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EX-32.2 - EXHIBIT 32.2 - TENGION INCex32-2.htm
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q/A
(Amendment No. 2)

 
(Mark One)

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

 
For the quarterly period ended September 30, 2012

OR

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

 
For the transition period from _____ to _____

Commission file number 001-34688
 

Tengion, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
20-0214813
(State or other jurisdiction of
incorporation or organization)
 
 
(I.R.S. Employer Identification No.)
3929 Westpoint Boulevard, Suite G
Winston-Salem, NC 27103
 
(336) 722-5855
(Address of principal executive offices)
 
(Registrant’s telephone number,
including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
     

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x
No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  x
No  o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, as defined in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act.
Yes  o
No  x
 
As of February 5, 2013, there were 2,536,914 shares of the registrant’s common stock outstanding.
 
 
 
 
 

 
 
 
EXPLANATORY NOTE
 
This Amendment No. 2 to Form 10-Q (this “Amendment”) amends our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 originally filed on November 14, 2012, as amended on January 9, 2013 (the “Original Filing”).  This Amended Quarterly Report attaches the correct certifications as required by Item 601(b)(31) to the full Quarterly Report.
 
Except as described above, no other changes have been made to the Original Filing.  The Original Filing continues to speak as of the date filed, and we have not updated the disclosures contained therein to reflect any events which occurred subsequent to the filing date of the Original Filing.
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
TENGION, INC.

FORM 10-Q

INDEX

Part I.  Financial Information
 
Item 1.
Financial Statements (unaudited)
 
   
Balance Sheets
   
Statements of Operations
   
Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
   
Statements of Cash Flows
   
Notes to  Financial Statements
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 4.
Controls and Procedures
       
Part II.  Other Information
 
Item 1.
Legal Proceedings
 
Item 1A.
Risk Factors
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 3.
Defaults Upon Senior Securities
 
Item 4.
Mine Safety Disclosures
 
Item 5.
Other Information
 
Item 6.
Exhibits
       
 Signature Page   30
                                           

NOTE REGARDING COMPANY REFERENCES

Throughout this report, "Tengion", the "Company," "we," "us" and "our" refer to Tengion, Inc.

NOTE REGARDING TRADEMARKS

Tengion® and the Tengion logo® are our registered trademarks and Tengion Neo-Urinary Conduit™, Tengion Neo-Kidney™, Tengion Neo-Kidney Augment™, Tengion Neo-Vessel™, Tengion Neo-Vessel Replacement™, Tengion Neo-Bladder Replacement™, Neo-Bladder Augment™, Tengion Organ Regeneration Platform™ and Organ Regeneration Platform™ are our trademarks. Other names are for informational purposes only and may be trademarks of their respective owners.
 
 
 
 
 
 
 
 
 
 
 
 
i

 



PART I.                      FINANCIAL INFORMATION

Item 1.                                Financial Statements.
 
TENGION, INC.
(A Development-Stage Company)

(in thousands, except per share data)
(unaudited)

             
   
December 31,
2011
 
September 30,
 2012
ASSETS
Current assets:
  
             
Cash and cash equivalents, including $1,194 of cash at December 31, 2011 and September 30, 2012, collateralizing letters of credit (Note 14)
  
$
9,244
 
  
$
1,374
 
Short-term investments                                                                                       
   
6,066
     
 
Deferred debt offering costs                                                                                       
   
     
339
 
Prepaid expenses and other                                                                                       
  
 
408
 
  
 
395
 
Total current assets                                                                                
  
 
15,718
 
  
 
            2,108
 
Property and equipment, net of accumulated depreciation of $12,622 and $12,972 as of December 31, 2011 and September 30, 2012, respectively
  
 
1,021
 
  
 
686
 
Other assets                                                                                           
  
 
1,078
 
  
 
1,100
 
Total assets                                                                                           
  
$
17,817
 
  
$
3,894
 
 
  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
  
             
Demand notes and derivative, net of debt discount of $31 as of September 30, 2012
  
$
 
  
$
1,279
 
Current portion of long-term debt                                                                                       
  
 
2,205
     
900
 
Accounts payable                                                                                       
  
 
829
 
  
 
1,404
 
Accrued compensation and benefits                                                                                       
  
 
2,354
     
587
 
Accrued expenses                                                                                       
   
437
     
1,075
 
Current portion of lease liability                                                                                       
  
 
739
 
  
 
646
 
Warrant liability                                                                                       
  
 
2,511
 
  
 
2,144
 
Total current liabilities                                                                                
  
 
9,075
 
  
 
8,035
 
Long-term debt                                                                                           
  
 
2,782
 
  
 
2,673
 
Lease liability                                                                                           
  
 
943
 
  
 
570
 
Other liabilities                                                                                           
  
 
2
 
  
 
8
 
Total liabilities                                                                                
  
 
12,802
 
  
 
11,286
 
 
Commitments and contingencies (Note 14)                                                                                           
  
 
 
  
 
 
 
  
             
Stockholders’ equity (deficit):
  
             
Preferred stock, $0.001 par value; 10,000 shares authorized; zero shares issued or outstanding at December 31, 2011 and September 30, 2012, respectively
   
 
  
 
 
Common stock, $0.001 par value; 90,000 shares authorized; 2,381 and 2,449 shares issued and outstanding at December 31, 2011 and  September  30, 2012, respectively
  
 
2
 
  
 
2
 
Additional paid-in capital                                                                                       
  
 
235,257
     
235,690
 
Deficit accumulated during the development stage                                                                                       
  
 
(230,244
)
   
(243,084
)
Total stockholders’ equity (deficit)                                                                                
  
 
5,015
 
  
 
(7,392
)
Total liabilities and stockholders’ equity (deficit)                                                                                           
  
$
17,817
   
$
3,894
 
                 
The accompanying notes are an integral part of these financial statements.
 
 
 
 
 
-1-

 
 
 
TENGION, INC.
(A Development-Stage Company)
 
(in thousands, except per share data)
(unaudited)
 
 
                                         
      Three Months Ended       Nine Months Ended       Period from
July 10, 2003 (inception)
 
      September 30,      
September 30,
      through  
                                       September 30,  
      2011       2012       2011       2012       2012  
                                         
Revenue
 
$
   
$
   
$
   
$
   
$
 
                                         
Operating expenses:
   
 
             
 
                 
Research and development
 
$
2,837
  
 
$
2,438
   
$
9,579
   
$
7,921
   
$
125,778
 
General and administrative
   
1,383
  
   
1,198
     
5,197
     
4,017
     
45,910
 
Depreciation
   
718
  
   
106
     
2,816
     
357
     
23,509
 
Impairment of property and equipment
   
     
     
     
     
7,371
 
Other expense
   
26
     
38
     
995
     
130
     
1,835
 
Total operating expenses
   
4,964
     
3,780
     
18,587
     
12,425
     
204,403
 
Loss from operations
   
(4,964
   
(3,780
)
   
(18,587
)
   
(12,425
)
   
(204,403
)
Interest income
   
12
  
   
1
     
39
     
12
     
8,524
 
Interest expense
   
(193
)
   
(469
   
(666
)
   
(794
)
   
(15,683
)
Change in fair value of warrant liability
   
4,185
     
(324
   
 14,123
     
367
     
16,865
 
Net loss
 
$
(960
 
$
(4,572
)
 
$
(5,091
)
 
$
(12,840
)
  $
(194,697
)
Basic and diluted net loss attributable to common stockholders per share
 
$
(0.41
 
$
(1.87
 
$
(2.43
)
 
$
(5.41
)
       
                                         
Shares used in computing basic and diluted net loss attributable to common stockholders:
                                       
      Basic and diluted
   
2,354
     
2,450
     
2,094
     
2,371
         

 
The accompanying notes are an integral part of these financial statements.
 
 
 
 
 
 
 
 
 
 
 
 
-2-

 
 
 

TENGION, INC.
(A Development-Stage Company)

and Stockholders’ Equity (Deficit)
(in thousands, except per share data)
(unaudited)
 
                  Stockholders’ equity (deficit)  
   
Redeemable
convertible
preferred stock
     
Common stock
    Additional paid-in    
Deferred
   
Deficit accumulated during the
development
       
    Shares     Amount       Shares     Amount     capital     compensation     stage     Total  
                                                   
Balance, July 10, 2003
        $             $     $     $     $     $  
Issuance of common stock to initial stockholder
                  138                                
Effect of June 2012 reverse stock split (see Note 3)
                  (124                              
Net loss
                                          (1,032     (1,032
Balance, December 31, 2003
                  14                         (1,032     (1,032
Issuance of Series A Redeemable Convertible Preferred stock at $1.62 per share, net of expenses
    18,741       30,126                                        
Conversion of notes payable, including interest
    2,203       3,562                                        
Issuance of restricted common stock to employees and nonemployees
                  24       1       336       (336           1  
Issuance of common stock to consultants
                  14             21                   21  
Issuance of common stock to convertible noteholders
                  9             67                   67  
Issuance of options to purchase common stock to consultants for services rendered
                              14       (14            
Amortization of deferred compensation
                                    23             23  
Change in value of restricted common stock subject to vesting
                              11       (11            
Accretion of redeemable convertible preferred stock to redemption value
          1,035                                 (1,035     (1,035
Net loss
                                          (2,438     (2,438
Balance, December 31, 2004
    20,944       34,723         61       1       449       (338     (4,505     (4,393
Issuance of Series A Redeemable Convertible Preferred stock at $1.62 per share, net of expenses
    3,247       5,223                                        
Issuance of restricted common stock to employees and nonemployees at $2.32 per share
                  6             140       (139           1  
Issuance of warrants to purchase preferred stock to noteholders
                              681                   681  
Issuance of options to purchase common stock to consultants for services rendered
                              7       (7            
Amortization of deferred compensation
                                    111             111  
Accretion of redeemable convertible preferred stock to redemption value
          3,164                                 (3,164     (3,164
Net loss
                                          (9,627     (9,627
Balance, December 31, 2005
    24,191       43,110         67       1       1,277       (373     (17,296     (16,391
Issuance of Series B Redeemable Convertible Preferred stock at $1.82 per share, net of expenses
    27,637       50,040                                        
Issuance of restricted common stock to employees
                                                 
Issuance of common stock upon exercise of options
                              9                   9  
Repurchased nonvested restricted stock
                  (1                              
Reclassification of deferred compensation
                              (373 )     373              
Reclassification of warrants to purchase preferred stock
                              (681 )                 (681
Stock-based compensation expense
                              400                   400  
Accretion of redeemable convertible preferred stock to redemption value
          5,640                                 (5,640     (5,640
Net loss
                                          (20,873     (20,873
Balance, December 31, 2006
    51,828       98,790         66       1       632             (43,809     (43,176
Issuance of Series C Redeemable Convertible Preferred stock at $1.82 per share, net of expenses
    18,333       33,219                                        
Issuance of common stock upon exercise of options
                  3             60                   60  
Repurchased vested restricted stock
                  (1           (94 )                 (94 )
Stock-based compensation expense
                              664                   664  
Accretion of redeemable convertible preferred stock to redemption value
          8,742                                 (8,742     (8,742
Net loss
                                          (30,988     (30,988
Balance, December 31, 2007
    70,161     $ 140,751         68     $ 1     $ 1,262     $     $ (83,539 )   $ (82,276 )
                                                                   
The accompanying notes are an integral part of the financial statements.

 
 
 
-3-

 

 
TENGION, INC.
(A Development-Stage Company)

 Statements of Redeemable Convertible Preferred Stock
 and Stockholders’ Equity (Deficit) – (continued)
(in thousands, except per share data)
 (unaudited)
 
                  Stockholders’ equity (deficit)  
   
Redeemable
convertible
preferred stock
      Common stock     Additional paid-in     Deferred     Deficit accumulated during the development        
    Shares     Amount       Shares     Amount     capital     compensation     stage     Total  
                                                   
Balance, December 31, 2007
    70,161     $ 140,751         68     $ 1     $ 1,262     $     $ (83,539 )   $ (82,276 )
Issuance of Series C Redeemable Convertible Preferred stock at $1.82 per share, net of expenses
    11,793       21,352                                        
Issuance of common stock upon exercise of options
                              28                   28  
Repurchased vested restricted stock
                                                 
Stock-based compensation expense
                              1,317                   1,317  
Accretion of redeemable convertible preferred stock to redemption value
          11,754                                 (11,754     (11,754
Net loss
                                          (42,393     (42,393
Balance, December 31, 2008
    81,954       173,857         68       1       2,607             (137,686     (135,078
Issuance of common stock upon exercise of options
                  2             54                   54  
Stock-based compensation expense
                              855                   855  
Accretion of redeemable convertible preferred stock to redemption value
          14,059                                 (14,059     (14,059
Net loss
                                          (29,845     (29,845
Balance, December 31, 2009
    81,954       187,916         70       1       3,516             (181,590     (178,073
Issuance of common stock upon exercise of options
                  3             14                   14  
Accretion of redeemable convertible preferred stock to redemption value
          3,993                                 (3,993     (3,993
Conversion of preferred stock to common stock
    (81,954 )     (191,909 )       566             191,909                   191,909  
Conversion of preferred stock warrants to common stock warrants
                              123                   123  
Proceeds from initial public offering, net of expenses
                  600             25,727                   25,727  
Stock-based compensation expense
                              953                   953  
Net loss
                                          (25,600     (25,600
Balance, December 31, 2010
                  1,239       1       222,242             (211,183     11,060  
Proceeds from equity financing, net of expenses
                  1,108       1       28,940                   28,941  
Issuance of warrants to purchase common stock issued in connection with equity financing
                              (16,947 )                 (16,947 )
Issuance of common stock upon exercise of options
                  18             83                   83  
Issuance of restricted stock to employees
                  31                                
Cancellation of restricted stock to employees
                  (15 )                              
Issuance of warrants to purchase common stock in connection with debt financing
                              105                   105  
Stock-based compensation expense
                              834                   834  
Net loss
                                          (19,061     (19,061
Balance, December 31, 2011
                  2,381       2       235,257             (230,244     5,015  
Issuance of common stock upon exercise of options
                  3             10                   10  
Issuance of restricted stock to employees
                  68                                
Cancellation of restricted stock to employees
                  (3 )           (5 )                 (5 )
Stock-based compensation expense
                              428                   428  
Net loss
                                          (12,840     (12,840
Balance, September 30, 2012
        $         2,449     $ 2     $ 235,690     $     $ (243,084 )   $ (7,392 )
                                                                   
 
 
The accompanying notes are an integral part of these financial statements.
 
 
 
-4-

 
 

TENGION, INC.
(A Development-Stage Company)
 
(in thousands)
 (unaudited)
                         
   
Nine Months Ended
September 30,
 
Period from
July 10, 2003
(inception)
through
September 30, 2012
   
2011
 
2012
 
Cash flows from operating activities:
                       
Net loss                                                                                        
 
$
(5,091
)
 
$
(12,840
)
 
$
(194,697
)
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Depreciation                                                                                     
   
2,816
     
357
     
23,509
 
Change in fair value of warrant liability                                                                                     
   
(14,123
)
   
(367
)
   
(16,865
)
Charge related to lease liability                                                                                     
   
995
     
130
     
1,835
 
Loss on disposition of property and equipment                                                                                     
   
     
     
119
 
Impairment of property and equipment                                                                                     
   
     
     
7,371
 
Amortization of net discount on short-term investments
   
     
     
(149
)
Noncash interest expense                                                                                     
   
132
     
409
     
2,957
 
Noncash rent (income) expense                                                                                     
   
(22
)
   
6
     
223
 
Stock-based compensation expense                                                                                     
   
688
     
428
     
5,607
 
Changes in operating assets and liabilities:
                       
Prepaid expenses and other assets                                                                                  
   
(810
)
   
(41
   
(1,669
)
Accounts payable                                                                                  
   
(146
)
   
428
     
1,298
 
Accrued expenses and other                                                                                  
   
(1,611
)
   
(1,909
)
   
854
 
Net cash used in operating activities                                                                              
   
(17,172
)
   
(13,399
)
   
(169,607
)
Cash flows from investing activities:
                       
Purchases of short-term investments                                                                                        
   
(13,083
)
   
     
(324,508
)
Sales and redemption of short-term investments                                                                                        
   
 2,000
     
6,066
     
324,657
 
Cash paid for property and equipment                                                                                        
   
(81
)
   
(22
)
   
(31,696
)
Proceeds from the sale of property and equipment                                                                                        
   
     
     
11
 
Net cash (used in) provided by investing activities
   
(11,164
)
   
6,044
     
(31,536
)
Cash flows from financing activities:
                       
Proceeds from sales of redeemable convertible preferred stock and warrants, net
   
     
     
139,960
 
Proceeds from sales of common stock and warrants, net
   
29,027
     
6
     
54,923
 
Repurchase of restricted stock                                                                                        
   
     
     
(94
)
Proceeds from long-term debt, net of issuance costs                                                                                        
   
4,908
     
945
     
40,462
 
Payments on long-term debt                                                                                        
   
(8,308
)
   
(1,466
)
   
(32,734
)
Net cash provided by (used in) financing activities
   
25,627
     
(515
)
   
202,517
 
Net increase (decrease) in cash and cash equivalents                                                                                           
   
(2,709
)
   
(7,870
)
   
1,374
 
Cash and cash equivalents, beginning of period                                                                                           
   
11,972
     
9,244
     
 
Cash and cash equivalents, end of period                                                                                           
 
$
9,263
   
$
1,374
   
$
1,374
 
                         

The accompanying notes are an integral part of these financial statements.
 
 
 
 
-5-

 
 
Tengion, Inc.
(A Development-Stage Company)

(unaudited)

(1)  
Organization and Nature of Operations
 
Tengion, Inc. (the Company) was incorporated in Delaware on July 10, 2003. The Company is a regenerative medicine company focused on discovering, developing, manufacturing and commercializing a range of neo-organs, or products composed of living cells, with or without synthetic or natural materials, implanted or injected into the body to engraft into, regenerate, or replace a damaged tissue or organ.  Using its Organ Regeneration Platform, the Company creates these neo-organs using a patient’s own cells, or autologous cells.  The Company believes its proprietary product candidates harness the intrinsic regenerative pathways of the body to regenerate a range of native-like organs and tissues. The Company’s product candidates are intended to delay or eliminate the need for chronic disease therapies, organ transplantation, and the administration of anti-rejection medications.  In addition, the Company’s neo-organs are designed to avoid the need to substitute other tissues of the body for a purpose to which they are poorly suited.
 
Building on its clinical and preclinical experience, the Company is initially leveraging its Organ Regeneration Platform to develop its Neo-Urinary Conduit for bladder cancer patients who are in need of a urinary diversion and its Neo-Kidney Augment for patients with advanced chronic kidney disease. The Company operates as a single business segment. Operations of the Company are subject to certain risks and uncertainties, including, among others, uncertainty of product candidate development; technological uncertainty; dependence on collaborative partners; uncertainty regarding patents and proprietary rights; comprehensive government regulations; having no commercial manufacturing experience, marketing or sales capability or experience; and dependence on key personnel.
 
(2)  
Management’s Plans to Continue as a Going Concern
 
The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and has a deficit accumulated during the development stage of $243.1 million as of September 30, 2012. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its therapeutic product candidates currently in development or enters into cash flow positive business development transactions.
 
On October 2, 2012, Company entered into several agreements with certain new and existing investors to provide approximately $15 million of financing in the form of Senior Secured Convertible Notes (the Notes).  See Note 15 for further discussion of subsequent events.
 
Based upon our current expected level of operating expenditures and debt repayment, and assuming we are not required to settle any outstanding warrants in cash or redeem, or pay cash interest on any of the Notes, we expect to be able to fund operations through May 2013.  This period could be shortened if there are any unanticipated significant increases in planned spending on development programs or other unforeseen events.  We will need to raise additional funds through collaborative arrangements, public or private sales of debt or equity securities, commercial loan facilities, or some combination thereof.  There is no assurance that other financing will be available when needed to allow us to continue our operations or if available, on terms acceptable to us.

In the event financing is not obtained, the Company could pursue additional headcount reductions and other cost cutting measures to preserve cash as well as explore the sale of selected assets to generate additional funds.  If the Company is required to significantly reduce operating expenses and delay, reduce the scope of, or eliminate one or more of its development programs, these events could have a material adverse effect on the Company's business, results of operations and financial condition.

These factors raise significant concerns about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
 
 
 
 
 
 
 
 
-6-

 
 
 
 
(3)  
Basis of Presentation and Reverse Stock Split
 
The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as amended, filed with the Securities and Exchange Commission (SEC). The results of the Company’s operations for any interim period are not necessarily indicative of the results of operations for any other interim period or full year.
 
On September 4, 2012, the Company was notified by The NASDAQ Stock Market (NASDAQ) of its hearing panel’s determination to delist the Company’s common stock from NASDAQ effective at the open of business on Thursday, September 6, 2012.  The delisting was based on the Company’s non-compliance with NASDAQ’s minimum stockholders’ equity requirement set forth in Listing Rule 5550(b)(1).  Effective at the opening of the market on September 6, 2012, the Company’s common stock was transferred from The NASDAQ Capital Market to the OTCQB, which is operated by OTC Markets, Inc. and will continue to trade under the symbol TNGN.
 
On May 25, 2012, the Company's Board of Directors approved the reverse stock split on the basis of one share of post-split common stock for each currently outstanding 10 shares of pre-split common stock and it became effective on June 14, 2012.  All common share and per-share data included in these financial statements reflect such reverse stock split.
 
(4)  
Use of Estimates
 
The preparation of financial statements, in accordance with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
 
(5)  
Net Loss Attributable to Common Stockholders Per Share
 
Basic and diluted net loss attributable to common stockholders per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding. For all periods presented, the outstanding shares of unvested restricted stock as well as the number of common shares issuable upon exercise of outstanding stock options and warrants have been excluded from the calculation of diluted net loss attributable to common stockholders per share because their effect would be anti-dilutive. Therefore, the weighted-average shares used to calculate both basic and dilutive loss per share are the same.

The following potential common shares have been excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive:
 
         
   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
     
2011
     
2012
     
2011
     
2012
 
Shares underlying warrants outstanding
   
1,064,616
     
1,064,616
     
1,064,616
     
1,064,616
 
Shares underlying options outstanding
   
127,500
     
247,952
     
127,500
     
247,952
 
Unvested restricted stock
   
20,310
     
74,669
     
20,310
     
74,669
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-7-

 
 
 
 
(6)  
Supplemental Cash Flow Information
 
 
   
Nine Months Ended
September 30,
     
Period from
July 10, 2003
(inception) through
    2011     2012       September 30, 2012
Supplemental cash flow disclosures:
                 
Noncash investing and financing activities:
                 
Conversion of note principal to redeemable convertible preferred stock
 $
 
 $
   
 $
3,562
Convertible note issued to initial stockholder for consulting expense
 
   
     
210
Fair value of warrants issued with issuance of long-term debt
 
105
   
     
2,290
Fair value of warrants issued with sale of common stock
 
16,947
   
     
16,947
Fair value of embedded derivative issued with the demand note
 
   
310
     
310
Conversion of warrant liability                                                             
 
   
     
123

 
(7)  
Short-term Investments and Fair Value of Financial Instruments
 
As of December 31, 2011 and September 30, 2012, the carrying amounts of financial instruments held by the Company, which include cash equivalents, prepaid expenses and other current assets, accounts payable, and accrued expenses, approximate fair value due to the short-term nature of those instruments. In addition, the carrying value of the Company’s debt instruments, which do not have readily ascertainable market values, approximate fair value, given that the interest rates on outstanding borrowings approximate market rates. See Note 10 for a discussion of the fair value of the derivative embedded in debt issued in September 2012 and Note 12 for a discussion of the fair value of liability-classified warrants.
 
As of December 31, 2011, short-term investments consisted of investments in commercial paper and U.S. government agency and corporate securities of $6.1 million. The Company has the ability and intent to hold these investments until maturity and, therefore, has classified the investments as held-to-maturity, which we carry at amortized cost. Due to the short-term nature of these investments, unrealized gains and losses have been deemed temporary and, therefore, not recognized in the accompanying financial statements. Income generated from short-term investments is recorded to interest income.
 
Fair value guidance requires fair value measurements be classified and disclosed in one of the following three categories:
 
·  
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
 
·  
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
 
·  
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
 
 
 
 
 
 
 
 
 
 
 
-8-

 
 
 
The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and September 30, 2012 (in thousands).
 
 
Fair value measurement at reporting date using
 
 
Quoted prices
in active
markets for identical assets (Level 1)
   
Significant
other
observable
inputs
(Level 2)
   
Significant unobservable inputs
(Level 3)
   
Total
 
                       
At December 31, 2011:
                     
Assets:
                     
Cash and cash equivalents
$ 9,244     $     $     $ 9,244  
Short-term investments
  6,066                   6,066  
  $ 15,310     $     $     $ 15,310  
Liabilities:
                             
Warrant liability 
$     $     $ 2,511     $ 2,511  
                               
At September 30, 2012:
                             
Assets:
                             
Cash and cash equivalents
$ 1,374     $     $     $ 1,374  
Short-term investments
                     
  $ 1,374     $     $     $ 1,374  
Liabilities:
                             
Embedded derivative liability of Demand Notes
$     $     $ 310     $ 310  
Warrant liability
              2,144       2,144  
        $     $ 2,454     $ 2,454  
                               

The reconciliation of embedded derivative liability portion of the Demand Notes (the Demand Notes) measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows (in thousands):
   
Embedded Derivative liability
of Demand Notes
         
Balance at December 31, 2011                                                                                                        
 
$
 
Record derivative liability                                                                                                   
  
 
310
 
Balance at September 30, 2012                                                                                                        
  
$
310
 
         
The fair value of the embedded derivative liability of Demand Notes is based on Level 3 inputs. For this liability, the Company developed its own assumptions that do not have observable inputs or available market data to support the fair value. See Note 10 for further discussion of the embedded derivative liability of Demand Notes.
 
The reconciliation of warrant liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows (in thousands):
   
Warrant liability
         
Balance at December 31, 2011                                                                                                        
 
$
2,511
 
Change in fair value of warrant liability                                                                                                   
  
 
(367
)
Balance at September 30, 2012                                                                                                        
  
$
2,144
 
         
The fair value of the warrant liability is based on Level 3 inputs. For this liability, the Company developed its own assumptions that do not have observable inputs or available market data to support the fair value. See Note 12 for further discussion of the warrant liability.
 
 
 
-9-

 
 
 
 
(8)  
Restructuring Expenses
 
In November 2011, the Company’s Board of Directors approved a restructuring plan designed to fund the Company’s lead development programs through key milestones in 2012, eliminate plans to use its facility in East Norriton, Pennsylvania as a manufacturing center, and centralize its research and development operations in its leased facility in Winston-Salem, North Carolina. The Company has retained a few administrative employees in its facility in East Norriton, Pennsylvania, and is exploring options to significantly reduce the amount of space it currently rents.

The Company offered severance benefits to the terminated employees, and recorded a $1.7 million charge for personnel-related termination costs in the fourth quarter of 2011, of which $0.8 million was included in research and development expense and $0.9 million was included in general and administrative expense in the accompanying statements of operations. As of September 2012 the Company completed payment of these severance benefits.

The following table summarizes the activity related to accrued severance benefits for the nine months ended September 30, 2012 (in thousands).
   
Accrued Severance Benefits
         
Balance at December 31, 2011                                                                                                        
 
$
1,544
 
Net charges paid                                                                                                   
  
 
(1,544
)
Balance at September 30, 2012                                                                                                        
  
$
 

(9)  
Lease Liability
 
The Company entered into an agreement in February 2006 to lease warehouse space effective March 1, 2011, at which time the Company determined it was not likely to utilize the space during the five-year lease term. Therefore, the Company recorded a liability as of March 1, 2011, the cease-use date, for the fair value of its obligations under the lease. The most significant assumptions used in determining the amount of the estimated lease liability are the potential sublease revenues and the credit-adjusted risk-free rate utilized to discount the estimated future cash flows.
 
In connection with the restructuring described in Note 8, the Company determined it was not likely to utilize substantially all of the leased office and manufacturing space in its East Norriton, Pennsylvania facility during the remainder of the lease term. Therefore, the Company recorded a liability as of November 30, 2011, the cease-use date, for the fair value of its obligations under the lease.
 
The following table summarizes the activity related to the lease liability for the period ended September 30, 2012 (in thousands).
 
   
Warehouse
space
 
Office and manufacturing
space
 
Total
Balance at December 31, 2011
 
$
828
   
$
854
   
$
1,682
 
Charges utilized
   
(178
)
   
(418
)
   
(596
)
Additional charges to operations
   
67
     
63
     
130
 
Balance at September 30, 2012
   
717
     
499
     
1,216
 
Less current portion
   
(231
)
   
(415
)
   
(646
)
   
$
486
   
$
84
   
$
570
 
                         
 
(10)  
Debt
 
Total debt outstanding consists of the following (in thousands):
             
   
December 31,
2011
 
September 30,
 2012
Working Capital Note                                                                               
  
$
5,000
 
  
$
3,660
 
Equipment and Supplemental Working Capital Notes
  
 
126
 
  
 
 
Unamortized debt discount                                                                               
  
 
(139
)
  
 
(87
)
 
  
 
4,987
 
  
 
3,573
 
Less current portion                                                                               
  
 
(2,205
)
  
 
(900
)
Total  long-term debt
  
$
2,782
 
  
$
2,673
 
 
  
             
Demand Notes                                                                               
   
 
  
 $
1,000
 
Embedded derivative liability                                                                               
   
 
  
 
310
 
Unamortized debt discount related to Demand Notes
  
 
     
(31
)
Total Demand Notes
  
$
 
  
$
1,279
 
                 
Total debt outstanding
 
$
4,987
   
$
4,852
 
 
 
 
 
-10-

 

 
 
The Company recorded interest expense of $0.2 million and $0.5 million for the three months ended September 30, 2011 and 2012, respectively. The Company recorded interest expense of $0.7 million and $0.8 million for the nine months ended September 30, 2011 and 2012, respectively.
 
On September 7, 2012, the Company issued Demand Notes in the aggregate amount of $1.0 million.  The terms of the Demand Notes provided the holders with the right to exchange the outstanding principal balance of the Demand Notes, including accrued interest, into certain debt securities and warrants issued in the future (Exchange Right).  In October 2012, the Company issued convertible debt and the holders of the Demand Notes exercised their Exchange Right. See Note 15 for further discussion of subsequent events.  The Demand Notes bore interest at a rate of 10% per year and were secured by a lien on substantially all of the Company’s assets, other than its intellectual property assets.  
 
The Company accounts for the conversion and redemption features embedded in the Demand Note in accordance with FASB Accounting Standard Codification (ASC) 815, Derivatives and Hedging (ASC 815). Under this accounting guidance, the Company is required to bifurcate the embedded derivative from the host instrument and account for it as a free-standing derivative financial instrument while recording a debt discount at issuance. This discount is accreted as additional interest expense. The fair value of the Exchange Right attached to the Demand Notes (see Note 10) as of the date of issuance (on September 7, 2012) was determined using a risk-neutral methodology within a Monte Carlo analysis. See Note 12 for methodology and assumptions used to value the notes and warrants issued in 2012 (see Note 15), the warrants issued in 2011 and all related features including those embedded in the Demand Notes.  Changes in these assumptions can materially affect the fair value estimate. The Company classified the fair value of the Exchange Right as a liability and re-measured the fair value as of September 30, 2012, the reporting date prior to exchange of the Demand Note into the Senior Secured Convertible Notes (the Notes). The following table summarizes the calculated aggregate fair values as of the dates indicated along with assumptions utilized in each calculation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-11-

 
 
 
 
   
September 7, 2012
   
September 30, 2012
 
             
Calculated aggregate value
  $ 310     $ 310  
Volatility
    115.0 %     115.0 %
Probability of Fundamental Transaction or Delisting
    100.0 %     100.0 %
Risk-free interest rate
    0.2 %     0.2 %
Dividend yield
 
None
   
None
 
 
 
(11)  
Capital Structure
 
March 2011 Equity Financing

In March 2011, the Company closed a private placement transaction pursuant to which the Company sold securities consisting of 1,107,939 shares of common stock and warrants to purchase 1,046,102 shares of common stock. The purchase price per security was $28.30. The Company received net proceeds of $28.9 million. See Note 12 for discussion of the warrant liability.

In connection with the March 2011 equity financing, the Company filed a registration statement with the SEC for the registration of the total number of shares sold to the investors and shares issuable upon exercise of the warrants and the registration statement was declared effective by the SEC on May 16, 2011. The Company is required to use commercially reasonable efforts to cause the registration statement to remain continuously effective until such time when all of the registered shares are sold or such shares may be sold by non-affiliates without volume or manner-of-sale restrictions pursuant to Rule 144 of the Securities Act and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144. In the event the Company fails to meet certain legal requirements in regards to the registration statement, it will be obligated to pay the investors, as partial liquidated damages and not as a penalty, an amount in cash equal to 1.5% of the aggregate purchase price paid by investors for each monthly period that the registration statement is not effective, up to a maximum aggregate payment of 6% of the purchase price paid by investors, except that if the Company fails to satisfy the current public information requirement pursuant to Rule 144(c)(1), the maximum aggregate payment would be 12% of the purchase price paid by investors. If the Company determines a registration payment arrangement in connection with the securities issued in March 2011 is probable and can be reasonably estimated, a liability will be recorded. As of September 30, 2012, we concluded the likelihood of having to make any payments under the arrangements was remote, and therefore did not record any related liability.

(12)  
Warrants
 
We account for stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreement. Stock warrants are accounted for as derivative liabilities under ASC 815 if the stock warrants allow for cash settlement or provide for modification of the warrant exercise price in the event subsequent sales of common stock are at a lower price per share than the then-current warrant exercise price. We classify derivative warrant liabilities on the balance sheet as a current liability, which is revalued at each balance sheet date subsequent to the initial issuance of the stock warrant.

The following table summarizes outstanding warrants to purchase common stock as of December 31, 2011 and September 30, 2012:

 
Number of shares
 
Exercise
price
 
Expiration
Equity–classified warrants
           
Issued to vendors
389
 
$
23.20
 
September 2015 through December 2016
Issued pursuant to March 2011 refinancing of Working Capital Note
7,068
 
$
28.80
 
March 2016
Issued to lenders
6,449
 
$
234.40
 
August 2013 through December 2016
Issued to lenders
4,608
 
$
263.90
 
October 2015 through September 2019
 
18,514
         
Liability–classified warrants
           
Issued pursuant to March 2011 equity financing
1,046,102
 
$
28.80
 
March 2016
 
1,064,616
         
 
 
 
 
-12-

 
 
 
In connection with the issuance of convertible debt in October 2012, we issued warrants to purchase approximately 51.1 million shares of common stock at an initial exercise price of $0.75 per share. The exercise price and number of shares issuable upon exercise of the warrants are subject to adjustment under certain circumstances.  See Note 16 for further discussion of subsequent events.

Equity-classified Warrants

In March 2011, the Company granted a warrant to a lender to purchase 7,068 shares of common stock in connection with the refinancing of the Company’s Working Capital Note. See Note 10 for a discussion of the refinancing. The Company determined the fair value of the warrant as of the date of grant was $14.90 per share by utilizing the Black-Scholes model. In estimating the fair value of the warrant, the Company utilized the following inputs: closing price per share of common stock of $27.40, volatility of 64.96%, expected term of 5 years, risk-free interest rate of 2.0% and dividend yield of zero.
 
Liability-classified Warrants

In March 2011, the Company issued warrants to purchase 1,046,102 shares of common stock in connection with a private placement transaction (see Note 11). Each warrant is exercisable in whole or in part at any time until March 4, 2016 at a per share exercise price of $28.80, subject to certain adjustments as specified in the warrant agreement. The issuance of convertible debt and warrants in October 2012 triggered an anti-dilution adjustment to the number of shares underlying the warrants issued pursuant to the March 2011 equity financing. We have notified the holders of the warrants of the adjusted exercise price per share is $1.59 and the aggregate number of shares of common stock issuable upon exercise of 18,948,258, subject to stockholder approval for lowering the exercise price per share below $27.00, which, until stockholder approval is obtained, limits the aggregate number of shares of common stock issuable upon exercise to 1,115,845.  Although we believe our calculation of the anti-dilution adjustment is correct, we are aware that one holder of the warrants has a different view as to how to perform the adjustment and whether a stockholder vote is necessary. See Note 15 for further discussion of subsequent events.

The Company valued the warrants as derivative financial instruments as of the date of issuance (March 4, 2011) and will continue to do so at each reporting date, with any changes in fair value being recorded on the Statement of Operations. During the three months ended September 30, 2011 and 2012, the Company recorded non-operating income of $4.2 million and non-operating expense of $0.3 million, respectively, due to changes in the estimated fair value of these warrants.  During the nine months ended September 30, 2011 and 2012, the Company recorded non-operating income of $14.1 million and $0.4 million, respectively, due to changes in the estimated fair value of these warrants. 

The warrants contain provisions that require the modification of the exercise price and shares to be issued under certain circumstances, including in the event the Company completes subsequent equity financings at a price per share lower than the then-current warrant exercise price. In addition, the warrants contain a net cash settlement provision under which the warrant holders may require the Company to purchase the warrants in exchange for a cash payment following the announcement of specified events defined as Fundamental Transactions involving the Company (e.g., merger, sale of all or substantially all assets, tender offer, or share exchange) or a Delisting, which is deemed to occur when the common stock is no longer listed on a national securities exchange. The net cash settlement provision requires use of the Black-Scholes model in calculating the cash payment value in the event of a Fundamental Transaction or a Delisting.

The net cash settlement value at the time of any future Fundamental Transaction or Delisting will depend upon the value of the following inputs at that time: the price per share of the Company’s common stock, the volatility of the Company’s common stock, the expected term of the warrant, the risk-free interest rate based on U.S. Treasury security yields, and the Company’s dividend yield. The warrant requires use of a volatility assumption equal to the greater of (i) 100%, (ii) the 30-day volatility determined as of the trading day immediately following announcement of a Fundamental Transaction or Delisting, or (iii) the arithmetic average of the 10, 30, and 50-day volatility determined as of the trading day immediately following announcement of a Fundamental Transaction or Delisting.

On September 4, 2012, the Company was notified by NASDAQ of its hearing panel’s determination to delist the Company’s common stock from NASDAQ effective at the open of business on Thursday, September 6, 2012.  This delisting triggered the right of the warrant holders to require the Company to purchase the warrants in exchange for a cash settlement value, which was calculated as $0.64 per warrant share. The warrant holders have 90 days or until December 5, 2012 to present the warrants to the Company.  If all the warrant holders exercise this option, the Company would be required to pay a total cash settlement value of approximately $0.7 million.
 
 
 
 
 
 
 
 
 
-13-

 
 
 
 
The fair value of the warrants as of December 31, 2011 and September 30, 2012 was determined using a risk-neutral lattice methodology within a Monte Carlo analysis to model the impact of potential modifications to the warrant exercise price and to include the probability of a Fundamental Transaction or, in the case of the December 31, 2011 valuation, a Delisting into the calculation of fair value. On October 3, 2012, we issued convertible debt and warrants and subsequently completed a valuation as of that date of all of newly issued securities as well as the warrants issued in 2011. Because of the significantly high probability as of September 30, 2012 of completing the financing transaction on October 3, 2012, the Company has assumed equivalent valuations as of both dates for the warrants issued in 2011. The valuation of warrants is subjective and is affected by changes in inputs to the valuation model including the price per share of the Company’s common stock in the case of the December 31, 2011 valuation; assumptions regarding the expected amounts and dates of future equity financing activities; assumptions regarding the likelihood and timing of Fundamental Transactions and, in the case of the December 31, 2011 valuation, a Delisting; the historical volatility of the stock prices of the Company’s common stock; risk-free rates based on U.S. Treasury security yields; and the Company’s dividend yield.  In addition, the following input was used in the valuation model for the valuation as of September 30, 2012: the Company used an implied enterprise value which was derived by using a scenario-based approach considering the possible future liquidity events for the Company contingent upon the outcome of its research programs.

In connection with the valuation of the warrants issued in 2011, which required consideration of the valuation of the notes and warrants issued in 2012, the Company believed the common stock price had not fully adjusted for the potential future dilution from the private placement completed on October 3, 2012 primarily due to the trading restrictions on the unregistered shares of common stock issued and issuable from the conversion of debt and warrants, certain conversion and exercise restrictions in the in the 2012 notes and warrants agreements, and the anti-dilution adjustment features and the net cash settlement features of the warrants issued in 2011 and 2012.  Therefore, the Company used an implied enterprise value considering potential future values for the Company contingent on the outcome of its research programs in conjunction with a Monte Carlo analysis to estimate the range of possible outcomes within each scenario and to allocate value to the securities in accordance with the terms of the agreements.  The valuation resulted in a model-derived common stock value of $0.05 per share.  Changes in the assumptions used in the model can materially affect the model-derived common stock value and the fair value estimate of the warrants.  In connection with the net cash settlement feature in the warrants issued in 2011, we could, at any point in time, ultimately incur amounts significantly different than the carrying value. For example, as of September 30, 2012, the calculated cash settlement value of $1.1 million was less than the fair value of $2.1 million. The Company will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire, or are amended in a way that would no longer require these warrants to be classified as a liability.

The following table summarizes the calculated aggregate fair values and net cash settlement value of the warrants issued in 2011 as of the dates indicated along with the assumptions utilized in each calculation.
 
   
Fair value as of:
     
Net cash
settlement value
as of
September 30,
2012
   
   
December 31,
2011
   
September 30,
2012
     
                       
Calculated aggregate value                                                                 
  $ 2,511     $ 2,144       $ 1,060 (1)  
Exercise price per share of warrant                                                                 
  $ 28.80     $ 1.67 (2)     $ 28.80  (2)  
Closing price per share of common stock
  $ 4.70    
Not applicable
(3)     $ 1.35    
Volatility                                                                 
    93.8%       115.0%         195.9% (4)  
Probability of Fundamental Transaction or Delisting
    28.9%       100.0%      
Not applicable
   
Expected term (years)                                                                 
 
Not applicable
   
Not applicable
 (3)       3.4    
Risk-free interest rate                                                                 
    0.7%       0.2%         0.3%    
Dividend yield                                                                 
 
None
   
None
     
None
   
 
 
 
-14-

 
 

 

 
(1)
Represents the net cash settlement value of the warrant as of September 30, 2012, which value was calculated utilizing the Black-Scholes model specified in the warrant.
 
 
(2)
Although the exercise price per share of the warrant remained $28.80 as of September 30, 2012, the Company calculated the fair value of the warrants as of September 30, 2012 using an estimated exercise price per share of $1.67, which the Company believed was a reasonable approximation of the exercise price after calculation of the anti-dilution adjustment necessitated by the private placement completed October 3, 2012.
 
 
(3)
In performing the valuation as of September 30, 2012, the Company believed the common stock price had not fully adjusted for the potential future dilution from the private placement completed October 3, 2012. Therefore, the Company used an implied enterprise value which was derived by using a scenario-based approach considering the possible future liquidity events for the Company contingent upon the outcome of its research programs.  One of the possible expected scenarios has an expected term of nine months and the other scenario has a term of 2.3 years.  Refer elsewhere in Note 12 for further details on valuation methodology used.
 
 
(4)
Represents the volatility assumption used to calculate the net cash settlement value as of September 30, 2012.

(13) 
Stock-Based Compensation
 
The Company currently maintains two stock-based compensation plans. Under the 2004 Stock Option Plan (the 2004 Plan), stock awards were granted to employees, directors, and consultants of the Company, in the form of restricted stock and stock options. The amounts and terms of options granted were determined by the Company’s compensation committee. The equity awards granted under the 2004 Plan generally vest over four years and have terms of up to ten years after the date of grant, and options are exercisable in cash or as otherwise determined by the board of directors. There are no shares available for future grants under the 2004 Plan, as grants from the 2004 Plan ceased upon the Company’s initial public offering in April 2010.
 
The 2010 Stock Incentive and Option Plan (2010 Plan) became effective upon the closing of the Company’s initial public offering. Under the 2010 Plan, stock awards may be granted to employees, directors, and consultants of the Company, in the form of restricted or unrestricted stock, stock appreciation rights, cash-based or performance share awards and stock options. The amounts and terms of awards granted are determined by the Company’s compensation committee. The equity awards granted under the 2010 Plan generally vest over four years and have terms of up to ten years after the date of grant, and options are exercisable in cash or as otherwise determined by the board of directors. The 2010 Plan allows for the transfer of forfeited shares from the 2004 Plan. As of September 30, 2012, 32,866 shares of common stock were available for future grants under the 2010 Plan.

Stock Options
 
The following table summarizes stock option activity under the Plans:
     
Number of shares
     
Weighted-average
exercise
price
     
Weighted-average remaining contractual term (in years)
     
Aggregate intrinsic
value (in thousands)
 
                                 
Outstanding at December 31, 2011
    174,874     $ 16.77       8.9     $ 63  
Granted
    87,184     $ 5.66                  
Exercised
    (2,432 )   $ 4.40                  
Forfeited
    (11,674 )   $ 22.64                  
Outstanding at September 30, 2012
    247,952     $ 12.71       8.6     $  
                                 
Vested and expected to vest at September 30, 2012
    229,059     $ 13.09       8.6     $  
                                 
Exercisable at September 30, 2012
    57,906     $ 27.35       7.1     $  
                                 
Total stock-based compensation expense recognized for stock options to employees and non-employee directors for the three months ended September 30, 2011 and 2012 was $0.2 million and $0.1 million, respectively. Total stock-based compensation expense recognized for stock options to employees and non-employee directors for the nine months ended September 30, 2011 and 2012 was $0.7 million and $0.3 million, respectively. As of September 30, 2012, there was $0.8 million of unrecognized compensation expense, net of forfeitures, related to unvested employee stock options. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately 3.0 years.
 
 
 
 
 
-15-

 
 
 

Total stock-based compensation expense recognized for stock options to non-employees for the three and nine months ended September 30, 2011 and 2012 was immaterial.

The following table summarizes restricted stock activity under the Plans:
 
Number
of shares
 
Weighted-
average
grant date fair value
 
Nonvested at December 31, 2011                                                                                                   
13,988
   
$
24.20
 
Granted                                                                                                   
67,863
   
$
6.00
 
Vested                                                                                                   
(5,047
)
 
$
24.20
 
Forfeited                                                                                                   
(2,135
)
 
$
17.64
 
Nonvested at September 30, 2012                                                                                                   
74,669
   
$
7.84
 
             
Total stock-based compensation expense recognized for restricted stock to employees for the three months ended September 30, 2011 and 2012 was $26,000 and $42,000, respectively. Total stock-based compensation expense recognized for restricted stock to employees for the nine months ended September 30, 2011 and 2012 was $64,000 and $124,000, respectively.  As of September 30, 2012, there was $0.4 million of unrecognized compensation expense, net of forfeitures, related to unvested employee restricted stock. The unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately 3.2 years.

(14)  
Commitments and Contingencies
 
Operating Leases
 
The Company leases office space and office equipment under operating leases, which expire at various times through February 2016. Excluding the lease liability activity described in Note 9, rent expense under these operating leases was $0.2 million and $47,000 for the three months ended September 30, 2011 and 2012, respectively.  Excluding the lease liability activity described in Note 9, rent expense under these operating leases was $0.6 million and $0.1 million for the nine months ended September 30, 2011 and 2012, respectively. The following table summarizes future minimum lease payments as of September 30, 2012 (in thousands):
         
2012                                                                                                                 
 
$
320
 
2013                                                                                                                 
   
1,016
 
2014                                                                                                                 
   
1,040
 
2015                                                                                                                 
   
1,063
 
2016                                                                                                                 
   
276
 
Total minimum lease payments                                                                                                           
  
$
3,715
 
         
The lease agreement for the Company’s facility in East Norriton, Pennsylvania requires the Company to provide security and restoration deposits totaling $2.2 million to the landlord. The Company has deposited $1.0 million with the landlord as a security deposit, which amount was recorded as a non-current other asset on the Company’s balance sheet as of December 31, 2011 and September 30, 2012. As of September 30, 2012, an outstanding letter of credit is satisfying the remaining restoration deposit obligation of $1.2 million. At the end of the lease term, the landlord has the right to require the Company to utilize the funds collateralizing this letter of credit to restore the facility to its original condition. The letter of credit is collateralized by an account held at the bank. The bank recently informed the Company that it will not renew the letter of credit beyond December 2, 2012. Therefore, the Company will need to seek a new letter of credit or deposit cash of up to $1.2 million in an account to satisfy its deposit obligation.
 
 
 
 
 
 
 
 
 
-16-

 
 
 
(15)  
Subsequent Events
 
On October 3, 2012, the Company completed a private placement of $15.0 million aggregate principal amount of notes (the Notes).  The principal amount of Notes includes the exchange of the Demand Notes (see Note 10).  The Company issued warrants to the holders of the Notes to purchase approximately 51.1 million shares of common stock at an initial exercise price of $0.75 per share. The exercise price and number of shares issuable upon exercise of the warrants are subject to adjustment under certain circumstances.

The Notes are convertible under certain circumstances into shares of the Company's common stock at a conversion rate of 1,333 shares per $1,000 of principal amount of the Notes. The conversion rate is subject to adjustment under certain circumstances. The Company may not redeem the Notes.

The Company intends to use the net proceeds of this transaction primarily to fund research and development activities for its two lead programs, including completing enrollment in the Phase 1 clinical trial for its Neo-Urinary Conduit as well as submitting an Investigational New Drug filing to the U.S. Food and Drug Administration for the Company's Neo-Kidney Augment.

In connection with the issuance of the Notes, the Company granted the lenders an option to purchase up to an additional $20.0 million aggregate principal amount of the Notes at any time until June 30, 2013. One of the lenders, Celgene Corporation, secured a right of first negotiation on the Company's Neo-Urinary Conduit program in exchange for receiving fewer warrants than the other lenders.

In connection with the 2012 Financing, on October 2, 2012, the Company, Horizon Credit II LLC (Horizon) and Horizon Technology Finance Corporation entered into a First Amendment of Venture Loan and Security Agreement (the Loan Amendment).  The Loan Amendment amends the Venture Loan and Security Agreement dated as of March 14, 2011 pursuant to which Horizon made a loan of $5 million to us (the Horizon Loan).  The Loan Amendment provides that the maturity date for the Horizon Loan is extended from January 1, 2014 until May 1, 2014.  We are now required to make monthly interest payments of approximately $40,000 through June 1, 2013 and monthly interest and principal payments of approximately $0.4 million from July 1, 2013 through and including May 1, 2014.  Horizon’s security now includes a lien on our intellectual property assets.  The interest rate on the Horizon Loan was increased from 11.75% to 13.0% per annum retroactive to September 1, 2012.
 

 
Forward-Looking Statements

Any statements herein or otherwise made in writing or orally by us with regard to our expectations as to financial results and other aspects of our business may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations and intentions and may be identified by words like “believe,” “expect,” “designed,” “may,” “will,” “should,” “seek,” “anticipate,” and similar expressions. These forward-looking statements may include, but are not limited to, statements concerning: (i) our estimates regarding expenses, future revenues, capital requirements, needs for additional financing and our ability to obtain such financing; (ii) our plans to develop and commercialize our product candidates; (iii) our ongoing and planned preclinical studies and clinical trials; (iv) the timing of and our ability to obtain and maintain marketing approvals for our product candidates; (v) the rate and degree of market acceptance and clinical utility of our products; (vi) our plans to leverage our Organ Regeneration Platform to discover and develop product candidates; (vii) our ability to identify and develop product candidates; (viii) our commercialization, marketing and manufacturing capabilities and strategy; (ix) our intellectual property position; and (x) other risks and uncertainties, including those under the heading “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q , in the section entitled “Risk Factors” in Item IA of Part I of our Annual Report on Form 10-K for the year ended December 31, 2011, as amended, as well as in other documents filed by us with the SEC.
 
 
 
 
-17-

 
 
 
Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, the forward-looking statements contained in this document are neither promises nor guarantees. Our business is subject to significant risks and uncertainties and there can be no assurance that our actual results will not differ materially from our expectations. Factors which could cause actual results to differ materially from our expectations set forth in our forward-looking statements are set forth in the section entitled “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q, in the section entitled “Risk Factors” in Item IA of Part I of our Annual Report on Form 10-K for the year ended December 31, 2011, as amended, as well as in other documents filed by us with the SEC and include, among others:(i) we will need to raise additional funds through collaborative arrangements or the issuance of additional equity to execute our business plan beyond May 2013, or seek protection under the U.S. bankruptcy laws; (ii) the U.S. Food and Drug Administration (FDA) could place our Neo-Urinary Conduit clinical trial on clinical hold; (iii) patients enrolled in our Neo-Urinary Conduit clinical trial may experience adverse events, which could delay our clinical trial or cause us to terminate the development of the Neo-Urinary Conduit; (iv) we may have difficulty enrolling patients in our clinical trials, including our Phase 1 clinical trial for our Neo-Urinary Conduit; (v) data from our ongoing preclinical studies, including our proposed GLP program for the Neo-Kidney Augment, may not continue to be supportive of advancing such preclinical product candidates; and (vi) we may be unable to progress our product candidates that are undergoing preclinical testing, including our Neo-Kidney Augment, into clinical trials and we may not be successful in designing such clinical trials in a manner that supports development of such product candidates.

The forward-looking statements made in this document are made only as of the date hereof and we do not intend to update any of these factors or to publicly announce the results of any revisions to any of our forward-looking statements other than as required under the federal securities laws.
 
Overview
 
Tengion is a regenerative medicine company focused on discovering, developing, manufacturing and commercializing a range of neo-organs, or products composed of living cells, with or without synthetic or natural materials, implanted or injected into the body to engraft into, regenerate, or replace a damaged tissue or organ.  Using our Organ Regeneration Platform, we create these neo-organs using a patient’s own cells, or autologous cells.  We believe our proprietary product candidates harness the intrinsic regenerative pathways of the body to regenerate a range of native-like organs and tissues.  Our product candidates are intended to delay or eliminate the need for chronic disease therapies, organ transplantation, and the administration of anti-rejection medications.  In addition, our neo-organs are designed to avoid the need to substitute other tissues of the body for a purpose to which they are poorly suited.
 
Building on our clinical and preclinical experience, we are initially leveraging our Organ Regeneration Platform to develop our Neo-Urinary Conduit for bladder cancer patients who are in need of a urinary diversion and our Neo-Kidney Augment for patients with advanced chronic kidney disease.
 
Our Neo-Urinary Conduit is intended to replace the use of bowel tissue in bladder cancer patients requiring a non-continent urinary diversion after bladder removal surgery, or cystectomy.  We are able to manufacture our Neo-Urinary Conduit using a proprietary process that takes four weeks or less and uses smooth muscle cells derived from a routine biopsy.  We are currently conducting a Phase I clinical trial for our Neo-Urinary Conduit in bladder cancer patients to assess its safety and preliminary efficacy, as well as to translate the surgical implantation procedure utilized in preclinical studies.  This trial is an open-label, single-arm study, which is currently expected to enroll up to ten patients.  We enrolled our sixth patient in this trial in the third quarter of 2012.  In October 2012, we announced the death of two patients enrolled in the trial.  Both patients died due to afflictions unrelated to the Neo-Urinary Conduit or the surgical procedure.  We notified the Data Safety Monitoring Board of these events and the Phase I clinical trial is ongoing. While we and our clinical investigators believe that the surgical technique used successfully in animal models has been translated to humans, we are continuing to seek to refine the appropriate post-surgical care of these patients.  We are actively recruiting and remain focused on enrolling the remaining four patients in the trial by the end of 2012, however the timing of enrolling the seventh patient may result in completing enrollment of this trial in the first quarter of 2013.
 
Our Neo-Kidney Augment is being developed to prevent or delay dialysis by increasing renal function in patients with advanced chronic kidney disease.  Our Neo-Kidney Augment is based on our proprietary technology, which is expected to use the patient’s cells, procured by a needle biopsy of the patient’s kidney, to create an injectable product candidate that can catalyze the regeneration of functional kidney tissue.  We recently completed a successful Pre-IND meeting with the U.S. Food and Drug Administration (“FDA”) for the Neo-Kidney Augment.  We and the FDA have agreed on a good laboratory practice (“GLP”) animal study program required to support an Investigational New Drug (“IND”) filing and initiation of a Phase I clinical trial in chronic kidney disease (“CKD”) patients.  We anticipate we will submit an IND filing for the product candidate during the first half of 2013 and that our Phase 1 trial will provide initial human proof-of-concept data in 2014. We also continue to explore moving our Neo-Kidney Augment forward in Europe using the Advanced Therapy Medicinal Products, or ATMP, pathway, an established European regulatory route for advanced cell based therapies.  We have obtained scientific advice from a European competent authority (Swedish Medicinal Products Agency) and assuming adequate funding is available, we intend to pursue our Neo-Kidney Augment development program in Europe.
 
 
 
 
 
-18-

 
 
 
To date, we have devoted substantially all of our resources to the development of our Organ Regeneration Platform and product candidates, as well as to our facilities that we employ to manufacture our neo-organs.  Since our inception in July 2003, we have had no revenue from product sales, and have funded our operations principally through the private and public sales of equity securities and debt financings.  We have never been profitable and, as of September 30, 2012, we had an accumulated deficit of $243.1 million.  We expect to continue to incur significant operating losses for the foreseeable future as we advance our product candidates from discovery through preclinical studies and clinical trials and seek marketing approval and eventual commercialization.
 
Cash, cash equivalents and short-term investments at September 30, 2012, were $1.4 million, representing 35.3% of total assets. Based upon our current expected level of operating expenditures and debt repayment, and assuming we are not required to settle any outstanding warrants in cash or redeem, or pay cash interest on, any of our Convertible Notes, we expect to be able to fund operations through May 2013. This period could be shortened if there are any significant increases in planned spending on development programs than anticipated or other unforeseen events.  We will need to raise additional funds through collaborative arrangements, public or private sales of debt or equity securities, commercial loan facilities, or some combination thereof.  There is no assurance that other financing will be available when needed to allow us to continue our operations or if available, on terms acceptable to us.
 
In March 2011, we issued warrants to purchase 1,046,102 shares of common stock in connection with a private placement transaction. We valued the warrants as derivative financial instruments as of the date of issuance (March 4, 2011) and will continue to do so at each reporting date, with any changes in fair value being recorded on the Statements of Operations. The warrants contain a net cash settlement provision under which the warrant holders may require us to purchase the warrants in exchange for a cash payment following the announcement of specified events defined as Fundamental Transactions involving the Company (e.g., merger, sale of all or substantially all assets, tender offer, or share exchange) or a Delisting, which is deemed to occur when the common stock is no longer listed on a national securities exchange. As of September 30, 2012, the fair value recorded on our balance sheet of $2.1 million exceeded the calculated net cash settlement value of $1.1 million. We will continue to classify the fair value of the warrants as a liability until the warrants are exercised, expire, or are amended in a way that would no longer require these warrants to be classified as a liability.
 
Recent Developments

On October 3, 2012, the Company completed a private placement (the 2012 Financing) of $15.0 million aggregate principal amount of notes (the Notes).  The principal amount of Notes includes the exchange of approximately $1.0 million of debt issued by the Company in September 2012.  The Company issued warrants (the 2012 Warrants) to the holders of the Notes to purchase approximately 51.1 million shares of common stock at an initial exercise price of $0.75 per share. The exercise price and number of shares issuable upon exercise of the warrants are subject to adjustment under certain circumstances.

The Notes are convertible under certain circumstances into shares of the Company's common stock at a conversion rate of 1,333 shares per $1,000 of principal amount of the Notes. The conversion rate is subject to adjustment under certain circumstances. The Company may not redeem the Notes.

The Company intends to use the net proceeds of this transaction primarily to fund research and development activities for its two lead programs, including completing enrollment in the Phase 1 clinical trial for its Neo-Urinary Conduit as well as submitting an Investigational New Drug filing to the U.S. Food and Drug Administration for the Company's Neo-Kidney Augment.

In connection with the issuance of the Notes, the Company granted the lenders an option to purchase up to an additional $20.0 million aggregate principal amount of the Notes at any time until June 30, 2013. One of the lenders, Celgene Corporation, secured a right of first negotiation on the Company's Neo-Urinary Conduit program in exchange for receiving fewer warrants than the other lenders.
 
 
 
 
 
 
 
 
 
 
 
-19-

 
 
 

On September 4, 2012, the Company was notified by NASDAQ of its hearing panel’s determination to delist the Company’s common stock from NASDAQ effective at the open of business on Thursday, September 6, 2012.  This delisting triggered the right of the holders of warrants issued in March 2011 to require the Company to purchase the warrants in exchange for a cash settlement value which was calculated as $0.64 per warrant share. The warrant holders have until December 5, 2012 to present the warrants to the Company.  If all the warrant holders exercise this option, the Company would be required to pay a total cash settlement value of approximately $0.7 million.

Financial Operations Overview

Research and Development Expense

Our research and development expense consists of expenses incurred in developing and testing our product candidates and are expensed as incurred. Research and development expense include:

·  
personnel related expenses, including salaries, benefits, travel and other related expenses including stock-based compensation;
·  
payments made to third-party contract research organizations for preclinical studies, investigative sites for clinical trials and consultants;
·  
costs associated with regulatory filings and the advancement of our product candidates through preclinical studies and clinical trials;
·  
laboratory and other supplies;
·  
manufacturing development costs; and
·  
facility maintenance.

Preclinical study and clinical trial costs for our product candidates are a significant component of our current research and development expenses. We track and record information regarding external research and development expenses on a per-study basis. Preclinical studies are currently coordinated with third-party contract research organizations and expense is recognized based on the percentage completed by study at the end of each reporting period. Clinical trials are currently coordinated through a number of contracted sites and expense is recognized based on a number of factors, including actual and estimated patient enrollment and visits, direct pass-through costs and other clinical site fees. We utilize internal employees, resources and facilities across multiple product candidates.  We do not allocate internal research and development expenses among product candidates.

The following table summarizes our research and development expense for the three and nine months ended September 30, 2011 and 2012 (in thousands):
                                                 
   
Three months ended
September 30,
 
Nine months ended
September 30,
   
2011
 
2012
 
Change
 
2011
 
2012
 
Change
Third-party direct program expenses:
                                               
Urologic
 
$
121
 
  
$
195
   
$
74
 
  
$
550
   
$
535
 
  
$
(15
)
Renal
   
564
 
  
 
525
     
 (39
)
  
 
1,676
     
1,517
 
  
 
(159
)
Total third-party direct program expenses
   
685
 
  
 
720
     
35
 
  
 
2,226
     
2,052
 
  
 
(174
)
Other research and development expense
   
2,152
 
  
 
1,718
     
(434
)
  
 
7,353
     
5,869
 
  
 
(1,484
)
Total research and development expense
 
$
2,837
 
  
$
2,438
   
$
(399
)
  
$
9,579
   
$
7,921
 
  
$
(1,658
)

From our inception in July 2003 through September 30, 2012, we have incurred research and development expense of $125.8 million. We expect that a large percentage of our research and development expense in the future will be incurred in support of our current and future preclinical and clinical development programs. These expenditures are subject to numerous uncertainties in timing and cost to completion. We expect to continue to test our product candidates in preclinical studies for toxicology, safety and efficacy, and to conduct additional clinical trials for each product candidate. If we are not able to engage a partner prior to the commencement of later stage clinical trials, we may fund these trials ourselves. As we obtain results from clinical trials, we may elect to discontinue or delay clinical trials for certain product candidates or programs in order to focus our resources on more promising product candidates or programs. Completion of clinical trials by us or our future collaborators may take several years or more, but the length of time generally varies according to the type, complexity, novelty and intended use of a product candidate. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others:
 
 
 
 
 
 
-20-

 
 
 

·  
the number of sites included in the trials;
·  
the length of time required to enroll suitable patients;
·  
the number of patients that participate in the trials;
·  
the duration of patient follow-up;
·  
the development stage of the product candidate; and
·  
the efficacy and safety profile of the product candidate.

None of our product candidates have received FDA or foreign regulatory marketing approval. In order to grant marketing approval, the FDA or foreign regulatory agencies must conclude that clinical data establishes the safety and efficacy of our product candidates. Furthermore, our strategy includes entering into collaborations with third parties to participate in the development and commercialization of our product candidates. In the event that third parties have control over the clinical trial process for a product candidate, the estimated completion date would largely be under control of that third party rather than under our control. We cannot forecast with any degree of certainty which of our product candidates will be subject to future collaborations or how such arrangements would affect our development plan or capital requirements.

As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our development projects or when and to what extent we will receive cash inflows from the commercialization and sale of an approved product candidate.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management bases these significant judgments and estimates on historical experience and other assumptions it believes to be reasonable based upon information presently available. Actual results could differ from those estimates under different assumptions, judgments or conditions. There were no material changes to our critical accounting policies and use of estimates previously disclosed in our 2011 Annual Report on Form 10-K.

Results of Operations

Comparison of Three and Nine Months Ended September 30, 2011 and 2012

Research and Development Expense.  Research and development expense for the three and nine months ended September 30, 2011 and 2012 were comprised of the following (in thousands):
                                                 
   
Three months ended
September 30,
 
Nine months ended
September 30,
   
2011
 
2012
 
Change
 
2011
 
2012
 
Change
Compensation and related expense
 
$
1,395
 
  
$
1,069
   
$
(326
)
  
$
4,975
   
$
3,402
 
  
$
(1,573
)
External services – direct third parties
   
685
 
  
 
720
     
35
 
  
 
2,226
     
2,052
 
  
 
(174
)
External services – other
   
125
 
  
 
76
     
(49
)
  
 
270
     
462
 
  
 
192
 
Research materials and related expense
   
207
 
  
 
320
     
113
 
  
 
762
     
1,012
 
  
 
250
 
Facilities and related expense
   
425
 
  
 
253
     
(172
)
  
 
1,346
     
993
 
  
 
(353
)
Total research and development expense
 
$
2,837
 
  
$
2,438
   
$
(399
)
  
$
9,579
   
$
7,921
 
  
$
(1,658
)

Research and development expense were $2.8 million and $2.4 million for the three months ended September 30, 2011 and 2012, respectively, and $9.6 million and $8.0 million for the nine months ended September 30, 2011 and 2012, respectively.  The decrease in research and development expense for the three and nine months ended September 30, 2012 was primarily due to a reduction in compensation and related expenses resulting from fewer employees as compared to the three and nine months ended September 30, 2011, as well as a reduction in facilities and related expense due to lower recorded rent expense due to the fact that rent expense for the Pennsylvania facility is now recorded in the other expense line on Company’s Statement of Operations.
 
 
 
 
 
 
-21-

 
 
 
General and Administrative Expense. General and administrative expense for the three and nine months ended September 30, 2011 and 2012 were comprised of the following (in thousands):

   
Three months ended
September 30,
 
Nine months ended
September 30,
   
2011
 
2012
 
Change
 
2011
 
2012
 
Change
Compensation and related expense
 
$
739
 
  
$
541
   
$
(198
)
 
$
3,240
   
$
1,695
 
  
$
(1,545
)
Professional fees
   
520
 
  
 
459
     
(61
)
   
1,506
     
1,722
 
  
 
248
 
Facilities and related expense
   
56
 
  
 
83
     
27
     
227
     
374
 
  
 
147
 
Insurance, travel and other expenses
   
68
 
  
 
115
     
47
     
224
     
226
 
  
 
2
 
Total general and administrative expense
 
$
1,383
 
  
$
1,198
   
$
(185
)
 
$
5,197
   
$
4,017
 
  
$
(1,148
)

General and administrative expense were $1.4 million and $1.2 million for the three months ended September 30, 2011 and 2012, respectively, and $5.2 million and $4.0 million for the nine months ended September 30, 2011 and 2012, respectively. The decrease in general and administrative expense for the three and nine months ended September 30, 2012 was primarily due to a reduction in compensation and related expenses resulting from fewer employees as compared to the three and nine months ended September 30, 2011.

Depreciation Expense. Depreciation expense was $0.7 million and $0.1 million for the three months ended September 30, 2011 and 2012, respectively, and $2.8 million and $0.4 million for the nine months ended September 30, 2011 and 2012, respectively. The decrease for the three and nine months ended September 30, 2012 was primarily due to the recording during the fourth quarter of 2011 of an impairment charge, which reduced the carrying value of assets at our East Norriton, Pennsylvania facility. The decrease was also due to a change during the second quarter of 2011 in the estimated useful life of leasehold improvements associated with leased laboratory space in Winston-Salem, North Carolina upon the extension of that lease.

Other Expense. Other expense was $26,000 and $38,000 for the three months ended September 30, 2011 and 2012, respectively, and $1.0 million and $0.1 million for the nine months ended September 30, 2011 and 2012, respectively. During the first quarter of 2011, we recorded a non-cash charge of $0.9 million due to the initial recognition of a lease liability. The liability resulted from a lease agreement entered into in February 2006 that became effective in March 2011 for additional warehouse space that will not be utilized over the lease term.

Interest Income (Expense).  Interest income was $12,000 and $1,000 for the three months ended September 30, 2011 and 2012, respectively, and $39,000 and $12,000 for the nine months ended September 30, 2011 and 2012, respectively. The decrease was primarily due to decreased average cash balances. Interest expense was $0.2 million and $0.5 million for the three months ended September 30, 2011 and 2012, respectively, and $0.7 million and $0.8 million for the three months ended September 30, 2011 and 2012, respectively. The increase is primarily due to $0.3 million related to the September 2012 bridge financing that is offset by lower average debt facility balances outstanding in 2012.

Change in Fair Value of Warrant Liability.  During the three and nine months ended September 30, 2012, we recorded a non-cash charge of $0.3 million and a non-cash credit of $0.4 million, respectively, on our statements of operations due to a change in the fair value of the warrant liability for warrants to purchase common stock that were issued in March 2011. The increase in fair value for the three months ended Setember 30, 2012 was due to an increase in management's assumption of the probability of a net cash settlement of warrants. The decrease in fair value for the nine months ended September 30, 2012 was primarily due to a decrease in the price per share of our common stock. During the three and nine months ended September 30, 2011, we recorded a non-cash credit of $4.2 million and $14.1 million, respectively, on our statements of operations due to a decrease in the fair value of the warrant liability for warrants to purchase common stock that were issued in March 2011. The decrease in fair value was primarily due to a decrease in the price per share of our common stock between the date of issuance of the warrants (March 4, 2011) and March 31, 2011, and between the date of issuance of the warrants (March 4, 2011) and September 30, 2011.
 
 
 
 
 
 
-22-

 
 
 

Liquidity and Capital Resources

Source of Liquidity
 
Cash, cash equivalents and short-term investments at September 30, 2012, were $1.4 million, representing 35.3% of total assets. On October 2, 2012, Company entered into several agreements with certain new and existing investors to provide financing in the form of Senior Secured Convertible Notes (the Notes) of approximately $15 million.  Based upon our current expected level of operating expenditures and debt repayment, and assuming we are not required to settle any outstanding warrants in cash or redeem, or pay cash interest on, any of the Notes, we expect to be able to fund operations through May 2013.  This period could be shortened if there are any significant increases in planned spending on development programs than anticipated or other unforeseen events.  We will need to raise additional funds through collaborative arrangements, public or private sales of debt or equity securities, commercial loan facilities, or some combination thereof.  There is no assurance that other financing will be available when needed to allow us to continue our operations or if available, on terms acceptable to us.
 
We have incurred losses since our incorporation in 2003 as a result of our significant research and development expenditures and the lack of any approved products to generate product sales. We have a deficit accumulated during the development stage of $243.1 million as of September 30, 2012.  We anticipate that we will continue to incur additional losses until such time that we can generate significant sales of our product candidates currently in development or we enter into cash flow positive business transactions. We have funded our operations principally with proceeds from equity offerings and long-term debt. The following table summarizes our equity funding sources as of September 30, 2012:
 
Issue
 
Year
   
Number of
Shares
     
Net Proceeds
(in thousands) (1)
 
Series A Redeemable Convertible Preferred Stock
    2004, 2005       166,832 (2)     $ 38,910  
Series B Redeemable Convertible Preferred Stock
    2006       190,601 (2)       50,040  
Series C Redeemable Convertible Preferred Stock
    2007, 2008       207,764 (2)       54,571  
Initial Public Offering
    2010       600,000         25,721  
Private Placement
    2011       1,107,939         28,941  
              2,273,136       $ 198,183  


(1)
Net proceeds represent gross proceeds received net of transaction costs associated with each equity offering.
 
(2)
Number of shares represents the number of shares of common stock into which each series of preferred stock converted at the time of our initial public offering.
 
 
We have also funded our operations through the use of proceeds received from our long-term debt totaling $40.5 million through September 30, 2012, net of issuance costs. We currently have a working capital note with an outstanding principal of $3.7 million as of September 30, 2012, which borrowings were used for our general working capital needs.

The lease agreement for the Company’s facility in East Norriton, Pennsylvania requires the Company to provide security and restoration deposits totaling $2.2 million to the landlord. The Company has deposited $1.0 million with the landlord as a security deposit, which amount was recorded as a non-current other asset on the Company’s balance sheet as of September 30, 2012. As of December 31, 2011 and September 30, 2012, an outstanding letter of credit is satisfying the remaining restoration deposit obligation of $1.2 million. At the end of the lease term, the landlord has the right to require the Company to utilize the funds collateralizing this letter of credit to restore the facility to its original condition. The letter of credit is collateralized by an account held at the bank. The bank recently informed us that it will not renew the letter of credit beyond December 2, 2012. Therefore, we will need to seek a new letter of credit or deposit cash of up to $1.2 million in an account held by the landlord to satisfy our deposit obligation.
 
 
 
 
 
 
 
 
-23-

 
 

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for the nine months ended September 30, 2011 and 2012 (in thousands):
                         
   
Nine months ended September 30,
   
2011
 
2012
 
Change
Statement of Cash Flows Data:
                       
Total cash provided by (used in):
                       
Operating activities
 
$
(17,172
)
 
$
(13,399
)
 
$
3,773
 
Investing activities
   
(11,164
)
   
6,044
     
17,208
 
Financing activities
   
25,627
     
(515
)
   
(26,142
)
Decrease in cash and cash equivalents
 
$
(2,709
)
 
$
(7,870
)
 
$
(5,161
)

Operating Activities
Cash used in operating activities decreased $3.8 million for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011, due to the payment of $1.0 million security deposit in the first quarter of 2011 in connection with the lease for our East Norriton, Pennsylvania facility and a reduction in compensation and related expenses resulting from fewer employees as compared to the nine months ended September 30, 2011.

Investing Activities
Cash provided by investing activities increased $17.2 million for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011, primarily due to an increase in net sales and redemptions (net of purchases) of short-term investments of $17.1 million.

Financing Activities
Cash provided by financing activities decreased $26.1 million for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011. The 2011 period included net proceeds of $29.0 million received from our March 2011 equity financing.


The primary objective of our investment activities is to preserve our capital to fund operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of cash equivalents and investments in a variety of securities of high credit quality. Due to the nature of these investments, we believe that we are not subject to any material market risk exposure. As of September 30, 2012, we held cash, cash equivalents and short-term investments of $1.4 million.


Evaluation of Disclosure Controls and Procedures and Changes in Internal Control over Financial Reporting

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
 
 
 
 
-24-

 
 

 
PART II.                      OTHER INFORMATION
 
Item 1.                                Legal Proceedings.
 
None
 
Item 1A.                      Risk Factors
 
In order to fund our operations, we will need to raise significant amounts of capital.  We may not be able to raise additional capital when necessary or on acceptable terms to us, if at all.  
 
Based upon our current expected level of operating expenditures and debt repayment, and assuming we are not required to settle any outstanding warrants in cash or redeem, or pay cash interest on, any of our Convertible Notes, we expect to be able to fund operations through May 2013. We intend to pursue additional sources of capital to continue our business operations as currently conducted and fund deficits in operating cash flows. There is no assurance that such financing will be available when needed or, if available, on terms acceptable to us. If we do not raise additional capital by May 31, 2013, we may not be able to fund our operations or remain in business. Our future capital requirements will depend on many factors, including:
 
·  
the scope and results of our clinical trials, particularly regarding the number of patients required and the required duration of follow-up for our clinical trials in support of our product candidates;
 
·  
the scope and results of our research and preclinical development programs;
 
·  
the costs of operating our research and development facility to support our research and early clinical activities;
 
·  
the time, complexity and costs involved in obtaining marketing approvals for our product candidates, which could take longer and be more costly than obtaining approval for a new conventional drug candidate, given the FDA’s limited experience with clinical trials and marketing approval for products derived from a patient’s own cells;
 
·  
the costs of securing commercial manufacturing capacity to support later-stage clinical trials and subsequent commercialization activities, if any;
 
·  
the costs of maintaining, expanding, protecting and enforcing our intellectual property portfolio, including potential dispute and litigation costs and any associated liabilities and potentially challenging the intellectual property of others;
 
·  
the costs of entering new markets outside the United States; and
 
·  
the extent of our contractual obligations and amount of debt service payments we are obligated to make.
 
As a result of these factors, among others, we will need to seek additional funding before we are able to generate positive cash flow from operations.  We will need to raise additional funds through collaborative arrangements, public or private sales of debt, equity or equity-linked securities, commercial loan facilities, or some combination thereof.  Additional funding may not be available to us on acceptable terms, or at all.  If we obtain capital through collaborative arrangements, these arrangements could require us to relinquish some rights to our technologies or product candidates and we may become dependent on third parties.  If we raise capital through the sale of equity, or securities convertible into equity, dilution to our then-existing stockholders would result.  If we obtain funding through the incurrence of debt, we would likely become subject to covenants restricting our business activities, and holders of debt instruments would have rights and privileges senior to those of our equity investors.  In addition, servicing the interest and repayment obligations under our current and future borrowings would divert funds that would otherwise be available to support research and development, clinical or commercialization activities.
 
If we are unable to obtain adequate financing on a timely basis, we may be required to delay, reduce the scope of or eliminate one or more of our development programs, reduce our personnel, or default on our outstanding debt and contractual obligations, any of which could raise substantial doubt about our ability to continue as a going concern and remain in business.
 
 
 
 
 
-25-

 
 
 

We have a substantial amount of debt and contractual obligations that expose us to risks that could adversely affect our business, operating results and financial condition.  
 
As of October 31, 2012, we had approximately $18.6 million of outstanding debt, which is secured by liens on substantially all of our assets.  Our outstanding debt includes approximately $15 million in Notes issued in the 2012 Financing and a $3.6 million loan from our venture debt lender, Horizon Credit II LLC. Under the terms of the Convertible Notes, beginning January 1, 2013, we are required to make quarterly interest payments in cash or shares of our common stock at 10% per annum. The Notes are due October 2, 2015.  The holders of our Notes also have the right to require us to issue on or before June 30, 2013 up to an additional $20 million of securities.
 
Under the terms of our loan with Horizon Credit II LLC, we are obligated to make interest-only payments through June 1, 2013, followed by monthly payments of principal and interest at an interest rate of 13% per annum through May 1, 2014.  
 
We expect that the annual principal and interest payments on our outstanding debt will be approximately $3.9 million, $3.3 million, and $16.4 million in 2013, 2014, and 2015, respectively.  The level and nature of our indebtedness could, among other things:
 
·  
make it difficult for us to obtain any necessary financing in the future;
 
·  
limit our flexibility in planning for or reacting to changes in our business;
 
·  
reduce funds available for use in our operations;
 
·  
impair our ability to incur additional debt because of financial and other restrictive covenants or the liens on our assets which secure our current debt;
 
·  
hinder our ability to raise equity capital because in the event of a liquidation of the business, debt holders receive a priority before equity holders;
 
·  
make us more vulnerable in the event of a downturn in our business; or
 
·  
place us at a possible competitive disadvantage relative to less leveraged competitors and competitors that have better access to capital resources.
 
The lease agreement for our Pennsylvania manufacturing facility requires us to provide security and restoration deposits totaling $2.2 million to the landlord.  In satisfaction of these security deposit obligations, we have deposited $1 million with the landlord and have secured a $1.2 million letter of credit from a bank in favor of the landlord.  The letter of credit is collateralized by an account held at the bank.  The bank recently informed us that it will not renew the letter of credit beyond December 2, 2012.  Therefore, we will need to seek a new letter of credit or deposit cash of up to $1.2 million in an account held by the landlord to satisfy our deposit obligation.
 
In November 2011, we made a business decision to restructure our corporate operations, consolidate our operations in our Winston-Salem research and development facility and seek to exit our commercial-scale manufacturing facility.  We currently have three years left under the lease agreement for our commercial-scale manufacturing facility and a net rental obligation of $3.6 million.  While we will seek to sublease or otherwise reduce the net rental obligation of this facility, there can be no assurance that we will be successful in doing so and we will remain contractually liable for the rental obligations under this lease.
 
Unless we raise substantial additional capital or generate substantial revenue from a licensing transaction or strategic partnership involving one of our product candidates, and there can be no assurance that we will be able to do so, we may not be able to service or repay our debt when it becomes due, in which case our lenders could seek to accelerate payment of all unpaid principal and foreclose on our assets or continue to execute our current business and product development plans.
 
Any such event would raise substantial doubt about our ability to continue as a going concern and have a material adverse effect on our business, operating results and financial condition.
 
 
 
 
 
-26-

 
 

If we are unable to obtain stockholder approval of an amendment to our certificate of incorporation to increase our authorized shares of common stock, the Convertible Notes will become immediately due and payable and we may be unable to meet our payment obligation.
 
Under the terms of the warrants issued in our March 2011 private placement (the “2011 Warrants”), the 2012 Warrants, and the Notes, we are required to reserve sufficient shares of common stock to permit the exercise of the 2011 Warrants and 2012 Warrants, the conversion of the Convertible Notes, and the issuance of any shares upon adjustments to these securities. Presently, we do not have sufficient authorized shares of common stock to permit such actions. Therefore, we have agreed to seek stockholder approval in order to amend our certificate of incorporation to increase the number of authorized shares of our common stock and to reserve a sufficient number of shares of common stock to provide for the future exercise of the 2011 Warrants, 2012 Warrants, conversion of the Convertible Notes, and issuance of any shares upon adjustments to these securities. If we fail to obtain stockholder approval by December 1, 2012, we will be in default under the terms of our facility agreement with the holders of the Notes.  In such event, the Notes will become immediately due and payable. If that occurs, we will not be able to pay the amounts due under the Notes and will likely need to seek protection under the U.S. bankruptcy laws.

If we fail to satisfy our registration obligations in connection with the 2012 Financing, we would be required to make certain cash payments to holders of the 2012 Warrants and Convertible Notes.

In connection with the 2012 Financing, we filed a registration statement to register for resale the shares of common stock issuable upon exercise of the 2012 Warrants, the conversion of the Notes, and upon adjustments to the 2012 Warrants and Notes, up to the maximum number of shares able to be registered pursuant to applicable SEC regulations. We are obligated to use our best efforts to cause the initial registration statement to become effective by December 31, 2012.  If any of the shares are unable to be included on the initial registration statement, we have agreed to file subsequent registration statements by certain dates until all the underlying shares have been registered or may be freely tradable. We are obligated to maintain the effectiveness of the registration statements until all the shares are sold or otherwise can be sold without registration and without any restrictions.  If we fail to satisfy our registration obligations or specified filing and effectiveness dates, we must make cash payments to the holders of the 2012 Warrants and the Notes.  Such cash payments would significantly reduce funds available for use in our operations and could adversely affect our business.

Our common stock is currently quoted on the over-the-counter market, which may make it more difficult to resell shares of our common stock.
 
On September 6, 2012, our common stock ceased trading on the Nasdaq market and became quoted on the OTCQB, an over-the-counter market.  This market lacks the credibility of established stock markets and is characterized by a lack of liquidity, sporadic trading and larger gaps between bid and ask prices. Compared to a seasoned issuer with stock traded on an established market, which typically results in a large and steady volume of trading activity, there may be periods when trading activity in our shares is minimal or nonexistent. In addition, our common stock is deemed to be “penny stock”, which means stock traded at a price less than $5 per share, which will make it unsuitable for some investors to purchase. Furthermore, the SEC imposes additional rules on broker-dealers that recommend the purchase or sale of penny stock. These additional burdens may discourage broker-dealers from effecting transactions in our common stock and may limit the number of stock brokers that are willing to act as market makers for our common stock. As a result, purchasers of our common stock may be unable to resell their shares.

The future sale of our common stock could negatively affect our stock price.
 
Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline. These sales could also make it more difficult for us to sell equity or equity-related securities in the future at times or prices that we deem appropriate.  As of October 31, 2012, we had 2,466,914 shares of common stock outstanding, and notes and warrants which are convertible and exercisable respectively, into at least 74 million shares of common stock (subject to adjustment upward in accordance with the terms of such notes and warrants).  The currently outstanding shares can be freely sold in the public market and some of the shares subject to warrants, upon issuance, may also be freely sold in the public market, subject, in each case, to certain restrictions imposed by federal securities laws on the holders of our shares. In addition, we may pay interest that accrues on our Convertible Notes with shares of freely tradable common stock.
 
We also currently have under our stock option and equity incentive plans 247,952 shares reserved for issuance related to equity awards granted to our officers, directors and employees and an additional 58,483 shares reserved for issuance, all of which, when issued, may be freely sold in the public market, subject to certain restrictions imposed by federal securities laws on our affiliates.
 
 
 
 
 
-27-

 
 
 
Concentration of ownership of our outstanding common stock among our executive officers, directors and their affiliates, as well as the concentration of our common stock on a fully-diluted basis among a small number of existing investors, may prevent new investors from influencing significant corporate decisions.
 
As of October 31, 2012, our executive officers, directors and their affiliates own, in the aggregate, approximately 30% of the 2,466,914 shares of our outstanding common stock.  In addition, our executive officers and directors hold options to purchase 264,503 shares of common stock upon exercising their options at a weighted-average exercise price of $9.19 per share.  Funds and entities affiliated with directors hold Convertible Notes and warrants, which are convertible and exercisable respectively, into at least 3 million shares of common stock (subject to adjustment upward in accordance with the terms of such notes and warrants).  Furthermore, a small number of existing investors hold Notes and warrants, which are convertible and exercisable respectively, into at least 74 million shares of common stock (subject to adjustment upward in accordance with the terms of such notes and warrants).  The conversion of the convertible notes and exercise of the warrants could lead to substantial dilution to existing and new stockholders.  To the extent we pay interest on our Notes with shares of common stock, the percentage of our outstanding shares held by these investors will increase.  Furthermore, these persons, if acting together, would be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions.  The interests of this group of investors may not coincide with our interests or the interests of existing stockholders.

If we raise additional capital, certain holders of our 2012 Warrants and Convertible Notes have call options, which, if exercised, could require us to issue a significant number of shares, resulting in substantial dilution to our existing stockholders.
 
We entered into a securities purchase agreement in connection with the 2012 Financing, which gave the parties thereto the option to purchase up to an additional $20 million in securities on the same terms as the Notes and 2012 Warrants. The conversion price of the convertible notes and exercise price of the warrants issued pursuant to the terms of this call option will be no greater than $0.75 and, may be lower if the conversion price on the Notes and the exercise price of the 2012 Warrants are adjusted pursuant to the terms of such instruments. Therefore, we may be required to issue a significant number of shares which could result in substantial dilution to our existing stockholders.
 
Certain provisions of the securities issued in connection with our March 2011 private placement and 2012 Financing provide for preferential treatment to the holders of the securities and could impede a sale of the Company.
 
The 2011 Warrants and the 2012 Warrants give each holder the option to receive a cash payment based on a Black-Scholes valuation of the warrant upon a change in control of the Company. In the case of the 2011 Warrants, the method of calculating the Black-Scholes value, includes the requirement to calculate the Black-Scholes value using a minimum volatility of 100%.  In the case of the 2012 Warrants, the Black-Scholes value must be calculated using an average historical volatility for certain trading day periods.  The cash payment could be greater than the consideration that our other equity holders would receive in a change in control transaction.  In addition, holders of the Notes and the 2012 Warrants have the option to require us to redeem these securities upon a change in control transaction. The provisions of the 2011 Warrants, 2012 Warrants and the Notes could make a change in control transaction more expensive for a potential acquirer and could negatively impact our ability to pursue and consummate such a transaction.
 
Certain holders of our 2011 Warrants may not agree with our application of the adjustment provisions in the 2011 Warrants, which if not resolved, could lead to further dilution and serve as a distraction to our management personnel.
 
The 2011 Warrants contain anti-dilution provisions which were triggered upon the consummation of the 2012 Financing.  We recently sent a notice to the holders of the 2011 Warrants detailing the Company's determination of what is the appropriate adjustment to the exercise price and number of warrant shares.  We are aware of one holder of the 2011 Warrants that has indicated that they disagree with our interpretation of the anti-dilution adjustment to the 2011 Warrants.  If the position of this holder of the 2011 Warrants was determined to be correct, existing stockholders would experience additional dilution.  Furthermore, in the event such holder were to choose to litigate the interpretation of these provisions of the 2011 Warrants, such litigation could be costly and a distraction to our management personnel.
 
Item 2.                                Unregistered Sales of Equity Securities and Use of Proceeds.
 
The Company does not have a securities repurchase program. Under the Company’s 2010 Stock Incentive and Option Plan (the Plan), employees may elect for the Company to withhold shares to satisfy minimum statutory federal, state and local tax withholding and exercise price obligations arising from the vesting or exercise of stock options, restricted stock and other equity awards. Restricted stock awards granted under the Plan are made pursuant to individual restricted stock agreements, a form of which is filed as an exhibit to the Company’s Annual Report on Form 10-K.

The following table provides information with respect to the shares withheld by the Company during the nine months ended September 30, 2012, to satisfy these obligations to the extent employees elected for the Company to withhold such shares.

Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
January 1, 2012 – January 31, 2012
 
  
$
 
February 1, 2012 – February 29, 2012
 
878
  
 
6.10
 
March 1, 2012 – March 31, 2012
 
  
 
 
April 1, 2012 – April 30, 2012
 
  
 
 
May 1, 2012 – May 31, 2012
 
  
 
 
June 1, 2012 – June 30, 2012
 
  
 
 
July 1, 2012 – July 31, 2012
 
  
 
 
August 1, 2012 – August 31, 2012
 
  
 
 
September 1, 2012 – September 30, 2012
 
  
 
 
Total
 
878
 
$
6.10
 


Item 3.                                Defaults Upon Senior Securities.
 
None
 
Item 4.                                Mine and Safety Disclosures.
 
Not applicable
 
Item 5.                                Other Information.
 
None
 
 
 
 
 
-28-

 
 
 
 
Item 6.                                Exhibits

(a) Exhibits required by Item 601 of Regulation S-K.
 
Exhibit
Number
Description
 3.1 Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation, effective 12:01 a.m. June 14, 2012 (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 5, 2012)
4.1
Form of Demand Note issued September 7, 2012 (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on September 11, 2012)
4.2
Form of Senior Secured Convertible Note issued October 2, 2012 (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 4, 2012)
4.3
Form of Warrant issued October 2, 2012 (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 4, 2012)
4.4
Amended and Restated Secured Promissory Note issued as of September 1, 2012(Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on October 4, 2012)
10.1
Securities Purchase Agreement by and between Tengion, Inc. and the investors party thereto, dated October 2, 2012 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2012)
10.2
Facility Agreement by and between Tengion, Inc. and the lenders party thereto, dated October 2, 2012 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 4, 2012)
10.3
Security Agreement by and between Tengion, Inc. and the secured parties thereto, dated October 2, 2012 (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 4, 2012)
10.4
Registration Rights Agreement by and between Tengion, Inc. and the parties thereto, dated October 2, 2012 (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 4, 2012)
10.5
Escrow Agreement by and between Tengion, Inc., Ballard Spahr LLP as escrow agent, and the parties thereto, dated October 2, 2012 (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on October 4, 2012)
10.6
Right of First Negotiation Agreement by and between Tengion, Inc. and Celgene Corporation, dated October 2, 2012 (Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on October 4, 2012)
10.7
First Amendment of Venture Loan and Security Agreement by and between Tengion, Inc., Horizon Credit II LLC and Horizon Technology Finance Corporation, dated October 2, 2012 (Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on October 4, 2012)
10.8
Joinder Agreement by and between Tengion, Inc. and Horizon Credit II LLC, dated October 2, 2012 (Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on October 4, 2012)
10.9
Termination Agreement by and between Tengion, Inc. and Medtronic, Inc., dated October 2, 2012 (Incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed on October 4, 2012)
31.1
31.2
32.1
32.2
   
101
The following materials for the quarter ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the  Balance Sheets, (ii)  Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit), (iii) the  Statements of Operations, (iv) the  Statements of Cash Flows, and (v) Notes to  Financial Statements. Such materials were previously filed or furnished on Registrant's Quarterly Report on Form 10-Q filed on November 14, 2012.**
   

*      Filed herewith
 
**
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 are deemed not filed as part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 

   
TENGION, INC.
         
         
Date:  February 8, 2013
 
By:
/s/ John L. Miclot
       
John L. Miclot
President and Chief Executive Officer
(Principal Executive Officer)
         
         
Date:  February 8, 2013
 
By:
/s/ A. Brian Davis
       
A. Brian Davis
Chief Financial Officer and Vice President, Finance
(Principal Financial and Accounting Officer)
         

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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