INOVIO PHARMACEUTICALS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE		33-0969592
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
660 W. GERMANTOWN PIKE, SUITE 110 PLYMOUTH MEETING, PA		19462
(Address of principal executive offices)		(Zip Code)

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Part I. Financial Information

Item 1.    Financial Statements

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INOVIO PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2020				December 31, 2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	158,447,065			$	22,196,097
Short-term investments	111,550,890				67,338,017
Accounts receivable	641,643				700,073
Accounts receivable from affiliated entities	634,198				1,332,044
Prepaid expenses and other current assets	2,479,204				1,584,598
Prepaid expenses and other current assets from affiliated entities	1,790,609				1,050,140
Total current assets	275,543,609				94,200,969
Fixed assets, net	12,104,410				12,773,017
Investment in affiliated entities	21,210,745				6,315,356
Intangible assets, net	3,557,081				3,693,851
Goodwill	10,513,371				10,513,371
Operating lease right-of-use assets	13,511,381				13,783,009
Other assets	2,480,087				2,672,024
Total assets	$	338,920,684			$	143,951,597
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	11,019,582			$	18,237,258
Accounts payable and accrued expenses due to affiliated entities	263,456				729,729
Accrued clinical trial expenses	5,061,166				4,049,727
Deferred revenue	67,269				92,353
Deferred revenue from affiliated entities	525				31,775
Operating lease liability	2,132,045				2,074,842
Grant funding liability	13,091,424				6,065,212
Grant funding liability from affiliated entities	659,175				708,425
Total current liabilities	32,294,642				31,989,321
Deferred revenue, net of current portion	100,354				101,567
Convertible senior notes	63,730,182				64,180,325
Convertible bonds	12,825,143				12,842,592
Derivative liability	22,041,000				8,819,023
Operating lease liability, net of current portion	19,834,770				20,409,922
Deferred tax liabilities	32,046				32,046
Grant funding liability from affiliated entity, net of current portion	135,000				135,000
Other liabilities	73,444				36,943
Total liabilities	151,066,581				138,546,739
Stockholders’ equity:
Preferred stock	—				—
Common stock	145,915				101,361
Additional paid-in capital	957,962,628				742,646,785
Accumulated deficit	(772,326,709		)		(739,785,655		)
Accumulated other comprehensive income (loss)	(1,456,930		)		472,608
Total Inovio Pharmaceuticals, Inc. stockholders’ equity	184,324,904				3,435,099
Non-controlling interest	3,529,199				1,969,759
Total stockholders’ equity	187,854,103				5,404,858
Total liabilities and stockholders’ equity	$	338,920,684			$	143,951,597

See accompanying notes to unaudited condensed consolidated financial statements.

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INOVIO PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

	Three Months Ended March 31,
	2020				2019
Revenues:
Revenue under collaborative research and development arrangements	$	71,500			$	2,770,712
Revenue under collaborative research and development arrangements with affiliated entities	1,172,126				55,579
Miscellaneous revenue	83,648				3,614
Total revenues	1,327,274				2,829,905
Operating expenses:
Research and development	19,111,188				24,389,888
General and administrative	7,448,354				6,975,029
Total operating expenses	26,559,542				31,364,917
Loss from operations	(25,232,268		)		(28,535,012		)
Other income (expense):
Interest income	416,569				625,535
Interest expense	(2,803,755		)		(656,248		)
Change in fair value of derivative liability	(13,221,977		)		—
Gain (loss) on investment in affiliated entities	13,181,619				(750,103		)
Net unrealized loss on available-for-sale equity securities	(5,050,092		)		—
Other income (expense), net	(425,500		)		(35,839		)
Net loss before income tax benefit/(provision for income tax)	(33,135,404		)		(29,351,667		)
Income tax benefit/(provision for income taxes)	—				62,800
Net loss	(33,135,404		)		(29,288,867		)
Net loss attributable to non-controlling interest	594,350				69,605
Net loss attributable to Inovio Pharmaceuticals, Inc.	$	(32,541,054	)		$	(29,219,262	)
Net loss per share attributable to Inovio Pharmaceuticals, Inc. stockholders
Basic and diluted	$	(0.26	)		$	(0.30	)
Weighted average number of common shares outstanding
Basic and diluted	124,623,263				97,494,968

See accompanying notes to unaudited condensed consolidated financial statements.

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INOVIO PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

	Three Months Ended March 31,
	2020				2019
Net loss	$	(33,135,404	)		$	(29,288,867	)
Other comprehensive income (loss):
Unrealized (loss) gain on short-term investments, net of tax	(1,929,538		)		819,177
Comprehensive loss	(35,064,942		)		(28,469,690		)
Comprehensive loss attributable to non-controlling interest	594,350				69,605
Comprehensive loss attributable to Inovio Pharmaceuticals, Inc.	$	(34,470,592	)		$	(28,400,085	)

See accompanying notes to unaudited condensed consolidated financial statements.

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INOVIO PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

	Three Months Ended March 31, 2020
	Preferred stock							Common stock
	Number of shares			Amount				Number of shares			Amount				Additional paid-in capital				Accumulated deficit				Accumulated other comprehensive income (loss)				Non- controlling interest				Total stockholders’ equity
Balance at December 31, 2019	23			$	—			101,361,034			$	101,361			$	742,646,785			$	(739,785,655	)		$	472,608			$	1,969,759			$	5,404,858
Issuance of common stock for cash	—			—				43,148,952			43,149				208,198,784				—				—				—				$	208,241,933
Exercise of stock options for cash and vesting of RSUs, net of tax payments	—			—				1,405,114			1,405				3,099,298				—				—				—				3,100,703
Stock-based compensation	—			—				—			—				4,017,761				—				—				(16,208		)		4,001,553
Acquisition of non-controlling interest in Geneos	—			—				—			—				—				—				—				2,169,998				2,169,998
Net loss attributable to common stockholders	—			—				—			—				—				(32,541,054		)		—				(594,350		)		(33,135,404		)
Unrealized loss on short-term investments	—			—				—			—				—				—				(1,929,538		)		—				(1,929,538		)
Balance at March 31, 2020	23			$	—			145,915,100			$	145,915			$	957,962,628			$	(772,326,709	)		$	(1,456,930	)		$	3,529,199			$	187,854,103

	Three Months Ended March 31, 2019
	Preferred stock							Common stock
	Number of shares			Amount				Number of shares			Amount				Additional paid-in capital				Accumulated deficit				Accumulated other comprehensive income (loss)				Non- controlling interest				Total stockholders’ equity
Balance at December 31, 2018	23			$	—			97,225,810			$	97,226			$	707,794,215			$	(620,426,436	)		$	(528,867	)		$	96,269			$	87,032,407
Issuance of common stock for cash	—			—				183,200			183				907,147				—				—				—				907,330
Exercise of stock options for cash and vesting of RSUs, net of tax payments	—			—				525,000			525				(719,922		)		—				—				—				(719,397		)
Equity component of issuance of convertible notes	—			—				—			—				15,752,698				—				—				—				15,752,698
Stock-based compensation	—			—				—			—				3,432,796				—				—				—				3,432,796
Acquisition of non-controlling interest in Geneos	—			—				—			—				—				—				—				3,030,107				3,030,107
Net loss attributable to common stockholders	—			—				—			—				—				(29,219,262		)		—				(69,605		)		(29,288,867		)
Unrealized gain on short-term investments, net of tax	—			—				—			—				—				—				819,177				—				819,177
Balance at March 31, 2019	23			$	—			97,934,010			$	97,934			$	727,166,934			$	(649,645,698	)		$	290,310			$	3,056,771			$	80,966,251

See accompanying notes to unaudited condensed consolidated financial statements.

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INOVIO PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2020				2019
Cash flows from operating activities:
Net loss	$	(33,135,404	)		$	(29,288,867	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	809,559				930,907
Amortization of intangible assets	136,770				266,563
Amortization of operating lease right-of-use assets	271,628				—
Change in fair value of derivative liability	13,221,977				—
Stock-based compensation	4,001,553				3,432,796
Non-cash interest expense	213,559				656,248
Amortization of premiums on investments	—				1,908
Loss on short-term investments	475,490				35,839
Settlement of receivable with shares of common stock from affiliated entity (PLS)	(1,713,770		)		—
(Gain) loss on equity investment in affiliated entities	(13,181,619		)		750,103
Net unrealized loss on available-for-sale equity securities	5,050,092				—
Tax benefit from other unrealized gains on short-term investments	—				(217,820		)
Unrealized transaction loss on foreign-currency denominated debt	(681,151		)		—
Changes in operating assets and liabilities:
Accounts receivable	58,430				533,097
Accounts receivable from affiliated entities	697,846				(557,154		)
Prepaid expenses and other current assets	(894,606		)		19,789
Prepaid expenses and other current assets from affiliated entities	(740,469		)		(320,741		)
Other assets	191,937				(311,272		)
Accounts payable and accrued expenses	(7,217,676		)		(6,999,110		)
Accrued clinical trial expenses	1,011,439				1,487,479
Accounts payable and accrued expenses due to affiliated entities	(466,273		)		337,818
Deferred revenue	(26,297		)		(121,873		)
Deferred revenue from affiliated entities	(31,250		)		(31,250		)
Operating lease right-of-use assets and liabilities, net	(517,949		)		(136,388		)
Grant funding liability	7,026,212				(2,886,843		)
Grant funding liability from affiliated entities	(49,250		)		(12,500		)
Other liabilities	36,501				(23,076		)
Net cash used in operating activities	(25,452,721		)		(32,454,347		)
Cash flows from investing activities:
Purchases of investments	(56,698,250		)		(65,198,491		)
Proceeds from sale or maturity of investments	5,030,257				16,520,095
Purchases of capital assets	(140,952		)		(658,731		)
Net cash used in investing activities	(51,808,945		)		(49,337,127		)
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes	—				75,658,953
Proceeds from issuance of common stock, net of issuance costs	208,241,933				907,330
Proceeds from stock option exercises	5,173,534				12,334
Taxes paid related to net share settlement of equity awards	(2,072,831		)		(731,731		)
Acquisition of non-controlling interest	2,169,998				3,030,107
Net cash provided by financing activities	213,512,634				78,876,993
Increase (Decrease) in cash and cash equivalents	136,250,968				(2,914,481		)
Cash and cash equivalents, beginning of period	22,196,097				23,693,633
Cash and cash equivalents, end of period	$	158,447,065			$	20,779,152
Supplemental disclosures:
Amounts accrued for purchases of property and equipment	$	—			$	68,806
Interest paid	$	2,590,196			$	—
Right-of-use assets obtained in exchange for lease obligations	$	—			$	14,634,769

See accompanying notes to unaudited condensed consolidated financial statements.

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INOVIO PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Operations

Inovio Pharmaceuticals, Inc. (the “Company” or “Inovio”), is a biotechnology company focused on rapidly bringing to market precisely designed DNA medicines to treat, cure, and protect people from diseases associated with human papillomavirus (HPV), cancer, and infectious diseases. The Company's DNA medicine pipeline is comprised of three types of candidates, DNA vaccines, DNA immunotherapies and DNA encoded monoclonal antibodies (dMABs). In clinical trials, Inovio has demonstrated that a DNA medicine can be delivered directly into cells in the body via its proprietary smart device to consistently activate robust and fully functional T cell and antibody responses against targeted cancers and pathogens.

The Company's novel DNA medicines are made using its proprietary SynCon^® technology that creates optimized plasmids, which are circular strands of DNA that can produce antigens independently inside a cell to help the person's immune system recognize and destroy cancerous or virally infected cells.

Inovio's hand-held CELLECTRA^® smart delivery devices provide optimized uptake of its DNA medicines within the cell, overcoming a key limitation of other DNA-based technology approaches.

Human data to date have shown a favorable safety profile of Inovio’s DNA medicines delivered directly into cells in the body using the CELLECTRA^® smart delivery device in more than 6,000 administrations across more than 2,000 patients.

Inovio's corporate strategy is to advance, protect, and provide its novel DNA medicines to meet urgent and emerging global health needs. The Company continues to advance and validate an array of DNA medicine candidates that target HPV-related diseases, cancer, and infectious diseases. The Company aims to advance these candidates through commercialization and continue to leverage third-party resources through collaborations and partnerships, including product license agreements.

The Company's partners and collaborators include ApolloBio Corp., AstraZeneca, Beijing Advaccine, The Bill & Melinda Gates Foundation, Coalition for Epidemic Preparedness Innovations (CEPI), Defense Advanced Research Projects Agency (DARPA), GeneOne Life Science, HIV Vaccines Trial Network, the U.S. Defense Threat Reduction Agency’s Medical CBRN Defense Consortium (MCDC), National Cancer Institute, National Institutes of Health, National Institute of Allergy and Infectious Diseases, Plumbline Life Sciences, Regeneron Pharmaceuticals, Inc., Roche/Genentech, the University of Pennsylvania, the Walter Reed Army Institute of Research, and The Wistar Institute.

The Company and its collaborators are currently conducting or planning clinical studies of its DNA medicines for HPV-associated precancers, including cervical, vulvar, and anal dysplasia; HPV-associated cancers, including head & neck, cervical, anal, penile, vulvar, and vaginal; other HPV-associated disorders, such as recurrent respiratory papillomatosis (RRP); glioblastoma multiforme (GBM); prostate cancer; HIV; Ebola; Middle East Respiratory Syndrome (MERS); Lassa fever; Zika virus; and the COVID-19 virus (coronavirus).

Inovio was incorporated in Delaware in June 2001 and has its principal executive offices in Plymouth Meeting, Pennsylvania.

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Inovio have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) as contained in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheet as of March 31, 2020, the condensed consolidated statements of operations, the condensed consolidated statements of comprehensive loss, the condensed consolidated statements of stockholders' equity and the condensed consolidated statements of cash flows for the three months ended March 31, 2020 and 2019 are unaudited, but include all adjustments (consisting of normal recurring adjustments) that the Company considers necessary for a fair presentation of the financial position, results of operations, cash flows and changes in stockholders' equity for the periods presented. The results of operations for the three months ended March 31, 2020 shown herein are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, or for any other period. These unaudited financial statements, and notes thereto, should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019, included in the Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 12, 2020. The balance sheet at December 31, 2019 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

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These unaudited condensed consolidated financial statements include the accounts of Inovio Pharmaceuticals, Inc. and its subsidiaries. The Company consolidates its wholly-owned subsidiaries Genetronics, Inc. and VGX Pharmaceuticals, Inc. ("VGX") and records a 48% non-controlling interest for its subsidiary Geneos Therapeutics, Inc. ("Geneos") as well as 15% of VGX Animal Health, Inc., a subsidiary of VGX. All intercompany accounts and transactions have been eliminated upon consolidation.

Inovio incurred a net loss attributable to common stockholders of $32.5 million for the three months ended March 31, 2020. Inovio had working capital of $243.2 million and an accumulated deficit of $772.3 million as of March 31, 2020. The Company has incurred losses in each year since its inception and expects to continue to incur significant expenses and operating losses for the foreseeable future in connection with the research and preclinical and clinical development of its product candidates. The Company’s cash, cash equivalents and short-term investments of $270.0 million and long-term investments of $21.2 million as of March 31, 2020, are sufficient to support the Company's operations for a period of at least 12 months from the date it is issuing these financial statements.

In order to continue to fund future research and development activities, the Company will need to seek additional capital. This may occur through strategic alliance and licensing arrangements and/or future public or private debt or equity financings including use of its current or potential future At-the-Market Equity Offering Sales Agreements (each, a “Sales Agreement” and collectively, the “Sales Agreements”). The Company has a history of conducting debt and equity financings, including the receipt of net proceeds of $208.2 million under a prior Sales Agreement, as amended, during the three months ended March 31, 2020, and net proceeds of $9.1 million under that Sales Agreement during the year ended December 31, 2019. The Company also received net proceeds of $75.7 million from a private placement of 6.50% convertible senior notes due 2024 (the “Notes”), net proceeds of $14.5 million from the private placement of 18 billion Korean Won (KRW) (approximately USD $15.0 million based on the exchange rate on the date of issuance) aggregate principal amount of its 1.0% convertible bonds due August 2024 (the "August 2019 Bonds"), and net proceeds of $4.0 million from the private placement of 4.7 billion KRW (approximately USD $4.1 million based on the exchange rate on the date of issuance) aggregate principal amount of its 1.0% convertible bonds due December 2024 (the "December 2019 Bonds" and, together with the August 2019 Bonds, the “Bonds”) during the year ended December 31, 2019. However, sufficient funding may not be available in the future, or if available, may be on terms that significantly dilute or otherwise adversely affect the rights of existing stockholders. If adequate funds are not available, the Company may need to delay, reduce the scope of or put on hold one or more of its clinical and/or preclinical programs.

The Company’s ability to continue its operations is dependent upon its ability to obtain additional capital in the future and achieve profitable operations. The Company expects to continue to rely on outside sources of financing to meet its capital needs and the Company may never achieve positive cash flow. These condensed consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should Inovio be unable to continue as a going concern. Inovio’s condensed consolidated financial statements as of and for the three months ended March 31, 2020 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business for the foreseeable future. The Company has evaluated subsequent events after the balance sheet date through the date it issued these condensed consolidated financial statements.

3. Critical Accounting Policies

Collaboration Agreements

The Company assesses whether its collaboration agreements are subject to Accounting Standards Codification ("ASC") 808: Collaborative Arrangements (“Topic 808”) based on whether they involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards. To the extent that the arrangement falls within the scope of Topic 808, the Company assesses whether the payments between the Company and the collaboration partner are subject to other accounting literature. If payments from the collaboration partner to the Company represent consideration from a customer, then the Company accounts for those payments within the scope of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“Topic 606”). However, if the Company concludes that its collaboration partner is not a customer for certain activities, such as for certain collaborative research and development activities, the Company presents such payments as a reduction of research and development expense.

Revenue Recognition

The Company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligations. At contract inception, the Company assesses the goods or services agreed upon within each contract and assess

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whether each good or service is distinct and determine those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Collaborative Arrangements

The Company enters into collaborative arrangements with partners that typically include payment of one or more of the following: (i) license fees; (ii) product supply services; (iii) milestone payments related to the achievement of developmental, regulatory, or commercial goals; and (iv) royalties on net sales of licensed products. Where a portion of non-refundable, upfront fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement, they are recorded as deferred revenue and recognized as revenue when (or as) the underlying performance obligation is satisfied.

As part of the accounting for these arrangements, the Company must develop estimates and assumptions that require judgment of management to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligation. The standalone selling price may include items such as forecasted revenues, development timelines, discount rates and probabilities of technical and regulatory success. The Company evaluates each performance obligation to determine if it can be satisfied at a point in time or over time. In addition, variable consideration must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

License Fees

If a license to intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company will recognize revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company will utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Product Supply Services

Arrangements that include a promise for future supply of drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as options. The Company will assess if these options provide a material right to the licensee and if so, they will be accounted for as separate performance obligations. The Company evaluates whether it is the principal or agent in the arrangement. The Company had determined that it is the principal in the current arrangements as the Company controls the product supply before it is transferred to the customer.

Milestone Payments

At the inception of each arrangement that includes milestone payments (variable consideration), the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company's or its collaboration partner’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achieving such milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration or other revenues and earnings in the period of adjustment.

Royalties

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its collaborative arrangements.

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Grants

The Company has determined that as of January 1, 2018, accounting for the Company’s various grant agreements falls under the contributions guidance under Subtopic 958-605, Not-for-Profit Entities-Revenue Recognition, which is outside the scope of Topic 606, as the government agencies granting the Company funds are not receiving reciprocal value for their contributions. Beginning on January 1, 2018, all contributions received from current grant agreements are recorded as a contra-expense as opposed to revenue on the condensed consolidated statement of operations.

Leases

For its long-term operating leases, the Company recognized an operating lease right-of-use asset and an operating lease liability on its condensed consolidated balance sheets. The lease liability is determined as the present value of future lease payments using an estimated rate of interest that the Company would pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The right-of-use asset is based on the liability adjusted for any prepaid or deferred rent. The Company determines the lease term at the commencement date by considering whether renewal options and termination options are reasonably assured of exercise.

Fixed rent expense for the Company's operating leases is recognized on a straight-line basis over the term of the lease and is included in operating expenses on the condensed consolidated statements of operations. Variable lease payments including lease operating expenses are recorded as incurred.

Research and Development Expenses

The Company’s activities have largely consisted of research and development efforts related to developing electroporation delivery technologies and DNA immunotherapies and vaccines. Research and development expenses consist of expenses incurred in performing research and development activities including salaries and benefits, facilities and other overhead expenses, clinical trials, contract services and other outside expenses. Research and development expenses are charged to operations as they are incurred. These expenses result from the Company's independent research and development efforts as well as efforts associated with collaborations and licensing arrangements. The Company reviews and accrues clinical trial expense based on work performed, which relies on estimates of total costs incurred based on patient enrollment, completion of studies and other events. The Company follows this method since reasonably dependable estimates of the costs applicable to various stages of a research agreement or clinical trial can be made. Accrued clinical trial costs are subject to revisions as trials progress. Revisions are charged to expense in the period in which the facts that give rise to the revision become known. Historically, revisions have not resulted in material changes to research and development expense; however, a modification in the protocol of a clinical trial or cancellation of a trial could result in a charge to the Company's results of operations.

Valuation of Intangible Assets and Goodwill

Intangible assets are amortized over their estimated useful lives ranging from two to 18 years. Acquired intangible assets are continuously being developed for the future economic viability contemplated at the time of acquisition. The Company is concurrently conducting preclinical studies and clinical trials using the acquired intangibles and has entered into licensing agreements for the use of these acquired intangibles.

License costs are recorded based on the fair value of consideration paid and are amortized using the straight-line method over the shorter of the expected useful life of the underlying patents or the term of the related license agreement to the extent the license has an alternative future use. As of March 31, 2020 and December 31, 2019, the Company’s intangible assets resulting from the acquisition of Inovio AS and Bioject Medical Technologies, Inc. ("Bioject"), and additional intangibles including license costs, net of accumulated amortization, totaled $3.6 million and $3.7 million, respectively.

The determination of the value of intangible assets requires management to make estimates and assumptions that affect the Company’s condensed consolidated financial statements. The Company assesses potential impairments to intangible assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. The Company’s judgments regarding the existence of impairment indicators and future cash flows related to intangible assets are based on operational performance of its acquired businesses, market conditions and other factors. If impairment is indicated, the Company will reduce the carrying value of the intangible asset to fair value. While current and historical operating and cash flow losses are potential indicators of impairment, the Company believes the future cash flows to be received from its intangible assets will exceed the intangible assets’ carrying value, and accordingly, the Company has not recognized any impairment losses through March 31, 2020.

Goodwill represents the excess of acquisition cost over the fair value of the net assets of acquired businesses. Goodwill is reviewed for impairment at least annually at November 30, or more frequently if an event occurs indicating the potential for impairment. During its goodwill impairment review, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount, including goodwill. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and the overall financial

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Table of Contents

performance of the Company. If, after assessing the totality of these qualitative factors, the Company determines that it is not likely that the fair value of its reporting unit is less than its carrying amount, then no additional assessment is deemed necessary. Otherwise, the Company will proceed to perform the impairment test in which the fair value of the reporting unit is compared with its carrying amount, and an impairment charge will be recorded for the amount by which the carrying amount exceeds the reporting unit's fair value, if any. The Company performed its annual assessment for goodwill impairment as of November 30, 2019, identifying no impairment.

Although there are inherent uncertainties in this assessment process, the estimates and assumptions the Company is using are consistent with its internal planning. If these estimates or their related assumptions change in the future, the Company may be required to record an impairment charge on all or a portion of its goodwill and intangible assets. Furthermore, the Company cannot predict the occurrence of future impairment triggering events nor the impact such events might have on its reported asset values. Future events could cause the Company to conclude that impairment indicators exist and that goodwill or other intangible assets associated with its acquired businesses are impaired. Any resulting impairment loss could have an adverse impact on the Company’s results of operations. See Note 8 for further discussion of the Company’s goodwill and intangible assets.

Derivative Liabilities

The Company evaluates its debt and equity issuances to determine if those contracts or embedded components of those contracts qualify as derivatives requiring separate recognition in the Company’s financial statements. The result of this accounting treatment is that the fair value of the embedded derivative is revalued at each balance sheet date and recorded as a liability, and the change in fair value during the reporting period is recorded in other income (expense) in the condensed consolidated statements of operations. In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within twelve months of the balance sheet date.

Foreign Currency Translation

The functional and presentation currency of the Company is the U.S. dollar. Transactions denominated in a currency other than the functional currency are recorded on the initial recognition at the exchange rate at the date of the transaction. After initial recognition monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting period into the functional currency at the exchange rate at that date. The cumulative translation adjustment is included in the accumulated other comprehensive gain (loss) within the statement of stockholders' equity. Exchange differences are included in general and administrative expenses in the condensed consolidated statement of operations. Non- monetary assets and liabilities measured at cost are translated at the exchange rate at the date of the transaction.

4. Impact of Recently Issued Accounting Standards

The recent accounting pronouncements below may have a significant effect on the Company's financial statements. Recent accounting pronouncements that are not anticipated to have an impact on or are unrelated to the Company's financial condition, results of operations, or related disclosures are not discussed.

Accounting Standards Recently Adopted

ASU No. 2019-12. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. The Board issued this Update as part of its simplification initiative to improve areas of GAAP and reduce cost and complexity while maintaining usefulness. The main provision that impacts the Company is the removal of the exception to the incremental approach of intra-period tax allocation when there is a loss from continuing operations and income or gain from other items (for example, discontinued operations and other comprehensive income). ASU 2019-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company has elected to early adopt ASU 2019-12. By early adopting, ASU 2019-12 became effective as of the beginning of 2020; however, there was no cumulative effect to be recognized with the early adoption. As of March 31, 2020, there was a loss from continuing operations and a cumulative loss in other comprehensive income and there was therefore no effect on the tax provision for the period ended March 31, 2020.

ASU No. 2016-13. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available for sale debt securities. This standard includes the Company's financial instruments, such as

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accounts receivable and investments that are generally of high credit quality. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. The new guidance requires the Company to identify, analyze, document and support new methodologies for quantifying expected credit loss estimates for its financial instruments, using information such as historical experience and current economic conditions, plus the use of reasonably supportable forecast information. The Company adopted ASU 2016-13 on January 1, 2020, and there was no material impact to its condensed consolidated financial statements. The Company will continue to monitor the impact of the coronavirus, SARS-CoV-2 (“COVID-19”) outbreak on expected credit losses.

ASU No. 2018-13. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which amends certain disclosure requirements over fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. The Company adopted this guidance on January 1, 2020, and there was no material impact to its condensed consolidated financial statement disclosures (see Note 7 for more information about the Company’s fair value classifications).

ASU No. 2018-18. In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarified the interaction between Topic 808, Collaborative Arrangements, and Topic 606, Revenue from Contracts with Customers. The Company adopted this guidance on January 1, 2020, and there was no material impact to its condensed consolidated financial statements.

ASU 2017-04. In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplifies the recognition and measurement of a goodwill impairment loss by eliminating Step 2 of the quantitative goodwill impairment test. The guidance requires a one-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, if any. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. The Company adopted this guidance on January 1, 2020, and there was no material impact to its condensed consolidated financial statements.

5. Revenue Recognition

During the three months ended March 31, 2020, the Company recognized total revenue under collaborative research and development and other agreements of $1.1 million from its affiliated entity Plumbline Life Sciences, Inc. ("PLS"), $72,000 from AstraZeneca and $115,000 from various other contracts. Of the total revenue recognized during the three months ended March 31, 2020, $58,000 was in deferred revenue as of December 31, 2019. Performance obligations are generally satisfied within 12 months of the initial contract date.

6. Short-term Investments

Short-term investments at March 31, 2020 consisted of mutual funds, corporate debt securities and certificates of deposit. Short-term investments at December 31, 2019 consisted of mutual funds. Short-term investments are recorded at fair value, based on current market valuations. Unrealized gains and losses on the Company's short-term debt investments are excluded from earnings and reported as a separate component of other comprehensive loss until realized. Realized gains and losses and unrealized gains and losses on available-for-sale equity securities are included in non-operating other income (expense) on the condensed consolidated statements of operations and are derived using the specific identification method for determining the cost of the securities sold. During the three months ended March 31, 2020 and 2019, the Company recorded gross realized gain on investments of $50,000 and $18,000, respectively, and gross realized loss on investments of $525,000 and $53,000, respectively. During the three months ended March 31, 2020 and 2019, the Company recorded net unrealized loss on available-for-sale equity securities of $5.1 million and $0, respectively. No material balances were reclassified out of accumulated other comprehensive income (loss) for the three months ended March 31, 2020 and 2019. Interest and dividends on investments classified as available-for-sale are included in interest income in the condensed consolidated statements of operations. As of March 31, 2020, the Company had 25 available-for-sale securities in an unrealized loss position, of which 2 with an aggregate total unrealized loss of $560,000 were in such position for longer than 12 months.

The following is a summary of available-for-sale securities as of March 31, 2020 and December 31, 2019:

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			As of March 31, 2020
	Contractual Maturity (in years)		Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Market Value
Mutual funds	---		$	109,616,722			$	5,000			$	(5,055,092	)		$	104,566,630
Corporate debt securities	---		5,175,000				—				(1,202,700		)		3,972,300
Certificates of deposit	Less than 1		3,000,000				41,960				(30,000		)		3,011,960
			$	117,791,722			$	46,960			$	(6,287,792	)		$	111,550,890

			As of December 31, 2019
	Contractual Maturity (in years)		Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Market Value
Mutual funds	---		$	66,599,219			$	754,709			$	(15,911	)		$	67,338,017

The Company periodically reviews its portfolio of available-for-sale debt securities to determine if any investment is impaired due to credit loss or other potential valuation concerns. For the debt securities where the fair value of the investment is less than the amortized cost basis, the Company has assessed at the individual security level for various quantitative factors including, but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst reports, and the severity of impairment. Unrealized losses on available-for-sale debt securities as of March 31, 2020 were primarily due to changes in interest rates, including credit spreads from perceived increased credit risks as a result of the COVID-19 global pandemic, and not due to increased credit risks associated with specific securities. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity. Based on the credit quality of the available-for-sale debt securities that are in an unrealized loss position, and the Company’s estimates of future cash flows to be collected from those securities, the Company believes the unrealized losses are not credit losses. Accordingly, at March 31, 2020, the Company has not recorded an allowance for credit losses related to its available-for-sale debt securities.

7. Fair Value Measurements

The guidance regarding fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets that are accessible at the measurement date; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company did not have any transfer of assets or liabilities between Level 1, Level 2 and Level 3 of the fair value hierarchy during the three months ended March 31, 2020 or 2019.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis, and are determined using the following inputs as of March 31, 2020:

 

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	Fair Value Measurements at
	March 31, 2020
	Total				Quoted Prices in Active Markets (Level 1)				Significant Other Unobservable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	2,759,436			$	2,759,436			$	—			$	—
Mutual funds	104,566,630				104,566,630				—				—
Corporate debt securities	3,972,300				—				3,972,300				—
Certificates of deposit	3,011,960				—				3,011,960				—
Investment in affiliated entities	21,210,745				21,210,745				—				—
Total assets	$	135,521,071			$	128,536,811			$	6,984,260			$	—
Liabilities:
Derivative liability (Note 9)	$	22,041,000			$	—			$	—			22,041,000
Total liabilities	$	22,041,000			$	—			$	—			$	22,041,000

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis, and are determined using the following inputs as of December 31, 2019:

 

	Fair Value Measurements at
	December 31, 2019
	Total				Quoted Prices in Active Markets (Level 1)				Significant Other Unobservable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	2,349,729			$	2,349,729			$	—			$	—
Mutual funds	67,338,017				67,338,017				—				—
Investment in affiliated entities	6,315,356				6,315,356				—				—
Total assets	$	76,003,102			$	76,003,102			$	—			$	—
Liabilities:
Derivative liability (Note 9)	$	8,819,023			$	—			$	—			$	8,819,023
Total Liabilities	$	8,819,023			$	—			$	—			$	8,819,023

Level 1 assets at March 31, 2020 consisted of money market funds and mutual funds held by the Company that are valued at quoted market prices, as well as the Company’s investments in affiliates, GeneOne and PLS. The Company accounts for its investment in 1,644,155 common shares of GeneOne based on the closing price of the shares on the Korean Stock Exchange on the applicable balance sheet date. The Company accounts for its investment in 597,808 common shares of PLS based on the closing price of the shares on the Korea New Exchange (KONEX) Market on the applicable balance sheet date. Unrealized gains and losses on the Company's equity securities are reported in the condensed consolidated statement of operations as a gain (loss) on investment in affiliated entities.

Level 2 assets at March 31, 2020 consisted of corporate debt securities and certificates of deposit held by the Company that are initially valued at the transaction price and subsequently valued, at the end of each reporting period, typically utilizing market observable data. The Company obtains the fair value of its Level 2 assets from a professional pricing service, which may use quoted market prices for identical or comparable instruments, or inputs other than quoted prices that are observable either directly or indirectly. The professional pricing service gathers quoted market prices and observable inputs from a variety of industry data providers. The valuation techniques used to measure the fair value of the Company's Level 2 financial instruments were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models such as discounted cash flow techniques. The Company validates the quoted market prices provided by the primary pricing service by comparing the service's assessment of the fair values of the Company's investment portfolio balance against the fair values of the Company's investment portfolio balance obtained from an independent source.

There were no Level 3 assets held as of March 31, 2020.

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Level 3 liabilities held as of March 31, 2020 consisted of the embedded conversion option contained in the August 2019 Bonds that met the criteria to be bifurcated and accounted for separately from the August 2019 Bonds (the "derivative liability") (see Note 9 below for more information). The derivative liability was recorded at fair value of $7.1 million upon the issuance of the August 2019 Bonds, and is subsequently remeasured to fair value at each reporting period. The derivative liability was initially valued and remeasured using a "with-and-without" method. The "with-and-without" methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the embedded conversion option. The difference between the entire instrument with the embedded conversion option compared to the instrument without the embedded conversion option is the fair value of the derivative, recorded as the derivative liability. There was no derivative liability associated with the issuance of the December 2019 Bonds.

The fair value of the August 2019 Bonds with the conversion option is estimated using a Monte Carlo simulation approach. The key inputs to valuing the August 2019 Bonds with the conversion option on the date of issuance and as of March 31, 2020 include the Company’s stock price on the valuation date; the expected annual volatility of the Company’s common stock, and the discount yield, which was derived by making the fair value of the August 2019 Bonds equal to the face value on the issuance date. Fair value measurements are highly sensitive to changes in these inputs and significant changes in these inputs could result in a significantly higher or lower fair value.

The following table presents the changes in fair value of the Company's derivative liability for the three months ended March 31, 2020:

Balance at December 31, 2019	$	8,819,023
Change in fair value	13,221,977
Balance at March 31, 2020	$	22,041,000

8. Goodwill and Intangible Assets

The following sets forth the goodwill and intangible assets by major asset class:

 

			March 31, 2020												December 31, 2019
	Weighted Average Useful Life (Yrs)		Gross				Accumulated Amortization				Net Book Value				Gross				Accumulated Amortization				Net Book Value
Indefinite lived:
Goodwill(a)			$	10,513,371			$	—			$	10,513,371			$	10,513,371			$	—			$	10,513,371
Definite lived:
Licenses	10		1,323,761				(1,255,291		)		68,470				1,323,761				(1,248,104		)		75,657
Bioject(b)	12		5,100,000				(2,248,889		)		2,851,111				5,100,000				(2,175,556		)		2,924,444
Other(c)	18		4,050,000				(3,412,500		)		637,500				4,050,000				(3,356,250		)		693,750
Total intangible assets	11		10,473,761				(6,916,680		)		3,557,081				10,473,761				(6,779,910		)		3,693,851
Total goodwill and intangible assets			$	20,987,132			$	(6,916,680	)		$	14,070,452			$	20,987,132			$	(6,779,910	)		$	14,207,222

(a)	Goodwill was recorded from the Inovio AS acquisition in January 2005, the acquisition of VGX in June 2009 and the acquisition of Bioject in April 2016 for $3.9 million, $6.2 million and $400,000, respectively.

(b)	Bioject intangible assets represent the estimated fair value of developed technology and intellectual property which were recorded from the Bioject asset acquisition.

(c)	Other intangible assets represent the estimated fair value of acquired intellectual property from the Inovio AS acquisition.

Aggregate amortization expense on intangible assets for the three months ended March 31, 2020 and 2019 was $137,000 and $267,000, respectively. Estimated aggregate amortization expense is $410,000 for the remainder of fiscal year 2020, $520,000 for 2021, $493,000 for 2022, $276,000 for 2023, $253,000 for 2024 and $1.6 million for 2025 and subsequent years combined.

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9. Convertible Debt

Convertible Senior Notes

On February 19, 2019 and March 1, 2019, the Company completed a private placement of $78.5 million aggregate principal amount of its 6.50% convertible senior notes due 2024 (the “Notes”). The Notes were sold in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Net proceeds from the offering were approximately $75.7 million.

The Notes are senior unsecured obligations of the Company and accrue interest payable in cash semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2019, at a rate of 6.50% per annum. The Notes will mature on March 1, 2024, unless earlier converted, redeemed or repurchased. Prior to the close of business on the business day immediately preceding November 1, 2023, the Notes will be convertible at the option of the holders only upon the satisfaction of certain circumstances. Thereafter, the Notes will be convertible at the option of the holders at any time until the close of business on the scheduled trading day immediately before the maturity date. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. The initial conversion rate will be 185.8045 shares per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $5.38 per share), subject to adjustment upon the occurrence of specified events.

The Company may not redeem the Notes prior to March 1, 2022. On or after March 1, 2022, the Company may redeem all, or any portion, of the Notes for cash if the last reported sale price per share of the Company's common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such redemption notice. The redemption price will be equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

The Company evaluated the accounting for the issuance of the Notes and concluded that the embedded conversion features meet the requirements for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in its condensed consolidated balance sheet, and that the cash conversion guidance applies. Therefore, the Notes issuance proceeds of $78.5 million are allocated first to the liability component based on the fair value of non-convertible debt with otherwise identical residual terms with the residual proceeds allocated to equity for the conversion features. The Company determined that the fair value of the non-convertible debt upon issuance of the Notes was $62.2 million and recorded this amount as a liability and the offsetting amount as a debt discount as a reduction to the carrying value of the Notes on the closing date. The debt issuance costs associated with the Notes of $2.8 million are allocated to the liability and equity component in the same proportion as the issuance proceeds.

The Company determined that all other features of the Notes were clearly and closely associated with a debt host and did not require bifurcation as a derivative liability, or the fair value of the feature was immaterial to the Company's condensed consolidated financial statements.

The balance of the Notes at March 31, 2020 is as follows:

Principal amount	$	78,500,000
Unamortized debt discount on the liability component	(13,356,690		)
Unamortized debt issuance cost	(1,838,336		)
Accrued interest	425,208
Net carrying amount	$	63,730,182

The Company determined that the expected life of the Notes was equal to the period through November 1, 2023 as this represents the point at which the Notes are initially subject to repurchase by the Company at the option of the holders. Accordingly, the total debt discount of $18.6 million, inclusive of the fair value of the embedded conversion feature derivative at issuance, is being amortized using the effective interest method through November 1, 2023. The effective interest rate of the liability component is 13.1%. For the three months ended March 31, 2020, the Company recognized $2.1 million of interest expense related to the Notes, of which $1.3 million related to the contractual interest coupon. As of March 31, 2020, there have not been any conversions or redemptions of the Notes.

August 2019 Convertible Bonds

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On August 1, 2019, the Company closed a private placement of the August 2019 Bonds with an aggregate principal amount of 18 billion Korean Won (KRW) (approximately USD $15.0 million based on the exchange rate on the date of issuance) issued to institutional investors led by Korea Investment Partners (KIP), a global venture capital and private equity firm based in Seoul, Korea. Net proceeds from the offering were approximately $14.5 million. The Company also announced its intent to pursue a listing of its securities on the KOSDAQ Market of the Korea Exchange (KOSDAQ) in the form of Korean Depositary Receipts (KDRs) representing shares of common stock.

The August 2019 Bonds, which are unsecured obligations of the Company, were issued on August 1, 2019 and will accrue interest at a coupon rate of 1.00% per annum, payable quarterly. The August 2019 Bonds will mature on July 31, 2024, unless earlier converted or repurchased. The outstanding August 2019 Bonds will be repaid at maturity at a price equal to the principal of the outstanding bonds to be repaid plus a premium on such bonds to provide an internal rate of return with respect to such bonds of 6.00%. Commencing on August 1, 2020, the August 2019 Bonds will be convertible until the date that is one month prior to maturity date. Upon conversion, the Company will deliver KDRs, if the Company has any such securities listed on the KOSDAQ at that time, or otherwise shares of common stock, if KDRs are not listed on KOSDAQ at that time or the converting holder requests delivery of shares of common stock. The initial conversion rate was 211.0595 shares per KRW1,000,000 in principal amount (equivalent to an initial conversion price of approximately USD $4.00 per share based on the exchange rate as of July 30, 2019), subject to adjustment upon the occurrence of specified events. The conversion rate was reset on January 2, 2020 and is subject to be reset on each three month anniversary thereafter until the maturity date to the then current market price if the current market price is lower than the conversion price then in effect; provided that the conversion rate will not exceed 351.7658 shares per KRW1,000,000 (equivalent to a conversion price of approximately USD $2.40 per share based on the exchange rates as of July 30, 2019). The conversion rate was reset on January 2, 2020 to 273.8255 shares per KRW 1,000,000 in principal amount (equivalent to a conversion price of approximately USD $3.15 per share based on the exchange rate as of January 2, 2020).

The August 2019 Bonds will be subject to repurchase by the Company at the option of the bondholders from and including July 31, 2022 up to the date that is one month prior to the maturity date at a repurchase price equal to the principal of the August 2019 Bonds to be repurchased plus a premium in order to provide an internal rate of return with respect to the August 2019 Bonds of 6.00%. In addition, upon the occurrence of a fundamental change (as defined in the August 2019 Bonds), the Company will be required to offer to repurchase the August 2019 Bonds at a repurchase price equal to the principal amount thereof plus accrued and unpaid interest thereon to but excluding the applicable repurchase date. Upon the occurrence of an event of default (as defined in the August 2019 Bonds), with the approval of at least 25% of the bondholders, the Company will be required to offer to repurchase the August 2019 Bonds at a repurchase price equal to the principal amount thereof plus a premium in order to provide an internal rate of return with respect to the August 2019 Bonds of 8.00%.

The Company evaluated the accounting for the issuance of the August 2019 Bonds and concluded that the embedded conversion feature is considered a derivative requiring bifurcation from the August 2019 Bonds as it does not meet the equity scope exception due to the fact that it is denominated in a currency other than the Company's functional currency. The fair value of the conversion feature at August 1, 2019 was $7.1 million, which was recorded as a reduction to the carrying value of the debt. This debt discount is being amortized to interest expense over the term of the debt using the effective interest method. The conversion option is accounted for as a derivative liability, which is revalued each reporting period with the resulting change in fair value reflected in other income (expense), net, in the condensed consolidated statements of operations.

The Company determined that all other features of the August 2019 Bonds were clearly and closely associated with a debt host and did not require bifurcation as a derivative liability, or the fair value of the feature was immaterial to the Company's condensed consolidated financial statements.

The balance of the August 2019 Bonds at March 31, 2020 is as follows:

Principal amount	$	14,767,171
Unamortized debt discount	(5,980,204		)
Unamortized debt issuance cost	(225,603		)
Accretion of premium associated with the August 2019 Bonds	357,994
Accrued interest	36,918
Net carrying amount	$	8,956,276

The Company determined that the expected life of the August 2019 Bonds was equal to the period through August 1, 2022 as this represents the point at which the August 2019 Bonds are initially subject to repurchase by the Company at the option of the holders. Accordingly, the total debt discount of $7.3 million, inclusive of the fair value of the embedded conversion feature derivative at issuance, is being amortized using the effective interest method through August 1, 2022. The effective interest rate of the August 2019 Bonds is 29.4%. For the three months ended March 31, 2020, the Company

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recognized $641,000 of interest expense related to the August 2019 Bonds, of which $38,000 related to the contractual interest coupon. As of March 31, 2020, there have not been any conversions or redemptions of the August 2019 Bonds.

The derivative liability is valued at $22.0 million as of March 31, 2020. The change in fair value of the derivative liability was $13.2 million for the three months ended March 31, 2020.

December 2019 Convertible Bonds

On December 26, 2019, the Company closed a private placement of convertible promissory notes (the “December 2019 Bonds”) with an aggregate principal amount of 4.7 billion KRW (approximately USD $4.1 million based on the exchange rate on the date of issuance) issued to a Korea-based institutional investor. Net proceeds from the offering were approximately $4.0 million.

The December 2019 Bonds, which are unsecured obligations of the Company, were issued on December 31, 2019 and will accrue interest at a coupon rate of 1.00% per annum, payable quarterly. The December 2019 Bonds will mature on December 31, 2024, unless earlier converted or repurchased. The outstanding December 2019 Bonds will be repaid at maturity at a price equal to the principal of the outstanding bonds to be repaid plus a premium on such bonds to provide an internal rate of return with respect to such bonds of 6.00%. Commencing on December 31, 2020, the December 2019 Bonds will be convertible until the date that is one month prior to maturity date. Upon conversion, the Company will deliver KDRs, if the Company has any such securities listed on the KOSDAQ at that time, or otherwise shares of common stock of the Company. The initial conversion rate is 214.7766 shares per KRW1,000,000 principal amount of Bonds (equivalent to an initial conversion price of approximately USD $4.00 per share based on the exchange rate as of December 19, 2019), subject to adjustment upon the occurrence of certain events. The conversion rate is subject to reset on July 2, 2020 and on each three month anniversary thereafter until the maturity date to the then current market price if the current market price is lower than the conversion price then in effect; provided that the conversion rate will not exceed 357.9611 shares per KRW1,000,000 (equivalent to a conversion price of approximately USD $2.40 per share based on the exchange rate as of December 19, 2019).

The December 2019 Bonds will be subject to repurchase by the Company at the option of the bondholders from and including December 31, 2022 up to the date that is one month prior to the maturity date at a repurchase price equal to the principal of the December 2019 Bonds to be repurchased plus a premium on the Bonds in order to ensure an internal rate of return with respect to the Bonds equal to 6.00%. In addition, upon the occurrence of a fundamental change (as defined in the Subscription Agreement) the Company will be required to offer to repurchase the Bonds at a repurchase price equal to the principal amount thereof plus accrued and unpaid interest thereon to but excluding the applicable repurchase date. If certain bankruptcy and insolvency-related events of default occur, the principal of, and accrued and unpaid interest on, all of the then outstanding December 2019 Bonds shall automatically become due and payable. If any other event of default occurs and is continuing, the holders of at least 25% of the in aggregate principal amount of the December 2019 Bonds by notice to the Company may declare the principal of, and accrued and unpaid interest on, all of the then-outstanding December 2019 Bonds to be due and payable.

The Company evaluated the accounting for the issuance of the December 2019 Bonds and concluded that the embedded conversion feature does not require bifurcation from the December 2019 Bonds. Although the embedded conversion feature meets the definition of a derivative, it qualifies for the equity scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in its consolidated balance sheet. The December 2019 Bonds are denominated in a foreign currency other than the Company’s functional currency, which would typically violate the settlement provision criteria when analyzing whether the conversion option is indexed to an entity’s own stock. However, per the terms of the agreement, the functional currency rate required to be used in a conversion scenario is fixed as of the date preceding the date of issuance of the Bonds. Therefore, the fluctuation in functional currency does not impact the settlement of the conversion option. Further, as there was no cash conversion feature or beneficial conversion feature on the date of issuance, and the Bonds were not issued at a substantial premium, all of the proceeds were recorded as a liability.

The Company determined that all other features of the December 2019 Bonds were clearly and closely associated with a debt host and did not require bifurcation as a derivative liability, or the fair value of the feature was immaterial to the Company's consolidated financial statements.

The balance of the December 2019 Bonds at March 31, 2020 is as follows:

Principal amount	$	3,855,872
Unamortized debt issuance cost	(43,740		)
Accretion of premium associated with the December 2019 Bonds	46,988
Accrued interest	9,747
Net carrying amount	$	3,868,867

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The Company determined that the expected life of the December 2019 Bonds was equal to the period through December 31, 2022 as this represents the point at which the December 2019 Bonds are initially subject to repurchase by the Company at the option of the holders. The effective interest rate of the December 2019 Bonds is 6.2%. For the three months ended March 31, 2020, the Company recognized $62,000 of interest expense related to the December 2019 Bonds, of which $10,000 related to the contractual interest coupon. As of March 31, 2020, there have not been any conversions or redemptions of the December 2019 Bonds.

As of March 31, 2020, future minimum payments due under the Company's convertible debt instruments are as follows:

		Convertible Notes (1)				August 2019 Bonds (2)				December 2019 Bonds (2)				Total
Remainder of 2020		$	2,551,000			$	111,000			$	29,000			$	2,691,000
2021		5,103,000				148,000				39,000				5,290,000
2022		5,103,000				148,000				39,000				5,290,000
2023		5,103,000				148,000				39,000				5,290,000
2024		81,051,000				19,789,000				5,176,000				106,016,000
Total		$	98,911,000			$	20,344,000			$	5,322,000			$	124,577,000

(1) Amounts represent contractual amounts due under the Notes, including interest based on the fixed rate of 6.5% per year.

(2) Amounts represent contractual amounts due under the August 2019 and December 2019 Bonds, including interest based on the fixed rate of 1% per year plus a premium on such bonds to provide an internal rate of return with respect to such Bonds of 6% at maturity.

10. Stockholders’ Equity

The following is a summary of the Company's authorized and issued common and preferred stock as of March 31, 2020 and December 31, 2019:

							Outstanding as of
	Authorized			Issued			March 31, 2020			December 31, 2019
Common Stock, par value $0.001 per share	600,000,000			145,915,100			145,915,100			101,361,034
Series C Preferred Stock, par value $0.001 per share	1,091			1,091			23			23

Common Stock

In May 2018, the Company entered into a Sales Agreement with an outside placement agent (the “Placement Agent”) to sell shares of its common stock with aggregate gross proceeds of up to $100.0 million, from time to time, through an “at-the-market” equity offering program under which the Placement Agent would act as sales agent. During the first quarter of 2020, the Company and the Placement Agent entered into a first and second amendment to the Sales Agreement to increase the amount of common stock that may be sold under the Sales Agreement from $100.0 million to $250.0 million. Under the Sales Agreement, the Company set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales were requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. The Sales Agreement provided that the Placement Agent was entitled to compensation for its services in an amount equal to up to 3.0% of the gross proceeds from the sales of shares sold through the Placement Agent under the Sales Agreement. The Company had no obligation to sell any shares under the Sales Agreement, and could at any time suspend solicitation and offers under the Sales Agreement.

During the three months ended March 31, 2020, the Company sold 43,148,952 shares of its common stock, under the amended Sales Agreement. The sales were made at a weighted average price of $4.92 per share, resulting in aggregate net proceeds of $208.2 million. Following these sales, there was no remaining capacity under this Sales Agreement.

As described in Note 18 below, subsequent to March 31, 2020, the Company and the Placement Agent entered into

a new Sales Agreement to sell shares of its common stock with aggregate gross proceeds of up to $150.0 million.

Stock Options and Restricted Stock Units

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The Company has a stock-based incentive plan, the 2016 Omnibus Incentive Plan (as amended to date, the "2016 Incentive Plan"), pursuant to which the Company may grant stock options, restricted stock awards, restricted stock units and other stock-based awards or short-term cash incentive awards to employees, directors and consultants.

The 2016 Incentive Plan was originally approved by the Company's stockholders on May 13, 2016, and an amendment to the plan to increase the number of shares available for issuance was approved by the stockholders on May 8, 2019. The maximum number of shares of the Company’s common stock available for issuance over the term of the 2016 Incentive Plan may not exceed 18,000,000 shares, provided that commencing with the first business day of each calendar year beginning January 1, 2020, such maximum number of shares shall be increased by 2,000,000 shares of common stock unless the Company's Board of Directors determines, prior to January 1 for any such calendar year, to increase such maximum amount by a fewer number of shares or not to increase the maximum amount at all for such year. On January 1, 2020, the maximum number of shares to be issued increased by 2,000,000. At March 31, 2020, there were 18,000,000 shares of common stock reserved for issuance upon exercise of incentive awards granted and to be granted at future dates under the 2016 Incentive Plan. At March 31, 2020, the Company had 7,536,221 shares of common stock available for future grant under the 2016 Incentive Plan, 2,667,710 shares underlying outstanding but unvested restricted stock units and options outstanding to purchase 5,631,777 shares of common stock under the 2016 Incentive Plan. The awards granted and available for future grant under the 2016 Incentive Plan generally vest over three years and have a maximum contractual term of ten years. The 2016 Incentive Plan terminates by its terms on March 9, 2026.

The Amended and Restated 2007 Omnibus Incentive Plan (the "2007 Incentive Plan") was adopted on March 31, 2007 and terminated by its terms on March 31, 2017. At March 31, 2020, the Company had options outstanding to purchase 3,984,209 shares of common stock under the 2007 Incentive Plan. The awards granted under the 2007 Incentive Plan generally vest over three years and have a maximum contractual term of ten years.

11. Net Loss Per Share

Basic net loss per share is computed by dividing the net loss for the year by the weighted average number of common shares outstanding during the year. Diluted net loss per share is calculated in accordance with the treasury stock method for the outstanding stock options and restricted stock units and reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. The dilutive impact of the outstanding Notes and Bonds issued by the Company (discussed in Note 9) has been considered using the "if-converted" method. For the three months ended March 31, 2020 and 2019, basic and diluted net loss per share are the same, as the assumed exercise or settlement of stock options, restricted stock units and the potentially dilutive shares issuable upon conversion of the Notes and Bonds are anti-dilutive.

The following table summarizes potential shares of common stock that were excluded from the diluted net loss per share calculation because of their anti-dilutive effect for the three months ended March 31, 2020 and 2019:

Common Stock Equivalents	2020			2019
Options to purchase common stock	9,615,986			11,027,600
Restricted stock units	2,667,710			1,720,128
Convertible preferred stock	8,456			8,456
Convertible notes	14,585,653			14,585,653
August 2019 Bonds	4,928,859			—
December 2019 Bonds	1,009,450			—
Total	32,816,114			27,341,837

12. Stock-Based Compensation

The Company incurs stock-based compensation expense related to restricted stock units and stock options. The fair value of restricted stock is determined by the closing price of the Company's common stock reported on the Nasdaq Global Select Market on the date of grant. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of subjective assumptions, including the expected stock price volatility and expected option life. The Company amortizes the fair value of the awards on a straight-line basis over the requisite vesting period of the awards. Expected volatility is based on historical volatility. The expected life of options granted is based on historical expected life. The risk-free interest rate is based

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on the U.S. Treasury yield in effect at the time of grant. The dividend yield is based on the fact that no dividends have been paid historically and none are currently expected to be paid in the foreseeable future.

The weighted average assumptions used in the Black-Scholes model for option grants to employees and directors are presented below:

	Three Months Ended March 31,
	2020		2019
Risk-free interest rate	0.74%		2.44%
Expected volatility	76%		70%
Expected life in years	5.9		6.2
Dividend yield	—		—

Total employee and director stock-based compensation expense recognized in the condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 was $3.6 million and $3.2 million, respectively, of which $2.3 million and $1.9 million, respectively, was included in research and development expenses, and $1.3 million and $1.3 million, respectively, was included in general and administrative expenses.

At March 31, 2020, there was $8.0 million of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.5 years.

The weighted average grant date fair value per share, calculated using the Black-Scholes option pricing model, was $5.37 and $2.19 for employee and director stock options granted during the three months ended March 31, 2020 and 2019, respectively.

At March 31, 2020, there was $13.9 million of total unrecognized compensation expense related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 2.6 years.

The weighted average grant date fair value per share was $8.32 and $3.38 for restricted stock units granted during the three months ended March 31, 2020 and 2019, respectively.

The fair value of stock options granted to non-employees was estimated using the Black-Scholes pricing model. Total stock-based compensation expense for stock options and restricted stock units granted to non-employees for the three months ended March 31, 2020 and 2019 was $383,000 and $274,000, respectively.

13. Related Party Transactions

GeneOne Life Sciences

The Company owns 1,644,155 shares of common stock in GeneOne as of March 31, 2020 and one of the Company's directors, Dr. David B. Weiner, acts as a consultant to GeneOne.

In 2010, the Company entered into a collaboration and license agreement (the “GeneOne Agreement”) with GeneOne. Under the GeneOne Agreement, the Company granted GeneOne an exclusive license to the Company's SynCon^® universal influenza vaccine delivered with electroporation to be developed in certain countries in Asia (the “Product”). As consideration for the license granted to GeneOne, the Company received an upfront payment of $3.0 million, and is entitled to receive research support, annual license maintenance fees and royalties on net Product sales. The GeneOne Agreement also provides the Company with exclusive rights to supply devices for clinical and commercial purposes (including single use components) to GeneOne for use in the Product. The term of the GeneOne Agreement commenced upon execution and will extend on a country by country basis until the last to expire of all Royalty Periods for the territory (as such term is defined in the GeneOne Agreement) for any Product in that country, unless the GeneOne Agreement is terminated earlier in accordance with its provisions as a result of breach, by mutual agreement, or by GeneOne's right to terminate without cause upon prior written notice.

In 2011, the Company entered into a collaborative development and license agreement (the “Hep Agreement”) with GeneOne. Under the Hep Agreement, as originally executed, the Company and GeneOne agreed to co-develop the Company’s SynCon^® therapeutic vaccines for hepatitis B and C infections (the “Hep Products”). Under the terms of the Hep Agreement, GeneOne will receive marketing rights for the Products in Asia, excluding Japan, and in return will fully fund IND-enabling and initial Phase 1 and 2 clinical studies with respect to the Hep Products. The Company will receive from GeneOne payments based on the achievement of clinical milestones and royalties based on sales of the Hep Products in the licensed territories, retaining all commercial rights to the Hep Products in all other territories. In 2013, the Company amended the Hep Agreement to grant back to the Company the SynCon^® therapeutic vaccines targeting hepatitis B, along with all associated rights, from the

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collaboration in return for certain remuneration including a percentage of license fees. In 2013, the Company further amended the Hep Agreement to in part provide exclusive patent rights to IL-28 technology for use with the Hep Products in Asia, excluding Japan. The Hep Agreement shall terminate upon the later of the expiration or abandonment of the last patent that is a component of the rights or 20 years after the effective date.

In May 2015, the Company entered into a Collaborative Development Agreement with GeneOne to co-develop a DNA vaccine for MERS through Phase 1 clinical trials. Under the terms of the agreement, GeneOne will be responsible for funding all preclinical and clinical studies through Phase 1. In return, GeneOne will receive up to a 35% milestone-based ownership interest in the MERS immunotherapy upon achievement of the last milestone event of completion of the Phase 1 safety and immunogenicity study. The collaborative research program shall terminate upon the completion of activities under the development plan, unless sooner terminated.

In January 2016, the Company and GeneOne amended the Collaborative Development Agreement for MERS to expand the agreement to test and advance the Company's DNA-based vaccine for preventing and treating Zika virus. GeneOne will be responsible for funding all preclinical and clinical studies through Phase 1. In return, GeneOne will receive up to a 35% milestone-based ownership interest in the Zika immunotherapy upon achievement of the last milestone event of the completion of the Phase 1 safety and immunogenicity study. All other agreement terms remain the same.

Revenue recognized from GeneOne consisted of patent and device maintenance fees. For the three months ended March 31, 2020 and 2019, the Company recognized revenue from GeneOne of $31,000 and $31,000, respectively.

Operating expenses recorded from transactions with GeneOne related primarily to biologics manufacturing were $606,000 and $1.1 million for the three months ended March 31, 2020 and 2019, respectively.

At March 31, 2020 and December 31, 2019, the Company had an accounts receivable balance of $3,000 and $128,000, respectively, and an accounts payable and accrued liability balance of $2,000 and $511,000, respectively, related to GeneOne and its subsidiaries. At March 31, 2020 and December 31, 2019, $294,000 and $284,000, respectively, of prepayments made to GeneOne were classified as long-term other assets on the Company's condensed consolidated balance sheet.

Plumbline Life Sciences, Inc.

The Company owns 597,808 shares of common stock in Plumbline Life Sciences, Inc. ("PLS") as of March 31, 2020 and one of the Company's directors, Dr. David B. Weiner, acts as a consultant to PLS.

On February 20, 2020, the Company entered into a Debt and Share Subscription Agreement with PLS under which the Company received 202,050 shares of PLS common stock in exchange for a portion of the outstanding accounts receivable balance due from PLS. Following the issuance of these shares and as of March 31, 2020, the Company holds a 19.9% ownership interest in PLS.

Revenue recognized from PLS consists of milestone, license and patent fees. For the three months ended March 31, 2020 and 2019, the Company recognized revenue from PLS of $1.1 million and $24,000, respectively. At March 31, 2020 and December 31, 2019, the Company had an accounts receivable balance of $5,000 and $589,000, respectively, related to PLS.

The Wistar Institute

The Company's director Dr. David B. Weiner is a director of the Vaccine Center of The Wistar Institute ("Wistar"). Dr. Weiner is also the Executive Vice President of Wistar.

In March 2016, the Company entered into collaborative research agreements with Wistar for preventive and therapeutic DNA-based immunotherapy applications and products developed by Dr. Weiner and Wistar for the treatment of cancers and infectious diseases. Under the terms of the agreement, the Company will reimburse Wistar for all direct and indirect costs incurred in the conduct of the collaborative research, not to exceed $3.1 million during the five-year term of the agreement. The Company will have the exclusive right to in-license new intellectual property developed under the agreement.

In November 2016, the Company received a $6.1 million sub-grant through Wistar to develop a DNA-based monoclonal antibody against the Zika infection, with funding through July 2020.

The Company is also a collaborator with Wistar on an Integrated Preclinical/Clinical AIDS Vaccine Development grant from the NIAID, with funding through February 2020.

Deferred grant funding recognized from Wistar and recorded as contra-research and development expense is related to work performed by the Company on the research sub-contract agreements. For the three months ended March 31, 2020 and 2019, the Company recorded $619,000 and $838,000, respectively, as contra-research and development expense from Wistar.

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Research and development expenses recorded from Wistar relate primarily to the collaborative research agreements and sub-contract agreements related to the Bill and Melinda Gates Foundation and CEPI (see Note 15). Research and development expenses recorded from Wistar for the three months ended March 31, 2020 and 2019 were $362,000 and $487,000, respectively. At March 31, 2020 and December 31, 2019, the Company had an accounts receivable balance of $626,000 and $616,000, respectively, and an accounts payable and accrued liability balance of $262,000 and $219,000, respectively, related to Wistar. As of March 31, 2020, the Company had $794,000 recorded as deferred grant funding on the condensed consolidated balance sheet related to Wistar.

14. Leases

The Company leases approximately 82,200 square feet of office, laboratory, and manufacturing space in San Diego, California and 57,360 square feet of office space in Plymouth Meeting, Pennsylvania under various non-cancellable operating lease agreements with remaining lease terms of 3.7 to 9.8 years, which represent the non-cancellable periods of the leases. The Company has excluded the extension options from its lease terms in the calculation of future lease payments as they are not reasonably certain to be exercised. The Company's lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms as well as payments for common area maintenance and administrative services. The Company has received customary incentives from its landlords, such as reimbursements for tenant improvements and rent abatement periods, which effectively reduce the total lease payments owed for these leases.

The Company performed an evaluation of its contracts with customers and suppliers in accordance with Topic 842 and determined that, except for the real estate leases described above and various copier leases, none of its other contracts contain a right-of-use asset.

Operating lease right-of-use assets and liabilities on the condensed consolidated balance sheet represents the present value of the remaining lease payments over the remaining lease terms. Payments for additional monthly fees to cover the Company's share of certain facility expenses are not included in operating lease right-of-use assets and liabilities. The Company uses its incremental borrowing rate to calculate the present value of its lease payments, as the implicit rates in the leases are not readily determinable.

As of March 31, 2020, the maturities of the Company's operating lease liabilities were as follows:

Remainder of 2020	$	2,920,000
2021	3,968,000
2022	4,045,000
2023	4,023,000
2024	3,001,000
Thereafter	12,951,000
Total remaining lease payments	30,908,000
Less: present value adjustment	(8,941,000		)
Total operating lease liabilities	21,967,000
Less: current portion	(2,132,000		)
Long-term operating lease liabilities	$	19,835,000
Weighted-average remaining lease term	8.0 years
Weighted-average discount rate	8.4		%

Lease costs included in operating expenses in the condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 were $834,000 and $817,000, respectively. Operating lease costs consisting of the fixed lease payments included in operating lease liabilities are recorded on a straight-line basis over the lease terms. Variable lease costs are recorded as incurred.

In the normal course of business, the Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party. It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of the Company's obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these types of agreements have not had a material effect on its business, consolidated results of operations or financial condition.

15. Collaborative Agreements

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ApolloBio Corporation

On December 29, 2017, the Company entered into an Amended and Restated License and Collaboration Agreement (the "ApolloBio Agreement"), with ApolloBio Corporation ("ApolloBio"), with an effective date of March 20, 2018. Under the terms of the ApolloBio Agreement, the Company has granted to ApolloBio the exclusive right to develop and commercialize VGX-3100, its DNA immunotherapy product designed to treat pre-cancers caused by HPV, within the territories of China, Hong Kong, Macao, Taiwan, and may include Korea in the event that no patent covering VGX-3100 is issued in China within the three years following the effective date of the ApolloBio Agreement.

Under the ApolloBio Agreement, the Company received proceeds of $19.4 million in March 2018 which comprised the upfront payment of $23.0 million less $2.2 million in foreign income taxes and $1.4 million in certain foreign non-income taxes. The foreign income taxes were recorded as a provision for income taxes and the foreign non-income taxes were recorded as a general and administrative expense, on the condensed consolidated statement of operations. The Company also incurred advisory fees of $960,000 in connection with receiving the upfront payment from ApolloBio. These fees were determined to be incremental costs of obtaining the contract. The Company applied the practical expedient that permits a company to expense incremental costs to obtain a contract when the expected amortization period is one year or less and recorded the fees in general and administrative expense during the quarter ended March 31, 2018. No additional advisory fees are due related to the ApolloBio Agreement.

In addition to the upfront payment, the Company is entitled to receive up to an aggregate of $20.0 million, less required income, withholding or other taxes, upon the achievement of specified milestones related to the regulatory approval of VGX-3100 in the United States, China and Korea. In the event that VGX-3100 is approved for marketing, the Company will be entitled to receive royalty payments based on a tiered percentage of annual net sales, with such percentage being in the low- to mid-teens, subject to reduction in the event of generic competition in a particular territory. ApolloBio’s obligation to pay royalties will continue for 10 years after the first commercial sale in a particular territory or, if later, until the expiration of the last-to-expire patent covering the licensed products in the specified territory.

The Company evaluated the terms of the ApolloBio Agreement under Topic 606, and the license to VGX-3100 in the territories was identified as the only distinct performance obligation on a standalone basis as of the inception of the agreement. The Company concluded that the license was distinct from potential future manufacturing and supply obligations. The Company further determined that the transaction price under the agreement consisted of the $23.0 million upfront payment. The future potential milestone amounts were not included in the transaction price, as they were all determined to be fully constrained. As part of the evaluation of the development and regulatory milestones constraint, the Company determined that the achievement of such milestones is contingent upon success in future clinical trials and regulatory approvals, each of which is uncertain at this time. Future potential milestone amounts may be recognized as revenue under the ApolloBio Agreement, as well as under other collaborative research and development arrangements, if unconstrained. Reimbursable program costs will be recognized proportionately with the performance of the underlying services or delivery of drug supply and are excluded from the transaction price.

The ApolloBio Agreement will continue in force until ApolloBio has no remaining royalty obligations. Either party may terminate the ApolloBio Agreement in the event the other party shall materially breach or default in the performance of its material obligations thereunder and such default continues for a specified period after written notice thereof. In addition, ApolloBio may terminate the ApolloBio Agreement at any time beginning one year after the effective date for any reason upon 90 days written notice to the Company.

Under Topic 606, the entire transaction price of $23.0 million was allocated to the license performance obligation. The Company determined that during the quarter ended June 30, 2018, the transfer of technology occurred and accordingly, the performance obligation was fully satisfied. The Company has recorded the gross upfront payment received from ApolloBio of $23.0 million as revenue under collaborative research and development arrangements on the condensed consolidated statement of operations during the three months ended June 30, 2018.

AstraZeneca

On August 7, 2015, the Company entered into a license and collaboration agreement with MedImmune, the global biologics research and development arm of AstraZeneca ("AstraZeneca"). Under the agreement, AstraZeneca acquired exclusive rights to the Company's INO-3112 immunotherapy, renamed as MEDI0457, which targets cancers caused by human papillomavirus (HPV) types 16 and 18, with the ability to sublicense those license rights. AstraZeneca made an upfront payment of $27.5 million to the Company in September 2015. AstraZeneca may be obligated to make potential future development and regulatory event-based payments to the Company totaling up to $125 million and potential future commercial event-based payments totaling up to $115 million, in each case upon the achievement of specified milestones related to MEDI0457 set forth in the license and collaboration agreement. AstraZeneca will fund all development costs associated with MEDI0457 immunotherapy. The Company is entitled to receive up to mid-single to double-digit tiered royalties on MEDI0457

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product sales. Under the agreement, AstraZeneca can also request the Company to provide certain clinical manufacturing at an agreed upon price. The Company determined these options did not represent material rights at the inception of the agreement.

Within the broader collaboration, AstraZeneca had rights to co-develop up to two additional DNA-based cancer vaccine product candidates not included in the Company's current product pipeline. The Company has received notice that AstraZeneca intends to discontinue activities with respect to the research collaboration programs, other than MEDI0457, that were covered by the collaboration agreement.

As of December 31, 2017, the Company had recognized all of the $27.5 million upfront payment as revenue, as all identified material performance obligations had been met with respect to that payment. During the three months ended March 31, 2020, the Company recognized revenues of $72,000 from AstraZeneca primarily for manufacturing services. During the three months ended March 31, 2019, the Company recognized revenues of $2.7 million from AstraZeneca primarily from a milestone achieved in the first quarter of 2019 triggered by the initiation of a Phase 2 portion of an ongoing clinical trial in the third major indication, as well as for manufacturing services. As of March 31, 2020, the Company had deferred revenue of $62,000 related to AstraZeneca. The deferred revenue relates to advanced payments made by the Company to a third-party biologics manufacturer for which AstraZeneca is obligated to reimburse the Company.

Coalition for Epidemic Preparedness Innovations

In April 2018, the Company entered into agreements with CEPI, pursuant to which the Company intends to develop vaccine candidates against Lassa fever and MERS. The goal of the collaboration between the Company and CEPI is to conduct research and development so that investigational stockpiles will be ready for clinical efficacy trial testing during potential disease outbreaks. The agreements with CEPI contemplate preclinical studies, as well as Phase 1 and Phase 2 clinical trials, occurring over multiple years. As part of the arrangement between the parties, CEPI has agreed to fund up to an aggregate of $56 million of costs over a five-year period for preclinical studies, as well as planned Phase 1 and Phase 2 clinical trials, to be conducted by the Company and collaborators, with funding from CEPI based on the achievement of identified milestones. During the three months ended March 31, 2020 and 2019, the Company received funding of $987,000 and $1.7 million, respectively, related to the CEPI Lassa and MERS grant and recorded it as contra-research and development expense. As of March 31, 2020, the Company had $4.4 million recorded as deferred grant funding on the condensed consolidated balance sheet related to the CEPI Lassa and MERS grant.

In January 2020, CEPI awarded the Company a grant of up to $9.0 million to develop a vaccine against SARS-CoV-2/COVID-19. This initial CEPI funding will support the preclinical and clinical development through Phase 1 human testing in the United States of INO-4800, the Company's coronavirus vaccine candidate matched to the outbreak strain. During the three months ended March 31, 2020, the Company received funding of $2.4 million related to the CEPI COVID-19 grant and recorded it as contra-research and development expense. As of March 31, 2020, the Company had $2.9 million recorded as deferred grant funding on the condensed consolidated balance sheet related to the CEPI COVID-19 grant.

Bill & Melinda Gates Foundation

In October 2018, the Bill & Melinda Gates Foundation (“Gates”) awarded and funded the Company a grant of $2.2 million to advance the development of DNA-encoded monoclonal antibody technology (“dMAb”) to address issues in infectious disease prevention and therapy. This technology has high relevance for the control of influenza and HIV. This next-generation approach to the delivery of monoclonal antibodies would make the technology accessible to low and middle-income countries. In August 2019, Gates funded an additional $1.1 million for the project. During the three months ended March 31, 2020 and 2019, the Company recorded $134,000 and $1.1 million as contra-research and development expense, respectively, related to the Gates dMAb grant. As of March 31, 2020, the Company had $892,000 recorded as deferred grant funding on the condensed consolidated balance sheet related to the grant.

In March 2020, Gates awarded and funded the Company a grant of $5.0 million to accelerate the development of its CELLECTRA^® 3PSP proprietary smart device for the intradermal delivery of INO-4800, the Company's DNA vaccine candidate for COVID-19. During the three months ended March 31, 2020, the Company recorded $64,000 as contra-research and development expense and had $4.9 million recorded as deferred grant funding on the condensed consolidated balance sheet related to this Gates grant.

16. Income Taxes

The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.  Due to the adoption of ASU 2019-12 which removes the exception under ASC 740-20-45-7 to consider all sources of income in order to determine the tax benefit resulting from a loss from continuing operations, ASC 740-20-45-7 no longer applies.

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On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act).  The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19.  The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic; some of the more significant provisions are removal of certain limitations on utilization of net operating losses, increasing the loss carryback period for certain losses to five years, and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act.  At March 31, 2020, the Company has not recorded any income tax provision/(benefit) for the impact for the CARES Act due to the Company’s history of net operating losses generated and the maintenance of a full valuation allowance against its net deferred tax assets.  The Company will continue to analyze the impact that the CARES Act will have, if any, on its financial position, results of operations or cash flows.

17. Geneos Therapeutics, Inc.

In August 2016, the Company incorporated a subsidiary, Geneos Therapeutics, Inc. (“Geneos”), to develop and commercialize neoantigen-based personalized cancer therapies. In February 2019, the Company completed a spin-out of Geneos, after Geneos completed the initial closing of a $4.5 million preferred stock financing. The Company invested $1.2 million in the preferred stock financing, which was led by an outside investor. In January 2020, Geneos completed the second closing of a $3.0 million preferred stock financing, where the Company invested an additional $800,000. Following this transaction, as of March 31, 2020, the Company holds 52% of the outstanding equity, on an as-converted to common stock basis, of Geneos. The Company's ownership percentage of Geneos would decrease in the event of additional purchases of preferred stock of Geneos by other investors.

The Company has exclusively licensed its SynCon^® immunotherapy and CELLECTRA^® technology platform to Geneos to be used in the field of personalized, neoantigen-based therapy for cancer. The license agreement provides for potential royalty payments to the Company in the event that Geneos commercializes any products using the licensed technology.

18. Subsequent Events

On April 3, 2020, the Company entered into a new Sales Agreement with the Placement Agent to sell shares of its common stock with aggregate gross proceeds of up to $150.0 million. Under the new Sales Agreement, the Company will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. The Placement Agent will be entitled to compensation for its services in an amount equal to up to 3.0% of the gross proceeds from the sales of shares sold through the Placement Agent under the new Sales Agreement. The Company has no obligation to sell any shares under the Sales Agreement, and may at any time suspend solicitation and offers under the Sales Agreement.

From April 6, 2020 through May 8, 2020, the Company has sold 12,041,178 shares of common stock under the new Sales Agreement for net proceeds of $121.7 million. The sales were made at a weighted average price of $10.26 per share.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report contains forward-looking statements, as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.

Although we believe that the expectations reflected in the forward-looking statements are reasonable based on our current expectations and projections, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we, nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements. We are under no obligation to update any of the forward-looking statements after the filing of this Quarterly Report to conform such statements to actual results or to changes in our expectations.

The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Quarterly Report and our audited consolidated financial statements and related notes for the year ended December 31, 2019 included in our Annual Report on Form 10-K filed with the SEC on March 12, 2020 (our “2019 Annual Report”). Readers are also urged to carefully review and consider the various disclosures made by us that attempt to advise interested parties of the factors that affect our business, including without limitation the disclosures made in Item 1A of Part II of this Quarterly Report under the captions “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations,” and the disclosures made in our 2019 Annual Report under the caption “Risk Factors” and in our audited consolidated financial statements and related notes.

Risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to: our history of losses; our lack of products that have received regulatory approval; uncertainties inherent in clinical trials and product development programs, including but not limited to the fact that preclinical and clinical results may not be indicative of results achievable in other trials or for other indications, that the studies or trials may not be successful or achieve desired results, that preclinical studies and clinical trials may not commence, have sufficient enrollment or be completed in the time periods anticipated, that results from one study may not necessarily be reflected or supported by the results of other similar studies, that results from an animal study may not be indicative of results achievable in human studies, that clinical testing is expensive and can take many years to complete, that the outcome of any clinical trial is uncertain and failure can occur at any time during the clinical trial process, and that our electroporation technology and DNA vaccines, DNA immunotherapies and DNA encoded monoclonal antibody product candidates may fail to show the desired safety and efficacy traits in clinical trials; the availability of funding; the ability to manufacture vaccine candidates; the availability or potential availability of alternative therapies or treatments for the conditions targeted by us or our collaborators, including alternatives that may be more efficacious or cost-effective than any therapy or treatment that we and our collaborators hope to develop; our ability to receive development, regulatory and commercialization event-based payments under our collaborative agreements; whether our proprietary rights are enforceable or defensible or infringe or allegedly infringe on rights of others or can withstand claims of invalidity; and the impact of government healthcare proposals.

General

We are a biotechnology company focused on rapidly bringing to market precisely designed DNA medicines to treat, cure, and protect people from diseases associated with human papillomavirus (HPV), cancer, and infectious diseases. Our DNA medicine pipeline is comprised of three types of product candidates, DNA vaccines, DNA immunotherapies and DNA encoded monoclonal antibodies (dMABs). In clinical trials, we have demonstrated that a DNA medicine can be delivered directly into cells in the body via our proprietary smart device to consistently activate robust and fully functional T cell and antibody responses against targeted cancers and pathogens.

Our novel DNA medicine candidates are made using our proprietary SynCon^® technology that creates optimized plasmids, which are circular strands of DNA that can produce antigens independently inside a cell to help the person's immune system recognize and destroy cancerous or virally infected cells.

Our hand-held CELLECTRA^® smart delivery devices provide optimized uptake of our DNA medicines within the cell, overcoming a key limitation of other DNA-based technology approaches.

Human data to date have shown a favorable safety profile of our DNA medicines delivered directly into cells in the body using the CELLECTRA^® smart device in more than 6,000 administrations across more than 2,000 patients.

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Our corporate strategy is to advance, protect, and provide our novel DNA medicines to meet urgent and emerging global health needs. We continue to advance and validate an array of DNA medicine candidates that target HPV-related diseases, cancer, and infectious diseases. We aim to advance these candidates through commercialization and continue to leverage third-party resources through collaborations and partnerships, including product license agreements.

Our partners and collaborators include ApolloBio Corp., AstraZeneca, Beijing Advaccine, The Bill & Melinda Gates Foundation, Coalition for Epidemic Preparedness Innovations (CEPI), Defense Advanced Research Projects Agency (DARPA), GeneOne Life Science, HIV Vaccines Trial Network, the U.S. Defense Threat Reduction Agency’s Medical CBRN Defense Consortium (MCDC), National Cancer Institute, National Institutes of Health, National Institute of Allergy and Infectious Diseases, Plumbline Life Sciences, Regeneron Pharmaceuticals, Roche/Genentech, the University of Pennsylvania, the Walter Reed Army Institute of Research, and The Wistar Institute.

We or our collaborators are currently conducting or planning clinical studies of our DNA medicines for HPV-associated precancers, including cervical, vulvar, and anal dysplasia; HPV-associated cancers, including head & neck, cervical, anal, penile, vulvar, and vaginal; other HPV-associated disorders, such as recurrent respiratory papillomatosis, or RRP; glioblastoma multiforme, or GBM; prostate cancer; HIV; Ebola; Middle East Respiratory Syndrome, or MERS; Lassa fever; Zika virus; and the COVID-19 virus (coronavirus).

All of our product candidates are in the research and development phase. We have not generated any revenues from the sale of any products, and we do not expect to generate any such revenues for at least the next several years. We earn revenue from license fees and milestone revenue and collaborative research and development agreements. Our product candidates will require significant additional research and development efforts, including extensive preclinical and clinical testing. All product candidates that we advance to clinical testing will require regulatory approval prior to commercial use, and will require significant costs for commercialization. We may not be successful in our research and development efforts, and we may never generate sufficient product revenue to be profitable.

As of March 31, 2020, we had an accumulated deficit of $772.3 million. We expect to continue to incur substantial operating losses in the future due to our commitment to our research and development programs, the funding of preclinical studies, clinical trials and regulatory activities and the costs of general and administrative activities.

Critical Accounting Policies

There have been no significant changes to our critical accounting policies since December 31, 2019, other than our adoption of Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), on January 1, 2020. For a description of newly adopted critical accounting policies, see Note 3 to our Condensed Consolidated Financial Statements included in this Quarterly Report. For a description of our other critical accounting policies that affect our significant judgments and estimates used in the preparation of our condensed consolidated financial statements, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Annual Report and Note 2 to our audited Consolidated Financial Statements contained in our 2019 Annual Report.

Adoption of Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is contained in Note 4 to the Condensed Consolidated Financial Statements, included in this Quarterly Report.

Results of Operations

Revenue. Total revenue was $1.3 million for the three months ended March 31, 2020, as compared to $2.8 million for the three months ended March 31, 2019. Revenue primarily consisted of revenues under collaborative research and development arrangements, including arrangements with affiliated entities, for the three months ended March 31, 2020 and 2019. The decrease in revenue for the three-month period year over year was primarily due to less revenue recognized from our collaboration with AstraZeneca, offset by milestone revenue earned from our affiliated entity PLS.

Research and development expenses. Research and development expenses for the three months ended March 31, 2020 were $19.1 million, as compared to $24.4 million for the three months ended March 31, 2019. The decrease for the three-month period year over year was primarily due to a decrease in employee compensation expense of $1.9 million due to lower employee headcount, a decrease in clinical trial related expenses of $1.8 million, and an increase in contra-research and development expense recorded from grant agreements of $1.1 million, among other variances.

Contributions received from current grant agreements and recorded as contra-research and development expense were $5.0 million and $3.9 million for the three months ended March 31, 2020 and 2019, respectively. The increase for the three-month period year over year was primarily due to an increase of $2.4 million and $607,000 earned from the CEPI COVID-19

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grant and MCDC grant, respectively, partially offset by a decrease of $799,000 and $712,000 earned from the Bill & Melinda Gates Foundation grant and CEPI Lassa and MERS grant, respectively, among other variances.

General and administrative expenses. General and administrative expenses, which include business development expenses, the amortization of intangible assets and patent expenses, were $7.4 million for the three months ended March 31, 2020, as compared to $7.0 million for the three months ended March 31, 2019. The increase for the three-month period year over year was primarily related to an increase in expenses for work performed related to corporate marketing and communications of $1.2 million, partially offset by foreign currency exchange rate differences related to our 1.0% convertible bonds due August 2024, or the August 2019 Bonds, and 1.0% convertible bonds due December 2024, or the December 2019 Bonds, among other variances.

Stock-based compensation. Stock-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite vesting period. Total employee and director stock-based compensation expense for the three months ended March 31, 2020 and 2019 was $3.6 million and $3.2 million, respectively. Of these amounts, $2.3 million and $1.9 million was included in research and development expenses for the three months ended March 31, 2020 and 2019, respectively, and $1.3 million and $1.3 million was included in general and administrative expenses for the three months ended March 31, 2020 and 2019, respectively. The increase for the three-month period year over year was primarily related to a higher weighted average grant date fair value for the awards granted in the first quarter of 2020.

Interest income. Interest income for the three months ended March 31, 2020 was $417,000, as compared to $626,000 for the three months ended March 31, 2019. The decrease was related to lower interest earned on our short-term investments holdings.

Interest expense. Interest expense for the three months ended March 31, 2020 was $2.8 million, as compared to $656,000 for the three months ended March 31, 2019. The increase was due to higher interest expense recorded for our 6.5% convertible senior notes due 2024, or the Notes, which were issued during the first quarter of 2019, as well as interest expense from our August 2019 Bonds and our December 2019 Bonds, which were issued during the third and fourth quarters of 2019, respectively.

Change in fair value of derivative liability. The change in fair value of derivative liability for the three months ended March 31, 2020 was $13.2 million. We determined that our August 2019 Bonds included an embedded conversion feature that is considered to be a derivative liability requiring bifurcation from the debt instrument and separate recognition in our financial statements. The conversion feature is revalued at each reporting period with the resulting changes in fair value reflected in the condensed consolidated statements of operations.

Gain (loss) on investment in affiliated entities. The gain (loss) results from the change in the fair market value of the investments in GeneOne and PLS for a gain of $13.2 million and a loss of $750,000, for the three months ended March 31, 2020 and 2019, respectively. We record our investments in GeneOne and PLS at their market values based on the closing prices of those securities on the applicable stock exchange at each balance sheet date, with changes in fair value reflected in the condensed consolidated statements of operations.

Net unrealized loss on available-for-sale equity securities. The net unrealized loss on available-for-sale equity securities results from a change in the fair market value of the investments as of March 31, 2020.

Income tax benefit/(Provision for income taxes). The income tax benefit of $63,000 recorded for the three months ended March 31, 2019 reflected our application of the intraperiod tax allocation rules under which we are required to record a tax benefit in continuing operations to offset the tax provision we recorded directly to other comprehensive income (loss) related to unrealized gains on our short-term investments. There was no income tax benefit or provision recorded for the three months ended March 31, 2020.

Liquidity and Capital Resources

Historically, our primary uses of cash have been to finance research and development activities including clinical trial activities in the oncology, DNA vaccines and other immunotherapy areas of our business. Since inception, we have satisfied our cash requirements principally from proceeds from the sale of equity securities, indebtedness and grants and government contracts.

Working Capital and Liquidity

As of March 31, 2020, we had cash, cash equivalents and short-term investments of $270.0 million and working capital of $243.2 million, as compared to $89.5 million and $62.2 million, respectively, as of December 31, 2019. The increase in cash and short-term investments during the three months ended March 31, 2020 was primarily due to the net proceeds from the sale of our common stock under at-the-market, or ATM, sales agreements, offset by expenditures related to our research and

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development activities, clinical trials and various general and administrative expenses related to legal, consultants, accounting and audit, and corporate development.

Cash Flows

Net cash used in operating activities was $25.5 million and $32.5 million for the three months ended March 31, 2020 and 2019, respectively. Net cash used in operating activities for the three months ended March 31, 2020 consisted of net loss of $33.1 million, less use of net cash in operating assets and liabilities of $921,000 partially offset by net non-cash adjustments of $8.6 million. The primary non-cash adjustments to net loss included the increase in fair value of derivative liability of $13.2 million, net unrealized loss on available-for-sale equity securities of $5.1 million, stock-based compensation of $4.0 million and depreciation and amortization of $1.2 million, offset by gain on investment in affiliated entities of $13.2 million and acquisition of investment in our affiliated entity PLS of $1.7 million through the settlement of accounts receivable with additional shares of PLS common stock.

Net cash used in operating activities for the three months ended March 31, 2019 consisted of net loss of $29.3 million, less use of net cash in operating assets and liabilities of $9.0 million, partially offset by net non-cash adjustments of $5.9 million. The primary non-cash expenses added back to net loss included stock-based compensation of $3.4 million, depreciation and amortization of $1.2 million and loss on investment in affiliated entities of $750,000.

Net cash used in investing activities was $51.8 million and $49.3 million for the three months ended March 31, 2020 and 2019, respectively. The variance was primarily the result of timing differences in short-term investment purchases, sales and maturities.

Net cash provided by financing activities was $213.5 million and $78.9 million for the three months ended March 31, 2020 and 2019, respectively. The variance was primarily due to the significantly higher net proceeds from the sale of common stock under the ATM sales agreement in 2020, offset by the net proceeds received from the issuance of Notes in the first quarter of 2019 (described below).

Issuances of Notes and Bonds

In the fourth quarter of 2019, we completed a private placement of our 1.0% convertible bonds due December 2024, or the December 2019 Bonds, to an institutional investor in Korea for an aggregate principal amount of 4.7 billion Korean Won (KRW) (approximately USD $4.1 million based on the exchange rate on the date of issuance). Net proceeds from the offering were $4.0 million, after deducting the offering expenses payable by us. See Note 9 to the condensed consolidated financial statements included in this report for further discussion.

In the third quarter of 2019, we completed a private placement of aggregate principal amount of 18 billion Korean Won (KRW) (approximately USD $15.0 million based on the exchange rate on the date of issuance) of August 2019 Bonds issued to institutional investors led by Korea Investment Partners. Net proceeds from the offering were $14.5 million, after deducting the offering expenses payable by us. See Note 9 to the condensed consolidated financial statements included in this report for further discussion.

In the first quarter of 2019, we completed a private placement of $78.5 million aggregate principal amount of Notes, sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Net proceeds from the offering were $75.7 million, after deducting the initial purchasers' discount and offering expenses payable by us. See Note 9 to the condensed consolidated financial statements included in this report for further discussion.

Issuances of Common Stock

In May 2018, we entered into an At-the-Market Equity Offering Sales Agreement, or the Sales Agreement, with an outside placement agent, or the Placement Agent, to sell shares of our common stock with aggregate gross proceeds of up to $100.0 million, from time to time, through an “at-the-market” equity offering program under which the Placement Agent would act as sales agent. During the year ended December 31, 2019, we sold 3,340,678 shares of common stock under the Sales Agreement for aggregate net proceeds of $9.1 million.

In the first quarter of 2020, we entered into amendments to the Sales Agreement to increase the amount of our common stock that could be sold through the Placement Agent under the Sales Agreement to an aggregate offering price of up to $250.0 million. During the three months ended March 31, 2020, we sold 43,148,952 shares of common stock under the Sales Agreement for aggregate net proceeds of $208.2 million. Following these sales, there was no remaining capacity under this Sales Agreement.

On April 3, 2020, we entered into a new Sales Agreement with the same Placement Agent to sell shares of our common stock with aggregate gross proceeds of up to $150.0 million. Through the date of this report, we have sold an additional 12,041,178 shares of common stock under the new Sales Agreement for aggregate net proceeds of $121.7 million.

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As of March 31, 2020, we had an accumulated deficit of $772.3 million. We expect to continue to operate at a loss for some time. The amount of the accumulated deficit will continue to increase, as it will be expensive to continue research and development efforts. If these activities are successful and if we receive approval from the FDA to market any of our DNA vaccines, DNA immunotherapies or dMAB product candidates, then we will need to raise additional funding to market and sell the approved vaccine products and equipment. We cannot predict the outcome of the above matters at this time. We are evaluating potential collaborations as an additional way to fund operations. We believe that our current cash and short-term investments are sufficient to meet our planned working capital requirements for at least the next twelve months from the date this Quarterly Report is filed.

Off-Balance Sheet Arrangements

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

ITEM 3.    QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Market risk represents the risk of loss that may impact our consolidated financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates. We are exposed to market risk primarily in the area of changes in United States interest rates and conditions in the credit markets, and the recent fluctuations in interest rates and availability of funding in the credit markets primarily impact the performance of our investments. We do not have any material foreign currency or other derivative financial instruments. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to increase the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in investment grade securities. Due to the short-term maturities of our cash equivalents and the low risk profile of our investments at March 31, 2020, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents.

The interest rate on our indebtedness, consisting of the Notes and Bonds, is fixed and not subject to fluctuations in interest rates.

Fair Value Measurements

The investment in affiliated entities represents our ownership interest in the Korean-based companies, GeneOne and PLS. We report these investments at fair value on the condensed consolidated balance sheet using the closing price of GeneOne and PLS shares of common stock as reported on the date of determination on the Korean Stock Exchange and Korea New Exchange Market, respectively.

Foreign Currency Risk

We have operated primarily in the United States and most transactions during the three months ended March 31, 2020 were made in United States dollars. Accordingly, we have not had any material exposure to foreign currency rate fluctuations, with the exception of the issuance of the August 2019 and December 2019 Bonds, which are denominated in South Korean Won, and the valuation of our equity investments in GeneOne and PLS, each of which is denominated in South Korean Won and then translated into United States dollars. We do not have any foreign currency hedging instruments in place.

Certain transactions are denominated primarily in foreign currencies, including South Korean Won, Euros, British Pounds and Canadian Dollars. These transactions give rise to monetary assets and liabilities that are denominated in currencies other than the U.S. dollar. The value of these monetary assets and liabilities are subject to changes in currency exchange rates from the time the transactions are originated until settlement in cash. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets where we conduct business.

We do not use derivative financial instruments for speculative purposes and do not engage in exchange rate hedging or hold or issue foreign exchange contracts for trading purposes.

 

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and

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communicated to our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate to allow timely decisions regarding required disclosures.

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.

Based on an evaluation carried out as of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our management, including our CEO and CFO, our CEO and CFO have concluded that, as of the end of such period, our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective as of March 31, 2020 at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

 

ITEM 1.    LEGAL PROCEEDINGS

On March 12, 2020, a purported shareholder class action complaint, McDermid v. Inovio Pharmaceuticals, Inc. and J. Joseph Kim, was filed in the United States District Court for the Eastern District of Pennsylvania, naming us and J. Joseph Kim, our Chief Executive Officer, as defendants. The lawsuit alleges that we made materially false and misleading statements regarding our development of a vaccine for  coronavirus in our public disclosures in violation of certain federal securities laws. The plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including reasonable attorneys’ fees.

On April 20, 2020, a purported shareholder derivative complaint, Pedram v. Kim, et al., was filed in the United States District Court for the Eastern District of Pennsylvania, naming each of our directors as defendants. The lawsuit asserts state and federal claims and is based on the same alleged misstatements as the shareholder class action complaint. The lawsuit accuses our board of directors of failing to exercise reasonable and prudent supervision over our management, policies, practices, and internal controls. The plaintiff seeks unspecified monetary damages on behalf of us as well as governance reforms.

We intend to defend these actions vigorously.

ITEM 1A.     RISK FACTORS

Our business is subject to numerous risks. You should carefully consider and evaluate each of the following factors as well as the other information in this Quarterly Report on Form 10-Q, including our financial statements and the related notes, the risk factors discussed in our 2019 Annual Report, which we filed with the SEC on March 12, 2020 in evaluating our business and prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business operations. If any of the following risks actually occur, our business and financial results could be harmed. In that case, the trading price of our common stock could decline. You should also consider the more detailed description of our business contained in our 2019 Annual Report.

Risks Related to Our Business and Industry

Our business could be adversely affected by the effects of health epidemics, including the global COVID-19 pandemic.

In December 2019, a novel strain of coronavirus, since named SARS-CoV-2, causing COVID-19 disease, was reported in China. Since then, COVID-19 has spread globally, including throughout the United States, multiple European countries and South Korea. The spread of COVID-19 from China to other countries has resulted in the World Health Organization (WHO) declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020. Many countries around the world, including the United States, have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus, and have closed non-essential businesses.

As local jurisdictions continue to put restrictions in place, our ability to continue to conduct and enroll patients in our clinical trials, manufacture our product candidates and pursue collaborations, may also be limited. Such events may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations.

The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, it has resulted in significant disruption of global financial markets, which could reduce our ability to access capital, including a planned secondary-listing on the KOSDAQ Market of the Korea Exchange, negatively affecting our liquidity. In addition, the recession resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

The continued spread of COVID-19 globally could also adversely affect our planned clinical trial operations, including our ability to initiate the trials on the expected timelines and recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography. Further, the COVID-19 outbreak could result in delays in our clinical trials due to prioritization of hospital resources toward the outbreak, restrictions in travel, potential unwillingness of patients to enroll in trials at this time, or the inability of patients to comply with clinical trial protocols as quarantines or travel restrictions impede patient movement or interrupt healthcare services. In addition, we rely on independent clinical investigators, contract research organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our preclinical studies and clinical trials, and the outbreak may affect their ability to devote sufficient time and resources to our programs or to travel to sites to perform work for us. These restrictions may delay the conduct of multiple clinical trials including our Phase 1 through 3 clinical trials.

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Additionally, COVID-19 may also result in delays in receiving approvals from local and foreign regulatory authorities, delays in necessary interactions with local and foreign regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees, and refusals to accept data from clinical trials conducted in these affected geographies.

The global outbreak of COVID-19 continues to rapidly evolve. The extent to which COVID-19 may impact our business, operations and clinical trials will depend on future developments, including the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, the effectiveness of actions taken in the United States and other countries to contain and treat the disease and whether the United States and additional countries are required to move to complete lock-down status. The ultimate long-term impact of COVID-19 is highly uncertain and cannot be predicted with confidence.

We have incurred losses since inception, expect to incur significant net losses in the foreseeable future and may never become profitable.

We have experienced significant operating losses to date; as of March 31, 2020, our accumulated deficit was approximately $772.3 million. We have generated limited revenues, primarily consisting of license revenue, grant funding and interest income. We expect to continue to incur substantial additional operating losses for at least the next several years as we advance our clinical trials and research and development activities. We may never successfully commercialize our DNA vaccine, DNA immunotherapy and dMAB product candidates or electroporation-based synthetic vaccine delivery technology and thus may never have any significant future revenues or achieve and sustain profitability.

We are currently subject to stockholder litigation and may become subject to additional litigation, which could harm our business and financial condition.

We may have actions brought against us by stockholders relating to past transactions, changes in our stock price or other matters. For example, on March 12, 2020, a purported shareholder class action complaint was filed in the United States District Court for the Eastern District of Pennsylvania, naming us and our chief executive officer as defendants, and alleging that we made materially false and misleading statements regarding the development of a vaccine candidate for coronavirus in violation of certain federal securities laws. On April 20, 2020, a purported shareholder derivative complaint was filed in the same court, naming each of our directors as defendants and asserting state and federal claims and is based on the same alleged misstatements as the securities class action. Any such actions could give rise to substantial damages, and thereby have a material adverse effect on our consolidated financial position, liquidity, or results of operations. Even if an action is not resolved against us, the uncertainty and expense associated with stockholder actions could harm our business, financial condition and reputation. Litigation can be costly, time-consuming and disruptive to business operations. The defense of lawsuits could also result in diversion of our management's time and attention away from business operations, which could harm our business.

We have limited sources of revenue and our success is dependent on our ability to develop our DNA vaccines, DNA immunotherapies, dMAB and electroporation equipment.

We do not sell any products and may not have any other products commercially available for several years, if at all. Our ability to generate future revenues depends heavily on our success in:

•	developing and securing United States and/or foreign regulatory approvals for our product candidates, including securing regulatory approval for conducting clinical trials with product candidates;

•	developing our electroporation-based DNA delivery technology; and

•	commercializing any products for which we receive approval from the FDA and foreign regulatory authorities.

Our electroporation equipment and product candidates will require extensive additional clinical study and evaluation, regulatory approval in multiple jurisdictions, substantial investment and significant marketing efforts before we generate any revenues from product sales. We are not permitted to market or promote our electroporation equipment and product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities. If we do not receive regulatory approval for and successfully commercialize any products, we will not generate any revenues from sales of electroporation equipment and products, and we may not be able to continue our operations.

None of our human vaccine, including our coronavirus vaccine program, immunotherapy and DNA encoded monoclonal antibody product candidates have been approved for sale, and we may never develop commercially successful vaccine, immunotherapy or monoclonal antibody products.

Our human vaccine programs, which includes our coronavirus vaccine program, our immunotherapy programs and our DNA encoded monoclonal antibodies program are in various stages of research and development, and currently include product candidates in discovery, preclinical studies and Phase 1, 2 and 3 clinical trials. There are limited data regarding the efficacy of synthetic vaccine candidates and immunotherapy candidates compared with conventional vaccines, and we must

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conduct a substantial amount of additional research and development before any regulatory authority will approve any of our vaccine product candidates, including INO-4800, our coronavirus vaccine candidate. The success of our efforts to develop and commercialize our product candidates, including INO-4800, could be delayed or fail for a number of reasons. For example, we could experience delays in product development and clinical trials. Our product candidates could be found to be ineffective or unsafe, or otherwise fail to receive necessary regulatory clearances. The products, if safe and effective, could be difficult to manufacture on a large scale or uneconomical to market, or our competitors could develop superior products more quickly and efficiently or more effectively market their competing products.

In addition, adverse events, or the perception of adverse events, relating to vaccine and immunotherapy candidates and delivery technologies may negatively impact our ability to develop commercially successful products. For example, pharmaceutical companies have been subject to claims that the use of some pediatric vaccines has caused personal injuries, including brain damage, central nervous system damage and autism. These and other claims may influence public perception of the use of vaccine and immunotherapy products and could result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approval of our potential products.

Our substantial indebtedness could limit the cash flow available for our operations and could expose us to risks that could adversely affect our business, financial condition and results of operations.

During 2019, we sold $78.5 million aggregate principal amount of 6.50% convertible senior notes due 2024, or the Notes, as well as $15.0 million and $4.1 million aggregate principal amount of 1.0% convertible bonds due August 2024 and December 2024, respectively, or the August 2019 Bonds and the December 2019 Bonds, respectively. We may also incur additional indebtedness to meet future financing needs. Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things:

•	increasing our vulnerability to adverse economic and industry conditions;

•	limiting our ability to obtain additional financing;

•	requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;

•	limiting our flexibility to plan for, or react to, changes in our business;

•	diluting the interests of our existing stockholders if we issue shares of our common stock upon conversion of the Notes, the August 2019 Bonds and the December 2019 Bonds in accordance with their respective terms; and

•	placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.

Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under the Notes, the August 2019 Bonds and the December 2019 Bonds and any additional indebtedness that we may incur. In addition, our cash needs may increase in the future. In addition, any future indebtedness that we may incur may contain financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.

The conditional conversion features of the Notes, if triggered, may adversely affect our financial condition, operating results, or liquidity.

In the event the conditional conversion feature of the Notes is triggered, holders of the Notes will be entitled to convert their Notes into shares of our common stock at any time during specified periods at their option. If one or more of the holders of the Notes elects to convert their Notes, unless we satisfy our conversion obligation by delivering only shares of our common stock, we would be required to settle all or a portion of our conversion obligation through the payment of cash, which could adversely affect our liquidity. The conditional convertibility of the Notes will be monitored at each quarterly reporting date and analyzed dependent upon market prices of our common stock during the prescribed measurement periods.

Conversion of the Notes, the August 2019 Bonds and/or the December 2019 Bonds will dilute the ownership interest of existing stockholders, and may otherwise depress the price of our common stock.

The conversion of some or all of the Notes, the August 2019 Bonds and/or December 2019 Bonds will dilute the ownership interests of existing stockholders to the extent we deliver shares of our common stock upon conversion of any of the Notes. The Notes may become in the future convertible at the option of the holders of the Notes prior to November 1, 2023 under certain circumstances as provided in the indenture governing the Notes. The August 2019 Bonds and December 2019 Bonds may become in the future convertible at the option of the holders of the August 2019 Bonds and December 2019 Bonds starting August 1, 2020 and December 31, 2020, respectively, until the date that is one month prior to maturity date of the

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August 2019 Bonds and December 2019 Bonds. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock.

We may not have the ability to raise the funds necessary to settle conversions of the Notes in cash, to repurchase the Notes or the August 2019 Bonds or the December 2019 Bonds upon a fundamental change or to repurchase the August 2019 Bonds and the December 2019 Bonds from and including July 31, 2022 and December 31, 2022 up to the date falling one month prior to the maturity date of the August 2019 Bonds and December 2019 Bonds, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Notes.

Subject to certain conditions, holders of the Notes or the August 2019 Bonds or the December 2019 Bonds may require us to repurchase for cash all or a portion of their Notes or August 2019 Bonds or December 2019 Bonds, respectively, upon the occurrence of a fundamental change (as defined in the indenture governing the Notes or the August 2019 Bonds or the December 2019 Bonds, respectively) at a repurchase price equal to 100% of the principal amount of the Notes or the August 2019 Bonds or the December 2019 Bonds, as applicable, to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, if a make-whole fundamental change (as defined in the indenture for the Notes) occurs prior to the maturity date of the Notes, we will in some cases be required to increase the conversion rate for a holder that elects to convert its Notes in connection with such make-whole fundamental change. The August 2019 Bonds and December 2019 Bonds will be subject to repurchase by us at the option of the holders thereof from and including July 31, 2022 and December 31, 2022, respectively, up to the date falling one month prior to the maturity date at a repurchase price equal to the principal of the August 2019 Bonds and December 2019 Bonds to be repurchased plus a premium on such August 2019 Bonds and December 2019 Bonds in order to provide an internal rate of return with respect to such August 2019 Bonds and December 2019 Bonds of 6.00%. Upon a conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes or August 2019 Bonds or December 2019 Bonds surrendered for repurchase or pay cash with respect to Notes being converted.

In addition, our ability to repurchase or to pay cash upon conversion of the Notes may be limited by law, regulatory authority or agreements governing our future indebtedness. Our failure to repurchase the Notes at a time when the repurchase is required by the indenture governing the Notes or to pay cash upon conversion of the Notes as required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under our August 2019 Bonds and December 2019 Bonds or agreements governing our future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or the August 2019 Bonds or the December 2019 Bonds or to pay cash upon conversion of the Notes.

We will need substantial additional capital to develop our DNA vaccine, DNA immunotherapy and dMAB programs and electroporation delivery technology.

Conducting the costly and time-consuming research, pre-clinical and clinical testing necessary to obtain regulatory approvals and bring our product candidates and delivery technology to market will require a commitment of substantial funds in excess of our current capital. Our future capital requirements will depend on many factors, including, among others:

•	the progress of our current and new product development programs;

•	the progress, scope and results of our pre-clinical and clinical testing;

•	the time and cost involved in obtaining regulatory approvals;

•	the cost of manufacturing our products and product candidates;

•	the cost of prosecuting, enforcing and defending against patent infringement claims and other intellectual property rights;

•	debt service obligations on the Notes, the August 2019 Bonds and December 2019 Bonds;

•	competing technological and market developments; and

•	our ability and costs to establish and maintain collaborative and other arrangements with third parties to assist in potentially bringing our products to market.

Additional financing may not be available on acceptable terms, or at all. Domestic and international capital markets have from time to time experienced heightened volatility and turmoil, making it more difficult to raise capital through the issuance of equity securities. Volatility in the capital markets can also negatively impact the cost and availability of credit, creating

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illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases cease to provide, funding to borrowers. To the extent we are able to raise additional capital through the sale of equity securities or we issue securities in connection with another transaction, the ownership position of existing stockholders could be substantially diluted. If additional funds are raised through the issuance of preferred stock or debt securities, these securities are likely to have rights, preferences and privileges senior to our common stock and may involve significant fees, interest expense, restrictive covenants and the granting of security interests in our assets. Fluctuating interest rates could also increase the costs of any debt financing we may obtain. Raising capital through a licensing or other transaction involving our intellectual property could require us to relinquish valuable intellectual property rights and thereby sacrifice long-term value for short-term liquidity.

Our failure to successfully address ongoing liquidity requirements would have a substantially negative impact on our business. If we are unable to obtain additional capital on acceptable terms when needed, we may need to take actions that adversely affect our business, our stock price and our ability to achieve cash flow in the future, including possibly surrendering our rights to some technologies or product opportunities, delaying our clinical trials or curtailing or ceasing operations.

We depend upon key personnel who may terminate their employment with us at any time and we may need to hire additional qualified personnel in order to obtain financing, pursue collaborations or develop or market our product candidates.

The success of our business strategy will depend to a significant degree upon the continued services of key management, technical and scientific personnel and our ability to attract and retain additional qualified personnel and managers, including personnel with expertise in clinical trials, government regulation, manufacturing, marketing and other areas. Competition for qualified personnel is intense among companies, academic institutions and other organizations. If we are unable to attract and retain key personnel and advisors, it may negatively affect our ability to successfully develop, test, commercialize and market our products and product candidates.

We face intense and increasing competition and many of our competitors have significantly greater resources and experience.

If any of our competitors develop products with efficacy or safety profiles significantly better than our products, we may not be able to commercialize our products, and sales of any of our commercialized products could be harmed. Some of our competitors and potential competitors have substantially greater product development capabilities and financial, scientific, marketing and human resources than we do. Competitors may develop products earlier, obtain FDA approvals for products more rapidly, or develop products that are more effective than those under development by us. We will seek to expand our technological capabilities to remain competitive; however, research and development by others may render our technologies or products obsolete or noncompetitive, or result in treatments or cures superior to ours.

Many other companies are pursuing other forms of treatment or prevention for diseases that we target. For example, many of our competitors are working on developing and testing cancer vaccines and immunotherapies and several products such as the CAR-Ts developed by our competitors have been approved for human use. Our competitors and potential competitors include large pharmaceutical and more established biotechnology companies. These companies have significantly greater financial and other resources and greater expertise than us in research and development, securing government contracts and grants to support research and development efforts, manufacturing, pre-clinical and clinical testing, obtaining regulatory approvals and marketing. This may make it easier for them to respond more quickly than us to new or changing opportunities, technologies or market needs. Many of these competitors operate large, well-funded research and development programs and have significant products approved or in development. Small companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical companies or through acquisition or development of intellectual property rights. Our potential competitors also include academic institutions, governmental agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for product and clinical development and marketing. Research and development by others may seek to render our technologies or products obsolete or noncompetitive.

If we lose or are unable to secure collaborators or partners, or if our collaborators or partners do not apply adequate resources to their relationships with us, our product development and potential for profitability will suffer.

We have entered into, and may continue to enter into, distribution, co-promotion, partnership, sponsored research and other arrangements for development, manufacturing, sales, marketing and other commercialization activities relating to our products. For example, in the past we have entered into license and collaboration agreements to develop, obtain regulatory approval for and commercialize our product candidates for specified indications, including in jurisdictions outside of the United States. The amount and timing of resources applied by our collaborators are largely outside of our control.

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If any of our current or future collaborators breaches or terminates our agreements, or fails to conduct our collaborative activities in a timely manner, our commercialization of products could be diminished or blocked completely. We may not receive any event-based payments, milestone payments or royalty payments under our collaborative agreements if our collaborative partners fail to develop products in a timely manner or at all. It is possible that collaborators will change their strategic focus, pursue alternative technologies or develop alternative products, either on their own or in collaboration with others. Further, we may be forced to fund programs that were previously funded by our collaborators, and we may not have, or be able to access, the necessary funding. The effectiveness of our partners, if any, in marketing our products will also affect our revenues and earnings.

We desire to enter into new collaborative agreements. However, we may not be able to successfully negotiate any additional collaborative arrangements and, if established, these relationships may not be scientifically or commercially successful. Our success in the future depends in part on our ability to enter into agreements with other highly-regarded organizations. This can be difficult due to internal and external constraints placed on these organizations. Some organizations may have insufficient administrative and related infrastructure to enable collaborations with many companies at once, which can extend the time it takes to develop, negotiate and implement a collaboration. Once news of discussions regarding possible collaborations are known in the medical community, regardless of whether the news is accurate, failure to announce a collaborative agreement or the entity's announcement of a collaboration with another entity may result in adverse speculation about us, resulting in harm to our reputation and our business.

Disputes could also arise between us and our existing or future collaborators, as to a variety of matters, including financial and intellectual property matters or other obligations under our agreements. These disputes could be both expensive and time-consuming and may result in delays in the development and commercialization of our products or could damage our relationship with a collaborator.

A small number of licensing partners and government contracts account for a substantial portion of our revenue.

We currently derive, and in the past we have derived, a significant portion of our revenue from a limited number of licensing partners and government grants and contracts. Revenue can fluctuate significantly depending on the timing of upfront and event-based payments and work performed. If we fail to sign additional future contracts with major licensing partners and the government, if a contract is delayed or deferred, or if an existing contract expires or is canceled and we fail to replace the contract with new business, our revenue would be adversely affected.

We have agreements with government agencies, which are subject to termination and uncertain future funding.

We have entered into agreements with government agencies, such as the NIAID and DARPA, and we intend to continue entering into these agreements in the future. Our business is partially dependent on the continued performance by these government agencies of their responsibilities under these agreements, including adequate continued funding of the agencies and their programs. We have no control over the resources and funding that government agencies may devote to these agreements, which may be subject to annual renewal and which generally may be terminated by the government agencies at any time.

Government agencies may fail to perform their responsibilities under these agreements, which may cause them to be terminated by the government agencies. In addition, we may fail to perform our responsibilities under these agreements. Many of our government agreements are subject to audits, which may occur several years after the period to which the audit relates. If an audit identifies significant unallowable costs, we could incur a material charge to our earnings or reduction in our cash position. As a result, we may be unsuccessful entering, or ineligible to enter, into future government agreements.

Our quarterly operating results may fluctuate significantly.

We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:

•	variations in the level of expenses related to our electroporation equipment, product candidates or future development programs;

•	expenses related to corporate transactions, including ones not fully completed;

•	addition or termination of clinical trials or funding support;

•	any intellectual property infringement lawsuit in which we may become involved;

•	any legal claims that may be asserted against us or any of our officers;

•	regulatory developments affecting our electroporation equipment and product candidates or those of our competitors;

•	debt service obligations on the Notes, the August 2019 Bonds and the December 2019 Bonds;

•	changes in the fair value of the derivative liability associated with the August 2019 Bonds;

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•	changes in the fair value of our investments, including investments in affiliated entities;

•	our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements; and

•	if any of our products receives regulatory approval, the levels of underlying demand for our products.

If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.

If we are unable to obtain FDA approval of our products, we will not be able to commercialize them in the United States.

We need FDA approval prior to marketing our electroporation equipment and products in the United States. If we fail to obtain FDA approval to market our electroporation equipment and product candidates, we will be unable to sell our products in the United States, which will significantly impair our ability to generate any revenues.

This regulatory review and approval process, which includes evaluation of pre-clinical studies and clinical trials of our products as well as the evaluation of our manufacturing processes and our third-party contract manufacturers' facilities, is lengthy, expensive and uncertain. To receive approval, we must, among other things, demonstrate with substantial evidence from well-controlled clinical trials that our electroporation equipment and product candidates are both safe and effective for each indication for which approval is sought. Satisfaction of the approval requirements typically takes several years and the time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the product. We do not know if or when we might receive regulatory approvals for our electroporation equipment and any of our product candidates currently under development. Moreover, any approvals that we obtain may not cover all of the clinical indications for which we are seeking approval, or could contain significant limitations in the form of narrow indications, warnings, precautions or contra-indications with respect to conditions of use. In such event, our ability to generate revenues from such products would be greatly reduced and our business would be harmed.

The FDA has substantial discretion in the approval process and may either refuse to consider our application for substantive review or may form the opinion after review of our data that our application is insufficient to allow approval of our electroporation equipment and product candidates. If the FDA does not consider or approve our application, it may require that we conduct additional clinical, pre-clinical or manufacturing validation studies and submit that data before it will reconsider our application. Depending on the extent of these or any other studies, approval of any applications that we submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be successful or considered sufficient by the FDA for approval or even to make our applications approvable. If any of these outcomes occur, we may be forced to abandon one or more of our applications for approval, which might significantly harm our business and prospects.

It is possible that none of our products or any product we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us or our collaborators to commence product sales. Any delay in obtaining, or an inability to obtain, applicable regulatory approvals would prevent us from commercializing our products, generating revenues and achieving and sustaining profitability.

Clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

Clinical testing is expensive and can take many years to complete, and its outcome is uncertain. Failure can occur at any time during the clinical trial process. The results of pre-clinical studies and early clinical trials of our products may not be predictive of the results of later-stage clinical trials. Results from one study may not be reflected or supported by the results of similar studies. Results of an animal study may not be indicative of results achievable in human studies. Human-use equipment and product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial clinical testing. The time required to obtain approval by the FDA and similar foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials, depending upon numerous factors. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change. We have not obtained regulatory approval for any human-use products.

 

Our products could fail to complete the clinical trial process for many reasons, including the following:

•	we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that our electroporation equipment and a product candidate are safe and effective for any indication;

•	the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

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•	the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

•	we may not be successful in enrolling a sufficient number of participants in clinical trials;

•	we may be unable to demonstrate that our electroporation equipment and a product candidate's clinical and other benefits outweigh its safety risks;

•	we may be unable to demonstrate that our electroporation equipment and a product candidate presents an advantage over existing therapies, or over placebo in any indications for which the FDA requires a placebo-controlled trial;

•	the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from pre-clinical studies or clinical trials;

•	the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a new drug application or other submission or to obtain regulatory approval in the United States or elsewhere;

•	the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of us or third-party manufacturers with which we or our collaborators contract for clinical and commercial supplies; and

•	the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

Our product candidates are combination products regulated under both the biologic and device regulations of the Public Health Service Act and Federal Food, Drug, and Cosmetic Act. Third-party manufacturers may not be able to comply with cGMP regulations, regulations applicable to biologic/device combination products, including applicable provisions of the FDA’s drug cGMP regulations, device cGMP requirements embodied in the QSR or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates, operating restrictions and criminal prosecutions, any of which could significantly affect supplies of our product candidates.

Delays in the commencement or completion of clinical testing could result in increased costs to us and delay or limit our ability to generate revenues.

Delays in the commencement or completion of clinical testing could significantly affect our product development costs. We do not know whether planned clinical trials will begin on time or be completed on schedule, if at all. In addition, ongoing clinical trials may not be completed on schedule, or at all, and could be placed on a hold by the regulators for various reasons. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:

•	obtaining regulatory approval to commence a clinical trial;

•	adverse results from third party clinical trials involving gene-based therapies and the regulatory response thereto;

•	reaching agreement on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

•	future bans or stricter standards imposed on clinical trials of gene-based therapy;

•	manufacturing sufficient quantities of our electroporation equipment and product candidates for use in clinical trials;

•	obtaining institutional review board, or IRB, approval to conduct a clinical trial at a prospective site;

•	slower than expected recruitment and enrollment of patients to participate in clinical trials for a variety of reasons, including competition from other clinical trial programs for similar indications;

•	conducting clinical trials with sites internationally due to regulatory approvals and meeting international standards;

•	retaining patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy or personal issues, or who are lost to further follow-up;

•	collecting, reviewing and analyzing our clinical trial data; and

•	global unrest, global pathogen outbreaks or pandemics, terrorist activities, and economic and other external factors.

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Clinical trials may also be delayed as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or other regulatory authorities due to a number of factors, including:

•	failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;

•	inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;

•	unforeseen safety issues; and

•	lack of adequate funding to continue the clinical trial.

 

If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for our electroporation equipment and our product candidates may be harmed and our ability to generate product revenues will be delayed. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. Further, delays in the commencement or completion of clinical trials may adversely affect the trading price of our common stock.

We and our collaborators rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we and our collaborators may not be able to obtain regulatory approval for or commercialize our product candidates.

We and our collaborators have entered into agreements with CROs to provide monitors for and to manage data for our on-going clinical programs. We and the CROs conducting clinical trials for our electroporation equipment and product candidates are required to comply with current good clinical practices, or GCPs, regulations and guidelines enforced by the FDA for all of our products in clinical development. The FDA enforces GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or the CROs conducting clinical trials of our product candidates fail to comply with applicable GCPs, the clinical data generated in the clinical trials may be deemed unreliable and the FDA may require additional clinical trials before approving any marketing applications.

If any relationships with CROs terminate, we or our collaborators may not be able to enter into arrangements with alternative CROs. In addition, these third-party CROs are not our employees, and we cannot control whether or not they devote sufficient time and resources to our on-going clinical programs or perform trials efficiently. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities, which could harm our competitive position. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. Cost overruns by or disputes with our CROs may significantly increase our expenses.

Even if our products receive regulatory approval, they may still face future development and regulatory difficulties.

Even if United States regulatory approval is obtained, the FDA may still impose significant restrictions on a product's indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies. This governmental oversight may be particularly strict with respect to gene-based therapies. Our products will also be subject to ongoing FDA requirements governing the labeling, packaging, storage, advertising, promotion, record keeping and submission of safety and other post-market information. For example, the FDA strictly regulates the promotional claims that may be made about medical products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. However, companies may in certain circumstances share truthful and not misleading information that is otherwise consistent with the product’s FDA approved labeling. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current good manufacturing practices, or cGMP, regulations. If we or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturer or us, including requiring withdrawal of the product from the market or suspension of manufacturing. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

•	issue Warning Letters or untitled letters;

•	impose civil or criminal penalties;

•	suspend regulatory approval;

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•	suspend any ongoing clinical trials;

•	refuse to approve pending applications or supplements to applications filed by us;

•	impose restrictions on operations, including costly new manufacturing requirements; or

•	seize or detain products or require us to initiate a product recall.

Even if our products receive regulatory approval in the United States, we may never receive approval or commercialize our products outside of the United States.

In order to market any electroporation equipment and product candidates outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the United States as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same adverse effects detailed above regarding FDA approval in the United States. Such effects include the risks that our product candidates may not be approved for all indications requested, which could limit the uses of our product candidates and have an adverse effect on their commercial potential or require costly, post-marketing follow-up studies.

We face potential product liability exposure and, if successful claims are brought against us, we may incur substantial liability.

The use of our electroporation equipment and DNA vaccine, DNA immunotherapy and dMAB candidates in clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. For example, pharmaceutical companies have been subject to claims that the use of some pediatric vaccines has caused personal injuries, including brain damage, central nervous system damage and autism, and these companies have incurred material costs to defend these claims. If we cannot successfully defend ourselves against product liability claims, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in:

•	decreased demand for our product candidates;

•	impairment of our business reputation;

•	withdrawal of clinical trial participants;

•	costs of related litigation;

•	distraction of management's attention from our primary business;

•	substantial monetary awards to patients or other claimants;

•	loss of revenues; and

•	inability to commercialize our products.

We have obtained product liability insurance coverage for our clinical trials, but our insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our business.

We currently have no marketing and sales organization. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our products, we may not be able to generate product revenues.

We currently do not have a sales organization for the marketing, sales and distribution of our electroporation equipment and product candidates. In order to commercialize any products, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. We contemplate establishing our own sales force or seeking third-party partners to sell our products. The establishment and development of our own sales force to market any products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to successfully develop this capability. We will also have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel. To the extent we rely on third parties to commercialize our approved products, if any, we will receive lower revenues than if we

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commercialized these products ourselves. In addition, we may have little or no control over the sales efforts of third parties involved in our commercialization efforts. In the event we are unable to develop our own marketing and sales force or collaborate with a third-party marketing and sales organization, we would not be able to commercialize our product candidates which would negatively impact our ability to generate product revenues.

If any of our products for which we receive regulatory approval does not achieve broad market acceptance, the revenues that we generate from their sales will be limited.

The commercial success of our electroporation equipment and product candidates for which we obtain marketing approval from the FDA or other regulatory authorities will depend upon the acceptance of these products by both the medical community and patient population. Coverage and reimbursement of our product candidates by third-party payors, including government payors, generally is also necessary for optimal commercial success. The degree of market acceptance of any of our approved products will depend on a number of factors, including:

•	our ability to provide acceptable evidence of safety and efficacy;

•	the relative convenience and ease of administration;

•	the prevalence and severity of any actual or perceived adverse side effects;

•	limitations or warnings contained in a product's FDA-approved labeling, including, for example, potential “black box” warnings

•	availability of alternative treatments;

•	pricing and cost effectiveness;

•	the effectiveness of our or any future collaborators' sales and marketing strategies;

•	our ability to obtain sufficient third-party coverage and adequate reimbursement; and

•	the willingness of patients to pay out of pocket in the absence of third-party coverage.

If our electroporation equipment and product candidates are approved but do not achieve an adequate level of acceptance by physicians, healthcare payors and patients, we may not generate sufficient revenue from these products, and we may not become or remain profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.

We are subject to uncertainty relating to coverage and reimbursement policies which, if not favorable to our product candidates, could hinder or prevent our products' commercial success.

Patients in the United States and elsewhere generally rely on third-party payors to reimburse part or all of the costs associated with their prescription drugs and medical treatments. Accordingly, our ability to commercialize our electroporation equipment and product candidates successfully will depend in part on the extent to which governmental authorities, including Medicare and Medicaid, private health insurers and other third-party payors establish appropriate coverage and reimbursement levels for our product candidates and related treatments. As a threshold for coverage and reimbursement, third-party payors generally require that drug products have been approved for marketing by the FDA.

Significant uncertainty exists as to the coverage and reimbursement status of any products for which we may obtain regulatory approval. Coverage decisions may not favor new products when more established or lower cost therapeutic alternatives are already available. Even if we obtain coverage for a given product, the associated reimbursement rate may not be adequate to cover our costs, including research, development, intellectual property, manufacture, sale and distribution expenses, or may require co-payments that patients find unacceptably high. Patients are unlikely to use our products unless reimbursement is adequate to cover all or a significant portion of the cost of our drug products.

Additionally, some of our products, if approved, will be provided under the supervision of a physician. When used in connection with medical procedures, our product candidates may not be reimbursed separately but their cost may instead be bundled as part of the payment received by the provider for the procedure only. Separate reimbursement for the product itself or the treatment or procedure in which our product is used may not be available. A decision by a third-party payor not to cover or separately reimburse for our product candidates or procedures using our product candidates, could reduce physician utilization of our products once approved.

Coverage and reimbursement policies for drug products can differ significantly from payor to payor as there is no uniform policy of coverage and reimbursement for drug products among third-party payors in the United States. There may be significant delays in obtaining coverage and reimbursement as the process of determining coverage and reimbursement is often time consuming and costly which will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage or adequate reimbursement will be obtained. It is difficult to predict at

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this time what government authorities and third-party payors will decide with respect to coverage and reimbursement for our products.

A significant trend in the U.S. healthcare industry and elsewhere is cost containment. Third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular products and services. Third-party payors are increasingly challenging the effectiveness of and prices charged for medical products and services. Moreover, the U.S. government, state legislatures and foreign governmental entities have shown significant interest in implementing cost containment programs to limit the growth of government paid healthcare costs, including price controls, restrictions on reimbursement and coverage and requirements for substitution of generic products for branded prescription drugs. We may not be able to obtain third-party payor coverage or reimbursement for our products in whole or in part.

Healthcare reform measures could hinder or prevent our products' commercial success.

In both the United States and certain foreign jurisdictions there have been, and we anticipate there will continue to be, a number of legislative and regulatory changes to the healthcare system that could impact our ability to sell any of our products profitably. In the United States, the federal government enacted healthcare reform legislation, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA. Among the ACA’s provisions of importance to the pharmaceutical industry are that it:

•

imposed an annual excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions, although the effective rate paid may be lower. Under the Consolidated Appropriations Act of 2016, the excise tax was suspended through December 31, 2017, and under the continuing resolution on appropriations for fiscal year 2018, or 2018 Appropriations Resolution, signed by President Trump on January 22, 2018, was further suspended through December 31, 2019;

•	created an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs;

•	increased the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price, or AMP;

•	created new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for certain drugs and biologics that are inhaled, infused, instilled, implanted or injected;

•	expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability;

•	expanded the entities eligible for discounts under the Public Health program;

•	created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;

•	established a Center for Medicare & Medicaid Innovation at the Centers for Medicare & Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending that began on January 1, 2011; and

•	created a licensure framework for follow on biologic products.

Some of the provisions of the ACA have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA such as removing penalties, starting January 1, 2019, for not complying with the ACA’s individual mandate to carry health insurance and delaying the implementation of certain ACA-mandated fees. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017. While the Texas U.S. District Court Judge, as well as the Trump administration and CMS, have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA and our business.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, included reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the

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statute will remain in effect through 2027 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

Further there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. For example, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. On January 31, 2019, the U.S. Department of Health and Human Services, Office of Inspector General, proposed modifications to the federal healthcare program Anti-Kickback Statute discount safe harbor for the purpose of reducing the cost of drug products to consumers which, among other things, if finalized, will affect discounts paid by manufacturers to Medicare Part D plans, Medicaid managed care organizations and pharmacy benefit managers working with these organizations. While some of these and other proposed measures may require additional authorization to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.

The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to make and implement healthcare reforms may adversely affect:

•	our ability to set a price we believe is fair for our products;

•	our ability to generate revenues and achieve or maintain profitability;

•	the availability of capital; and

•	our ability to obtain timely approval of our products.

If we fail to comply with applicable healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

Certain federal, state, local and foreign healthcare laws and regulations pertaining to fraud and abuse, transparency, patients' rights, and privacy are applicable to our business. The laws that may affect our ability to operate include:

•

the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, people from soliciting, receiving or providing remuneration, directly or indirectly, to induce or reward either the referral of an individual, or ordering, or leasing of an item, good, facility or service, for which payment may be made by a federal healthcare program such as Medicare or Medicaid. The intent standard under the federal healthcare program Anti-Kickback Statute was amended by the ACA to a stricter standard such that a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Further, the ACA codified case law that a claim including items or services resulting from a violation of the federal healthcare program Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

•	federal civil and criminal false claims laws, including the civil False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;

•

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits, among other things, executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. Similar to the federal healthcare program Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

•	HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information on certain individuals and entities;

•	the Physician Payments Sunshine Act, created under the ACA, which requires pharmaceutical companies to record any transfers of value made to doctors and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members, and to annually report such data to CMS;

•	the Federal Food, Drug, and Cosmetic Act, which among other things, strictly regulates drug product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of drug samples;

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•	the U.S. Foreign Corrupt Practices Act, which, among other things, prohibits companies issuing stock in the U.S. from bribing foreign officials for government contracts and other business;

•

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, state and local laws requiring the registration of pharmaceutical sales and medical representatives, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and

•	additional state and local laws such as laws in California and Massachusetts, which mandate implementation of compliance programs, compliance with industry ethics codes, and spending limits, and other state and local laws, such as laws in Vermont, Maine, and Minnesota which require reporting to state governments of gifts, compensation, and other remuneration to physicians.

The shifting regulatory environment, along with the requirement to comply with multiple jurisdictions with different compliance and/or reporting requirements, increases the possibility that a company may run afoul of one or more laws.

We will be required to spend substantial time and money to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations. Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, which require strict compliance in order to offer protection, it is possible that governmental authorities may conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable healthcare laws. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to significant penalties, including administrative, civil and criminal penalties, damages, fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, imprisonment, integrity and/or other oversight obligations, contractual damages, reputational harm, and the curtailment or restructuring of our operations. Any such penalties could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business.

If we and the contract manufacturers upon whom we rely fail to produce our systems and product candidates in the volumes that we require on a timely basis, or fail to comply with stringent regulations, we may face delays in the development and commercialization of our electroporation equipment and product candidates.

We manufacture some components of our electroporation systems and utilize the services of contract manufacturers to manufacture the remaining components of these systems and our product supplies for clinical trials. The manufacture of our systems and product supplies requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers often encounter difficulties in production, particularly in scaling up for commercial production. These problems include difficulties with production costs and yields, quality control, including stability of the equipment and product candidates and quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. If we or our manufacturers were to encounter any of these difficulties or our manufacturers otherwise fail to comply with their obligations to us, our ability to provide our electroporation equipment to our partners and products to patients in our clinical trials or to commercially launch a product would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of our clinical trials, increase the costs associated with maintaining our clinical trial program and, depending upon the period of delay, require us to commence new trials at significant additional expense or terminate the trials completely.

In addition, all manufacturers of our products must comply with cGMP requirements enforced by the FDA through its facilities inspection program. These requirements include, among other things, quality control, quality assurance and the generation and maintenance of records and documentation. Manufacturers of our products may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. We have little control over our manufacturers' compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any product is compromised due to our or our manufacturers' failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products, and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical trials, regulatory submissions, approvals or commercialization of our products, entail higher costs or result in our being unable to effectively commercialize our products. Furthermore, if our manufacturers fail to deliver the required commercial quantities on a timely basis, pursuant to provided specifications and at commercially reasonable prices, we may be unable to meet demand for our products and would lose potential revenues.

Our failure to successfully acquire, develop and market additional product candidates or approved products would impair our ability to grow.

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We may acquire, in-license, develop and/or market additional products and product candidates. The success of these actions depends partly upon our ability to identify, select and acquire promising product candidates and products.

The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all.

In addition, future acquisitions may entail numerous operational and financial risks, including:

•	exposure to unknown liabilities;

•	disruption of our business and diversion of our management's time and attention to develop acquired products or technologies;

•	incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions;

•	higher than expected acquisition and integration costs;

•	increased amortization expenses;

•	difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;

•	impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and

•	inability to retain key employees of any acquired businesses.

Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities.

Our business involves the use of hazardous materials and we and our third-party manufacturers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

Our and our third-party manufacturers' activities involve the controlled storage, use and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds. We and our manufacturers are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In the event of an accident, state or federal authorities may curtail the use of these materials and interrupt our business operations. If we are subject to any liability as a result of our or our third-party manufacturers' activities involving hazardous materials, our business and financial condition may be adversely affected.

Our results of operations and liquidity needs could be materially affected by market fluctuations and general economic conditions.

Our results of operations could be materially affected by economic conditions generally, both in the United States and elsewhere around the world. Concerns over inflation, energy costs, geopolitical issues, global pathogen outbreaks or pandemics, and the availability and cost of credit have in the past and may continue to contribute to increased volatility and diminished expectations for the economy and the markets going forward. Market upheavals may have an adverse effect on us. In the event of a market downturn, our results of operations could be adversely affected. Our future cost of equity or debt capital and access to the capital markets could be adversely affected, and our stock price could decline. There may be disruption in or delay in the performance of our third-party contractors and suppliers. If our contractors, suppliers and partners are unable to satisfy their contractual commitments, our business could suffer. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits, and we may experience losses on these deposits.

We are dependent on information technology and our systems and infrastructure face certain risks, including from cybersecurity breaches and data leakage.

We rely to a large extent upon sophisticated information technology systems to operate our businesses, some of which are managed, hosted provided and/or used for third-parties or their vendors. We collect, store and transmit large amounts of confidential information, and we deploy and operate an array of technical and procedural controls to maintain the confidentiality and integrity

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of such confidential information. A significant breakdown, invasion, corruption, destruction or interruption of critical information technology systems or infrastructure, by our workforce, others with authorized access to our systems or unauthorized persons could negatively impact operations. The ever-increasing use and evolution of technology, including cloud-based computing, creates opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our or our third-party providers' systems, portable media or storage devices. We could also experience a business interruption, theft of confidential information or reputational damage from industrial espionage attacks, malware or other cyber-attacks, which may compromise our system infrastructure or lead to data leakage, either internally or at our third-party providers. While we have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent service interruptions or security breaches. Any such interruption or breach of our systems could adversely affect our business operations and/or result in the loss of critical or sensitive confidential information or intellectual property, and could result in financial, legal, business and reputational harm to us.

Changes in tax laws could adversely affect our business and financial condition.

On December 22, 2017, President Trump signed into law new legislation, known as the Tax Cuts and Jobs Act of 2017, that significantly revised the Internal Revenue Code of 1986, as amended, or the Code. The new federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35 percent to a flat rate of 21 percent, limitation of the tax deduction for interest expense to 30 percent of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80 percent of current-year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits (including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions). Notwithstanding the reduction in the corporate income tax rate, the overall impact of the federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the federal tax law.

Changes in funding for the FDA and other government agencies could hinder our ability to hire and retain key leadership and other personnel, or otherwise prevent new products from being developed or commercialized in a timely manner, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

Risks Related to Our Intellectual Property

It is difficult and costly to generate and protect our intellectual property and our proprietary technologies, and we may not be able to ensure their protection.

Our commercial success will depend in part on obtaining and maintaining patent, trademark, trade secret, and other intellectual property protection relating to our electroporation equipment and product candidates, as well as successfully defending these intellectual property rights against third-party challenges.

The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. The laws and regulations regarding the breadth of claims allowed in biotechnology patents have evolved over recent years and continues to undergo review and revision, both in the United States and abroad. The biotechnology patent situation outside the United States can be even more uncertain depending on the country. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our licensed patents, our patents or in third-party patents, nor can we predict the likelihood of our patents surviving a patent validity challenge.

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The degree of future protection for our intellectual property rights is uncertain, because legal decision-making can be unpredictable, thereby often times resulting in limited protection, which may not adequately protect our rights or permit us to gain or keep our competitive advantage, or resulting in an invalid or unenforceable patent. For example:

•	we, or the parties from whom we have acquired or licensed patent rights, may not have been the first to file the underlying patent applications or the first to make the inventions covered by such patents;

•	the named inventors or co-inventors of patents or patent applications that we have licensed or acquired may be incorrect, which may give rise to inventorship and ownership challenges;

•	others may develop similar or alternative technologies, or duplicate any of our products or technologies that may not be covered by our patents, including design-arounds;

•	pending patent applications may not result in issued patents;

•	the issued patents covering our products and technologies may not provide us with any competitive advantages or have any commercial value;

•	the issued patents may be challenged and invalidated, or rendered unenforceable;

•	the issued patents may be subject to reexamination, which could result in a narrowing of the scope of claims or cancellation of claims found unpatentable;

•	we may not develop or acquire additional proprietary technologies that are patentable;

•	our trademarks may be invalid or subject to a third party's prior use; or

•	our ability to enforce our patent rights will depend on our ability to detect infringement, and litigation to enforce patent rights may not be pursued due to significant financial costs, diversion of resources, and unpredictability of a favorable result or ruling.

We depend, in part, on our licensors and collaborators to protect a portion of our intellectual property rights. In such cases, our licensors and collaborators may be primarily or wholly responsible for the maintenance of patents and prosecution of patent applications relating to important areas of our business. If any of these parties fail to adequately protect these products with issued patents, our business and prospects would be harmed significantly.

We also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our trade secrets to competitors. Enforcing a claim that a third-party entity illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.

If we or our licensors fail to obtain or maintain patent protection or trade secret protection for our product candidates or our technologies, third parties could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability to generate revenues and attain profitability.

From time to time, U.S. and other policymakers have proposed reforming the patent laws and regulations of their countries. In September 2011 the America Invents Act (the Act) was signed into law. The Act changed the current “first-to-invent” system to a system that awards a patent to the “first-inventor-to-file” for an application for a patentable invention. The Act also created a procedure to challenge newly issued patents in the patent office via post-grant proceedings and new inter parties reexamination proceedings. These changes may make it easier for competitors to challenge our patents, which could result in increased competition and have a material adverse effect on our product sales, business and results of operations. The changes may also make it harder to challenge third-party patents and place greater importance on being the first inventor to file a patent application on an invention.

If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.

Other companies may have or may acquire intellectual property rights that could be enforced against us. If they do so, we may be required to alter our technologies, pay licensing fees or cease activities. If our products or technologies infringe the intellectual property rights of others, they could bring legal action against us or our licensors or collaborators claiming damages and seeking to enjoin any activities that they believe infringe their intellectual property rights.

Because patent applications can take many years to issue, and there is a period when the application remains undisclosed to the public, there may be currently pending applications unknown to us or reissue applications that may later result in issued patents upon which our products or technologies may infringe. There could also be existing patents of which we are unaware

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that our products or technologies may infringe. In addition, if third parties file patent applications or obtain patents claiming products or technologies also claimed by us in pending applications or issued patents, we may have to participate in interference or derivation proceedings in the United States Patent and Trademark Office to determine priority or derivation of the invention. If third parties file oppositions in foreign countries, we may also have to participate in opposition proceedings in foreign tribunals to defend the patentability of our filed foreign patent applications.

If a third party claims that we infringe its intellectual property rights, it could cause our business to suffer in a number of ways, including:

•	we may become involved in time-consuming and expensive litigation, even if the claim is without merit, the third party's patent is invalid or we have not infringed;

•	we may become liable for substantial damages for past infringement if a court decides that our technologies infringe upon a third party's patent;

•	we may be enjoined by a court to stop making, selling or licensing our products or technologies without a license from a patent holder, which may not be available on commercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross-licenses to our patents; and

•	we may have to redesign our products so that they do not infringe upon others' patent rights, which may not be possible or could require substantial investment or time.

If any of these events occur, our business could suffer and the market price of our common stock may decline.

Risks Related to Our Common Stock

An active trading market for our common stock may not be sustained.

Although our common stock is listed on the Nasdaq Global Select Market, we cannot assure you that an active trading market for our shares will continue to be sustained. If an active market for our common stock is not sustained, it may be difficult for investors in our common stock to sell shares without depressing the market price for the shares or to sell the shares at all.

The price of our common stock may be volatile, and an investment in our common stock could decline substantially in value.

In light of our small size and limited resources, as well as the uncertainties and risks that can affect our business and industry, our stock price may be highly volatile and can be subject to substantial drops, with or even in the absence of news affecting our business. Period to period comparisons are not indicative of future performance. The following factors, in addition to the other risk factors described in this report, and the potentially low volume of trades in our common stock, may have a significant impact on the market price of our common stock, some of which are beyond our control:

•	developments concerning any research and development, clinical trials, manufacturing, and marketing efforts or collaborations;

•	fluctuating public or scientific interest in the potential for influenza pandemic or other applications for our vaccine or other product candidates;

•	our announcement of significant acquisitions, strategic collaborations, joint ventures or capital commitments;

•	fluctuations in our operating results;

•	announcements of technological innovations;