        *   

Barry Skikne

     —           *        *   

Lowell Tilzer (11)

     —           *        *   

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

     10,707,975         97.2     %   

 

* Less than 1%
(1) Assumes this offering was completed on                     .
(2) Dr. Wood is the sole manager of TVAX Founders and has sole voting and dispositive power over the shares held by Founders. The address for Dr. Wood and TVAX Founders is 8006 Reeder Street, Lenexa, Kansas 66214.
(3) Includes (i) 8,801,000 shares held by TVAX Founders, and (ii) 171,000 shares of our restricted common stock which are subject to forfeiture pursuant to the terms of the grant thereof.
(4) Includes (i) 142,500 shares of restricted common stock, (ii) 42,750 shares of our common stock held in trust for Mr. Wiggins’ sons, of which Mr. Wiggins is the trustee, and (iii) 42,750 shares of our common stock held in trust for the sons of Mr. Wiggins’ spouse, of which Mr. Wiggins’ spouse is the trustee.
(5) Excludes 167,219 shares of our common stock representing Dr. Holladay’s pecuniary interest in the shares held by TVAX Founders.
(6) Includes 4,359 shares of our common stock issuable upon conversion of 4,208 shares of our Series C Preferred Stock.
(7) Includes 118,750 shares of restricted common stock, and excludes 396,045 shares of our common stock representing Ms. Lucasey’s pecuniary interest in the shares held by TVAX Founders.
(8) Includes 142,500 shares of restricted common stock.
(9) Includes (i) 49,324 shares of our common stock issuable upon conversion of 47,618 shares of our Series C Preferred Stock held by Grassmere Kansas Angel Investments, LLC, a company controlled by Mr. Brown, and (ii) 81,635 shares of our common stock issuable upon conversion of 78,811 shares of our Series C Preferred Stock and 104,956 shares of our common stock issuable upon exercise of Series C Warrants held by Grassmere Partners, LLC, a company controlled by Mr. Brown.

 

84


Table of Contents
(10) Includes 11,560 shares of our common stock issuable upon conversion of 11,160 shares of our Series C Preferred Stock. Excludes 167,219 shares of our common stock representing Dr. Griffit’s pecuniary interest in the shares held by TVAX Founders.
(11) Excludes 209,464 shares of our common stock representing Dr. Tilzer’s pecuniary interest in the shares held by TVAX Founders.

 

85


Table of Contents

DESCRIPTION OF CAPITAL STOCK AND WARRANTS

The following description of our capital stock and provisions of our certificate of incorporation and bylaws are summaries and are qualified by reference to our certificate of incorporation and bylaws, copies of which we have filed with the Securities and Exchange Commission, or SEC, as exhibits to our registration statement of which this prospectus forms a part. Upon the closing of this offering, our authorized capital stock will consist of 40,000,000 shares of common stock, par value $0.01 per share, including 2,000,000 shares of junior common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share, of which 3,200,000 shares of preferred stock are designated Series A Preferred Stock, 1,200,000 shares of preferred stock are designated Series B Preferred Stock, and 5,200,000 shares of preferred stock are designated Series C Preferred Stock.

As of November 1, 2011, we had issued and outstanding:

 

   

10,701,000 shares of our common stock held by 19 stockholders of record;

 

   

1,968,567 shares of our Series A Preferred Stock held by 14 stockholders of record that are convertible into an aggregate of              shares of our common stock; and

 

   

1,200,000 shares of our Series B Preferred Stock held by 15 stockholders of record that are convertible into shares of our Series A Preferred Stock on a one-for-one basis upon payment of an exercise price of $1.50 per share.

 

   

3,663,136 shares of our Series C Preferred Stock held by 140 stockholders of record that are convertible into an aggregate of              shares of our common stock.

As of November 1, 2011, there were no shares of junior common stock issued and outstanding, and we also had outstanding warrants to purchase 1,333,594 shares of our common stock at an exercise price of $1.50 per share and warrants convertible into an aggregate of 109,148 shares of Series C Preferred Stock that will not be exercisable unless this offering has not been completed by September 30, 2012 or unless there is a change in control of the company that occurs before September 30, 2012.

Common Stock

General. The ordinary common stock represents equity interests in our company and generally has traditional features of common stock, including dividend, voting and liquidation rights. When we use the term “common stock” in this document, we are referring to the ordinary common stock of the Company. See “—Dividends” and “—Liquidation.”

Voting Rights. Each holder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Our certificate of incorporation and bylaws do not provide for cumulative voting rights. Because of this, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose.

Dividends. Subject to the limitations under Delaware corporation law and any preferences that may be applicable to the Series A Preferred Stock, the Series C Preferred Stock or any other then-outstanding preferred stock, holders of common stock are entitled to receive dividends, if any, as may be declared from time to time by our Board of Directors out of legally available funds.

Liquidation. In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of Series A Preferred Stock, the Series C Preferred Stock or any other then-outstanding shares of preferred stock.

 

86


Table of Contents

Rights and Preferences. Holders of common stock have no preemptive, conversion, subscription or other rights. There are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to and may be adversely affected by, the rights of the holders of shares of the Series A Preferred Stock, Series B Preferred Stock, the Series C Preferred Stock or any class or series of preferred stock that we may designate in the future.

Fully paid and Nonassessable. All of our outstanding shares of common stock are fully paid and nonassessable and the shares of common stock to be issued in this offering, when they are paid for, will be fully paid and nonassessable.

Junior Common Stock

General. The junior common stock represents equity interests in our company and generally has traditional features of common stock, including dividend, voting and liquidation rights. See “—Dividends,” “—Liquidation” and “—Conversion.” There are no shares of junior common stock currently issued and outstanding and we do not anticipate issuing such shares.

Voting Rights. Each holder of junior common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Our certificate of incorporation and bylaws do not provide for cumulative voting rights. Because of this, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose.

Dividends. Shares of junior common stock are subject to significant restrictions on the payment of dividends or liquidation payments. No dividends or liquidation payments may be paid with respect to the junior common stock until cumulative dividends and liquidation payments totaling $1.50 per share have been paid to holders of ordinary common stock outstanding on July 15, 2011. The $1.50 preference amount is subject to adjustment in the event of stock splits and combinations, cash or stock dividends, reorganizations, mergers, consolidations or sales of assets. At the time that cumulative dividends or liquidation payments equaling or exceeding the preference amount, as adjusted, have been paid, each share of junior common stock automatically converts into a share of ordinary common stock and participates in dividend and liquidation payments that exceed the preference amount.

Liquidation. Shares of junior common stock are subject to significant restrictions on the payment of liquidation payments. See “—Dividends” above.

Conversion. Following the closing of an underwritten public offering, each share of junior common stock can be converted, at the option of the holder, into a number of shares of ordinary common stock determined by subtracting the preference amount from the fair market value of a share of ordinary common stock and dividing the result by the fair market value of a share of ordinary common stock. The fair market value of a share of ordinary common stock is the average daily closing price for the ten consecutive trading days immediately prior to the conversion date.

Rights and Preferences. Holders of junior common stock have no preemptive, conversion, subscription or other rights, other than the conversion of the junior common stock into ordinary common stock as described above at “—Conversion.” There are no redemption or sinking fund provisions applicable to the common stock, including the junior common stock. The rights, preferences and privileges of the holders of common stock, including the junior common stock are subject to and may be adversely affected by, the rights of the holders of shares of the Series A Preferred Stock, Series B Preferred Stock, the Series C Preferred Stock or any class or series of preferred stock that we may designate in the future.

Fully paid and Nonassessable. All of our outstanding shares of common stock will be fully paid and nonassessable upon issuance.

 

87


Table of Contents

Preferred Stock

Under the certificate of incorporation, our Board of Directors has the authority, without further action by the stockholders, to issue up to 10,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding.

Our Board of Directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our company and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock.

We have three classes of preferred stock outstanding, the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock. At the closing of an initial public offering, the shares of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock will automatically convert into shares of ordinary common stock. See “—Series A Preferred Stock—Conversion”, “—Series B Preferred Stock —Conversion” and “Series C Preferred Stock—Automatic Conversion.”

Series A Preferred Stock

General. The Series A Preferred Stock constitutes a single series of our preferred stock, consisting of 3,200,000 shares, par value $0.01 per share, having an initial liquidation preference amount of $1.00 per share. The Series A Preferred Stock has no maturity date.

Dividend Rate. Dividends on the Series A Preferred Stock are payable only when, as and if authorized and declared by our Board of Directors out of legally available funds, on a cumulative basis on the $1.00 per share liquidation preference amount plus the amount of accrued and unpaid dividends for any prior dividend periods, at a rate of 10% per annum. Dividends on the Series A Preferred Stock are cumulative. In addition, we are obligated to pay holders of the Series A Preferred Stock on a pro rata basis any dividend paid on ordinary common stock, on a pro rata basis as if the shares of Series A Preferred Stock had been converted into ordinary common stock. There is no sinking fund with respect to dividends on the Series A Preferred Stock.

Priority of Dividends. Subject to the preferential rights of the Series C Preferred Stock, so long as the Series A Preferred Stock remains outstanding, we may not declare or pay a dividend or other distribution on our common stock or any other shares of Junior Securities (other than dividends payable solely in common stock or other Junior Securities), and we generally may not directly or indirectly purchase, redeem or otherwise acquire any shares of common stock or Series A Junior Stock unless all accrued and unpaid dividends on the Series A Preferred Stock for all past dividend periods are paid in full. “Series A Junior Securities” means our common stock, and any other class or series of our stock the terms of which expressly provide that it ranks junior to the Series A Preferred Stock as to dividend rights.

Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of the Series A Preferred Stock will be entitled to receive for each share of Series A Preferred Stock, out of the assets of the Company or proceeds available for distribution to our stockholders, subject to any rights of our creditors and the preferential rights of the Series C Preferred Stock, before any distribution of assets or proceeds is made to or set aside for the holders of our common stock and any other class or series of our stock ranking junior to the Series A Preferred Stock, payment of an amount equal to the sum of (i) the $1.00 liquidation preference amount per share and (ii) the amount of any accrued and unpaid dividends on the Series A Preferred Stock (including dividends accrued on any unpaid dividends). To the extent the assets or proceeds available for

 

88


Table of Contents

distribution to stockholders are sufficient to fully pay the liquidation payments owing to the holders of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock, the holders of the Series A Preferred Stock, Series C Preferred Stock and common stock will share ratably in the distribution on a pro rata basis as if the shares of Series A Preferred Stock and Series C Preferred Stock had been converted into ordinary common stock.

For purposes of the liquidation rights of the Series A Preferred Stock, (i) a sale, transfer or issuance of voting securities, merger, consolidation or other transaction involving the Company that results in the existing stockholders no longer holding a majority of the voting stock, or (ii) a sale, lease, transfer, license or other disposition of all or substantially all of the assets of the Company will constitute a liquidation, dissolution or winding up of the Company unless waived by the holders of a majority of the shares of Series C Preferred Stock.

Redemption and Repurchases. Subject to the preferential rights of the Series C Preferred Stock, at any time after January 15, 2016, or in the event of a default, all or any portion of the shares of Series A Preferred Stock may be redeemed at the request of the holders of at 70% of the shares of outstanding Series A Preferred Stock for cash per share equal to $1.00 plus all accrued and unpaid dividends. If the funds available for the redemption of the Series C Preferred Stock are insufficient to make the required payments for shares subject to a request for redemption and the exercise of put rights of the Series C Warrants, the funds that are available will be distributed first ratably to the holders of shares of Series C Preferred Stock subject to a redemption request and the parties entitled to put payments under Series C Warrants, and then ratably among the holders of Series A Preferred Stock subject to a redemption request. When additional funds are legally available, the Company must use those for the redemption payments for Series A Preferred Stock and Series C Preferred Stock, and for repurchase payments for the put rights of Series C Warrants as adjusted for unpaid and accrued interest. The redemption rights for holders of Series A Preferred Stock and Series C Preferred Stock terminate upon a “Qualified Public Offering.” A Qualified Public Offering means the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act, covering the offer and sale of shares of ordinary common stock of the Company with gross cash proceeds to the Company (before underwriting discounts, commissions and fees) of at least $30,000,000 and with a pre-money value of the ordinary common stock (on a fully-diluted basis) of at least $150,000,000.

Conversion. Upon the closing of an underwritten initial public offering by the Company, or at the election of the holders of a majority of the shares of Series A Preferred Stock, each share of Series A Preferred Stock will convert into one share of ordinary common stock, subject to adjustment for stock splits and combinations, dividends, reclassifications, exchanges, substitutions, reorganizations, mergers, consolidations, sales of assets or sales ordinary common stock below the conversion price and events of default. Immediately prior to any conversion the holder of Series A Preferred Stock may elect to receive any accrued and unpaid dividends in cash or in shares of ordinary common stock.

Voting Rights. Each share of Series A Preferred Stock is entitled to the number of votes equal to the number of shares of ordinary common stock into which the shares of Series A Preferred Stock are convertible.

Series B Preferred Stock

General. The Series B Preferred Stock constitutes a single series of our preferred stock, consisting of 1,200,000 shares, par value $0.01 per share, having a liquidation preference amount of $1.24 per share. The Series B Preferred Stock has no maturity date.

Dividend Rate. Shares of the Series B Preferred Stock are entitled to receive no dividends or other distributions, other than those related to the liquidation rights discussed below.

Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of the Series B Preferred Stock will be entitled to receive for each share of Series B Preferred Stock, out of the assets of the Company or proceeds available for distribution to our stockholders, subject to any

 

89


Table of Contents

rights of our creditors and the preferential rights of the Series A Preferred Stock and Series C Preferred Stock, before any distribution of assets or proceeds is made to or set aside for the holders of our common stock and any other class or series of our stock ranking junior to the Series B Preferred Stock, payment of an amount equal to the sum of $1.24 per share.

For purposes of the liquidation rights of the Series B Preferred Stock, (i) a sale, transfer or issuance of voting securities, merger, consolidation or other transaction involving the Company that results in the existing stockholders no longer holding a majority of the voting stock, or (ii) a sale, lease, transfer, license or other disposition of all or substantially all of the assets of the Company will constitute a liquidation, dissolution or winding up of the Company unless waived by the holders of a majority of the shares of Series C Preferred Stock.

Redemption and Repurchases. The Series B Preferred Stock has no redemption or repurchase rights, and is not subject to redemption at the option of the Company.

Conversion. Upon the earlier of (1) June 9, 2014 (in the case of Series B Preferred Stock designated as subseries B-1) or November 15, 2015 (in the case of Series B Preferred Stock designated as subseries B-2), or (2) the closing of an underwritten initial public offering by the Company, each share of Series B Preferred Stock will automatically convert into the number of shares of ordinary common stock determined by subtracting the preference amount of the Series A Preferred Stock (initially $1.00) from the fair market value of a share of ordinary common stock and dividing the result by the fair market value of a share of ordinary common stock. The fair market value of a share of ordinary common stock is the average daily closing price for the ten consecutive trading days immediately prior to the conversion date.

In addition, any holder of Series B Preferred Stock may convert all or part of such holder’s shares of Series B Preferred Stock into a number of shares of Series A Preferred Stock determined by subtracting the Series B Conversion Price (initially $1.00) from the fair market value of a share of Series A Preferred Stock and dividing the result by the fair market value of a share of Series A Preferred Stock.

Voting Rights. Except as required by law, shares of Series B Preferred Stock have no voting rights.

Series C Preferred Stock

General. The Series C Preferred Stock constitutes a single series of our preferred stock, consisting of 5,200,000 shares, par value $0.01 per share, having a liquidation preference amount of $2.24 per share. The Series C Preferred Stock has no maturity date.

Dividend Rate. Dividends on the Series C Preferred Stock are payable only when, as and if authorized and declared by our Board of Directors out of legally available funds, on a cumulative basis on the $2.24 per share liquidation preference amount plus the amount of accrued and unpaid dividends for any prior dividend periods, at a rate of 12% per annum, which increases upon certain events of default. See “—Default Rights” below. Dividends on the Series C Preferred Stock are cumulative. In addition, we are obligated to pay holders of the Series C Preferred Stock on a pro rata basis any dividend paid on ordinary common stock, on a pro rata basis as if the shares of Series C Preferred Stock had been converted into ordinary common stock. There is no sinking fund with respect to dividends on the Series C Preferred Stock.

Priority of Dividends. So long as the Series C Preferred Stock remains outstanding, we may not declare or pay a dividend or other distribution on our common stock or any other shares of Series C Junior Securities (other than dividends payable solely in common stock or other Junior Securities), and we generally may not directly or indirectly purchase, redeem or otherwise acquire any shares of common stock or Junior Stock unless all accrued and unpaid dividends on the Series C Preferred Stock for all past dividend periods are paid in full. “Series C Junior Securities” means our common stock, Series A Preferred Stock and any other class or series of our stock, the terms of which expressly provide that it ranks junior to the Series C Preferred Stock as to dividend rights.

 

90


Table of Contents

Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of the Series C Preferred Stock will be entitled to receive for each share of Series C Preferred Stock, out of the assets of the Company or proceeds available for distribution to our stockholders, before any distribution of assets or proceeds is made to or set aside for the holders of our common stock, the Series A Preferred Stock, the Series B Preferred Stock and any other class or series of our stock ranking junior to the Series C Preferred Stock, payment of an amount equal to the sum of (i) the $2.24 liquidation preference amount per share and (ii) the amount of any accrued and unpaid dividends on the Series C Preferred Stock (including dividends accrued on any unpaid dividends). To the extent the assets or proceeds available for distribution to stockholders are sufficient to fully pay the preferred liquidation payments owing to the holders of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock, the holders of the Series A Preferred Stock, Series C Preferred Stock and common stock will share ratably in the distribution on a pro rata basis as if the shares of Series A Preferred Stock and Series C Preferred Stock had been converted into ordinary common stock.

For purposes of the liquidation rights of the Series C Preferred Stock, (i) a sale, transfer or issuance of voting securities, merger, consolidation or other transaction involving the Company that results in the existing stockholders no longer holding a majority of the voting stock, or (ii) a sale, lease, transfer, license or other disposition of all or substantially all of the assets of the Company will constitute a liquidation, dissolution or winding up of the Company unless waited by the holders of a majority of the shares of Series C Preferred Stock.

Redemption and Repurchases. At any time after January 15, 2015, or in the event of a default, all or any portion of the shares of Series C Preferred Stock may be redeemed at the request of the holders of at 70% of the shares of outstanding Series C Preferred Stock for cash per share equal to $2.24 plus all accrued and unpaid dividends. If the funds available for the redemption of the Series C Preferred Stock are insufficient to make the required payments for shares subject to a request for redemption and the exercise of put rights of the Series C Warrants, the funds that are available will be distributed ratably to the holders of shares of Series C Preferred Stock subject to a redemption request and the parties entitled to put payments under Series C Warrants. When additional funds are legally available, the Company must use those for the redemption payments for Series C Preferred Stock, and for repurchase payments for the put rights of Series C Warrants as adjusted for unpaid and accrued interest. The redemption rights for holders of Series C Preferred Stock terminate upon a Qualified Public Offering.

Optional Conversion. At the option of the holder of shares of Series C Preferred Stock, each share of Series C Preferred Stock will convert into one share of ordinary common stock, subject to adjustment for stock splits and combinations, dividends, reclassifications, exchanges, substitutions, reorganizations, mergers, consolidations, sales of assets or sales ordinary common stock below the conversion price and events of default. Immediately prior to any conversion the holder of Series C Preferred Stock may elect to receive any accrued and unpaid dividends in cash or in shares of ordinary common stock.

Automatic Conversion. Upon the closing of an underwritten initial public offering by the Company, each share of Series C Preferred Stock will convert into one share of ordinary common stock, plus a number of shares representing accrued, unpaid dividends through the conversion date calculated at a value of $2.24 per share. The conversion rate is subject to adjustment for stock splits and combinations, dividends, reclassifications, exchanges, substitutions, reorganizations, mergers, consolidations, sales of assets or sales of ordinary common stock below the conversion price and events of default.

Voting Rights. Each share of Series C Preferred Stock is entitled to the number of votes equal to the number of shares of ordinary common stock into which the shares of Series C Preferred Stock are convertible.

 

91


Table of Contents

Restrictions. In addition to any other vote or consent required by Delaware law or by our Articles of Incorporation, the vote or consent of the holders of at least 50% of the outstanding shares of Series C Preferred Stock, voting as a separate class, is required in order to do the following:

(i) make any loan or advance to, or own any stock or other securities of, any entity other than a wholly-owned subsidiary;

(ii) make any loans or advances to any person except for reasonable advances to employees and expenditures in the ordinary course of business;

(iii) create, incur, assume or suffer to exist any indebtedness individually or in the aggregate in excess of $100,000, except for trade accounts and indebtedness reflected in the then-current annual budget of the Company approved by the Board of Directors;

(iv) acquire any interest in any entity or business or enter into any joint venture or strategic relationship;

(v) change the principal business of the Company;

(vi) grant a security interest or place any other encumbrance on or otherwise dispose of any material asset or technology of the Company or any of its intellectual property rights;

(vii) enter into any contract or lease for a term of longer than one year;

(viii) settle or compromise any litigation involving any of its intellectual property rights or otherwise involving any amount in controversy in excess of $25,000;

(ix) approve or authorize any filing under the Federal Bankruptcy Code or any other insolvency laws or commence any action under any of the foregoing;

(x) liquidate, dissolve or wind-up its business and affairs or convert to any other type of business entity or cause the conversion of any of its equity securities;

(xi) make any amendment or alteration to or repeal the Certificate of Incorporation, directly or indirectly, whether by merger, conversion, operation of law or otherwise;

(xii) create or authorize the creation of any other security of the Company convertible into or exercisable for any equity security, having rights, preferences or privileges senior to or on parity with the Series C Preferred Stock;

(xiii) reclassify, alter or amend any equity security having rights, preferences or privileges junior to or on parity with the Series C Preferred Stock;

(xiv) redeem, acquire, purchase or retire any stock of the Company;

(xv) declare, pay or make any distributions by the Company, except for distributions on the Series C Preferred Stock;

(xvi) increase the size of the Board of Directors of the Company; take any action or fail to take any action that would materially and adversely affect the rights, preferences and privileges of the Series C Preferred Stock; or

(xvii) agree to do any of the foregoing.

Default Rights. Upon an event of default, the holders of shares of Series A Preferred Stock and Series C Preferred Stock are entitled to exercise the redemption rights set forth above. In addition, the applicable dividend rate for the Series C Preferred Stock will increase 2% upon the occurrence of a default capable of cure, and will increase automatically by 1% for each 30-day period that the default remains uncured. Any increase in the dividend resulting from a default capable of cure will terminate on the date that no default exists. For a default not capable of cure, the applicable dividend for the Series C Preferred Stock will increase by an increment of 5%. In the event of any default, the holders of 70% of the Series C Preferred Stock will have the power to increase the

 

92


Table of Contents

size of the Board of Directors and to appoint or elect the number of new members of the Board that would constitute a majority of the Board of Directors. An event of default includes, among other things, the failure to pay amounts when due, breaches of certain agreements, an assignment for the benefit of creditors, the termination of the investment documents, and any event that causes the cessation of the conduct of our business.

Series C Warrants

As of November 1, 2011, there were warrants outstanding to purchase an aggregate of 1,442,742.99 Series C Preferred Units of TVAX Biomedical I, LLC at an exercise price of $1.50 per share, which, upon exercise, will be immediately converted into 1,442,742.99 shares of Series C Preferred Stock. Of these, warrants convertible into an aggregate of 109,147.99 shares of Series C Preferred Stock will not be exercisable unless this offering has not been completed by September 30, 2012 or unless there is a change in control of the company that occurs before September 30, 2012. Upon the completion of this offering, the warrants to purchase shares of Series C Preferred Stock will convert into warrants to purchase shares of common stock. See “—Series C Preferred Stock —Automatic Conversion” above.

The warrants have a net exercise provision under which the holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of our common stock at the time of exercise of the warrant after deduction of the aggregate exercise price. Each of these warrants also contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant in the event of stock dividends, stock splits, reorganizations, reclassifications and consolidations.

The warrants contain a put right that give the holder the right to cause the company to repurchase the shares issuable upon the exercise of the warrant in the event that a Qualified Public Offering has not occurred and the securities issuable upon exercise of the warrant have not been listed on a national securities exchange.

Delaware Anti-Takeover Law and Certain Provisions of Our Certificate of Incorporation and Bylaws

Delaware law. We are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits a public Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

 

   

prior to the date of the transaction, the Board of Directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

 

   

the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for this purpose shares owned by persons who are directors and also officers and shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

 

   

on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 662/3% of the outstanding voting stock that is not owned by the interested stockholder.

Section 203 defines a business combination to include:

 

   

any merger or consolidation involving the corporation and the interested stockholder;

 

   

any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;

 

93


Table of Contents
   

subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

 

   

any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; and

 

   

the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.

Certificate of Incorporation and Bylaws. Provisions of our certificate of incorporation and bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock.

Among other things, our certificate of incorporation and bylaws:

 

   

permit our Board of Directors to issue up to 10,000,000 shares of preferred stock (less shares previously designated as a separate class), with any rights, preferences and privileges as they may designate, including the right to approve an acquisition or other change in our control;

 

   

provide that, subject to the rights of any series of preferred stock to elect directors, directors may only be removed for cause, which removal may be effected subject to any limitation imposed by law, by the holders of at least two-thirds of the voting power of our then outstanding capital stock entitled to vote generally at an election of directors;

 

   

provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

 

   

divide our Board of Directors into three classes with staggered, three-year terms;

 

   

provide that the authorized number of directors may be changed only by resolution of the Board of Directors;

 

   

require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;

 

   

provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice;

 

   

do not provide for cumulative voting rights, therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose; and

 

   

provide that special meetings of our stockholders may be called only by the chairman of the board, our President or by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors;

Our charter also provides that certain business combinations (for example, mergers, consolidations, share exchanges, significant asset sales or dispositions and significant stock issuances) involving an “interested stockholder” of the Company require, in addition to any vote required by law, the approval of the holders of (i) at least 80% of the voting power of the outstanding shares of stock, voting together as a single class, and (ii) at least

 

94


Table of Contents

a majority of the voting power of the outstanding shares of stock not beneficially owned by an interested stockholder or an affiliate or associate of an interested stockholder unless a majority of the disinterested directors have approved the business combination. An “interested stockholder” generally means a person who is a greater than 5% stockholder of the Company or who is an affiliate of the Company and at any time within the past two years was a greater than 5% stockholder of the Company.

Registration Rights

Under an investor rights agreement, following the completion of this offering, the holders of common stock issued upon the conversion of 995,791 shares of Series C Preferred Stock and the exercise of Series C Warrants to purchase 1,333,594 shares of common stock, or their transferees, will have the right to require us to register their shares with the SEC so that those shares may be publicly resold, or to include their shares in any registration statement we file, subject to specified exemptions, conditions and limitations.

Beginning twelve months after the closing of this offering, subject to specified limitations, these stockholders may require that we register all or part of these securities for sale under the Securities Act on two occasions. In addition, these stockholders may from time to time make demand for registrations on Form S-3, a short form registration statement, when we are eligible to use this form.

If we register any of our common stock, either for our own account or for the account of other security holders, these stockholders are entitled to notice of the registration and to include their shares of common stock in the registration.

Other than in a demand registration, with specified exceptions, a holder’s right to include shares in a registration is subject to the right of the underwriters to limit the number of shares included in the offering. All fees, costs and expenses of any demand registrations and any registrations on Form S-3 will be paid by us, and all selling expenses, including underwriting discounts and commissions, will be paid by the holders of the securities being registered.

Transfer Agent and Registrar

Upon completion of this offering , the transfer agent and registrar for our common stock will be Computershare Trust Co., N.A. The transfer agent’s address is 250 Royall Street, Canton, MA 02021 and its telephone number is (800) 662-7232.

NASDAQ Global Market Stock Exchange

We intend to apply to list our common stock on the NASDAQ Global Market under the symbol “TVAX.”

 

95


Table of Contents

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, no public market existed for our common stock. Sales of shares of our common stock in the public market after this offering, and the availability of shares for future sale, may reduce the market price of our common stock. Sales of substantial amounts of our common stock, or the perception that these sales could occur, could adversely affect prevailing market prices for our common stock and could impair our future ability to obtain capital, especially through an offering of equity securities.

Based on the number of shares of common stock outstanding as of November 1, 2011, upon completion of this offering,              shares of common stock will be outstanding, assuming no exercise of the underwriters’ over-allotment option and no exercise of warrants prior to the completion of this offering. All of the shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act, unless held by our affiliates as that term is defined under Rule 144 under the Securities Act. The remaining              shares of common stock outstanding upon the closing of this offering are restricted securities as defined under Rule 144 of the Securities Act. Restricted securities may be sold in the U.S. public market only if registered or if they qualify for an exemption from registration, including by reason of Rule 144 or 701 under the Securities Act, which rules are summarized below. These remaining shares will generally become available for sale in the public market as follows:

 

   

restricted shares will be eligible for immediate sale upon the completion of this offering;

 

   

approximately              restricted shares will be eligible for sale in the public market 90 days after the date of this prospectus, subject to the volume, manner of sale and other limitations under Rule 144 and Rule 701; and

 

   

approximately              restricted shares will be eligible for sale in the public market upon expiration of lock-up agreements 180 days after the date of this prospectus, which date may be extended in specified circumstances, subject in certain circumstances to the volume, manner of sale and other limitations under Rule 144 and Rule 701.

Additionally, all of the shares of restricted common stock will be vested and eligible for sale 180 days after the date of this prospectus.

Rule 144

In general, under Rule 144 under the Securities Act of 1933, as in effect on the date of this prospectus, beginning 90 days after the date of this prospectus, a person who is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned shares of our common stock to be sold for at least six months, would be entitled to sell an unlimited number of shares of our common stock, provided current public information about us is available. In addition, under Rule 144, a person who is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares of our common stock to be sold for at least one year, would be entitled to sell an unlimited number of shares immediately upon the closing of this offering without regard to whether current public information about us is available. Beginning 90 days after the date of this prospectus, our affiliates who have beneficially owned shares of our common stock for at least six months are entitled to sell within any three-month period a number of shares that does not exceed the greater of:

 

   

1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; and

 

   

the average weekly trading volume of our common stock on the NASDAQ Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

Sales of restricted shares under Rule 144 by our affiliates are also subject to requirements regarding the manner of sale, notice and the availability of current public information about us. Rule 144 also provides that affiliates relying on Rule 144 to sell shares of our common stock that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares, other than the holding period requirement.

 

96


Table of Contents

Notwithstanding the availability of Rule 144, the holders of substantially all of our restricted shares have entered into lock-up agreements as described below under “Underwriting” and their restricted shares will become eligible for sale at the expiration of the restrictions set forth in those agreements.

Rule 701

Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resales of shares in reliance upon Rule 144 but without compliance with some of the restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers, directors or consultants who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares under Rule 701. However, all of the Rule 701 shares are subject to lock-up agreements as described below and under “Underwriting” and will become eligible for sale at the expiration of the restrictions set forth in those agreements.

Lock-up Agreements

We, our officers, directors and certain of our stockholders have agreed with the underwriters that, for a period of 180 days following the date of this prospectus, we or they will not offer, sell, assign, transfer, pledge, contract to sell or otherwise dispose of or hedge any shares of our common stock or any securities convertible into or exchangeable for shares of common stock, subject to specified exceptions. The representative of the underwriters may, in its sole discretion, at any time, release all or any portion of the shares from the restrictions in any such agreement, subject to compliance with certain notice requirements.

The 180-day restricted period described in the preceding paragraph will be extended if:

 

   

during the last 17 days of the 180-day restricted period we issue an earnings release or material news or a material event relating to us occurs and is publicly announced; or

 

   

prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day restricted period.

In this case, the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the release of the material news or the occurrence of the material event.

The lock-up agreements signed by our securityholders generally permit them, among other customary exceptions, to make bona fide gifts to their immediate family, to transfer securities to trusts for their or their immediate family’s benefit and, if the securityholder is a partnership, limited liability company or corporation, to transfer securities to its partners, members or stockholders. However, the recipients of these transfers must agree to be bound by the lock-up agreement for the remainder of the lock-up period.

Registration Rights

Upon the closing of this offering, the holders of an aggregate of              shares of our common stock will have the right to require us to register their shares for resale under the Securities Act, beginning six months after the date of this prospectus. Registration of these shares for resale under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of such registration. Any sales of securities by these stockholders could adversely affect the trading price of our common stock. These registration rights are described in more detail under the caption “Description of Capital Stock and Warrants — Registration Rights.”

 

97


Table of Contents

UNDERWRITING

We have entered into an underwriting agreement with Roth Capital Partners, LLC, acting as the representative of the underwriters named below, with respect to the shares of common stock subject to this offering. Subject to certain conditions, we have agreed to sell to the underwriters, and the underwriters have agreed to purchase, the number of shares of common stock provided below opposite their resective names.

 

Underwriters

   Number of Shares

Roth Capital Partners, LLC

  
  

Cantor Fitzgerald & Co.

  
  

Morgan Joseph TriArtisan LLC

  
  

Total

  
  

The underwriters are offering the shares of common stock subject to their acceptance of the shares of common stock from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock if any such shares are taken. However, the underwriters are not required to take or pay for the shares of common stock covered by the underwriters’ over-allotment option described below.

Over-Allotment Option

We have granted the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of              additional shares of common stock to cover over-allotments, if any, at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. If the underwriters exercise this option, each underwriter will be obligated, subject to certain conditions, to purchase a number of additional shares proportionate to that underwriter’s initial purchase commitment as indicated in the table above for which the option has been exercised.

Discounts, Commissions and Expenses

The underwriters have advised us that they propose to offer the shares of common stock to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $         per share. The underwriters may allow, and certain dealers may reallow, a discount from the concession not in excess of $         per share to certain brokers and dealers. After this offering, the initial public offering price, concession and reallowance to dealers may be changed by the representative. No such change shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The shares of common stock are offered by the underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. The underwriters have informed us that they do not intend to confirm sales to any accounts over which they exercise discretionary authority.

 

98


Table of Contents

The following table shows the underwriting discounts and commissions payable to the underwriters by us in connection with this offering. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ over-allotment option to purchase additional shares.

 

     Per share      Total Without
Exercise of
Over-Allotment
Option
     Total With
Exercise of Over-
Allotment Option
 

Public offering price

   $                    $                    $                

Underwriting discounts and commissions payable by us

   $         $         $     

We estimate that expenses payable by us in connection with this offering, other than the underwriting discounts and commissions referred to above, will be approximately $        . We have agreed to reimburse the underwriters for certain out-of-pocket expenses.

No Public Market

Prior to this offering, there has not been a public market for our common stock in the United States and the public offering price for our common stock will be determined through negotiations between us and the underwriters. Among the factors to be considered in these negotiations will be prevailing market conditions, our financial information, market valuations of other companies that we and the underwriters believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant.

No assurance can be given that the initial public offering price will correspond to the price at which our common stock will trade in the public market subsequent to this offering or that an active trading market for our common stock will develop and continue after this offering.

Indemnification

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or the Securities Act, and liabilities arising from breaches of representations and warranties contained in the underwriting agreement, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.

Lock-up Agreements

We, our officers, directors and certain of our stockholders have agreed, subject to limited exceptions, for a period of 180 days after the date of the underwriting agreement, not to offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of, directly or indirectly any shares of common stock or any securities convertible into or exchangeable for our common stock either owned as of the date of the underwriting agreement or thereafter acquired without the prior written consent of the representative. This 180-day period may be extended if (1) during the last 17 days of the 180-day period, we issue an earnings release or material news or a material event regarding us occurs or (2) prior to the expiration of the 180-day period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, then the period of such extension will be 18 days, beginning on the issuance of the earnings release or the occurrence of the material news or material event. If after any announcement described in clause (2) of the preceding sentence, we announce that we will not release earnings results during the 16-day period, the lock-up period shall expire the later of the expiration of the 180-day period and the end of any extension of such period made pursuant to clause (1) of the preceding sentence. The representative may, in its sole discretion and at any time or from time to time before the termination of the lock-up period release all or any portion of the securities subject to lock-up agreements; provided, however, that, subject to limited exceptions, at least two business days before the release or waiver or any lock-up agreement, the representative must notify us of the impending release or waiver and announce the impending release or waiver through a major news service.

 

99


Table of Contents

Price Stabilization, Short Positions and Penalty Bids

In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act:

 

   

Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

 

   

Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market.

 

   

Syndicate covering transactions involve purchases of shares of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which it may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

 

   

Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. Neither we nor the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither we nor the underwriters make any representations that the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.

Electronic Distribution

This prospectus in electronic format may be made available on websites or through other online services maintained by one or more of the underwriters, or by their affiliates. Other than this prospectus in electronic format, the information on any underwriter’s website and any information contained in any other website maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.

Other

From time to time, certain of the underwriters and/or their affiliates have provided, and may in the future provide, various investment banking and other financial services for us for which services they have received and, may in the future receive, customary fees. Except for services provided in connection with this offering, no underwriter has provided any investment banking or other financial services during the 180-day period preceding the date of this prospectus and we do not expect to retain any underwriter to perform any investment banking or other financial services for at least 90 days after the date of this prospectus.

 

100


Table of Contents

NOTICE TO INVESTORS

Notice to Investors in the United Kingdom

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any securities which are the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any such securities may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

(c) by the underwriter to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive); or

(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of these securities shall result in a requirement for the publication by the issuer or the underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer to the public” in relation to any of the securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any such securities to be offered so as to enable an investor to decide to purchase any such securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

Each underwriter has represented, warranted and agreed that:

(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of any of the securities in circumstances in which section 21(1) of the FSMA does not apply to the issuer; and

(b) it has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the securities in, from or otherwise involving the United Kingdom.

 

101


Table of Contents

European Economic Area

In particular, this document does not constitute an approved prospectus in accordance with European Commission’s Regulation on Prospectuses no. 809/2004 and no such prospectus is to be prepared and approved in connection with this offering. Accordingly, in relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (being the Directive of the European Parliament and of the Council 2003/71/EC and including any relevant implementing measure in each Relevant Member State) (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) an offer of securities to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to such securities which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of securities to the public in that Relevant Member State at any time:

 

   

to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

   

to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000; and (3) an annual net turnover of more than €50,000,000, as shown in the last annual or consolidated accounts; or

 

   

in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of securities to the public” in relation to any of the securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State. For these purposes the shares offered hereby are “securities.”

 

102


Table of Contents

LEGAL MATTERS

The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Stinson Morrison Hecker LLP, Kansas City, Missouri. The underwriters are being represented by Lowenstein Sandler PC, Roseland, New Jersey.

EXPERTS

The financial statements of TVAX Biomedical I, LLC, formerly TVAX Biomedical, LLC (a development stage enterprise), as of December 31, 2010 and 2009, and for each of the three years in the period ended December 31, 2010, and for the period from November 1, 2004 (inception) through December 31, 2010 appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

INTERESTS OF NAMED EXPERTS AND COUNSEL

Except for (i) 4,750 shares of common stock of the Company, (ii) warrants to purchase 13,361 shares of Series C Preferred Stock of the Company, and (iii) 77,831 shares of Series C Preferred Stock of the Company beneficially owned by Stinson Morrison Hecker LLP and its partners, no expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 (including exhibits, schedules and amendments) under the Securities Act with respect to the shares of common stock to be sold in this offering. This prospectus does not contain all the information set forth in the registration statement. For further information about us and the shares of common stock to be sold in this offering, you should refer to the registration statement. Statements contained in this prospectus relating to the contents of any contract, agreement, or other document are not necessarily complete. Whenever this prospectus refers to any contract, agreement, or other document, you should refer to the exhibits that are a part of the registration statement for a copy of the contract, agreement, or document.

You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy all or any portion of the registration statement or any other information we file at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the operation of the public reference rooms.

Upon completion of this offering, we will be subject to the information reporting requirement of the Exchange Act, and we will file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We also maintain a website at www.tvaxbiomedical.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of, and is not incorporated into, this prospectus.

 

103


Table of Contents

GLOSSARY

The following is an explanation of the technical terms used throughout this prospectus.

 

Adjuvant therapy:

Any treatment given after the primary treatment to improve the chances of increased benefit. Adjuvant therapy may include chemotherapy, immunotherapy, radiation therapy, hormone therapy, biological therapy or any and all of the above.

 

Adverse event:

An adverse event is any adverse change in health or side effect that occurs in a person who participates in a clinical trial while the patient is receiving the treatment (study medication, application of the study device, etc.) or within a previously specified period of time after the treatment has been completed. Adverse events are graded 1-5 using standard common toxicity criteria developed by the United States National Institutes of Health. Grade 3-5 adverse events are defined as serious adverse events.

 

AIDS:

Acquired immune deficiency syndrome or acquired immunodeficiency syndrome.

 

Angiogenesis:

The development of new blood vessels.

 

Antigen:

A protein that is recognized as foreign by the immune system and that has the ability to induce a specific immune response.

 

Antigen specific effector (killer) T cells:

Immune cells that are responsible for selectively killing and eliminating cancer cells and many infectious agents, including viruses, from the body. Along with antibodies, these cells are responsible for the immune protective and therapeutic effects of the adaptive immune system.

 

Apheresis:

A procedure during which blood is drawn and separated into its components by a process similar to dialysis where some components are retained and some are returned to the donor.

 

Astrocytoma:

A tumor that begins in the brain or spinal cord in small, star-shaped cells called astrocytes that are a subset of glial cells. Grade IV astrocytomas are generally referred to as glioblastoma multiforme.

 

Autologous:

Derived from the same individual. When used to describe a medical procedure such as a transplant, it means a body component that is removed and then returned to the same individual.

 

B Cells

One of the three main cell types contained in the portion of the immune system that is responsible for antigen-specific immunity. B cells produce antibodies, which mediate other functions of the adaptive immune system.

 

Biotherapeutics:

The field encompassing therapeutic materials produced using biological means, including immunologic and recombinant DNA technology.

 

104


Table of Contents

Biopsy:

A medical test involving the removal of cells or tissues for examination; the medical removal of tissue from a living subject for the purpose of determining the presence or extent of a disease.

 

Biotherapeutics:

The field encompassing therapeutic materials produced using biological means, including immunologic and recombinant DNA technology.

 

Carcinoma:

The most common type of cancer occurring in humans, a carcinoma is a cancer that begins in a tissue that lines the inner or outer surfaces of the body.

 

Cell infusion:

Delivery of cells by injection from an infusion bag into a blood vessel generally over a period of time.

 

Cell mediated immune response:

An adaptive immune response produced by antigen specific effector T cells.

 

Clinical trial:

Any investigation in humans intended to discover or verify the effects of an investigational drug or biological or new use of an already marketed drug or biological, and/or to identify any adverse reactions to the investigational drug or biological with the object of determining safety and/or efficacy of the studied use. The terms “clinical trial” and “clinical study” are synonymous.

 

Common toxicity criteria (CTC):

A standardized classification of side effects used in assessing toxicities during clinical trials.

 

Conformal:

Term used to describe image guided radiotherapy that is focused on the edges of surgically resected cancers. Designed to conform to the site and shape of the cancer so as to limit damage to normal tissue.

 

Cytokine:

Any of a number of substances, such as interferons, interleukins, and growth factors that control communications between cells. Distinguished from hormones by the fact that they only act locally on adjacent cells in the same area where they are produced.

 

Cytotoxic:

Toxic to living cells.

 

Cytotoxic chemotherapy:

Chemicals or drugs that kill cells, especially cancer cells. Their side effects are typically related to the fact that they kill healthy normal cells in addition to cancer cells.

 

Delayed type hypersensitivity skin test:

A skin test that is used to measure T cell-mediated immunity. The delayed type skin reaction typically takes 24 to 72 hours to develop. The best known example is the tuberculin skin test for tuberculosis. Called ‘delayed’ to distinguish it from immediate hypersensitivity, which typically takes minutes to a few hours to develop and is mediated by antibodies. The best known example of testing for immediate hypersensitivity is allergy testing.

 

105


Table of Contents

Dendritic cell:

A type of immune cell that is specialized to process and present antigens to T cells. Therefore, also called antigen presenting cells. Dendritic cells are present in tissues in contact with the external environment, such as the skin and the inner lining of the nose, lungs, stomach and intestines and can also be found in an immature state in the blood. Dendritic cells carry antigens from body surfaces to lymphoid tissue where the processed antigen is presented to T cells in a form that leads to the generation of an adaptive immune response.

 

DNA (deoxyribonucleic acid):

A linear polymer found in the nucleus of a cell that encodes the cell’s genetic information.

 

Efficacy:

The ability to produce a desired favorable effect in treating or preventing the studied disease or condition.

 

Ex vivo:

Outside the living body

 

Food and Drug Administration (FDA):

The branch of the U.S. Department of Health and Human Services responsible for regulating the approval and use of drugs, medical devices, cosmetics, and foods.

 

Glioma:

A primary brain tumor that originates from non-neuronal supportive cells of the brain, called glial cells.

 

Good Clinical Practices (GCP):

National and international regulatory guidelines for the design, conduct, performance, monitoring, auditing, recording, analysis, and reporting of clinical trials that provides assurance that the data and reported results are credible and accurate, and that the rights, integrity, and confidentiality of trial participants are respected and protected.

 

Good Manufacturing Practices (GMP):

National and international regulatory guidelines designed to insure consistent manufacturing of safe and effective medical products.

 

Grade:

A description of a tumor based on how abnormal the cancer cells look under a microscope and how quickly the tumor is likely to grow and spread. Grading systems are different for each type of cancer but are but are generally scored from 1-4 with grade IV being the most malignant.

 

Granulocyte Macrophage Colony Stimulating Factor (GM-CSF):

A cytokine that functions as a white blood cell growth factor, specific for granulocyte and macrophage stem cells. GM-CSF also has the ability to activate dendritic cells. This latter property is responsible for GM-CSF’s potency as an immunological adjuvant.

 

Growth factor:

A naturally occurring substance capable of stimulating cellular growth, proliferation and cellular differentiation.

 

106


Table of Contents

Immune:

An individual’s ability to protect itself from a disease causing agent by virtue of having or producing antibodies or lymphocytes capable of reacting with a specific antigen associated with that agent. Also, generally refers to an individual’s ability to resist disease-causing agents by any means.

 

Immunogenic:

Relating to or denoting substances able to stimulate an immune response.

 

Immunogenicity:

Ability of a particular substance, specifically an antigen or complex of antigens, to provoke an immune response in the body.

 

Immunotherapeutic:

Treatment of disease by inducing, enhancing or suppressing an immune response.

 

Institutional Review Board (IRB):

Also known in some countries as the Ethics Review Board, or ERB. This is the panel of experts at a clinical trial site that conducts a scientific and ethical review of a study protocol and then authorizes that specific institution to participate in the study protocol. The IRB or ERB is charged with insuring that the rights of study participants are protected and that each participant enrolled in the trial has given their fully informed consent to participate in the clinical trial.

 

Interleukin-2 (IL-2):

A cytokine that is produced by T cells and stimulates T cells to multiply.

 

Investigational New Drug Application (IND):

Application to the FDA for authorization to begin to test a drug or biologic in humans. May be filed by individuals, research institutions or companies. The IND becomes effective, if the FDA does not disapprove it within 30 days or implement a ‘clinical hold’, which prevents the applicant from treating a patient until all issues have been resolved. The IND shows results of previous experiments; how, where and by whom the new studies will be conducted; a full description of the agent being evaluated; how it is thought to work in the human body; any toxic effects found in the animal studies; and how the agent is manufactured. All study protocols to test the agent are recorded under the IND number. All clinical trials being performed using one of those protocols must be reviewed and approved in advance by the IRB where the trials will be conducted (in Europe, the ERB).

 

Investigator (or clinical investigator):

A health care professional responsible for the conduct of a clinical trial at a clinical trial site and who coordinates with the study sponsor and the IRB. If a trial is conducted by a team of individuals at a trial site, the investigator is the responsible leader of the team and may also be called the principal investigator.

 

Irradiated:

Exposed to radiation, as for diagnostic or therapeutic purposes. Radiation damages DNA in such a way as to render cells replication incompetent. Cancer cells can be exposed to a sufficiently high dose of radiation to render them completely incapable of replicating.

 

107


Table of Contents

Killer T cell:

A fully differentiated T cell that functions in cell-mediated immunity by attacking and killing target cells that have specific surface antigens.

 

Macrophage:

A multifunctional white blood cell that specializes in engulfing invading microorganisms. Additional functions of macrophages include the ability to be activated to kill cancer cells, the ability to function as antigen presenting cells (dendritic cells) and the ability to be activated to suppress immune responses.

 

Malignancy:

A tumor that is capable of spreading beyond its site of origin, often to other regions of the body and ultimately producing death, if left untreated. Compared to benign tumor that only grows locally and generally can be cured surgically. Synonymous with cancer.

 

Malignant transformation:

The process by which normal cells become cancer cells.

 

Metastatic:

Cancer that has spread from its site of origin to another location in the body.

 

Methodology:

The way in which information is found or something is done. The methodology includes the methods, procedures and techniques used to collect and analyze information.

 

Monoclonal antibodies:

Antibodies that all have an identical structure because they are made by a population of identical immune cells that is a clone derived from a single parent cell.

 

Mucositis:

The inflammation and ulceration of the mucous membranes lining the digestive tract, usually as an adverse effect of chemotherapy and radiotherapy treatment for cancer.

 

Mutation:

A change in DNA structure of a particular gene that changes the genetic message carried by that gene when the cell duplicates itself. May occur spontaneously during cell replication or may be caused by external agents such as radiation that damage DNA.

 

New Drug Application (NDA):

An application to the FDA for marketing approval for a drug. Same as a BLA, but applies to drugs, not biologicals. Applications are reviewed by the Center for Drug Evaluation and Research (CDER) the division of the FDA that is responsible for drug regulation.

 

Orphan product designation:

A special status granted by the Orphan Drug Act (“ODA”) to a product to treat a rare disease or condition upon request from a sponsor. The product and condition that it’s designated to treat must meet certain criteria in order to achieve Orphan Product Designation. Orphan Product Designation generally requires either of the following: (1) the disease or condition for which the product is intended has a prevalence that totals fewer than 200,000 people in the United States or, if the drug is a vaccine, diagnostic drug or preventive drug, the persons to whom the drug will be administered in the United States are fewer than 200,000 per year, or (2) for a drug

 

108


Table of Contents
 

intended for diseases or conditions affecting 200,000 or more people, or for a vaccine, diagnostic drug, or preventive drug to be administered to 200,000 or more persons per year in the United States, there is no reasonable expectation that costs of research and development of the drug for the indication can be recovered by sales of the drug in the United States. Orphan product status gives a product certain benefits, the most important of which is a period of seven years of marketing exclusivity following FDA marketing approval. Similar regulations exist in the European Union.

 

Personalized immunotherapy:

Immunotherapy that was tested in clinical studies employing the same scientific principles and same general technical approach as were used in TVAX Immunotherapy but where the studies were not performed by TVAX founders.

 

Phase in product development:

Therapeutic development is divided into phases that are determined by the main objectives of the development process.

 

Phase I:

A phase I clinical trial is the first step in testing a new investigational medication (or new use of a marketed medication) in humans. Phase I studies are mainly concerned with evaluating a medication’s safety, including the safe dosage range. Except for medications used to treat cancer, phase I clinical trials are usually conducted in healthy individuals and are not intended to treat disease or illness. Because cancer can be such a life-threatening condition and many effective anti-cancer agents have high toxicity, phase I trials with anti-cancer medications are usually carried out in patients who already have the disease and who have failed standard of care treatments. Phase I studies may provide a preliminary insight into the medication’s efficacy.

 

Phase II:

Phase II clinical trials involve subjects who have the disease or condition to be treated with the test medication. These trials are designed to acquire more information on the safety of the new treatment and to begin to determine how effective the new treatment could be in the targeted disease or condition. Phase II studies may also be performed to determine optimal dosing and delivery regimens. Many different study designs may be employed in Phase II, including small randomized studies. Patients are carefully monitored for side effects and for any improvement in their illness, symptoms, or both.

 

Phase III:

After a treatment has been shown to have positive safety and efficacy results in small groups of patients, it may be studied in a larger Phase III trial to confirm efficacy and identify adverse events from long-term use. A Phase III trial usually compares how well the study treatment works with an inactive placebo and/or another approved medication. Usually subjects are randomly entered into comparator study arms and, optimally, study participants (subjects and investigators), will be blinded with regard to which study treatment a particular subject is receiving. Phase III studies generally also are multi-center, meaning that subjects are treated at multiple clinical trial sites in order to minimize the bias that might occur through the

 

109


Table of Contents
 

treatment of all subjects at a single trial site by a single clinical investigator. Phase III trials are generally designed to obtain definitive outcome data for the purposes of submitting a BLA or NDA for marketing approval from the FDA or other regulatory authority.

 

Pivotal study:

Typically a Phase III study which is designed to generate the data required by a regulatory agency to decide whether or not to approve a drug.

 

Preclinical study:

A laboratory or animal study of a biological, drug, device, or procedure to find out if the new treatment shows enough promise to be studied in humans.

 

Progression free survival:

A term used to describe the length of time during and after treatment during which the disease being treated (usually cancer) does not get worse.

 

Protocol:

A written action plan for a clinical trial. The plan states what will be done in the study and why. It outlines how many participants will take part in the study, what types of patients may take part, what tests they will receive and how often, what the treatment plan is, and the sponsor’s plan to analyze the data when the study is completed.

 

Radiographic:

The use of X-rays to view a non-uniformly composed material such as the human body.

 

Radiotherapy:

The treatment of disease, such as cancer, by exposure to a radioactive substance.

 

Resection:

Removal of an organ, lesion or cancerous tumor by cutting it away from the body or the remainder of the tissue.

 

Stable disease:

Progression-free survival greater than six months.

 

T cell:

A white blood cell responsible for cell-mediated immunity, the process that is responsible for attacking and destroying virus-infected cells, foreign tissue and tumor cells. T cells are one of three main cell types (others are B cells and macrophages) of the portion of the immune system that is responsible for adaptive immune responses and antigen-specific immunity.

 

Tumor:

An abnormal mass of tissue. Tumors can be benign or malignant (cancerous).

 

TVAX Immunotherapy®

General treatment approach that employs the combination of vaccination to induce an immune response against the disease causing agent and intravenous infusion of blood derived antigen specific effector T cells that TVAX founders have tested in university-sponsored and company sponsored clinical trials.

 

WHO:

World Health Organization.

 

110


Table of Contents

TVAX BIOMEDICAL I, LLC, formerly TVAX Biomedical, LLC

(A Development Stage Company)

INDEX TO FINANCIAL STATEMENTS

 

  

Report of Independent Registered Public Accounting Firm

     F-2   
  

Balance Sheets as of December 31, 2009 and 2010

     F-3   

Statements of Operations for the Years Ended December  31, 2008, 2009, and 2010, and the Period From November 1, 2004 (Inception) Through December 31, 2010

     F-4   

Statements of Redeemable Preferred Members’ Interest and Members’ Equity (Deficit) for the Period From November 1, 2004 (Inception) Through December 31, 2010

     F-5   

Statements of Cash Flows for the Years Ended December  31, 2008, 2009, and 2010, and the Period From November 1, 2004 (Inception) Through December 31, 2010

     F-7   

Notes to Financial Statements

     F-8   
  

Unaudited Balance Sheets as of December 31, 2010 and June 30, 2011

     F-20   

Unaudited Statements of Operations for the Six Months Ended June  30, 2010 and 2011, and the Period from November 1, 2004 (Inception) to June 30, 2011

     F-21   

Unaudited Statements of Redeemable Preferred Members’ Interest and Members’ Equity (Deficit) for the Period From November 1, 2004 (Inception) Through June 30, 2011

     F-22   

Unaudited Statements of Cash Flows for the Six Months Ended June  30, 2010 and 2011, and the Period From November 1, 2004 (Inception) to June 30, 2011

     F-24   

Notes to Unaudited Financial Statements

     F-25   

 

F-1


Table of Contents

Report of Independent Registered Public Accounting Firm

The Members

TVAX Biomedical I, LLC

We have audited the accompanying balance sheets of TVAX Biomedical I, LLC (formerly TVAX Biomedical, LLC and the “Company”), a development stage enterprise, as of December 31, 2009 and 2010, and the related statements of operations, redeemable preferred members’ interests and members’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2010 and for the period from November 1, 2004 (inception) through December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TVAX Biomedical I, LLC at December 31, 2009 and 2010 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, and for the period from November 1, 2004 (inception) through December 31, 2010, in conformity with U.S. generally accepted accounting principles.

 

/s/ Ernst & Young LLP
Kansas City, Missouri
November 4, 2011

 

F-2


Table of Contents

TVAX Biomedical I, LLC, formerly TVAX Biomedical, LLC

(A Development Stage Enterprise)

Balance Sheets

 

     December 31  
     2009     2010  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 10,815      $ 1,677,286   

Grant receivable

     —          235,296   

Prepaid expenses

     9,835        53,889   

Other current assets

     7,487        5,409   
  

 

 

   

 

 

 

Total current assets

     28,137        1,971,880   
    

Deferred financing costs, net of accumulated amortization of $97,662 in 2010

     42,878        209,198   

Property and equipment, net

     79,499        248,654   
  

 

 

   

 

 

 

Total assets

   $ 150,514      $ 2,429,732   
  

 

 

   

 

 

 

Liabilities and members’ equity (deficit)

    

Current liabilities:

    

Accounts payable

   $ 90,020      $ 164,810   

Accrued interest

     3,043        144,074   

Accrued compensation

     262,700        —     

Accrued expenses

     —          34,167   

Current portion of long-term debt

     —          6,132   
  

 

 

   

 

 

 

Total current liabilities

     355,763        349,183   
    

Due to member

     44,590        44,590   

Warrants to purchase redeemable preferred member interests

     396,000        1,176,164   

Long-term debt, less current portion

     338,123        1,064,379   
  

 

 

   

 

 

 

Total liabilities

     1,134,476        2,634,316   

Commitments and contingencies

    

Redeemable convertible preferred member interests:

    

Series A, authorized, issued, and outstanding units – 1,200,000; liquidation preference – $1,866,645 in 2010

     1,691,089        1,866,645   

Series C, authorized units – 5,000,000; issued and outstanding units – 969,859 in 2010; liquidation preference – $2,254,243 in 2010

     —          2,254,243   

Members’ equity (deficit):

    

Convertible preferred interests – Series B, authorized units – 542,000; issued and outstanding units – 0 in 2010 and 387,000 in 2009;

     376,560        —     

Common units; authorized, issued, and outstanding – 8,800,000

     1,320,000        1,320,000   

Profits units; authorized units – 2,000,000 in 2010, issued and outstanding units – 1,195,000 in 2010

     —          154,150   

Other contributed capital

     —          1,139,612   

Amounts receivable from members

     —          (149,995

Deficit accumulated during the development stage

     (4,371,611     (6,789,239
  

 

 

   

 

 

 

Total members’ equity (deficit)

     (2,675,051     (4,325,472
  

 

 

   

 

 

 

Total liabilities and members’ equity (deficit)

   $ 150,514      $ 2,429,732   
  

 

 

   

 

 

 

See accompanying notes

 

F-3


Table of Contents

TVAX Biomedical I, LLC, formerly TVAX Biomedical, LLC

(A Development Stage Enterprise)

Statements of Operations

 

     Year Ended December 31     Period from
November 1,
2004 (Inception)
through
December 31,
2010
 
     2008     2009     2010    

Grant revenue

   $ —        $ —        $ 244,479      $ 244,479   

Operating expenses:

        

Research and development

     353,435        265,596        1,080,134        3,690,318   

General and administrative

     195,561        224,135        468,208        1,138,448   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     548,996        489,731        1,548,342        4,828,766   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (548,996     (489,731     (1,303,863     (4,584,287

Other income (expense):

        

Interest income

     512        —          —          23,562   

Interest expense

     —          (3,156     (768,554     (771,710

Change in fair value of warrant liability

     (168,000     (72,000     96,748        (119,252
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     (167,488     (75,156     (671,806     (867,400
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (716,484     (564,887     (1,975,669     (5,451,687

Preferred members’ interest preferred return

     (144,088     (159,046     (291,039     (1,186,632

Member distribution upon conversion of Series B to Series C

     —          —          (150,920     (150,920
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common members

   $ (860,572   $