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NEWLINK GENETICS CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 5, 2014

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, and such statements are subject to the "safe harbor" created by those sections. Forward-looking statements are based on our management's beliefs and assumptions and on information available to our management as of the date hereof. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expect," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" and similar expressions intended to identify forward-looking statements. Examples of these statements include, but are not limited to, statements regarding: our plans to develop and commercialize our product candidates; our ongoing and planned preclinical studies and clinical trials, including the timing for completion of enrollment and outcome of our Phase 3 clinical trial for our algenpantucel-L cancer immunotherapy; the timing of release of data from ongoing clinical studies; the timing of and our ability to obtain and maintain regulatory approvals for our product candidates; the clinical utility of our product candidates; our plans to leverage our existing technologies to discover and develop additional product candidates; our ability to quickly and efficiently identify and develop product 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 described in Part II, Item 1A, "Risk Factors" of this Quarterly Report and in our other periodic reports filed from time to time with the Securities and Exchange Commission, or SEC, including our Annual Report on Form 10-K for the year ended December 31, 2013. Our actual results could differ materially from those discussed in our forward-looking statements for many reasons, including those risks. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q completely. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Overview

We are a biopharmaceutical company focused on discovering, developing and commercializing novel immunotherapeutic products to improve treatment options for patients with cancer. Our portfolio includes biologic and small-molecule immunotherapy product candidates intended to treat a wide range of oncology indications. Our product candidates are designed to harness multiple components of the immune system to combat cancer without significant incremental toxicity, either as a monotherapy or in combination with other treatment regimens. We have two proprietary cancer immunotherapy technology platforms that independently stimulate immune activation and disrupt tumor-mediated immunosuppression; HyperAcute vaccines which induce immune activation and IDO (Indoleamine 2.3-dioxygenase) pathway inhibitors which block immunosuppression.

Our lead HyperAcute product candidate, algenpantucel-L (HyperAcute Pancreas) is being studied in two randomized Phase 3 clinical trials. The first trial, IMPRESS (Immunotherapy for Pancreatic Resectible Cancer Survival Study) has completed enrollment of 722 patients with resected pancreas cancer and is being performed under a Special Protocol Assessment, or SPA, with the United States Food and Drug Administration, or FDA. A second Phase 3 Trial, PILLAR (Pancreatic Immunotherapy with algenpantucel-L for Locally Advanced non-Resectible disease), is currently enrolling patients. We initiated these trials based on encouraging Phase 2 data that suggest improvement in both disease-free and overall survival. We have received Fast Track and Orphan Drug designations from the FDA for algenpantucel-L for the adjuvant treatment of patients with surgically-resected pancreatic cancer and Orphan Medicinal Product designation for algenpantucel-L from the European Commission. The primary endpoint for our IMPRESS trial with algenpantucel-L for patients with surgically-resected pancreatic cancer is overall survival and, as determined by the SPA, the first interim analysis was conducted when 222 deaths were reported for the study, which occurred during the quarter ending March 31, 2014. As part of this planned interim analysis, the independent data safety monitoring committee, or DSMC, met to review available patient data. As anticipated, following their review, the DSMC recommended that the study should proceed as planned, without modification. A second interim analysis is planned upon reaching 333 patient events and, if needed, a final analysis is planned at 444 patient events. Our additional Hyper Acute product candidates in clinical development include tergenpumatucel-L (HyperAcute Lung), dorgenmeltucel-L (HyperAcute Melanoma), HyperAcute Prostate and Hyper Acute Renal. To date, our HyperAcute product candidates have been dosed in more than 500 cancer patients, either as a monotherapy or in combination with other treatments and have demonstrated a favorable safety profile.

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Our HyperAcute immunotherapy platform creates novel biologic products that are designed to stimulate the human immune system to recognize and attack cancer cells. HyperAcute product candidates are composed of human cancer cells that are tumor specific, but not patient specific. These cells have been modified to express alpha-gal, a carbohydrate for which humans have pre-existing immunity. These alpha-gal-modified cells stimulate a rapid and powerful human immune response that trains the body's natural defenses to seek out and destroy cancer cells. The objective of HyperAcute immunotherapies is to elicit an antitumor response by "educating" the immune system to attack a patient's own cancer cells. HyperAcute immunotherapies do not require any tissue from individual patients and use intact whole cells rather than cell fragments or purified proteins. We believe these unique properties of HyperAcute products result in the stimulation of a robust immune response.

In addition to our HyperAcute platform, we have an active drug discovery and clinical development program focused on the IDO (indoleamine-(2,3)-dioxygenase) pathway. Our IDO pathway inhibitors represent a key class of immune checkpoint inhibitors that are regarded as potential breakthrough approaches to cancer therapy. We currently have two distinct IDO pathway inhibitor product candidates in clinical development, indoximod and NLG919, with different and potentially complementary mechanisms of action. Additionally, we are conducting ongoing drug discovery work to explore new chemical entities, which inhibit IDO as well as a related target, TDO (tryptophan-2,3 dioxgynase), as potential new anticancer agents. Our most advanced IDO pathway inhibitor, indoximod, is in multiple Phase 1 and 2 clinical trials for the treatment of patients with breast, prostate, pancreas, and brain cancers. Additionally, NLG919 is currently in Phase 1 clinical development for patients with recurrent advanced solid tumors. We have generated encouraging preclinical data that demonstrate the potential of combining multiple immunotherapies including multiple checkpoint inhibitors that target the IDO pathway for enhanced anti-tumor activity. Our small molecule IDO pathway inhibitor drug candidates are designed to counteract immunosuppressive effects of the IDO pathway, a fundamental mechanism regulating immune response. In many different cancers, IDO can be overexpressed directly either on cancer cells or by antigen presenting cells in the tumor microenvironment, representing a substantial drug development opportunity. When IDO is expressed by developing cancers, IDO pathway activity creates an immunosuppressive environment that shifts the immune response from anti-cancer to cancer tolerance. Multiple elements of the immune system are affected by this shift, including T-cells, regulatory T-cells, and dendritic cells, resulting in the survival of malignant cells that might otherwise be recognized and attacked by the immune system. Inhibiting the IDO pathway reprograms the immune response from tolerance back to an active anti-cancer response. In June 2014, we entered into a Development and Manufacturing Terms and Conditions and a Development and Process Transfer Program Leading to Commercial Manufacturing for algenpantucel-L HyperAcute Pancreas with WuXi AppTec, Inc., or WuXi, or collectively, the WuXi Agreement. The WuXi Agreement is intended to establish a source of supply for algenpantucel-L for commercial sale, if and when that drug is approved by the FDA. Under the WuXi Agreement, we granted WuXi a non-exclusive right to use certain starting materials and our confidential information to develop manufacturing processes and to manufacture cell material to be formulated into algenpantucel-L. WuXi will adapt facilities and equipment for production, generate batch records and other documents, perform studies and test manufacturing runs and conduct process validation and characterization.

BioProtection Systems Corporation, or BPS, was founded by us as a subsidiary in 2005 to research, develop and commercialize vaccines to control the spread of emerging lethal viruses and infectious diseases, improve the efficacy of existing vaccines and provide rapid-response prophylactic and therapeutic treatment for pathogens most likely to enter the human population through pandemics or acts of bioterrorism. BPS is based on three core technologies, each of which can be leveraged into the infectious disease or biodefense fields. The first is our HyperAcute immunotherapy technology, which is currently focused on enhancing vaccines for influenza. The second technology is based on a yellow fever virus. The third technology is a replication competent recombinant vesicular stomatitis virus, or rVSV, an advanced vaccine technology developed for the Marburg and Ebola viruses.

We incurred net losses of 9.2 million, 18.4 million, 7.1 million, and 15.0 million, for the three and six months ended June 30, 2014 and the three and six months ended June 30, 2013, respectively. We expect our losses to increase over the next several years as we advance our product candidates through late-stage clinical trials, pursue regulatory approval of our product candidates, and begin to build our commercialization activities in anticipation of one or more of our product candidates receiving marketing approval.

On October 25, 2011, we filed a Certificate of Amendment of our Restated Certificate of Incorporation with the Secretary of State of Delaware effecting a 2.1-for-one reverse split of our common stock. All share and per share amounts have been retroactively restated where applicable in the accompanying financial statements and notes for all periods presented.

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During the three and six month periods ending June 30, 2014, and June 30, 2013, we did not generate any revenue from product sales. We generated grant revenue of $212,000, $546,000, $232,000 and $534,000, in grant revenue for the three and six months ended June 30, 2014, and the three and six months ended June 30, 2013, respectively, which is primarily attributable to research and development being performed by our subsidiary, BPS, under contracts and grants with the Department of Defense, or DOD, and the National Institutes of Health, or NIH.

In the future, we may generate revenue from a variety of sources, including product sales (if we develop products 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 we may receive under potential strategic collaborations, and the amount and timing of payments we may receive upon the sale of any products, if approved, to the extent any are successfully commercialized. If we fail to complete the development of our product 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 Expenses

Research and development expenses consist of expenses incurred in connection with the discovery and development of our product candidates. These expenses consist primarily of:

employee-related expenses, which include salaries, bonuses, benefits

and share-based compensation;

the cost of acquiring and manufacturing clinical trial materials;

expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical studies; facilities, depreciation of fixed assets and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities and equipment related to research and development;



expenses incurred under agreements with contract manufacturing organizations;

license fees for and milestone payments related to in-licensed products and technology; and



costs associated with non-clinical activities and regulatory approvals.

We expense research and development expenses as incurred.

Product 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. We plan to increase our research and development expenses for the foreseeable future as we seek to complete development of our most advanced product candidates, and to further advance our earlier-stage research and development projects. The following tables summarize our research and development expenses for the periods indicated:

Research and Development Expenses by Product (In thousands) (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013



HyperAcute immunotherapy technology $ 4,898$ 3,877$ 9,579$ 7,711 IDO pathway inhibitor technology

1,205 835 2,402 2,920 Other research and development 372 325 882 749



Total research and development expenses $ 6,475$ 5,037$ 12,863$ 11,380

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Table of Contents Research and Development Expenses by Category (In thousands) (unaudited) Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Compensation $ 2,933$ 2,198$ 6,180$ 4,537 Equipment, supplies and occupancy 1,303 1,259 2,750 2,588 Outside clinical and other 2,239 1,580 3,933 4,255



Total research and development expenses $ 6,475$ 5,037$ 12,863$ 11,380

At this time, we cannot accurately estimate or know the nature, specific timing or costs necessary to complete clinical development activities for our product candidates. We are subject to the numerous risks and uncertainties associated with developing biopharmaceutical products including the uncertain cost and outcome of ongoing and planned clinical trials, the possibility that the FDA or another regulatory authority may require us to conduct clinical or non-clinical testing in addition to trials that we have planned, rapid and significant technological changes, frequent new product and service introductions and enhancements, evolving industry standards in the life sciences industry and our future need for additional capital. In addition, we currently have limited clinical data concerning the safety and efficacy of our product candidates. A change in the outcome of any of these variables with respect to the development of any of our product candidates could result in a significant change in the costs and timing of our research and development expenses.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, business development, information technology, legal and human resources functions. Other general and administrative expenses include facility costs not otherwise associated with research and development expenses, intellectual property prosecution and defense costs and professional fees for legal, consulting, auditing and tax services.

We anticipate that our general and administrative expenses will continue to increase over the next several years for, among others, the following reasons:

we expect our general and administrative expenses to increase as a result of increased payroll, expanded infrastructure and higher consulting, legal, auditing and tax services and investor relations costs, and director and officer insurance premiums associated with being a public company; we expect to incur increased general and administrative expenses to support our research and development activities, which we expect to expand as we continue to advance the clinical development of our product candidates; and we expect to incur increased expenses related to the planned sales and marketing of our product candidates, which may include recruiting a specialty sales force, in anticipation of commercial launch before we receive regulatory approval, if any, of a product candidate.



Interest Income and Interest Expense

Interest income consists of interest earned on our cash and cash equivalents and certificates of deposit. The primary objective of our investment policy is capital preservation. We expect our interest income to increase as we invest the net proceeds from our offerings pending their use in our operations.

Interest expense consists primarily of interest and amortization of deferred financing costs associated with our notes payable and obligations under capital leases.

Tax Loss Carryforwards



The valuation allowance for deferred tax assets as of June 30, 2014 and December 31, 2013 was $27.5 million and $25.2 million, respectively. The net change in the total valuation allowance for the three months ended June 30, 2014 and 2013 was

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an increase of $2.4 million and $4.2 million, respectively. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected taxable income, and tax planning strategies in making this assessment. Valuation allowances have been established for the entire amount of the net deferred tax assets as of June 30, 2014 and December 31, 2013, due to the uncertainty of future recoverability.

As of June 30, 2014 and December 31, 2013, we had federal net operating loss carryforwards of $97.9 million and $88.4 million and federal research credit carryforwards of $4.3 million and $4.3 million, respectively, that expire at various dates from 2019 through 2034. Sections 382 and 383 of the Internal Revenue Code limit a corporation's ability to utilize its net operating loss carryforwards and certain other tax attributes (including research credits) to offset any future taxable income or tax if the corporation experiences a cumulative ownership change of more than 50% over any rolling three year period. State net operating loss carryforwards (and certain other tax attributes) may be similarly limited. An ownership change can therefore result in significantly greater tax liabilities than a corporation would incur in the absence of such a change and any increased liabilities could adversely affect the corporation's business, results of operations, financial condition and cash flow.

Based on analysis from inception through December 31, 2011, we believe that we experienced Section 382 ownership changes in September 2001 and March 2003 and BPS experienced Section 382 ownership changes in January 2006 and January 2011. These ownership changes limit our ability to utilize federal net operating loss carryforwards (and certain other tax attributes) that accrued prior to our ownership changes and those of BPS.

Additional analysis will be required to determine whether changes in our ownership since December 31, 2011 and/or changes in our ownership that resulted from our follow-on offering or our ATM Offering have caused or will cause another ownership change to occur. Any such change could result in significant limitations on some or all of our net operating loss carryforwards and other tax attributes.

Even if another ownership change has not occurred, additional ownership changes may occur in the future as a result of events over which we will have little or no control, including purchases and sales of our equity by our 5% stockholders, the emergence of new 5% stockholders, additional equity offerings or redemptions of our stock or certain changes in the ownership of any of our 5% stockholders.

Income tax expense was $0 for the three months ended June 30, 2014 and 2013. Income tax expense differs from the amount that would be expected after applying the statutory U.S. federal income tax rate primarily due to changes in the valuation allowance for deferred taxes.

Critical Accounting Policies and Significant Judgments and Estimates

We have prepared our financial statements in accordance with United States generally accepted accounting principles. Our preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures at the date of the financial statements, as well as revenues and expenses during the reporting periods. We evaluate our estimates and judgments 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 making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions. We have reviewed our critical accounting policies and estimates with the Audit Committee of our Board of Directors.

Our Annual Report on Form 10-K for the year ended December 31, 2013, discusses our most critical accounting policies. Since December 31, 2013, there have been no material changes in the critical accounting policies discussed in the 2013 Annual Report. On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

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In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The ASU eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders' equity. The amendments in the ASU will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. The Company early adopted this standard effective June 30, 2014. Adoption of this standard did not have a material impact on our condensed consolidated financial statements.

Results of Operations

Comparison of the Three Months Ended June 30, 2014 and 2013

Revenues. Revenues for the three months ended June 30, 2014 were $212,000, decreasing from $232,000 for the same period in 2013. The decrease in revenue of $20,000 was due to a decrease in billings by BPS under various DOD contracts and NIH grants.

Research and Development Expenses. Research and development expenses for the three months ended June 30, 2014 were $6.5 million, increasing from $5.0 million for the same period in 2013. The $1.5 million increase was due to an increase of $798,000 in clinical, contract manufacturing, and consulting expenses, accompanied by a $735,000 increase in personnel-related expenses, and offset by a $45,000 decrease in equipment and supplies. The increase in clinical, contract research and manufacturing and consulting fees is primarily attributable to the completion of certain research services agreements, and the increase in personnel-related expense is attributable to both increases in headcount and compensation levels, including share-based compensation.

General and Administrative Expenses. General and administrative expenses for the three months ended June 30, 2014 were $2.9 million, increasing from $2.3 million for the same period in 2013. The $600,000 increase was primarily due to an increase of $228,000 in legal and consulting fees, accompanied by an increase of $187,000 in software subscriptions and other expenses, an increase of $148,000 in share-based compensation expense, and an increase of $37,000 in supplies and occupancy expenses.

Net Loss. Net loss for the three months ended June 30, 2014 was 9.2 million, increasing from 7.1 million for the same period in 2013 due to the changes in research and development and general and administrative expenses discussed above. The weighted average common shares outstanding for the first quarter 2014 were 27.9 million, resulting in a loss per share of $0.33, as compared to 25.6 million and $0.28 per share for first quarter 2013. The increase in the number of weighted average common shares outstanding was primarily attributable to shares issued in our ATM Offering during the fourth quarter of 2013 and the first quarter of 2014.

Comparison of the Six Months Ended June 30, 2014 and 2013

Revenues. Revenues for the six months ended June 30, 2014 were $546,000, increasing from $534,000 for the same period in 2013. The increase in revenue of $12,000 was due to an increase in billings by BPS under various DOD contracts and NIH grants.

Research and Development Expenses. Research and development expenses for the six months ended June 30, 2014 were $12.9 million, increasing from $11.4 million for the same period in 2013. The $1.5 million increase was due to an increase of $1.6 million in personnel-related expenses, offset by a $108,000 decrease in contract research and manufacturing and consulting fees. The decrease in contract research and manufacturing and consulting fees is primarily attributable to the completion of certain contract research services agreements, and the increase in personnel-related expense is attributable to both increases in headcount and compensation levels, including share-based compensation.

General and Administrative Expenses. General and administrative expenses for the six months ended June 30, 2014 were $6.1 million, increasing from $4.3 million for the same period in 2013. The $1.8 million increase was primarily due to an increase of $1.0 million in personnel-related expenses, including share-based compensation expense, accompanied by an increase of $350,000 in legal and consulting fees, an increase of $310,000 in software subscriptions, marketing and other expenses, and increases of $120,000 in travel expense, and an increase of $60,000 in supplies and occupancy.

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Net Loss. Net loss for the six months ended June 30, 2014 was 18.4 million increasing from 15.0 million for the same period in 2013 due to the changes in research and development and general and administrative expenses discussed above. The weighted average common shares outstanding for the first six months of 2014 were 27.7 million, resulting in a loss per share of $0.66, as compared to 24.7 million and $0.61 per share for first six months of 2013. The increase in the number of weighted average common shares outstanding was primarily attributable to shares issued in our ATM Offering during the fourth quarter of 2013 and the first quarter of 2014.

Liquidity and Capital Resources

Before our IPO, we funded our operations principally through the private placement of equity securities, debt financing and interest income.

Since our IPO, we have funded our operations principally through public offerings of common stock. On November 16, 2011, we received proceeds, net of offering costs, of $37.6 million from the issuance of 6.2 million shares of common stock in our IPO. On February 4, 2013, we received proceeds, net of offering costs, of $49.0 million from the issuance of 4.6 million shares of common stock in our follow-on offering. We entered into a Sales Agreement with Cantor Fitzgerald & Co., dated as of September 5, 2013, or the Cantor Agreement, under which we may sell up to $60.0 million of our common stock in one or more placements at prevailing market prices. Any such sales would be effected pursuant to our registration statement on Form S-3 (333-185721), declared effective by the the SEC on January 4, 2013. As of June 30, 2014, we had sold 1.8 million shares under the ATM Offering, raising a total of $45.0 million in net proceeds. Subsequent to March 31, 2014 and through the date of this filing, we sold no additional shares of common stock under the ATM Offering.

As of June 30, 2014, we had cash, cash equivalents and certificates of deposit of approximately $77.1 million. The following table sets forth the primary sources and uses of cash for each of the periods set forth below:

Sources and Uses of Cash (in thousands) Six Months Ended June 30, 2014 2013 Net cash used in operating activities $ (13,103 )$ (11,477 ) Net cash (used in) provided by investing activities (297 ) 971 Net cash provided by financing activities 28,970 49,295 Net increase in cash and cash equivalents $ 15,570$ 38,789



For the six months ended June 30, 2014 and 2013, we used cash of $13.1 million and $11.5 million for our operating activities, respectively. The cash used by operating activities in the six months ended June 30, 2014 primarily resulted from our net loss of $18.4 million, offset by non-cash expenses of $4.1 million (primarily share-based compensation and depreciation) and offset by changes in operating assets and liabilities of $1.2 million. The cash used by operating activities in the six months ended June 30, 2013 primarily resulted from our net loss of $15.0 million, offset by non-cash expenses of $2.5 million, and offset by changes in operating assets and liabilities of $1.1 million.

For the six months ended June 30, 2014 and 2013, our investing activities used cash of $297,000 and provided cash of $971,000, respectively. The cash used by investing activities in the six months ended June 30, 2014 was a result of the purchase of fixed assets of $297,000. The cash provided by investing activities in the six months ended June 30, 2013 was primarily a result of the sale of certificates of deposit of $1.2 million, offset by the purchase of equipment of $274,000.

For the six months ended June 30, 2014 and 2013, our financing activities provided $29.0 million and $49.3 million, respectively. The cash provided by financing activities in the six months ended June 30, 2014 was primarily due to the sale and issuance of common stock of $27.5 million, accompanied by the exercise of stock options of $1.7 million, offset by the repurchase of common stock of $182,000. The cash provided by financing activities in the six months ended June 30, 2013 was primarily due to the sale and issuance of common stock of $49.4 million.

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Operating Capital Requirements

We anticipate that we will continue to generate significant operating losses in the future as we incur expenses related to the research and development of our HyperAcute immunotherapy and IDO pathway inhibitor product candidates, build commercial capabilities and expand our corporate infrastructure. Including the funds received from our follow-on public offering in February 2013 and the funds received to date from our ATM Offering, we believe that we have sufficient cash and cash equivalents and certificates of deposit to fund our operations well into 2015, although not through commercialization and launch of revenue producing products.

We may seek to sell additional equity securities, which may include sales of our common stock pursuant to the Cantor Agreement, if any, or otherwise, or debt securities or to obtain a credit facility if our available cash and cash equivalents are insufficient to satisfy our liquidity requirements or if we develop additional opportunities to do so. The sale of additional equity and debt securities may result in additional dilution to our stockholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. We may require additional capital beyond our currently forecasted amounts. Any such required additional capital may not be available on reasonable terms, if at all. If we are unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned research, development and commercialization activities, which could harm our business.

Because of the numerous risks and uncertainties associated with research, development and commercialization of biopharmaceutical products, we are unable to estimate the exact amounts of our working capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

the scope, progress, results and costs of clinical trials for our product candidates, and discovery and development activities related to new product candidates; the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates; the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales, distribution and facilities and occupancy costs; the cost of manufacturing our product candidates and any products we commercialize, including our costs under the WuXi Agreement, whether or not a sufficient quantity of cell material is manufactured under that agreement; our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements; whether, and to what extent, we are required to repay our outstanding government provided loans; the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and the timing, receipt and amount of sales of, or royalties on, our future products, if any.



Contractual Obligations and Commitments

In June 2014, we entered into a Development and Manufacturing Terms and Conditions and a Development and Process Transfer Program Leading to Commercial Manufacturing for algenpantucel-L HyperAcute Pancreas with WuXi AppTec, Inc., or WuXi, or collectively, the WuXi Agreement. The WuXi Agreement is intended to establish a source of supply for algenpantucel-L for commercial sale, if and when that drug is approved by the FDA. Under the WuXi Agreement, we granted WuXi a non-exclusive right to use certain starting materials and our confidential information to develop manufacturing processes and to manufacture cell material to be formulated into algenpantucel-L. WuXi will adapt facilities and equipment for production, generate batch records and other documents, perform studies and test manufacturing runs and conduct process validation and characterization.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

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