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IMUC > SEC Filings for IMUC > Form 10-K on 11-Mar-2013All Recent SEC Filings

Show all filings for IMMUNOCELLULAR THERAPEUTICS, LTD. | Request a Trial to NEW EDGAR Online Pro

Form 10-K for IMMUNOCELLULAR THERAPEUTICS, LTD.


11-Mar-2013

Annual Report


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

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

Overview

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

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

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

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


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

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

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

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

Plan of Operation

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

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

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

Critical Accounting Policies

Management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to impairment of long-lived assets, including finite lived intangible assets, accrued liabilities, fair value of warrant derivatives and certain expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

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

Development Stage Enterprise

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


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Research and Development Costs

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

Stock-Based Compensation

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

Income Taxes

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

Fair Value of Financial Instruments

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

Results of Operations

For the Years Ended December 31, 2012 and 2011

Revenues

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

Expenses

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

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

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


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

Other Income and Expenses

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

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

Net Loss

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

For the Years Ended December 31, 2011 and 2010

Revenue

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

Expenses

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

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

Other Income and Expenses

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


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Net Loss

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

Liquidity and Capital Resources

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

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

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

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

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


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Contractual Obligations

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



                                                            Less than         1-3          3-5       More than
                                              Total          1 year          years        years       5 years
Unconditional purchase obligations         $ 1,375,314     $ 1,064,757     $ 310,557     $    -      $       -
Operating lease obligation                 $    26,460          26,460            -           -              -

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

Cash Flows

For the Year Ended December 31, 2012 and 2011

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

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

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

For the Year Ended December 31, 2011 and 2010

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

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

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


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Off-Balance Sheet Arrangements

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

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