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annually. While improved diagnostics and targeted therapies have decreased breast cancer mortality in the United States, metastatic breast cancer remains incurable. Approximately 75% of breast cancer patients have tissue test positive for some increased amount of the HER2 receptor, which is associated with disease progression and decreased survival. Only approximately 20% to 30% of all breast cancer patients — those with HER2 IHC 3+ disease — have an approved treatment option available. This leaves the majority of breast cancer patients with low-to-intermediate HER2 IHC 1+/2+ ineligible for therapy and without an effective treatment option to prevent cancer recurrence. areas and technology platforms. intellectual property rights: commercial and development programs. report or our other public statements. need to be able to effectively manage these consultants to ensure that they successfully carry out their contractual obligations and meet expected deadlines. There times than we expect at present. For example, breast cancer patients can be enrolled in our Phase 3 PRESENT study of NeuVax as early as the time they are prescribed standard of care treatment, which typically lasts approximately eight to nine months, but under the SPA can be treated in the Phase 3 PRESENT study only after completing standard of care treatment and being screened for HER2 and haplotype (HLA) status. A significant percentage of patients who are potentially eligible for the study may fail screening and not be treated with NeuVax, because of differences between their local and central diagnoses on the basis of HER2 status, haplotype or imaging requirements under the SPA, which requires that patients be in remission at the time of initiating the NeuVax inoculation series. Other patients who are enrolled at the outset of their standard of care also may eventually choose for personal reasons not to participate in the study. We also compete for eligible patients with other breast cancer trials underway from time to time, and we may experience delays in patient enrollment due to the pendency of other large trials underway in the same patient population. difficulties or delays in enrolling patients in our Phase 3 PRESENT study conditions imposed on us by the FDA, including the possibility that the FDA would require an additional Phase 3 trial of NeuVax, or comparable foreign authorities regarding the scope or design of our clinical trials; difficulties or delays in arranging for third parties to conduct clinical trials of our product candidates; problems in engaging IRBs to oversee trials or problems in obtaining or maintaining IRB approval of studies; third-party contractors failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner; our drug candidates having very different chemical and pharmacological properties in humans than in laboratory testing and interacting with human biological systems in unforeseen, ineffective or harmful ways, and the possibility that our previous Phase 2 trials the need to suspend or terminate our clinical trials if the participants are being exposed to unacceptable health risks; insufficient or inadequate supply or quality of our drug candidates or other necessary materials necessary to conduct our clinical trials; disruption at our foreign clinical trial sites resulting from local social or political unrest or other geopolitical factors; negative or inconclusive results from our clinical trials or the clinical trials of others for drug candidates similar to our own or inability to generate statistically significant data confirming the efficacy of the product being tested; adverse results obtained by other companies developing similar drugs; modification of the drug during testing; changes in the FDA’s requirements for our testing during the course of that testing; and reallocation of our following the commencement of clinical trials, depending upon the complexity of the drug candidate. Any analysis we perform of data from clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. Any delay or failure in obtaining required approvals could have a material adverse effect on our ability to generate revenue from the particular drug candidate. a key component of our Phase 3 PRESENT study of NeuVax. timing of our receipt of any marketing approvals, the terms of any approvals and the countries in which approvals are obtained; safety, efficacy and ease of administration of our product candidates; advantages of our product candidates over those of our competitors; willingness of patients to accept relatively new therapies; success of our physician education programs; availability of government and third-party payor reimbursement; pricing of our products, particularly as compared to alternative treatments; and availability of effective alternative treatments and the relative risks and/or benefits of the treatments. they are “incidental” to a physician’s services; they are not excluded as immunizations; and they have been approved by the FDA. drug reimportation plan if he finds that the benefits do not outweigh the costs, and has so far declined to approve a reimportation plan. Proponents of drug reimportation may attempt to pass legislation that would directly allow reimportation under certain circumstances. Legislation or regulations allowing the reimportation of drugs, if enacted, could decrease the price we receive for any products that we may develop and adversely affect our future revenues and prospects for profitability. We expect to continue to incur significant research and development expenses, which may make it difficult for us to attain profitability, and may lead to uncertainty about or as to our ability to continue as a going concern. the protection of trade secrets used by our licensors, collaborators and suppliers. There can be no assurance that binding agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets and unpatented know-how will not otherwise become known or be independently discovered by our competitors. If trade secrets are independently discovered, we would not be able to prevent their use. Enforcing a claim that a third party illegally obtained and is using our trade secrets or unpatented know-how is expensive and time consuming, and the outcome is unpredictable. eligible for non-patent exclusivity. reports of the results of our clinical trials regarding the safety or efficacy of our product candidates and surrogate markers; announcements of regulatory developments or technological innovations by us or our competitors; announcements of business or strategic transactions; our quarterly operating results; developments in patent or other technology ownership rights; public concern regarding the safety of our additional funds may not be available on terms that are favorable to us and, in the case of equity financings, may result in dilution to our government regulation of drug pricing; and general changes in the economy, the financial markets or the pharmaceutical or biotechnology industries. resources away from our ongoing commercial and development programs. An unfavorable outcome in any of these matters could damage our business and reputation or result in additional claims or proceedings against us. dilution upon the exercise of these options. stockholders. divide our board of directors into three classes, with members of each class to be elected for staggered three-year terms; limit the right of security holders to remove directors; prohibit stockholders from acting by written consent; authorize our board of directors to issue preferred stock in one or more series, without stockholder approval. $6,500. 2011 First Quarter Second Quarter Third Quarter Fourth Quarter 2012 First Quarter Second Quarter Third Quarter Fourth Quarter Equity compensation plans approved by our security holders: Amended and Restated 2007 Incentive Plan Equity compensation plans not approved by our security holders: Employee Stock Purchase Plan Outstanding warrants (1) Total our stockholders in April 2012. See Note 4 of the notes to the consolidated financial statements for additional information about the spin-off. exclusive of RXi activities. . pipeline. conducted. more likely than not that it will be achieved. Risk free interest rate Volatility Expected lives (years) Expected dividend yield weighted average assumptions to determine the fair value of all its stock options granted: of ten years with the average vesting term of four years for an average of six years. The expected life assumptions for non-employees were based upon the contractual Risk free interest rate Volatility Expected lives (years) Expected dividend yield terms of the warrants. Intangible Assets 2013 December 31, 2013, 2012 and 2011 Research and development expense Research and development employee stock-based compensation expense Research and development non-employee stock-based compensation expense Total research and development expense NeuVax. General and administrative expense General and administrative employee stock based compensation General and administrative non-employee stock based compensation Total general and administrative expense Interest expense, net Change in the fair value of common stock warrants classified as liabilities Change in fair value of the contingent purchase price liability Miscellaneous other income Other income (expense), net December 31, 2013 and 2012, we recognized an income tax expense of $1.1 million and an income tax benefit of $1.1 million, respectively. This expense (benefit) offsets the tax impact related to the unrealized loss (gain) on our marketable securities, which is presented as other comprehensive income, net of tax, on our condensed consolidated statement of comprehensive loss. During 2013, we reclassified the entire amount of unrealized gain on marketable securities into net loss as we liquidated all of our marketable securities. There was no income tax expense or benefit during the year ended December 31, assets. since that date. merge with or to be acquired by another company. Abstral pre-launch activities. realized gain from marketable securities. with $ opinions. Committee of Sponsoring Organizations of the Treadway Commission. 2011, in conformity with accounting principles generally accepted in the United States of America. Current assets: Cash and cash equivalents Restricted cash Marketable securities Prepaid expenses Total current assets Equipment and furnishings, net of accumulated depreciation and amortization of $19 and $657 in 2012 and 2011, respectively In-process research and development Goodwill Deposits Total assets Current liabilities: Accounts payable Accrued expense and other current liabilities Convertible notes payable Deferred revenue Current maturities of capital lease obligations Fair value of warrants potentially settleable in cash Current contingent purchase price consideration Total current liabilities Capital lease obligations, net of current maturities Deferred tax liability, non-current Contingent purchase price consideration, net of current portion Total liabilities Commitments and contingencies (Note 9) Stockholders’ equity: Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding Common stock, $0.0001 par value; 125,000,000 shares authorized and 83,595,837 shares issued and 82,920,837 shares outstanding at December 31, 2012; and 125,000,000 shares authorized and 47,811,453 shares issued and 47,136,453 outstanding at December 31, 2011 Additional paid-in capital Accumulated other comprehensive income Deficit accumulated during the developmental stage Less treasury shares at cost, 675,000 shares Total stockholders’ equity Total liabilities and stockholders’ equity Expenses: Research and development expense Research and development employee stock-based compensation expense Research and development non-employee stock-based compensation expense Total research and development expense General and administrative expense General and administrative employee stock-based compensation expense General and administrative non-employee stock-based compensation expense Total general and administrative expense Operating loss Other income/(expense): Interest income, net Other income, net Total other income (expense), net Pretax loss from continuing operations Income tax benefit Loss from continuing operations Discontinued operations Net loss Net loss per common share: Basic and diluted loss per share, continuing operations Basic and diluted loss per share, discontinued operations Basic and diluted net loss per share Weighted average common shares outstanding: basic and diluted Comprehensive loss Net loss Unrealized gain on marketable securities, net of tax benefit of $1,052 Total comprehensive loss COMPREHENSIVE LOSS Predecessor Balance at December 31, 2003 Net loss Net transactions with Parent Balance at December 31, 2004 Net loss Net transactions with Parent Balance at December 31, 2005 Net loss Net transactions with Parent Balance at December 31, 2006 Successor Balance at April 3, 2006 Issuance of common stock Balance at December 31, 2006 Common stock issued to CytRx for contribution of RXi and other assets Common stock issued for cash Common stock issued to CytRx for reimbursement of expenses Expenses incurred by CytRx for RXi Common stock issued to UMMS for additional intellectual properties Common stock issued to directors Common stock issued upon exercise of stock options Stock based compensation for directors and employees Stock based compensation expense for services Net loss Balance at December 31, 2007 Issuance of common stock, net of offering costs of $796 Common stock issued upon exercise of stock options Stock based compensation for directors and employees Stock based compensation expense for services Common stock warrant expense in exchange for services Net loss Balance at December 31, 2008 Issuance of common stock, net of offering costs of $636 Common stock warrants issued in connection with the 2009 Offering Common stock issued upon exercise of stock options Common stock issued as commitment fee in connection with SEDA Stock based compensation expense for directors and employees Stock based compensation expense for services Common stock warrant expense in exchange for services Net loss Balance at December 31, 2009 Issuance of common stock, net of offering costs of $965 Purchase of 675,000 shares of treasury stock Common stock warrants issued in connection with 2010 offering Fair value of shares mandatorily redeemable for cash upon exercise of warrants Common stock issued upon exercise of stock options Issuance of restricted stock units Stock based compensation expense for directors and employees Stock based compensation expense for services Value of common stock warrants issued in exchange for services Net loss Balance at December 31, 2010 Issuance of common stock, net of offering costs of $1,890 Common stock warrants issued in connection with the 2011 common stock offerings Issuance of stock in lieu of cash bonus Issuance of restricted stock units Issuance of common stock for services Issuance of common stock upon exercise of warrants Issuance of common stock in cashless exchange of outstanding warrants Issuance of common stock related to acquisition of Apthera, Inc. Issuance of common stock subject to employee termination agreements Issuance of common stock in connection with employee stock purchase plan Stock based compensation expense for directors and employees Stock based compensation expense for services Value of common stock warrants issued in exchange for services Net loss Balance at December 31, 2011 Issuance of common stock, net of offering costs of $2,869 Common stock warrants issued in connection with the 2012 common stock offerings Issuance of common stock in exchange for services Issuance of common stock upon the exchange and exercise of warrants including reclassification of $10,843 in warrant liability upon exercise Repurchase of common stock warrants Issuance of common stock in connection with employee stock purchase plan Stock based compensation expense for directors and employees Stock based compensation expense for services Issuance of common stock upon the exercise of employee stock options Issuance of common stock in settlement of contingent purchase price consideration Net liabilities distributed in connection with the RXi spin-off Unrealized gain on marketable Net loss Balance at December 31, 2012 STOCKHOLDERS' EQUITY Cash flows from operating activities: Net loss Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense Loss on disposal of equipment Deferred taxes Non-cash rent expense Accretion and receipt of bond discount Non-cash share based compensation Fair value of shares mandatorily redeemable for cash upon exercise of warrants Fair value of common stock warrants issued in exchange for services Fair value of common stock issued in exchange for services Change in fair value of common stock warrants Fair value of common stock issued in exchange for licensing rights Change in fair value of contingent consideration Changes in operating assets and liabilities: Prepaid expenses and other assets Accounts payable Due to former parent Accrued expenses and other current liabilities Net cash used in operating activities Cash flows from investing activities: Change in restricted cash Cash received in acquisition Purchase of short-term investments Maturities of short-term investments Cash paid for purchase of equipment and furnishings Disposal of equipment and furnishings Cash paid for lease deposit Cash transferred with the RXi spin-off Net cash provided by (used in) investing activities thousands, except share amounts) Cash flows from financing activities: Net proceeds from issuance of common stock Cash paid for repurchase of common stock warrants Cash paid for repurchase of common stock Net proceeds from exercise of common stock options Net proceeds from exercise of common stock warrants Common stock issued in connection with ESPP Net proceeds from issuance of convertible notes payable Repayments of capital lease obligations Cash advances from former parent company, net Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of period Cash and cash equivalents at end of period Supplemental disclosure of cash flow information: Cash received during the periods for interest Cash paid during the periods for interest Supplemental disclosure of non-cash investing and financing activities: Settlement of corporate formation expenses in exchange for common stock Fair value of warrants issued in connection with common stock recorded as cost of equity Issuance of common stock in exchange of outstanding warrants Fair value of shares mandatorily redeemable for cash upon exercise of warrants Reclassification of warrant liabilities upon exercise Net liabilities distributed in the RXi spin-off, excluding cash Common stock issued in settlement of contingent purchase price consideration Allocation of management expenses Equipment and furnishings exchanged for common stock Equipment and furnishings acquired through capital lease Non-cash lease deposit Value of restricted stock units and common stock issued in lieu of cash bonuses Change in fair value of marketable securities Apthera Acquisition: Fair value of shares issued to acquire Apthera Fair value of contingent purchase price consideration in connection with Apthera acquisition Net assets acquired excluding cash of $168 Amounts in thousands) the pain episode. Uses of •Significant changes in the manner of its use of acquired assets or the strategy for its overall business; •Significant negative industry or economic trends; •Significant decline in stock price for a sustained period; and •Significant decline in market capitalization relative to net book value. 2013 Research and Development Expenses — Research and development costs are expensed as incurred. Included in research and development costs are wages, benefits and other operating costs, facilities, supplies, external services and overhead related to our research and development departments, conducted. more likely than not that it will be achieved. Change in the fair value of common stock warrants classified as liabilities Change in fair value of the contingent purchase price liability Miscellaneous other income Other income (expense), net Income Taxes — The company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements in accordance with FASB ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”). These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled.ASC 740-10 requires that a valuation allowance be established when management determines that it is more likely than not that all or a portion of a deferred asset will not be realized. The company evaluates the realizability of its net deferred income tax assets and valuation allowances as necessary, at least on an annual basis. During this evaluation, the company reviews its forecasts of income in conjunction with other positive and negative evidence surrounding the realizability of its deferred income tax assets to determine if a valuation allowance is required. Adjustments to the valuation allowance will increase or decrease the company’s income tax provision or benefit. The recognition and measurement of benefits related to the company’s tax positions requires significant judgment, as uncertainties often exist with respect to new laws, new interpretations of existing laws, and rulings by taxing authorities. Differences between actual results and the company’s assumptions or changes in the company’s assumptions in future periods are recorded in the period they become known. On April 13, 2011, the company acquired its late stage product candidate, NeuVax, through a merger acquisition of Apthera, Inc., a Delaware corporation (“Apthera”), with Apthera surviving as a wholly-owned subsidiary of the company. At the closing of the merger, the company issued to Apthera’s stockholders approximately 5.0 million shares of common stock of the company and agreed to pay to the former Apthera shareholders future contingent consideration of up to $32 million based on the achievement of specified development and commercial milestones relating to the stock valued for this purpose at the market price of the company common stock when the contingent consideration becomes payable. Calculation of allocable purchase price: Fair value of shares issued at closing including escrowed shares expected to be released Estimated value of earn-out Total allocable purchase price Allocation of purchase price: Cash Prepaid expenses and other current assets Equipment and furnishings Goodwill In-process research and development Accounts payable Accrued expenses and other current liabilities Notes payable Deferred tax liability, non-current In June 2013, the company achieved another milestone under the contingent value rights agreement, resulting in a $1,247,000 milestone payment that was paid by issuing 492,988 shares of our common stock. On September 24, 2011, the company entered into a contribution agreement with our former subsidiary, RXi Pharmaceuticals Corporation, or “RXi,” pursuant to which we assigned and contributed to RXi substantially all of the company’s RNAi-related technologies and assets. The contributed assets - Continued The company agreed in the securities purchase agreement to distribute to our stockholders on a share-for-share basis a total of approximately OTCQX marketplace. Assets Cash and cash equivalents Other current assets Equipment and furnishings Liabilities Accounts payable and accrued liabilities Convertible notes Capital lease obligations Net liabilities Description Assets: Cash equivalents Marketable securities Total assets Liabilities: Warrants potentially settleable in cash Contingent purchase price consideration Total liabilities Description Assets: Cash equivalents Total assets Liabilities: Warrants potentially settleable in cash Contingent purchase price consideration Total liabilities condensed consolidated balance sheets (in thousands): - Continued Balance, January 1, 2011 Initial fair value of contingent purchase price consideration related to Apthera acquisition Change in the estimated fair value of the contingent purchase price consideration Balance at December 31, 2011 Payment of a contingent purchase price consideration milestone Change in the estimated fair value of the contingent purchase price consideration Balance at December 31, 2012 follows (in thousands): Other Current Liabilities Professional fees Research and development costs Payroll related costs Deferred revenue Other Total accrued expenses and other current liabilities $15 million (the “Loan”) in two tranches. We borrowed the first tranche of $10 million on May 8, 2013, and may borrow the second tranche of $5 million on or before May 31, 2014, subject to our achievement of certain operational and financial conditions. There is no assurance these conditions will be achieved. The Loan payments will include 12 months of interest-only payments at the fixed coupon rate of 8.45%, followed by 30 months of amortization of principal and interest until maturity in November 2016. In connection with the Loan, we paid the lender a 1% cash facility fee and a 5.5% cash final payment and granted to the lenders seven-year warrants to purchase up to 182,186 shares of our common stock at an exercise price of $2.47, which equaled a 20-day average market price of our common stock prior to the date of the grant. below. 2013 2014 2015 2016 2017 2018 and Thereafter Total April 2012 Registered Direct Offering — On April 13, 2012, the company completed an underwritten public offering of 9,751,000 shares of common stock for gross proceeds of approximately $14.6 million, resulting in approximately $13.5 million of net proceeds to the company after deducting the underwriting discounts and commissions and offering expenses. On January 20, 2012, The company sold 579,710 shares of our common stock for $400,000, the fair market value on the date of issuance, to Kwang Dong Pharmaceuticals Company, as part of an existing During 2013, the company issued a total of 492,988 shares of common stock to the holders of the company's outstanding contingent value rights holders for a milestone payment with a total fair market value of $1,247,000. The following is a summary of warrant activity for the years ended December 31, Outstanding, January 1, 2011 Issued Exchanged for other warrants Exchanged for common stock Exercised Outstanding, December 31, 2011 Issued Exercised Outstanding, December 31, 2012 Expiration Strike price Expected term (years) Volatility % Risk free rate % Strike price Expected term (years) Volatility % Risk free rate % The changes in fair value of the warrant liability for the years ended December 31, Warrant liability, January 1, 2011 Fair value of warrants issued Fair value of warrants exercised Fair value of warrants exchanged Change in fair value of warrants Warrant liability, December 31, 2011 Fair value of warrants issued Fair value of warrants exercised Change in fair value of warrants Warrant liability, December 31, 2012 subject to adjustment to fair value in subsequent reporting periods. Type of Security Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Common Stock Options to Purchase Shares of Common Stock — The company follows the provisions ASC 718, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, non-employee directors and consultants, including employee stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period. December 31, 2013, 2012, and 2011 (in thousands): Risk free interest rate Volatility Expected lives (years) Expected dividend yield granted: - Continued Outstanding — January 1, 2011 Granted Exercised Forfeited Outstanding — December 31, 2011 Granted Exercised Forfeited Outstanding — December 31, 2012 Exercisable — December 31, 2011 Exercisable — December 31, 2012 company: Employee Stock Purchase Plan — The company also has an employee stock purchase plan (“ESPP”) which allows employees to contribute up to 15% of their cash earnings, subject to certain maximums, to be used to purchase shares of our common stock on each semi-annual purchase date. The purchase price is equal to 85% of the market value per share on either the first or last day of the semi-annual period, whichever is lower. Our ESPP is non-compensatory pursuant to the provisions of generally accepted accounting principles for share-based compensation expense. The ESPP contains an “evergreen provision” with annual increases in the number of shares available for issuance on the first day of each year through January 1, 2015 equal to the lesser of: (a) 250,000 shares increased on each anniversary of the adoption of the Plan by and 2013. Options to purchase common stock Warrants to purchase common stock Total anti-dilutive (in thousands): Current Federal State Total current Deferred Federal State Total deferred Total income tax expense (benefit) Net operating loss carryforwards Tax credit carryforwards Unrealized gain on marketable securities Stock based compensation Other Licensing deduction deferral Gross deferred tax assets Valuation allowance Net deferred tax asset In-process research and development not subject to future amortization for tax purposes Gross deferred tax liability Unrealized gain on marketable securities Changes in warrant value Expected federal income tax benefit Non-qualified stock compensation Effect of change in valuation allowance Income tax credits State income taxes after credits as a direct increase to contributed capital rather than as a reduction of that year's provision for income taxes. Net operating loss carryforwards created by excess tax benefits from the exercise of stock options are not recorded as deferred tax assets. The deferred tax assets related to net operating losses have been accordingly reduced by $109,000 for the year ended December 31, 2013. The valuation allowance increased by $12.5 million and $5.1 million for the years ended December 31, 2013 and 2012, respectively. sales of the product. The expenditures required under these arrangements in any period may be material In conjunction with the acquisition of events, except as described below. Contents 2013. executives. We will file with the SEC a definitive Proxy Statement, which we refer to herein as the “Proxy Statement,” not later than 120 days after the fiscal year ended December 31, The information required by this item is incorporated herein by reference to the information to be contained in the Proxy Statement. oncology treatments addressingthat address major unmet medical needs to advance cancer care.
currentlyhave established an experienced specialty sales force in the United States, including sales management, account management, managed care and product access management, and field sales personnel. Since the acquisition of Abstral, we have hired a dedicated sales team to support our commercial launch in the fourth quarter of 2013. Our distribution efforts to date have focused on securing contracts with key distributors, group purchasing organizations, managed care organizations, and specialty pharmacies and other institutional dispensaries. We have established and mobilized our field sales force. We have also contracted with a third party logistics provider with significant experience with pharmaceutical industry inventory and supply chain management and logistics.innovative, peptide antigen-based “off the shelf”vaccine (off-the-shelf) cancer immunotherapies, for potential application to treatment of largewhich address major patient populations of cancer survivors. Peptide vaccines have several potentialsurvivors to prevent recurrence of their cancers. These therapies work by harnessing the patient’s own immune system to seek out and attack any residual cancer cells. Using peptide immunogens has many clinical advantages, over existing cancer treatments including an excellent safety profiles,profile, as these drugs lack the toxicities typical of most cancer therapies. They also evoke long-lasting protection through immune system activation as well as an acceptableand convenient mode of administration (intradermal injection). In addition, there are potential commercial advantages in that these are readily and reproducibly manufactured products that could have a wide reach intodelivery.physicians’ office, with no special requirements for delivery to the office or to patients.A key differentiator in our approach is a focus on “minimal residual disease” that may remain inprevention of cancer survivors. The strategy is to prevent recurrence in early stage patient groups who may harbor “occult” residual cancer cells that are not detectable by current imaging and biomarkers, and despite adjuvant therapy and radiation therapy will relapse in significant numbers over time.Our lead product candidate, NeuVax™ (nelipepimut-S)HER2 expressing cancers. NeuVax is the immmunodominantimmunodominant nonapeptide derived from the extracellular domain of the HER2 (Human Epidermal Growth Factor Receptor 2) protein, a well-established target for therapeutic intervention in breast cancer.and gastric carcinomas. The nelipepimut sequence stimulates specific CD8+ cytotoxic T lymphocytes, or “CTLs,” followingNeuVax vaccine, nelipepimut-S peptide, is combined with the immune adjuvant, recombinant human granulocyte macrophage-colony stimulating factor (rhGM-CSF) for administration. Data has shown that an increased presence of circulating tumor cells (CTCs) predict Disease Free Survival (DFS) and Overall Survival (OS) - suggesting a dormancy of isolated micrometastases, which over time, lead to recurrence. After binding to HLA-A2/the HLA A2/A3 molecules on antigen presenting cells, or “APC.”the nelipepimut-S sequence stimulates specific cytotoxic T lymphocyte (CTLs). These activated specific CTLs recognize, neutralize and destroy, through cell lysis, HER2 expressing cancer cells, including occult cancer cells and micrometastatic foci. The nelipepimut immune response can also generate CTLs to other immunogenic peptides through inter- and intra-antigenic epitope spreading.a successfulour Phase 2 trial, which achieved its primary endpoint of DFS, the U.S. Food and Drug Administration or “FDA,”(FDA) granted NeuVax™NeuVax a Special Protocol Assessment or “SPA,”(SPA) for its Phase 3 PRESENT (Prevention of Recurrence in Early-Stage,Early- Stage, Node-Positive Breast Cancer with Low to Intermediate HER2 Expression with NeuVax™NeuVax Treatment) trial.study. The primary endpoint of the Phase 2 trial was disease free survival, or “DFS.” If the randomized, double-blinded, multinational, 700-patientmulticenter PRESENT trial is successful, we intendongoing in North America, Western and Eastern Europe, and Israel. Additional information on the study can be found at www.neuvax.com.seek FDA commercial registration of NeuVax™.Based on a pilot study and preclinical evidence suggesting enhanced efficacy of using NeuVax™NeuVax in combination with Herceptin® (trastuzumab:(trastuzumab; Genentech/Roche), we recently commenced a randomized multicenter .clinicalPlanned: In addition, in January 2014, we partnered NeuVax with Dr. Reddy’s in India for the commercialization of NeuVax in that region. Per the agreement, Dr. Reddy’s is responsible for running a Phase 2 gastric cancer trial NeuVax™of NeuVax in combinationIndia that is expected to initiate in 2014. Herceptin in breast cancer patients.or “FBP,”(FBP). GALE-301 is the E39 peptidederived from a protein that is over-expressed (20-80 fold) in more than 90% of ovarian and endometrial cancers. FBPGALE-301 is the source ofhighly immunogenic peptides like E39 thatand can stimulate CTLs to recognize and destroy preclinical FBP-expressing cancer cells. The FBP vaccine consists of the FBP peptide(s) combined with the immune adjuvant,recombinant human granulocyte macrophage-colony stimulating factor (GM-CSF)(rhGM-CSF). Galena’s FBP vaccine, E39,GALE-301 is currently in a Phase 1/2 trial in ovarian cancer.gynecological cancers: ovarianbasic types of endometrial cancer: endometrioid and endometrial adenocarcinomas.We acquired NeuVax™ in April 2011 in connection withpapillary serous. The latter has a much more aggressive clinical course and the majority of these patients will die of this form of the disease.mergerPipelineApthera, Inc, or “Apthera.” Priorthe worldwide rights to that time,anagrelide controlled release (CR), which we were engaged primarily in conducting discovery research and preclinical development activities based on RNAi. In connection withrenamed GALE-401, through our acquisition of NeuVax™, we reducedMills Pharmaceuticals, LLC. GALE-401 contains the scope of our RNAi activities. We may pursue selective acquisitions of other cancer treatments to complement or add to our existing cancer immunotherapies.On September 26, 2011, we changed our name to Galena Biopharma, Inc. from RXi Pharmaceuticals Corporationactive ingredient anagrelide, an FDA-approved product, which has been in connection withuse since the proposed partial spin-off of our former subsidiary, RXi Pharmaceuticals Corporation, or “RXi.” RXi was initially incorporated as RNCS, Inc. and assumed the name RXi Pharmaceuticals Corporation in conjunction with the change in our name to Galena. In April, 2012, we completed the partial spin-off of RXi, which is engaged in the development of novel RNAi-based therapies.Unless the context otherwise indicates, references in this annual report to the “company,” “we,” “us” or “our” refer (i) to Galena, Apthera and RXi, collectively, prior to the partial spin-off of RXi; and (ii) to only Galena and Apthera, together, after the partial spin-off.2Our Oncology Therapeutic ProgramsThe chart below summarizes the current status of our oncology drug development programs, with the dark shading indicating completed stages of development and the light shading indicating development activities we intend to prioritize in the near-term:
We are developing a pipeline of immunotherapy product candidateslate 1990s for the treatment of various cancers based on the E75 peptide (nelipepimut-S), the most advanced of which is NeuVax, which is targeted at preventing the recurrence of breast cancer. NeuVax has had positive Phase 1/2 clinical trial results for the prevention of breast cancer recurrence in patients who have had breast canceressential thrombocythemia (ET). However, adverse events, such as nausea, diarrhea, abdominal pain, palpitations, tachycardia, and received the standard of care treatment (surgery, chemotherapy, radiotherapy and hormonal therapy as indicated). We initiated our Phase 3 PRESENT clinical trial of NeuVax for the prevention of breast cancer recurrence in early-stage low-to-intermediate HER2 breast cancer patients in 2012. For the results of a single trial to support registration for an indication, the results of the trial must be internally consistent, clinically meaningful, and statistically very persuasive. Specifically, FDA has indicated that, in general, the results from two Phase 3 studies would be required to support approval, and it would accept a single pivotal study in support of approval if the results of the trial was internally consistent, clinically meaningful and statistically very persuasive.NeuVax is an immunotherapy that stimulates the immune system to actively seek out and selectively kill cancer cells. NeuVax directs “killer” T-cells to target and destroy cancer cells that express HER2/neu, a proteinheadache are associated with epithelial tumors in breast, ovarian, pancreatic, colon, bladderthe currently available IR version of anagrelide, and prostate cancers. NeuVaxhave been shown to be dose and plasma concentration dependent. Therefore, reducing the maximum concentration (Cmax) is comprised of a HER2/neu-derived peptide called nelipepimut-S. Nelipepimut-S is a nine-amino acid sequence that is immunogenic (produces an immune response) and GM-CSF is a commercially available protein that actshypothesized to stimulate and activate components ofreduce the immune system such as macrophages and dendritic cells.NeuVaxside effects, but preserve efficacy. In Phase 1 clinical studies, GALE-401 has been shown to significantly reduce the Cmax of anagrelide following oral administration. Thus, GALE-401 may reduce the peak plasma exposure to lessen the adverse events while maintaining therapeutic levels for platelet inhibition.most effective in patients with low-to-intermediate HER2/neu expressing patients with HLA type A2+ or A3+. We believe that approximately 25,000-40,000well tolerated at the doses administered and to be capable of the approximately 200,000 women diagnosed with breast cancer in the United States each year meet these criteria. We believe that NeuVax’s specificity provides for a highly targeted therapy to prevent breast cancer recurrence for a selected subset of breast cancer patients and we believe it will increase the chance of the patient remaining disease free following a successful treatment for these patients.We are also developing novel applications for NeuVax based on preclinical studies and Phase 2 clinical trials which suggest that combining NeuVax and trastuzumab (Herceptin® ; Genentech/Roche) can increase antigen presentation by tumor cells by promoting receptor internalization and subsequent proteosomal degradation of the HER2 protein.reducing platelet levels. Based on these results, we have commenced a randomized, multicenter Phase 2 trial in 300 patients that will compare NeuVax with trastuzumab versus trastuzumab alone.3We also are pursuing additional therapeutic indications for NeuVax that are currently in Phase 1/2 clinical trials. Under our investigational new drug application, or “IND,” open protocols for the treatment of prostate cancer, ovarian cancer and bladder cancer exist for patient populationsregulatory meeting with the same general criteriaFDA, Galena believes a 505(b)(2) regulatory filing is an acceptable pathway for eligibility as in breast cancer (i.e., early-stage disease and adjuvant treatment setting after surgery with immunologic competence). An early stage clinical study in high-risk prostate cancer confirmed the abilityapproval of the patients to mount a nelipepimut-S specific immune response. We may explore whether NeuVax provides clinical benefits in other areas, such as a prophylactic vaccine against breast cancer occurrence in healthy women with a high likelihood for developing breast cancer based on genetic assays or biomarkers and a strong positive familial history of breast cancer, and in HER2 overexpressing gastric cancer. Herceptin® is approved for this indication, and there is a significant clinical rationale for NeuVax’s potential efficacy in this indication. We also may investigate the use of NeuVax in combination with other therapies with a view to leveraging NeuVax’s attractive safety profile and targeted mechanism of action. Clinical trials conducted on NeuVax have provided proof-of-principle data in early-stage node-negative breast cancer, although such data is preliminary and not statistically significant, since the trials were not designed to provide statistically significant efficacy data. Both the early-stage node-negative breast cancer indication and the high-risk patient indication are longer-term areas of interest that we currently expect to explore only with support from corporate partners.We are also developing novel applications for Folate Binding Protein (FBP). FBP is highly over-expressed in breast, ovarian and endometrial cancers and is a well-validated therapeutic target. FBP is the source of immunogenic peptides like E39 that can stimulate cytotoxic T lymphocytes (CTL) to recognize and destroy preclinical FBP-expressing cancer cells. The FBP vaccine consists of the FBP peptide(s) combinedGALE-401, with the immune adjuvant, granulocyte macrophage-colony stimulating factor (GM-CSF). Galena’s FBP vaccine, E39, is currently in a Phase 1/2 trial in two gynecological cancers: ovarian and endometrial adenocarcinomas.Recent Developments (in reverse chronological order)Final Landmark 60-Month Data from NeuVax™ Phase 1/2 Trials — We announced NeuVax landmark 60-month Phase1/2 data, which revealed that the combined SN-33 (Node Positive) and SN-34 (Node Negative) Intent-to-treat population continued to demonstrate an excellent safety and efficacy profile. Also, after establishing statistical significance at the 36-month Landmark Analysis, or the same endpoint as the ongoing Phase 3, the 60-month Landmark Analysis demonstrated a 5.6% recurrence rate with NeuVax vs. a 25.9% recurrence rate in the control arm, or a recurrence reduction of 78.4%reference drug Agrylin® (anagrelide; Shire Pharmaceuticals). The Phase 2 HER2 IHC 1+/2+ patients from SN-33 established1 program has provided the Phase 3 patient population.On December 7, 2012, we presented data from the completed SN-33 Trial and final results from the Phase 1/2 trials of NeuVax™ at the 35th Annual CTRC-AACR San Antonio Breast Cancer Symposium.Multiple clinical trials have shown NeuVaxdesired PK/PD (pharmacokinetic/pharmacodynamic) profile to be safe and effective at raising HER2 immunity. Trials SN-33 (NP) (n=97) and SN-34 (NN) (n=90) enrolled clinically eligible patients who were rendered disease-free after completion of standard of care multi-modality therapy (n=187). Treatment assignment was then based on HLA type, with HLA-A2/A3 patients vaccinated and HLA-A2/A3 negative patients followed prospectively as controls for recurrence. NeuVax exhibited an excellent safety and tolerability profile, and demonstrated a durable response out to 60 months.Leica Biosystems Partnership — We entered into a partnership agreement with Leica Biosystems (Leica) to develop a fully-automated HER2 diagnostic to support identification of appropriate HER2 negative (IHC 1+/2+) patients for NeuVax, as Galena strengthens its personalized medicine and regulatory pathway with the companion diagnostic development.On December 6, 2012, we announced a partnership with Leica Biosystems to develop a companion diagnostic for Galena’s NeuVax™ (nelipepimut-S) breast cancer therapeutic. Leica is a global leader in workflow solutions and laboratory automation for anatomic pathology, bringing clinicians and researchers high workflow efficiency and confidence in cancer diagnostics. Leica provides a comprehensive product range with easy-to-use and consistently reliable solutions for the entire laboratory. Leica’s Bond Oracle™ HER2 IHC System companion diagnostic will be used to support the selection of the appropriate patients for the NeuVax Phase 3 PRESENT study. NeuVax targets HER2 negative patients (IHC 1+, or 2+ and FISH < 2.2) who achieve remission with current standard of care, but have no available HER2-targeted adjuvant treatment options to maintain their disease-free status. Leica’s Bond Oracle™ HER2 IHC System is an FDA cleared semi-quantitative immunohistochemical (IHC) assay to determine HER2 (Human Epidermal Growth Factor Receptor 2) oncoprotein status in breast cancer tissue processed for histological evaluation.4Teva Pharmaceuticals Partnership — We entered into a partnership with Teva Pharmaceuticals, which includes future commercialization of NeuVax in Israel and financial support for our development activities in Israel, as key clinical sites are approved and established in Israel for PRESENT Phase 3 trial.Effective December 3, 2012, we entered into a license and supply agreement with ABIC Marketing Limited, a subsidiary of Teva Pharmaceuticals (“ABIC”), under which we granted ABIC exclusive rights to seek marketing approval in Israel for NeuVax for intradermal injection for the treatment of breast cancer following its approval by the U.S. Food and Drug Administration or the European Medicines Agency, and to market, sell and distribute NeuVax in Israel assuming such approval is obtained. ABIC’s rights also include a right of first refusal in Israel for all future indications for which NeuVax may be approved. Under the license and supply agreement, ABIC will assume responsibility for regulatory registration of NeuVax in Israel, provide financial support for local development, and commercialize the product in the region in exchange for making royalty payments to us based on future sales of NeuVax. ABIC also agrees in the license and supply agreement to purchase from us all supplies of NeuVax at a price determined according to a specified formula.Folate Binding Protein (FBP) Japan Patent — We were issued a Composition of Matter and Treatment patent which covers FBP peptide variants for individual or expanded use in combination with the novel FBP vaccine, E39. The patent also provides exclusivity in Japan until 2022, with additional worldwide patent filings pending. The FBP Phase 1/2 trial is on track for results in 2013.On August 13, 2012, we announced the issuance of a patent from the Japan Patent Office (JPO) for a Composition of Matter and Method of Treatment patent covering Folate Binding Protein (FBP) peptide variants for use either alone or in combination with the FBP cancer vaccine, E39. The Japanese patent provides exclusivity in the country until 2022, with additional worldwide patent filings pending.NeuVax™ U.S. Patent — We were issued a U.S. patent which provides NeuVax exclusivity for our primary NeuVax indication until 2028, not including any patent term extensions, and strengthens NeuVax intellectual property position for treating the Phase 3 target population of low-to-intermediate (IHC 1+/2+) HER2 patients.On July 18, 2012, we announced the issuance of a key patent, originally allowed in March 2012, from the U.S. Patent and Trademark Office (USPTO) covering the use of NeuVax for inducing immunity to breast cancer recurrence in patients having low-to-intermediate IHC levels of 1+ or 2+ and a FISH rating of less than 2.0. These patients represent a significant unmet medical need, with as much as 80% of breast cancer patients who do not qualify for Herceptin® therapy.RXI Spin-off — We completed a one-for-one RXi Pharmaceuticals stock dividend to Galena stockholders while retainining a significant equity interest in RXi, with potential to receive up to $45 million in milestone payments. With the spin-off, we effectively completed our change in strategic focus from RNAi to oncology and eliminated RNAi-related cash expenditures.The partial spin-off of RXi was completed in April 2012.Financial ConditionWe had cash, cash equivalents and marketable securities of approximately $31.6 million as of March 11, 2013. We believe that our existing working capital should be sufficient to fund our operations through at least the second quarter of 2014. This projection is based on our current planned operations and is subject to changes in our plans and uncertainties inherent in our business, and we may need to seek to replenish our existing cash and cash equivalents sooner than we project.We have not generated revenue to date and may not generate product revenue in the foreseeable future, if ever. We expect to incur significant operating losses as we advance our product candidates through the drug development and regulatory process. We expect to continue to devote a substantial portion of our resources to research and development programs. As a result of the costs expected to be incurred in connection with our recently commenced clinical trials of NeuVax and FBP, our research and development expense has increased significantly from historic levels. We will need to generate significant revenue to achieve profitability and might never do so. In the absence of product revenue, our potential sources of operational funding are expected to be the proceeds from equity financings, funded research and development payments and payments received under partnership and collaborative agreements. There is no guarantee that additional funding will be available to us on acceptable terms, or at all. If we fail to obtain additional funding when needed, we would be forced to scale back or terminate our operations, or to seek to merge with or to be acquired by another company.5Corporate InformationOur principal executive offices are located at 310 N. State Street, Suite 208, Lake Oswego, Oregon 97034, and our phone number is (855) 855-4253. Our website address is www.galenabiopharma.com. We do not incorporate the information on our website into this annual report, and you should not consider such information part of this annual report.We were incorporated as Argonaut Pharmaceuticals, Inc. in Delaware on April 3, 2006 and changed our name to RXi Pharmaceuticals Corporation on November 28, 2006. On September 26, 2011, we changed the name of our company from RXi Pharmaceuticals Corporation to Galena Biopharma, Inc., as described above.Summary of NeuVaxGeneralNeuVax is a cytotoxic T-cell activating, epitope-specific immunotherapy comprised of a peptide called nelipepimut-S and an immune adjuvant called GM-CSF (sargramostim). nelipepimut-S is derived from HER2, a 185-Kd transmembrane glycoprotein that is part of the epidermal growth factor (“EGF”) family of tyrosine kinases. GM-CSF is recombinant human granulocyte-macrophage colony stimulating factor, a stimulator and activator of macrophages and dendritic cells. HER2 is expressed at very low levels in a number of normal epithelial tissues but is amplified and overexpressed in many epithelial tumors. HER2/neu is key to growth of cancer and has proven to be a profitable target for such drugs as Herceptin® and Tykerb.Clinical trials have shown that NeuVax boosts a pre-existing immune response found in most cancer patients. Its active component, the 9-amino acid peptide, nelipepimut-S (derived from amino acids 369-377 in the extracellular domain of the HER2 protein), is the synthetic version of an epitope recognized by cytotoxic T-lymphocytes (“CTLs”) and was originally found in tumor-infiltrating lymphocytes of breast and ovarian cancer patients. In contrast to previous clinical studies with peptides, nelipepimut-S induces a 1,000-fold increased T-cell response; typically 1-2% of circulating T-cells become reactive to the nelipepimut-S peptide. Such nelipepimut-S-reactive T-cells are therapeutically active as measured by a reduction in disease recurrence in early-stage breast cancer patients. Figure 1 below shows the 60-month follow-up data for all patients treated duringenable the Phase 2 clinical trial, including both node positive and node negative patients, HER2 1+, 2+, and 3+ patients, as well as optimally dosed and sub-optimally dosed.initiation in 2014. The Kaplan-Meier Disease Free Survival rate improved for the patients receiving NeuVax (N=26) compared to the control group (N=44). An even greater improvement can be seen when we focus on Phase 2 patients who meet the proposed Phase 3 clinical protocols (i.e. , node-positive, low and intermediate HER2+ expressor, optimally-dosed patients) (N=18) compared to the control (N=27). Figure 2, below, shows the 60-month follow-up data for such patients, and the results are statistically significant.6Figure 1 — Kaplan-Meier Disease-Free Survival for All Node Positive Phase 2 Patients
Figure 2 — Kaplan-Meier Disease-Free Survival for Node-Positive Low-Expressor Optimally-Dosed Patients
Another potential significant advantage of NeuVax isFDA has also indicated that the process to manufacture it is relatively simple and can be accomplished using standard peptide synthesis techniques and automated methods. This results in cost of goods that are potentially significantly lower than both antigen-specific and polyvalent/whole-cell vaccines, which have increasingly complex manufacturing schemes.Along with our research collaborators, we have developed this therapy usingonly a treatment approach that focuses on treating early-stage cancer patients with no/low tumor burden and relatively healthy immune systems compared to patients with advanced/metastatic disease. Also, we intend to use a clinical trial endpoint focused on disease recurrence and disease-free survival in itssingle Phase 3 trial would be required for breast cancerapproval.basis for conditional approvalqualifications of NeuVax rather than an overall survival endpoint. In contrast, cancer vaccinesorphan drug with prevalence in the U.S. of approximately 80,000-100,000 and an annual incidence rate of about 8,000 new diagnoses each year, with similar rates in Europe. Initially, many patients are asymptomatic so the disease goes undiagnosed, but with increased standard blood testing, the diagnoses are increasing as well. Currently, about 75% of diagnosed patients receive therapeutic treatment which highlights the importance of developing better tolerated drugs to date have been evaluated in patients with advanced/metastatic disease, resulting in equivocal survival data in clinical trials and several clinical development failures.7NeuVax has been evaluated in Phase 1/2 clinical trials in early-stage breast cancer patients and a Phase 1/2 trial in prostate cancer patients atthis chronically treated, high risk fororphan disease recurrence. On January 19, 2012, we initiated our PRESENT trial for NeuVax™ (nelipepimut-S peptide plus GM-CSF) vaccine in low-to-intermediate HER2expressing breast cancer patients (often referred to as HER2 negative) in the adjuvant setting to prevent recurrence (Clinicaltrials.gov identifier NCT01479244). The PRESENT (Preventionpatient population.the partners’ fieldsa number of interest.therapeutic areas. Our team has experience targeting genesproducts in virtually every majormultiple therapeutic area,areas, and based on this experience, we believe we can discover many more drug candidates by working with partners than we can develop with our own resources. We are seeking to work with partners in the discovery and development of drugs in a number of therapeutic areas.Patent ApplicationsGalena exclusively licenses from the University of Texas an issued USother intellectual property rights are crucial to our success. It is our policy to protect our intellectual property rights through available means, including filing patent covering the nelipepimut-S peptide contained in NeuVax as a composition of matter. The patent expires in 2015 and was not filed outside the US.8Galena also is actively prosecuting two patent families, including 14 pending applications, exclusively licensed from The Henry M. Jackson Foundation covering particular uses of nelipepimut-S. The first family of patents claims methods of using nelipepimut-S to induce immunity against breast cancer recurrence, and was filed the United States, Australia, Canada, China, Europe, Japan, Korea and Mexico. The applications in the United States and Mexico issuedother countries, protection of trade secrets, and utilizing regulatory protections such as data exclusivity and orphan drug status.. We also develop and protect confidential information and know-how, for example, we include restrictions regarding use and disclosure of our proprietary information in 2012. These patents, and any patents which issue from the remaining applications, will expire in 2028, not including any patent term extensions. The second family claims methods of using nelipepimut-S in combinationour contracts with trastuzumab (Herceptin ®) as a vaccine, and was filed in the United States, Australia, Canada, Europe and Japan. The Australian application issued in 2012. This patent, and any patents which issue from the remaining applications, will expire in 2026, not including any patent term extensions.Galena also exclusively licenses from The Henry M. Jackson Foundation a patent family covering folate binding peptide variants, including our FBP product candidate, and their use alone or combination as a vaccine. Patents have issued in the United States, Canada and Japan, and there are pending applications in the United States, Europe and Japan. Patents in this family will expire in 2022, not including patent term extensions.License AgreementsWe acquired exclusive and non-exclusive rights to develop NeuVax for the treatment of cancer by licensing key patent rights from third parties. These rights include composition of matterWe regularly enter into agreements with our employees, consultants, clinical investigators and scientific advisors to protect our confidential information and know-how. Together with our licensors, we also rely on nelipepimut-S, the active peptide component of NeuVax, and methods of use thereof.The Board of Regents, University of Texas and The Henry M. Jackson FoundationWe obtained an exclusive license from the University of Texas throughtrade secrets to protect our Patent and Technology License Agreement with The Board of Regents of the University of Texas System (the “Texas License”). The Texas License provides an exclusive right to use the nelipepimut-S peptide in humans for therapeutic purposes, under Issued U.S. Patent No. 6,514,942, titled “Methods and Compositions for Stimulating T-lymphocytes.” This patent expires in 2015, without taking into account any patent extensions that may be available, andcombined technology especially where we do not expectbelieve patent protection is appropriate or obtainable. It is also our policy to commence commercializationoperate without infringing on, or misappropriating, the proprietary rights of NeuVax prior to 2017, if at all.We have also secured an exclusive license to practice the inventions described in PCT Published Patent Application WO/2008/15057, titled “Vaccine for the Prevention of Breast Cancer Relapse” fromothers. The Henry M. Jackson Foundation. National applications have been filed in the United States, Australia, Canada, China, Europe, Japan, Korea and Mexico. These applications provide protection on improved methods for inducing immunity against breast cancer recurrence using the nelipepimut-S peptide as identified in clinical trials. The applications in the United States and Mexico issued in 2012. These patents, and any patents which issue from the remaining applications, will expire in 2028, not including any patent term extensions.We also have an exclusive license from The Henry M. Jackson Foundation to practice the inventions described in PCT Published Patent Application WO/2007/030771, titled “Targeted Identification of Immunogenic Peptides”, insofar as they cover the use of nelipepimut-S in combination with trastuzumab (Herceptin ®) as a vaccine. National applications have been filed in the United States, Australia, Canada, Europe and Japan. The Australian application issued in 2012. This patent, and any patents which issue from the remaining applications, will expire in 2026, not including any patent term extensions.The issued United States patent and any patents that may issue from the licensed or pending patent applications will expire between 2015, forfollowing chart summarizes our U.S. composition of matter patent, and 2028, for other patent applications covering methods of treating cancer patients, not including any patent term extensions. In connection with the Texas License, we are obligated to pay specified milestones and royalties on sales of products covered by the licensed patents, including royalties possibly extending beyond the expiration date of a patent.In addition, we have an exclusive license from The Henry M. Jackson Foundation to practice the inventions described in PCT Published Patent Application WO/2002/072766, titled “Induction of Tumor Immunity by Variants of Folate Binding Proteins,” covering folate binding peptide variants and their use alone or in combination as a vaccine. Patents have issued in issued in the United States, Canada and Japan, and there are pending applications in the United States, Europe and Japan. Patents in this family will expire in 2022, not including patent term extensions.9Product Indication Scope Strategic Partner Estimated Exclusivity Period Abstral® (fentanyl) Sublingual Tablets Breakthrough cancer pain United States Only Orexo AB 2019 NeuVax™ (nelipepimut-S) Breast cancer recurrence Filed and pending or issued worldwide University of Texas/Henry M. Jackson Foundation 2028 NeuVax™ in combination with Herceptin® Breast cancer recurrence Filed and pending or issued worldwide Henry M. Jackson Foundation, Genetech/Roche 2026 Folate Binding Protein (GALE-301) Ovarian and endometrial cancer Filed and pending or issued worldwide Henry M. Jackson Foundation 2022 Anagrelide Controlled Release (GALE-401) Essential thrombocythemia Filed and pending or issued worldwide BioVascular, Inc. 2029 NeuVax™NeuVax may be approved.market, ishematology therapies, and break-through cancer pain management markets, are intensely competitive and involves a high degree of risk. We compete with other companies that have far greater experience and financial, research and technical resources than us. Potential competitors in the United States and worldwide are numerous and include pharmaceutical and biotechnology companies, educational institutions and research foundations, many of which have substantially greater capital resources, marketing experience, research and development staffs and facilities than us. Some of our competitors may develop and commercialize products that compete directly with those incorporating our technology, introduce products to market earlier than our products or on a more cost effective basis. We may be unable to effectively develop our technology or any other applications on a cost effective basis or otherwise. In addition, our technology may be subject to competition from other technology or methods developed using techniques other than those developed by traditional biotechnology methods. Our competitors compete with us in recruiting and retaining qualified scientific and management personnel as well as in acquiring technologies complementary to our technology. Our collaborators or we will face competition with respect to product efficacy and safety, ease of use and adaptability to various modes of administration, acceptance by physicians, the timing and scope of regulatory approvals, availability of resources, reimbursement coverage, price and patent position, including potentially dominant patent positions of others. An inability to successfully complete our product development could lead to us having limited prospects for establishing market share or generating revenuesrevenue from our technology.10IND,Investigational New Drug (IND), must become effective before human clinical trials may commence. Preclinical studies generally involve FDA regulated laboratory evaluation of product characteristics and animal studies to assess the efficacy and safety of the product candidate.11Environmental ComplianceOuractivitiespayments and payments received under partnership and collaborative agreements.11, 2013,17, 2014, the company had 1260 full-time employees, of whom seven were engaged in research and development and five were engaged in management, administration and finance.employees. None of our employees are represented by a labor union or covered by a collective bargaining agreement, nor have we experienced any work stoppages.currently purchasecarry insurance policies for customary property and liability risks arising out of our current operations.Item 1A.RISK FACTORSoral statements.others. Any or all of our statements in this annual report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. ManyThe factors mentioned in the discussion below will be important in determining future results. Consequently, actual future results may vary materially from those anticipated in this annual report.RelatingRelated to Galena’s BusinessOur Commercial ProgramIndustrynegative cash flow from operations, and have not sold any other products, and cannot predict if or when we will become profitable.recently changedare unable to predict when, if ever, that we will generate profits from the sale of Abstral.strategic focus,inception. For example, for 2013 and 2012, we incurred net operating losses of $33.8 million and $21.2 million, respectively, and our net cash used in operating activities was $28.9 million and $21.0 million, respectively, and, at December 31, 2013, our accumulated deficit was $178.9 million. Despite our launch of Abstral in the anticipated benefitsUnited States, we expect to continue to incur losses and negative cash flow for the foreseeable future.new strategic focusone approved product, Abstral. In addition to the other risks discussed elsewhere in this section, our ability to generate future revenues from the sale of Abstral will depend on a number of factors, including, but not limited to:realized.Youable to sustain or increase our revenues or maintain profitability on an ongoing basis.difficulty evaluatingled to heightened regulatory scrutiny. Controlled substances are classified by the U.S. Drug Enforcement Administration (the “DEA”) as Schedule I through V substances, with Schedule I substances being prohibited for sale in the United States, Schedule II substances considered to present the highest risk of abuse and Schedule V substances being considered to present the lowest relative risk of abuse. Abstral contains fentanyl, an opioid, and is regulated as a Schedule II controlled substance. Despite the strict regulations on the marketing, distributing, prescribing and dispensing of such substances, illicit use and abuse of controlled substances is well-documented. Thus, the marketing of Abstral may generate public controversy that may adversely affect market acceptance of Abstral.because we acquired Apthera during 2011 and spun off RXi in 2012. Following the partial spin-offresults of RXi, our financial statements no longer reflect the consolidatedoperations, financial condition and prospects.of RXi, and we account for our partial ownership of RXi based on the cost method of accounting. We may pursue selective acquisitions of other cancer treatments to complement or add to our existing cancer immunotherapies. For these reasons, the historical consolidated financial information incorporated by reference in this prospectus do not necessarily reflect the financial condition and prospects.cash flowsotherwise do not carry out their contractual duties to us, or encounter physical damage or natural disaster at their facilities, our ability to deliver Abstral to meet commercial demand would be significantly impaired. In addition, we expect to utilize third parties to perform various other services for us relating to sample accountability and regulatory monitoring, including adverse event reporting, safety database management and other product maintenance services. If the quality or accuracy of the data maintained by these service providers is insufficient, our ability to continue to market Abstral could be jeopardized or we could be subject to regulatory sanctions. We do not currently have the internal capacity to perform these important commercial functions, and we may not be able to maintain commercial arrangements for these services on reasonable terms.achieve in the future.also iscan be no assurance that we will be able to manage our existing consultants or find other competent outside consultants, as needed, on economically reasonable terms, or at all. If we are not able to effectively expand our organization by either hiring new employees and expanding our use of consultants, or both, we may be unable to successfully implement the tasks necessary to effectively execute on our Abstral-related development and commercialization activities and, accordingly, may not achieve our goals.focusPart D prescription drug benefit, which became effective January 1, 2006. Under the prescription drug benefit, Medicare beneficiaries can obtain prescription drug coverage from private sector plans that are permitted to limit the number of prescription drugs that are covered in each therapeutic category and class on their formularies. If Abstral is not widely included on the formularies of these plans, our ability to market Abstral may be adversely affected.oncology product developmentannual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;pipeline company.Wecenters, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other health care funding, which could have a material adverse effect on our customers and accordingly, our financial operations.largely dependentincreasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This can reduce demand for Abstral or put pressure on theour product pricing, which could negatively affect our business, results of operations, financial condition and prospects.two leadingability to market Abstral and generate revenues. In addition, legislation has been introduced in Congress that, if enacted, would permit more widespread importation or re-importation of pharmaceutical products from foreign countries into the United States, including from countries where the products are sold at lower prices than in the United States. Such legislation, or similar regulatory changes, could lead to a decision to decrease our prices to better compete, which, in turn, could adversely affect our business, results of operations, financial condition and prospects. It is also possible that other legislative proposals having similar effects will be adopted.neither of which may not receive regulatory approval or be successfully commercialized.Our business prospects depend heavily on successfully developing and commercializing our lead product candidate, NeuVax. On May 8, 2009, we submitted an SPA for a Phase 3 clinical trial for NeuVax, but did not include required chemistry, manufacturing, and controls (“CMC”) information. In July 2009, FDA placed our IND application for a Phase 3 trial for NeuVax on partial clinical hold pending submission of the missing CMC information. We submitted the CMC information August 8, 2011, and the FDA removed the partial clinical hold on September 7, 2011, allowing us to proceed with the Phase 3 clinical trial. The FDA has agreed in the SPA for our Phase 3 PRESENT clinical trial of NeuVax that the design, resulting data, and planned analyses of the Phase 3 study support an acceptable regulatory submission for marketing approval. There is no assurance, however, that the Phase 3 study will be successful, that a single Phase 3 trial will support marketing approval, or that we will be able to obtain marketing approval for NeuVax or any other product candidate.We currently generate no revenue from sales, and we may never be able to develop marketable products. NeuVax hasour drug candidates have exhibited no serious adverse events (SAEs) associated with the drug(“SAEs”) in the Phase 1 and 1/2 clinical trial, further testing in our Phase 3 trial may undermine those determinationsSAEs or other unexpected side effects may arise.arising during further testing and development. A failure of any preclinical study or clinical trial can occur at any stage of testing. The results of preclinical and initial clinical testing of these products may not necessarily indicate the results that will be obtained from later or more extensive testing. It also is possible to suffer significant setbacks in advanced clinical trials, even after obtaining promising results in earlier trials.12underregistered with and overseen by the oversight of the United StatesU.S. Department of Health and Human Services, or “ HHS ,” that has been formally registered with HHS and functions to approve, monitor and review biomedical and behavioral research involving humans, may suspend clinical trials of a drug candidate at any time for various reasons, including if we or they believe the subjects or patients participating in such trials are being exposed to unacceptable health risks. Among other reasons, adverse side effects of a drug candidate on subjects or patients in a clinical trial could result in the FDA or other regulatory authorities suspending or terminating the trial and refusing to approve a particular drug candidate for any or all indications of use.times.andto protect the rights and welfare of human subjects. An inability or delay in obtaining IRB approval could prevent or delay the initiation and completion of clinical trials, and the FDA may decide not to consider any data or information derived from a clinical investigation not subject to initial and continuing IRB review and approval.or Phase 2 studies of NeuVax or our Phase 1/2 clinical trials of FBP,GALE-301 (folate binding protein (FBP) vaccine), our Phase 2 clinical trial of GALE-401 (anagrelide controlled release) or other clinical trials in conformity with required protocols or projected timelinestimeline or in our other NeuVax clinical trials;werewill not be indicative of our drug candidates’ performance in larger patient populations; limited financial and other resources to other clinical programs.13experienced interruptions in the supply of a NeuVax component that delayed patient enrollment in our Phase 3 PRESENT trial of NeuVax, and we will continue to beare dependent upon thecontract manufacturers for clinical supplies of our product candidates, including our sole source of supply of this component.potential product candidates for clinical trials. Accordingly, we will beare dependent upon contract manufacturers for these supplies. There can be no assurance that we will be able to secure needed supply arrangements on attractive terms, or at all. Our failure to secure these arrangements as needed could have a materially adverse effect on our ability to complete the development of our product candidates or, if we obtain regulatory approval for our product candidates, to commercialize them.(e.g.(e.g., toxicology studies) and for clinical use. Certain of our product candidates are complex molecules requiring many synthesis steps, which may lead to challenges with purification and scale-up. These challenges could result in increased costs and delays in manufacturing.Leukine®Leukine® , a “ GM-CSF ““GM-CSF” available in both liquid and lyopholyzed forms exclusively from Genzyme Corporation, or “ Genzyme,“Genzyme,” a subsidiary of Sanofi-Aventis. Until mid-2012, we utilized liquid Leukine® only in the administration of NeuVax. In June 2012, however, Genzyme recalled all liquid Leukine® without explanation, and we began incorporating lyopholyzed Leukine® as another option in addition to liquid Leukine® in the administration of NeuVax at our Phase 3 PRESENT study sites in the U.S. as permitted by the FDA. We believe our current supply of lyopholyzed GM-CSF is adequate for the completion of our Phase 3 PRESENT trial.Lyopholyzed Leukine® is approved for sale only in the U.S., and we must obtain foreign regulatory approval in order to utilize lyopholyzed Leukine® at sites outside the U.S. The regulatory approval process resulted in delays in the planned enrollment of patients at foreign sites for our Phase 3 PRESENT trial, and it is possible that we will be unable to obtain the necessary approvals to use lyopholyzed Leukine® at one or more of these foreign sites. Any extended delay or failure in obtaining the necessary approvals could have a material adverse effect on patient enrollment at these sites or the timing of the interim analysis or primary endpoint of our Phase 3 PRESENT trial.14 cancer-targeted product candidates may not achieve market acceptance. Factors that we believe will materially affect market acceptance of our product candidates include:15®) ®) may be given to patients with tumors with high expression of HER2 (IHC 3+), as well as other novel targets such as MUCI which may be useful in treating breast cancer.may be unableconduct our Phase 3 PRESENT study of NeuVax in countries outside of the United States. Consequently, we are, and will continue to protect our intellectual property rights licensed from others parties, our intellectual property rights may be inadequate to prevent third parties from using our technologies or developing competing products, and we may need to license additional intellectual property from others.In addition to our licenses, we also rely on copyright and trademark protection, trade secrets, know-how, continuing technological innovation and licensing opportunities. In an effort to maintain the confidentiality and ownership of our trade secrets and proprietary information, we require our employees, consultants, advisors and others to whom we disclose confidential information to execute confidentiality and proprietary information agreements. However, it is possible that these agreements may be breached, invalidated or rendered unenforceable, and if so, there may not be an adequate corrective remedy available. Furthermore, like many companies in our industry, we may from time to time hire scientific personnel formerly employed by other companies involved in one or more areas similar to the activities we conduct. In some situations, our confidentiality and proprietary information agreements may conflict with, or be, subject to the rightsrisks related to operating in foreign countries. Risks associated with conducting operations in foreign countries include:third partiesapproved drugs in foreign countries;whom ourtax, employment, immigration and labor laws for employees consultantsliving or advisors have prior employmenttraveling abroad; foreign taxes, including withholding of payroll taxes;consulting relationships. Although we require our employeesreduced revenues, and consultantsother obligations incident to maintain the confidentiality of all confidential information of previous employers, we may be subject to allegations of trade secret misappropriationdoing business or other similar claims as a result of our employees’ or consultants’ prior affiliations. Finally, others may independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to our trade secrets. Our failure to protect our proprietary information and techniques may inhibit or limit our ability to exclude certain competitors from the market and execute our business strategies.Our success depends upon our ability to obtain and maintain intellectual property protection for our products and technologies.Our success will depend on our ability to obtain and maintain adequate protection of our intellectual property covering our product candidates and technologies. The ultimate degree of patent protection that will be afforded to biotechnology products and processes, including ours,operating in another country;StatesStates; in other important markets remains uncertainis dependent upon the scope of protection decided upon by the patent offices, courts and lawmakers in these countries. There is no certainty that our existing patents, or patent applications if obtained, will afford us substantial protection or commercial benefit. Similarly, there is no assurance that our pending patent applications or patent applications licensed from third parties will ultimately be granted as patents or that those patents that have been issued or are issued in the future will stand if they are challenged in court.There is a risk that the products incorporating our NeuVax peptide-based immunotherapy technology or otherwise marketed by us might infringe the patent, trademark or other intellectual property rights of third parties, andterrorism.patentpolitical instability, including war, terrorism, riots, civil insurrection or social unrest, and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease, which could seriously harm the progress of our clinical trials at sites in particular foreign countries or regions. For example, approximately 10% of our Phase 3 PRESENT trial sitesare in The Ukraine, and the recent occupation of Ukrainian territory by Russian military forces and political and civil unrest there could disrupt activities at these trial sites, which could adversely affect patient enrollment or other intellectual property rights belonging to others that require us to alter our products, pay licensing fees or cease certain activities. If our products infringe patent or other intellectual property rights of others, the owners of those rights could bring legal actions against us claiming damages and seeking to enjoin manufacture, use, marketing and sales of the affected products. Ifactivities at these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products. We may not prevail in any action brought against us, and any license required under any rights that we infringe may not be available on acceptable terms or at all. Others may attempt to invalidate our intellectual property rights or those of our licensors. Even if our rights, or those of our licensors, are not directly challenged, disputes among third parties could lead to the weakening or invalidation of our intellectual property rights. Any attempt by third parties to undermine or invalidate our intellectual property rights could be costly to defend, require significant time and attention of our management and have a material adverse effect on our business.16If we are unable to obtain regulatory exclusivity for NeuVax, our business would be adversely affected and such exclusivity may not provide sufficient protection to prevent competitors from entering our markets.sites.We have issued U.S. composition of matter and use patents and have applied for patents in certain foreign jurisdictions covering our NeuVax product candidate. Because our intellectual property rights to the composition of matter of NeuVax will expire prior to any expected commercialization of NeuVax, we will rely upon our use patent and upon data exclusivity provided under the Federal Food, Drug, and Cosmetic Act and similar laws in other countries and, to a lesser extent, on orphan drug designation, if granted for NeuVax.We also anticipate that NeuVax will qualify for 12 years of data exclusivity, and thus other companies would be prevented from using our clinical data to support their application for regulatory approval, under the Patient Protection and Affordable Care Act; however, there can be no assurance that the 12 years of exclusivity provided for under the Patient Protection and Affordable Care Act will remain in effect, or that NeuVax will meet the qualifications of a “biological product” to receive the specified period of exclusivity.We are preparing to apply for Orphan Drug status for NeuVax that, if granted, could provide seven years or ten years of market exclusivity in the United States or the European Union, respectively. However, there is no assurance that the FDA or the European Medicines Agency, or “ EMEA,” will approve our Orphan Drug Application. While the orphan drug designation for NeuVax, if granted, will provide seven years of market exclusivity in the United States, we will not be able to exclude other companies from receiving market approval for the designated orphan indication beyond that timeframe. Even if we have orphan drug designation for a particular drug indication, we cannot guarantee that another company also holding orphan drug designation will not receive FDA approval for the same indication before we do. If that were to happen, our applications for that indication may not be approved until the competing company’s seven-year period of exclusivity expired. Even if we are the first to obtain FDA approval for an orphan drug indication, there are circumstances under which a competing product may be approved for the same indication during our seven-year period of marketing exclusivity, such as if the later product is shown to be clinically superior to the orphan product. Further, the seven-year marketing exclusivity would not prevent competitors from obtaining approval of the same compound for other indications or the use of other types of drugs for the same use as the orphan drug. In addition, data exclusivity does not prevent another company from completing its own clinical trials with NeuVax and obtaining regulatory approval for the same indication for which NeuVax may be approved. Consequently, we may not be able to prevent competitors from entering the market prior to the end of any applicable data exclusivity period. If we are not able to prevent competitors from entering the market with a similar product to NeuVax, our ability to achieve profits from sales of NeuVax will be dramatically limited.We are subject to potential liabilities from clinical testing and future product liability claims.If any of our future products are alleged to be defective, they may expose us to claims for personal injury by patients in clinical trials of our products. If our products are approved by the FDA, users may claim that such products caused adverse effects. We will seek to obtain clinical trial insurance for clinical trials that we conduct, as well as liability insurance for any products that we market. There can be no assurance that we will be able to obtain insurance in the amounts we seek, or at all. We anticipate that licensees who develop our products will carry liability insurance covering the clinical testing and marketing of those products. There is no assurance, however, that any insurance maintained by us or our licensees will prove adequate in the event of a claim against us. Even if claims asserted against us are unsuccessful, they may divert management’s attention from our operations and we may have to incur substantial costs to defend such claims.clinicspractices which receive reimbursement for the health care services they provide to their patients from third-party payors, such as Medicare, Medicaid and other domestic and international government programs, private insurance plans and managed care programs. Most third-party payors may deny reimbursement if they determine that a medical product was not used in accordance with cost-effective treatment methods, as determined by the third-party payor, was used for an unapproved indication or if they believe the cost of the product outweighs its benefits. Third-party payors also may refuse to reimburse for experimental procedures and devices. Furthermore, because our clinical programs are still in clinical development, we are unable at this time to determine their cost-effectiveness and the level or method of reimbursement for them. Increasingly, the third-party payors who reimburse patients are requiring that drug companies provide them with predetermined discounts from list prices, and are challenging the prices charged for medical products. If the price we are able to charge for any products we develop is inadequate in light of our development and other costs, our profitability could be adversely affected.17anythe drugs we develop mayare currently developing will need to be administered under the supervision of a physician. Under currently applicable law, drugs that are not usually self-administered may be eligible for coverage by the Medicare program if:Third-partyPrivate third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for new drugs that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to develop products, and our overall financial condition.18 new management team is not effective or if we fail to attract, hire and retain qualified personnel, we may not be able to design, develop, market or sell our products or successfully manage our business.and other working capitalalong with revenue from sale of Abstral, should be sufficient to fund our operations through at leastfor the second quarter of 2014.foreseeable future. This projection is based on our current planned operations and revenue expectations and is subject to changes in our plans and uncertainties inherent in our business, and we may need to seek to replenish our existing cash and cash equivalents sooner than we project. In the future, we willmay be dependent on obtaining further financing from third parties in order to maintain our operations and to meet our financial obligations. We cannot assure that additional funding to maintain our operations and to meet our obligations to our licensors will be available to us in the future on acceptable terms, or at all. If we fail to obtain additional funding when needed, we would be forced to scale back, or terminate, our operations, or to seek to merge with or to be acquired by another company.We anticipate that we will need to raise substantial amounts of money to fund a variety of future activities integral to the development of our business, which may include but are not limited to the following:•to conduct our Phase 3 PRESENT clinical trial of NeuVax, our Phase 1/2 clinical trials of FBP and our planned Phase 2 trial of NeuVax in combination with Herceptin® ;to obtain regulatory approval for our product candidates;to file and prosecute patent applications and to defend and assess patents to protect our technologies;to retain qualified employees, particularly in light of intense competition for qualified scientists;to manufacture products ourselves or through third parties;to market our products, either through building our own sales and distribution capabilities or relying on third parties; andto acquire new technologies, licenses, products or companies;We cannot assure you that any financing needed for the development of our business will be available to us on acceptable terms or at all. If we cannot obtain additional financing in the future, our operations may be restricted and we may ultimately be unable to continue to develop and potentially commercialize our product candidates.19have a limited historyonly recently commenced commercial sales of our first product, Abstral, and our historical financial information may not be representative of our future results.We have limited operating experience and may not be able to effectively operate.We are a development-stage company with limited operating history conducting oncology drug programs. We will focus on developing and, if we obtain regulatory approval, commercializing our product candidates, and there is no assurance that we will be successful. There is no assurance that we will be able to manage our business effectively, or that we will be able to identify, hire and retain any needed additional management or scientific personnel to develop and implement our product development plans, obtain third-party contracts or any needed financing or achieve our other business objectives.“Exchange“ Exchange Act” ,” and the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act.”“ Sarbanes-Oxley Act .” In addition, the Exchange Act requires that we file annual, quarterly and current reports. Our failure to prepare and disclose this information in a timely manner could subject us to penalties under federal securities laws, expose us to lawsuits and restrict our ability to access financing. The Sarbanes-Oxley Act requires that we, among other things, establish and maintain effective internal controls and procedures for financial reporting. From time to time we evaluate our existing internal controls in light of the standards adopted by the Public company Accounting Oversight Board. It is possible that we or our independent registered public accounting firm may identify significant deficiencies or material weaknesses in our internal control over financial reporting in the future. Any failure or difficulties in implementing and maintaining these controls could cause us to fail to meet the periodic reporting obligations or result in material misstatements in our financial statements.20RXi.own approximately 33 million sharesproviding consulting services to, other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees and consultants or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of common stocktheir former employers or their former or current customers. Litigation may be necessary to defend against these types of RXi,claims. Even if we are successful in defending against any such claims, any such litigation would likely be protracted, expensive, a distraction to our management team, not viewed favorably by investors and other third parties, and may potentially result in an unfavorable outcome.approximately 10%market exclusivity provided under the Federal Food, Drug and Cosmetic Act, or FDCA, and similar laws in other countries. We believe that NeuVax will qualify for 12 years of data exclusivity under the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which was enacted as part of the outstanding RXi common shares, butPatient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the Affordable Care Act or ACA) enacted in March 2010. Under the BPCIA, an application for a biosimilar product cannot be submitted to the FDA until four years, or approved by the FDA until 12 years, after the original brand product identified as the reference product is approved under a BLA, The BPCIA provides an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The new abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. The new law is complex and is only beginning to be interpreted and implemented by the FDA. While it is uncertain when any such processes may be fully adopted by the FDA, any such processes could have no control over RXi’s managementa material adverse effect on the future commercial prospects for our biological products. There is also a risk that the U.S. Congress could amend the BPCIA to shorten this exclusivity period as proposed by President Obama, potentially creating the opportunity for biosimilar competition sooner than anticipated after the expiration of our patent protection. Moreover, the extent to which a biosimilar, once approved, will be substituted for any reference product in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.operations. RXi has its own board of directors and management, who areion responsible for the affairs and policiesaction of RXi and its development plans.the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA, submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The directors, management andFDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other security holdersthan bioavailability studies, that were conducted or sponsored by the applicant are deemed by FDA to be essential to the approval of RXi may have interests that are different from ours, and RXi may engage in actions in connection with its business and operations that we believe are not in our best interests. We have agreed with RXi not to sellthe application, for example, for new indications, dosages, or disposestrengths of any of our RXi shares for a one-year period ending April 27, 2013.The value of our ownership interest in RXi will depend on RXi’s success in developing and commercializing products developed based upon its RNAi technologies, which activities are subject to significant risks and uncertainties described in RXi’s filingsan existing drug. This three-year exclusivity covers only the conditions associated with the SEC,new clinical investigations and theredoes not prohibit the FDA from approving ANDAs for drugs containing the original active agent.a market to sell our RXi shares at the trading price, if at all.20122014 and December 31, 2012,March 14, 2014, the sale price of our common stock as reported on The NASDAQ Capital Market ranged from a low of $0.43$3.15 to a high of $3.54.$7.77. The market price of our common stock could continue to fluctuate significantly for many reasons, including the following factors:products;stock holders;In addition, factorslarge companies within our industry experience declines in their stock price, our stock price may decline as well.addition, whenFebruary and March 2014, two purported shareholder derivative complaints-Fagin v. Ahn, No. 140202384 (Or. Cir. Ct.), and Werbowsky v. Hillsberg, No. 3:14-cv-382 (D. Or.)-were filed against our company, as nominal defendant, and certain of our officers and directors in the market priceCircuit Court of a company’sOregon for the County of Multnomah and in the United States District Court for the District of Oregon. The complaints allege, among other things, breaches of fiduciary duties and abuse of control by the officers and directors in connection with various public statements purportedly issued by us or on our behalf and sales of our common stock drops significantly, security holders often instituteby the officers and directors in January and February of this year.lawsuitscomplaints- Deering v. Galena Biopharma, Inc., No. 3:14-cv-367 (D. Or.), Hau v. Galena Biopharma, Inc., No. 3:14-cv-389 (D. Or.), and Clavijo v. Galena Biopharma, Inc., No. 3:14-cv-410 (D. Or.)-were filed against our company and certain of our officers in the United States District Court for the District of Oregon. The complaints allege that the defendants violated the federal securities laws by making materially false and misleading statements in press releases and in filings with the SEC arising out of the same circumstances that are the subject of the derivative actions described above.company. A lawsuit against usforegoing complaints. Based on the very early stage of the litigation, it is not possible to estimate the amount or range of possible loss that might result from an adverse judgment or a settlement of these matters. cause us to incur substantial costslegal fees and other expenses in connection with these matters, which could divertadversely affect our results of operations. These matters also may distract the time and attention of our managementofficers and directors or divert our other resources.. In February 2012, we issued at a price per share of $0.76 to the holders of contingent value rightswhich a total of 1,315,789 shares of our common stock in payment of$2 million has been paid. We may pay the first $1remaining $30 million of future contingent consideration. Atconsideration, at our option, we may make future payments of the contingent consideration, if and when due, including $1 million expected to become due in 2013, in either cash or in shares of our common stock valued for this purpose at the market price of our common stock when the contingent consideration becomes payable. We may determine to pay any contingent consideration that may become payable in the future in shares of our common stock rather than cash, depending upon our cash and cash requirements and the market price of our common stock at the time and other relevant factors. To the extent we pay any future contingent consideration in shares of our common stock, it would have a dilutive effect on our stockholders. choose to pay any contingent consideration in shares of our common stock, we will be obliged to file a registration statement with the SEC covering the resale of such shares by the contingent value rights holders.21Substantial issuances oroffered herebyreferred to in the foregoing risk factors or shares issued upon exercise of our outstanding stock options, in the public market, or the perception by the market that these issuances or sales could occur, could lower the market price of our common stock or make it difficult for us to raise additional capital.11, 2013, we had 83,067,652 shares of common stock issued and outstanding. Substantially all of these shares are available for public sale, subject in some cases to volume and other limitations or delivery of a prospectus.As of March 11, 2013,14, 2014, we had reserved for issuance 9,372,28310,009,601 shares of our common stock issuable upon the exercise of outstanding stock options at a weighted-average exercise price of $2.25$3.18 per share. Subject to applicable vesting requirements, upon exercise of these options the underlying shares may be resold into the public market. In the case of outstanding options that have exercise prices that are below the market price of our common stock from time to time, our stockholders would experience dilution. issued to our contingent value rights holders or the availability of our common stock for issuance or sale will harm the market price of our common stock or our ability to raise capital.Our3,207,000891,398 shares of common stock as of March 14, 2014 at a current exercise price of $0.65 per share contain so-called full-ratchet anti-dilution provisions. Our outstanding March 2010 and December 2012 warrants to purchase a total of 7,938,0003,035,111 shares of common stock as of March 14, 2014 at current exercise prices of $2.20$2.18 per share and $1.90 per share, respectively, contain so-called weighted-average anti-dilution provisions. These anti-dilution provisions also will be triggered upon anany future issuance by us of shares of our common stock or common stock equivalents at a price per share below the then-exercise price of the warrants, subject to some exceptions.stockholders at the time.We have never declared or paid cash dividends on our capital stock and we do not anticipate paying cash dividends in the foreseeable future.Our business requires significant funding. We currently plan to invest all available funds and future earnings in the development and growth of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of potential gain for the foreseeable future.by-lawsamended and restated bylaws and provisions of Delaware law could delay or prevent a change of control that you may favor.by-lawsamended and provisions of Delaware lawrestated bylaws may discourage, delay or prevent a merger or other change of control that security holders may consider favorable or may impede the ability of the holders of our common stock to change our management. These provisions of our amended and restated certificate of incorporation and by-laws,amended and restated bylaws, among other things:security holdersstockholders may present proposals or nominate directors for election at annual meetings of security holders;stockholders; and22Item 1B.UNRESOLVED STAFF COMMENTSNone.Item 2.PROPERTIESJuly 18, 2011,May 10, 2013, we entered into a lease with LO 138,Cameron Oregon Properties, LLC and Luca Oregon Properties, LLC for our facility located at 310 N. State Street, Suite 208, Lake Oswego, Oregon.4640 SW Macadam Ave., Portland, Oregon, 97239. The facility is approximately 2,1003,400 square feet and is used for our general and administrative offices. The monthly rent is approximately $3,200.facilities arefacility is suitable for our current needs.Item 3.LEGAL PROCEEDINGSItem 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES High Low $ 2.65 $ 1.10 1.65 0.73 1.48 0.61 1.01 0.36 $ 3.54 $ 0.43 2.24 1.04 2.30 1.45 2.43 1.23 High Low 2012 First Quarter $ 3.54 $ 0.43 Second Quarter 2.24 1.04 Third Quarter 2.30 1.45 Fourth Quarter 2.43 1.23 2013 First Quarter $ 2.18 $ 1.55 Second Quarter 3.00 1.92 Third Quarter 2.53 1.65 Fourth Quarter 5.30 2.01 2013,2014, there were approximately 659629 holders of record of our common stock. Because many of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of individual stockholders represented by these holders of record.2012,2013, regarding securities authorized for issuance under our equity compensation plans: (a) (b) Number of
Securities
Remaining
Available for
Issuance
Under Equity
Compensation
Plans
(Excluding
Securities
Reflected in
Column (a)) Plan Category Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights Weighted-
Average
Exercise Price
of Outstanding
Options,
Warrants and
Rights 7,672,384 $ 2.54 3,702,336 NA NA 809,023 1,092,500 3.58 — 8,764,884 $ 2.67 4,511,359 (a) (b) Plan Category Equity compensation plans approved by our security holders: Amended and Restated 2007 Incentive Plan 13,159,033 $ 2.26 1,926,750 Equity compensation plans not approved by our security holders: Employee Stock Purchase Plan NA NA 756,491 889,061 $ 3.20 — Total 14,048,094 $ 2.67 2,683,241 (1)The warrants shown were issued in discreet transactions from time to time as compensation for services rendered by consultants, advisorsadvisers or other third parties, and do not include warrants sold in private placement or public offering transactions. The material24terms of such warrants were determined based upon arm’s-length negotiations with the services providers. The warrant exercise prices approximated the market price of our common stock at or about the date of grant, and the warrant terms range from three to ten years from the grant date. 
As of December 31, 2008 2009 2010 2011 2012 2013 $ 100.00 $ 79.65 $ 44.87 $ 8.17 $ 26.61 $ 86.26 S&P 500 100.00 125.92 144.58 147.60 171.04 225.85 NASDAQ Composite 100.00 145.05 171.14 169.83 199.89 279.63 NASDAQ Biotechnology 100.00 115.93 134.42 150.63 199.91 331.72 Because The cumulative return depicted above for Galena Biopharma, Inc. does not include the value of our former subsidiary, RXi Pharmaceuticals Corporation ("RXi"), which we are transitioning from smaller reporting company status, we are not yet requiredspun off to provide this information. Years Ended December 31, 2013 2012 2011 2010 2009 $ 2,487 $ — $ — $ — $ — Operating expenses: 21,076 14,614 3,851 7,873 8,892 14,600 6,585 8,635 8,752 8,628 (41,786 ) (13,145 ) 9,079 4,632 (867 ) (76,678 ) (33,325 ) (3,407 ) (11,993 ) (18,387 ) (0.85 ) (0.53 ) (0.09 ) (0.67 ) (1.24 ) As of December 31, 2013 2012 2011 2010 2009 $ 87,976 $ 54,986 $ 30,968 $ 7,476 $ 6,252 9,892 — — — — 11,900 11,311 9,654 20 36 5,886 27,756 10,112 2,430 741 None.Item 6.SELECTED FINANCIAL DATABecause we See Note 4 of the notes to the consolidated financial statements for discussion of our spin-off of RXi activities being classified as discontinued operations in the consolidated statements of expenses for 2012 and 2011. The net assets of RXi were removed from the consolidated balances sheet as of the date of the spin-off and were recorded as an equity distribution. The selected financial data referenced for the years ended December 31, 2012 and 2011 are transitioning from smaller reporting company status, we are not yet required to provide this information.Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSBackground on the Company and Recent Change in Strategic Focusaddressingthat address major unmet medical needs to advance cancer care. We currently are developing innovative, peptide antigen-based “off the shelf” cancer immunotherapies for potential application to treatment of large populations of cancer survivors. Peptide vaccines have several potential clinical advantages over existing cancer treatments including excellent safety profiles, long-lasting protection through immune system activation, as well as an acceptable mode of administration (intradermal injection). In addition, there are potential commercial advantages in that these are readily and reproducibly manufactured products that could have a wide reach into the physicians’ office, with no special requirements for delivery to the office or to patients.25A key differentiator in our approach is a focus on “minimal residual disease” that may remain in cancer survivors. Theprevent recurrencebuild value for patients and shareholders by:early stage patient groups who may harbor “occult” residual cancer cells that are not detectable by current imagingMarch 2013 and biomarkers, and despite adjuvant therapy and radiation therapy will relapselaunched in significant numbers over time.Ourthe fourth quarter of 2013;immmunodominantimmunodominant nonapeptide derived from the extracellular domain of the HER2 (Human Epidermal Growth Factor Receptor 2) protein, a well-established target for therapeutic intervention in breast cancer.carcinoma. The nelipepimut sequence stimulates specific CD8+ cytotoxic T lymphocytes, or “CTLs,”CTLs following binding to HLA-A2/A3 molecules on antigen presenting cells or “APC.”(APC). These activated specific CTLs recognize, neutralize and destroy, through cell lysis, HER2 expressing cancer cells, including occult cancer cells and micrometastatic foci. The nelipepimut immune response can also generate CTLs to other immunogenic peptides through inter- and intra-antigenic epitope spreading. Based on a successful Phase 2 trial, which achieved its primary endpoint of DFS, the U.S. Food and Drug Administration or “FDA,”(FDA) granted NeuVax™NeuVax a Special Protocol Assessment or “SPA,”(SPA) for its Phase 3 PRESENT (Prevention of Recurrence in Early-Stage, Node-Positive Breast Cancer with Low to IntermediateLow-to-Intermediate HER2 Expression with NeuVax Treatment) trial.study. The primary endpoint of the Phase 2 trial was disease free survival, or “DFS.” If the randomized, double-blinded, multinational, 700 patient PRESENT trial is successful, we intendongoing and additional information on the study can be found at www.neuvax.com. A randomized, multicenter, investigator-sponsored, 300 patient Phase 2b clinical trial is also enrolling patients to seek FDA commercial registration of NeuVax.Based on a pilot study and preclinical evidence suggesting enhanced efficacy of using NeuVax™NeuVax in combination with Herceptin® (trastuzumab:(trastuzumab; Genentech/Roche), we recently commenced a randomized multicenter Phase 2 clinical trial, NeuVax™ in combination with Herceptin in breast cancer patients.FolateGALE-301 (Folate Binding Protein, or “FBP,”“FBP”), is the E39 peptidederived from a protein that is over-expressed (20-80 fold) in more than 90% of ovarian and endometrial cancers. FBP is a highly immunogenic peptide that can stimulate CTLs to recognize and destroy preclinical FBP-expressing cancer cells. The FBP vaccine consists of the FBP peptide(s) combined with the immune adjuvant, recombinant human granulocyte macrophage-colony stimulating factor (rhGM-CSF). Galena’s FBP vaccine is currently in a Phase 1/2 clinical trial.Wetrial in two gynecological cancers: ovarian and endometrial adenocarcinomas.NeuVax™on January 13, 2014. GALE-401 contains the active ingredient anagrelide, an FDA-approved product, which has been in April 2011 in connection with our merger acquisition of Apthera, Inc, or “Apthera.” Prior to that time, we were engaged primarily in conducting discovery research and preclinical development activities based on RNAi. In connection with our acquisition of NeuVax™, we reduceduse since the scope of our RNAi activities.On September 26, 2011, we changed our name to Galena Biopharma, Inc. from RXi Pharmaceuticals Corporation in connection with the proposed partial spin-off of our former subsidiary, RXi Pharmaceuticals Corporation, or “RXi.” RXi was initially incorporated as RNCS, Inc. and assumed the name RXi Pharmaceuticals Corporation in conjunction with the change in our name to Galena. On April 26, 2012, we completed the partial spin-off of RXi, which is engaged in the development of novel RNAi-based therapies.Our Oncology Therapeutic ProgramsThe chart below summarizes the current status of our oncology drug development programs, with the dark shading indicating completed stages of development and the light shading indicating development activities we intend to prioritize in the near-term:
26We currently are developing a pipeline of immunotherapy product candidateslate 1990s for the treatment of various cancers basedEssential Thrombocythemia (ET). GALE-401 is a reformulated, controlled release version of anagrelide that is currently only given as an immediate release (IR) version. Multiple Phase 1 studies in approximately 90 patients have shown the drug to be effective at lowering platelet levels while reducing side effects that prevent patients from taking their therapy regularly. Based on a regulatory meeting with the peptideFDA, Galena believes a 505(b)(2) regulatory filing is an acceptable paradigm for approval of GALE-401, with the reference drug Agrylin® (anagrelide; Shire Pharmaceuticals). The Phase 1 program has provided the desired PK/PD (pharmacokinetic/pharmacodynamic) profile to enable the Phase 2 initiation in 2014.vaccines,pain (BTcP), which affects an estimated 40%-80% of all cancer patients. Abstral is approved by the most advancedFDA as a sublingual (under the tongue) tablet for the management of breakthrough pain in patients with cancer, 18 years of age and older, who are already receiving, and who are tolerant to, opioid therapy for their persistent baseline cancer pain. The innovative Abstral formulation delivers the analgesic power and increased bioavailability of micronized fentanyl in a convenient sublingual tablet which is NeuVax, which is targeted at preventingdesigned to dissolve under the recurrencetongue in seconds, provide relief of breast cancer. NeuVax has had positive Phase 1/2 clinical trial results forbreakthrough pain within minutes, and match the prevention of breast cancer recurrence in patients who have had breast cancer and received the standard of care treatment (surgery, chemotherapy, radiotherapy and hormonal therapy as indicated). We recently initiated our Phase 3 PRESENT clinical trial of NeuVax for the prevention of breast cancer recurrence in early-stage low-to-intermediate HER2 breast cancer patients. For the results of a single trial to support registration for an indication, the resultsduration of the trial must be internally consistent, clinically meaningful, and statistically very persuasive. Specifically, FDA has indicated that, in general,pain episode.results from two Phase 3 studies would be required to support approval, and it would accept a single pivotal study in support of approval if the results of the trial was internally consistent, clinically meaningful and statistically very persuasive.NeuVax is an immunotherapy that stimulates the immune system to actively seek out and selectively kill cancer cells. NeuVax directs “killer” T-cells to target and destroy cancer cells that express HER2/neu, a protein associated with epithelial tumors in breast, ovarian, pancreatic, colon, bladder and prostate cancers. NeuVax is comprised of a HER2/neu-derived peptide called nelipepimut-S. Nelipepimut-S is a nine-amino acid sequence that is immunogenic (produces an immune response) and GM-CSF is a commercially available protein that acts to stimulate and activate components of the immune system such as macrophages and dendritic cells.Of women diagnosed with breast cancer, only about 25% are HER2 positive (IHC 3+). NeuVax targets HER2 IHC 1+ and 2+ patients who are approximately 50%-60% of breast cancer patients. These patients achieve remission with current standard of care, but have no available HER2-targeted adjuvant treatment options to maintain their disease-free status. We believe that approximately 25,000-40,000 of the approximately 230,000 women diagnosed with breast cancer in the United States each year meet these criteria. In addition, it is estimated that more than approximately 400,000 women in Europe are diagnosed with breast cancer annually. Based on the Phase 3 target patient population consisting of node positive, HER2 IHC 1+ or 2+, and HLA type A2+ or A3+ patients, the target markets for NeuVax™ are approximately 30,000-40,000 patients annually in the U.S. and approximately 50,000-80,000 patients annually in Europe.We are also developing novel applications for NeuVax based on preclinical studies and Phase 2 clinical trials which suggest that combining NeuVax and trastuzumab (Herceptin®; Genentech/Roche) can increase antigen presentation by tumor cells by promoting receptor internalization and subsequent proteosomal degradation of the HER2 protein. We previously reported a Phase 2 trial of sequential therapy with trastuzumab followed by HER2 vaccination in the adjuvant setting. Of 62 patients who received standard-of-care trastuzumab, the 32 who received no HER2 vaccine experienced a 12.5% (4/32) breast cancer recurrence rate, which is comparable to reported rates of similarly staged and treated patients. In contrast, none (0%) of the 30 patients who received the HER2 vaccine following trastuzumab therapy experience a recurrence. Based on these results, we have commenced a randomized, multicenter Phase 2 trial in 300 patients that will compare NeuVax™ with trastuzumab versus trastuzumab with GM-CSF.We intend to pursue additional therapeutic indications for NeuVax. Under our investigational new drug application, or “IND,” open protocols for the treatment of prostate cancer, ovarian cancer and bladder cancer exist for patient populations with the same general criteria for eligibility as in breast cancer (i.e., early-stage disease and adjuvant treatment setting after surgery with immunologic competence). An early stage clinical study in high-risk prostate cancer confirmed the ability of the patients to mount an nelipepimut-S specific immune response. We may explore whether NeuVax provides clinical benefits in other areas, such as a prophylactic vaccine against breast cancer occurrence in healthy women with a high likelihood for developing breast cancer based on genetic assays or biomarkers and a strong positive familial history of breast cancer, and in HER2 overexpressing gastric cancer. Herceptin® is approved for this indication, and there is a significant clinical rationale for NeuVax’s potential efficacy in this indication. We also may investigate the use of NeuVax in combination with other therapies with a view to leveraging NeuVax’s attractive safety profile and targeted mechanism of action. Clinical trials conducted on NeuVax have provided proof-of-principle data in early-stage node-negative breast cancer, although such data is preliminary and not statistically significant, since the trials were not designed to provide statistically significant efficacy data. Both the early-stage node-negative breast cancer indication and the high-risk patient indication are longer-term areas of interest that we currently expect to explore only with support from corporate partners.We have not generated revenue to date and may not generate product revenue in the foreseeable future, if ever. We expect to incur significant operating losses as we advance our product candidates through the drug development and regulatory process. We expect to continue to devote a substantial portion of our resources to research and development programs. As a result of the costs expected to be incurred in connection with our recently commenced clinical trials of NeuVax and FBP, our research and development expenses have increased significantly from historic levels. We will need significant additional cash resources to complete our planned clinical trials. Therefore, we will either need to begin generating significant product revenue or, in the absence of product revenue, we will need to pursue equity financings, funded research and development programs and partnership and collaborative arrangements. There is no guarantee that additional funding will be available to us on acceptable terms, or at all. If we fail to obtain additional funding when needed, we would be forced to scale back or terminate our operations, or to seek to merge with or to be acquired by another company.27Research and DevelopmentOur research and development programs are focused on developing cancer therapies utilizing peptide-based immunotherapy products, including our main product candidate NeuVax, for the treatment of various cancers.Since we commenced operations, research and development has comprised a significant proportion of our total operating expenses and is expected to comprise the majority of our spending for the foreseeable future.There are risks in any new field of drug discovery that preclude certainty regarding the successful development of a product. We cannot reasonably estimate or know the nature, timing and costs of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence from, any product candidate. Our inability to make these estimates results from the uncertainty of numerous factors, including but not limited to:our ability to advance product candidates into preclinical research and clinical trials;the scope and rate of progress of our preclinical program and other research and development activities;the scope, rate of progress and cost of any clinical trials we commence;the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;clinical trial results;the terms and timing of any collaborative, licensing and other arrangements that we may establish;the cost and timing of regulatory approvals;the cost of establishing clinical and commercial supplies of our product candidates and any products that we may develop;the cost and timing of establishing sales, marketing and distribution capabilities;the effect of competing technological and market developments; andthe effect of government regulation and insurance industry efforts to control healthcare costs through reimbursement policy and other cost management strategies.Failure to complete any stage of the development of our product candidates in a timely manner could have a material adverse effect on our operations, financial position and liquidity.License AgreementsWe have entered into licensing relationships with academic institutions, research foundations and commercial entities, and may seek to enter into additional licenses with pharmaceutical and biotechnology companies. We also may enter intopursue selective strategic alliances and acquisitions of other cancer treatments to expandcomplement or add to our intellectual property portfolio and to potentially accelerate our development programs by gaining access to technology and funding, including equity sales, license fees and other revenues. For eachexisting cancer product that we develop that is covered by the patents licensed to us including our material licenses discussed elsewhere in this annual report, we are obligated to make additional payments upon the attainment of certain specified product development milestones.See “Business — Intellectual Property” under Part I — Item 1 of this annual report for information on our material license agreements.revenuesrevenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to impairment of goodwill and long-lived assets, accrued liabilities, net revenue, and certain expenses. We base ourOur estimates about the carrying values of assets and liabilities that are not readily apparent from other sources are based on historical experience and on other assumptions believed to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. Additionally, the financial information included here may not necessarily reflect the financial position, operating results, changes in our invested equity and cash flows in the future.28as well as costs to acquire technology licenses and clinical trial expenses.expensesdirect costs associated with clinicalcontract research organizations (CRO)("CROs"), as well as set-up and patient relatedwell as patient-related costs from theat sites at which our trials are trial is being conducted which are billed to us by our CROs as pass-through costs.both as fixed feeson a time and asmaterials basis, or when certain enrollment and monitoring milestones are achieved. Because there is substantive uncertaintyExpense related to a milestone is recognized in the achievement of these milestones, the achievement of the milestones is generally attained based on the performance of our CROs. Payment is only due ifperiod in which the milestone is reached andachieved or in which we recognize the entire expense related to each milestone in the period the milestonedetermine that it is reached.be delayed bylag several months. We accrue these site costs based on our estimate of up front set upupfront set-up costs upon the screening of the first patient at each site, and the patient related costs based on our knowledge of patient enrollment status at each site.assumptions: 2012 2011 0.84% – 1.13% 0.92% – 3.16% 76.44% – 76.85% 98.61% – 113.87% 5.50 – 6.25 4.71 – 9.25 0.00% 0.00% 29 2013 2012 Risk free interest rate 1.57 % 1.05 % Volatility 77.98 % 75.76 % Expected lives (years) 6.25 6.13 Expected dividend yield 0.00 % 0.00 % termterms of the option.options. The dividend yield assumption of zero is based upon the fact that the company has never paid cash dividends and presently has no intention of paying cash dividends in the future. The risk-free interest rate used for each grant was also based upon prevailing short-term interest rates. the directors. The company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated.20122013 and 2011,2012, we issued warrants to purchase approximately 7,500,0007,000,000 and 18,000,0007,500,000 shares of common stock, respectively, in connection with equity transactions. In accordance with ASC Topic 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Stock” (“ASC 815-40”), the value of these warrants is required to be recorded as a liability, as the holders have an option to put the warrants back to us in certain events, as defined, and the warrants are determined not to be indexed to the company’s own stock. December 31, 2012 December 31, 2011 0.21% – 0.72% 0.02% – 0.83% 69.79% – 82.48% 98.91% 1.59 – 4.98 0.03 – 5.30 0.00% 0.00% 2013 2012 Risk free interest rate 0.11% – 1.61% 0.21% – 0.72% Volatility 66.85% – 73.45% 69.79% – 82.48% Expected lives (years) 0.59 – 4.72 1.59 – 4.98 Expected dividend yield 0.00 % 0.00 % becoincide with the instruments contractual term.Purchase Price AllocationIn connection with our acquisition of Apthera in 2011, we recorded approximately $5,900,000 of goodwill$12,900,000 million of acquired in-process research and development, an indefinite-lived intangible asset. The projects acquired in the acquisition consisted primarily of the clinical development related to its clinical oncology program, primarily the NeuVax compound for breast cancer patients. We purchased this with the intent of clinically developing the NeuVax compound for market approval. At the date we acquired the NeuVax compound, the program was in a Phase 2 clinical trial. In order to commercialize this drug, the company will need to complete at least one Phase 3 clinical trial. On January 19, 2012, we initiated our Phase 3 PRESENT trial for NeuVax™ (nelipepimut-S peptide plus GM-CSF) vaccine in low-to-intermediate HER2 1+ and 2+ breast cancer patients in the adjuvant setting to prevent recurrence (Clinicaltrials.gov identifier NCT01479244). The cost of this Phase 3 clinical trial, including amounts expended through 2012, is expected to exceed $50 million to reach its primary endpoint. We do not expect to commence commercialization of NeuVax prior to 2017, if at all.30Significant•significant changes in the manner of its use of acquired assets or the strategy for its overall business;Significant•significant negative industry or economic trends;Significant•significant decline in stock price for a sustained period; andSignificant•significant decline in market capitalization relative to net book value.wethe company will then proceed to the two step impairment test. The first step is to compare the fair value of the reporting unit to the carrying amount of the reporting unit (the “First Step”). If the carrying amount exceeds the fair value, a second step must be followed to calculate impairment (the “Second Step”). Otherwise, if the fair value of the reporting unit exceeds the carrying amount, the goodwill is not considered to be impaired as of the measurement date. In its review of the carrying value of the goodwill for its single reporting unit and its indefinite-lived intangible assets, the company determines fair values of its goodwill using the market approach, and its indefinite-lived intangible assets using the income approach.In connection with its annualtest,when facts or circumstances suggest that the carrying value of these assets may not be recoverable. The company’s policy is to identify and record impairment losses, if necessary, on intangible product rights when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.either of these assets as of December 31, 2012.approximately $34,969,000$76.7 million compared with a net loss of $11,485,000$35.0 million and $11.5 million for the years ended December 31, 2012 and 2011, respectively. Twelve Months Ended December 31, 2013 2012 $ Change Net revenue $ 2,487 $ — $ 2,487 Year Ended December 31, 2013 % of net revenue 2012 % of net revenue Cost of revenue (excluding amortization of certain acquired intangible assets: Abstral royalties $ 298 12 % $ — — Direct product costs and related overhead 91 4 % — — Other cost of revenue 131 5 % — — Total cost of revenue (excluding amortization of certain acquired intangible assets $ 520 21 % $ — — Amortization of certain acquired intangible assets $ 130 5 % $ — — 2011. Loss from continuing operations2013 and zero for all prior years. Amortization of certain acquired intangible assets is a non-cash variable cost based on net revenue during the period. Year Ended December 31, 2013 2012 % Change Research and development expense $ 21,076 $ 14,614 44 % $33,325,000primarily related to the ramp-up of our Phase 3 PRESENT clinical trial and $3,407,000,the related enrollment efforts. We expect research and loss from discontinued operations was $1,644,000development expense related to our PRESENT trial to remain at current levels through the first part of 2014, and $8,078,000,then begin to decrease in the second half of 2014 as we complete the enrollment phase of the trial and transition to the monitoring and follow-up phase. The expected decrease in costs could be at partially offset by the increase in research and development expense related to the GALE-401 program, which we expect to complete enrollment in a Phase 2 clinical trial during 2014, and our Abstral Registry trial, which we also expect to complete enrollment during 2014.respectively. were as follows (dollars in thousands): Year Ended December 31, 2012 2011 % Change Research and development expense $ 14,614 $ 3,851 279 % primary reasons for variationincrease in the operating results between the years are discussed below.RevenueWe are a development-stage biopharmaceutical company and have not generated any revenue since inception through December 31, 2012.Research and Development Expense (in thousands) For the Years Ended
December 31, 2012 2011 $ 14,034 $ 3,712 303 209 277 (70 ) $ 14,614 $ 3,851 Research and development expense consists primarily of compensation-related costs for our employees dedicated to clinical development and the related regulatory activities and for clinical trial related costs, licensing fees, patent prosecution costs and the cost of lab supplies used in our clinical development programs. We expect to continue to devote a substantial portion of our resources to our clinical development programs. As a result of the costs expected to be incurred in connection with our clinical trials of NeuVax and FBP, our research and development expense has increased significantly from historic levels and is expectedwas primarily related to remain at such increased level for the foreseeable future.31Total research and development expense for the year ended December 31, 2012 was approximately $14,614,000 as compared to $3,851,000 for the year ended December 31, 2011. The increase of $10,763,000, or 279%, was due to an increase of $10,322significant efforts in research and development cash expense related to preparation for our Phase 3 PRESENT clinical trial of NeuVax, an increase of $94,000 in employee stock-based compensation and a $347,000 increase in non-employee stock based compensation expense.Research and Development Non-Employee Stock-Based Compensation ExpenseWe have issued options to purchase shares of our common stock as compensation to our Scientific Advisory Board (“SAB”) members and consultants. For financial statement purposes, we valued these shares at their fair value. Fluctuations in non-employee stock-based compensation expense results from variations in the number of common stock options issued, vesting schedules and the Black-Scholes fair values of common stock options granted to SAB members. (in thousands) For the Years Ended
December 31, 2012 2011 $ 5,406 $ 6,249 479 2,205 700 181 $ 6,585 $ 8,635 GeneralTotal Selling, general and administrative expense was $6,585,000 for the years ended Year Ended December 31, 2013 2012 % Change Selling, general and administrative expense $ 14,600 $ 6,585 122 % compared with $8,635,000 for the year ended December 31, 2011. and 2011 was as follows (dollars in thousands): Year Ended December 31, 2012 2011 % Change Selling, general and administrative expense $ 6,585 $ 8,635 (24 )% of $2,050,000, or 24%, was primarily due to a decrease of $843,000 in cash-based expense due to the costs related to the spin-off of RXi, and a decrease of $1,726,000 for employee stock based compensation expense, largely due to the lower strike prices and volatility assumptions used to calculate stock based compensation using the Black Scholes pricing model. These decreases were partially offset by an increase of $519,000 in warrants and other stock based compensation issued to non-employees for business advisory and other services.From time Year Ended December 31, 2013 2012 % Change Non-operating expense $ (41,786 ) $ (13,178 ) 217 % time, we expectour non-operating expense in 2013 was primarily due to issue sharesa $33.2 million increase in the fair value of warrants accounted for as liabilities. This increase in the estimated fair value of our warrant liabilities was primarily due to the increase in our common stock or warrants or optionsprice, rising from $1.59 per share as of January 1, 2013 to purchase shares$4.96 per share as of December 31, 2013, which is one of the most impactful inputs into the pricing model we use to estimate the fair value of our common stockwarrant liabilities. We also incurred $0.8 million in interest expense related to consultantsthe debt financing we completed in May 2013, an expense not incurred in prior years.other service providersinterest expense were partially offset by realized gains on the sale of marketable securities of $3.9 million, with no such sales occurring in exchangeprior years, and a decrease to the loss on the change in the fair value of our contingent purchase price consideration. services. For financial statement purposes, we will value these shares of common stock, common stock options, and warrants at their fair value.Interest IncomeInterest income was negligible for both the year ended December 31, 2012 and December 31, 2011. The key objectives of our investment policy are to preserve principal and ensure sufficient liquidity, so our invested cash may not earn as high a level of income as longer-term or higher risk securities, which generally have less liquidity and more volatility. The interest rates available on lower risk, shorter-term investments in today’s market are lower than rates available in the prior period. We expect to have interest income in future periods based on our current account balances and potentially from additional capital we may receive in the future.Other IncomeOther income (expense) is summarized2011 was as follows (in(dollars in thousands): For the Years Ended
December 31, 2012 2011 $ (33 ) $ (7 ) (10,775 ) 8,986 (2,370 ) 109 — (9 ) $ (13,178 ) $ 9,079 Other expense, net, was $13,178,000 and other income, net, was $9,079,000 for the years ended December 31, 2012 and 2011, respectively. Year Ended December 31, 2012 2011 % Change Non-operating income (expense) $ (13,178 ) $ 9,079 (245 )% of $22,257,000, or 245%,in non-operating income was primarily due to an decrease of $19,761,000 attributable toa $19.8 million increase in the change in fair value of warrants accounted for as liabilities. This increase in the estimated fair value of our warrant liabilities was primarily due to the increase in our common stock warrants outstanding, largely driven by changes inprice, rising from $0.47 per share as of January 1, 2012 to $1.57 per share as of December 31, 2012, which is one of the most impactful inputs into the pricing model we use to estimate the fair value of our market price and volatility, and a decreasewarrant liabilities. We also incurred an additional non-cash expense of $2,479,000$2.5 million in the estimated fair value of the contingent purchase price consideration due to a shorter amount of time and a lower discount related to the time value of money, to the estimated date that some of the larger milestones will be reached.322012, we recorded an income tax benefit of $1,052,000 related2011. We continue to the unrealized gain on available for sale securities. Accounting Standards Codification (ASC) 740, Accounting for Income Taxes, requiresmaintain a benefit to be recorded to continuing operations when consideration is given to all other categories of income or losses in the financial statements. Due to the fact that we incurred significant tax losses, there was no expense recorded during 2012 or 2011. Afull valuation allowance against our net deferred tax benefit would have been recorded for losses; however, due to the uncertainty of realizing the tax benefit, a valuation allowance was recognized which fully offset such deferred tax benefit. Due to the fact that we incurred significant tax losses, there was no expense recorded during 2012 or 2011. A deferred tax benefit would have been recorded for losses; however, due to the uncertainty of realizing the tax benefit, a valuation allowance was recognized which fully offset such deferred tax benefit.Loss was $1,644,000 for the year ended December 31, 2012, compared to $8,078,000 for the year ended December 31, 2011. The decrease in loss from discontinued operations is2013 due to the fact that the RXi spin-off that completed as of April 26, 2012, and RXi has operatedoperating as a separate unrelated entity following the completion of its spin-off from Galena on April 26, 2012.and marketable securities of $35,485,000approximately $47.8 million as of December 31, 2013, compared with $32.8 million as of December 31, 2012.and approximately $31,575,000 asto December 31, 2013 was attributable to $37.5 million of March 11, 2013. We currently own 33,476,595 sharesnet proceeds from the issuance of RXi common stock which are subject to a one year lock-up period that expiresand warrants in Aprilour September 2013 underwritten public offering, $9.9 million of net proceeds from the issuance of long-term debt, $8.5 million proceeds from the exercise of common stock warrants and are carried asstock-based compensation awards, and $3.9 million in net proceeds from sale of marketable securities, at fair value on our balance sheetpartially offset by $31.4 million in the amount of $2,678,000 at December 31, 2012.Our RXi shares constitute “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). As such, we may not sell our RXi shares publicly except pursuant to an effective registration statement under the Securities Act or an available exemption from registration such as Rule 144 or Regulation S under the Securities Act. Under Rule 144 as currently in effect, if and so long as we are deemed to be an “affiliate” of RXi, we are entitled to sell within any three-month period a number of shares of our RXi common stock that does not exceed the greater of:1%net cash operating loss (exclusive of the number of shares of RXi common stock then outstanding; orThe average weekly trading volume of RXi common stock during$2.5 million change in working capital accounts), $15.7 million spent to purchase the four calendar weeks precedingU.S. commercialization rights to Abstral and the filing of a notice on Form 144related inventory and equipment, and $0.5 million spent in finance charges paid with respect to such sale.Under Regulation Scurrently in effect, we may sellgrow our RXi shares in an “offshore transaction” so long as there are no “directed selling efforts”commercial presence for Abstral in the U.S. of such RXi shares. In event we wereand continue to decide to sell our RXi shares, there may not be a ready market for our RXi shares, and there is no assurance as to the sales price of any RXi shares that we may sell.We have not generated revenue to date and may not generate product revenue in the foreseeable future, if ever. We expect to incur significant operating losses as we advance our product candidates through the drug development and regulatory process. As a result of the increased research and development expense expected to be incurred in connection with our clinical trials of NeuVax and FBP, our expenses have increased significantly from historic levels. In addition to increasing research and development expense, we expect general and administrative costs to increase as we conduct future clinical trials. We will need to generate significant revenuerevenues to achieve profitability and mightmay never do so. In the absence of profits from the commercialization of Abstral or our product revenue,candidates, our potential sources of operational funding are expected to be the proceeds from the sale of equity and funded research and development payments and payments received under partnership and collaborative agreements.other working capitalalong with revenue from Abstral sales, should be sufficient to fund our operations through at leastinto the second quarterforeseeable future. We also may borrow the remaining $5.0 million tranche of 2014. This projection is based on our current planned operations and isrecent long-term debt financing, subject to changes incertain conditions. There is no guarantee that the remaining $5.0 million tranche will be available to us, or that we will generate sufficient revenue from the sale of Abstral to become profitable or that any debt, additional equity or other funding will be available to us on acceptable terms, or at all. If we fail to generate adequate revenues or obtain additional funding when needed, we would be forced to scale back, or terminate, our plans and uncertainties inherent in our business, and we may needoperations or to seek to replenish our existing cash and cash equivalents sooner than we project.$20,963,000$28.9 million for the year ended December 31, 2012,2013, compared to $14,668,000with $21.0 million for the year ended December 31, 2011.2012. The increase of approximately $6,295,000$7.9 million resulted primarily from an increase in research and development activities related to our Phase 3 PRESENT trial, as well as approximately $12.5 million associated with the year-over-year net loss of approximately $23,484,000, less adjustment for non-cash items such as stock-based compensation, depreciation, the increase in the fair value of the contingent purchase price consideration, the increase in the fair value of warrants classified as liabilities and changes in current assets and liabilities.approximately $87,000$12.0 million for the year ended December 31, 2013, compared with $0.1 million for the year ended December 31, 2012. The increase was primarily due to acquisition of Abstral for $15 million during the year ended December 31, 2012, compared to net cash provided by investing activities of $14,000 for the year ended December 31, 2011. The decrease of approximately $101,000 in cash provided by investing activities was primarily due to change in restricted cash, cash used to purchase equipment and furnishings and cash received in the Apthera acquisition during 2011 as2013, partially offset by the cash transferred in the RXi spin-off in 2012.approximately $42,424,000$55.9 million for the year ended December 31, 2012,2013, compared to $19,196,000with $42.4 million for the year ended December 31, 2011. This2012. The increase of approximately $23,228,000 was primarily due to an increase in net proceeds from the issuance of common stock in September 2013 of $17,763,000 and $5,708,000$37.5 million, compared with $36.4 million from the issuance of common stock in 2012, as well as to $9.9 million of net proceeds from the first tranche of our long-term debt financing in the second quarter of 2013, compared to no long-term debt in 2012. The increase from the prior year was partially offset by a decrease in proceeds from the exercise of warrants not realized during 2011.33Recent Accounting Pronouncements5.7 millionIn May 2011, from the FASB issued Accounting Standards Updated (“ASU”) 2011-04, Fair Value Measurement (Topic 820):Amendmentsexercise of warrants in 2012 compared to Achieve Common Fair Value Measurement and Disclosure Requirements$7.8 million in U.S. GAAP and IFRSs, a new accounting standard that clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new standard is effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011. Adoption of this new standard for the fiscal year ended December 31, 2012 did not have a material impact2013. Payment Due by Period Less than 1 Year 1 to 3 Years 3 to 5 Years Total $ 2,648 $ 4,451 $ 5,001 $ 12,100 325 700 7,215 8,240 450 400 — 850 72 157 152 381 Total $ 3,495 $ 5,708 $ 12,368 $ 21,571 company’sdebt issued in May 2013.statements.In September 2011, the FASB issued ASU 2011-08,Intangibles — Goodwill and Other (Topic 350): Testing Goodwillstatements for Impairment, a new accounting standard to simplify how entities test goodwill for impairment. The amendments in the Update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Previous guidance under Topic 350 required an entity to test goodwill for impairment, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step one). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of the impairment loss, if any. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. This new standard was effective for fiscal years beginning after December 15, 2011. Adoption of this new standard for the fiscal year ended December 31, 2012 did not have a material impactadditional information on the company’s consolidated financial statements.referenced contractual obligations.In July 2012, the FASB issued ASU No. 2012-02, Intangibles — Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets, a new accounting pronouncement intended to simplify how entities test indefinite-lived intangible assets other than goodwill for impairment. The new standard permits an entity to first assess qualitative factors to determine whether it is “more likely than not” (defined as having a likelihood of more than 50%) that an indefinite-lived intangible asset is impaired, in order to determine whether further impairment testing is necessary. The new standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Adoption of this new standard for the fiscal year ended December 31, 2012 did not have a material impact on the company’s consolidated financial statements.In connection withlicense agreements,market risks relating primarily to (1) interest rate risk on our cash and cash equivalents, and (2) risks relating to the financial viability of the institutions which hold our capital and through which we are required to indemnify the licensor for certain damages arisinghave invested our funds. We manage such risks by investing primarily in connection with the intellectual property rights licensed under the agreement. money market mutual funds.a partyexposed to a number of agreements entered intoforeign currency exchange rate fluctuations relating to payments we make to certain vendors and suppliers and license partners using foreign currencies. We do not hedge against foreign currency risks. Consequently, changes in the ordinary course of business that contain typical provisions that obligate us to indemnify the other parties to such agreements upon the occurrence of certain events. These indemnification obligations are considered off-balance sheet arrangements in accordance with ASC Topic 460 (“ASC 460”), “Guarantor’s Accountingexchange rates could adversely affect our operating results and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” To date, westock price. Such losses have not encountered material costs as a resultbeen significant to date.such obligations and have not accrued any liabilities related to such obligations in our financial statements. See Note 9 of the notes to consolidated financial statements included in this annual report for further discussion of these indemnification agreements.Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKBecause we are transitioning from smaller reporting company status, we are not yet required to provide this information.
ContentsItem 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page No. Index to Financial Statements Index to Financial Statements35373839424434Lake Oswego, Oregon(a development stage company) (the “Company”) as of December 31, 2012 and 20112013, and the related consolidated statements of expenses and comprehensive loss, stockholders’ equity, and cash flows for the yearsyear then endedended. We also have audited the Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for the period from January 1, 2003 (date of inception) to December 31, 2012. These financial statements are the responsibilityits assessment of the Company’s management.effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amountsmisstatement and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Galena Biopharma, Inc. as of December 31, 2012 and 2011 and the results of its operations and its cash flows for the years then ended and for the period from January 1, 2003 (date of inception) to December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 12, 2013 expressed an unqualified opinion thereon./s/ BDO USA, LLPMarch 12, 2013Boston, Massachusetts35REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and StockholdersGalena Biopharma, Inc.Lake Oswego, OregonWe have audited Galena Biopharma, Inc’s (a development stage company) internal control over financial reporting as of December 31, 2012, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Galena Biopharma, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditaudits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinion.2012,2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the COSO criteria. also have audited the accompanying consolidated balance sheet of Galena Biopharma, Inc. (the “Company”) as of December 31, 2012, and the related consolidated statements of comprehensive loss, stockholders’ equity, and cash flows for the years ended December 31, 2012 and 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.,. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.balance sheetsfinancial statements referred to above present fairly, in all material respects, the consolidated financial position of Galena Biopharma, Inc. as of December 31, 2012 and 2011the results of its operations and the related consolidated statements of expenses, stockholders’ equity andits cash flows for the years then ended and the period from January 1, 2003 (date of inception) through December 31, 2012 and our report dated March 12, 2013 expressed an unqualified opinion thereon.Boston, Massachusetts36(A Development Stage Company)(Amounts in thousands, except share data) December 31, 2012 2011 ASSETS $ 32,807 $ 11,433 101 101 2,678 — 535 276 36,121 11,810 29 393 12,864 12,864 5,898 5,898 74 3 $ 54,986 $ 30,968 LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,976 $ 2,155 2,038 2,168 — 500 — 816 6 35 10,964 3,746 935 1,782 15,919 11,202 51 32 5,053 5,053 6,207 4,569 27,230 20,856 — — 8 5 132,168 81,184 1,626 — (102,197 ) (67,228 ) (3,849 ) (3,849 ) 27,756 10,112 $ 54,986 $ 30,968 See accompanying notes to consolidated financial statements.37(A Development Stage Company)CONSOLIDATED STATEMENTS OF EXPENSES AND COMPREHENSIVE LOSS Year Ended
December 31,
2012 Year Ended
December 31,
2011 Period from
January 1,
2003 (Date of
Inception) to
December 31,
2012 $ 14,034 $ 3,712 $ 19,010 303 209 512 277 (70 ) 6,269 14,614 3,851 25,791 5,406 6,249 32,765 479 2,205 10,069 700 181 3,456 6,585 8,635 46,290 (21,199 ) (12,486 ) (72,081 ) (33 ) (7 ) 589 (13,145 ) 9,086 (1,086 ) (13,178 ) 9,079 (497 ) (34,377 ) (3,407 ) (72,578 ) (1,052 ) — (1,052 ) (33,325 ) (3,407 ) (71,526 ) (1,644 ) (8,078 ) (40,712 ) $ (34,969 ) $ (11,485 ) $ (112,238 ) $ (0.53 ) $ (0.09 ) $ (0.03 ) $ (0.22 ) $ (0.56 ) $ (0.32 ) 62,480,666 36,334,413 $ (34,969 ) $ (11,485 ) $ (112,238 ) 1,626 — 1,626 $ (33,343 ) $ (11,485 ) $ (110,612 ) December 31, 2013 December 31, 2012 ASSETS Current assets: Cash and cash equivalents $ 47,787 $ 32,807 Restricted cash 200 101 Marketable securities — 2,678 Accounts receivable 3,683 — Inventories 386 — Prepaid expenses 1,399 535 Total current assets 53,455 36,121 Equipment and furnishings, net 665 29 Abstral rights, net 14,979 — In-process research and development 12,864 12,864 Goodwill 5,898 5,898 Deposits and other assets 115 74 Total assets $ 87,976 $ 54,986 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,660 $ 1,976 Accrued expenses and other current liabilities 8,667 2,038 Current maturities of capital lease obligations 6 6 Fair value of warrants potentially settleable in cash 48,965 10,964 Current portion of contingent purchase price consideration — 935 Current portion of long-term debt 2,149 — Total current liabilities 62,447 15,919 Capital lease obligations, net of current maturities 26 51 Deferred tax liability 5,053 5,053 Contingent purchase price consideration, net of current portion 6,821 6,207 Long-term debt, net of current portion 7,743 — Total liabilities 82,090 27,230 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding — — Common stock, $0.0001 par value; 200,000,000 shares authorized, 110,100,701 shares issued and 109,425,701 shares outstanding at December 31, 2013; 125,000,000 shares authorized, 83,595,837 shares issued and 82,920,837 outstanding at December 31, 2012 10 8 Additional paid-in capital 188,600 132,168 Accumulated other comprehensive income — 1,626 Accumulated deficit (178,875 ) (102,197 ) Less treasury shares at cost, 675,000 shares (3,849 ) (3,849 ) Total stockholders’ equity 5,886 27,756 Total liabilities and stockholders’ equity $ 87,976 $ 54,986 38(A Development Stage Company)STOCKHOLDERS’ EQUITY FOR THE PERIOD FROMAPRIL 3, 2006 TODECEMBER 31, 2012 AND PARENT COMPANY’S NET DEFICIT FOR THE PERIODFROM DECEMBER 31, 2003 TO DECEMBER 31, 2006 Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Income Deficit
Accumulated
During
Development
Stage Treasury
Stock Parent
Company’s
Net Deficit Total Shares Issued Amount — $ — $ — $ — $ (89 ) $ (89 ) — — — — (3,272 ) (3,272 ) — — — — 2,393 2,393 — — — — (968 ) (968 ) — — — — (2,209 ) (2,209 ) — — — — 2,727 2,727 — — — — (450 ) (450 ) — — — — (2,405 ) (2,405 ) — — — — 2,587 2,587 — $ — $ — $ — $ (268 ) $ (268 ) — $ — $ — $ — $ — $ — $ — 1,624,278 — 2 — — — 2 1,624,278 — 2 — — — 2 7,040,318 1 47 — — — 48 3,273,292 — 15,348 — — — 15,348 188,387 — 978 — — — 978 — — 831 — — — 831 462,112 — 2,311 — — — 2,311 30,000 — 150 — — — 150 66,045 — 331 — 331 — — 1,048 — — — 1,048 — — 766 — — — 766 — — — — (10,990 ) — (10,990 ) 12,684,432 1 21,812 — (10,990 ) — 10,823 39 Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Income Deficit
Accumulated
During
Development
Stage Treasury
Stock Parent
Company’s
Net Deficit Total Shares Issued Amount 1,073,299 — 7,918 — — — 7,918 5,500 — 26 — — — 26 — — 2,211 — — — 2,211 — — 1,613 — — — 1,613 750 — — 750 — — — — (14,373 ) (14,373 ) 13,763,231 1 34,330 — (25,363 ) — 8,968 2,385,715 1 7,713 — — — 7,714 — — (2,863 ) — — — (2,863 ) 281 — — — — — — 58,398 — 281 — — — 281 — — 2,906 — — — 2,906 — — 1,296 — — — 1,296 — — 826 — — 826 — — — — (18,387 ) (18,387 ) 16,207,625 2 44,489 — (43,750 ) — 741 2,700,000 — 15,235 — — — 15,235 — — — — (3,849 ) (3,849 ) — — (2,466 ) — — — (2,466 ) — — (785 ) — — — (785 ) 53,500 — 254 — — — 254 86,634 — 207 — — — 207 — — 3,625 — — — 3,625 — — 743 — — — 743 — — 718 — — 718 — — — — (11,993 ) — (11,993 ) 19,047,759 2 62,020 — (55,743 ) (3,849 ) 2,430 40 Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Income Deficit
Accumulated
During
Development
Stage Treasury
Stock Parent
Company’s
Net Deficit Total Shares Issued Amount 18,650,000 2 18,613 — — — 18,615 — — (12,709 ) — — — (12,709 ) 147,040 — 171 — — — 171 220,729 — 256 — — — 256 53,558 — 73 — — — 73 150,000 — 150 — — — 150 4,151,000 — 3,120 — — — 3,120 4,974,090 1 6,366 — — — 6,367 398,453 — 350 — — — 350 18,824 — 15 — — — 15 — — 2,774 — — — 2,774 — — (123 ) — — — (123 ) — — 108 — — — 108 — — — — (11,485 ) — (11,485 ) 47,811,453 5 81,184 — (67,228 ) (3,849 ) 10,112 25,486,960 2 36,376 — — — 36,378 — — (7,286 ) — — — (7,286 ) 288,285 — 364 — — — 364 8,433,003 1 16,550 — — — 16,551 — — (266 ) — — — (266 ) 234,350 — 93 — — — 93 — — 794 — — — 794 — — 600 — — — 600 25,937 — 21 — — — 21 1,315,849 — 1,579 — — — 1,579 — — 2,159 — — — 2,159
securities, net of tax benefit of $1,052 1,626 1,626 — — — — (34,969 ) — (34,969 ) 83,595,837 $ 8 $ 132,168 $ 1,626 $ (102,197 ) $ (3,849 ) $ 27,756 For the Year Ended December 31, 2013 2012 2011 Net revenue $ 2,487 $ — $ — Costs and expenses: Cost of revenue (excluding amortization of certain acquired intangible assets) 520 — — Research and development 21,076 14,614 3,851 Selling, general and administrative 14,600 6,585 8,635 Amortization of certain acquired intangible assets 131 — — Total costs and expenses 36,327 21,199 12,486 Operating loss (33,840 ) (21,199 ) (12,486 ) Non-operating income (expense): Interest income (expense), net (807 ) (33 ) (7 ) Other income (expense) (40,979 ) (13,145 ) 9,086 Total non-operating income (expense), net (41,786 ) (13,178 ) 9,079 Loss from continuing operations before income taxes (75,626 ) (34,377 ) (3,407 ) Income tax expense (benefit) 1,052 (1,052 ) — Loss from continuing operations (76,678 ) (33,325 ) (3,407 ) Loss from discontinued operations — (1,644 ) (8,078 ) Net loss $ (76,678 ) $ (34,969 ) $ (11,485 ) Net loss per common share: Basic and diluted per share, continuing operations $ (0.85 ) $ (0.53 ) $ (0.09 ) Basic and diluted loss per share, discontinued operations $ — $ (0.03 ) $ (0.22 ) Basic and diluted net loss per share $ (0.85 ) $ (0.56 ) $ (0.32 ) Weighted-average common shares outstanding: basic and diluted 90,181,501 62,480,666 36,334,413 Comprehensive loss Net loss $ (76,678 ) $ (34,969 ) $ (11,485 ) Reclassification of unrealized gain upon sale of marketable securities (2,678 ) — — Unrealized gain on marketable securities — 2,678 — Tax effect of reclassification of unrealized gain upon sale of marketable securities 1,052 — — Tax effect of unrealized gain on marketable securities — (1,052 ) — Total comprehensive loss $ (78,304 ) $ (33,343 ) $ (11,485 ) 41(A Development Stage Company)STATEMENTSSTATEMENT OF CASH FLOWSthousands) Year Ended
December 31,
2012 Year Ended
December 31,
2011 Period from
January 1,
2003 (Date of
Inception)
through
December 31,
2012 $ (34,969 ) $ (11,485 ) $ (112,238 ) 49 163 713 — 7 19 (1,052 ) — (1,052 ) — — 29 — — 35 1,394 3,001 20,252 — — (785 ) — 108 2,402 364 73 718 10,775 (8,981 ) (397 ) — — 3,954 2,370 (109 ) 2,261 (396 ) (99 ) (645 ) 641 500 1,865 — — (207 ) (139 ) 2,154 3,335 (20,963 ) (14,668 ) (79,741 ) — (101 ) (101 ) — 168 168 — — (37,532 ) — — 37,497 — (53 ) (739 ) — — (1 ) — — (45 ) (87 ) — (87 ) (87 ) 14 (840 ) 42 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Treasury Stock Total Shares Issued Amount Balance at December 31, 2010 19,047,759 $ 2 $ 62,020 $ — $ (55,743 ) $ (3,849 ) $ 2,430 Issuance of common stock 18,650,000 2 18,613 — — — 18,615 Common stock warrants issued in connection with 2011 common stock offering — — (12,709 ) — — — (12,709 ) Issuance of stock in lieu of cash bonus 147,040 — 171 — — — 171 Issuance of restricted stock units 220,729 — 256 — — — 256 Issuance of common stock in exchange for services 53,558 — 73 — — — 73 Issuance of common stock upon exercise of warrants 4,301,000 — 3,270 — — — 3,270 Issuance of common stock related to acquisition of Apthera, Inc. 4,974,090 1 6,366 — — — 6,367 Issuance of common stock subject to employee termination agreements 398,453 — 350 — — — 350 Issuance of common stock in connection with employee stock purchase plan 18,824 — 15 — — — 15 Stock based compensation for directors and employees — — 2,774 — — — 2,774 Stock based compensation for services — — (15 ) — — — (15 ) Net loss — — — — (11,485 ) — (11,485 ) Balance at December 31, 2011 47,811,453 $ 5 $ 81,184 $ — $ (67,228 ) $ (3,849 ) $ 10,112 Issuance of common stock 25,486,960 2 36,376 — — — 36,378 Common stock warrants issued in connection with 2012 common stock offering — — (7,286 ) — — — (7,286 ) Issuance of common stock in exchange for services 288,285 — 364 — — — 364 Issuance of common stock upon the exchange and exercise of warrants including reclassification of $10,843 in warrant liability upon exercise 8,433,003 1 16,550 — — — 16,551 Repurchase of common stock warrants — — (266 ) — — — (266 ) Issuance of common stock in connection with employee stock purchase plan 234,350 — 93 — — — 93 Stock based compensation for directors and employees — — 794 — — — 794 Stock based compensation for services — — 600 — — — 600 Exercise of stock options 25,937 — 21 — — — 21 Issuance of common stock in settlement of contingent purchase price consideration 1,315,849 — 1,579 — — — 1,579 Net liabilities distributed in connection with the RXi spin-off — — 2,159 — — — 2,159 Unrealized gain on marketable securities, net of tax benefit of $1,052 — — — 1,626 — — 1,626 Net loss — — — — (34,969 ) — (34,969 ) Balance at December 31, 2012 83,595,837 $ 8 $ 132,168 $ 1,626 $ (102,197 ) $ (3,849 ) $ 27,756 Year Ended
December 31,
2012 Year Ended
December 31,
2011 Period from
January 1,
2003 (Date of
Inception)
through
December 31,
2012 36,378 18,615 101,360 (266 ) — (266 ) — — (3,489 ) 21 — 631 5,708 150 5,858 93 15 108 500 500 1,000 (10 ) (84 ) (220 ) — — 8,766 42,424 19,196 113,388 21,374 4,542 32,807 11,433 6,891 — $ 32,807 $ 11,433 $ 32,807 $ 1 $ 2 $ 727 $ 1 $ 6 $ 12 $ — $ — $ 978 $ 7,286 $ 12,709 $ 25,324 $ — $ 3,120 $ 3,120 $ — $ — $ 785 $ 10,843 $ — $ 10,843 $ 2,246 $ — $ 2,246 $ 1,579 $ — $ 1,579 $ — $ — $ 551 $ — $ — $ 48 $ — $ 80 $ 277 $ — $ — $ 50 $ — $ 427 $ 634 $ 2,678 $ — $ 2,678 $ — $ 6,367 $ 6,367 — 6,460 6,460 $ — $ 12,827 $ 12,827 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Treasury Stock Total Shares Issued Amount Issuance of common stock 20,125,000 $ 2 $ 37,537 $ — $ — $ — $ 37,539 Common stock warrants issued in connection with September 2013 common stock offering — — (8,238 ) — — — (8,238 ) Issuance of common stock upon exercise of warrants 5,320,669 — 22,064 — — — 22,064 Issuance of common stock in settlement of contingent purchase price consideration 492,988 — 1,247 — — — 1,247 Issuance of common stock warrants with long-term debt financing — — 351 — — — 351 Issuance of common stock in exchange for services 99,998 — 211 — — — 211 Issuance of common stock in connection with employee stock purchase plan 52,532 — 163 — — — 163 Stock based compensation for directors and employees — — 1,886 — — — 1,886 Stock based compensation for services — — 644 — — — 644 Reclassification of unrealized gain upon the sale of marketable securities, net of tax of $1,052 — — — (1,626 ) — — (1,626 ) Exercise of stock options 413,677 — 567 — — — 567 Net loss — — — — (76,678 ) — (76,678 ) Balance at December 31, 2013 110,100,701 $ 10 $ 188,600 $ — $ (178,875 ) $ (3,849 ) $ 5,886 43A Development Stage Company) For the Year Ended December 31, 2013 2012 2011 Cash flows from operating activities: Net loss $ (76,678 ) $ (34,969 ) $ (11,485 ) Adjustment to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 452 49 163 Loss on disposal of equipment — — 7 Gain on sale of marketable securities (3,911 ) — — Deferred taxes 1,052 (1,052 ) — Non-cash stock-based compensation 2,530 1,394 3,001 Fair value of common stock warrants issued in exchange for services — — 108 Fair value of common stock issued in exchange for services 211 364 73 Change in fair value of common stock warrants 44,001 10,775 (8,981 ) Change in fair value of contingent consideration 926 2,370 (109 ) Changes in operating assets and liabilities: Accounts receivable (3,683 ) — — Inventories (386 ) — — Prepaid expenses and other assets (832 ) (396 ) (99 ) Accounts payable 684 641 500 Accrued expenses and other current liabilities 6,726 (139 ) 2,154 Net cash used in operating activities (28,908 ) (20,963 ) (14,668 ) Cash flows from investing activities: Change in restricted cash (99 ) — (101 ) Cash paid for acquisition of Abstral rights (15,143 ) — — Cash received in Apthera acquisition — — 168 Proceeds from sale of marketable securities 3,911 — — Cash paid for purchase of equipment and furnishings (705 ) — (53 ) Cash transferred with the RXi spin-off — (87 ) — Net cash provided by (used in) investing activities (12,036 ) (87 ) 14 Cash flows from financing activities: Net proceeds from issuance of common stock 37,539 36,378 18,615 Cash paid for repurchase of warrants — (266 ) — Net proceeds from exercise of stock options 567 21 — Proceeds from exercise of warrants 7,815 5,708 150 Proceeds from common stock issued in connection with ESPP 163 93 15 Net proceeds from issuance of RXi convertible notes payable — 500 500 Net proceeds from issuance of long-term debt 9,865 — — Repayments of capital lease obligations (25 ) (10 ) (84 ) Net cash provided by financing activities 55,924 42,424 19,196 Net increase in cash and cash equivalents 14,980 21,374 4,542 Cash and cash equivalents at the beginning of period 32,807 11,433 6,891 Cash and cash equivalents at end of period $ 47,787 $ 32,807 $ 11,433 For the Year Ended December 31, 2013 2012 2011 Supplemental disclosure of cash flow information: Cash received during the periods for interest $ 19 $ 1 $ 2 Cash paid during the periods for interest $ 547 $ 1 $ 6 Supplemental disclosure of non-cash investing and financing activities: Fair value of warrants issued in connection with common stock recorded as cost of equity $ 8,238 $ 7,286 $ 12,709 Issuance of common stock in exchange of outstanding warrants $ — $ — $ 3,120 Net liabilities distributed to common stock holders in the RXi spin-off, net of cash transferred $ — $ 2,246 $ — Reclassification of warrant liabilities upon exercise $ 14,249 $ 10,843 $ — Common stock issued in settlement of contingent purchase price consideration $ 1,247 $ 1,579 $ — Change in fair value of marketable securities before settlement $ (2,678 ) $ 2,678 $ — NeuVax acquisition: Fair value of shares issued to acquire NeuVax $ — $ — $ 6,367 Fair value of contingent purchase price consideration in connection with NeuVax acquisition — — 6,460 Net assets acquired, excluding cash of $168 $ — $ — $ 12,827 1.Nature of Businessoncology treatments tothat address major unmet medical needs to advance cancer care. We currently areinnovative, peptide antigen-based “off the shelf”vaccine (off-the-shelf) cancer immunotherapies, for potential application to treatment of largewhich address patient populations of cancer survivors.We acquired survivors to prevent disease recurrence by harnessing the patient's own immune system to seek out and attack any residual cancer. In this case, 25% of resectable node-positive breast cancer patients, despite having no evidence of disease following surgery and chemo/radiation therapy, will still relapse within three years. Increased presence of circulating tumor cells (CTCs) predict Disease Free Survival (DFS) and Overall Survival (OS) - suggesting a dormancy of isolated micrometastases, which over time, leads to recurrence. Our lead product, NeuVaxTM (nelipepimut-S) elicits a robust, specific and durable killer CD8+ cytotoxic T lymphocyte (CTLs) response to lyse HER2 expressing tumor cells.April 2011breast carcinoma. The nelipepimut sequence stimulates specific CTLs following binding to HLA-A2/A3 molecules on antigen presenting cells (APC). These activated specific CTLs recognize, neutralize and destroy, through cell lysis, HER2 expressing cancer cells, including occult cancer cells and micrometastatic foci. The nelipepimut immune response can also generate CTLs to other immunogenic peptides through inter- and intra-antigenic epitope spreading. Based on our Phase 2 trial, which achieved its primary endpoint of DFS, the Food and Drug Administration (FDA) granted NeuVax a Special Protocol Assessment (SPA) for its Phase 3 PRESENT (Prevention of Recurrence in connectionEarly-Stage, Node-Positive Breast Cancer with our merger acquisitionLow-to-Intermediate HER2 Expression with NeuVax Treatment) study. The PRESENT trial is ongoing and additional information on the study can be found at www.neuvax.com. A randomized, multicenter, investigator-sponsored, 300 patient Phase 2b clinical trial is also enrolling patients to study NeuVax in combination with Herceptin® (trastuzumab; Genentech/Roche).Apthera, Inc, or “Apthera” (see Note 4). Priorovarian and endometrial cancers. FBP is a highly immunogenic peptide that can stimulate CTLs to that time, we were engaged primarily in conducting discovery researchrecognize and destroy preclinical development activities based on RNAi. In connection with our acquisitionFBP-expressing cancer cells. The FBP vaccine consists of NeuVax™, we reduced the scope of our RNAi activities.On September 26, 2011, we changed our name to Galena Biopharma, Inc. from RXi Pharmaceuticals Corporation in connectionFBP peptide(s) combined with the proposed partial spin-offimmune adjuvant, recombinant human granulocyte macrophage-colony stimulating factor (rhGM-CSF). Galena’s FBP vaccine is currently in a Phase 1/2 trial in two gynecological cancers: ovarian and endometrial adenocarcinomas.our former subsidiary, RXi Pharmaceuticals Corporation, or “RXi.” RXi was initially incorporatedessential thrombocythemia (ET). GALE-401 is a reformulated, controlled release version of anagrelide that is currently only given as RNCS, Inc. and assumedan immediate release (IR) version. Multiple Phase 1 studies in an aggregate 90 patients have shown the name RXi Pharmaceuticals Corporation in conjunctiondrug to be effective at lowering platelet levels while reducing side effects that prevent patients from taking their therapy regularly. Based on a regulatory meeting with the changeFDA, Galena believes a 505(b)(2) regulatory filing is an acceptable paradigm for approval of GALE-401, with the reference drug Agrylin® (anagrelide; Shire Pharmaceuticals). The Phase 1 program has provided the desired PK/PD (pharmacokinetic/pharmacodynamic) profile to enable the Phase 2 initiation in our name2014.Galena. On April 26, 2012, we completedopioid therapy for their persistent baseline cancer pain. The innovative Abstral formulation delivers the partial spin-offanalgesic power and increased bioavailability of RXi,micronized fentanyl in a convenient sublingual tablet which is engageddesigned to dissolve under the tongue in seconds, provide relief of breakthrough pain within minutes, and match the developmentduration of novel RNAi-based therapies.annual reportthese notes to the “company,” “we,” “us” or “our” refer (i) to Galena, our wholly owned subsidiary, Apthera, Inc., or “Apthera,” and our former subsidiary, RXi Pharmaceuticals Corporation, or “RXi,” collectively, prior to theour partial spin-off of RXi;RXi in April 2012; and (ii) to only Galena and Apthera, together, after the partial spin-off.Ascompany has not generated any revenue from inception throughproduct launch of Abstral and the significant commercial operations during the second half of 2013, Galena is no longer a development stage entity in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915, "Development Stage Entities," and the financial statements for the period ended December 31, 2012, the company is considered a development-stage company for accounting purposes.The company had cash and cash equivalents of approximately $32.8 million as of December 31, 2012. The company believes that its existing cash and cash equivalents should be sufficient to fund its operations through at least the second quarter of 2014. This projection is based on our current planned operations and is subject to changes in our plans and uncertainties inherent in our business, and we may need to seek to replenish our existing cash and cash equivalents sooner than we project.44GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)We have not generated revenue to date and may not generate product revenue in the foreseeable future, if ever. We expect to incur significant operating losses as we advance our product candidates through the drug development and regulatory process. We expect to continue to devote a substantial portion of our resources to research and development programs. As a result of the costs expected to be incurred in connection with our recently commenced clinical trials of NeuVax and FBP, our research and development expense has increased significantly from historic levels. We2013 will need to generate significant revenue to achieve profitability and might never do so. In the absence of product revenue, our potential sources of operational funding are expected to be the proceeds from equity financings, funded research and development payments and payments received under partnership and collaborative agreements. There is no guarantee that additional funding will be available to us on acceptable terms, or at all. If we fail to obtain additional funding when needed, we would be forced to scale back or terminate our operations, or to seek to merge with or to be acquired by another company.longer reflect financial information since inception. 2.Basis of Presentation and Summary of Significant Accounting PoliciesestimatesEstimates in preparationPreparation of financial statementsFinancial Statements — The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenuesrevenue and expenses during the reporting period. Actual results could differ materially from those estimates.subsidiaries.subsidiary. All material intercompany accounts have been eliminated in consolidation.accounts.accounts and demand deposits.equity securitiesshares of common stock of our former subsidiary, RXi Pharmaceuticals Corporation, a publicly traded entities,company, and are classified as available-for-sale and carried at fair value on the balance sheet. Changes in the fair value of marketable securities are recorded as other comprehensive income.income (loss).payable, convertible notesreceivable, accounts payable, and capital leases approximate their fair values due to their short-term nature and market rates of interest.45GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)In connection with its annualtest,when facts or circumstances suggest that the carrying value of these assets may not be recoverable. The company’s policy is to identify and record impairment losses, if necessary, on intangible product rights when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.either of these assets as of December 31, 2012.expenses.comprehensive loss.Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)FASB ASC Topic 718, “Compensation — Stock Compensation” (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock basedstock-based payment awards made to employees, non-employee directors, and consultants, including employee stock options.options and warrants. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period. .”.” Non-employee option and warrant grants that do not vest immediately upon grant are recorded as an expense over the vesting period of the underlying stock options.period. At the end of each financial reporting period prior to vesting, the value of these options and warrants, as calculated using the Black-Scholes option-pricing model, will be re-measured using the fair value of the company’s common stock and the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair market value of options and warrants granted to non-employees is subject to change in the future, the amount of the future compensation expense will include fair value re-measurements until the stock options are fully vested.The company recognized $977,000 and $111,000 of stock-based compensation expense from continuing operations related to non-employee stock options for the years ended December 31, 2012 and 2011, respectively.Derivative Financial Instruments — During the normal course of business, from time to time, the company issues warrants and options to vendors as consideration to perform services. It may also issue warrants as part of a debt or equity financing. The company does not enter into any derivative contracts for speculative purposes.The company recognizes all derivatives as assets or liabilities measured at fair value with changes in fair value of derivatives reflected as current period income or loss unless the derivatives qualify for hedge accounting and are accounted for as such. In accordance with FASB ASC Topic 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Stock,” the value of these warrants is required to be recorded as a liability, as the holders have an option to put the warrants back to the company upon the occurrence of certain events set forth in the warrant agreement.46GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)as well as costs to acquire technology licenses and clinical trial expenses.expensesdirect costs associated with clinicalcontract research organizations (CRO)("CROs"), as well as set-up and patient relatedwell as patient-related costs from theat sites at which our trials are trial is being conducted which are billed to us by our CROs as pass-through costs.both as fixed feeson a time and asmaterials basis, or when certain enrollment and monitoring milestones are achieved. Because there is substantive uncertaintyExpense related to a milestone is recognized in the achievement of these milestones, the achievement of the milestones is generally achieved based on the performance of our CROs, and payment is only due ifperiod in which the milestone is reached,achieved or in which we recognize the entire expense related to each milestone in the period the milestonedetermine that it is reached.Other income (expense)Other income (expense) is summarized as follows (in thousands): For the Years Ended
December 31, 2012 2011 $ (10,775 ) $ 8,986 (2,370 ) 109 — (9 ) $ (13,145 ) $ 9,086 2012,2013, the company’s cash equivalents were invested in money market mutual funds. The company’s investment policy does not allow investment in any debt securities rated less than “investment grade” by national ratings services. The company has not experienced any losses on its deposits of cash and cash equivalents. AllAs of the non-interest bearing cash balances were fully insured at December 31, 2012 due to temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning in 2013 insurance coverage reverted to $250,000 per depositor at each financial institution, and the non-interest bearing cash balances may again exceed federally insured limits. As of December 31, 2012,, we had approximately $32,431,000$47,240,000 in interest bearinginterest-bearing accounts above federally insured limits. The company’s comprehensive loss is equal to its net loss for the year ended December 31, 2011.Parent Company’s Net Deficit — The Parent Company’s Net Deficit of the Predecessor consists of CytRx Corporation’s (CytRx) initial investment in Galena and subsequent changes in Galena’s net investment resulting from Galena being an integrated part of CytRx. All disbursements for the Predecessor were made by CytRx.47GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)3.Recently Adopted Accounting PronouncementsMay 2011,February 2013, the FASB issued Accounting Standards Updated (“ASU”) 2011-04, Fair Value MeasurementASU No. 2013-02, Comprehensive Income (Topic 820)220):Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, a new accounting standard that clarifiespronouncement intended to improve the applicationreporting of certain existing fair value measurement guidance and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. Thisreclassifications out of accumulated other comprehensive income. The new standard requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The new standard also requires an entity to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not required to be reclassified in their entirety in the same reporting period, an entity is required to cross-reference to other required disclosures that provide additional detail about those amounts. The new standard was effective on a prospective basis for annual and interim reporting periods beginning on or after December 15, 2011.31, 2012. Adoption of this new standard for the fiscal year ended December 31, 20122013 did not have a material impact on the company’s consolidated financial statements.In September 2011, the FASB issued ASU 2011-08,Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment, a new accounting standard to simplify how entities test goodwill for impairment. The amendments in the Update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Previous guidance under Topic 350 required an entity to test goodwill for impairment, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step one). If the fair value of a reporting unit is less than its carrying amount, then the second step of the test must be performed to measure the amount of the impairment loss, if any. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. This new standard is effective for fiscal years beginning after December 15, 2011. Adoption of this new standard for the fiscal year ended December 31, 2012 did not have a material impact on the company’s consolidated financial statements.In July 2012, the FASB issued ASU No. 2012-02, Intangibles —Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets, a new accounting pronouncement intended to simplify how entities test indefinite-lived intangible assets other than goodwill for impairment. The new standard permits an entity to first assess qualitative factors to determine whether it is “more likely than not” (defined as having a likelihood of more than 50%) that an indefinite-lived intangible asset is impaired, in order to determine whether further impairment testing is necessary. The new standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Adoption of this new standard for the fiscal year ended December 31, 2012 did not have a material impact on the company’s consolidated financial statements.4.NeuVax™ Acquisitioncompany’s NeuVax, product candidate.of which $2 million had been paid as of December 31, 2013. The remaining $30 million of contingent consideration is payable, at the election of the company, in cash or in additional shares of common stock.48GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)follows: (in 000’s) $ 6,367 (i) 6,460 $ 12,827 $ 168 14 11 5,898 12,864 (931 ) (143 ) (1 ) (5,053 ) $ 12,827 Calculation of allocable purchase price: Fair value of shares issued at closing including escrowed shares expected to be released $ 6,367 (i) Estimated value of earn-out 6,460 Total allocable purchase price $ 12,827 Allocation of purchase price: Cash $ 168 Prepaid expenses and other current assets 14 Equipment and furnishings 11 Goodwill 5,898 In-process research and development 12,864 Accounts payable (931 ) Accrued expenses and other current liabilities (143 ) Notes payable (1 ) Deferred tax liability, non-current (5,053 ) $ 12,827 (i) The value of the company’s common stock was based upon a per share value of $1.28, the closing price of the company’s common stock as of the close of business on April 13, 2011. (10%)10% per annum on the $1,000,000 amount of the milestone payment from February 10, 2012 through the day immediately prior to the release of the escrowed shares. During the year ended December 31, 2012, the company recorded additional other expense of $579,000, related to the change in the fair value of the escrowed shares up to the date of release from escrow.yearyears ended December 31, 2013 and 2012, was $926,000 and $2,370,000, respectively, and the decrease in the fair value of the contingent liability during the year ended December 31, 2011 was $109,000. The changes in the fair value of the contingent liability are included in other income (expense) in the accompanying condensed consolidated statements of expenses. The fair value of the contingent liability at December 31, 2013 and 2012 was $6,821,000 and 2011 was $7,142,000, and $6,351,000, of which $935,000$0 and $1,782,000$935,000 is recorded as a current contingent liability, respectively.49GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Net loss from continuing operations $ (4,700 ) Net loss from discontinued operations $ (8,078 ) Net loss per common share, continuing operations $ (0.12 ) Net loss per common share, discontinued operations $ (0.21 ) Net loss per common share $ (0.34 ) 5.RXi Spin-OutContribution Agreementconsistconsisted primarily of our novel RNAi compounds and licenses relating to our RNAi technologies, as well as the lease of our Worcester, Massachusetts laboratory facility, fixed assets and other equipment located at the facility and our employment arrangements with certain scientific, corporate and administrative personnel who became employees of RXi. The company also contributed $1.5$1.5 million of cash to the capital of RXi.$45$45 million, consisting of two one-time payments of $15$15 million and $30$30 million, respectively, if RXi achieves annual net sales equal to or greater than $500$500 million and $1$1 billion, respectively, of any covered products that may be developed with the contributed RNAi technologies.In the contribution agreement, the company made customary representations and warranties to RXi regarding the contributed assets and other matters, and agreed to indemnify RXi against losses arising from a breach— (Continued)Securities Purchase AgreementOn September 24, 2011, the company also entered into a securities purchase agreement with RXi and two institutional investors, pursuant to which the investors agreed to purchase a total of $9,500,000 of Series A Preferred Stock of RXi (“RXi Preferred Stock”) at the closing of the spin-off of RXi, and to lend up to $1,500,000 to RXi to fund its operations between signing and closing (the “Bridge Loan”). The outstanding principal and accrued interest from the Bridge Loan was converted into RXi Preferred Stock at the closing of the spin-off of RXi and represents a portion of the $9,500,000 total investment in RXi Preferred Stock.The RXi Preferred Stock will be convertible by a holder at any time into shares of RXi common stock, except to the extent that the holder would own more than 9.999% of the shares of RXi common stock outstanding immediately after giving effect to such conversion. Without regard to this conversion limitation, the shares of the RXi Preferred Stock held by the Investors upon completion of the RXi financing and the spin-off of RXi were convertible into shares of RXi common stock representing approximately 83% of the shares of RXi common stock that would have been outstanding, assuming the conversion in full of the RXi Preferred Stock.Spin-Off8% of the as-converted common stock of66,959,894 RXi shares, which distribution was completed in April 2012. The company distributed a total of 66,959,894 RXi shares to its shareholdersmade in April 2012. The company retained 33,476,595 shares of common stock of RXi, which arewere subject to a one-year lock up period.one-year lock-up period that expired on April 27, 2013. On July 24, 2013, RXi effected a 1-for-30 reverse stock split of its outstanding shares of common stock, including RXi shares held by the company. During the year ended December 31, 2013, the company sold 1,115,887 RXi shares, on a post-split basis, for total proceeds of $3,911,000, which is included in other income as realized gains on sale of marketable securities. There were no shares sold during the year ended December 31, 2012.approximately $2,678,000,$2,678,000, based on the average of high and low bid pricesclosing price of RXi shares on the last trading day of $0.08the year of $2.40 per share, on a post-split basis, as reported inon the OTC Bulletin Board. including for previously reported periods as discontinued operations in the accompanying condensed consolidated statements of expensescomprehensive loss retroactively for all periods presented. The net assets of RXi were removed from the condensed consolidated balance sheet as of the date of the spin-off, and were recorded as an equity distribution. Summarized balance sheet information related to the net assets distributed in the spin-off are as follows (in thousands): April 27,
2012 December 31,
2011 $ 87 $ 556 66 783 315 355 (1,607 ) (1,747 ) (1,000 ) (500 ) (20 ) (34 ) $ (2,159 ) $ (587 ) 51GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Purchase Agreement Terms and ConditionsIn the securities purchase agreement, the parties made customary representations and warranties to the other parties and agreed to indemnify each other against losses arising from a breach of their respective representations, warranties and covenants. In accordance with the securities purchase agreement, on April 27, 2012, RXi reimbursed the company and the Investors $300,000 and $100,000, respectively, for transaction costs relating to the contribution agreement, the securities purchase agreement and the transactions called for by the agreements.RXi Convertible Promissory NotesPursuant to the securities purchase agreement, the RXi investors purchased $1,000,000 of secured convertible promissory notes of RXi, the proceeds of which were used to fund RXi’s operations pending the spin-off of RXi. The RXi convertible notes bore interest at a rate of 7% per annum and were converted into shares of RXi Preferred Stock at a conversion price of $1,000 per share in conjunction with the completion of the spin-off.6.Fair Value Measurements52GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)hierarchy.inputs. The valuationvaluations for Level 1 waswere determined based on a “market approach” using quoted prices in active markets for identical assets. ValuationsValuation of these assets dodoes not require a significant degree of judgment. The company categorized its warrants potentially settleable in cash as a Level 2 hierarchy.inputs. The warrants are measured at market value on a recurring basis and are being marked to market each quarter-end until they are completely settled. The warrants are valued using the Black-Scholes method,an appropriate pricing model, using assumptions consistent with our application of ASC 718. The contingent purchase price consideration is categorized as a Level 3 hierarchyinputs and is measured at its estimated fair value on a recurring basis and is adjusted at each quarter-end until it is completely settled. The contingent price consideration is valued based on the expected timing of milestones, the expected probability of success for each milestone and the updated discount rates based on a corporate debt interest rate index publicly issued. December 31,
2012 Quoted Prices In
Active Markets
(Level 1) Significant Other
Observable Inputs
(Level 2) Unobservable Inputs
(Level 3) $ 32,431 $ 32,431 $ — $ — 2,678 2,678 — — $ 35,109 $ 35,109 $ — $ — $ 10,964 $ — $ 10,964 $ — 7,142 — — 7,142 $ 18,106 $ — $ 10,964 $ 7,142 December 31,
2011 Quoted Prices in
Active Markets
(Level 1) Significant Other
Observable Inputs
(Level 2) Unobservable Inputs
(Level 3) $ 11,433 $ 11,433 $ — $ — $ 11,433 $ 11,433 $ — $ — $ 3,746 $ — $ 3,746 $ — 6,351 — — 6,351 $ 10,097 $ — $ 3,746 $ 6,351 company has classified itsfollowing tables present information about our assets and liabilities for contingent earn-out consideration relating to its acquisitions of Apthera within Level 3 of themeasured at fair value hierarchy becauseon a recurring basis in the fair values are determined using significant unobservable inputs, which included probability weighted cash flows.53Description December 31, 2013 Assets: Cash equivalents $ 42,349 $ 42,349 $ — $ — Marketable securities — — — — Total assets measured and recorded at fair value $ 42,349 $ 42,349 $ — $ — Liabilities: Warrants potentially settleable in cash $ 48,965 $ — $ 48,965 $ — Contingent purchase price consideration 6,821 — — 6,821 Total liabilities measured and recorded at fair value $ 55,786 $ — $ 48,965 $ 6,821 — (Continued)Description December 31, 2012 Assets: Cash equivalents $ 32,431 $ 32,431 $ — $ — Marketable securities 2,678 2,678 — — Total assets measured and recorded at fair value $ 35,109 $ 35,109 $ — $ — Liabilities: Warrants potentially settleable in cash $ 10,964 $ — $ 10,964 $ — Contingent purchase price consideration 7,142 — — 7,142 Total liabilities measured and recorded at fair value $ 18,106 $ — $ 10,964 $ 7,142 2011the years ended December 31, 2013 or 2012. A reconciliation of the beginning and ending Level 3 liabilities for the yearyears ended December 31, 2013 and 2012 is as follows: Fair Value
Measurements
Using Significant
Unobservable
Inputs
(Level 3) (In Thousands) $ — 6,460 (109 ) 6,351 (1,579 ) 2,370 $ 7,142 7.Capital Lease Obligations Balance, January 1, 2012 $ 6,351 Milestone payment (1,579 ) Change in the estimated fair value of the contingent purchase price consideration 2,370 Balance, December 31, 2012 7,142 Milestone payment (1,247 ) Change in the estimated fair value of the contingent purchase price consideration 926 Balance at December 31, 2013 $ 6,821 company acquired equipment under capital leases thatfair value of the contingent purchase price consideration is includedmeasured at the end of each reporting period using Level 3 inputs in equipmenta probability-weighted, discounted cash-outflow model. The significant unobservable assumptions include the probability of achieving each milestone, the date we expect to reach the milestone, and furnishings in the accompanying consolidated balance sheet. The costa determination of present value factors used to discount future expected cash outflows.accumulated amortization of capitalized leased equipment was approximately $40,500 and $11,400 at December 31, 2012, respectively, and $272,000 and $95,000 at December 31, 2011, respectively. Amortization expense for capitalized leased equipment was approximately $8,700 in 2012 and $54,000 in 2011.8.Accrued Expenses and Other Current Liabilities For the Years
Ended
December 31, 2012 2011 $ 116 $ 520 1,705 755 217 868 — 816 — 25 $ 2,038 $ 2,984 54 December 31, 2013 2012 Clinical development expense $ 3,109 $ 1,705 Patient assistance programs 2,618 — Compensation and related benefits 1,999 217 Professional fees 713 116 Royalties 158 — Interest expense 70 — Accrued expenses and other current liabilities $ 8,667 $ 2,038 — (Continued)- Continued9.Commitments and ContingenciesFor the year ending December 31, 2014 $ 2,149 2015 3,938 2016 3,913 Total future principal payments 10,000 Unamortized debt issuance costs (net of fair value of warrants issued) (108 ) Total debt 9,892 Less current portion (2,149 ) Total long-term debt, net $ 7,743 below (see also Note 16).20122013 are as follows (in thousands): Operating
Leases(1) Non-Cancelable
Employment
Agreements(2) Subtotal Cancelable
License
Agreements(3) Total $ 25 $ 1,444 $ 1,469 $ 300 $ 1,769 3 539 542 325 867 3 300 303 350 653 2 100 102 350 452 — — — 350 350 — — — 6,865 6,865 $ 33 $ 2,383 $ 2,416 $ 8,540 $ 10,956 Subtotal Total 2014 $ 72 $ 450 $ 522 $ 325 $ 847 2015 74 300 374 350 724 2016 83 100 183 350 533 2017 82 — 82 350 432 2018 70 — 70 6,865 6,935 Total $ 381 $ 850 $ 1,231 $ 8,240 $ 9,471 Operating leases are primarily facility and equipment related obligations with third party vendors. Operating lease expenses during the years ended December 31, 2013, 2012, and 2011 were approximately $77,000, $139,000 and $233,000, respectively. Employment agreement obligations include management contracts, as well as scientific advisory board member compensation agreements. Certain agreements, which have been revised from time to time, provide for minimum salary levels, adjusted annually at the discretion of the Compensation Committee, as well as for minimum bonuses that are payable. License agreements generally relate to the company’s obligations with The Board of Regents, University of Texas and Henry Jackson Foundation for our oncology therapiestherapies. The company continually assesses the progress of its licensed technology and the progress of its research and development efforts as it relates to its licensed technology and may terminate with notice to the licensor at any time. In the event these licenses are terminated, no amounts will be due.55GALENA BIOPHARMA, INC.Preferred StockNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The company has authorized up to 10.Stockholders’ EquityMarch 2011 Registered Direct Offering — On March 4, 2011,5,000,000 shares of preferred stock, $0.0001 par value per share, for issuance. The preferred stock will have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the company’s board of directors upon its issuance. To date, the company closed an underwritten public offering of 6,000,000 units at a pricehas not issued any preferred shares.the public of $1.35 per unit for gross proceeds of $8.1 million (the “March 2011 Offering”). The offering provided approximately $7.3 million to the company after deducting the underwriting discounts and commissions and offering expenses. Each unit consists of (i) one share of common stock, (ii) a thirteen-month warrant to purchase 0.50 of a share of common stock at an exercise price of $1.70 per share (subject to anti-dilution adjustment) and (iii) a five-year warrant to purchase 0.50 of a share of common stock at an exercise price of $1.87 per share (subject to anti-dilution adjustment). On April 15, 2011, the holders of outstanding warrants issued in the March 2011 Offering to purchase an aggregate of 3,450,000200,000,000 shares of common stock, agreed to exchange such warrants for warrants exercisable for the same number of shares as those being exchanged, but otherwise on the same terms of the warrants sold in the company’s April 2011 financing. Prior to the exchange, the company recorded a decrease in fair$0.0001 par value of $1,000,000 related to the exchanged warrants. Upon the exchange, the company recorded a loss of $900,000, which represented the difference between the adjusted fair value of the March 2011 warrants as compared to the fair value of the April 2011 warrants received in the exchange. As a result of a subsequent offering that was completed on April 15, 2011, the exercise price of the remaining 2,550,000 outstanding warrants sold in the March 2011 Offering was reduced to $1.00 per share, as a result of the anti-dilution adjustment. As a result of the subsequent offering on September 26, 2011, the exercise price of the remaining 5,850,000 warrants sold in the March 4, 2011 Offering were reduced to $0.65 per share as a result of the anti-dilution adjustment.April 2011 Registered Direct Offering — On April 20, 2011, the company completed an underwritten public offering of 11,950,000 units at a price to the public of $1.00 per unit for gross proceeds of approximately $12 million (the “April 2011 Offering”). Each unit consisted of one shareissuance. Shares of common stock and a warrant to purchase one share of common stock at an exercise price of $1.00 per share (subject to anti-dilution adjustment). The shares of common stock and warrants were immediately separable and no separate units were issued. The warrants are exercisable beginning one year and one day from the date of issuance, and expire on the sixth anniversary of the date of issuance. Net proceeds, after underwriting discounts and commissions and other offering expenses, were approximately $10.9 million. As a result of the subsequent offering that was completed on September 26, 2011, the exercise price of the 11,950,000 outstanding warrants sold in the April 2011 Offering was reduced to $0.65 per sharereserved as a result of the anti-dilution adjustment. On December 6, 2011, the company effected a warrant exchange with a ratio of 1.42857 warrants in exchange for one share of common stock with several of the April 2011 warrant holders. In total, 5,930,000 warrants were exchanged for 4,151,000 shares of common stock in this transaction.follows:September 2011 Registered Direct Offering — On September 26, 2011, the company completed a direct offering of 700,000 shares of common stock for gross proceeds of $455,000, resulting in approximately $415,000 of net proceeds to the company after deducting the underwriting discounts and commissions and offering expenses.On March 30, 2011, the company entered into a severance agreement with its former President and Chief Executive Officer whereby, among other things, it agreed to issue shares to the former officer such that the number of shares issued times the market price of the shares on the day immediately following the separation date equal a value of $300,000. As of December 31, 2011, all payments and shares due under this severance agreement have been issued and recorded to stock compensation expense.licencelicense agreement for NeuVax covering territorial rights for the compound in South Korea that the company acquired in its merger acquisition with Apthera.56— (Continued)- Continued 11.Warrants20122013 and 20112012 (in thousands): December
2012
Warrants April 2011
Warrants March
2011
Warrants March
2010
Warrants August
2009
Warrants Consultant
Warrants Total — — — 540 978 733 2,251 — 11,950 6,000 — — — 17,950 — 3,450 (3,450 ) — — — — — (5,930 ) — — — — (5,930 ) — — (150 ) — — — (150 ) — 9,470 2,400 540 978 733 14,121 7,578 — — — — 400 7,978 — (6,624 ) (2,039 ) (180 ) — (40 ) (8,883 ) 7,578 2,846 361 360 978 1,093 13,216
December
2017
April
2017
March
2016
March
2016
August
2014
January
2014
Total Outstanding, January 1, 2012 — — 9,470 2,400 540 978 733 14,121 Granted — 7,578 — — — — 400 7,978 Exercised — — (6,624 ) (2,039 ) (180 ) — (40 ) (8,883 ) Outstanding, December 31, 2012 — 7,578 2,846 361 360 978 1,093 13,216 Granted 7,044 — — — — — 182 7,226 Exercised (602 ) (2,661 ) (1,688 ) (185 ) (70 ) — (196 ) (5,402 ) Expired — — — — — — (190 ) (190 ) Outstanding, December 31, 2013 6,442 4,917 1,158 176 290 978 889 14,850 Expiration September 2018 December 2017 April 2017 March 2016 March 2016 August 2014 Varies 2014-2020 MarchAugust 2009. These warrants are potentially settleable in cash and were determined not to be indexed to the company’s ownour common stock.The changeAny decrease or increase in the estimated fair value of the warrant liability since the most recent balance sheet date is recorded in the condensed consolidated statement of expensescomprehensive loss as other income (expense). The fair value of the warrants is estimated using the Black-Scholes optionan appropriate pricing model with the following inputs: As of December 31, 2012 December
2012
Warrants April 2011
Warrants March
2011
Warrants March
2010
Warrants August
2009
Warrants $ 1.90 $ 0.65 $ 0.65 $ 2.18 $ 4.50 4.98 4.30 3.18 3.24 1.59 80.93 82.48 69.90 69.79 74.13 0.72 0.59 0.39 0.40 0.21 As of December 31, 2011 December
2012
Warrants April 2011
Warrants March
2011
Warrants March
2010
Warrants August
2009
Warrants $ — $ 0.65 $ 0.65 $ 2.34 $ 4.50 — 5.30 0.03 4.80 2.60 — 98.91 98.91 98.91 98.91 — 0.83 0.02 0.83 0.31 As of December 31, 2013 Strike price $ 2.50 $ 1.90 $ 0.65 $ 0.65 $ 2.15 $ 4.50 Expected term (years) 4.72 3.98 3.31 2.18 2.24 0.59 Volatility % 71.97 % 71.38 % 71.71 % 73.45 % 73.36 % 66.85 % Risk-free rate % 1.61 % 1.25 % 0.93 % 0.45 % 0.47 % 0.11 % As of December 31, 2012 Strike price — $ 1.90 $ 0.65 $ 0.65 $ 2.18 $ 4.50 Expected term (years) 0.00 4.98 4.30 3.18 3.24 1.59 Volatility % — 80.93 % 82.48 % 69.90 % 69.79 % 74.13 % Risk-free rate % — 0.72 % 0.59 % 0.39 % 0.40 % 0.21 % issuance.valuation. The dividend yield used in the pricing model is zero, because the company has no present intention to pay cash dividends.57GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)20122013 and 20112012 were as follows (in thousands): December
2012
Warrants April 2011
Warrants March
2011
Warrants March
2010
Warrants August
2009
Warrants Total $ — $ — $ — $ 1,195 $ 1,943 $ 3,138 — 11,015 1,794 — — 12,809 — (95 ) — — — (95 ) — (3,120 ) — — — (3,120 ) — (4,655 ) (1,373 ) (1,079 ) (1,879 ) (8,986 ) — 3,145 421 116 64 3,746 7,286 — — — — 7,286 — (8,130 ) (2,456 ) (257 ) — (10,843 ) (332 ) 8,295 2,413 328 71 10,775 $ 6,954 $ 3,310 $ 378 $ 187 $ 135 $ 10,964 Total Warrant liability, January 1, 2012 $ — $ — $ 3,145 $ 421 $ 116 $ 64 $ 3,746 Fair value of warrants granted — 7,286 — — — — 7,286 Fair value of warrants exercised — — (8,130 ) (2,456 ) (257 ) — (10,843 ) Change in fair value of warrants — (332 ) 8,295 2,413 328 71 10,775 Warrant liability, December 31, 2012 — 6,954 3,310 378 187 135 10,964 Fair value of warrants granted 8,238 — — — — — 8,238 Fair value of warrants exercised (1,931 ) (8,482 ) (3,455 ) (260 ) (121 ) — (14,249 ) Change in fair value of warrants 16,643 19,588 5,214 645 879 1,043 44,012 Warrant liability, December 31, 2013 $ 22,950 $ 18,060 $ 5,069 $ 763 $ 945 $ 1,178 $ 48,965 services.services provided to us. Additionally, on May 8, 2013 as a part of our Loan financing, we granted Oxford Financial LLC warrants to purchase 182,186 shares of common stock at an exercise price of $2.47, which equaled to the 20-day average market price of our common stock prior to the date of the grant. The warrants were valued using the Black Scholes model. The fair value assumptions for the grant included a volatility of 75.34%, expected term of seven years, risk free rate of 1.20%, and a dividend rate of 0.00%. The fair value of the warrants granted was $1.93 per share. These warrants are recorded in equity at fair value upon issuance, and not as liabilities, and are not reported as liabilities on the balance sheet.58GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)12.Development Stage Supplemental Equity DisclosureSummarized below are the company’s equity (common stock and common stock options) transactions since the company’s inception through December 31, 2012. Date of Issuance Shares of
Common
Stock Dollar
Amount of
Consideration
($) Price per
Share or
Exercise
Price per
Share
($) Counter
Party to
Transaction Nature of
Non-Cash
Consideration Basis of
Assigning Cost April 3, 2006 1,624,278 2 0.002 Founders NA Cash January 8, 2007 7,040,318 48 (A) 0.007 CytRx Contributed
Assets Predecessor
Cost April 30, 2007 3,273,292 15,348 (B) 5.19 CytRx NA Cash April 30, 2007 462,112 2,311 5.00 UMMS Intellectual
Properties Independent
Third Party
Valuation August 18, 2007 30,000 150 5.00 Directors — Cash September 28, 2007 188,387 978 5.19 CytRx NA Independent
Third Party
Valuation November 21, 2007 66,045 331 5.00 Exercise of Stock
Options NA Cash June 26, 2008 1,073,299 7,918 8.12 PIPE NA Net Cash October 6, 2008 and
November 16, 2008 5,500 26 5.00 Exercise of Stock
Options NA Cash January 30, 2009 58,398 NA NA NA Market Value May 1, 2009 281 NA 4.19 Exercise of Stock
Options NA Cash August 3, 2009 and
August 4, 2009 2,385,715 7,714 3.50 Registered Direct NA Net Cash March 22, 2010 2,700,000 15,235 6.00 Registered Direct NA Net Cash Various — 2010 53,500 254 4.75 Exercise of Stock
Options NA Cash January 2, 2010 and
February 9, 2010 86,634 207 NA Restricted Stock
Units NA Market Value March 4, 2011 6,000,000 7,307 1.35 Registered Direct NA Net Cash March 15, 2011 220,729 256 1.16 Restricted Stock
Units NA Market Value April 13, 2011 4,974,090 6,367 NA Acquired Company NA Market Value April 20, 2011 11,950,000 10,853 1.00 Registered Direct NA Net Cash July 1, 2011 18,824 15 0.83 ESPP NA Cash July 27, 2011 150,000 150 1.00 Exercise of
Warrants NA Cash September 26, 2011 700,000 455 0.65 Registered Direct NA Cash December 6, 2011 4,151,000 3,120 NA Exchange with
Warrant Holders NA Market Value Various — 2011 599,051 594 NA Stock Compensation NA Market Value January 1, 2012 98,758 39 0.39 ESPP NA Cash February 17, 2012 579,710 385 0.69 Registered Direct NA Net Cash April 13, 2012 9,751,000 13,478 1.50 Registered Direct NA Net Cash June 15, 2012 1,315,849 1,579 NA Contingent Purchase
Price Consideration NA Market Value July 1, 2012 135,592 54 0.40 ESPP NA Cash December 18, 2012 15,156,250 22,513 1.60 Registered Direct NA Net Cash Various — 2012 8,433,003 16,551 1.97 Exercise of
Warrants NA Cash Various — 2012 288,285 364 NA Stock Compensation Services Market Value Various — 2012 25,937 21 0.81 Exercise of Stock
Options NA Cash 59GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(A)Transactions between related parties are accounted for at our predecessor’s historical cost, with the intellectual property which was previously expensed on our predecessor’s books being recorded at zero cost and equipment and furnishings being recorded at $48,000.(B)The company received gross proceeds of $17.0 million for the issuance of the 3,273,292 shares of common stock, which equals $5.19 per share. The gross proceeds were reduced by a reimbursement to our predecessor of (1) $1.3 million for the company’s pro rata share of offering costs related to the April 17, 2007 private placement conducted by our predecessor to fund its capital contribution to the company and (2) $363,000 of expenses incurred on behalf of the company for the year ended December 31, 2006. Net proceeds to the company after these charges were $15.3 million or $4.69 a share.13.Stock Based Compensationasin consideration for services rendered by non-employees, the company recognizes compensation expense in accordance with the requirements of ASC Topic 505-50. Non-employee option and warrant grants that do not vest immediately upon grant are recorded as an expense over the vesting period of the underlying stock options.period. At the end of each financial reporting period prior to vesting, the value of these options and warrants, as calculated using the Black-Scholes option-pricing model, is being re-measured using the fair value of the company’s common stock and the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair market value of options and warrants granted to non-employees is subject to change in the future, the amount of the future compensation expense will include fair value re-measurements until the stock options and warrants are fully vested.60— (Continued)- Continued 2013 2012 2011 Research and development $ 754 $ 580 $ 139 Selling, general, and administrative 2,150 1,179 2,386 Total stock-based compensation $ 2,904 $ 1,759 $ 2,525 is currently usinguses the Black-Scholes option-pricing model and the following weighted-average assumptions to determine the fair value of all its option grants. Forstock options granted during the years ended December 31, 2012 and 2011, the following assumptions were used: 2012 2011 0.84% – 1.13% 0.92% – 3.16% 75.44% – 76.85% 98.61% – 113.87% 5.50 – 6.25 4.71 – 9.25 0.00% 0.00% 2013 2012 Risk free interest rate 1.57 % 1.05 % Volatility 77.98 % 75.76 % Expected lives (years) 6.25 6.13 Expected dividend yield 0.00 % 0.00 % weighted averageweighted-average fair value of options granted during the years ended December 31, 2013 and 2012 was $1.98and 2011 was $0.70 and $0.89 per share, respectively.years.years. The expected life assumptions for non-employees were based upon the contractual term of the option. The dividend yield assumption ofis zero, is based uponbecause the fact that Galenacompany has never paid cash dividends and presently has no intention of paying cash dividends in the future. The risk-free interest rate used for each grant was also based upon prevailing short-term interest rates. The company has estimated an annualized forfeiture rate of 15% for options granted to its employees, 8% for options granted to senior management and no forfeiture ratezero for thenon-employee directors. The company will record additional expense if the actual forfeitures are lower than estimated and will record a recovery of prior expense if the actual forfeiture rates are higher than estimated.The company recorded approximately $1,394,000 and $3,001,000stock-based compensation from continuing operations related to employee and non-employee stock options for the years ended December 31, 2012 and 2011, respectively. As of December 31, 2012,2013, there was $1,240,026$12,033,000 of unrecognized compensation cost related to outstanding options that is expected to be recognized as a component of the company’s operating expenses over a weighted averageweighted-average period of 3.42.78 years.On November 4, 2009, Tod Woolf, Ph.D., resigned as our President, Chief Executive Officer and a memberour Board of Directors. According to the Separation Agreement between Dr. Woolf and the company, the company agreed to extend the exercise period for all of Dr. Woolf’s vested Stock Options as of November 4, 2009, to the later of: (i) a period of two (2) years from his resignation (until November 4, 2011), or (ii) ninety (90) days following the end of the term of the SAB Agreement (February 4, 2013) or such earlier date as the SAB Agreement may be terminated pursuant to the terms of the SAB Agreement provided Dr. Woolf has not violated the non-competition provisions of the SAB Agreement prior to the date of exercise (whether or not the SAB Agreement is still in effect at that time). Notwithstanding any provision of the company’s 2007 Incentive Plan, the company also agreed that Dr. Woolf’s previously awarded Stock Options shall continue to vest during his continuing role in the company in the New Position. The total expense for 2012 and 2011 was $6,160 and $65,000, respectively.During the fiscal year ended 2011, we granted to our President and Chief Executive Officer 300,000 stock options subject to performance-based vesting. The aggregate fair market value of the stock option grant was valued using the lattice model and is being amortized to compensation expense over the vesting period. Compensation expense recognized related to this grant was approximately $31,000 and $23,000 for the years ended December 31, 2012 and 2011, respectively.As of December 31, 2012,201312,500,00016,500,000 shares of common stock were reserved for issuance under the company’s 2007 Incentive Plan, including 7,672,38413,159,000 shares subject to outstanding common stock options granted under thisthe plan and 3,702,3361,927,000 shares available for future grants. The administrator of the plan determines the times when an option may become exercisable. Vesting periods of options granted to date include vesting upon grant to vesting at the end of a have not exceeded four year period.years. The options generally will expire, unless previously exercised, no later than ten years from the grant date. The company is using unissued shares for all shares issued for options, restricted share awards and ESPP issuances.61— (Continued)the options’option activity of the company’s stock option plan: Stock
Options Weighted
Average
Exercise Price 4,333,136 $ 5.10 3,322,500 1.21 — — (1,492,499 ) 4.99 6,163,137 3.03 1,800,000 0.99 (25,937 ) 0.85 (264,816 ) 3.52 7,672,384 2.54 4,673,768 3.40 5,734,817 3.01 Outstanding at December 31, 2012 7,672 $ 2.54 Granted 7,113 2.87 Exercised (289 ) 1.21 Cancelled (1,337 ) 2.80 Outstanding at December 31, 2013 13,159 $ 2.73 Options exercisable at December 31, 2013 6,557 $ 2.63 and exercisable atas of December 31, 2013, 2012, and 2011 was 7.38 years8.09, 7.87, and 6.87 years,7.56, respectively. The weighted average remaining contractual life of options outstanding and exercisable atas of December 31, 2013, 2012, and 2011 was 7.87 years6.76, 7.38, and 7.56 years,6.87, respectively.2011 was $2,288,000, and $0, respectively. The aggregate intrinsic value of exercisable options as of December 31, 2013 and 2012 was $16,376,000 and 2011$1,394,000, respectively. There was $1,394,000 and $0, respectively.no aggregate intrinsic value of exercisable or outstanding options as of December 31, 2011. The aggregate intrinsic value is calculated based on the positive difference between the closing fair market value of the company’scompany's common stock and the exercise price of the underlying options.2011 was approximately $17,650 and $0,$18,000, respectively.Stock Options Modified — On April 14, 2011, all of the company’s directors and certain of the company’s executive officers executed agreements with the company under which they agreed that none of their outstanding stock There were no options will be exercisable unless and until the company increases the number of authorized shares of common stock to a number that is sufficient to permit the exercise or conversion in full of all then outstanding options of the company (including their stock options), warrants and other securities of the company that are convertible into shares of common stock. An aggregate of 3,498,256 option shares are covered by these agreements. For accounting purposes, the agreement of all of the company’s directors and certain executive officers to place restrictions of the exercisability of their options is treated as a modification of their options resulting in the reclassification of the options from equity to a liability. In connection with the modification, the company recognized compensation cost equal to the greater of (a) the grant date fair value of the original equity award plus an incremental cost associated with the modification or (b) the fair value of the modified award when it is settled. On July 15, 2011, the Board of Directors of the company adopted an amendment to increase the authorized shares of common stock to 125,000,000, which was presented to and approved by the stockholders of the company at the 2011 Annual Meeting of Stockholders. This increase in the authorized shares was sufficient to permit the exercise or conversion in full of all then outstanding options of the company (including their stock options), warrants and other securities of the company that are convertible into shares of common stock, as a result, the liability was marked to market through July 15, 2011 and, upon settlement, the value of $1,036,000 was reclassified to additional paid in capital. As a result of the modification, the company recorded additional stock compensation expense of $35,000exercised during the year ended December 31, 2011.62GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)one percent (1%)1% of the total shares of stock then outstanding and (b) 1,000,000 shares. As of December 31, 2012,2013, an aggregate of 809,022756,490 shares of common stock were authorized and available for future issuance under the ESPP. The company has issued 190,978243,510 shares under the ESPP through December 31, 2012.2013.EachIf granted, each RSU iswould be granted at the fair market value basedof the company's common stock on the date of grant. Vesting is determined on a grant by grantgrant-by-grant basis. 2012 and 2011, the company granted a total of 0 and 220,729 RSUs, respectively.RSUs. The RSUs granted in 2011 had an aggregate intrinsic value of $256,000. As of December 31,$256,000 and fully vested during 2012. There were no RSU's granted in 2012 all of the RSUs had vested in full.14.Net Loss Per Share Year Ended December 31, 2013 2012 2011 Change in fair value of warrants potentially settleable in cash $ (44,001 ) $ (10,775 ) $ 8,986 Realized gain on sale of marketable securities 3,911 — — Change in fair value of the contingent purchase price liability (926 ) (2,370 ) 109 Miscellaneous other income 37 — (9 ) Total other income (expense) $ (40,979 ) $ (13,145 ) $ 9,086 weighted averageweighted-average number of common shares outstanding. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted averageweighted-average number of common shares that would have been outstanding during the period assuming the issuance of common shares for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants. Because the inclusion of potential common shares would be anti-dilutive for all periods presented, diluted net loss per common share is the same as basic net loss per common share.potentialpotentially dilutive common shares excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive: December 31, 2012 2011 7,672,384 6,163,137 13,215,576 14,120,642 20,887,960 20,283,779 63GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)15.Income Taxes December 31, 2013 2012 Warrants to purchase common stock 14,850 13,216 Options to purchase common stock 13,159 7,672 Total 28,009 20,888 As of December 31, 2012 2011 $ — $ — — — — — (894 ) — (158 ) — (1,052 ) — $ (1,052 ) $ — As of December 31, 2013 2012 Current Federal $ — $ — State — — Total current — — Deferred expense (benefit) Federal 894 (894 ) State 158 (158 ) Total deferred 1,052 (1,052 ) Total income tax expense (benefit) $ 1,052 $ (1,052 ) As of December 31, 2012 2011 $ 23,632 $ 18,786 3,201 3,160 (1,052 ) — 7,944 6,885 (328 ) 193 8,194 7,458 41,591 36,482 (41,591 ) (36,482 ) $ — $ — As of December 31, 2013 2012 Net operating loss carryforwards $ 33,539 $ 23,632 Tax credit carryforwards 3,549 3,201 Unrealized gain on marketable securities — (1,052 ) Stock based compensation 8,322 7,944 Other 12 (328 ) Licensing deduction deferral 8,682 8,194 Gross deferred tax assets 54,104 41,591 Valuation allowance (54,104 ) (41,591 ) Net deferred tax asset $ — $ — As of December 31, 2012 2011 $ 5,053 $ 5,053 $ 5,053 $ 5,053 64GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) As of December 31, 2013 2012 In-process research and development not subject to future amortization for tax purposes $ 5,053 $ 5,053 Gross deferred tax liability $ 5,053 $ 5,053 As of December 31, 2012 2011 $ (1,052 ) $ — 3,664 (3,361 ) (11,688 ) (3,905 ) 152 172 8,939 8,551 — (260 ) (1,067 ) (1,197 ) $ (1,052 ) $ — As of December 31, 2013 2012 Expected federal income tax benefit $ (25,713 ) $ (11,688 ) State income taxes after credits (3,676 ) (1,067 ) Unrealized gain on marketable securities 1,052 (1,052 ) Changes in warrant value 17,283 3,664 Stock compensation 813 152 Effect of change in valuation allowance 11,408 8,939 Income tax credits (240 ) — Other 125 — $ 1,052 $ (1,052 ) 2012,2013, the company had domestic federal and state net operating loss carryforwards of approximately $57.2$83.9 million and $50.5$49.8 million, respectively, available to reduce future taxable income, which expire at various dates beginning in 2013 through 2032.2033. The company also had federal and state research and development tax credit carryforwards of approximately $2,000,000$2.2 million and $1,900,000,$2.0 million, respectively, available to reduce future tax liabilities and which expire at various dates beginning in 2023 through 2032. The income tax benefitexpense for the year ended December 31, 20122013 relates to the unrealizedrealized gain on availablesale of marketable securities.sale securities.20082009 tax year and beyond. The company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The company has not incurred any interest or penalties. In the event that the company is assessed interest or penalties at some point in the future, they will be classified in the financial statements as general and administrative expense.16.License Agreementsagency. In certain agreements,agency, and the company ismay be required to make royalty payments based upon a percentage of net sales.individually inand are likely to fluctuate from period to period.event that the company develops product candidates covered by the intellectual property licensed under any such arrangement, and in the unlikely event that milestones for multiple products covered by these arrangements were reached in the same period, the aggregate charge to expense could be material to the results of operations. In addition, these arrangements often give the company discretion to unilaterally terminate development of the product which would allow the company toand thereby avoid making thefuture contingent payments; however, the company is unlikely to cease development if the compound successfully achieves clinical testing objectives.65GALENA BIOPHARMA, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)NeuVax™NeuVaxTM, the company assumed theacquired rights and assumed obligations ofunder a certain license agreement as amended, fromamong Apthera and The University of Texas M. D. Anderson Cancer Center (“MDACC”) and The Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc. (“HJF”) which grants exclusive worldwide rights to a U.S. patent covering the nelipepimut-S peptide and several U.S. and foreign patents and patent applications covering methods of using the peptide as a vaccine. Under the terms of this license, we are required to make futurepay an annual maintenance fee of $200,000, we paid a milestone payment of $200,000 upon commencing the Phase 3 PRESENT trial of NeuVax and other clinical milestone payments, as well as clinical milestone payments and royalty payments based on sales of NeuVax or other therapeutic products developed from the licensed technologies. As part of the expected payments under the terms of the license, the company must pay an annual maintenance fee of $200,000. In addition, upon commencing the Phase 3 trial, we will pay a milestone payment of $200,000.In July 2011, the company entered into a subsequent non-exclusive license agreement with HJF which has since been made exclusive, granting patent rights to the use of the nelipepimut-S peptide in combination with Herceptin®. Under the terms of the license, the company paid an issue royalty fee of $100,000. In addition, the company must pay an annual maintenance fee of $25,000 for each of two patents and royalties based on net sales upon commercialization.In September 2011, the company licensed worldwide rights to develop and commercialize a Folate Binding Protein-E39 (FBP) targeted vaccine to prevent recurrence in gynecological cancers such as ovarian and endometrial adenocarconimas. The FBP vaccine was licensed from The University of Texas M D Anderson Cancer Center and Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc. FBP has been granted Investigational New Drug approval by the U.S. Food and Drug Administration to enter clinical trials. Institutional Review Board approval has also been received which allowed the company to initiate Phase 1 trials by the end of 2011. As part of the expected payments under the terms of the license, the company paid an issue royalty fee of $100,000. Additionally, the company shall pay the HJF a non-creditable, nonrefundable License issue royalty in the sum of $15,000 for each additional item of follow-on intellectual property. In addition, the company must pay an annual maintenance fee of $25,000 in 2012 and $50,000 in 2013.U.S. Food and Drug AdministrationFDA or the European Medicines Agency, and to market, sell and distribute NeuVax in Israel assuming such approval is obtained. ABIC’s rights also include a right of first refusal in Israel for all future indications for which NeuVax™NeuVax may be approved. Under the license and supply agreement, ABIC will assume responsibility for regulatory registration of NeuVax in Israel, provide financial support for local development, and commercialize the product in the region in exchange for making royalty payments to us based on future sales of NeuVax. ABIC also agrees in the license and supply agreement to purchase from us all supplies of NeuVax at a price determined according to a specified formula.17.Related Party TransactionsGalena expensed $507,339 to TroyGould PCThe company incurred $577,000 for services provided by TroyGould PC during the year ended December 31, 2013, as wells as $100,000 for services related to our underwritten public offering in 2011. In 2012, Galena expensed $399,932 in cash and a fair market valueSeptember 2013, which is recorded as reduction of $135,000 in Galenagross proceeds from the issuance of common stock for services.as of December 31, 2013. At December 31, 2012,2013, Galena owed $201,000$177,000 to TroyGould PC.18.Employee Benefit PlanTo date,For the year ending December 31, 2013, the company has not made any matching contributions.contributions totaling $35,000. There were no contributions to the plan in 2012 or 2011. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2013 Net revenue $ — $ — $ 1,170 $ 1,317 $ — $ — $ 869 $ 967 Net loss $ (9,293 ) $ (9,597 ) $ (9,287 ) $ (48,501 ) Net loss per share $ (0.11 ) $ (0.11 ) $ (0.11 ) $ (0.46 ) 2012 Net revenue $ — $ — $ — $ — Gross profit on net revenue $ — $ — $ — $ — Net loss $ (24,761 ) $ (196 ) $ (6,261 ) $ (3,751 ) Net loss per share $ (0.52 ) $ — $ (0.09 ) $ (0.05 ) 19.Subsequent Events(1)Gross profit for the quarter ended December 31, 2013 is calculated by taking net revenue less cost of revenue and amortization of certain acquired intangible assets, which is consistent with the gross profit reported for the quarter ended September 30, 2013. 20122013 up through the date these financial statements were issued. Other than what isas disclosed below, or elsewhere in the notes to the condensed consolidated financial statements, the company did not have any material recognizable or unrecognizable subsequent events.66— (Continued)- ContinuedOn January 29, 2013,, we learned that the SEC is investigating certain matters relating to our company grantedand an option to purchase 50,000 shares of common stock to eachoutside investor-relations firm that we retained in 2013. We have been in contact with the SEC staff through our counsel and are cooperating with the investigation.five non-employee memberslitigation, it is not possible to estimate the amount or range of the Boardpossible loss that might result from an adverse judgment or a settlement of Directors. These options had an exercise pricethese matters.$1.71 per share, which represented the company’s closing stock price on that date. The options vest quarterly over a one-year period and expire not later than 10 years from the grant date.On January 29, 2013, the company granted options to purchase an aggregate of 1,823,000 shares of common stock to certain employees at a price of $1.71 per share, which represented the company’s closing stock price on that date. The options vest over four quarters beginning three months from the date of grant and expire not later than 10 years from the date of grant.From January 1, 2013 through March 11, 2013, the company issued 84,000 shares of the company’s common stock subject to the exercise of outstanding warrants from various warrant holders. The company received $54,600 in total payments at an exercise price of $0.65 per share.Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.Principal AccountingChief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Principal AccountingChief Financial Officer have concluded that our disclosure controls and procedures are effective.Principal AccountingChief Financial Officer concluded that our internal control over financial reporting was effective as of December 31, 2012.6720122013 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.Item 9B.OTHER INFORMATION11,14, 2014, the company’s board of directors appointed Irving M. Einhorn agreed to serve as a Class II director of the company, with a term expiring at the 2015 annual stockholder meeting, and as a member of the special committee of the board of directors formed to investigate certain allegations contained in the purported derivative complaint recently filed against the company and certain of its directors. Mr. Einhorn will be compensated for his services as director and member of the special committee in the same manner as other directors and special committee members.separate amendments to ouran employment agreementsagreement with Mark Schwartz, Ph.D., our Executive Vice President and Chief Operating Officer, and Rosemary Mazanet,Brian Hamilton, M.D., Ph.D., pursuant to which Dr. Hamilton will serve as our Executive Vice President and Chief Medical Officer. The amendments modifiedagreementsagreement, Dr. Hamilton is entitled to extend indefinitely(i) receive an annual base salary of $385,000 and (ii) a grant under our Amended and Restated 2007 Incentive Plan of stock options to purchase 300,000 shares of our common stock, subject to the approval of our board of directors. The stock options will vest and become exercisable in 12 equal quarterly installments beginning on the first quarterly anniversary of the effective date of his employment, provided, in each case, that Dr. Hamilton remains in our continuous employment through such vesting date, and will be determined on the other terms set forth in our standard form of stock option agreement. The exercise price of the stock options will be equal to the market price of our common stock on the date of grant.agreements followingletter agreement to: (i) receive an annual bonus (as determined by the expirationCompensation Committee of their current terms (on September 23,our board of directors) of up to 30% of his annual base salary; and (ii) participate in all employee benefit plans in effect for our employees from time to time. We also will pay Dr. Hamilton, under the employment letter agreement, a $70,000 sign-on bonus.and April 18, 2014, respectively)at our annual meeting of stockholders, our stockholders voted on, among other matters, an advisory proposal on the frequency with which we will hold an advisory vote on the compensation of our named executive officers. As previously reported on July 3, 2013, our stockholders recommended, on an “at will”advisory basis, that the company include a stockholder advisory vote on executive compensation in the company’s proxy materials every year, which was consistent with the recommendation of our board of directors. In light of the foregoing, the company has determined to follow the stockholders’ recommendation and to provide (1) thatinclude in future proxy statements an annual stockholder advisory vote on the employment agreements may be terminated at any time after March 11, 2013 by us orcompensation of our named executive officers until the executive officer, with or without “cause” (as defined), and (2) for severance payments tonext required vote on the executives equal to six months’ base salary infrequency of stockholder votes on the eventcompensation of we terminate either executive’s employment without “cause”.III.III Item 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE2012.2013. The information required by this item is incorporated herein by reference to the information to be contained in the Proxy Statement.Item 11.EXECUTIVE COMPENSATIONItem 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEItem 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESItem 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) (1) Financial StatementsSee Item 8 in Part II of this annual report on Form 10-K, “Financial Statements and Supplementary Data,” for an index to the financial statements filed in this annual report, which information is incorporated herein by reference.(2)Financial Statement SchedulesCertain schedules are omitted because they are not applicable, or not yet required because we are transitioning from smaller reporting company status.(3)ExhibitsThe Exhibits listed in the Exhibit Index immediately preceding the Exhibits are filed as a part of this annual report.68SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.GALENA BIOPHARMA, INC.By:/s/ Mark J. AhnMark J. Ahn, Ph.D.President and Chief Executive OfficerDated: March 12, 2013Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.Signature Title Date/s/ Mark J. AhnMark J. Ahn, Ph.D. President, Chief Executive OfficerUnderwriting Agreement dated as of September 13, 2013 by and Directorbetween Galena Biopharma, Inc. and Oppenheimer & Co. Inc. as representative of the several underwriters named in Schedule I thereto. (1) March 12, 2013/s/ Ryan M. DunlapRyan M. DunlapDirector of Finance, Controller and PrincipalAccounting Officer (Principal Financial andAccounting Officer)March 12, 2013/s/ Sanford J. HillsbergSanford J. HillsbergDirectorMarch 12, 2013/s/ Richard ChinRichard Chin, M.D.DirectorMarch 12, 2013/s/ Stephen S. GallikerStephen S. GallikerDirectorMarch 12, 2013/s/ Steven A. KriegsmanSteven A. KriegsmanDirectorMarch 12, 2013/s/ Rudolph NisiRudolph Nisi, M.D.DirectorMarch 12, 201369ExhibitNumberDescription 1.11.2 Underwriting Agreement dated as of April 5, 2012 by and between Galena Biopharma, Inc. and Roth Capital Partners, LLC, as representative of the several underwriters named therein. (25)(2) 1.21.3 Purchase Agreement dated as of December 18, 2012 by and between Galena Biopharma, Inc. and Piper Jaffray & Co. (26)(24) 2.1 Unit Purchase Agreement, dated as of January 12, 2014, between Galena Biopharma, Inc. and Mills Pharmaceuticals, LLC.+** 3.1 Form of Amended and Restated Certificate of Incorporation of Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation).(1), as amended as of June 28, 2013.(2) 3.2 Amendment to Amended and Restated Certificate of Incorporation of Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation).(20) 3.33.2 Certificate of Ownership and Merger. (14)(13) 3.43.3 Amended and Restated By-Laws of Galena Biopharma, Inc., as amended as of August 6, 2013. (2) 4.1 Form of AmendedWarrant Agreement by and Restated By-laws of Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation)., Computershare Inc. and Computershare Trust Company, N.A. (1) 4.1 Specimen common stock certificate.**4.2 Annex I to form of Subscription Agreement — Registration Rights Terms between Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation) and Stephen Galliker, Mark Ahn, Ph.D. and Sanford Hillsberg.(1) 4.3 Warrant No. A-1 in favor of J.P. Turner Partners, LP, dated August 7, 2008. (3) (19) 4.44.3 Form of Common Stock Purchase Warrant issued in August 2009. (4)(20) 4.54.4 Form of Common Stock Purchase Warrant issued in March 2010. (5)(21) 4.74.5 Form of Five-Year Common Stock Purchase Warrant issued in March 2011. (7)(22) 4.84.6 Form of Common Stock Purchase Warrant issued in April 2011. (10)(23) 4.94.7 Warrant No. 2012-1 in favor of Legend Securities, Inc. issued in February 2012. (21)(4) 4.104.8 Form of December 2012 Warrant. (26)(24) 4.9 Registration Rights Agreement, dated January 12, 2014, between Galena Biopharma, Inc. and each former owner of membership units of Mills Pharmaceuticals, LLC.** 10.1 Employment letter agreement, effective July 1, 2013, between Galena Biopharma, Inc. and Ryan M. Dunlap.*(2) 10.2 10.3 Form of Contingent Value Rights Agreement among Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Computershare Trust Company, N.A., Computershare Inc., and Robert E Kennedy, dated April 13, 2011. (9)(3) 10.210.4 First Amendment to Contingent Value Rights Agreement among Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Computershare Trust Company, N.A., Computershare Inc., and Robert E Kennedy, dated February 15, 2012. (21)(4) 10.3 Form of Escrow Agreement entered into among Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Computershare Trust Company, N.A., and Robert E. Kennedy, in his capacity as the Stockholder Representative, on April 13, 2011.(9) 10.410.5 Employment Agreement between Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation) and Mark W. Schwartz, Ph.D., dated April 13, 2011.* (11)(5) 10.510.6 Amendment No. 1 to Employment Agreement made as of September 23, 2011 between Galena Biopharma, Inc. (formerly RXi Pharmaceuticals) and Mark W. Schwartz, Ph.D.* (12)(6) 10.610.7 Amendment No. 2 to Employment Agreement made as of March 11, 2013 between Galena Biopharma, Inc. and Mark W. Schwartz, Ph.D.* **(7) 10.710.8 Employment Agreement between Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation) and Mark Ahn, Ph.D., dated March 31, 2011.*(8) 10.810.9 Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation) Amended and Restated 2007 Incentive Plan.* (6)(9) 10.910.10 Amendment to Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation) Amended and Restated 2007 Incentive Plan.* (19)(10) 10.1010.11 Form of Incentive Stock Option.* (1)(11) 10.1110.12 Form of Non-qualified Stock Option.* (1)(11) 10.1210.13 Patent and Technology License Agreement, dated September 11, 2006, by and among the Board of Regents of the University of Texas System, the University of Texas M.D. Anderson Cancer Center, the Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc., and Apthera, Inc. (formerly Advanced Peptide Therapeutics, Inc.).+ (11)70(5)) ExhibitNumber Description 10.1310.14 Amendment No. 1 to Patent and Technology License Agreement, dated December 21, 2007, by and among the Board of Regents of the University of Texas System, the University of Texas M.D. Anderson Cancer Center, the Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc., and Apthera, Inc. (formerly Advanced Peptide Therapeutics, Inc.). (11)(5) 10.1410.15 Amendment No. 2 to Patent and Technology License Agreement, dated September 3, 2008, by and among the Board of Regents of the University of Texas System, the University of Texas M.D. Anderson Cancer Center, the Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc., and Apthera, Inc. (formerly Advanced Peptide Therapeutics, Inc.). (11)(5) 10.1510.16 Amendment No. 3 to Patent and Technology License Agreement, dated July 8, 2009, by and among the Board of Regents of the University of Texas System, the University of Texas M.D. Anderson Cancer Center, the Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc., and Apthera, Inc. (formerly Advanced Peptide Therapeutics, Inc.). (11)(5) 10.1610.17 Amendment No. 4 to Patent and Technology License Agreement, dated February 11, 2010, by and among the Board of Regents of the University of Texas System, the University of Texas M.D. Anderson Cancer Center, the Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc., and Apthera, Inc. (formerly Advanced Peptide Therapeutics, Inc.).+ (11)(5) 10.1710.18 Amendment No. 5 to Patent and Technology License Agreement, dated January 10, 2011, by and among the Board of Regents of the University of Texas System, the University of Texas M.D. Anderson Cancer Center, the Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc., and Apthera, Inc. (formerly Advanced Peptide Therapeutics, Inc.).+ (11)(5) 10.18 10.19 Scientific Advisory Agreement between Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation) and George E. Peoples, Ph.D., dated May 1, 2011. **(7) 10.1910.20 Form of Amendment to Stock Options Granted under Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation) 2007 Incentive Plan, entered into in April 2011 by Galena Biopharma, Inc. with all directors of Galena Biopharma, Inc., as of April 1, 2011, and Mark J. Ahn, Ph.D.* (11)(5) 10.2010.21 Exclusive License Agreement, dated as of July 11, 2011, by and among The Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc., Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation) and its wholly-owned subsidiary, Apthera, Inc.+ (11)(5) 10.2110.22 Agreement and Plan of Merger by and among Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Diamondback Acquisition Corp., Apthera, Inc. and Robert E. Kennedy, in his capacity as the Stockholder Representative, dated March 31, 2011.(8) 10.2210.23 Exclusive License Agreement, dated effective as of September 16, 2011, by and among The Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc., Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), The Board of Regents of the University of Texas System and The University of Texas M.D. Anderson Cancer Center.+ (13)(12) 10.23 Contribution Agreement, dated as of September 24, 2011, between RXi Pharmaceuticals Corporation (formerly RNCS, Inc.) and Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation).(14)10.24 Securities Purchase Agreement, dated as of September 24, 2011, among RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Tang Capital Partners, LP and RTW Investments, LLC.(14) 10.25Omnibus Amendment to Securities Purchase Agreement, dated as of February 6, 2012, among RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Tang Capital Partners, LP and RTW Investments, LLC.(17) 10.26Second Omnibus Amendment to Securities Purchase Agreement, dated as of March 5, 2012, among RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Tang Capital Partners, LP and RTW Investments, LLC.(21) 10.27Third Omnibus Amendment to Securities Purchase Agreement, dated as of March 30, 2012, among RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Tang Capital Partners, LP and RTW Investments, LLC.(23)71ExhibitNumberDescription 10.28Fourth Omnibus Amendment to Securities Purchase Agreement, dated as of April 3, 2012, among RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Tang Capital Partners, LP and RTW Investments, LLC.(23) 10.29Fifth Omnibus Amendment to Securities Purchase Agreement, dated as of April 11, 2012, among RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Tang Capital Partners, LP and RTW Investments, LLC.(23) 10.30Sixth Omnibus Amendment to Securities Purchase Agreement, dated as of April 18, 2012, among RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Tang Capital Partners, LP and RTW Investments, LLC.(23) 10.31Seventh Amendment Agreement to Securities Purchase Agreement, dated as of April 25, 2012, among RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Tang Capital Partners, LP and RTW Investments, LLC.(23) 10.32Investor Subscription Agreement, dated September 24, 2011, among Galena Biopharma, Inc. (formerly, RXi Pharmaceuticals Corporation), Tang Capital Partners, LP. and RTW Investments, LLC.(14) 10.33Amended and Restated Investor Subscription Agreement, dated September 26, 2011, among Galena Biopharma, Inc., Tang Capital Partners, LP. and RTW Investments, LLC.(15) 10.34Form of Exchange Agreements by and between Galena Biopharma, Inc. and the Investors named therein.(16) 10.35Lease between Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation) and LO 138, LLC for 310 N. State Street, Suite 208, Lake Oswego, Oregon, 97034, entered into as of July 18, 2011.(21) 10.36 Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation) Employee Stock Purchase Plan.* (18) 10.3710.25 License Agreement, effective as of April 30, 2009, between Kwangdong Pharmaceutical Co., Ltd. and Apthera, Inc.+ (21)(14) 10.3810.26 Amendment No. 1 to License Agreement, dated as of January 13, 2012, by and among Apthera, Inc., Kwangdong Pharmaceutical Co., Ltd., and Galena Biopharma, Inc. (21)(14) 10.39 Employment agreement, effective April 18, 2012, between Galena Biopharma, Inc. and Rosemary Mazanet, M.D., Ph.D.* ** 10.40Amendment No. 1 to Employment Agreement made as of March 11, 2013 between Galena Biopharma, Inc. and Rosemary Mazanet, M.D., Ph.D.* ** 10.4110.27 Employment letter agreement, effective July 16, 2012, between Galena Biopharma, Inc. and Ryan M. Dunlap.* (25)(16) 10.4210.28 Amendment to Galena Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation) Amended and Restated 2007 Incentive Plan.* (22)(17) 10.4310.29 License and Supply Agreement, effective December 4,3, 2012, between Galena Biopharma, Inc. and ABIC Marketing Limited, a subsidiary of Teva Pharmaceuticals.+**(7)10.30 Asset Purchase Agreement dated March 15, 2013 between Galena Biopharma, Inc. and Orexo AB.+(25) 10.31 License Agreement dated March 15, 2013 between Galena Biopharma, Inc. and Orexo AB.(25) 10.32 Loan and Security Agreement dated May 8, 2013 among Galena Biopharma, Inc., Apthera, Inc., Oxford Finance LLC and the Lenders listed on Schedule 1.1 thereto.(25) 10.33 Form of warrants granted on May 8, 2013 under the Loan and Security Agreement set forth as Exhibit 10.6.(25) 10.34 Amendment No. 1 to Employment Agreement made as of May 8, 2013 between Galena Biopharma, Inc. and Mark J. Ahn, Ph.D.*(25) 10.35 Lease between Galena Biopharma, Inc. and Cameron Oregon properties LLC and Lucas Oregon Properties, LLC for Suite 270 in the Willamette Wharf Building at 4640 Macadam Avenue in Portland, Oregon dated April 25, 2013.(2) 10.36 10.37 Exclusive License Agreement, dated as of December 20, 2013, between Mills Pharmaceuticals, LLC and BioVascular, Inc.+** 14.1 Code of Ethics and Conduct. (2)(18) 21.1 Subsidiaries of the Registrant. (24)** 23.1 Consent of Moss Adams LLP, Independent Registered Public Accounting Firm.** 23.2 Consent of BDO USA LLP, Independent Registered Public Accounting Firm.** 31.1 Sarbanes-Oxley Act Section 302 Certification of Mark J. Ahn, Ph.D.** 31.2 Sarbanes-Oxley Act Section 302 Certification of Ryan M. Dunlap.** 32.1 Sarbanes-Oxley Act Section 906 Certification of Mark J. Ahn, Ph.D., and Ryan M. Dunlap.** 101.INS XBRL Instance Document. 101.SCH XBRL Taxonomy Extension Schema. 101.CAL XBRL Taxonomy Extension Calculation. 101.DEF XBRL Taxonomy Extension Definition. 101.LAB XBRL Taxonomy Extension Label. 101.PRE XBRL Taxonomy Extension Presentation. 101.PRE XBRL Taxonomy Extension Presentation. 72(1) Previously filed as an Exhibit to the company’s Registration Statement onCompany’s Form S-18-K filed on October 30, 2007September 13, 2013 (File No. 333-147009)001-33958) and incorporated herein by reference hereinreference.(2) Previously filed as an Exhibit to the company’sCompany’s Form 10-K10-Q filed on August 9, 2013 (File No. 001-33958) and incorporated herein by reference.(3) Previously filed as an Exhibit to the Company’s Form 8-K filed on April 15, 200814, 2011 (File No. 001-33958) and incorporated by reference herein.(3)(4) Previously filed as an Exhibit to the company’sCompany’s Form 10-Q10-K filed on November 14, 2008March 28, 2012 (File No. 001-33958) and incorporated by reference herein.(4)(6) Previously filed as an Exhibit to the company’sCompany’s Form 8-K10-Q filed on July 31, 2009November 14, 2011 (File No. 001-33958) and incorporated by reference herein.(5)(7) Previously filed as an Exhibit to the company’sCompany’s Form 8-K10-K filed on March 23, 201012, 2013 (File No. 001-33958) and incorporated by reference herein.herein(6)(9) Previously filed as Annex A to the company’sCompany’s Proxy Statement on Schedule 14A filed on April 23, 2010 (File No. 001-33958) and incorporated by reference herein.(7)Previously filed as an Exhibit to the company’s Form 8-K filed on March 1, 2011 (File No. 001-33958) and incorporated by reference herein.(8)Previously filed as an Exhibit to the company’s Form 8-K filed on April 5, 2011 (File No. 001-33958) and incorporated by reference herein.(9)Previously filed as an Exhibit to the company’s Form 8-K filed on April 14, 2011 (File No. 001-33958) and incorporated by reference herein.(10)Previously filed as an Exhibit to the company’s Form 8-K filed on April 15, 2011 (File No. 001-33958) and incorporated by reference herein.(11)Previously filed as an Exhibit to the company’s Form 10-Q filed on August 15, 2011 (File No. 001-33958) and incorporated by reference herein.(12)Previously filed as an Exhibit to the company’s Form 10-Q filed on November 14, 2011 (File No. 001-33958) and incorporated by reference herein.(13)Previously filed as an Exhibit to the company’s Form 8-K filed on September 21, 2011 (File No. 001-33958) and incorporated by reference herein.(14)Previously filed as an Exhibit to the company’s Form 8-K filed on September 26, 2011 (File No. 001-33958) and incorporated by reference herein.(15) Previously filed as an Exhibit to the company’s Form 8-K filed on September 27, 2011 (File No. 001-33958) and incorporated by reference herein.(16)Previously filed as an Exhibit to the company’s Form 8-K filed on December 6, 2011 (File No. 001-33958) and incorporated by reference herein.(17)Previously filed as an Exhibit to Amendment No. 4 to RXi Pharmaceuticals Corporation’s Registration Statement on Form S-1 filed on February 7, 2012 (File No. 333-177498) and incorporated by reference herein.(18)Previously filed as Annex B to the company’sCompany's Proxy Statement on Schedule 14A, filed on April 23, 2010 (File No. 001-33958) and incorporated by reference herein.(19)Previously filed as Annex A to the company’s Proxy Statement on Schedule 14A filed on May 31, 2011 (File No. 001-33958)GALENA BIOPHARMA, INC. By: Mark J. Ahn, Ph.D. President and incorporated by reference herein.Chief Executive OfficerDate: March 17, 2014 By: Ryan M. Dunlap Vice President, Chief Financial Officer Date: March 17, 2014 (20)Previously filed as Annex B to the company’s Proxy Statement on Schedule 14A filed on May 31, 2011 (File No. 001-33958)Signature Title Date /s/ Mark J. Ahn President, Chief Executive Officer and incorporated by reference herein.Director (Principal Executive Officer)March 17, 2014 (21)Mark J. Ahn, Ph. D.Previously filed as an Exhibit to the company’s Form 10-K filed on /s/ Ryan M. Dunlap Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) March 28, 2012 (File No. 001-33958) and incorporated by reference herein.17, 2014(22)Ryan M. DunlapPreviously filed as Annex A to the company’s Proxy Statement on Schedule 14A filed on April 30, 2012 (file No. 001-33958).(23)Previously filed as an Exhibit to the company’s Form 10-Q filed on May 14, 2012 (File No. 001-33958) and incorporated by reference herein.(24)/s/ Sanford J. HillsbergPreviously filed as an Exhibit to the company’s Form 10-K filed on April 15, 2011 (File No. 001-33958) and incorporated by reference herein.(25)Previously filed as an Exhibit to the company’s Form 10-Q filed on August 14, 2012 (File No. 001-33958) and incorporated by reference herein.(26)Previously filed as an Exhibit to the company’s Form 8-K filed on December 19, 2012 (File No. 001-33958) and incorporated by reference herein.*Indicates a management contract or compensatory plan or arrangement.**Filed herewith.+This exhibit was filed separately with the Commission pursuant to an application for confidential treatment. The confidential portionsDirector, Chairman of the exhibit have been omitted and have been marked by an asterisk.BoardMarch 17, 2014 Sanford J. Hillsberg /s/ William L. Ashton Director March 17, 2014 William L. Ashton /s/ Richard Chin Director March 17, 2014 Richard Chin, M.D. /s/ Stephen S. Galliker Director March 17, 2014 Stephen S. Galliker /s/ Steven A. Kriegsman Director March 17, 2014 Steven A. Kriegsman /s/ Rudolph Nisi Director March 17, 2014 Rudolph Nisi, M.D. 73
