Fibrocell Science Inc Annual Report 2014

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549________________________________________________________________FORM 10-Ký Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2014OR¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934________________________________________________________________Fibrocell Science, Inc.(Exact name of registrant as specified in its Charter.) Delaware001-3156487-0458888(State or other jurisdiction of incorporation)(Commission File Number)(I.R.S. Employer Identification No.) 405 Eagleview BoulevardExton, Pennsylvania 19341(Address of principal executive offices, including zip code)(484) 713-6000(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Title of Each ClassName of each exchange on which registeredCommon Stock, $.001 par value The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None________________________________________________________________Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ýIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ýIndicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). Yes ý No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer oAccelerated filer xNon-accelerated filer ¨Smaller reporting company ¨ (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in the Exchange Act Rule 12b-2). Yes o No ýThe approximate aggregate market value of common stock held by non-affiliates of the registrant was $64.1 million as of June 30, 2014, the last business day of the registrant’smost recently completed second fiscal quarter. Such aggregate market value was computed by reference to the closing price of the common stock as reported on the NYSE MKT onJune 30, 2014.As of March 6, 2015, registrant had 40,856,815 shares issued and outstanding of common stock, par value $0.001.DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s Proxy Statement for the 2015 Annual Meeting of Stockholders (hereinafter referred to as the “Proxy Statement”) are incorporated by reference into PartIII of this Annual Report on Form 10-K. Table of ContentsTABLE OF CONTENTSPagePART I ITEM 1.BUSINESS3ITEM 1A.RISK FACTORS14ITEM 1B.UNRESOLVED STAFF COMMENTS34ITEM 2.PROPERTIES34ITEM 3.LEGAL PROCEEDINGS34ITEM 4.MINE SAFETY DISCLOSURE34 PART II ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES34ITEM 6.SELECTED FINANCIAL DATA36ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS37ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK46ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA46ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE46ITEM 9A.CONTROLS AND PROCEDURES46ITEM 9B.OTHER INFORMATION47 PART III ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE48ITEM 11.EXECUTIVE COMPENSATION48ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS48ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE48ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES48 PART IV ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES48SIGNATURE PAGE51Table of ContentsForward-Looking Statements This Annual Report on Form 10-K (including the section regarding Management’s Discussion and Analysis of Financial Condition and Results ofOperations) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "SecuritiesAct"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as well as information relating to Fibrocell Science, Inc.and its subsidiaries (collectively referred to as “Fibrocell,” “Company,” “we,” "us,"or “our”) that is based on management’s exercise of business judgment andassumptions made by and information currently available to management. Although forward-looking statements in this Annual Report on Form 10-K reflectthe good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-lookingstatements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed inor anticipated by the forward-looking statements. When used in this document and other documents, releases and reports released by us, the words“anticipate,” “believe,” “estimate,” “expect,” “intend,” “the facts suggest” and words of similar import, are intended to identify any forward-lookingstatements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and aresubject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptionsprove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Actual events, transactions and resultsmay materially differ from the anticipated events, transactions or results described in such statements. Although we believe that our expectations are basedon reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially fromour forward looking statements including those set forth in Item 1A of this report. Other unknown, unidentified or unpredictable factors could materially andadversely impact our future results. We undertake no obligation and do not intend to update, revise or otherwise publicly release any revisions to ourforward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events. Several of thesefactors include, without limitation:•the progress and results of our pre-clinical studies and clinical trials of our cell therapy applications, including whether our clinical human trialsrelating to the use of autologous cell and gene therapy applications, in particular, for vocal cord scars and gene therapy orphan indications, and suchother target indications as we may identify and pursue can be conducted within the timeframe that we expect, whether such studies and trials willyield positive results, or whether additional applications for the commercialization of autologous cell therapy can be identified by us and advancedinto human clinical trials;•the cost of manufacturing related to our pre-clinical studies and clinical trials;•our ability to meet requisite regulations or receive regulatory approvals in the United States and in Europe, our ability to retain any regulatoryapprovals that we may obtain and the absence of adverse regulatory developments in the United States and Europe;•the costs, timing and outcome of regulatory review of our product candidates;•the dependence on our facility in Exton, Pennsylvania for our research, development and manufacturing operations, and the potential that suchfacility is damaged or if we are otherwise required to discontinue research, development and production at such facility;•whether our collaboration with Intrexon can be advanced with positive results within the timeframe and budget that we expect;•our dependence on suppliers for gene therapy products which are critical to the completion of our gene therapy applications;•the scope, progress, results and costs of pre-clinical development, laboratory testing and clinical trials for our cell therapy applications;•the number and development requirements of other product candidates that we pursue;•the emergence of competing technologies and other adverse market developments;•the extent to which we acquire or invest in businesses, products and technologies;•our ability to establish collaborations and obtain milestone, royalty or other payments from any such collaborators;•any adverse claims relating to our intellectual property and the costs of preparing, filing and prosecuting patent applications and maintaining,enforcing and defending intellectual property related claims; and•our dependence on physicians to correctly follow our established protocols for the safe and optimal administration of our product.Our corporate headquarters is located at 405 Eagleview Boulevard, Exton, Pennsylvania 19341. Our phone number is (484) 713-6000. Our fiscalyear begins on January 1, and ends on December 31, and any references herein to “Fiscal 2014”2Table of Contentsmean the fiscal year ended December 31, 2014, and references to other “Fiscal” years mean the fiscal year ending December 31, of the year indicated. We own or have rights to various copyrights, trademarks and trade names used in our business including but not limited to the following: FibrocellScience, Fibrocell Therapy, Fibrocell Process and LAVIV®. This report also includes other trademarks, service marks and trade names of other companies. Other trademarks and trade names appearing in this report are the property of the holder of such trademarks and trade names.We obtained the industry, market and competitive position data in this annual report from our own internal estimates and research as well as fromindustry and general publications and research surveys and studies conducted by third parties. Industry publications and surveys generally state that theinformation contained therein has been obtained from sources believed to be reliable. We believe this data is accurate in all material respects as of the date ofthis annual report.Part IItem 1. BusinessOverviewWe are an autologous cell therapy company primarily focused on developing first-in-class treatments for rare and serious skin and connective tissuediseases with high unmet medical needs. Our lead orphan gene therapy program is in late stage pre-clinical development for the treatment of recessivedystrophic epidermolysis bullosa ("RDEB"). In addition to our gene therapy program, we are pursuing the medical application of azficel-T for vocal cordscarring using our proprietary autologous fibroblast technology. We are also in pre-clinical development for our second gene therapy program for linearscleroderma.Fibroblasts are the most common cell located in skin and connective tissue and are responsible for synthesizing extracellular matrix proteins thatprovide cellular structure and support. Fibroblasts are targeted to the localized environment of skin and connective tissue. Rare and serious skin andconnective tissue diseases represent an ideal therapeutic focus for our autologous fibroblast technology. Such diseases are typically difficult to treat withsystemic drug therapies because blood flow is limited in skin and connective tissue. Therefore, we believe that a localized approach is an optimum choice fortreating these debilitating conditions.Working in collaboration with Intrexon Corporation (NYSE:XON) ("Intrexon"), a leader in synthetic biology, we are pursuing genetic modificationof autologous fibroblast cells to express collagen VII that is missing or inactive from patients with RDEB. Collagen VII is responsible for forming fibrilswhich attach the epidermis and the dermis layers of the skin. RDEB is a rare congenital orphan skin disease that ultimately leads to premature death. The lackof collagen VII is the underlying cause of this disease. We expect to file our investigational new drug ("IND") application for RDEB with the U. S. Food andDrug Administration ("FDA") by mid-2015 and initiate our Phase I clinical trials in the second half of Fiscal 2015.Vocal cord scarring is caused by damage to the fibroblast layer of the vocal cords causing scarring and edema. This scarring limits airflow and resultsin severe and significant limitations in voice quality, including, in some cases, the loss of voice, altogether. Our clinical focus is patients with age-relateddysphonia or idiopathic causes. We currently have a Phase II vocal cord clinical trial in progress.Linear scleroderma is an excess production of extracellular matrix characterized by skin fibrosis and linear scars. The linear areas of skin thickeningmay extend to underlying tissue and muscle in children which may impair growth in affected legs and arms or forehead. Lesions appearing across joints canimpair motion and may be permanent.Our ongoing scientific research collaboration with the Regents of the University of California, Los Angeles (“UCLA”) focuses on discoveries andtechnologies related to regenerative medicine. The technologies from this collaboration and our exclusive license agreements with UCLA may enable us toexpand our biologics platform which uses human fibroblasts to create localized therapies that are compatible with the unique biology of each patient.Our StrategyCurrently, our personalized biologics platform embodies two separate product engines, each of which uses our proprietary fibroblast technology.3Table of ContentsOur Proprietary Personalized Biologics Approach:Harnessing Autologous Fibroblast Cells to Deliver Localized Therapies That Are Compatible with Each Patient’s Unique Biology: Our Gene Therapy Product Engine combines our autologous fibroblast technology with the synthetic biology technology of our collaborator,Intrexon, to develop personalized biologic gene therapies to address the fundamental source of serious and rare skin and connective tissue diseases that haveunmet medical needs.Our Gene Therapy Product Engine utilizes several proprietary technologies in our pursuit of gene therapies for our lead orphan gene therapyprogram, RDEB, and our second gene therapy program, linear scleroderma. •Intrexon’s UltraVector® technology is designed to facilitate the assembly and delivery of the necessary target gene constructs for deliveryto autologous fibroblasts. Access to this platform allows us a rapid method to screen and construct gene therapy solutions for rare andserious skin and connective tissue diseases.•In certain therapeutic applications with our Gene Therapy Product Engine, we will also deploy Intrexon’s proprietary RheoSwitchTherapeutic System® technology, which is a biologic switch activated by a small molecule ligand that provides the ability to control leveland timing of protein expression in those diseases where such control is critical.Our Autologous Fibroblast Product Engine utilizes autologous fibroblast cells to treat vocal cord scarring leveraging its FDA-approved biologicslicense application (“BLA”) for aesthetics with azficel-T, the USAN name for our commercial product LAVIV®. We are expanding the medical application ofazficel-T to create a therapeutic comprised of fibroblast cells in the treatment of vocal cord scarring. Vocal cord scarring results in severe and significantlimitations in voice quality and often loss of voice.4Table of ContentsClinical and Pre-Clinical Development ProgramsOur development programs are focused on the serious skin and connective tissue disease market where there are unmet needs. Our clinical and pre-clinical development programs consist of the following:ProgramIndication Statusazficel-T sBLAVocal Cord ScarringPhase II Clinical TrialGM-HDFRDEBPre-clinicalGM-HDFLinear SclerodermaPre-clinical Vocal Cord Scarring – Phase II Trial: The exact incidence of vocal cord scaring is difficult to determine. However, various third party studiesindicate that the incidence of vocal cord scarring is in the range of 200,000 to 700,000 patients in the United States. For patients with vocal cord scarring thatresults in severe or chronic dysphonia, we estimate the prevalence as 146,000. Our Phase II clinical trial for vocal cord scarring currently in progress isdesigned to test the safety and efficacy of azficel-T in patients with dsyphonia caused by idiopathic vocal cord scarring or age-related dysphonia. We havecurrently enrolled 22 patients and we will continue to recruit to allow for any potential discontinuations that may occur during the course of this clinicaltrial. The goal is to achieve 20 patients treated. Our first patient in this Phase II clinical trial was enrolled in April 2014 and we are targeting the last patient tobe treated by the end of 2015.In a Phase I clinical trial IT-V-001, which was a feasibility study to determine the safety and efficacy of injections for the treatment of vocal foldscarring, 5 patients received 3 doses (1-2 x 107 cells/mL per treatment) of azficel-T per vocal fold in the lamina propia compartment, where each treatment wasapproximately 1 month apart. In this clinical trial, we evaluated the efficacy and safety of azficel-T for the treatment of vocal cord scarring in patients whohad failed to improve following anti-reflux regimen, speech therapy, or vocal fold injections with collagen. Starting in Month 3, a sustained improvementwas noted in a majority of patients through Month 12 in the mucosal wave grade assessment, voice handicap index, and patient-assessed voice quality.Three of the 5 patients reported a total of 16 adverse events (“AEs”). All reported AEs other than ear pain (12 events in 3 patients) were consideredby the investigator to be unrelated to treatment. A majority of the cases (10) were mild or moderate in severity. All AEs were non-serious and no deaths werereported. There were no laboratory abnormalities or other untoward events that were considered related to the study treatment. Based on these results,azficel-T was well tolerated in this patient population.Recessive Dystrophic Epidermolysis Bullosa ("RDEB") – Pre-clinical: Our product candidate is utilized to transduce the fibroblasts with the COL7Agene in order to treat patients with RDEB. This concept utilizes gene therapy applied to autologous fibroblasts to up-regulate and produce collagen VII in acontrolled manner for localized treatment of RDEB. We are collaborating with Intrexon to employ Intrexon’s synthetic biology platforms to optimize geneexpression in our genetically-modified fibroblasts. RDEB is the most severe form of dystrophic epidermolysis bullosa (“DEB”), a genetic disorder that causessevere blistering and areas of missing skin, which is a response to any kind of friction, including normal daily occurrences like rubbing or scratching. Theblistering occurs because of the lack of anchoring fibrils that were not produced due to the lack of collagen VII.We have estimated, based on the epidemiology from various published studies, that the prevalence of DEB is 5,500 to 12,500 U.S. patients, 1,100 to2,500 of whom have RDEB, the most severe form of DEB. RDEB is caused by a recessively inherited COL7A1 mutation while dominant dystrophicepidermolysis bullosa ("DDEB") is caused by a dominant gene. Although less severe than RDEB, DDEB is a significant disease with approximately 4,400 to10,000 U.S. patients.5Table of ContentsTo date, our pre-clinical work has consisted of selecting our gene target, gene construct and successfully transducing the gene for collagen VII intothe autologous fibroblast cell. We have optimized cell culture conditions, selected a contract manufacturing organization and have successfully completedmultiple runs. We have also developed assays for potency and safety. We have been granted orphan drug status, and held a pre-IND meeting with the FDA.We have also completed clinical trial protocol review by the National Institutes of Health ("NIH") Recombinant DNA Advisory Committee (RAC), with noquestions posed from the RAC and no request to attend the quarterly public meeting. Pre-clinical mouse studies are currently underway at StanfordUniversity. We expect to file our IND application in mid-2015.Linear Scleroderma – Pre-clinical: We expanded our agreement with Intrexon to broaden our existing collaboration to include potential treatmentsbased on engineered autologous fibroblast cells for the localized treatment of autoimmune and inflammatory disorders, including linear scleroderma. Intrexon plans to engineer transgenes to optimize the functionality of our autologous fibroblast cells in order to produce factors under the control of itsproprietary RheoSwitch Therapeutic System® (“RTS®”) that will modulate immune and inflammatory pathways. It is estimated that 200,000 people sufferfrom localized scleroderma, which is comprised of many subtypes. Linear scleroderma is an autoimmune disease that primarily affects skin and connectivetissues causing hardened plaques and joint contractures. The total prevalence of linear scleroderma in the United States is estimated to be approximately40,000 patients with scleroderma over a major joint and exhibit severe joint pain. Children and young adults represent the most problematic cases.Product development is underway and has included gene selection and design, transduction efficiency and protein expression analysis, RTS®ligand development and analytical assay design. Research is ongoing to select the optimal gene configuration, optimize RTS® control, develop animalmodels to establish proof of concept and progress the regulatory path for the product candidate.Other development programs consist of the following:Restrictive Burn Scarring ("RBS") – Phase II Trial: According to the American Burn Association, 40,000 people are hospitalized each year withsevere burns in the United States. These patients are often left with restrictive burn scars that decrease mobility and cause continuous pain. Our Phase II trialof azficel-T for the treatment of restrictive burn scarring was designed to evaluate the use of azficel-T to improve range of motion, function and flexibility,among other parameters. Patient enrollment has been challenging; therefore, we have closed enrollment and will evaluate the current population through thecurrent study design, then convert to an open label trial to allow those patients who were treated with placebo to be treated with azficel-T. Additional patientswill not be enrolled in this trial and we will reassess our clinical development plan after data has been compiled.Intrexon CollaborationOn October 5, 2012, we entered into an Exclusive Channel Collaboration Agreement, as amended, (the “Channel Agreement”) with Intrexon thatoriginally granted us an exclusive license to use proprietary technologies and other intellectual property of Intrexon to research, develop, use, import, export,make, have made, sell, and offer for sale certain products in the "Field" in the United States. The “Field” in the Channel Agreement originally included: (a)the enhanced production and purification of autologous fibroblasts, without gene therapy, for all aesthetic and therapeutic indications; (b) the enhancedproduction and purification of autologous dermal cells, without gene therapy, for aesthetic and therapeutic treatment of dermal, vocal cord, and periodontalindications; (c) the development of our gene therapies applied to autologous fibroblasts for all aesthetic and therapeutic indications; and (d) the developmentof our gene therapies applied to autologous dermal cells for aesthetic and therapeutic treatment of dermal, vocal cord, and periodontal indications. On June28, 2013, we amended the Channel Agreement. Pursuant to the first amendment, the “Field” was modified to add autologous human fibroblasts with genetherapy to express a therapeutic protein and/or bioactive ribonucleic acid for the treatment of autoimmune and non-infectious inflammatory disorders thatmanifest in cutaneous tissues, fascia and/or muscle. Pursuant to the second amendment to the Channel Agreement executed on January 10, 2014, the “Field”in the Channel Agreement was further modified to add autologous human fibroblasts with gene therapy to express bioactive Tenascin-X locally to correctconnective tissue disorders.Pursuant to the Channel Agreement, we engage Intrexon for support services for the development of new products covered under the ChannelAgreement, and reimburse Intrexon for its fully-loaded cost for time and materials for transgenes, cell processing, or other work performed by Intrexon forsuch research and development. We will pay quarterly cash royalties on improved products equal to one third of the cost of goods sold savings less any suchsavings developed by us outside of the Channel Agreement. On all other developed products, we will pay Intrexon quarterly cash royalties of 7% onaggregate annualized net sales up to $100 million, and 14% on aggregate annualized net sales greater than $100 million. Sales from our products (includingnew indications) that we are marketing at the time of the Channel Agreement are not subject to royalty payments unless they are improved upon through theChannel Agreement, as amended.6Table of ContentsLicense AgreementsOn May 3, 2012, we entered into an exclusive license agreement with The Regents of the University of California, under which we acquired therights to commercially apply discoveries resulting from the scientific collaboration between us and UCLA. Under the terms of the license agreement, weagreed to pay UCLA a non-refundable initial license fee, and to pay UCLA an annual license maintenance fee of a percentage of product royalties, andmilestone payments based on our achievement of certain clinical and regulatory related milestones for these rights. Our ability to meet the milestones isdependent on a number of factors including final approvals by regulatory agencies and the continued enforceability of patent claims. On June 13, 2014 we entered into two exclusive license agreements with The Regents of the University of California. Pursuant to the first exclusivelicense agreement (the “BMP2 Agreement”), UCLA granted us an exclusive, sublicensable right and license to use certain patent rights developed incollaboration with UCLA relating to the use of human skin cells to produce Bone Morphogenetic Protein ("BMP"2) for use in osteogenic therapies. Inconsideration of the license granted under the BMP2 Agreement, we will pay to UCLA a license issue fee, certain one-time milestone payments, a licensemaintenance fee, earned royalties on net sales of all licensed products (including sales by sublicensees and affiliates) and a percentage of amounts receivedfrom sublicensing activities. We are subject to minimum annual royalty payments to UCLA beginning after the first commercial sale of a licensed product.Under the terms of the second exclusive license agreement (the “Genomic Stability Agreement”), UCLA granted us an exclusive, sublicensable rightand license to use certain patent rights developed in collaboration with UCLA relating to media that promotes genomic stability in induced pluripotent stemcell cultures for all research and commercialization purposes. In consideration of the license granted under the Genomic Stability Agreement, we will pay toUCLA a license issue fee, certain one-time milestone payments, a license maintenance fee, earned royalties on net sales of all licensed products (includingsales by affiliates) and a percentage of amounts received from sublicensing activities. We are subject to minimum annual royalty payments to UCLAbeginning after first commercial sale of a licensed product.On May 3, 2012, we also entered into a sponsored research agreement with MIT. Research is currently focused on mesenchymal stem cells derivedfrom adult human skin. The agreement is currently scheduled to terminated in June 2015.ManufacturingWe currently outsource the manufacturing for our gene therapy product to a manufacturing facility located in Mountainview, California. Wecurrently have one manufacturing facility located in Exton, Pennsylvania, for our cell therapy products. All component parts used in either manufacturingprocess are readily available, and all machinery is maintained and calibrated. We believe we currently have adequate manufacturing capacity to satisfy ourclinical demands, as well as the limited commercial demand we expect during Fiscal 2015.The fibroblast cells that are the foundation of our product platforms are grown by our patented manufacturing process which begins with thecollection of three small (3 mm) skin samples from behind the ear on the patient’s skin. The biopsies are then sent to us for processing according to cGMP. The skin samples are treated with an enzymatic process designed to separate the tissue into its individual component cells by breaking down the extracellularmatrix holding the cells in place. The cells are also treated with antibiotics to prevent extraneous infection by microorganisms. The cells are then expandedusing classical tissue culture techniques until the numbers are adequate for repeated injection. The patient’s cells are frozen and stored until the time ofinjection. When an injection is needed, the cells are thawed and washed to prepare them for patient injection. Within 24 hours of this preparation andshipment, vials containing a suspension consisting of 10 million to 20 million cells per milliliter arrives at the doctor’s office, ready for intradermal injectionof the patient.Intellectual PropertyWe believe that patents, trademarks, copyrights and other proprietary rights are important to our business. We also rely on trade secrets, know-howand continuing technological innovations to develop and maintain our competitive position. We seek to protect our intellectual property rights by a varietyof means, including obtaining patents, maintaining trade secrets and proprietary know-how, and technological innovation to operate, without infringing onthe proprietary rights of others and to prevent others from infringing on our proprietary rights. Our policy is to seek to protect our proprietary position by,among other methods, actively seeking patent protection in the United States and certain foreign countries. As of December 31, 2014, we had been assigned or licensed 13 issued U.S. patents, 11 pending U.S. patent applications, 3 pending internationalpatents, 9 granted foreign patents and 23 pending foreign patent applications. Our issued patents and patent applications primarily cover the method of usingautologous cell fibroblasts for the repair of skin and soft tissue defects and the use of autologous fibroblast cells for tissue regeneration. In particular, we ownissued patents in the U.S. and other countries that are directed to methods of long-term augmentation of subcutaneous or dermal tissue by injecting aneffective amount of a suspension of autologous passaged dermal fibroblasts into subadjacent tissue, which covers the approved7Table of Contentsuse of LAVIV®, as well as azficel-T for the treatment of restrictive burn scars and vocal cord scars, and which was set to expire in July 2015. We have beenawarded the maximum 5 year extension of this patent term in the U.S that with a new expiration of July 2020. In addition, we own an issued U.S. patent andpending applications in Australia, Canada, China, Europe, India, Japan, South Korea, Hong Kong and the U.S. directed to dosage formulations for injectioncontaining particular amounts of autologous human fibroblasts and uses thereof, which also covers LAVIV® as well as azficel-T for the treatment of vocalcord scars and restrictive burn scars, and which naturally expire in 2030 and 2031. We also own pending applications in the U.S. and several foreigncountries related to topical formulations of autologous dermal fibroblasts and uses thereof, which, if issued would naturally expire in 2031.CompetitionThere are many companies currently competing in drug development for rare diseases, including Shire PLC (for the treatment of RDEB), CytoriTherapuetics (for the treatment of scleroderma of the hands) and Merz, Inc. (for the treatment of vocal cord scarring).We believe that our cell and gene therapy product and product candidates provide an advantage over our competitors due to their autologous natureas well as to our localized treatment approach. However, some of our competitors have substantially greater financial resources and larger research anddevelopment organizations. In addition, our experience in clinical trials, obtaining FDA and other regulatory approvals, manufacturing andcommercialization of products may be more limited. We also compete in recruiting and retaining highly qualified scientific and regulatory personnel.Research and DevelopmentWe expense research and development costs as they are incurred. For the years ended December 31, 2014, 2013 and 2012, we incurred research anddevelopment expenses of $16.2 million, $13.8 million and $10.2 million, respectively.Government RegulationWe are subject to extensive government regulation, principally by the FDA and state and local authorities in the United States and by comparableagencies in foreign countries. Governmental authorities in the United States extensively regulate the pre-clinical and clinical testing, safety, efficacy,research, development, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing and distribution, among otherthings, of pharmaceutical products under various federal laws including the Federal Food, Drug and Cosmetic Act, or FFDCA, the Public Health Service Act,or PHSA, and under comparable laws by the states and in most foreign countries.Domestic Regulation In the United States, the FDA, under the FFDCA, the PHSA, and other federal statutes and regulations, subjects pharmaceutical and biologic productsto rigorous review. If we do not comply with applicable requirements, we may be fined, the government may refuse to approve our marketing applications orallow us to manufacture or market our products or product candidates, and we may be criminally prosecuted. The FDA also has the authority to discontinueor suspend manufacture or distribution, require a product withdrawal or recall or revoke previously granted marketing authorizations if we fail to comply withregulatory standards or if we encounter problems during commercial operations.FDA Approval ProcessTo obtain approval of a new product from the FDA, we must, among other requirements, submit data demonstrating the product’s safety and efficacyas well as detailed information on the manufacture and composition of the product candidate. In most cases, this entails extensive laboratory tests and pre-clinical and clinical trials. This testing and the preparation of necessary applications and processing of those applications by the FDA are expensive andtypically take many years to complete. The FDA may deny our applications or may not act quickly or favorably in reviewing these applications, and we mayencounter significant difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us from marketing any products we maydevelop. The FDA also may require post-marketing testing and surveillance to monitor the effects of approved products or place conditions on any approvalsthat could restrict the commercial applications of these products. Regulatory authorities may withdraw product approvals if we fail to comply withregulatory standards or if we encounter problems following initial marketing. With respect to patented products or technologies, delays imposed by thegovernmental approval process may materially reduce the period during which we may have the exclusive right to exploit the products or technologies.8Table of ContentsThe FDA does not apply a single regulatory scheme to human tissues and the products derived from human tissue. On a product-by-product basis,the FDA may regulate products such as drugs, biologics, or medical devices, in addition to regulating them as human cells, tissues, or cellular or tissue-basedproducts (“HCT/P”), depending on whether or not the particular product triggers any of an enumerated list of regulatory factors. A fundamental difference inthe treatment of products under these classifications is that the FDA generally permits HCT/Ps that do not trigger any of those regulatory factors to becommercially distributed without marketing approval. In contrast, products that trigger those factors, such as if they are more than minimally manipulatedwhen processed or manufactured, are regulated as drugs, biologics, or medical devices and require FDA approval. We have determined that our FibrocellTherapy (TM) triggers regulatory factors that make it a biologic, in addition to an HCT/P, and consequently, we must obtain approval from FDA beforemarketing Fibrocell Therapy (TM) and must also satisfy all regulatory requirements for HCT/Ps.The process required by the FDA before a new drug or biologic may be marketed in the United States generally involves the following:•completion of pre-clinical laboratory tests or trials and formulation studies;•submission to the FDA of an Investigational New Drug (“IND”) application for a new drug or biologic, which must become effective beforehuman clinical trials may begin;•performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug or biologic forits intended use;•detailed information on product characterization and manufacturing process; and•submission and approval of a New Drug Application (“NDA”) for a drug, or a BLA for a biologic.Pre-clinical tests include laboratory evaluation of product chemistry formulation and stability, as well as animal and other studies to evaluatetoxicity. In view of the autologous nature of our product candidates and our prior clinical experience with our product candidates, the FDA concluded that itwas reasonably safe to initiate clinical trials in vocal cord scarring and restrictive burn scarring without pre-clinical studies and that the clinical trials wouldbe adequate to further assess both the safety and efficacy of our product candidates. Under FDA regulations, the results of any pre-clinical testing, togetherwith manufacturing information and analytical data, are submitted to the FDA as part of an IND application. The FDA requires a 30-day waiting period afterthe filing of each IND application before clinical trials may begin, in order to ensure that human research patients will not be exposed to unreasonable healthrisks. At any time during this 30-day period or at any time thereafter, the FDA may halt proposed or ongoing clinical trials, may authorize trials only onspecified terms, or may require additional trials. The IND application process may become extremely costly and substantially delay development of ourproducts. Moreover, positive results of pre-clinical tests will not necessarily indicate positive results in clinical trials. The sponsor typically conducts human clinical trials in three sequential phases, which may overlap. These phases generally include the following:•Phase I: The product is usually first introduced into healthy humans or, on occasion, into patients, and is tested for safety, dosage tolerance,absorption, distribution, excretion and metabolism;•Phase II: The product is introduced into a limited patient population to:•assess its efficacy in specific, targeted indications;•assess dosage tolerance and optimal dosage; and•identify possible adverse effects and safety risks.•Phase III: These are commonly referred to as pivotal studies. If a product is found to have an acceptable safety profile and to be potentiallyeffective in Phase II clinical trials, clinical trials in Phase III will be initiated to further demonstrate clinical efficacy, optimal dosage andsafety within an expanded and diverse patient population at geographically dispersed clinical study sites; and•If the FDA does ultimately approve the product, it may require post-marketing testing, including potentially expensive Phase IV studies, toconfirm or further evaluate its safety and effectiveness. Continued ability to commercialize the product may be based on the successfulcompletion of these additional studies.9Table of ContentsBefore proceeding with a study, sponsors may seek a written agreement from the FDA regarding the design, size, and conduct of a clinical trial. Thisis known as a Special Protocol Assessment (“SPA”). Among other things, SPAs can cover clinical studies for pivotal trials whose data will form the primarybasis to establish a product’s efficacy. SPAs thus help establish up-front agreement with the FDA about the adequacy of a clinical trial design to support aregulatory approval, but the agreement is not binding if new circumstances arise. Even if the FDA agrees to an SPA, the agreement may be changed by thesponsor or the FDA on written agreement by either parties, or if a senior FDA official determines that a substantial scientific issue essential to determining thesafety or effectiveness of the product was identified after the testing began. There is no guarantee that a study will ultimately be adequate to support anapproval, even if the study is subject to an SPA. The FDA retains significant latitude and discretion in interpreting the terms of the SPA agreement and thedata and results from any study that is the subject of the SPA agreement.Clinical trials must meet requirements for Institutional Review Board (“IRB”) oversight, patient informed consent and the FDA’s Good ClinicalPractice ("GCP"). Prior to commencement of each clinical trial, the sponsor must submit to the FDA a clinical plan, or protocol, accompanied by the approvalof the committee responsible for overseeing clinical trials at the clinical trial sites. The FDA or the IRB at each institution at which a clinical trial is beingperformed may order the temporary or permanent discontinuation of a clinical trial at any time if it believes that the clinical trial is not being conducted inaccordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. Data safety monitoring committees, which monitor certainstudies to protect the welfare of study patients, may also require that a clinical study be discontinued or modified.The sponsor must submit to the FDA the results of the pre-clinical and clinical trials, together with, among other things, detailed information on themanufacturing and composition of the product, and proposed labeling, in the form of an NDA, or, in the case of a biologic, a BLA. The applicant must alsosubmit with the NDA or BLA a substantial user fee payment, unless a waiver or reduction applies. The FDA has advised us that it would regulate ourFibrocell Therapy as a biologic. Therefore, we expect to submit BLAs to seek approval of our product candidates. In some cases, we may be able to expandthe indications in an approved BLA through a submission of a Prior Approval Supplement. Each NDA or BLA submitted for FDA approval is usuallyreviewed for administrative completeness and reviewability within 60 days following submission of the application. If deemed complete, the FDA will “file”the NDA or BLA, thereby triggering substantive review of the application. The FDA can refuse to file any NDA or BLA that it deems incomplete or notproperly reviewable. Once the submission has been accepted for filing, the FDA will review the application and will usually respond to the applicant inaccordance with performance goals the FDA has established for the review of NDAs and BLAs - six months from the receipt of the application for priorityapplications and ten to twelve months for regular applications. The review process is often significantly extended by FDA requests for additionalinformation, pre-clinical or clinical studies, clarification, or a risk evaluation and mitigation strategy (“REMS”) or by changes to the application submittedby the applicant in the form of amendments. The FDA may refer applications for novel product candidates which present difficult questions of safety orefficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation, and a recommendation as to whetherthe application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considerssuch recommendations carefully when making decisions.It is possible that our product candidates will not successfully proceed through this approval process or that the FDA will not approve them in anyspecific period of time, or at all. The FDA may deny or delay approval of applications that do not meet applicable regulatory criteria, or if the FDAdetermines that the clinical data does not adequately establish the safety and efficacy of the product. Satisfaction of FDA pre-market approval requirementsfor a new biologic is a process that may take a number of years and the actual time required may vary substantially based upon the type, complexity andnovelty of the product or disease. The FDA reviews these applications and, when and if it decides that adequate data is available to show that the product isboth safe and effective and that other applicable requirements have been met, approves the drug or biologic for marketing. Government regulation may delayor prevent marketing of potential products for a considerable period of time and imposes costly procedures upon our activities. Success in early stage clinicaltrials does not assure success in later stage clinical trials. Data obtained from clinical activities is not always conclusive and may be susceptible to varyinginterpretations that could delay, limit or prevent regulatory approval. Upon approval, a product candidate may be marketed only for those indicationsapproved in the BLA or NDA and will be subject to labeling and promotional requirements or limitations, including warnings, precautions, contraindicationsand use limitations, which could materially impact profitability. Once approved, the FDA may withdraw the product approval if compliance with pre- andpost-market regulatory standards and requirements are not maintained or if safety, efficacy or other problems occur after the product reaches the marketplace.10Table of ContentsThe FDA may, during its review of an NDA or BLA, ask for additional study data. If the FDA does ultimately approve the product, it may requirepost-marketing testing, including potentially expensive Phase IV studies, to confirm or otherwise further evaluate the safety and effectiveness of the product. The FDA also may require, as a condition to approval or continued marketing of a drug, a REMS to ensure that the benefits of a drug or biologic productoutweigh its risks. REMS can include additional educational materials for healthcare professionals and patients such as Medication Guides and PatientPackage Inserts, a plan for communicating information to healthcare professionals, and restricted distribution of the product. In addition, the FDA may, insome circumstances, impose restrictions on the use of the product, which may be difficult and expensive to administer and may require prior approval ofpromotional materials. Following approval, FDA may require labeling changes or impose new post-approval study, risk management, or distributionrestriction requirements.Ongoing FDA RequirementsBefore approving an NDA or BLA, the FDA usually will inspect the facilities at which the product is manufactured and will not approve the productunless the manufacturing facilities are in compliance with the FDA’s cGMP requirements which govern the manufacture, holding and distribution of aproduct. Manufacturers of human cellular or tissue-based biologics also must comply with the FDA’s Good Tissue Practices, as applicable, and the generalbiological product standards. Following approval, the FDA periodically inspects drug and biologic manufacturing facilities to ensure continued compliancewith the cGMP requirements. Manufacturers must continue to expend time, money and effort in the areas of production, quality control, record keeping andreporting to ensure compliance with those requirements. Failure to comply with these requirements subjects the manufacturer to possible legal or regulatoryaction, such as suspension of manufacturing, seizure of product, voluntary recall of product, withdrawal of marketing approval or civil or criminal penalties. Adverse experiences with the product must be reported to the FDA and could result in the imposition of marketing restrictions through labeling changes ormarket removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety orefficacy of the product occur following approval.The labeling, advertising, promotion, marketing and distribution of a drug or biologic product also must be in compliance with FDA and FederalTrade Commission (“FTC”) requirements which include, among others, promotional activities, standards and regulations for direct-to-consumer advertising,promotional activities involving the internet, and industry sponsored scientific and educational activities. In general, all product promotion must beconsistent with the labeling approved by the FDA for such product, contain a balanced presentation of information on the product’s uses, benefits, risks, andimportant safety information and limitations on use, and otherwise not be false or misleading. The FDA, as well as the FTC, have very broad enforcementauthority, and failure to abide by these regulations can result in penalties, including the issuance of a warning letter directing a company to correctdeviations from regulatory standards and enforcement actions that can include seizures, injunctions and criminal prosecution. Failure to comply withapplicable FDA requirements and restrictions also may subject a company to adverse publicity and enforcement action by the FDA, the U.S. Department ofJustice, or DOJ, or the Office of the Inspector General of the U.S. Department of Health and Human services, or HHS, as well as state authorities. This couldsubject the company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements thatmaterially restrict the manner in which a company promotes or distributes its products.Manufacturers are also subject to various laws and regulations governing laboratory practices, the experimental use of animals and the use anddisposal of hazardous or potentially hazardous substances in connection with their research. In each of the above areas, the FDA has broad regulatory andenforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products and deny orwithdraw approvals.Post-Marketing ObligationsThe Food and Drug Administration Amendments Act of 2007 expanded FDA authority over drug products after approval. All approved drugproducts are subject to continuing regulation by the FDA, including record-keeping requirements, reporting of adverse experiences with the product,sampling and distribution requirements, notifying the FDA and gaining its approval of certain manufacturing or labeling changes, complying with certainelectronic records and signature requirements, submitting periodic reports to the FDA, maintaining and providing updated safety and efficacy information tothe FDA, and complying with FDA promotion and advertising requirements. Failure to comply with the statutory and regulatory requirements can subject amanufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing, seizure of product, injunctive action, criminalprosecution, or civil penalties.The FDA may require post-marketing studies or clinical trials to develop additional information regarding the safety of a product. These studies ortrials may involve continued testing of a product and development of data, including clinical data, about the product’s effects in various populations and anyside effects associated with long-term use. The FDA may require post-marketing studies or trials to investigate possible or known serious risks or signals ofserious risks, or to identify unexpected serious risks, and may require periodic status reports if new safety information develops. Failure to conduct thesestudies in a timely manner may result in substantial civil fines, or withdrawal of product approval.11Table of ContentsDrug and biologics manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, andto list their products with the FDA. The FDA periodically inspects manufacturing facilities in the United States and abroad in order to assure compliance withthe applicable cGMP regulations and other requirements. Facilities also are subject to inspections by other federal, foreign, state or local agencies. Incomplying with the cGMP regulations, manufacturers must continue to assure that the product meets applicable specifications, regulations and other post-marketing requirements. We must ensure that any third-party manufacturers continue to ensure full compliance with all applicable regulations andrequirements. Failure to comply with these requirements subjects the manufacturer to possible legal or regulatory action, such as suspension ofmanufacturing or recall or seizure of product.Also, newly discovered or developed safety or efficacy data may require changes to a product’s approved labeling, including the addition of newwarnings and contraindications, additional pre-clinical or clinical studies, or even in some instances, withdrawal of the approval. Violations of regulatoryrequirements at any stage, including after approval, may result in various adverse consequences, including the FDA’s withdrawal of an approved productfrom the market, other voluntary or FDA-initiated action that could delay or restrict further marketing, and the imposition of civil fines and criminal penaltiesagainst the manufacturer and BLA holder. In addition, later discovery of previously unknown problems may result in restrictions on the product,manufacturer or BLA holder, including withdrawal of the product from the market. Furthermore, new government requirements may be established that coulddelay or prevent regulatory approval of our products under development, or affect the conditions under which approved products are marketed. With respect to our LAVIV® product, which was approved in June 2011, as part of our label the FDA required us, based on clinical study data, toconduct a post-marketing study of approximately 2,700 patients (to assess the risk of skin cancer such as basal cell cancer in the area of LAVIV® injectionsand the risk of immune-mediated hypersensitivity reactions such as leukocytoclastic vasculitis), which must be completed by 2016. The FDA concluded thatanalysis of spontaneous post-marketing AEs would not be sufficient to evaluate potential risk of such events with use of LAVIV® and they requiredperformance of a formal post-marketing study involving 2,700 patients.We have been engaged in discussions with the FDA on the design of the post-marketing study, as we believe the original study design, especiallythe sample size, is no longer consistent with our current emphasis on development of LAVIV® for critical medical applications and our decreasedinvolvement with cosmetic applications. The FDA acknowledged that commercial volume since the marketing of LAVIV® is inadequate to meet the originalenrollment rate proposed but has required submission of actual enrollment data before considering a revision. We have initiated enrollment in the post-marketing study and submitted the second biannual interim report to the FDA containing this enrollment data. We plan to submit a formal request foradjustment to the post marketing requirements in the second half of 2015.HIPAA RequirementsOther federal legislation may affect our ability to obtain certain health information in conjunction with our research activities. We may be subject todata privacy and security regulation by both the federal government and the states in which we conduct our business. The Health Insurance Portability andAccountability Act of 1996 (“HIPAA”), as amended by HITECH, and its implementing regulations, imposes requirements relating to the privacy, security andtransmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicableto “business associates”— independent contractors or agents of covered entities that receive or obtain protected health information in connection withproviding a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities,business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courtsto enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacyand security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thuscomplicating compliance efforts. 12Table of ContentsOther U.S. Regulatory RequirementsIn the United States, the research, manufacturing, distribution, sale, and promotion of drug and biological products are potentially subject toregulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services (formerly theHealth Care Financing Administration), other divisions of the HHS (e.g., the Office of Inspector General), the DOJ and individual U.S. Attorney offices withinthe DOJ, and state and local governments. For example, sales, marketing and scientific/educational grant programs must comply with the anti-fraud andabuse provisions of the Social Security Act, the False Claims Act, and similar state laws, each as amended.If a drug product is reimbursed by Medicare or Medicaid, pricing and rebate programs must comply with, as applicable, the MedicareModernization Act as well as the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990, or the OBRA, and the Veterans HealthCare Act of 1992, or the VHCA, each as amended. Among other things, the OBRA requires drug manufacturers to pay rebates on prescription drugs to stateMedicaid programs and empowers states to negotiate rebates on pharmaceutical prices, which may result in prices for our future products that will likely belower than the prices we might otherwise obtain. If products are made available to authorized users of the Federal Supply Schedule of the General ServicesAdministration, additional laws and requirements apply. Under the VHCA, drug companies are required to offer some drugs at a reduced price to a number offederal agencies including the U.S. Department of Veterans Affairs and the U.S. Department of Defense, the Public Health Service and some private PublicHealth Service designated entities in order to participate in other federal funding programs including Medicaid. Participation under the VHCA requiressubmission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurementcontracts governed by the Federal Acquisition Regulation. All of these activities are also potentially subject to federal and state consumer protection, unfaircompetition, and other laws.In March 2010, President Obama signed one of the most significant healthcare reform measures in decades. The Affordable Care Act, substantiallychanges the way healthcare will be financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. TheAffordable Care Act was a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhanceremedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the healthindustry and impose additional health policy reforms. The Affordable Care Act will impact existing government healthcare programs and will result in thedevelopment of new programs. While the Affordable Care Act could result in additional downward pressure on coverage and the price that we could receivefor any approved product, we do not believe it to be applicable to our business at this time. Any reduction in reimbursement from Medicare and othergovernment programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or otherhealthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products. In addition, it is possible thatthere will be further legislation or regulation that could harm our business, financial condition and results of operations.The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration toinduce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable underMedicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceuticalmanufacturers on one hand and prescribers, purchasers, and formulary managers on the other. Although there are a number of statutory exemptions andregulatory safe harbors protecting some business arrangements from prosecution, the exemptions and safe harbors are drawn narrowly and practices thatinvolve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safeharbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from federal Anti-Kickback Statute liability. The reach of the Anti-Kickback Statute was broadened by the Affordable Care Act, which, among other things, amends the intent requirement of the federal Anti-Kickback Statute.Pursuant to the statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order tohave committed a violation. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resultingfrom a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act (discussed below) or thecivil monetary penalties statute, which imposes penalties against any person who is determined to have presented or caused to be presented a claim to afederal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.13Table of ContentsThe federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federalgovernment or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federalgovernment. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money orproperty presented to the U.S. government. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws forallegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies havebeen prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for unapproved, and thus non-reimbursable,uses. HIPAA created new federal criminal statutes that prohibit knowingly and willfully executing a scheme to defraud any healthcare benefit program,including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false,fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Also, many states have similar fraudand abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardlessof the payor.International RegulationThe regulation of our product candidates outside of the United States varies by country. Certain countries regulate human tissue products as apharmaceutical product, which would require us to make extensive filings and obtain regulatory approvals before selling our product candidates. Certainother countries classify our product candidates as human tissue for transplantation but may restrict its import or sale. Other countries may have noapplication regulations regarding the import or sale of products similar to our product candidates, creating uncertainty as to what standards we may berequired to meet.EmployeesAs of March 6, 2015, we employed 50 people on a full-time basis, all located in the United States. We also have 6 people working on a contractbasis or part-time basis. None of our employees are covered by a collective bargaining agreement, and we consider our relationship with our employees to begood. We also employ consultants and temporary labor on an as needed basis to supplement existing staff.Corporate InformationOn August 10, 2001, American Financial Holding, Inc. acquired Isolagen Technologies through the merger of a wholly owned subsidiary, IsolagenAcquisition Corp., and an affiliated entity, Gemini IX, Inc., with and into Isolagen Technologies. As a result of the merger, Isolagen Technologies became awholly owned subsidiary of American Financial Holding, Inc. On November 13, 2001, the name was changed to Isolagen, Inc. On August 27, 2009, theUnited States Bankruptcy Court for the District of Delaware in Wilmington entered an order confirming the Joint First Amended Plan of Reorganization datedJuly 30, 2009, as supplemented by the Plan Supplement dated August 21, 2009, or the Plan, of Isolagen, Inc. and Isolagen’s wholly ownedsubsidiary, Isolagen Technologies, Inc. The effective date of the Plan was September 3, 2009. Isolagen, Inc. and Isolagen Technologies, Inc. weresubsequently renamed Fibrocell Science, Inc. and Fibrocell Technologies, Inc., respectively.Our mailing address and executive offices are located at 405 Eagleview Boulevard, Exton, Pennsylvania and our telephone number at that address is(484) 713-6000. We maintain an Internet website at the following address: www.fibrocellscience.com. The information on our website is not incorporated byreference in this annual report on Form 10-K or in any other filings we make with the Securities and Exchange Commission, or SEC.We make available on or through our website certain reports and amendments to those reports that we file with or furnish to the SEC in accordancewith the Exchange Act. These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, andamendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make this information available on or through ourwebsite free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.The public may read and copy any materials the Company files with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington,DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.Item 1A. Risk FactorsThe occurrence of any of the following risks could harm our business, financial condition, results of operations and/or growth prospects. In thatcase, the trading price of our common stock could decline, and you may lose all or part of your investment. You should understand that it is not possible topredict or identify all such risks. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.'14Table of ContentsRisks Related to Our Business, Financial Position and Need for Additional CapitalWe have incurred significant losses since our inception and anticipate that we will continue to incur losses in the future.We have incurred losses since our inception, have not generated significant revenue from commercial sales of our products since emerging frombankruptcy, and have never been profitable. Since 2013, which is when we decided to change our business strategy to focus on label-expansion medicalindications for azficel-T and on rare skin and connective tissue diseases in collaboration with our partner Intrexon, we have reduced sales and marketingefforts of our LAVIV® aesthetic product line. We performed a nominal amount of LAVIV® aesthetic procedures in Fiscal 2013 and Fiscal 2014 and willcontinue to do so in Fiscal 2015. Investment in pharmaceutical product development is highly speculative because it entails substantial upfront capitalexpenditures and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. We continue to incursignificant research, development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in eachperiod since we emerged from bankruptcy in September 2009. For the year ended December 31, 2014, we reported a net loss of $25.7 million, and we had anaccumulated deficit of $112.7 million at December 31, 2014.We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses willincrease substantially if and as we:•continue our research and pre-clinical and clinical development of our product candidates;•initiate additional pre-clinical, clinical or other studies or trials for our product candidates, including under our collaboration agreement withIntrexon;•continue or expand our collaboration with Intrexon and our other collaborators;•further develop the manufacturing process for our product candidates;•change or add additional manufacturers or suppliers;•seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials;•establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;•seek to identify and validate additional product candidates;•acquire or in-license other product candidates and technologies;•maintain, protect and expand our intellectual property portfolio;•attract and retain skilled personnel;•create additional infrastructure to support our product development and planned future commercialization efforts; and•experience any delays or encounter issues with any of the above.The net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results ofoperations may not be a good indication of our future performance. In any particular quarter or quarters, our operating results could be below the expectationsof securities analysts or investors, which could cause our stock price to decline.We do not generate significant revenues from product sales and may never be profitable.Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfullycomplete the development of, and obtain the regulatory approvals necessary for, the manufacture and commercialization of our product candidates. Otherthan from the sale of LAVIV®, we do not anticipate generating revenues from product sales for the foreseeable future, if ever. Our ability to generate futurerevenues from product sales depends heavily on our success in:•completing research and pre-clinical and clinical development of our product candidates;•seeking and obtaining regulatory and marketing approvals for product candidates for which we complete clinical trials;•developing a sustainable, scalable, reproducible, and transferable manufacturing process for our product candidates;•establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate (in amount and quality)products and services to support clinical development and the market demand for our product candidates, if approved;•launching and commercializing product candidates for which we obtain regulatory and marketing approval, either by collaborating with apartner or, if launched independently, by establishing a sales force, marketing and distribution infrastructure;•obtaining market acceptance of our product candidates and cell therapy as a viable treatment option;15Table of Contents•addressing any competing technological and market developments;•implementing additional internal systems and infrastructure, as needed;•identifying and validating new cell therapy product candidates;•negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;•maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and•attracting, hiring and retaining qualified personnel.Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associatedwith commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA or other regulatoryagencies, domestic or foreign, to perform clinical trials or other studies in addition to those that we currently anticipate. Even if we are able to generaterevenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.We will require additional capital to fund our operations and if we fail to obtain necessary financing, we may be unable to complete the development andcommercialization of our product candidates.Our operations have consumed substantial amounts of cash. We expect to continue to spend substantial amounts to advance the clinicaldevelopment of our product candidates and launch and commercialize any product candidates for which we may receive regulatory approval, includingpotentially building our own commercial organization to address selected markets. We may require additional capital for the further development andcommercialization of our product candidates and may also need to raise additional funds sooner in order to accelerate development of our productcandidates.We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficientamounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more ofour product candidates or one or more of our other research and development initiatives. If we are unable to raise additional capital when required or onacceptable terms, we also could be required to:•significantly delay, scale back or discontinue the development or, if/when applicable, the commercialization, of our product candidates;•seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on termsthat are less favorable than might otherwise be available;•relinquish or license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop orcommercialize ourselves; or•significantly curtail operations.We will seek to raise additional funds in the future, which may be dilutive to stockholders or impose operational restrictions.We expect to seek to raise additional capital in the future to help fund our clinical trials, our collaboration efforts with Intrexon and for thedevelopment of our proposed products. If we raise additional capital through the issuance of equity or of debt securities, the percentage ownership of ourcurrent stockholders will be reduced. We may also enter into strategic transactions, issue equity as part of license issue fees to our licensors, compensateconsultants or settle outstanding payables using equity that may be dilutive. Our stockholders may experience additional dilution in net book value pershare and any additional equity securities may have rights, preferences and privileges senior to those of the holders of our common stock. If we cannot raiseadditional funds, we will have to delay our development activities.We have a limited operating history, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.We have a limited operating history and our primary business activities consist of conducting clinical trials and pre-clinical development, pursuingour collaboration with Intrexon and commercializing our LAVIV® product. As such, our historical financial data is of limited value in estimating futureoperating expenses. Our budgeted expense levels are based in part on our expectations concerning the costs of our clinical trials, pre-clinical developmentand our collaboration with Intrexon, which depend on the success of such trials and our ability to effectively and efficiently conduct such trials, pre-clinicaldevelopment and expectations related to our efforts to achieve FDA approval with respect to our product candidates. Our limited operating history andclinical trial experience make these costs difficult to forecast accurately. We may be unable to adjust our operations in a timely manner to compensate for anyunexpected increase in costs. Further, our fixed manufacturing costs and business development and marketing expenses will increase significantly as weexpand our operations. Accordingly, a significant increase in costs could have an immediate and material adverse effect on our business, results of operationsand financial condition.16Table of ContentsWe may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies that could harm our operatingresults, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.As part of our business strategy, we may pursue acquisitions of assets or businesses, or strategic alliances and collaborations, to expand our existingtechnologies and operations. We may not identify or complete these transactions in a timely manner, on a cost-effective basis, or at all, and we may notrealize the anticipated benefits of any such transaction, any of which could have a detrimental effect on our financial condition, results of operations and cashflows. We may not be able to find suitable acquisition candidates, and if we make any acquisitions, we may not be able to integrate these acquisitionssuccessfully into our existing business and we may incur additional debt or assume unknown or contingent liabilities in connection therewith. Integration ofan acquired company or assets may also disrupt ongoing operations, require the hiring of additional personnel and the implementation of additional internalsystems and infrastructure, especially the acquisition of commercial assets, and require management resources that would otherwise focus on developing ourexisting business. We may not be able to find suitable collaboration partners or identify other investment opportunities, and we may experience losses relatedto any such investments.To finance any acquisitions or collaborations, we may choose to issue debt or shares of our common stock as consideration. Any such issuance ofshares would dilute the ownership of our stockholders. If the price of our common stock is low or volatile, we may not be able to acquire other assets orcompanies or fund a transaction using our stock as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions throughpublic or private financings. Additional funds may not be available on terms that are favorable to us, or at all.Our business and operations would suffer in the event of computer system failures.Despite the implementation of security measures, our internal computer systems, and those of our contract research organizations, contractmanufacturing organization, and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters,terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in our operations or theunauthorized transfer of our proprietary information, and could result in a material disruption of our clinical activities and business operations, in addition topossibly requiring substantial expenditures of resources to remedy. If such an event were to occur and cause interruptions in our operations, it could result ina material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing clinical trials could result indelays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or securitybreach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incurliability and the further development of our product candidates could be delayed.Risks Related to Clinical Development and Regulatory Approval of Our Product CandidatesOur cell therapy product candidates are based on a novel technology, which makes it difficult to predict the time and cost of product candidatedevelopment and subsequently obtaining regulatory approval.We have concentrated our therapeutic product research and development efforts on our autologous cell therapy platform, and our future successdepends on the successful development of this therapeutic approach. There can be no assurance that any development problems we experience in the futurerelated to our cell therapy platform will not cause significant delays or unanticipated costs, or that such development problems can be solved. We may alsoexperience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring that process to commercial partners, whichmay prevent us from completing our clinical trials or commercializing our products on a timely or profitable basis, if at all.In addition, the clinical trial requirements of the FDA and other regulatory agencies and the criteria these regulators use to determine the safety andefficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. Theregulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or extensivelystudied pharmaceutical or other product candidates.Regulatory requirements governing cell therapy products have evolved and may continue to change in the future. For example, the FDA hasestablished the Office of Cellular, Tissue and Gene Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review ofcell therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. Cell therapy clinical trialsconducted at institutions that receive funding for recombinant DNA research from the U.S. National Institutes of Health, or the NIH, are also subject to reviewby the NIH Office of Biotechnology Activities’ Recombinant DNA Advisory Committee, or the RAC. Although the FDA decides17Table of Contentswhether individual cell therapy protocols may proceed, the RAC review process can impede the initiation of a clinical trial, even if the FDA has reviewed thetrial and approved its initiation. Conversely, the FDA can put an IND on clinical hold even if the RAC has provided a favorable review. Also, before a clinicaltrial can begin at an NIH-funded institution, that institutional review board, or IRB, and its Institutional Biosafety Committee will have to review theproposed clinical trial to assess the safety of the trial. In addition, adverse developments in clinical trials of cell therapy products conducted by others maycause the FDA or other regulatory bodies to change the requirements for approval of any of our product candidates.These regulatory review agencies, committees and advisory groups and the new requirements and guidelines they promulgate may lengthen theregulatory review process, require us to perform additional studies or clinical trials, increase our development costs, lead to changes in regulatory positionsand interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval limitations orrestrictions. As we advance our product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicablerequirements and guidelines. If we fail to do so, we may be required to delay or discontinue development of our product candidates. Delay or failure toobtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generatesufficient product revenue to maintain our business.We may find it difficult to enroll patients in our clinical trials, which could delay or prevent clinical trials of our product candidates.Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trialsdepends on the speed at which we can recruit patients to participate in testing our product candidates. We have experienced delays in some of our clinicaltrials, and we may experience similar delays in the future. If patients are unwilling to participate in our cell therapy clinical trials because of negativepublicity from adverse events in the biotechnology or cell therapy industries or for other reasons, including competitive clinical trials for similar patientpopulations, the timeline for recruiting patients, conducting clinical trials and obtaining regulatory approval of potential products may be delayed. Thesedelays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination ofthe clinical trials altogether.We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to achievediversity in a clinical trial, to complete our clinical trials in a timely manner. Patient enrollment is affected by factors including:•severity of the disease under investigation;•design of the study protocol;•size of the patient population;•eligibility criteria for the clinical trial in question;•perceived risks and benefits of the product candidate under study;•proximity and availability of clinical trial sites for prospective patients;•availability of competing therapies and clinical trials;•efforts to facilitate timely enrollment in clinical trials;•patient referral practices of physicians; and•ability to monitor patients adequately during and after treatment.In particular, each of the conditions for which we plan to evaluate our current gene therapy product candidates are rare genetic diseases with limitedpatient pools from which to draw for clinical trials. Additionally, the process of finding and diagnosing patients may prove costly. We have estimated thatthere are approximately 1,100 to 2,500 U.S. patients with RDEB and approximately 40,000 U.S. patients with linear scleroderma over a major joint whoexhibit severe joint pain.Our current gene therapy product candidates are being developed to treat rare conditions. We plan to seek initial marketing approval in the UnitedStates. We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trialsrequired by the FDA or other regulatory agencies. If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, wemay need to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business.Clinical trials may fail to demonstrate the safety or efficacy of our product candidates, which could prevent or significantly delay regulatory approval andprevent us from raising additional financing.Prior to receiving approval to commercialize any of our product candidates, we must demonstrate with substantial evidence from well-controlledclinical trials, and to the satisfaction of the FDA and other regulatory authorities in the United States and abroad, that our product candidates are both safeand effective. We will need to demonstrate our product candidates’18Table of Contentsefficacy and monitor their safety throughout the process. We previously completed a pivotal Phase III clinical trial related to LAVIV®. However, the successof prior pre-clinical or clinical trials does not ensure the success of these trials, which are being conducted in populations with different racial and ethnicdemographics than our previous trials. If our current trials or any future clinical trials are unsuccessful, our business and reputation would be harmed and theprice at which our stock trades could be adversely affected.All of our product candidates are subject to the risks of failure inherent in the development of biotherapeutic products. The results of early-stageclinical trials of our product candidates do not necessarily predict the results of later-stage clinical trials. Product candidates in later-stage clinical trials mayfail to demonstrate desired safety and efficacy traits despite having successfully progressed through initial clinical testing. Even if we believe the datacollected from clinical trials of our product candidates is promising, this data may not be sufficient to support approval by the FDA or any other U.S. orforeign regulatory approval. The FDA may also reject any of our completed clinical trials as inadequate to support approval if the study design does notinclude specific safety monitoring measures. Pre-clinical and clinical data can be interpreted in different ways. Accordingly, FDA officials could reachdifferent conclusions in assessing such data than we do which could delay, limit or prevent regulatory approval. In addition, the FDA, other regulatoryauthorities, our IRB or we may suspend or terminate clinical trials at any time.Obtaining FDA and other regulatory approvals is complex, time consuming and expensive, and the outcomes are uncertain.The process of obtaining FDA and other regulatory approvals is time consuming, expensive and difficult. Clinical trials are required to establish thesafety and efficacy of product candidates. Applications to market product candidates must be submitted to the FDA which must be reviewed for approval andapproved by the FDA before product candidates may be marketed and clinical trials, manufacturing, and the marketing of products, if approved, are subject tostrict regulatory compliance. The commencement and completion of clinical trials for any of our product candidates could be delayed or prevented by avariety of factors, including:•delays in obtaining regulatory approvals to commence a study or trial;•delays in identifying and reaching agreement on acceptable terms with prospective clinical trial sites;•delays or failures in obtaining approval of our clinical trial protocol from an IRB to conduct a clinical trial at a prospective study site;•delays in the enrollment of patients;•manufacturing difficulties;•failure of our clinical trials and clinical investigators to be in compliance with the FDA’s GCP;•failure of our third-party contract research organizations, clinical site organizations or other clinical trial managers, to satisfy their contractualduties, comply with regulations or meet expected deadlines;• lack of efficacy during clinical trials; or• unforeseen safety issues.We do not know whether our clinical trials will need to be restructured or will be completed on schedule, if at all, or whether they will provide datanecessary to support necessary regulatory approval. Significant delays in clinical trials will impede our ability to commercialize our product candidates andgenerate revenue, and could significantly increase our development costs.In addition, we utilize bovine-sourced materials to manufacture our product candidates. It is possible that future FDA regulations may require us tochange the source of the bovine-sourced materials we use in our products or to cease using bovine-sourced materials. If we are required to use alternativematerials in our products, and in the event that such alternative materials are available to us, or if we choose to change the materials used in our products inthe future, we would need to validate the new manufacturing process and run comparability trials with the reformulated product, which could delay oursubmission for regulatory approval of our product candidates and negatively impact the development and potential commercialization of our productcandidates.If we fail to obtain the necessary regulatory approvals, or if such approvals are limited, we will not be able to commercialize our product candidates, andwe will not generate product revenues.Even if we comply with all FDA pre-approval regulatory requirements, the FDA may determine that our product candidates are not safe or effective,and we may never obtain regulatory approval for such product candidates. If we fail to obtain regulatory approval for some or all of our product candidates,we will have fewer commercial products, if any, and correspondingly lower product revenues, if any. Even if our product candidates receive regulatoryapproval, such approval may involve limitations on the indications and conditions of use or marketing claims for our products. Further, later discovery ofpreviously unknown problems or AEs could result in additional regulatory restrictions, including withdrawal of products and addition of warnings or otherstatements on the product label.19Table of ContentsWith respect to our LAVIV® product, which was approved in June 2011, as part of our label the FDA required us, based on clinical study data, toconduct a post-marketing study of approximately 2,700 patients, which must be completed by 2016. The FDA concluded that analysis of spontaneous post-marketing AEs would not be sufficient to evaluate potential risk of such events with use of LAVIV® and they required performance of a formal post-marketing study involving 2,700 patients.We have been engaged in discussions with the FDA on the design of the post-marketing study, as we believe the original study design, especiallythe sample size, is no longer consistent with our current emphasis on development of LAVIV® for critical medical applications and our decreasedinvolvement with cosmetic applications. The FDA acknowledged that commercial volume since the marketing of LAVIV® is inadequate to meet the originalenrollment rate proposed but has required submission of actual enrollment data before considering a revision. We have initiated enrollment in the post-marketing study and submitted the second biannual interim report to the FDA containing this enrollment data. We plan to submit a formal request foradjustment to the post marketing requirements in the second half of 2015. Although we believe we will be able to reach an agreement with the FDA on thispost-marketing study, to the extent we are unable to complete an acceptable post-marketing study, the FDA may determine to take action against us,including the withdrawal of its approval of LAVIV®.In jurisdictions outside the United States, we must receive marketing authorizations from the appropriate regulatory authorities beforecommercializing our product candidates. Regulatory approval processes outside the United States generally include requirements and risks similar to, and inmany cases in excess of, the risks associated with FDA approval.Our failure to comply with extensive governmental regulation may significantly affect our operating results.Even if we obtain regulatory approval for some or all of our product candidates, we will continue to be subject to extensive ongoing requirements bythe FDA, as well as by a number of foreign, national, state and local agencies. These regulations will impact many aspects of our operations, includingtesting, research and development, manufacturing, safety, efficacy, labeling, storage, quality control, AE reporting, import and export, record keeping,approval, distribution, advertising and promotion of our future products. We must also submit new or supplemental applications and obtain FDA approval forcertain changes to an approved product, product labeling or manufacturing process. Application holders must also submit advertising and other promotionalmaterial to the FDA and report on ongoing clinical trials. The FDA enforces post-marketing regulatory requirements, including the cGMP requirements,through periodic unannounced inspections. We have recentlyreceived a Form 483 Letter from the FDA identifying issues with its inspection of our autologous fibroblast manufacturing facility. We do not know whetherthe FDA will accept our proposals for addressing the issues noted in its letter or if similar or additional issues will be identified in subsequent inspections. Wedo not know whether we will pass any future FDA inspections. Failure to pass an inspection could disrupt, delay or shut down our manufacturing operations.Failure to comply with applicable regulatory requirements could, among other things, result in:•administrative or judicial enforcement actions;•changes to advertising;•failure to obtain marketing approvals for our product candidates;•revocation or suspension of regulatory approvals of products;•product seizures or recalls;•court-ordered injunctions;•import detentions;•delay, interruption or suspension of product manufacturing, distribution, marketing and sales; or•civil or criminal sanctions.The discovery of previously unknown problems with our products may result in restrictions of the products, including withdrawal from the market.In addition, the FDA may revisit and change its prior determinations with regard to the safety or efficacy of our future products. If the FDA’s position changes,we may be required to change our labeling or cease to manufacture and market our future products. Even prior to any formal regulatory action, we couldvoluntarily decide to cease the distribution and sale or recall any of our future products if concerns about their safety or efficacy develop.In their regulation of advertising and other promotion, the FDA and the FTC may issue correspondence alleging that some advertising orpromotional practices are false, misleading or deceptive. The FDA and FTC are authorized to impose a wide array of sanctions on companies for suchadvertising and promotion practices, which could result in any of the following:•incurring substantial expenses, including fines, penalties, legal fees and costs to comply with the FDA’s requirements;•changes in the methods of marketing and selling products;•taking FDA mandated corrective action, which may include placing advertisements or sending letters to physicians rescinding previousadvertisements or promotions; or20Table of Contents•disruption in the distribution of products and loss of sales until compliance with the FDA’s position is obtained.Improper promotional activities may also lead to investigations by federal or state prosecutors, and result in criminal and civil penalties. If webecome subject to any of the above requirements, it could be damaging to our reputation and restrict our ability to sell or market our future products, and ourbusiness condition could be adversely affected. We may also incur significant expenses in defending ourselves.Physicians may prescribe pharmaceutical or biologic products for uses that are not described in a product’s labeling or differ from those tested by usand approved by the FDA. While such “off-label” uses are common and the FDA does not regulate physicians’ choice of treatments, the FDA does restrict amanufacturer’s communications on the subject of off-label use. Companies cannot promote FDA-approved pharmaceutical or biologic products for off-labeluses, but under certain limited circumstances they may disseminate to practitioners’ articles published in peer-reviewed journals. To the extent allowed bythe FDA, we may disseminate peer-reviewed articles on our future products, if approved, to practitioners. If, however, our activities fail to comply with theFDA’s regulations or guidelines, we may be subject to warnings from, or enforcement action by, the FDA or other regulatory or law enforcement authorities.Our sales, marketing, and scientific/educational grant programs, if any in the future, must also comply with applicable requirements of the anti-fraudand abuse provisions of the Social Security Act, the False Claims Act, the federal anti-kickback law, and similar state laws, each as amended. Pricing andrebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veteran’s Health Care Act of1992, each as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additionallaws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws. Thedistribution of product samples to physicians must comply with the requirements of the Prescription Drug Marketing Act.Depending on the circumstances, failure to meet post-approval requirements can result in criminal prosecution, fines or other penalties, injunctions,recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, or refusal to allow us to enterinto supply contracts, including government contracts. Any government investigation of alleged violations of law could require us to expend significanttime and resources in response, and could generate negative publicity.We are subject to significant regulation with respect to the manufacturing of our products.All of those involved in the marketing of our product candidates for clinical trials or commercial sale, including us and our existing supply contractmanufacturers and clinical trial investigators, are subject to extensive regulation by the FDA. Components of a finished therapeutic product approved forcommercial sale or used in late-stage clinical trials must be manufactured in accordance with current Good Manufacturing Practices. These regulationsgovern manufacturing processes and procedures and the implementation and operation of quality systems to control and assure the quality of investigationalproducts and products approved for sale. Our facilities and quality systems and the facilities and quality systems of some or all of our third party contractorsand suppliers must pass inspection for compliance with the applicable regulations as a condition of FDA approval of our products. In addition, the FDA may,at any time, audit or inspect a manufacturing facility, including our manufacturing facility, involved with the preparation of LAVIV® or our other potentialproducts or the associated quality systems for compliance with the regulations applicable to the activities being conducted. The FDA also may, at any timefollowing approval of a product for sale, audit our manufacturing facilities or those of our third party contractors. If any such inspection or audit identifies afailure to comply with applicable regulations or if a violation of our product specifications or applicable regulation occurs independent of such an inspectionor audit, we or the FDA may require remedial measures that may be costly and/or time consuming for us or a third party to implement and that may includethe temporary or permanent suspension of a clinical trial or commercial sales, recalls, market withdrawals, seizures or the temporary or permanent closure of afacility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.Risks Related to Our Intellectual PropertyIf we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology and products andproduct candidates, our competitive position could be harmed.Our commercial success will depend in large part on our ability to obtain and maintain patent and other intellectual property protection in the U.S.and other countries with respect to our proprietary technology and products. We rely on trade secret, patent, copyright and trademark laws, andconfidentiality, licensing and other agreements with employees and third21Table of Contentsparties, all of which offer only limited protection. We seek to protect our proprietary position by filing and prosecuting patent applications in the U.S. andabroad related to our novel technologies and products that are important to our business.The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questionsand have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patents,including those patent rights licensed to us by third parties, are highly uncertain. The steps we or our licensors have taken to protect our proprietary rightsmay not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outsidethe U.S. Further, the examination process may require us or our licensors to narrow the claims for our pending patent applications, which may limit the scopeof patent protection that may be obtained if these applications issue. The rights already granted under any of our currently issued patents or those licensed tous and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. Ifwe or our licensors are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained isnot sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfullycommercialize our technology and products may be adversely affected. It is also possible that we or our licensors will fail to identify patentable aspects ofinventions made in the course of our development and commercialization activities before it is too late to obtain patent protection on them.With respect to patent rights, we do not know whether any of the pending patent applications for any of our therapies will result in the issuance ofpatents that protect our technology or products, or if any of our or our licensors’ issued patents will effectively prevent others from commercializingcompetitive technologies and products. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applicationsin the U.S. and other jurisdictions are typically not published until 18 months after filing or in some cases not at all, until they are issued as a patent.Therefore we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patentapplications, or that we or our licensors were the first to file for patent protection of such inventions.Our issued patents, those that may be issued in the future or those licensed or acquired by us, may be challenged, invalidated or circumvented, andthe rights granted under any issued patent may not provide us with proprietary protection or competitive advantages against competitors with similartechnology. In particular, we do not know if competitors will be able to design variations on our treatment methods to circumvent our current andanticipated patent claims. Furthermore, competitors may independently develop similar technologies or duplicate any technology developed by us.Our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patentissues from such applications. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents thatwe own or have licensed from third parties may be challenged in the courts or patent offices in the U.S. and abroad. Such challenges may result in the loss ofpatent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop othersfrom using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products.Protecting against the unauthorized use of our or our licensor’s patented technology, trademarks and other intellectual property rights is expensive, difficultand may in some cases not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of ourintellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain andcould harm our business.Our commercial success depends upon our ability to develop, manufacture, and if approved, market and sell our product candidates and to use ourrelated proprietary technologies. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual propertyrights with respect to our products or product candidates, including interference or derivation proceedings before the U.S. Patent and Trademark Office, orUSPTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found toinfringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue commercializing our products. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Under certain circumstances, we could be forced,including by court order, to cease commercializing our products and then expend time and funding to redesign our product and/or product candidates so thatit does not infringe others’ patents while still allowing us to compete in the market with a substantially similar product. In addition, in any such proceedingor litigation, we could be found liable for monetary damages. A finding of infringement could prevent us from commercializing our products or force us tocease some of our business operations, which could materially harm our business. Any claims by third parties that we have misappropriated their confidentialinformation or trade secrets could have a similar negative impact on our business. In addition, our involvement in any of these proceedings may cause us toincur substantial costs and result in diversion of management and technical personnel. Furthermore, parties making claims against us may be able to obtain22Table of Contentsinjunctive or other equitable relief that could effectively block our ability to develop, commercialize and sell products, and could result in the award ofsubstantial damages against us.While azficel-T is in pre-clinical studies and clinical trials for additional indications, we believe that the use of azficel-T in these pre-clinical studiesand clinical trials falls within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which exempts from patentinfringement liability activities reasonably related to the development and submission of information to the FDA. As azficel-T progresses towardcommercialization in the additional indications, the possibility of a patent infringement claim against us increases. We attempt to ensure that azficel-T andthe methods we employ to manufacture it, as well as the methods for its use we intend to promote, do not infringe other parties’ patents and other proprietaryrights. There can be no assurance they do not, however, and competitors or other parties may assert that we infringe their proprietary rights in any event.We may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive, and our or ourlicensors’ intellectual property rights in some countries outside the U.S. can be less extensive than those in the U.S. In addition, the laws and practices ofsome foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the U.S. Consequently, we and our licensorsmay not be able to prevent third parties from practicing our and our licensors’ inventions in all countries outside the U.S., or from selling or importingproducts made using our and our licensors’ inventions in and into the U.S. or other jurisdictions. Competitors may use our technologies in jurisdictions wherewe have not obtained patent protection to develop their own products, and may export otherwise infringing products to territories where we or our licensorshave patent protection, but where enforcement is not as strong as that in the U.S. These products may compete with our products in jurisdictions where we donot have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. Thelegal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual propertyprotection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our or our licensor’s patents ormarketing of competing products in violation of our proprietary rights generally in those countries. Proceedings to enforce our patent rights in foreignjurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our and our licensors’ patents atrisk of being invalidated or interpreted narrowly and our and our licensors’ patent applications at risk of not issuing and could provoke third parties to assertclaims against us or our licensors. We or our licensors may not prevail in any lawsuits that we or our licensors initiate and the damages or other remediesawarded, if any, may not be commercially meaningful.The laws of certain foreign countries may not protect our rights to the same extent as the laws of the U.S., and these foreign laws may also be subjectto change. For example, methods of treatment and manufacturing processes may not be patentable in certain jurisdictions, and the requirements forpatentability may differ in certain countries, particularly developing countries. Furthermore, generic drug manufacturers or other competitors may challengethe scope, validity or enforceability of our or our licensors’ patents, requiring us or our licensors to engage in complex, lengthy and costly litigation or otherproceedings. Generic drug manufacturers may develop, seek approval for, and launch generic versions of our products. Many countries, including EuropeanUnion countries, India, Japan and China, have compulsory licensing laws under which a patent owner may be compelled under certain circumstances to grantlicenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled togrant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly,our and our licensors’ efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage fromthe intellectual property that we own or license.Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time.Given the amount of time required for the development, testing and regulatory review of products, such as LAVIV®, and our other productscandidates, such as azficel-T, patents protecting such candidates might expire before or shortly after such candidates are commercialized. We expect to seekextensions of patent terms in the U.S. and, if available, in other countries where we are prosecuting patents. In the U.S., the Drug Price Competition and PatentTerm Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approvedindication (or any additional indications approved during the period of extension). However, the applicable authorities, including the FDA and the USPTO inthe U.S., and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and mayrefuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantageof our investment in development and clinical trials by referencing our clinical and pre-clinical data and launch their product earlier than might otherwise bethe case.23Table of ContentsChanges in patent law, including recent patent reform legislation, could increase the uncertainties and costs surrounding the prosecution of our patentapplications and the enforcement or defense of our issued patents.As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining andenforcing patents in the pharmaceutical industry involve technological and legal complexity, and obtaining and enforcing pharmaceutical patents is costly,time-consuming, and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the U.S. and other countries may diminishthe value of our patents or narrow the scope of our patent protection. For example, the U.S. Supreme Court has ruled on several patent cases in recent years,either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In additionto increasing uncertainty with regard to our and our licensors’ ability to obtain patents in the future, this combination of events has created uncertainty withrespect to the value of patents, once obtained. Depending on decisions by Congress, the federal courts, and the USPTO, the laws and regulations governingpatents could change in unpredictable ways that would weaken our and our licensors’ ability to obtain new patents or to enforce existing patents and patentswe and our licensors may obtain in the future. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of ourand our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents.In September 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number ofsignificant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patentlitigation. In particular, under the Leahy-Smith Act, the U.S. transitioned in March 2013 to a “first to file” system in which the first inventor to file a patentapplication will be entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the USPTO and may become involvedin opposition, derivation, reexamination, inter-partes review or interference proceedings challenging our patent rights or the patent rights of our licensors. Anadverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our or our licensors’ patent rights, whichcould adversely affect our competitive position.The USPTO is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantivechanges to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, did not become effective until March 16, 2013.Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and itsimplementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of ourissued patents and those licensed to us.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and otherrequirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with theserequirements.Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of thepatent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and othersimilar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means inaccordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application,resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patentor patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure toproperly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidates,our competitive position would be adversely affected.If we are unable to protect the confidentiality of our proprietary information and know-how, our competitive position would be impaired.Some of our technology is unpatented and is maintained by us as trade secrets. In an effort to protect these trade secrets, we require our employees,consultants, collaborators and advisors to execute confidentiality agreements upon the commencement of their relationships with us. These agreementsrequire that all confidential information developed by the individual or made known to the individual by us during the course of the individual’srelationship with us be kept confidential and not disclosed to third parties. These agreements, however, may not provide us with adequate protection againstimproper use or disclosure of confidential information, and these agreements may be breached. Adequate remedies may not exist in the event ofunauthorized use or disclosure of our confidential information. A breach of confidentiality could affect our competitive position. In addition, in somesituations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators or advisorshave previous employment or consulting relationships. Also, others24Table of Contentsmay independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. The disclosure ofour trade secrets would impair our competitive position and may materially harmour business, financial condition and results of operations.We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful and havea material adverse effect on the success of our business.Competitors may infringe our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement orunauthorized use, litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine thevalidity and scope of our own intellectual property rights or the proprietary rights of others. Also, third parties may initiate legal proceedings against us orour licensors to challenge the validity or scope of intellectual property rights we own or control. These proceedings can be expensive and time consuming.Many of our current and potential competitors have the ability to dedicate substantially greater resources to defend their intellectual property rights than wecan. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.Litigation could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in aninfringement proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable, or may refuse to stop the other party fromusing the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding couldput one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount ofdiscovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised bydisclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings ordevelopments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of ourcommon stock.We may be subject to claims by third parties asserting that our licensors, employees or we have misappropriated their intellectual property, or claimingownership of what we regard as our own intellectual property.Many of our employees and our licensors’ employees, including our senior management, were previously employed at universities or at otherbiotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including each member of oursenior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previousemployment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may besubject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any suchthird party. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, wemay lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and wecould be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available oncommercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be adistraction to management.Intellectual property rights do not necessarily address all potential threats to our competitive advantage.The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, andmay not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:•others may be able to make compounds that are the same as or similar to our product candidates, but that are not covered by the claims of thepatents that we own or have exclusively licensed;•we or our licensors or any strategic partners might not have been the first to make the inventions covered by the issued patents or pendingpatent applications that we own or have exclusively licensed;•we or our licensors might not have been the first to file patent applications covering certain of our inventions;•others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectualproperty rights;•it is possible that our pending patent applications will not lead to issued patents;•issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid orunenforceable as a result of legal challenges;•our competitors might conduct research and development activities in the U.S. and other countries that provide a safe harbor from patentinfringement claims for certain research and development activities, as well as in countries where we do not have patent rights and then use theinformation learned from such activities to develop competitive products for sale in our major commercial markets;25Table of Contents•we may not develop additional proprietary technologies that are patentable; and•the patents of others may have an adverse effect on our business.Risks Related to the Commercialization of Our Product CandidatesIf physicians do not follow our established protocols, the efficacy and safety of our product candidates may be adversely affected.We are dependent on physicians to follow our established protocols both as to the administration and the handling of our product candidates inconnection with our clinical trials, and we continue to be dependent on physicians to follow such protocols after our product candidates are commercialized.The treatment protocol requires each physician to verify the patient’s name and date of birth with the patient and the patient records immediately prior toinjection. In the event more than one patient’s cells are delivered to a physician or we deliver the wrong patient’s cells to the physician, which has occurredin the past, it is the physician’s obligation to follow the treatment protocol and assure that the patient is treated with the correct cells. If the physicians do notfollow our protocol, the efficacy and safety of our product candidates may be adversely affected.Ethical, legal and social concerns about synthetic biologically engineered products could limit or prevent the use of the product candidates we maydevelop in the future with Intrexon.The products candidates we are developing with Intrexon use a synthetic biology platform. Public perception about the safety of products with celltherapy applied, as well as ethical concerns over these products, could influence public acceptance of these product candidates. If we are not able toovercome the ethical, legal and social concerns relating to synthetic biological engineering, these product candidates may not be accepted. These concernscould result in increased expenses, regulatory scrutiny, delays or other impediments to the public acceptance and commercialization of these productcandidates. Our ability to develop and commercialize these product candidates could be limited by public attitudes and governmental regulation.The subject organisms with cell therapy applied has received negative publicity. This adverse publicity could lead to greater regulation of productsaltered with gene therapy. Further, there is a risk that our product candidates could cause adverse health effects or other AEs, which could also lead tonegative publicity.The synthetic biological technologies that are being utilized for the product candidates we are developing with Intrexon may have significantlyenhanced characteristics compared to those found in naturally occurring organisms, enzymes or microbes. While these synthetic biological technologies arebeing produced only for use in a controlled laboratory and industrial environment, the release of such synthetic biological technologies into uncontrolledenvironments could have unintended consequences. Any adverse effect resulting from such a release could have a material adverse effect on our business andfinancial condition, and we may have exposure to liability for any resulting harm.Our competitors in the pharmaceutical, medical device and biotechnology industries may have superior products, manufacturing capabilities, financialresources or marketing position.The human healthcare products and services industry is extremely competitive. Our competitors include major pharmaceutical, medical device andbiotechnology companies. Most of these competitors have more extensive research and development and marketing and production capabilities than we do,as well as greater financial resources. Our future success will depend on our ability to develop and market effectively our products against those of ourcompetitors. If our products cannot compete effectively in the marketplace, our results of operations and financial position will suffer.If any of our approved products were to become the subject of problems related to their efficacy, safety, or otherwise, our business would be seriouslyharmed.LAVIV®, in addition to any other of our product candidates that may be approved by the FDA, will be subject to continual review by the FDA, andwe cannot assure you that newly discovered or developed safety issues will not arise. For all of our product candidates, the FDA has required us to pay specialattention to potential skin cancer and hypersensitivity reactions at the site of injection and, while we have seen no issues to date, we cannot rule out thatissues may arise in the future. With the use of any newly marketed drug by a wider patient population, serious adverse events ("AE's") may occur from time totime that initially do not appear to relate to the drug itself. Any safety issues could cause us to suspend or cease marketing of our approved products, cause usto modify how we market our approved products, subject us to substantial liabilities, and adversely affect our revenues and financial condition.Due to the novel nature of our technology, we face uncertainty related to pricing and reimbursement for these product candidates.26Table of ContentsOur target patient populations are relatively small, as a result of which the pricing and reimbursement of our product candidates, if approved, must beadequate to support commercial infrastructure. If we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell ourproduct candidates will be adversely affected. The manner and level at which reimbursement is provided for services related to our product candidates (e.g.,for administration of our product to patients) is also important. Inadequate reimbursement for such services may lead to physician resistance and adverselyaffect our ability to market or sell our products.If the market opportunities for our product candidates are smaller than we believe they are, our revenues may be adversely affected and our business maysuffer. Because the target patient populations of our product candidates are small, we must be able to successfully identify patients and achieve asignificant market share to maintain profitability and growth.We focus our research and product development on treatments for severe skin and connective tissue diseases. Our projections of both the number ofpeople who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our productcandidates, are based on estimates. These estimates may prove to be incorrect and new studies or clinical trials may change the estimated incidence orprevalence of these diseases. The number of patients in the United States and elsewhere may turn out to be lower than expected, may not be otherwiseamenable to treatment with our products, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affectour results of operations and our business.In order to commercialize any future product candidates, we will need to increase our manufacturing capacity and improve our manufacturingcapabilities, which will require significant expenditures and regulatory approval.We currently have limited manufacturing capacity and we have had limited manufacturing experience. In addition, our current manufacturingprocess is primarily a manual process. In order to commercialize any future product candidates, we will need to add manufacturing capacity. We also aredeveloping enhancements and alternatives to our current manual manufacturing process. If we have difficulties in increasing our manufacturing capacity andimproving our capabilities, we will be limited in our ability to manufacture and commercialize our product candidates, if they are approved for marketing;and we may not be able to decrease our manufacturing costs. These difficulties could adversely affect our financial performance and damage our reputation.Even if we are successful in developing such enhancements or finding alternatives to our current process, such manufacturing changes will require additionalexpenditures, for which we may be required to seek external financing. In addition, our ability to increase our manufacturing capacity or modify ourmanufacturing processes will be subject to additional FDA review and approval.We may be liable for product liability claims not covered by insurance.Physicians who used our facial aesthetic product in the past, or who may use any of our future products, and patients who have been treated by ourfacial aesthetic product in the past, or who may use any of our future products, may bring product liability claims against us. While we have taken, andcontinue to take, what we believe are appropriate precautions, we may be unable to avoid significant liability exposure. We currently keep in force productliability insurance, although such insurance may not be adequate to fully cover any potential claims or may lapse in accordance with its terms prior to theassertion of claims. We may be unable to obtain product liability insurance in the future, or we may be unable to do so on acceptable terms. Any insurance weobtain or have obtained in the past may not provide adequate coverage against any asserted claims. In addition, regardless of merit or eventual outcome,product liability claims may result in:•diversion of management’s time and attention;•expenditure of large amounts of cash on legal fees, expenses and payment of damages;•decreased demand for our products or any of our future products and services; or•injury to our reputation.If we are the subject of any future product liability claims, our business could be adversely affected, and if these claims are in excess of insurancecoverage, if any, that we may possess, our financial position will suffer.27Table of ContentsWe face risks in connection with doing business in China.In April 2010, we entered into a letter of intent with Chinese company Heifei Meifu Bio-Tech Limited Co. to form a joint venture to commercializeautologous fibroblast therapies in Asia (excluding Japan) and to produce and develop such therapies in China. This letter of intent was intended to serve asthe template for a joint venture agreement between us and Heifei Meifu, which would expand the scope of our operations to China and Asia more broadly.However, to date we and Heifei Meifu have not received Chinese governmental approval to form the proposed joint venture and we are consideringalternative business structures in Asia (excluding Japan). If we are able to consummate alternative business structures in Asia (excluding Japan), we expect togenerally no longer have an independent right to make or sell autologous fibroblast therapies in Asia (excluding Japan). If, however, we are unable to finalizealternative business structures in Asia (excluding Japan), our business could be harmed.Risks Related to Our Dependence on Third PartiesWe and our collaborators depend on third parties to conduct our pre-clinical studies and clinical trials, which may result in costs and delays that preventus from obtaining regulatory approval or successfully commercializing our product candidates.We and our collaborators engage third parties to perform various aspects of our pre-clinical studies and clinical trials. For instance, one of ourcollaborators obtains genetically-modified material from a sole source supplier in connection with the pre-clinical development of RDEB. We and ourcollaborators depend on these third parties to perform these activities on a timely basis in accordance with the protocol, good laboratory practices, goodclinical practices, and other regulatory requirements. Our reliance on these third parties for pre-clinical and clinical development activities reduces ourcontrol over these activities. Accordingly, if these parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, ourpre-clinical studies and clinical trials may be extended, delayed, terminated or our data may be rejected by the FDA. For example, if our collaborator’s solesource supplier of genetically-modified material in connection with the pre-clinical development of RDEB were to cease to be able to supply genetically-modified material to our collaborator, or decline to supply genetically-modified material to our collaborator, our RDEB program would be delayed until ourcollaborator obtained an alternative source, which could take a considerable length of time. If it became necessary to replace a third party that was assistingwith one of our pre-clinical studies or clinical trials, we believe that there are a number of other third-party contractors that could be engaged to continuethese activities, although it may result in a delay of the applicable pre-clinical study or clinical trial. If there are delays in testing or obtaining regulatoryapprovals as a result of a third party’s failure to perform, our drug discovery and development costs will likely increase, and we may not be able to obtainregulatory approval for or successfully commercialize our product candidates.We will incur additional expenses in connection with our exclusive channel collaboration arrangement with Intrexon.Pursuant to our exclusive channel collaboration with Intrexon, we are responsible for future research and development expenses of productcandidates developed under such collaboration, the effect of which we expect will increase the level of our overall research and development expenses goingforward. Although all manufacturing, pre-clinical studies and human clinical trials are expensive and difficult to design and implement, costs associated withthe manufacturing, research and development of biologic product candidates are generally greater in comparison to small molecule product candidates. Wehave added personnel and expect to add additional personnel, either directly or through consulting arrangements, to support our exclusive channelcollaboration with Intrexon.Because development activities are determined pursuant to a joint steering committee comprised of Intrexon and ourselves and we have limitedexperience, future development costs associated with this program may be difficult to anticipate and exceed our expectations. Our actual cash requirementsmay vary materially from our current expectations for a number of other factors that may include, but are not limited to, unanticipated technical challenges,changes in the focus and direction of our development activities or adjustments necessitated by changes in the competitive landscape in which we operate. Ifwe are unable to continue to financially support such collaboration due to our own working capital constraints, we may be forced to discontinue thecollaboration or delay our activities.We may not be able to retain the exclusive rights licensed to us by Intrexon.Under the Channel Agreement, we are using Intrexon’s technology in connection with various of our product candidates. The Channel Agreementgrants us a worldwide license to use patents and other intellectual property of Intrexon in connection with the research, development, use, importing,manufacture, sale, and offer for sale of products within a pre-defined “field” that we set forth above in the “Item 1. Business - Intrexon Collaboration”.The Channel Agreement may be terminated by Intrexon if we fail to exercise diligent efforts in developing products through the collaboration or ifwe elect not to pursue the development of a therapy in the “Field” identified by Intrexon that is a28Table of Contents“Superior Therapy” as defined in the Channel Agreement. Upon such termination, the products covered by the Channel Agreement in active and ongoingPhase II or III clinical trials or later stage development through the Channel Agreement shall be entitled to be continued by us with a continuation of therelated royalties for such products, and all rights to products covered by the Channel Agreement still in an earlier stage of development shall revert toIntrexon.There can be no assurance that we will be able to successfully perform under the Channel Agreement and if the Channel Agreement is terminated itmay prevent us from achieving our business objectives.If we breach our license agreement or collaboration agreement, it could have a material adverse effect on our commercialization efforts.We have collaborated and may collaborate in the future with other entities on research, development and commercialization activities. Disputesmay arise about inventorship and corresponding rights in know-how and inventions resulting from the joint creation or use of intellectual property by us andour subsidiaries, collaborators, partners, licensors and consultants. As a result, we may not be able to maintain our proprietary position.We have limited manufacturing capacity and any manufacturing difficulties, disruptions or delays could limit supply of our products and or adverselyaffect our ability to conduct our clinical trials.Manufacturing biologic human therapeutic products is difficult, complex and highly regulated. We currently manufacture LAVIV® and our celltherapy product candidates at one facility and outsource the manufacturing of our gene therapy product candidates to a separate facility, both located in theUnited States. Our ability to adequately and timely manufacture and supply our products is dependent on the uninterrupted and efficient operation of oursole facility and those of our third-party suppliers, which may be impacted by:•availability or contamination of raw materials and components used in the manufacturing process, particularly those for which we have no othersource or supplier;•capacity of our facility and those of our suppliers;•the performance of our information technology systems;•compliance with regulatory requirements;•inclement weather and natural disasters;•changes in forecasts of future demand for product components;•timing and actual number of production runs for product components;•potential facility contamination by microorganisms or viruses;•updating of manufacturing specifications; and•product quality success rates and yields.If the efficient manufacture and supply of our products is interrupted, we may experience delayed shipments or supply constraints. If we are at anytime unable to provide an uninterrupted supply of our products to patients, we may lose patients and physicians may elect to prescribe competingtherapeutics instead of our products, which could materially and adversely affect our product sales and results of operations. In addition, if we are unable tosupply our clinical trials due to manufacturing limitations, our trials may be delayed or compromised.Our manufacturing processes and those of our suppliers must undergo a potentially lengthy FDA approval process, as well as other regulatoryapproval processes, and are subject to continued review by the FDA and other regulatory authorities. It is a multi-year process to build and license a newmanufacturing facility and it can take significant time to qualify and license a new supplier.If regulatory authorities determine that we or our suppliers or certain of our third-party service providers have violated regulations or if they restrict,suspend or revoke our prior approvals, they could prohibit us from manufacturing our products or conducting clinical trials or selling our marketed productsuntil we or the affected third-party service providers comply, or indefinitely. Because our third-party service providers are subject to FDA and, potentially, inthe future, foreign regulatory authorities, alternative qualified third-party service providers may not be available on a timely basis or at all. If we or our third-party service providers cease or interrupt production or if our third-party service providers fail to supply materials, products or services to us, we mayexperience delayed shipments, and supply constraints for our products.29Table of ContentsOur research, development and manufacturing operations depend on one facility each for both our cell therapy and gene therapy product candidates. Ifsuch facility is destroyed or is out of operation for a substantial period of time, our business will be adversely impacted.We currently conduct our research, development and manufacturing operations related to our cell therapy product in one facility located in Exton,Pennsylvania. As a result, all of the commercial manufacturing of LAVIV® takes place at a single U.S. facility. In addition, most of our clinical trials for ourcell therapy product candidates primarily depend upon the manufacturing of such product candidates in the same facility. We currently outsource ourresearch, development and manufacturing operations related to our gene therapy product candidates to one facility located in Mountainview, California.If regulatory, manufacturing or other problems require us to discontinue production at either facility, we will not be able to supply our product to ourcustomers or have supplies for our clinical trials, which would adversely impact our business. If either facility or the equipment in it is significantly damagedor destroyed by fire, flood, power loss or similar events, we may not be able to quickly or inexpensively replace our manufacturing capacity or replace ourfacility at all. In the event of a temporary or protracted loss of either facility or equipment, we might not be able to transfer manufacturing to a third party.Even if we could transfer manufacturing to a third party, the shift would likely be expensive and time-consuming, particularly since the new facility wouldneed to comply with the necessary regulatory requirements and we would need FDA approval before any products manufactured at that facility could be soldor used.We are dependent on our key manufacturing, quality and other management personnel, and the loss of any of these individuals could harm our business.We are dependent on the efforts of our key management and manufacturing and quality staff. The loss of any of these individuals, or our inability torecruit and train additional key personnel in a timely manner, could materially and adversely affect our business and our future prospects. A loss of one ormore of our current officers or key personnel could severely and negatively impact our operations. We have an employment agreement with our chiefexecutive officer, but the remainder of our key personnel are employed “at-will,” and any of them may elect to pursue other opportunities at any time. Wehave no present intention of obtaining key man life insurance on any of our executive officers or key management personnel.We may need to attract, train and retain additional highly qualified senior executives and manufacturing and quality personnel in the future.In the future, we may need to seek additional senior executives, as well as manufacturing and quality staff members. There is a high demand forhighly trained executive, manufacturing and quality personnel in our industry. We do not know whether we will be able to attract, train and retain highlyqualified manufacturing and quality personnel in the future, which could have a material adverse effect on our business, financial condition and results ofoperations.Risks Related to Ownership of our Common StockThe trading price of the shares of our common stock has been highly volatile, and purchasers of our common stock could incur substantial losses.Our stock began trading on NYSE MKT on May 17, 2013 and then on NASDAQ on August 29, 2014. Between May 17, 2013 and December 31,2014, our common stock has traded between $2.28 and $7.20. Our stock price could be subject to wide fluctuations in response to a variety of factors, whichinclude:•whether our clinical human trials relating to the use of autologous cell therapy applications, in particular, for vocal cord scars, and such otherindications as we may identify and pursue can be conducted within the timeframe that we expect, whether such trials will yield positive results,or whether additional applications for the commercialization of autologous cell therapy can be identified by us and advanced into humanclinical trials;•whether our collaboration with Intrexon can be advanced with positive results within the timeframe and budget that we expect;•changes in laws or regulations applicable to our products or product candidates, including but not limited to clinical trial requirements forapprovals;•unanticipated serious safety concerns related to the use of our products or product candidates;•a decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;30Table of Contents•our ability to increase our manufacturing capacity and reduce our manufacturing costs through the improvement of our manufacturing process,our ability to validate any such improvements with the relevant regulatory agencies and our ability to accomplish the foregoing on a timelybasis, if at all;•adverse regulatory decisions;•the introduction of new products or technologies offered by us or our competitors;•the inability to effectively manage our growth;•actual or anticipated variations in quarterly operating results;•the failure to meet or exceed the estimates and projections of the investment community;•the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;•the overall performance of the U.S. equity markets and general political and economic conditions;•announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;•disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection forour technologies;•additions or departures of key personnel;•the trading volume of our common stock; and•other events or factors, many of which are beyond our control.In addition, the stock market in general, and the stock of biotechnology companies in particular, have experienced extreme price and volumefluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors maynegatively affect the market price of our common stock, regardless of our actual operating performance.Our operating results may fluctuate significantly in the future, which may cause our results to fall below the expectations of securities analysts,stockholders and investors.Our operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. Thesefactors include, but are not limited to:•the timing, implementation and cost of our clinical trials;•expenses in connection with our exclusive channel collaboration arrangement with Intrexon;•the level of demand and profitability of LAVIV®;•the timely and successful implementation of improved manufacturing processes;•our ability to attract and retain personnel with the necessary strategic, technical and creative skills required for effective operations;•the amount and timing of expenditures by practitioners and their patients;•introduction of new technologies;•product liability litigation, class action and derivative action litigation, or other litigation;•the amount and timing of capital expenditures and other costs relating to the expansion of our operations;•the state of the debt and/or equity markets at the time of any proposed offering we choose to initiate;•our ability to successfully integrate new acquisitions into our operations;•government regulation and legal developments regarding LAVIV® and our product candidates in the United States and in the foreign countriesin which we may operate in the future; and•general economic conditions.As a strategic response to changes in the competitive environment, we may from time to time make pricing, service, technology or marketingdecisions or business or technology acquisitions that could have a material adverse effect on our31Table of Contentsoperating results. Due to any of these factors, our operating results may fall below the expectations of securities analysts, stockholders and investors in anyfuture period, which may cause our stock price to decline.We are substantially controlled by our current officers, directors, and principal stockholders.Currently, our directors, executive officers, and principal stockholder beneficially own approximately 15.2 million shares, or 37%, of our commonstock as of March 6, 2015. In addition, two of our seven directors are affiliates of our principal stockholder. As a result, our directors, officers and principalstockholders will be able to exert substantial influence over the election of our Board of Directors and the vote on issues submitted to our stockholders.Future sales of our common stock may depress our stock price.The market price of our common stock could decline as a result of sales of substantial amounts of our common stock in the public market, or as aresult of the perception that these sales could occur, which could occur if we issue a large number of shares of common stock (or securities convertible intoour common stock) in connection with a future financing, as our common stock is trading at low levels. These factors could make it more difficult for us toraise funds through future offerings of common stock or other equity securities. As of the date of this report, all of our outstanding shares held by non-affiliates are freely transferable without restriction or further registration under the Securities Act. In addition to our common stock outstanding, as ofDecember 31, 2014, we had warrants and options outstanding that were exercisable for a total of 7,133,300 shares of common stock.We have identified a material weakness in our internal control over financial reporting. This material weakness could continue to adversely affect ourability to report our results of operations and financial condition accurately and in a timely manner.Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonableassurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance withU.S. generally accepted accounting principles (“GAAP”). Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of ourinternal control and to disclose any changes and material weaknesses in that internal control. A material weakness is a deficiency, or a combination ofdeficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interimfinancial statements will not be prevented or detected on a timely basis.As described elsewhere in this Annual Report on Form 10-K, we identified a material weakness in our internal control over financial reportingrelated to management's review of the assumptions used in the valuation modeling of our warrants classified as a liability. As a result of this materialweakness, our management concluded that our internal control over financial reporting was not effective as of December 31, 2014. To respond to this material weakness, we have devoted, and plan to continue to devote, significant effort and resources to the remediation andimprovement of our internal control over financial reporting. We will require additional information in the valuation report provided by any third parties towhich we outsource financial modeling to verify that management's assumptions were used as expected during the valuation process. In the past,management has utilized such third parties to assist us and will reconsider the appropriate selection of its external advisors that it will utilize in the future.The elements of management's remediation plan can only be accomplished over time and Management can offer no assurance that these initiatives willultimately have the intended effects. For a discussion of management’s consideration of the material weakness identified, related to our warrant accounting,see Part II, Item 9A, “Controls and Procedures” included in this Annual Report on Form 10-K.Any failure to maintain such internal control could adversely impact our ability to report our financial results on a timely and accurate basis. If ourfinancial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filedon a timely basis as required by the SEC and NASDAQ, we could face severe consequences from those authorities. In either case, there could result a materialadverse effect on our business. Inferior internal control could also cause investors to lose confidence in our reported financial information, which could havea negative effect on the trading price of our stock. We can give no assurance that the measures we have taken and plan to take in the future will remediate thematerial weaknesses identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure toimplement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful instrengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or tofacilitate the fair presentation of our consolidated financial statements.32Table of ContentsWe have not declared any dividends on our common stock to date, and we have no intention of declaring dividends in the foreseeable future.The decision to pay cash dividends on our common stock rests with our Board of Directors and will depend on our earnings, unencumbered cash,capital requirements and financial condition. We do not anticipate declaring any dividends in the foreseeable future, as we intend to use any excess cash tofund our operations. Investors in our common stock should not expect to receive dividend income on their investment, and investors will be dependent onthe appreciation of our common stock to earn a return on their investment.Provisions in our charter documents could prevent or delay stockholders’ attempts to replace or remove current management.Our charter documents provide for staggered terms for the members of our Board of Directors. Our Board of Directors is divided into three staggeredclasses, and each director serves a term of three years. At stockholders’ meetings, only those directors comprising one of the three classes will have completedtheir term and be subject to re-election or replacement.In addition, our Board of Directors is authorized to issue “blank check” preferred stock, with designations, rights and preferences as they maydetermine. Accordingly, our Board of Directors has in the past and may in the future, without stockholder approval, issue shares of preferred stock withdividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock. Thistype of preferred stock could also be issued to discourage, delay or prevent a change in our control.The use of a staggered Board of Directors and the ability to issue “blank check” preferred stock are traditional anti-takeover measures. Theseprovisions in our charter documents make it difficult for a majority stockholder to gain control of the Board of Directors and of our company. Theseprovisions may be beneficial to our management and our Board of Directors in a hostile tender offer and may have an adverse impact on stockholders whomay want to participate in such a tender offer, or who may want to replace some or all of the members of our Board of Directors.Provisions in our bylaws provide for indemnification of officers and directors, which could require us to direct funds away from our business and futureproducts.Our bylaws provide for the indemnification of our officers and directors. We have in the past and may in the future be required to advance costsincurred by an officer or director and to pay judgments, fines and expenses incurred by an officer or director, including reasonable attorneys’ fees, as a resultof actions or proceedings in which our officers and directors are involved by reason of being or having been an officer or director of our company. Funds paidin satisfaction of judgments, fines and expenses may be funds we need for the operation of our business and the development of our product candidates,thereby affecting our ability to attain profitability.The public trading market for our common stock may not be sustained.In the past, we have had a limited, volatile and sporadic public trading market for our common stock. Although our common stock is listed onNASDAQ, an active trading market for our common stock may not be sustained, especially given the large percentage of our common stock held by ouraffiliates. If an active market for our common stock is not sustained, it may be difficult for our stockholders to sell shares without depressing the market pricefor our common stock.Provisions of the warrants issued in connection with certain of our prior financings provide for preferential treatment to the holders of the warrants andcould impede a sale of the Company.The warrants we issued in connection with certain of our prior financings gives each holder the option to receive a cash payment based on a Black-Scholes valuation upon our change of control or upon our failure to be listed on any trading market. We are required, at the warrant holder’s option,exercisable at any time concurrently with, or within 30 days after, the announcement of a fundamental transaction, to redeem all or any portion of thesewarrants from the warrant holder by paying to the holder an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of thewarrant on or prior to the date of the consummation of such fundamental transaction.If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and tradingvolume could decline.The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or ourbusiness. We do not have any control over these analysts. Securities and industry analysts do not currently, and may never, publish research on our company.If no securities or industry analysts commence coverage of our33Table of Contentscompany, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more ofthe analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If oneor more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might causeour stock price and trading volume to decline.Item 1B. Unresolved Staff CommentsNone.Item 2. Properties Our corporate headquarters and manufacturing operations are located in one location, Exton, Pennsylvania. The Exton, Pennsylvania location isleased and consists of approximately 86,500 square feet. The lease ends March 31, 2023.Item 3. Legal ProceedingsShandong Fabosaier Bio-Tech Co., Ltd. and Ran Liu v. Fibrocell Science, Inc., Civil Action No. 14-7180 (U.S. Dist. Ct. for the E.D. of PA)On or about December 19, 2014, Shandong Fabosaier Bio-Tech Co., Ltd. of China (“Shandong”) and Ran Liu of Vancouver, Canada, who isallegedly a director of Shandong, commenced a lawsuit against us in the United States District Court for the Eastern District of Pennsylvania, Case No. 2:14-cv-07180-CMR. The Complaint asserts claims for breach of contract, promissory estoppel, and unjust enrichment against us. The Complaint alleges that weagreed to appoint Shandong and Ran Liu as the exclusive marketers of our product “LAVIV®,” in China and Vancouver, respectively, for certain periods oftime. Shandong alleges that we approved Shandong’s promotion of LAVIV®, however we subsequently and without justification terminated theserelationships and agreements, causing plaintiffs to suffer various damages. We vigorously deny and dispute the factual allegations contained in the Complaint and, on February 12, 2015, we filed an amended answer,additional defenses and counterclaims against Shandong and Ms. Liu. Our counterclaims include counts for trademark infringement, violations of theLanham Act and the Anticybersquatting Consumer Protection Act, unfair competition, and tortious interference with contractual relations resulting fromShandong’s unauthorized use of our marks on Shandong’s website and in other marketing materials, which included inaccurate and misleadingrepresentations about the LAVIV® product. We have added our wholly-owned subsidiary, Fibrocell Technologies, Inc., as an additional counterclaimplaintiff against Shandong because that entity owns the trademarks that are the subject of the counterclaims. At this time, we are unable to state whether anoutcome unfavorable to us is either probably or remote within the meaning of the Statement of Policy nor are we able to estimate the amount or range of lossin the event of an unfavorable outcome.Item 4. Mine Safety DisclosureNot applicable. Part IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock trades under the symbol “FCSC.” Our stock traded on the Over the Counter Bulletin Board (“OTCBB”) from October 21, 2009until May 16, 2013. On May 17, 2013 our stock began trading on the NYSE MKT. On August 28, 2014, the Company delisted its common stock from theNYSE MKT and began trading on NASDAQ.The following table provides, for the periods during which we traded on the OTCBB, the high and low bid prices for our common stock. Thesequotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. The following table alsoprovides, for the periods during we traded on the NYSE MKT and NASDAQ, the high and low sales prices for our common stock. The share prices have beenadjusted to give effect to the 1-for-25 reverse stock split effective April 30, 2013.34Table of Contents High LowYear Ended December 31, 2014 First Quarter$6.30 $4.00Second Quarter$5.23 $2.70Third Quarter prior to August 29, 2014 (the date we began trading on the NASDAQ)$4.31 $2.88Third Quarter (from August 29, 2014 to September 30, 2014))$3.40 $2.60Fourth Quarter$3.25 $2.28Year Ended December 31, 2013 First Quarter$4.25 $3.25Second Quarter prior to May 17, 2013 (the date we began trading on the NYSE MKT)$5.05 $3.00Second Quarter (from May 17, 2013 to June 30, 2013)$7.20 $4.50Third Quarter$6.23 $4.10Fourth Quarter$4.44 $3.28The closing price of our common stock on March 6, 2015 was $5.82 as reported on NASDAQ.Holders of RecordAs of March 6, 2015, there were 40,856,815 shares of our common stock outstanding. There were approximately 174 stockholders of record at March6, 2015. Because many of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number ofstockholders represented by these record holders.DividendsWe have never paid any cash dividends on our common stock and our board of directors does not intend to do so in the foreseeable future. Thedeclaration and payment of dividends in the future, of which there can be no assurance, will be determined by the board of directors in light of conditionsthen existing, including earnings, financial condition, capital requirements and other factors.During 2012, we had outstanding shares of our Series D and Series E preferred stock. All of these shares were converted into common stock onOctober 9, 2012. Prior to such conversion, these preferred shares were entitled to certain dividends. There were no cash payments for Series D and Series Epreferred stock dividends for 2014 or 2013 and approximately $0.5 million for 2012.Recent Sales of Unregistered SecuritiesAll information regarding our issuance of unregistered securities during Fiscal 2014 have been previously disclosed in current reports we have filedon Form 8-K or in quarterly reports we have filed on Form 10-Q.Stock Performance GraphThe following graph compares the cumulative total return on our common stock relative to the cumulative total returns of the NASDAQ compositeindex and the NASDAQ Biotechnology index for the period from October 21, 2009 (date of inception) through December 31, 2014. An investment of $100(with reinvestment of all dividends) is assumed to have been made in our common stock and in each of the indexes on October 21, 2009 (our date ofinception) and its relative performance is tracked through December 31, 2014.35Table of Contents As of 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014Fibrocell Science, Inc.62.16 27.57 21.62 8.11 8.78 5.60NASDAQ Composite Index105.51 123.35 121.13 140.39 194.19 220.21NASDAQ BiotechnologyIndex104.89 120.63 134.88 177.91 294.64 395.11The stock price performance included in this graph is not necessarily indicative of future stock price performance.Purchases of Equity SecuritiesWe did not repurchase any of our equity securities during any month within the fourth quarter of the fiscal year ended December 31, 2014. Item 6. Selected Financial DataThe selected financial data presented below was derived from our audited consolidated financial statements and related notes. The per share datahas been retroactively adjusted to reflect the April 30, 2013 reverse stock split.36Table of Contents $ in thousands, except share data Twelve Months Ended 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 Income Statement Total revenue $180 $200 $153 $— $936Cost of sales 2,312 7,501 7,804 13 503Gross loss (2,132) (7,301) (7,651) (13) 433Selling, general and administrative expenses 11,623 9,440 11,546 12,795 6,516Research and development expenses 16,199 13,762 10,193 7,171 5,486Warrant revaluation and other finance income(expense) 3,930 (1,053) 20,404 2,562 (465)Derivative revaluation income — — (23) (5,452) —Interest expense 6 2 (1,017) (1,062) (1,045)Loss on extinguishment of debt — — (5,617) — —Other income 368 — — — 248Loss from continuing operations before income tax (25,650) (31,554) (15,643) (23,931) (12,831)Income taxes — — 2,500 — —Loss from continuing operations (25,650) (31,554) (13,143) (23,931) (12,831)Loss from discontinued operations, net of tax — — (11) (94) (49)Gain on sale of discontinued operations, net of tax — — 467 — —Net loss (25,650) (31,554) (12,687) (24,025) (12,880)Net loss attributable to noncontrolling interest — — (24) (18) (52)Net loss attributable to common shareholders (25,650) (31,554) (12,711) (24,043) (12,932)Loss from continuing operations per common share -basic $(0.63) $(1.06) $(1.47) $(10.91) $(17.10)Loss from continuing operations per common share -diluted $(0.70) $(1.12) $(2.65) $(10.99) $(17.10)Net loss per common share - basic $(0.63) $(1.06) $(1.42) $(10.96) $(17.23)Net loss per common share - diluted $(0.70) $(1.12) $(2.60) $(11.04) $(17.23)Balance Sheet Cash and cash equivalents $37,495 $60,033 $31,346 $10,799 $868Total current assets 39,348 61,860 33,156 12,499 1,916Total assets 45,634 69,014 40,603 20,274 8,278Total current liabilities 3,493 3,593 1,554 9,612 1,943Warrant liability 11,286 15,216 14,515 23,754 8,172Total liabilities 15,225 19,348 16,413 36,542 22,281Mezzanine preferred stock — — — — 1,070Total equity/(deficit) and noncontrolling interest 30,409 49,666 24,190 (16,268) (15,073) We have never paid dividends on our common stock.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion of our consolidated financial condition and results of operations should be read in conjunction with the consolidatedfinancial statements and the related notes thereto included elsewhere in this Form 10-K. The matters discussed herein contain forward-looking statementswithin the meaning of Section 21E of the Exchange Act, and Section 27A of the Securities Act, which involve risks and uncertainties. All statements otherthan statements of historical information provided herein may be deemed to be forward-looking statements. Without limiting the foregoing, the words“believes”, “anticipates”, “plans”, “expects” and similar expressions are intended to identify forward-looking statements. Factors that could cause actualresults to differ materially from those reflected in the forward-looking statements include, but are not limited to, those discussed in “Item 1A. Risk Factors”and elsewhere in this report and the risks discussed in our other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis, judgment, belief or expectation only as of the date hereof. Although we believe that ourexpectations37Table of Contentsare based on reasonable assumptions, we can give no assurance that our expectations will materialize. We undertake no obligation to publicly revise theseforward-looking statements to reflect events or circumstances that arise after the date hereof. General We are an autologous cell therapy company primarily focused on developing first-in-class treatments for rare and serious skin and connective tissuediseases with high unmet medical needs. Our lead orphan gene therapy program is in late stage pre-clinical development for the treatment of recessivedystrophic epidermolysis bullosa ("RDEB"). In addition to our gene therapy program, we are pursuing the medical application of azficel-T for vocal cordscarring using our proprietary autologous fibroblast technology. We are also in pre-clinical development for our second gene therapy program for linearscleroderma.Working in collaboration with Intrexon Corporation (NYSE:XON), a leader in synthetic biology, we are genetically modifying autologous fibroblastcells to express collagen VII which is missing or inactive from patients with RDEB. Collagen VII is responsible for forming fibrils which attach the epidermisand the dermis layers of the skin. RDEB is a rare congenital orphan skin disease is a devastating, progressive, painful blistering disease that ultimately leadsto premature death. The lack of collagen VII is the underlying cause of this disease. We expect to file our investigational new drug ("IND") application withthe Food and Drug Administration ("FDA") by mid-2015 and to initiate our Phase I clinical trials in the second half of 2015.Our ongoing scientific research collaboration with the Regents of the University of California, Los Angeles (“UCLA”) focuses on discoveries andtechnologies related to regenerative medicine. The technologies from this collaboration and our exclusive license agreements with UCLA may enable us toexpand our biologics platform which uses human fibroblasts to create localized therapies that are compatible with the unique biology of each patient.Critical Accounting PoliciesThe following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, whichhave been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). However, certain accounting policies and estimates areparticularly important to the understanding of our financial position and results of operations and require the application of significant judgment by ourmanagement or can be materially affected by changes from period to period in economic factors or conditions that are outside of the control of management. As a result they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriateassumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans andprojected financial results, the terms of existing contracts, our observance of trends in the industry, information provided by our customers and informationavailable from other outside sources, as appropriate. The following discusses our critical accounting policies and estimates.Intangible Assets: Intangible assets are research and development assets related to our primary study that was recognized upon emergence frombankruptcy. Amortization commenced in the first quarter of 2012 with the recognition of revenue from the sale of LAVIV®.Intangibles are tested for recoverability whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Theimpairment test consists of a comparison of the fair value of the intangible asset to its carrying amount. If the carrying amount exceeds the fair value, animpairment loss is recognized equal in amount to that excess.Warrant Liability: The Company accounts for stock warrants as either equity instruments or derivative liabilities depending on the specific terms ofthe warrant agreement. Stock warrants are accounted for as a derivative in accordance with Accounting Standards Codification 815, Derivatives and Hedging(“ASC 815”) if the stock warrants contain “down-round protection” or other terms that could potentially require “net cash settlement” and therefore, do notmeet the scope exception for treatment as a derivative. Since “down-round protection” is not an input into the calculation of the fair value of the warrants,the warrants cannot be considered indexed to our stock which is a requirement for the scope exception as outlined under ASC 815. Warrant instruments thatcould potentially require “net cash settlement” in the absence of express language precluding such settlement and those which include “down-roundprovisions” are initially classified as derivative liabilities at their estimated fair values, regardless of the likelihood that such instruments will ever be settledin cash. We will continue to classify the fair value of the warrants that contain “down-round protection” and “net cash settlement” as a liability until thewarrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability.Cost of Sales: Cost of sales includes the costs related to the processing of cells for LAVIV®, including direct and indirect costs. Beginning in Fiscal2014, cost of sales is accounted for using a standard cost system for direct and indirect costs. Direct costs include the majority of costs incurred in ourmanufacturing, facility, quality control, and quality assurance operations along with an allocation of overhead and indirect costs. 38Table of ContentsResearch and Development Expenses: Research and development costs are expensed as incurred and include salaries and benefits, costs paid tothird-party contractors to perform research, conduct clinical trials, develop and manufacture drug materials and delivery devices, and a portion of facilitiescost. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors.Invoicing from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with third-partycontractor activities based on our estimate of management fees, site management and monitoring costs and data management costs. Actual clinical trial costsmay differ from estimated clinical trial costs and are adjusted for in the period in which they become known. Stock Based Compensation: We account for stock-based awards to employees using the fair value based method to determine compensation for allarrangements where shares of stock or equity instruments are issued for compensation. In addition, we account for stock-based compensation tononemployees in accordance with the accounting guidance for equity instruments that are issued to other than employees. We use a Black-Scholes option-pricing model to determine the fair value of each option grant as of the date of grant for expense incurred. The Black-Scholes model requires inputs for risk-free interest rate, dividend yield, volatility and expected lives of the options. Expected volatility is based on historical volatility of our common stock andour peer companies. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of thegrant. The expected lives for options granted represents the period of time that options granted are expected to be outstanding and is derived from thecontractual terms of the options granted. We estimate future forfeitures of options based upon historical forfeiture rates. Income Taxes: An asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income taxes arise fromtemporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses in different periods forfinancial and tax accounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by netoperating loss (“NOL”) carryover. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance isrecognized.Basis of PresentationThe following discussion should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to theConsolidated Financial Statements included in this Form 10-K.Results of OperationsComparison of Years Ending December 31, 2014 and 2013Revenue and Cost of Sales. Revenue and cost of sales were comprised of the following: Year Ended December 31, Increase(Decrease)($ in thousands)2014 2013 $ %Total revenue$180 $200 $(20) (10.0)%Cost of sales2,312 7,501 (5,189) (69.2)%Gross loss$(2,132) $(7,301) $5,169 70.8 %Revenue was approximately $0.2 million for each of the years ended December 31, 2014 and 2013. Revenue is booked based on the shipment ofcells to the patients for injection of LAVIV®.Cost of sales was $2.3 million and $7.5 million for the years ended December 31, 2014 and 2013, respectively. Cost of sales includes the costsrelated to the processing of cells for LAVIV®, including direct and indirect costs. Beginning in Fiscal 2014, cost of sales is accounted for using a standardcost system which allocates the costs associated with our manufacturing, facility, quality control, and quality assurance operations as well as overhead costs.The decrease of $5.2 million is primarily due to a reallocation of manufacturing costs related to research and development expense, increased productionefficiency and yield as well as a de-emphasis on commercial sales in the aesthetic market (LAVIV®).The principal reasons for the relatively small level of revenue as compared to the cost of sales are: (1) We changed corporate strategy in Fiscal 2013to de-emphasize sales of azficel-T into the aesthetic markets, and strategically transition to focus on high-value therapeutic applications for treatment ofunmet medical conditions of the skin and connective tissue (2) Manufacturing capacity — our current manufacturing capacity is limited to no more thantwenty biopsies a week as assessed by the FDA in connection with the approval of our BLA; (3) Charging for biopsies and injections — we offeredcomplimentary and reduced price biopsies and injections throughout Fiscal 2012 and Fiscal 2013; and (4) Manufacturing complexity and quality controland assurance criteria. We currently have adequate manufacturing capacity to meet clinical demand and the limited commercial demand we expect for Fiscal2015. We believe that cost of sales will remain at or above39Table of Contentsproduct revenue for the foreseeable future and, thus, we anticipate that we will continue to report gross losses from sales of LAVIV® for the aestheticindication for the foreseeable future.Selling, General and Administrative Expense. Selling, general and administrative expense was comprised of the following: Year Ended December 31, Increase(Decrease)($ in thousands)2014 2013 $ %Compensation and related expense$4,727 $3,841 $886 23.1 %Professional fees1,713 964 749 77.7 %Marketing expense57 295 (238) (80.7)%Legal fees1,056 697 359 51.5 %Facilities and related expense and other4,070 3,643 427 11.7 %Total selling, general and administrative expense$11,623 $9,440 $2,183 23.1 %Selling, general and administrative expense increased by approximately $2.2 million, or 23%, to $11.6 million for the year ended December 31,2014 as compared to $9.4 million for the year ended December 31, 2013. Compensation and related expense increased approximately $0.9 million due to$0.5 million in employee bonuses, $0.2 million in severance costs, increased salaries of $0.1 million and increased stock compensation expense of $0.1million. Professional fees increased approximately $0.7 million, primarily due to the $0.4 million in accounting and audit related costs for our warrantrestatement project in the second quarter of Fiscal 2014 and an increase of $0.3 million in temporary staffing costs. Marketing expense decreasedapproximately $0.2 million due to the de-emphasis on sales of our commercial product, LAVIV®. Legal fees increased approximately $0.4 million due tonegotiations with respect to our corporate contracts as well as the warrant restatement project. Facilities and related expense and other increasedapproximately $0.4 million due to a $0.3 million increase in repairs and maintenance costs and a $0.1 million increase in office and other general expenses.Research and Development Expense.For each of our research and development programs, we incur both direct and indirect expenses. Direct expenses include third party costs related tothese programs such as contract research, consulting, pre-clinical and clinical development costs. Indirect expenses include regulatory, lab costs, personnel,facility, stock compensation and other overhead costs that are not attributable to any one program. We expect research and development costs to continue tobe significant for the foreseeable future as a result of our clinical trials and our collaboration with Intrexon.Research and development expense was comprised of the following: Year EndedDecember 31, Increase(Decrease)($ in thousands)2014 2013 $ %Direct costs: Vocal Cord Scarring$778 $322 $456 141.6 %RDEB3,800 1,773 2,027 114.3 %Restrictive Burn Scarring645 344 301 87.5 %Autoimmune diseases558 7,140 (6,582) (92.2)%azficel-T549 1,555 (1,006) (64.7)%Ehlers-Danlos Syndrome hypermobility type5,171 — 5,171 100.0 %Other460 631 (171) (27.1)%Total direct costs11,961 11,765 196 1.7 %Indirect costs: Regulatory costs1,012 923 89 9.6 %Intangible amortization551 551 — — %Indirect lab costs and other expenses2,402 253 2,149 849.4 %Compensation and related expenses273 270 3 1.1 %Total indirect costs4,238 1,997 2,241 112.2 %Total research and development expense$16,199 $13,762 $2,437 17.7 %Total research and development expense increased approximately $2.4 million, or 18%, to $16.2 million for the year ended December 31, 2014 ascompared to $13.8 million for the year ended December 31, 2013. The increase is due primarily40Table of Contentsto the increase of $2.1 million in indirect lab costs and other expenses resulting from the Fiscal 2014 implementation of a standard cost system, a $0.2 millionincrease in total direct costs and a $0.1 million increase in other indirect costs. A portion of our operational and overhead costs not related to commercialsales were allocated to research and development expense as indirect lab costs. Similar costs would have been included in cost of sales for the year endedDecember 31, 2013.Direct research and development expense by major clinical and pre-clinical development program were as follows.Vocal Cord Scarring (“VCS”) — Costs to date on this program are approximately $1.3 million. These funds have been utilized to author and review clinicaltrial protocols, hire a Contract Research Organization (“CRO”), recruit investigator sites and initiate recruitment. Going forward, VCS research anddevelopment investments will support execution of the Phase II clinical trial, clinical product manufacturing, statistical analyses, report generation and futureclinical development. Costs increased $0.5 million compared to the year ended December 31, 2013 due to additional costs for enrollment, clinical site feesand manufacturing costs related to our Phase II clinical trial.RDEB — Costs to date on this program are approximately $12.6 million, and include the $6.9 million cost of the Fiscal 2012 stock issuance in connectionwith the Channel Agreement with Intrexon. Going forward, RDEB research and development investments will support additional product and assaydevelopment, pre-clinical trial execution, key opinion leader development, pre-IND and DNA Recombinant Advisory Committee (“RAC”) meetingpreparation and design and execution of the Phase I clinical trial protocol. Costs increased approximately $2.0 million compared to the year ended December31, 2013 due to the expansion of our pre-clinical development program and pre-clinical manufacturing costs.Restrictive Burn Scarring (“RBS”) — Costs to date on this program are approximately $1.1 million. These funds have been utilized to author and reviewclinical trial protocols, hire a CRO, recruit investigator sites and initiate recruitment. Going forward, RBS research and development investments will supportexecution of the Phase II clinical trial, clinical product manufacturing, statistical analyses, report generation and future clinical development. Costs increasedapproximately $0.3 million compared to the year ended December 31, 2013 due to additional costs for enrollment, clinical site fees and manufacturing costsrelated to our Phase II clinical trial. In the fourth quarter of 2014, enrollment for the Phase II clinical trial was closed and will continue with its current studydesign.Autoimmune diseases — Costs to date on these programs are approximately $7.7 million, and include the $6.4 million cost of the Fiscal 2013 supplementalstock issuance in connection with the First Amendment to the Channel Agreement with Intrexon. Going forward, autoimmune research and developmentinvestments will support product and assay development, pre-clinical trial execution, key opinion leader development, pre-IND and DNA RAC meetingpreparation and design and execution of the Phase I clinical trial protocol. The autoimmune disease program began in the second half of Fiscal 2013. Thecutaneous eosinophilias indication is no longer being targeted.Azficel-T — Costs to date on this program of approximately $2.3 million represent the costs of process improvements for the production of azficel-T. Theseprocess improvements include rapid mycoplasma assay, media optimization, raw material selection assays, cryo-preservative analysis and alternatedisassociation enzymes. Costs decreased approximately $1.0 million compared to the year ended December 31, 2013 as costs incurred in Fiscal 2014 wereinternal costs required to validate studies for azficel-T that were performed by outside vendors in Fiscal 2013.Ehlers-Danlos Syndrome hypermobility type — Costs to date are approximately $5.2 million and represent the cost of the first quarter of Fiscal 2014supplemental stock issuance in connection with the second amendment to the exclusive channel collaboration agreement with Intrexon. No substantive workhas yet begun on the development of this pre-clinical program.Change in Revaluation of Warrant Liability. During the years ended December 31, 2014 and 2013, respectively, we recorded non-cash income ofapproximately $3.9 million and non-cash expense of approximately $1.1 million for warrant revaluation and other finance charges in our statements ofoperations due to a change in the fair value of the warrant liability as a result of a change in our stock price and a change in the contractual life of thewarrants.Other Income. During the year ended December 31, 2014, we recorded approximately $0.4 million of other income, primarily in a settlement agreement withone of our suppliers. There was no such income during the year ended December 31, 2013.Net Loss. Net loss decreased approximately $5.9 million to $25.7 million for the year ended December 31, 2014, as compared to $31.6 million for the yearended December 31, 2013. The decrease is primarily due to the change in the warrant revaluation and other finance charges of approximately $5.0 million, asmore fully described above, an overall decrease in cost of sales and operating expenses of approximately $0.5 million and an increase in other income ofapproximately $0.4 million.41Table of ContentsComparison of Years Ending December 31, 2013 and 2012Revenue and Cost of Sales. Revenue and cost of sales were comprised of the following: Year Ended December 31, Increase(Decrease)($ in thousands)2013 2012 $ %Total revenue$200 $153 $47 30.7 %Cost of sales7,501 7,804 (303) (3.9)%Gross loss$(7,301) $(7,651) $350 (4.6)%Revenue was approximately $0.2 million for each of the years ended December 31, 2013 and 2012. Revenue is booked based on the shipment ofcells to the patients for injection of LAVIV®.Cost of sales was approximately $7.5 million and $7.8 million for the years ended December 31, 2013 and 2012, respectively. Cost of sales includesthe costs related to the processing of cells for LAVIV®, including direct and indirect costs. The cost of sales for the year ended December 31, 2013 wascomprised of approximately $3.4 million of compensation and related expense, $3.0 million of laboratory supplies and other related expenses and $1.1million of rent, utilities and depreciation. The cost of sales for the year ended December 31, 2012 was comprised of approximately $3.8 millionof compensation and related expense, $3.0 million of laboratory supplies and other related expenses, $1.0 million of rent, utilities, depreciation and other. Cost of sales decreased $0.3 million, mainly due to a reduction in compensation and related expense of $0.4 million coinciding with the reduction ofmanufacturing personnel employed.The principal reasons for the relatively small level of revenue as compared to the cost of sales are: (1) We changed corporate strategy in Fiscal 2013to de-emphasize sales of azficel-T into the aesthetic markets, and strategically transition to focus on high-value therapeutic applications for treatment ofunmet medical conditions of the skin and connective tissue; (2) Manufacturing capacity — our current manufacturing capacity is limited to no more thantwenty biopsies a week as assessed by the FDA in connection with the approval of our BLA; (3) Charging for biopsies and injections — we offeredcomplimentary and reduced price biopsies and injections throughout Fiscal 2012 and Fiscal 2013; and (4) Manufacturing complexity and quality controland assurance criteria. Selling, General and Administrative Expense. Selling, general and administrative expense was comprised of the following: Year Ended December 31, Increase(Decrease)($ in thousands)2013 2012 $ %Compensation and related expense$3,841 $4,336 $(495) (11.4)%Professional fees964 877 87 9.9 %Marketing expense295 2,203 (1,908) (86.6)%Legal fees697 527 170 32.3 %Facilities and related expense and other3,643 3,603 40 1.1 %Total selling, general and administrative expense$9,440 $11,546 $(2,106) (18.2)%Selling, general and administrative expense decreased approximately $2.1 million, or 18%, to $9.4 million for the year ended December 31, 2013 ascompared to $11.5 million for the year ended December 31, 2012. Compensation and related expense decreased approximately $0.5 million due to reducedsalary and related expense of $0.7 million offset by an increase in severance costs of $0.2 million incurred with the reduction of sales and marketingpersonnel employed. Professional fees increased approximately $0.1 million due to higher audit fees in the year ended December 31, 2013. Marketingexpense decreased approximately $1.9 million due to increased spending for the initial launch of LAVIV® during Fiscal 2012. Legal fees increasedapproximately $0.2 million due to increased patent costs of $0.1 million and clinical trial review costs of $0.1 million. Facilities and related expense andother were relatively constant year over year.Research and Development Expense.For each of our research and development programs, we incur both direct and indirect expenses. Direct expenses include third party costs related tothese programs such as contract research, consulting, pre-clinical and clinical development costs. Indirect expenses include regulatory, lab costs, personnel,facility, stock compensation and other overhead costs that are not attributable to any one program. We expect research and development costs to continue tobe significant for the foreseeable future as a result of our clinical trials and our collaboration with Intrexon.42Table of ContentsResearch and development expense was comprised of the following: Year EndedDecember 31, Increase(Decrease)($ in thousands)2013 2012 $ %Direct costs: Vocal Cord Scarring$322 158 $164 103.8 %RDEB1,773 6,979 (5,206) (74.6)%Restrictive Burn Scarring344 163 181 111.0 %Autoimmune diseases7,140 — 7,140 100.0 %azficel-T1,555 293 1,262 430.7 %Other631 554 77 13.9 %Total direct costs11,765 8,147 3,618 44.4 %Indirect costs: Regulatory costs923 978 (55) (5.6)%Intangible amortization551 551 — — %Indirect lab costs and other253 194 59 30.4 %Compensation and related expense270 323 (53) (16.4)%Total indirect costs1,997 2,046 (49) (2.4)%Total research and development expense$13,762 $10,193 $3,569 35.0 %Total research and development expense increased $3.6 million, or 35%, to $13.8 million for the year ended December 31, 2013 as compared to$10.2 million for the year ended December 31, 2012. The increase is due primarily to a $3.1 million increase in consulting fees related to research anddevelopment costs incurred in the year ended December 31, 2013 in connection with our collaboration with Intrexon and increased costs of $0.4 millionrelated to our two Phase II clinical trials that began enrollment in Fiscal 2013.Direct research and development expense by major clinical and pre-clinical development program were as follows: Vocal Cord Scarring (“VCS”) — Costs to date on this program are approximately $0.5 million. These funds have been utilized to author and review clinicaltrial protocols, hire a CRO, recruit investigator sites and initiate recruitment. Going forward, VCS research and development investments will supportexecution of the Phase II clinical trial, clinical product manufacturing, statistical analyses, report generation and future clinical development.RDEB — Costs to date on this program are approximately $8.8 million and include the $6.9 million cost of the Fiscal 2012 stock issuance in connectionwith the Channel Agreement with Intrexon. In addition, there were approximately $1.9 million in costs associated with product and assay development. Going forward, RDEB research and development investments will support additional product and assay development, pre-clinical trial execution, keyopinion leader development, pre-IND and Recombinant DNA Advisory Committee (“RAC”) meeting preparation and design and execution of the Phase Iclinical trial protocol.Restrictive Burn Scarring (“RBS”) — Costs to date on this program are approximately $0.5 million. These funds have been utilized to author and reviewclinical trial protocols, hire a Contract Research Organization (“CRO”), recruit investigator sites and initiate recruitment. Going forward, RBS research anddevelopment investments will support execution of the Phase II clinical trial, clinical product manufacturing, statistical analyses, report generation and futureclinical development.Autoimmune diseases - Costs to date on this program, which includes morphea profunda/ linear scleroderma ("MP/LS") and cutaneous eosinophilias ("CE"),are approximately $7.1 million and include the $6.4 million cost of the Fiscal 2013 supplemental stock issuance in connection with the First Amendment tothe Channel Agreement with Intrexon and approximately $0.8 million in early stage pre-clinical development. Future MP / LS and CE research anddevelopment investments will support product and assay development, pre-clinical trial execution, key opinion leader development, pre-IND and DNA RACmeeting preparation and design and execution of the Phase I clinical trial protocol.Azficel-T - Costs to date on this program of approximately $1.8 million represent the costs of process improvements for the production of azficel-T. Theseprocess improvements include rapid mycoplasma assay, media optimization, raw material selection assays, cryo-preservative analysis and alternatedisassociation enzymes.Interest Expense. We incurred no interest expense in Fiscal 2013 as compared to approximately $1.0 million for the year ended December 31, 2012. Ourinterest expense for the year ended December 31, 2012 was related to our 12.5% convertible notes. The 12.5% notes were either paid or converted intocommon stock with the close of our October 2012 financing.43Table of ContentsLoss on Extinguishment of Debt. On June 1, 2012, we entered into an exchange agreement with existing note holders pursuant to which we agreed to repayhalf of each holder’s 12.5% promissory notes due June 1, 2012 and exchange the balance of each holder’s original note, for (i) a new 12.5% note with aprincipal amount equal to such balance, and (ii) a five-year warrant to purchase a number of shares of common stock equal to the number of shares of commonstock underlying such note on the date of issuance. As a result of the exchange agreement on June 1, 2012, we recorded a loss on extinguishment of the12.5% notes of $4.1 million and $1.5 million in the consolidated statement of operations due to a significant restructuring of the original debt in June 2012and December 2012, respectively. The details of the loss included recording the fair value of the embedded conversion option of approximately $1.2 millionand the fair value of liability-classified warrants of approximately $4.4 million. As the debt was extinguished in Fiscal 2012, there was no comparableactivity in Fiscal 2013.Change in Revaluation of Warrant Liability. During the years ended December 31, 2013 and 2012, respectively, we recorded non-cash expense ofapproximately $1.1 million and non-cash income of approximately $20.4 million for warrant revaluation and other finance charges in our statements ofoperations due to a change in the fair value of the warrant liability as a result of a change in our stock price and a change in the contractual life of thewarrants.Change in Revaluation of Derivative Liability. During the year ended December 31, 2012, we recorded non-cash expense of less than $0.1 million forderivative revaluation expense, in our statements of operations, due to the change in the fair value of the derivative liability related to the Series D and Epreferred stock financings. In October 2012, this preferred stock was converted to common stock and the related derivative liability was reclassified tostockholders deficit as it no longer required liability classification and accordingly, we did not incur a non-cash expense in Fiscal 2013 related to therevaluation of the derivative liability.Deferred Tax Benefit. During the year ended December 31, 2012, we recorded a deferred tax benefit of $2.5 million due to the favorable impact to thecomputation of the valuation allowance recorded against our net deferred tax asset as a result of the reclassification of the intangible assets recognized uponemergence from bankruptcy as a finite-lived intangible asset. The reclassification freed-up the related deferred tax liability by allowing it to offset our netdeferred tax asset before applying the valuation allowance. There was no deferred tax benefit recorded for the year ended December 31, 2013.Loss from Discontinued Operations. The net loss from discontinued operations for the year ended December 31, 2012 relates to Agera Laboratories, Inc.which was sold in the third quarter of Fiscal 2012.Gain on Sale of Discontinued Operations. On August 31, 2012 we sold all of the shares of common stock of Agera Laboratories, Inc. that we held forapproximately $1.0 million. As a result of the sale, we recorded a gain of approximately $0.5million, net of tax.Net Loss. Net loss increased approximately $18.9 million to $31.6 million for the year ended December 31, 2013, as compared to $12.7 million for the yearended December 31, 2012. The increase is primarily due to the change in the warrant revaluation and other finance charges of approximately $21.5 million,more fully described above. Other contributing factors were an increase in operating expenses of approximately $1.4 million the offset by decreases of $0.3million in cost of sales and $1.0 million in interest expense as well as the $5.6 million in the loss on extinguishment of debt, the $2.5 million deferred taxbenefit and the $0.5 million gain on sale of discontinued operations that only occurred in Fiscal 2012.Liquidity and Capital Resources for Years Ending December 31, 2014, 2013 and 2012We have experienced losses since our inception. As of December 31, 2014, we have an accumulated deficit of $112.7 million. The process ofdeveloping and commercializing our product candidates requires significant research and development work and clinical trial work, as well as significantmanufacturing and process development efforts. These activities, together with our selling, general and administrative expenses, are expected to continue toresult in significant operating losses for the foreseeable future. The following table summarizes our cash flows from operating, investing and financing activities: Year Ended December 31,($ in thousands)2014 2013 2012Statement of Cash Flows Data: Total cash provided by (used in): Operating activities$(22,296) $(20,075) $(22,575)Investing activities(242) (360) 509Financing activities— 49,122 42,61344Table of ContentsOperating Activities. Cash used in operating activities during the year ended December 31, 2014 amounted to $22.3 million, an increase of $2.2 millionover the year ended December 31, 2013. The increase in our cash used in operating activities is primarily due to a $2.7 million decrease in Accounts payableand Accrued expenses and other liabilities positions, which included balances with our partner Intrexon, building related costs and other items. These uses ofcash were partially offset by establishment of $0.5 million accrual related to our new bonus plan.Cash used in operating activities during the year ended December 31, 2013 amounted to $20.1 million, a decrease of $2.5 million over the year endedDecember 31, 2012. The decrease in our cash used in operating activities over 2012 is primarily due to a $2.8 million increase in Accounts payable andAccrued expenses and other liabilities positions, which included balances with our partner Intrexon and other items. These uses of cash were partially offsetby increases in Other assets positions and other account movements of $0.3 million.Investing Activities. Cash used in investing activities during the year ended December 31, 2014 and December 31, 2013 of $0.2 million and $0.4 million,respectively was due to the purchase of property and equipment. The cash provided by investing activities during the year ended December 31, 2012 was$0.5 million related to the sale of Agera Laboratories, Inc. in the third quarter of Fiscal 2012 offset by the purchase of property and equipment.Financing Activities. There were no financing activities for the year ended December 31, 2014. During the year ended December 31, 2013, we had netproceeds of $47.1 million from the issuance of common stock related to our October 2013 financing, and received $2.0 million from a common stocksubscription receivable. During the year ended December 31, 2012, we raised cash of $48.1 million from the issuance of common stock, preferred stock andwarrants, offset primarily by principal debt payments of $4.8 million and dividend payments of $0.5 million.Working CapitalAs of December 31, 2014, we had cash and cash equivalents of $37.5 million and working capital of $35.9 million. We expect to have sufficientcash to operate for at least the next twelve months. In addition, we expect we will require additional financing prior to our business achieving significant netcash from operations. We would likely raise such additional capital through the issuance of our equity or equity-linked securities, which may result indilution to our investors, or by entering into strategic partnerships. Our ability to raise additional capital is dependent on, among other things, the state of thefinancial markets at the time of any proposed offering. To secure funding through strategic partnerships, it may be necessary to license one or more of ourtechnologies at an earlier stage of development, which could cause us to share a greater portion of the potential future economic value of those programs withour partners. There is no assurance that additional funding, through any of the aforementioned means, will be available on acceptable terms, or at all. Ifadequate capital cannot be obtained on a timely basis and on satisfactory terms, our operations could be materially negatively impacted. Factors Affecting Our Capital ResourcesInflation did not have a significant impact on our results during the year ended December 31, 2014, 2013 or 2012.Off-Balance Sheet TransactionsWe do not engage in material off-balance sheet transactions.Contractual ObligationsThe following table summarizes our contractual obligations as of December 31, 2014: Payments due by period($ in thousands)Total 2015 2016 and2017 2018 and 2019 2020 andthereafterLicense fee obligations(1)$950 $483 $308 $106 $53Operating lease obligations(2)$11,168 $1,211 $2,508 $2,670 $4,779Total$12,118 $1,694 $2,816 $2,776 $4,832__________________________(1)Obligations for license agreements with UCLA and the sponsored research agreement with MIT. The amounts in the table assume theforegoing agreements are continued through their respective terms. The agreements may be terminated at the option of either party. In such event,our obligation would be limited to costs through the date of such termination.(2)Operating lease obligations are stated based on the amended lease agreement for the office, warehouse and laboratory facilities executedin February 2012.45Table of ContentsHistorically we have entered into agreements with academic medical institutions and contract research organizations to perform research anddevelopment activities and with clinical sites for the treatment of patients under clinical protocols. Such contracts expire at various dates and have differingrenewal and expiration clauses.Collaboration with Related PartyIntrexon is an affiliate of our largest shareholder, NRM VII Holdings I, LLC. In addition, two of our seven directors are also affiliates of NRM VIIHoldings I, LLC. On October 5, 2012, we entered into an Exclusive Channel Collaboration Agreement (“Channel Agreement”) with Intrexon that governs a“channel collaboration” arrangement. The Channel Agreement grants us an exclusive license to use proprietary technologies and other intellectual propertyof Intrexon to develop and commercialize certain products in the United States. As consideration for our Channel Agreement and related amendments, weissued shares of our common stock to Intrexon. For additional details, see Note 13 in the accompanying financial statements included as part of this AnnualReport on Form 10-K.Recently Issued Accounting PronouncementsSee Note 3 in the accompanying notes to the consolidated financial statements for discussion on recently issued accounting pronouncements.Item 7A. Quantitative and Qualitative Disclosure about Market Risk The primary objective of our investment activities is to preserve our capital until it is required to fund operations. As of December 31, 2014, we hadcash and cash equivalents of $37.5 million. Our exposure to market risk is confined to cash and cash equivalents, which consist of instruments havingoriginal maturities of three months or less. Our cash flow and earnings are subject to immaterial fluctuations due to changes in interest rates in our investmentportfolio, and we do not believe that a10% change in average interest rates would have a significant impact on our interest income.Item 8. Financial Statements and Supplementary DataThe financial statements, including the notes thereto and report of the independent registered public accounting firm thereon are included in thisreport as set forth in the “Index to Financial Statements.” See F-1 for Index to Consolidated Financial Statements.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.Not applicable.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur management, including our principal executive officer and principal financial officer, evaluated the disclosure controls and procedures relatedto the recording, processing, summarization and reporting of information in the periodic reports that we file with the SEC. These disclosure controls andprocedures have been designed to ensure that (i) material information relating to us, including our consolidated subsidiaries, is made known to management,including these officers, by our other employees, and (ii) this information is recorded, processed, summarized, evaluated and reported, as applicable, withinthe time periods specified in the SEC’s rules and forms. Based on our evaluation, including the existence of the material weakness in our internal control overfinancial reporting referenced below, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosurecontrols and procedures were not effective to provide reasonable assurance as of December 31, 2014.Management’s Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in ExchangeAct Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer andprincipal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in theInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO 2013").Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to46Table of Contentspermit preparation of financial statements in accordance with generally accepted accounting principles, and our receipts and expenditures are being madeonly in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate.Based on our evaluation under the framework in COSO 2013, our principal executive officer and principal financial officer concluded that ourinternal control over financial reporting was not effective as of December 31, 2014 due to the material weakness discussed below with respect to internalcontrol over management's review of the assumptions used in the valuation modeling of our liability classified warrants. The effectiveness of our internalcontrol over financial reporting as of December 31, 2014 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated intheir report included in this Annual Report on Form 10-K in the accompanying Consolidated Financial Statements.Notwithstanding the material weakness described below, management has concluded that our audited consolidated financial statements andunaudited condensed consolidated financial statements for the periods included in this Annual Report on Form 10-K are fairly stated in all material respectsin accordance with generally accepted accounting principles for each of the periods presented herein.Material WeaknessWe utilize the Monte Carlo simulation valuation method to value our liability-classified warrants. Due to the complex nature of this valuationmethod, we outsource financial modeling of the Monte Carlo simulation valuation to a third party. Management provides the third party with certainassumptions for inclusion in their financial modeling regarding the probability of possible future events that could impact the fair value of the warrants.Management receives a report from the third party detailing the assumptions used in the financial model, including these probabilities, which managementthen reviews for reasonableness and accuracy. For the valuation of its warrants at December 31, 2014, management provided certain assumptions to the thirdparty to be used in its financial model. While management provided the third party with appropriate assumptions, the assumptions ultimately used in thefinancial model at December 31, 2014 did not agree with management's expectations or with its review of third party's valuation report. The difference inassumptions used from the assumptions expected was identified as part of procedures performed by our independent auditors during their annual audit andresulted in an adjustment to our financial statements at December 31, 2014. This audit adjustment related only to the fourth quarter of 2014 and not to anyprior periods. As management's review of the third party's valuation report failed to uncover this inconsistency, management determined that a controldeficiency that constitutes a material deficiency in the design of our internal control over financial reporting in connection with management's review of theassumptions used in the valuation of the Company's warrants was present.RemediationAs noted above, a material weakness with respect to the internal control over management's review of the assumptions used in the valuation of ourliability-classified warrants was identified at December 31, 2014 in our internal control over financial reporting.To respond to this material weakness, we have devoted, and plan to continue to devote, significant effort and resources to the remediation andimprovement of our internal control over financial reporting. We will require additional information in the valuation report provided by any third parties towhich we outsource financial modeling to verify that Management's assumptions were used as expected during the valuation process. In the past,Management has utilized such third parties to assist us and will reconsider the appropriate selection of its external advisors that it will utilize in the future.The elements of Management's remediation plan can only be accomplished over time and Management can offer no assurance that these initiatives willultimately have the intended effects.Other Changes in Internal Control Over Financial ReportingOther than the material weakness discussed above, there have been no other changes in our internal control over financial reporting during thefourth quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financialreporting.Item 9B. Other InformationOn March 11, 2015 the Company and its Chief Executive Officer, David Pernock, entered into an amendment (the “Amendment”) to theNonqualified Stock Option Grant Agreement, between Fibrocell Science, Inc. and David Pernock, dated47Table of Contentsas of July 19, 2013 (the “Grant Agreement”). Prior to the amendment, the Grant Agreement provided that the vested portion of the option awarded under theGrant Agreement (the “Option”) would remain exercisable for 10 years from the date of grant, even if Mr. Pernock’s employment with the Companyterminated. Under the Amendment, the Option will now expire one year after Mr. Pernock’s termination of employment with the Company for death ordisability or six months after any other termination of Mr. Pernock’s employment. The remainder of the terms of the Grant Agreement remain in effect.The foregoing description of the material terms of the Amendment does not purport to be complete and is qualified in its entirety by reference to theAmendment, a copy of which is filed herewith as Exhibit 10.22 and is incorporated herein by reference. Part IIIItem 10. Directors, Executive Officers and Corporate GovernanceThe information regarding executive officers and directors required by this Item 10 will be included in Proxy Statement, under “Information AboutDirectors and Executive Officers”, “Proposal 1-Election of Directors”, and “Governance of the Company” and is incorporated herein by reference. Otherinformation required by this Item 10 will be included in the Proxy Statement under “Section 16(a) Beneficial Ownership Reporting Compliance” and isincorporated herein by reference.Code of Ethics. We have adopted a written code of ethics that applies to our principal executive officer, principal financial officer, principalaccounting officer or controller and any persons performing similar functions. The code of ethics is on our website at www.fibrocellscience.com. In addition,we intend to promptly disclose (1) the nature of any amendment to our code of ethics that applies to our principal executive officer, principal financialofficer, principal accounting officer or controller, or persons performing similar functions and (2) the nature of any waiver, including an implicit waiver, fromprovision of our code of ethics that is granted to one of these specified officers, the name of such person who is granted the waiver and the date the waiver onour website in the future.Item 11. Executive CompensationThe information required under this Item 11 is incorporated herein by reference to the Proxy Statement.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required under this Item 12 is incorporated herein by reference to the Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required under this Item 13 is incorporated herein by reference to the Proxy Statement.Item 14. Principal Accountant Fees and ServicesThe information required under this Item 14 is incorporated herein by reference to the Proxy Statement.Part IV Item 15. Exhibits and Financial Statement Schedule(a)(1) Consolidated Financial Statements.The Consolidated Financial Statements are filed as part of this report.(a)(2) Consolidated Financial Statement Schedule.All schedules are omitted because of the absence of conditions under which they are required or because the required information is presented in theConsolidated Financial Statements or notes thereto.(a)(3) The exhibits listed under Item 15(b) are filed or incorporated by reference herein.(b) Exhibits.The following exhibits are filed as part of this annual report:48Table of ContentsEXHIBITNO.IDENTIFICATION OF EXHIBIT2.1Debtors’ First Amended Joint Plan of Reorganization dated July 30, 2009 and Disclosure Statement (incorporated by reference to asExhibit 10.2 to the Company’s Form 10-Q for quarter ended June 30, 2009, filed on August 12, 2009 and as Exhibit 99.1 to ourForm 8-K filed September 2, 2009)3.1Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Form 8-K filed December 13, 2012)3.2Certificate of Amendment of the Restated Certificate of Incorporation filed April 26, 2013 (incorporated by reference to Exhibit 3.1 ofthe Form 8-K filed on April 29, 2013)3.3Certificate of Amendment to the Company’s Restated Certificate of Incorporation, as amended, filed July 19, 2013 (incorporated byreference to Exhibit 3.1 of the Form 8-K filed on July 22, 2013)3.4Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to our Form 8-K filed September 2, 2009)4.1Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to our Form 10-Q filed November 23, 2009)4.2Form of Class A/B Common Stock Purchase Warrant issued in October 2009 offering (incorporated by reference to Exhibit 4.1 to ourForm 8-K filed October 14, 2009)4.3Form of Placement Agent Warrant issued in November 2009 offering (incorporated by reference to Exhibit 4.2 to our Form 10-Q filedNovember 23, 2009)4.4Form of Common Stock Purchase Warrant issued in March 2010 offering (incorporated by reference to Exhibit 4.1 to our Form 8-Kfiled March 3, 2010)4.5Form of Common Stock Purchase Warrant issued in July 2010 Series B Preferred Stock offering (incorporated by reference toExhibit 4.1 to our Form 8-K filed July 20, 2010)4.6Form of Placement Agent Warrant issued in July 2010 Series B Preferred Stock offering (incorporated by reference to Exhibit 4.2 toour Form 8-K filed July 20, 2010)4.7Form of Common Stock Purchase Warrant used for Series B Preferred Stock offering (incorporated by reference to Exhibit 4.1 of theForm 8-K filed October 22, 2010).4.8Form of Common Stock Purchase Warrant used for the Series D Preferred Stock offering (incorporated by reference to Exhibit 4.1 ofthe Form 8-K filed February 15, 2011).4.9Form of Common Stock Purchase Warrant issued in August 2011 offering (incorporated by reference to Exhibit 4.1 to our Form 8-Kfiled August 4, 2011)4.10Form of Amended and Restated Common Stock Purchase Warrant issued to our prior 12.5% Note holders (incorporated by reference toExhibit 10.5 of the Form 8-K filed October 9, 2012).10.1Lease Agreement between Isolagen, Inc. and The Hankin Group dated April 7, 2005 (incorporated by reference to Exhibit 10.1 to ourForm 8-K filed on April 12, 2005)10.2Amendment to Lease Agreement between Fibrocell Science, Inc. and The Hankin Group dated February 17, 2012 (incorporated byreference to Exhibit 10.17 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011)10.3Securities Purchase Agreement dated October 5, 2012 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed October 9,2012)10.4Registration Rights Agreement dated October 5, 2012 (incorporated by reference to Exhibit 10.2 to our Form 8-K filed October 5,2012)10.5Stock Issuance Agreement dated October 5, 2012 between the Company and Intrexon Corporation (incorporated by reference toExhibit 10.3 to our Form 8-K filed October 5, 2012)10.6Amendment and Conversion Agreement dated October 5, 2012 between the Company and the Holders of the Company’s Notes(incorporated by reference to Exhibit 10.4 to our Form 8-K filed October 5, 2012)10.7 Exclusive Channel Collaboration Agreement between Intrexon Corporation and Fibrocell Science, Inc. (incorporated by reference toExhibit 10.21 of the Form 10-K filed on April 1, 2013)**10.8 Employment Transition Letter between Fibrocell Science, Inc. and Declan Daly dated June 28, 2013 (incorporated by reference toExhibit 10.1 of the Form 8-K filed on June 28, 2013)10.9 First Amendment to Exclusive Channel Collaboration Agreement between the Company and Intrexon Corporation dated June 28,2013 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on July 1, 2013)10.10 Supplemental Stock Issuance Agreement between the Company and Intrexon Corporation dated June 28, 2013 (incorporated byreference to Exhibit 10.2 of the Form 8-K filed on July 1, 2013)10.11 Massachusetts Institute of Technology Office of Sponsored Programs Research Agreement (incorporated by reference to Exhibit 10.1of the Form 10-Q filed on November 14, 2013)49Table of Contents10.12The Regents of the University of California Research Agreement (incorporated by reference to Exhibit 10.2 of the Form 10-Q filed onNovember 14, 2013)**10.13Employment Agreement between the Company and Gregory Weaver dated August 26, 2013 (incorporated by reference toExhibit 10.1 of the Form 8-K filed on August 26, 2013)**10.14Stock Option Agreement between the Company and Gregory Weaver issued pursuant to Employment Agreement between theCompany and Gregory Weaver dated August 26, 2013 (incorporated by reference to Exhibit 10.4 of the Form 10-Q filed onNovember 14, 2013)**10.15Employment Agreement between the Company and David Pernock dated November 15, 2013 (incorporated by reference toExhibit 10.1 to our Form 8-K filed November 18, 2013)10.16Second Amendment to Exclusive Channel Collaboration Agreement between the Company and Intrexon Corporation datedJanuary 10, 2014 (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on January 13, 2014)10.17Supplemental Stock Issuance Agreement between the Company and Intrexon Corporation dated January 10, 2014 (incorporated byreference to Exhibit 10.2 of the Form 8-K filed on January 13, 2014)**10.18Fibrocell Science, Inc. 2009 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to our Current Report onForm 8-K filed on June 20, 2014)10.19UExclusive License Agreement, dated June 1, 2014, by and between The Regents of the University of California and the Company(which we refer to as the “BMP2 Agreement”) (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q/A filedon October 7, 2014)10.20UExclusive License Agreement, dated June 1, 2014, by and between The Regents of the University of California and the Company(which we refer to as the “Genomic Stability Agreement”) (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form10-Q/A filed on October 7, 2014)10.21 Amendment to Employment Agreement, dated September 2, 2014, by and between the Company and Gregory Weaver. (incorporatedby reference to Exhibit 10.1 to our Current Report on Form 8-K filed on September 3, 2014)***10.22 Amendment to Stock Option Agreement by and between the Company and David Pernock dated March 11, 201521List of Subsidiaries. (incorporated by reference to Exhibit 21 of the Form 10-K filed on April 1, 2013)*23.1Consent of BDO USA, LLP*31.1Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), required under Section 302 of the Sarbanes-Oxley Act of 2002*31.2Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), required under Section 302 of the Sarbanes-Oxley Act of 2002*32.1Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*32.2Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.INSXBRL Instance Document. (1)101.SCHXBRL Taxonomy Extension Schema Document. (1)101.CALXBRL Taxonomy Extension Calculation Linkbase Document. (1)101.LABXBRL Taxonomy Extension Label Linkbase Document. (1)101.PREXBRL Taxonomy Extension Presentation Linkbase Document. (1)101.DEF XBRL Taxonomy Extension Definition Linkbase Document. (1)*Filed herewith.**Indicates management contract or compensatory plan or arrangement.UConfidential treatment has been granted as to certain portions of this exhibit pursuant to Rule 406 of the Securities Act of 1933, as amended, orRule 24b-2 of the Securities Exchange Act of 1934, as amended.(1)Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement orprospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of theSecurities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.50Table of ContentsSIGNATURESPursuant 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 signedon its behalf by the undersigned, thereunto duly authorized.FIBROCELL SCIENCE, INC. By:/s/ David PernockDavid PernockChief Executive Officer Date: March 13, 2015Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the date indicated.SignatureTitleDate /s/ David PernockChief Executive Officer and Chairman of the Board of DirectorsMarch 13, 2015David Pernock(Principal Executive Officer) /s/ Kimberly M. SmithInterim Chief Financial OfficerMarch 13, 2015Kimberly M. Smith(Principal Financial and Accounting Officer) /s/ Kelvin MooreDirectorMarch 13, 2015Kelvin Moore /s/ Marc MazurDirectorMarch 13, 2015Marc Mazur /s/ Julian KirkDirectorMarch 13, 2015Julian Kirk /s/ Marcus SmithDirectorMarch 13, 2015Marcus Smith /s/ Christine St.ClareDirectorMarch 13, 2015Christine St.Clare /s/ Douglas J. SwirskyDirectorMarch 13, 2015Douglas J. Swirsky51Table of ContentsFibrocell Science, Inc. Index to Consolidated Financial Statements PAGE Reports of Independent Registered Public Accounting FirmF 2 Consolidated Balance Sheets as of December 31, 2014 and 2013F 4 Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012F 5 Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2014, 2013 and 2012F 6 Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012F 7 Notes to Consolidated Financial StatementsF 8F 1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and StockholdersFibrocell Science, Inc.Exton, PennsylvaniaWe have audited the accompanying consolidated balance sheets of Fibrocell Science, Inc. as of December 31, 2014 and 2013 and the related consolidatedstatements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2014. These financialstatements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fibrocell Science, Inc.at December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, inconformity 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), Fibrocell Science Inc.'s internalcontrol over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 13, 2015 expressed an adverse opinion thereon. /s/ BDO USA, LLPPhiladelphia, PennsylvaniaMarch 13, 2015F 2Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and StockholdersFibrocell Science, Inc.Exton, PennsylvaniaWe have audited Fibrocell Science Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control -Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Fibrocell ScienceInc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control Over Financial Reporting”. Ourresponsibility 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 thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibilitythat a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weaknessregarding management’s failure to design and maintain controls over the fair value calculation of the Company’s warrant liability has been identified anddescribed in management’s assessment. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in ouraudit of the 2014 financial statements, and this report does not affect our report dated March 13, 2015 on those financial statements.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsof Fibrocell Science, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ equity (deficit), and cashflows for each of the three years in the period ended December 31, 2014 and our report dated March 13, 2015 expressed an unqualified opinion thereon./s/ BDO USA, LLPPhiladelphia, PennsylvaniaMarch 13, 2015F 3Table of ContentsFibrocell Science, Inc.Consolidated Balance Sheets($ in thousands, except share data) December 31, 2014 December 31, 2013 Assets Current assets: Cash and cash equivalents$37,495 $60,033Accounts receivable, net of allowance for doubtful accounts of $17 and $5, respectively4 28Inventory571 597Prepaid expenses and other current assets1,278 1,202Total current assets39,348 61,860Property and equipment, net1,598 1,701Intangible assets, net of accumulated amortization of $1,653 and $1,102, respectively4,687 5,238Other assets1 215Total assets$45,634 $69,014 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable$1,124 $2,958Accrued expenses1,675 487Deferred revenue416 148Warrant liability, current278 —Total current liabilities3,493 3,593Warrant liability, long term11,008 15,216Other long term liabilities724 539Total liabilities15,225 19,348 Commitments: Common stock, $0.001 par value; 100,000,000 shares authorized; 40,856,815 and 39,832,225 shares issued and outstanding,respectively41 40Additional paid-in capital143,086 136,694Accumulated deficit(112,718) (87,068)Total stockholders’ equity30,409 49,666Total liabilities and stockholders’ equity$45,634 $69,014 The accompanying notes are an integral part of these consolidated financial statements.F 4Table of ContentsFibrocell Science, Inc.Consolidated Statements of Operations($ in thousands, except per share data)Year Ended Year Ended December 31, 2014 Year Ended December 31, 2013 Year Ended December 31, 2012 Revenue from product sales$180 $200 $153Cost of sales2,312 7,501 7,804Gross loss(2,132) (7,301) (7,651)Selling, general and administrative expenses11,623 9,440 11,546Research and development expenses16,199 13,762 10,193Operating loss(29,954) (30,503) (29,390)Other income (expense): Warrant revaluation and other finance income (expense)3,930 (1,053) 20,404Derivative revaluation expense— — (23)Interest income (expense)6 2 (1,017)Loss on extinguishment of debt— — (5,617)Other income368 — —Loss from continuing operations before income taxes(25,650) (31,554) (15,643)Deferred tax benefit— — 2,500Loss from continuing operations(25,650) (31,554) (13,143)Loss from discontinued operations, net of tax— — (11)Gain on sale of discontinued operations, net of tax— — 467Net loss(25,650) (31,554) (12,687)Net loss attributable to non-controlling interest— — (24)Net loss attributable to Fibrocell Science, Inc. common stockholders$(25,650) $(31,554) $(12,711) Per Share Information: Loss from continuing operations - basic$(0.63) $(1.06) $(1.47)Gain on sale of discontinued operations, net of tax - basic— — 0.05Net loss per common share - basic(0.63) (1.06) (1.42) Loss from continuing operations - diluted(0.70) (1.12) (2.65)Gain on sale of discontinued operations, net of tax - diluted— — 0.05Net loss per common share - diluted(0.70) (1.12) (2.60) Weighted average number of common shares outstanding — Basic40,789,445 29,830,207 8,965,098— Diluted40,969,399 30,196,616 9,147,060The accompanying notes are an integral part of these consolidated financial statements. F 5Table of ContentsFibrocell Science, Inc.Consolidated Statements of Stockholders’ Equity (Deficit)($ in thousands) CommonStock Subscriptionreceivable Additionalpaid-in capital Accumulateddeficit Non-controllinginterest Total Equity(Deficit) Shares Amount Balance, December 31, 20113,827,132 $4 $(550) $27,081 $(43,271) $468 $(16,268)Proceeds from equity financing, net18,203,000 18 (2,004) 42,171 — — 40,185Fair value of warrants issued withfinancing— — — 1,098 — — 1,098Preferred stock series D and Econverted2,021,120 2 — 1,348 — — 1,350Conversion of note payable898,641 1 — 2,384 — — 2,385Issuance of common stock1,317,520 1 — 6,916 — — 6,917Cancellation of certificate(40,000) — 550 (550) — — —Stock-based compensation expense— — — 1,224 — — 1,224Exercise of warrants2,496 — — 10 — — 10Net loss— — — — (12,243) (468) (12,711)Balance, December 31, 201226,229,909 $26 $(2,004) $81,682 $(55,514) $— $24,190Proceeds from equity financing, net12,311,698 12 — 47,106 — — 47,118Subscription received— — 2,004 — — — 2,004Issuance of common stock1,243,781 2 — 6,404 — — 6,406Stock-based compensation expense— — — 1,150 — — 1,150Exercise of warrants46,837 — — 352 — — 352Net loss— — — — (31,554) — (31,554)Balance, December 31, 201339,832,225 $40 $— $136,694 $(87,068) $— $49,666Issuance of common stock1,024,590 1 — 5,153 — — 5,154Stock-based compensation expense— — — 1,239 — — 1,239Net loss— — — — (25,650) — (25,650)Balance, December 31, 201440,856,815 $41 $— $143,086 $(112,718) $— $30,409 The accompanying notes are an integral part of these consolidated financial statements.F 6Table of ContentsFibrocell Science, Inc.Consolidated Statements of Cash Flows($ in thousands) Year Ended December 31, 2014 Year Ended December 31, 2013 Year Ended December 31, 2012Cash flows from operating activities: Net loss$(25,650) $(31,554) $(12,687)Adjustments to reconcile net loss to net cash used in operating activities: Loss on extinguishment of debt— — 5,617Gain on sale of Agera— — (467)Stock issued for exclusive channel collaboration agreement5,154 6,406 6,917Stock-based compensation expense1,239 1,150 1,224Warrant revaluation and other finance (income) expense(3,930) 1,053 (20,404)Derivative revaluation expense— — 23Deferred tax benefit— — (2,500)Loss on disposal of property and equipment13 5 —Depreciation and amortization883 863 821Provision for doubtful accounts12 (20) 25Amortization of debt issuance costs— — 146Change in operating assets and liabilities: Accounts receivable12 54 (60)Inventory26 (120) (477)Prepaid expenses(76) 69 (196)Other assets214 (215) —Accounts payable(1,834) 2,037 (966)Accrued expenses and other liabilities1,373 188 407Deferred revenue268 9 83Miscellaneous other— — (81)Net cash used in operating activities(22,296) (20,075) (22,575)Cash flows from investing activities: Purchase of property and equipment(242) (360) (493)Proceeds from the sale of Agera— — 1,002Net cash (used in) provided by investing activities(242) (360) 509Cash flows from financing activities: Debt issuance costs— — (46)Net proceeds from preferred stock— — 7,864Net proceeds from common stock— 47,118 40,185Subscription received— 2,004 —Payments on insurance loan— — (97)Principal payments on note payable— — (4,823)Dividends paid on preferred stock— — (470)Net cash provided by financing activities— 49,122 42,613Net (decrease) increase in cash and cash equivalents(22,538) 28,687 20,547Cash and cash equivalents, beginning of period60,033 31,346 10,799Cash and cash equivalents, end of period$37,495 $60,033 $31,346 The accompanying notes are an integral part of these consolidated financial statements. F 7Table of ContentsFibrocell Science, Inc.Notes to Consolidated Financial Statements Note 1. Business and OrganizationFibrocell Science, Inc. (as used herein, “we,” “us,” “our,” “Fibrocell” or the “Company”) is the parent company of Fibrocell Technologies, Inc.(“Fibrocell Tech”) and Fibrocell Science Hong Kong Limited (“Fibrocell Hong Kong”), a company organized under the laws of Hong Kong. Fibrocell Tech isthe parent company of Isolagen Europe Limited, a company organized under the laws of the United Kingdom (“Isolagen Europe”), Isolagen Australia PtyLimited, a company organized under the laws of Australia (“Isolagen Australia”), and Isolagen International, S.A., a company organized under the laws ofSwitzerland (“Isolagen Switzerland”). The Company’s international activities are currently immaterial.The Company is an autologous cell therapy company focused on developing first-in-class treatments for rare and serious skin and connective tissuediseases with high unmet medical needs. Fibrocell’s lead orphan drug program is in late-stage pre-clinical development for the treatment of RDEB (recessivedystrophic epidermolysis bullosa). The Company’s collaboration with Intrexon Corporation (NYSE:XON) (“Intrexon”), a leader in synthetic biology,includes using genetically-modified autologous fibroblast cells to express target proteins that are inactive or missing from patients with rare genetic skin andconnective tissue disorders. The Company is also pursuing medical applications for azficel-T, the Company’s proprietary autologous fibroblast technology,for vocal cord scarring and restrictive burn scarring. Both indications are currently in Phase II clinical trials. The Company’s ongoing scientific researchcollaboration with the University of California, Los Angeles (“UCLA”) has yielded discoveries and technologies related to stem cells and regenerative cellsin human skin. The technologies from this collaboration and the Company’s exclusive license agreements with UCLA enable the Company to expand itsproprietary personalized biologics platform which uses human fibroblasts and stem cells from skin to create localized therapies that are compatible with theunique biology of each patient.The Company’s securities ceased trading on the NYSE MKT effective at the close of business on August 28, 2014 and commenced trading onNASDAQ on August 29, 2014. The Company’s common stock continues to trade under its current trading symbol “FCSC”.The Company previously marketed a skin care line with broad application in core target markets through its consolidated subsidiary, AgeraLaboratories, Inc. (“Agera”), which was sold on August 31, 2012. The Company had owned 57% of the outstanding shares of Agera. As a result of the sale ofAgera, the Company operates in one segment and Agera is classified as discontinued operations. Please refer to Note 16 for more details.Note 2. Basis of PresentationThe prior year financial statements contain certain reclassifications to the results of operations for the years ended December 31, 2013 and 2012 toconform to the presentation for the year ended December 31, 2014 in this Form 10-K. These reclassifications were made in conjunction with the Company’sde-emphasis on its commercial product LAVIV® and towards further research and development of the underlying azficel-T process as well as on developingfirst-in-class treatments for rare and serious skin and connective tissue diseases with high unmet medical needs.For the year ended December 31, 2014, amortization expense of approximately $0.6 million was included in research and development expense onthe Consolidated Statements of Operations. For the years ended December 31, 2013 and 2012, amortization expense of approximately $0.6 million and $0.6million, respectively, was reclassed from cost of sales to research and development expense on the Consolidated Statements of Operations to conform to thecurrent presentation. For the year ended December 31, 2014, the Company’s Food and Drug Administration (“FDA”) license fees related to its BiologicsLicense Application (“BLA”) of approximately $0.6 million were included in research and development expense on the Consolidated Statements ofOperations. For the years ended December 31, 2013 and 2012, FDA license fees of approximately $0.6 million and $0.6 million, respectively, were reclassedfrom selling, general and administrative expense to research and development expense on the Consolidated Statements of Operations to conform to thecurrent presentation.On April 30, 2013, the Company completed a reverse stock split on the basis of one share of common stock for each currently outstanding 25 sharesof pre-split common stock. All common share and per share data included in these financial statements reflect this reverse stock split.Note 3. Summary of Significant Accounting PoliciesUse of EstimatesThe preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to makeestimates and assumptions that affect the reported amounts in the consolidated financial statements and notes. In addition, management’s assessment of theCompany’s ability to continue as a going concern involvesF 8Table of Contentsthe estimation of the amount and timing of future cash inflows and outflows. Actual results may differ materially from those estimates.Principles of ConsolidationThese consolidated financial statements include the accounts of Fibrocell and its wholly owned subsidiaries. All intercompany accounts andtransactions have been eliminated in consolidation.Cash and Cash EquivalentsThe Company considers highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.Concentration of Credit RiskAs of December 31, 2014, the Company maintains its operating cash with one major U.S. domestic bank and the remainder of its cash and cashequivalents as a money market fund with one major global bank. Federal insurance coverage on our operating cash amounted to $250,000 per depositor ateach financial institution, and the Company’s non-interest bearing cash balances may exceed federally insured limits. The terms of these deposits are ondemand to minimize risk. The Company has not incurred losses related to these deposits.Accounts Receivable and Allowance for Doubtful AccountsAccounts receivable are recorded at the invoiced amount, net of related cash discounts, and do not bear interest. The Company does not have anyoff-balance sheet exposure related to the Company’s customers. The Company maintains an allowance for doubtful accounts related to its accountsreceivable that have been deemed to have a high risk of collectability. Management reviews its accounts receivable on a monthly basis to determine if anyreceivables will potentially be uncollectible. Management analyzes historical collection trends and changes in its customer payment patterns, customerconcentration and creditworthiness when evaluating the adequacy of its allowance for doubtful accounts. In its overall allowance for doubtful accounts, theCompany includes any receivable balances that are determined to be uncollectible. Based on the information available, management believes the allowancefor doubtful accounts is adequate; however, actual write-offs might exceed the recorded allowance.The following table summarizes the changes in the allowance for doubtful accounts receivable for the indicated periods: Balance at beginning of year Additions charged to earnings Uncollectible receivables written off,net of recoveries Balance at end of yearDecember 31, 2014 5 12 (2) 17December 31, 2013 25 (20) — 5December 31, 2012 — 25 — 25InventoryInventories are determined at the lower of cost or market value, with cost determined under specific identification and on the first-in-first-outmethod. Inventories consist of raw materials and work-in-process.Property and EquipmentProperty and equipment is carried at acquisition cost less accumulated depreciation. Depreciation is computed on a straight-line basis over theestimated useful life of the asset. The cost of repairs and maintenance is charged to expense as incurred. As of December 31, 2013, the useful life for allproperty and equipment was three years, except for leasehold improvements which were depreciated over the remaining lease term or the life of the asset,whichever was shorter. In the first quarter of 2014, the Company adjusted its useful lives to reflect the expected consumption of the economic benefit of theseassets as noted in the following table:Property and equipment category Useful lifeLaboratory equipment 6 yearsComputer equipment and software 3 yearsFurniture and fixtures 10 yearsLeasehold improvements Lesser of remaining lease term or life of assetF 9Table of ContentsIn accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) ASC Topic 250 AccountingChanges and Error Corrections, the Company accounted for this change in useful lives as a change in estimate, with prospective application only. The impactof this change in estimate on depreciation expense was immaterial to the results on the Consolidated Statements of Operations.Intangible AssetsIntangible assets are research and development assets related to the Company’s primary study on azficel-T that was recognized upon emergence frombankruptcy. The portion of the reorganization value which was attributed to identified intangible assets was $6.3 million. Effective January 1, 2012, theCompany launched LAVIV® and as a result, the research and development intangible assets related to the Company’s primary study are considered finite-lived intangible assets and are being amortized over 12 years. For each of the years ended December 31, 2014, 2013 and 2012, amortization expense wasapproximately $0.6 million. The Company expects to amortize approximately $0.6 million for each of the next five years.Finite-lived intangible assets are recorded at cost, net of accumulated amortization and, if applicable, impairment charges. Amortization of finite-lived intangible assets is provided over their estimated useful lives on a straight-line basis. In accordance with Financial Accounting Standards BoardAccounting Standard Codification (“ASC”) 360-10-35 Impairment or Disposal of Long-Lived Assets, the Company reviews its finite-lived intangible assetsfor impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There was no impairmentexpense recognized for the years ended December 31, 2014, 2013 or 2012.Warrant LiabilityThe Company accounts for stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrantagreement. Stock warrants are accounted for as a derivative in accordance with Accounting Standards Codification 815, Derivatives and Hedging (“ASC815”) if the stock warrants contain “down-round protection” or other terms that could potentially require “net cash settlement” and therefore, do not meet thescope exception for treatment as a derivative. Since “down-round protection” is not an input into the calculation of the fair value of the warrants, thewarrants cannot be considered indexed to the Company’s own stock which is a requirement for the scope exception as outlined under ASC 815. Warrantinstruments that could potentially require “net cash settlement” in the absence of express language precluding such settlement and those which include“down-round provisions” are initially classified as derivative liabilities at their estimated fair values, regardless of the likelihood that such instruments willever be settled in cash. The Company will continue to classify the fair value of the warrants that contain “down-round protection” and “net cash settlement”as a liability until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability. Foradditional discussion on warrants, see Note 7. Revenue RecognitionThe Company recognizes revenue over the period LAVIV® is shipped for injection in accordance with ASC 605 Revenue Recognition (“ASC605”). In general, ASC 605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists,(2) delivery has occurred or services rendered, (3) the fee is fixed and determinable and (4) collectability is reasonably assured. Revenue from the sale ofLAVIV® is not recognized until the first shipment for an injection is shipped.Cost of SalesCost of sales includes the costs related to the processing of cells for LAVIV®, including direct and indirect costs. Beginning in 2014, cost of sales isaccounted for using a standard cost system which allocates the direct costs associated with the Company’s manufacturing, facility, quality control, andquality assurance operations as well as overhead costs. The principal reason for the relatively small level of revenue as compared to the cost of sales is thatthe Company changed corporate strategy in late 2013 to de-emphasize sales of LAVIV® into the aesthetic markets, and towards further research anddevelopment of the underlying azficel-T process as well as on developing first-in-class treatments for rare and serious skin and connective tissue diseaseswith high unmet medical needs.Research and Development ExpensesResearch and development costs are expensed as incurred and include salaries and benefits, costs paid to third party contractors to perform research,conduct clinical trials, develop and manufacture drug materials and delivery devices, and a portion of facilities cost. Research and development costs alsoinclude costs to manufacture product for clinical trial use and to develop manufacturing, cell collection and logistical process improvements.Clinical trial costs are a significant component of research and development expenses and include costs associated with third party contractors.Invoicing from third party contractors for services performed can lag several months. TheF 10Table of ContentsCompany accrues the costs of services rendered in connection with third party contractor activities based on its estimate of management fees, sitemanagement and monitoring costs and data management costs.Stock-based CompensationThe Company accounts for stock-based awards to employees using the fair value based method to determine compensation for all arrangementswhere shares of stock or equity instruments are issued for compensation. In addition, the Company accounts for stock-based compensation to nonemployeesin accordance with the accounting guidance for equity instruments that are issued to other than employees. The Company uses a Black-Scholes option-pricing model to determine the fair value of each option grant as of the date of grant for expense incurred. The Black-Scholes model requires inputs for risk-free interest rate, dividend yield, expected stock price volatility and expected life of the options. Expected stock price volatility is based on historicalvolatility of the Company’s stock and the stock of the Company’s peer companies. The risk-free interest rate for periods within the contractual life of theoption is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life for options granted represents the period of time thatoptions granted are expected to be outstanding and is derived from the contractual terms of the options granted. The Company estimates future forfeitures ofoptions based upon expected forfeiture rates.Income TaxesAn asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income taxes arise from temporarydifferences between income tax and financial reporting and principally relate to recognition of revenue and expenses in different periods for financial and taxaccounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by net operating loss(NOLs) carryover. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.In the event the Company is charged interest or penalties related to income tax matters, the Company would record such interest as interest expenseand would record such penalties as other expense in the consolidated statements of operations. No such charges have been incurred by the Company. Foreach of the years ended December 31, 2014, 2013 and 2012, the Company had no uncertain tax positions. At December 31, 2014, and December 31, 2013, the Company has provided a full valuation allowance for the net deferred tax assets, the largemajority of which relates to the future benefit of loss carryovers. The tax years 2011 through the present remain open to examination by the major taxingjurisdictions to which the Company is subject.Loss Per Share DataBasic loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during a period. The diluted loss per share calculation gives effect to dilutive options, warrants, convertible notes, convertible preferred stock, and other potential dilutivecommon stock including selected restricted shares of common stock outstanding during the period. Diluted loss per share is based on the treasury stockmethod and includes the effect from potential issuance of common stock, such as shares issuable pursuant to the exercise of stock options and warrants,assuming the exercise of all in-the-money stock options and warrants. Common share equivalents have been excluded where their inclusion would be anti-dilutive. For the Twelve Months Ended December 31,($ in thousands except share and per share data)2014 2013 2012Loss per share — Basic: Numerator for basic loss per share$(25,650) $(31,554) $(12,711)Denominator for basic loss per share40,789,445 29,830,207 8,965,098Basic loss per common share$(0.63) $(1.06) $(1.42)Loss per share — Diluted: Numerator for basic loss per share$(25,650) $(31,554) $(12,711)Adjust: Fair value of dilutive warrants outstanding2,840 2,270 11,091Numerator for diluted loss per share$(28,490) $(33,824) $(23,802) Denominator for basic loss per share40,789,445 29,830,207 8,965,098Plus: Incremental shares underlying “in the money” warrants outstanding179,954 366,409 181,962Denominator for diluted loss per share40,969,399 30,196,616 9,147,060Diluted loss per common share$(0.70) $(1.12) $(2.60) F 11Table of ContentsThe following potentially dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding, as theireffect would be anti-dilutive: For the Twelve Months Ended December 31, 2014 2013 2012Shares underlying “out of the money” options outstanding2,086,450 1,070,720 562,025Shares underlying “in the money” options outstanding— 998,000 —Shares underlying “out of the money” warrants outstanding4,831,352 4,831,352 4,845,352Shares underlying “in the money” warrants outstanding— — 1,320Fair Value of Financial InstrumentsThe carrying values of certain of the Company’s financial instruments, including cash equivalents and accounts payable approximates fair value dueto their short maturities. Warrant liability is also recorded at fair value. The fair values of the Company’s long term obligations are based on assumptionsconcerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk. The carrying values of theCompany’s long term obligations approximate their fair values.Recently Issued Accounting PronouncementsIn January 2015, the FASB issued ASU No. 2015-01, "Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying IncomeStatement Presentation by Eliminating the Concept of Extraordinary Items", which eliminates from U.S. GAAP the concept of extraordinary items. Thepronouncement is effective for annual reporting periods ending after December 15, 2015 with early adoption permitted. The adoption of this guidance is notexpected to have a material impact on the Company’s financial statements.In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure ofUncertainties about an Entity's Ability to Continue as a Going Concern", which defines management’s responsibility to evaluate whether there is substantialdoubt about an organization's ability to continue as a going concern and to provided related footnote disclosures. The pronouncement is effective for annualreporting periods ending after December 15, 2016 with early adoption permitted. The adoption of this guidance will require the Company to disclose itsevaluation of its ability to continue as a going concern in the footnotes to the financial statements.In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue fromContracts with Customers (Topic 606)” which supersedes the current revenue recognition requirements under ASC Topic 605, “Revenue Recognition”. Thestandard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects theconsideration to which the company expects to be entitled in exchange for those goods or services. It also provides a five step approach to achieve thisprinciple. For public entities, the new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods withinthat reporting period. Early application is not permitted. Based on current operating conditions, the adoption of this guidance does not have a materialimpact on the Company’s financial statements; however, it may have a material impact in the future.Note 4. Inventory Inventories consisted of the following as of:($ in thousands)December 31, 2014 December 31, 2013Raw materials$357 $511Work-in-process214 86Inventory$571 $597F 12Table of ContentsNote 5. Property and EquipmentProperty and equipment consisted of the following as of: ($ in thousands)December 31, 2014 December 31, 2013Laboratory equipment$1,279 $1,045Computer equipment and software206 179Furniture and fixtures49 15Leasehold improvements772 448Construction-in-process343 749 2,649 2,436Less: Accumulated depreciation(1,051) (735)Property and equipment, net$1,598 $1,701Depreciation expense was approximately $0.3 million, $0.3 million and $0.3 million for the years ended December 31, 2014, 2013 and 2012,respectively.Note 6. Accrued ExpensesAccrued expenses consisted of the following as of:($ in thousands)December 31, 2014 December 31, 2013Accrued professional fees$881 $194Accrued compensation540 40Accrued other254 253Accrued expenses$1,675 $487Note 7. WarrantsThe Company accounts for stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrantagreement. Stock warrants are accounted for as a derivative in accordance with Accounting Standards Codification 815, Derivatives and Hedging (“ASC815”) if the stock warrants contain “down-round protection” or other terms that could potentially require “net cash settlement” and therefore, do not meet thescope exception for treatment as a derivative. Since “down-round protection” is not an input into the calculation of the fair value of the warrants, thewarrants cannot be considered indexed to the Company’s own stock which is a requirement for the scope exception as outlined under ASC 815. Warrantinstruments that could potentially require “net cash settlement” in the absence of express language precluding such settlement and those which include“down-round provisions” are initially classified as derivative liabilities at their estimated fair values, regardless of the likelihood that such instruments willever be settled in cash. The Company will continue to classify the fair value of the warrants that contain “down-round protection” and “net cash settlement”as a liability until the warrants are exercised, expire or are amended in a way that would no longer require these warrants to be classified as a liability.The following table summarizes outstanding liability classified warrants to purchase common stock as of:F 13Table of Contents Number of Warrants December 31,2014 December 31, 2013 Exercise Price Expiration DatesIssued in Series A, B and D Preferred Stock offering2,247,118 2,247,118 $6.25 Oct 2015 - Dec 2016Issued in March 2010 financing393,416 393,416 $6.25 Mar 1, 2016Issued in June 2011 financing6,113 6,113 $22.50 Jun 1, 2016Issued in August 2011 financing565,759 565,759 $18.75 Aug 1, 2016Issued to placement agents in August 2011 financing50,123 50,123 $13.635 Aug 1, 2016Issued in Series B, D and E Preferred Stock offerings76,120 76,120 $2.50 Nov 2015 - Dec 2017Issued with Convertible Notes1,125,578 1,125,578 $2.50 Jun 1, 2018Issued in Series E Preferred Stock offering1,568,823 1,568,823 $7.50 Dec 1, 2018Total6,033,050 6,033,050 There were no exercises of warrants during the year ended December 31, 2014. There were 85,000 warrants exercised on a cashless basis resulting inthe issuance of 46,837 shares of common stock for the year ended December 31, 2013. Liability-classified WarrantsThe foregoing warrants are recorded as liabilities at their estimated fair value at the date of issuance, with the subsequent changes in estimated fairvalue recorded in other income (expense) in the Company’s statement of operations in each subsequent period. The change in the estimated fair value of ourwarrant liability for the years ended December 31, 2014, 2013 and 2012 resulted in non-cash income of $3.9 million, non-cash expense of $1.1 million, andnon-cash income of $20.4 million, respectively. The Company utilizes the Monte Carlo simulation valuation method to value the liability classifiedwarrants. The estimated fair value of these warrants is determined using Level 3 inputs. Inherent in the Monte Carlo valuation model are assumptions relatedto expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock basedon historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yieldcurve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent totheir remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero. The following table summarizes the calculated aggregate fair values, along with the assumptions utilized in each calculation: ($ in thousands, except per share data)December 31, 2014 December 31, 2013 December 31, 2012Calculated aggregate value11,281 15,216 14,515Weighted average exercise price per share of warrant7.08 7.08 7.04Closing price per share of common stock$2.59 $4.06 $3.75Volatility68% 70% 65%Weighted average remaining expected life (years)2 years, 7 months 3 years, 6 months 4 years, 6 monthsRisk-free interest rate0.86% 1.20% 0.60%Dividend yield—% —% —%Note 8. DebtConvertible Note PayableOn June 1, 2012, the Company entered into an exchange agreement with existing note holders pursuant to which the Company agreed to repayhalf of each holder’s 12.5% promissory notes due June 1, 2012 (the "Notes" and exchange the balance of each holder’s original note, for (i) a new 12.5% note(the “Convertible Notes”) with a principal amount equal to such balance, and (ii) a five-year warrant (“Warrant”) to purchase a number of shares of commonstock equal to the number of shares of common stock underlying such note on the date of issuance. Details of Notes are as follows:•The Notes accrued interest at a rate of 12.5% per annum payable quarterly in cash or, at the Company’s option, 15% per annum payable in kind bycapitalizing such unpaid amount and adding it to the principal as of the date it was due.F 14Table of Contents•The maturity date of the Notes was September 1, 2013, provided that the Holders may require the Company to redeem 25% of the principal amountof the Notes on each of December 1, 2012, March 1, 2013, June 1, 2012 and September 1, 2013.•To the extent that Holders of the Notes converted any portion of the Notes prior to any such redemption date, the amount of all future redemptionpayments will be reduced by such converted amount on a pro rata basis over the remaining redemption dates.•The Notes were convertible at a conversion price of $6.25 per share, provided that, with certain exceptions, if, at any time while the Notes areoutstanding, the Company issues any Company common stock or common stock equivalents at an effective price per share that is lower than thethen the conversion price of the Notes, then the conversion price of the Notes will be reduced to equal the lower price.•The Notes may be accelerated if any events of default occur, which include, in addition to certain customary default provisions, if at any time on orafter October 1, 2012 the Company fails to have reserved, for conversion of the Notes and exercise of the Warrants, a sufficient number of availableauthorized but unissued shares of common stock. The Notes were converted at a conversion price of $6.25 per share. To the extent that holders of the Notes converted any portion of the Notes priorto any such redemption date, the amount of all future redemption payments was reduced by such converted amount on a pro rata basis over the remainingredemption dates. The Notes were extinguished in October 2012 through partial conversions into common stock and partial repayments in cash.Loss on Extinguishment of DebtAs a result of the June 1, 2012 debt exchange as discussed above, the Company recorded a loss on extinguishment of the 12.5% promissory note of$5.6 million in the consolidated statement of operations for the year ended December 31, 2012 due to the significant modification of the original debt. Thedetails of the loss included recording the fair value of the embedded conversion option of $1.2 million and the fair value of liability-classified warrants of$4.4 million. See Note 7 for further discussion of the warrant liability. Note 9. EquityCommon stockIn October of 2012, the Company closed a private placement transaction (the “Offering”) with certain accredited investors pursuant to which theCompany sold securities consisting of 18,000,000 shares of common stock at a purchase price of $2.50 per share. An additional 203,000 shares were given toplacement agents in connection with the Offering. The Company received net proceeds of $40.2 million, incurred $2.7 million in offering costs and had asubscription receivable of $2.0 million which was subsequently collected in July of 2013. In connection with the execution of the exclusive channel collaboration (the “Channel Agreement”) on October 5, 2012, the Company entered intoa Stock Issuance Agreement with Intrexon Corporation ("Intrexon"), who is an affiliate of NRM VII Holdings I, LLC, the Company’s largest shareholder. TheCompany agreed to issue to Intrexon a number of shares of Company common stock based on a per share value of the price at which the Company sold sharesof common stock in the Offering (the “Technology Access Shares”). The closing took place on October 9, 2012. The Company recorded a fair value of $6.9million for 1,317,520 shares, on a per share value of $5.25 based on the closing price of the Company’s common stock on the closing date, issued to Intrexonfor the closing of the Stock Issuance Agreement as a research and development expense in the fourth quarter of 2012. In connection with the issuance of theTechnology Access Shares, Intrexon became a party to a Registration Rights Agreement, which provides Intrexon with a demand registration right withrespect to the resale of the Technology Access Shares. See Note 13 for further discussion on the collaboration with Intrexon. On October 5, 2012, the Company entered into an amendment and conversion agreement (the “Debt Agreement”) with the holders of its 12.5%Convertible Notes in the aggregate original principal amount of approximately $3.5 million. Pursuant to the Debt Agreement, the Company and the Noteholders agreed that the Company would repay approximately $1.7 million of the Notes in cash (representing approximately $1.5 million in principal and$0.2 million in unpaid interest), and the remaining Notes (representing approximately $2.1 million in principal and $0.3 million in unpaid interest) would beconverted into shares of common stock at a conversion price of $2.50 per share. The total number of shares of common stock issued upon the conversion ofthe Notes was 861,970 shares. There were conversions of notes into 36,671 common shares before the Offering. Effective upon the completion of the Offering, the Company entered into warrant modification agreements with the holders of warrants to purchase4,209,357 shares of common stock at exercise prices of between $6.25 per share and $7.50 per share pursuant to which the parties agreed, among other items:(a) to extend the expiration date of the warrants by one year; and (b) to delete the full-ratchet anti-dilution adjustment provisions contained in the warrants(including with respect to the OfferingF 15Table of Contentsdiscussed above). As such, the exercise price and number of shares underlying the foregoing warrants were not modified due to the completion of theOffering. In connection with the execution of the first amendment to the exclusive channel collaboration agreement (the “Amendment”) on June 28, 2013, theCompany entered into a Supplemental Stock Issuance Agreement with Intrexon. The Company agreed to issue to Intrexon a number of shares of Companycommon stock based on a per share value of the closing price of the Company’s common stock on the NYSE MKT on the day prior to execution of theSupplemental Stock Issuance Agreement (the “Supplemental Access Fee Shares”). The Supplemental Access Fee Shares were issued upon the satisfaction ofcustomary closing conditions, including the approval for the listing of the Supplemental Access Fee Shares on the NYSE MKT. The closing took place onJuly 26, 2013. The Company recorded a fair value of $6.4 million for 1,243,781 shares, on a per share value of $5.15 based on the closing price of theCompany’s common stock on the closing date, issued to Intrexon for the closing of the Supplemental Stock Issuance Agreement as a research anddevelopment expense in the third quarter of 2013. See Note 13 for further discussion on the collaboration with Intrexon. In October of 2013, the Company completed an underwritten public offering of 11,000,000 shares of common stock at a public offering price of$4.10 per share. The net proceeds to the Company, after underwriting discounts and commissions and estimated offering expenses, were approximately $42.1million. The underwriters for the public offering of common stock partially exercised their over-allotment option to purchase an additional 1,311,698 sharesof common stock at a public offering price of $4.10 per share. The partial exercise of the over-allotment option increased the aggregate net proceeds to thecompany, after underwriting discounts and commissions and estimated offering expenses, from approximately $42.1 million to approximately $47.1 million.In connection with the execution of the second amendment to the exclusive channel collaboration agreement (the “Second Amendment”) onJanuary 10, 2014 between the Company and Intrexon, the Company entered into a Supplemental Stock Issuance Agreement with Intrexon. The Companyagreed to issue to Intrexon a number of shares of Company common stock based on a per share value of the closing price of the Company’s common stock onthe NYSE MKT on the day prior to execution of the Supplemental Stock Issuance Agreement (the “Supplemental Access Fee Shares”). The SupplementalAccess Fee Shares were issued upon the satisfaction of customary closing conditions, including the approval for the listing of the Supplemental Access FeeShares on the NYSE MKT. The closing took place on January 24, 2014. The Company recorded a research and development expense in the first quarter of2014 for the 1,024,590 shares issued to Intrexon as a technology access fee. The shares were issued based on a per share value of $5.03 based on the closingprice of the Company’s common stock on the closing date, totaling approximately $5.2 million, which was recorded as Research and development expenses.For additional discussion on the Company’s collaboration with Intrexon, see Note 13.Preferred StockThe Company is authorized to issue 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, andrestrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidationpreferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than therights of common stock. The issuance of the Company’s preferred stock could adversely affect the voting power of holders of common stock and thelikelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effectof delaying, deferring or preventing a change of control of the Company or other corporate action. There were no preferred shares issued or outstanding as ofDecember 31, 2014 or December 31, 2013.Redeemable Preferred stockOn October 5, 2012, upon the approval of the requisite number of holders of the Company’s Series D 6% Cumulative Perpetual ConvertiblePreferred Stock (the “Series D Preferred Stock”) and Series E 8% Cumulative Convertible Preferred Stock (the “Series E Preferred Stock”), the Company filedamendments, effective on such date, to each of the Certificates of Designation for the Preferred Stock providing that if the Company completed an equityfinancing pursuant to which the Company received gross proceeds of no less than $35.0 million (a “Qualified Financing”), then immediately prior to theclosing of such Qualified Financing each outstanding share of preferred stock shall be automatically converted into that number of shares of common stockdetermined by dividing the stated value of such share of Series D and Series E preferred stock by $6.25. The Offering discussed above was a QualifiedFinancing, and as such, the Series D and E preferred stock was automatically converted into 1,917,120 shares of common stock upon completion of theOffering, 454,560 of which were Series D and 1,462,560 of which were Series E. There were 104,000 common shares issued as a result of conversion ofSeries D preferred shares during 2012 before the automatic conversion of the preferred shares pursuant to the Offering. As of the closing of the Offering, theCompany had no shares of preferred stock outstandingThe following table shows the activity of Series D and Series E Redeemable Preferred stock, with a par value of $0.001 per share and a statedvalue of $25,000 per share:F 16Table of Contents Series DPreferred Series EPreferred TotalBalance at December 31, 20113,641 — 3,641Issuance of Series E Preferred stock— 9,141 9,141Series D and Series E Preferred converted to common stock(3,641) (9,141) (12,782)Balance at December 31, 2012— — — During May, June and July 2012 the Company sold to accredited investors in a private placement Series E Convertible Preferred Stock asfollows:Date of financing# of sharesof Series EPreferred Net Proceeds ($ in 000’s) WarrantExercisePrice # of WarrantsIssuedMay 14, 20123,353 $2,843 $7.50 590,128May 24, 20122,364 2,042 7.50 416,064June 2, 2012945 822 7.50 166,320June 7, 20121,192 1,037 7.50 209,792June 28, 2012507 441 7.50 89,232July 16, 2012780 679 7.50 137,280 9,141 $7,864 1,608,816As a result of the May, June and July 2012 private placement Series E Convertible Preferred Stock transaction, the net proceeds of $7.8 millionwere allocated to the fair value of the warrants upon issuance. The July 16, 2012 sale represented the final closing of the Offering and effective on such date,the Company closed the Offering.Conversion option of Convertible Note PayableIn connection with the issuance of the June 1, 2012 Convertible Notes, an embedded conversion option was recorded as a derivative liabilityunder ASC 815, Derivatives and Hedging, in the 2012 consolidated balance sheet until October 2012 when the notes were converted to common stock. Thederivative liability was re-measured on the Company’s reporting dates until October 9, 2012 when the Notes were converted into common stock resulting inrevaluation expense of less than $0.1 million for the year ended December 31, 2012 in our statement of operations. The fair value of the derivative liabilitywas determined using the Black-Scholes option-pricing model and is affected by changes in inputs to that model including our stock price, expected stockprice volatility, the contractual term, and the risk-free interest rate. The Convertible Notes were reclassified to equity which amounted to $2.4 million.Conversion option of Redeemable Preferred stockThe embedded conversion option for the Series D Preferred was recorded as a derivative liability under ASC 815 in the consolidated balancesheet until its conversion to common stock in 2012. The fair value of the derivative liability was determined using the Black-Scholes option-pricing modeland is affected by changes in inputs to that model including the Company’s stock price, expected stock price volatility, the contractual term, and the risk-freeinterest rate. The derivative liability was re-measured resulting in income of $0.1 million for the year ended December 31, 2012 in the Company’sConsolidated Statement of Operations until the preferred stock was converted on October 9, 2012 into common stock and $1.4 million was recorded inequity.Note 10. Fair Value MeasurementsThe Company adopted the accounting guidance on fair value measurements for financial assets and liabilities measured on a recurring basis. Theguidance requires fair value measurements be classified and disclosed in one of the following three categories:•Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;•Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of theasset or liability;•Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supportedby little or no market activity). F 17Table of ContentsThe following fair value hierarchy table presents information about each major category of the Company’s financial assets and liability measured atfair value on a recurring basis as of December 31, 2014 and 2013: Fair value measurement using($ in thousands) Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) TotalBalance at December 31, 2014 Assets: Cash and cash equivalents$37,495 $— $— $37,495Liabilities: Warrant liability$— $— $11,286 $11,286 Fair value measurement using($ in thousands) Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) TotalBalance at December 31, 2013 Assets: Cash and cash equivalents$60,033 $— $— $60,033Liabilities: Warrant liability$— $— $15,216 $15,216The reconciliation of warrant liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:($ in thousands)Warrant LiabilityBalance at December 31, 2011$23,754Issuance of additional warrants6,766Exercise of warrants(11)Extinguishment of debt related to warrants4,410Change in fair value of warrant liability(20,404)Balance at December 31, 2012$14,515Exercise of warrants(352)Cancellation of warrants(41)Change in fair value of warrant liability1,094Balance at December 31, 2013$15,216Exercise of warrants—Cancellation of warrants—Change in fair value of warrant liability(3,930)Balance at December 31, 2014$11,286The fair value of the warrant liability is based on Level 3 inputs. For this liability, the Company developed its own assumptions that do not haveobservable inputs or available market data to support the fair value. See Note 7 for further discussion of the warrant liability.F 18Table of ContentsThe reconciliation of derivative liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows: DerivativeLiabilityBalance at January 1, 2012534Issuance of additional preferred stock and other793Conversion of preferred stock(1,350)Change in fair value of derivative liability23Balance at December 31, 2012—The fair value of the derivative liability is based on Level 3 inputs. For this liability, the Company developed its own assumptions that do not haveobservable inputs or available market data to support the fair value. Note 11. Share-Based CompensationOur board of directors (the “Board”) adopted the 2009 Equity Incentive Plan (as amended to date, the “Plan”) effective September 3, 2009. The Planis intended to further align the interests of the Company and its stockholders with its employees, including its officers, non-employee directors, consultantsand advisors by providing incentives for such persons to exert maximum efforts for the success of the Company. The Plan allows for the issuance of up to5,600,000 shares of the Company’s common stock. In addition, there were 206,000 options issued outside of the Plan to consultants.The types of awards that may be granted under the Plan include options (both nonqualified stock options and incentive stock options), stockappreciation rights, stock awards, stock units, and other share-based awards. The term of each award is determined by the Board at the time each award isgranted, provided that the terms of options may not exceed ten years. Vesting schedules for the stock options vary, but generally vest 25% per year, over fouryears . The Plan had 3,530,553 options available for grant as of December 31, 2014.Total stock-based compensation expense recognized using the straight-line attribution method in the consolidated statement of operations for theyears ended December 31 is as follows:($ in thousands)2014 2013 2012Stock option compensation expense for employees and directors$1,236 $1,045 $1,200Equity awards for nonemployees issued for services3 105 24Total stock-based compensation expense$1,239 $1,150 $1,224During the years ended December 31, 2014, 2013 and 2012, the weighted average fair market value using the Black-Scholes option-pricing modelof the options granted was $2.64, $2.79 and $5.00, respectively.The fair market value of the stock options at the date of grant was estimated using the Black-Scholes option-pricing model with the followingweighted average assumptions for the years ended December 31: 2014 2013 2012Expected life5 years, 11 months 5 years, 7 months 5 years, 8 monthsInterest rate1.9% 1.6% 1.6%Dividend yield— — —Volatility70% 71% 64%F 19Table of Contents Number of shares Weighted-average exercise price Weighted-average remaining contractual term (in years) Aggregate intrinsic valueOutstanding at December 31, 2011544,340 $19.25 7 years, 6 months $—Granted38,000 $8.02 Forfeited(20,315) $15.48 Outstanding at December 31, 2012562,025 $18.56 7 years $—Granted1,532,000 $4.15 Forfeited(25,305) $14.71 Outstanding at December 31, 20132,068,720 $7.93 8 years, 5 months $544Granted348,000 $4.19 Expired(51,637) $21.61 Forfeited(278,633) $4.45 Outstanding at December 31, 20142,086,450 $7.43 7 years, 2 months $—Exercisable at December 31, 20141,100,250 $10.63 7 years, 2 months $— The total fair value of shares vested during the years ended December 31, 2014, 2013 and 2012 was $1.2 million, $1.2 million, and $1.3 million,respectively. There were no exercises of vested stock options during the years ended 2014, 2013 and 2012. As of December 31, 2014, there was $2.1 millionof total unrecognized compensation cost, related to nonvested stock options which vest over time. That cost is expected to be recognized over a weighted-average period of 3.8 years. As of December 31, 2014, there were 986,200 nonvested stock options, with a weighted average exercise price of $3.86 and anaverage intrinsic value of $0. As of December 31, 2014, there was no unrecognized compensation cost related to performance-based nonvested consultantoptions.Note 12. Income TaxesFibrocell Science, Inc. and Fibrocell Technologies, Inc. file a consolidated U.S. Federal income tax return, and file U.S. state income tax returns inseveral jurisdictions as well. In general, the U.S. federal and state income tax returns remain open to examination by taxing authorities for tax years beginningin 2011 to present. However, if and when the Company claims net operating loss (“NOL”) carryforwards from years prior to 2011 against future taxableincome, those losses may be examined by the taxing authorities as well. The Company's foreign subsidiaries file income tax returns in their respectivejurisdictions.The components of the income tax expense/(benefit) related to continuing operations, are as follows: Year endedDecember 31, Year endedDecember 31, Year endedDecember 31,($ in thousands)2014 2013 2012U.S. Federal: Current$— $— $—Deferred— — (2,068)U.S. State: Current— — —Deferred— — (432) $— $— $(2,500)The reconciliation between income taxes/(benefit) at the U.S. federal statutory rate and the amount recorded in the accompanying consolidatedfinancial statements is as follows:F 20Table of Contents Year endedDecember 31, Year endedDecember 31, Year endedDecember 31,($ in thousands)2014 2013 2012Tax benefit at U.S. federal statutory rate$(8,977) $(11,044) $(5,475)Increase in domestic valuation allowance11,109 11,626 11,127State income taxes/(benefit) before valuation allowance, net of federal benefit(846) (1,026) (1,971)Capital loss limitation— — (817)Loss on extinguishment of debt— — 1,966Derivative revaluation expense— — 8Warrant revaluation and other finance (income)/expense(1,375) 369 (7,141)Other89 75 (197) $— $— $(2,500)The components of the Company’s net deferred tax assets and liabilities at December 31, 2014, 2013 and 2012 are as follows:($ in thousands)December 31, 2014 December 31, 2013 December 31, 2012Deferred tax liabilities: Intangible assets$2,001 $2,247 $2,282Total deferred tax liabilities$2,001 $2,247 $2,282Deferred tax assets: Loss carryforwards$63,560 $54,253 $49,598Capital loss carryforward841 844 817Property and equipment1,135 1,149 1,327License fees7,055 5,393 —Accrued expenses and other602 412 360Stock compensation2,953 2,698 2,492Total deferred tax assets76,146 64,749 54,594Less: valuation allowance(74,145) (62,502) (52,312)Total deferred tax assets$2,001 $2,247 $2,282Net deferred tax assets$— $— $—As of December 31, 2014, the Company had generated U.S. net operating loss carryforwards of approximately $167.5 million which expire from2018 to 2034. The NOL carryforwards are available to reduce future taxable income. However, the NOL carryforwards become subject to an annual limitationin the event of certain cumulative changes in the ownership interest of significant stockholders over a three year period in excess of 50%, as defined underSections 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. This could limit the amount of NOLs that wecan utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of ourcompany immediately prior to an ownership change. Subsequent ownership changes may further affect the limitation in future years. Additionally, U.S. taxlaws limit the time during which these carryforwards may be applied against future taxes, therefore, we may not be able to take full advantage of thesecarryforwards for federal income tax purposes. In addition, the Company has NOL carryforwards in certain non-US jurisdictions of approximately $25.5million. However, it is not expected that these non-U.S. loss carryforwards will ever be utilized, so they are not included in the components of deferred taxeslisted above. The Company does not plan to have material operations in the non-U.S. jurisdictions in the foreseeable future, and does not know when or ifincome will ever be generated in these foreign jurisdictions. Finally, there are no unremitted earnings in foreign jurisdictions, so no provision for taxesthereupon is required.As the Company has had cumulative losses and there is no assurance of future taxable income, valuation allowances have been recorded to fullyoffset the deferred tax asset at December 31, 2014, 2013, and 2012. The valuation allowance increased by $11.6 million, $10.2 million, and $11.1 millionduring 2014, 2013, and 2012, respectively, primarily due to the impact from the current year net losses incurred.F 21Table of ContentsNote 13. Collaboration with Related PartyIntrexon is an affiliate of our largest shareholder, NRM VII Holdings I, LLC. In addition, two of our seven directors are also affiliates of NRM VIIHoldings I, LLC.On October 5, 2012, the Company entered into a Channel Agreement with Intrexon that governs a “channel collaboration” arrangement. TheChannel Agreement grants the Company an exclusive license to use proprietary technologies and other intellectual property of Intrexon to develop andcommercialize certain products in the United States. Through the original collaboration with Intrexon, the Company is exploring the use of gene therapyapplied to fibroblast cells to treat patients with collagen deficient diseases. The Company is working to apply gene therapy to fibroblasts with the gene toproduce collagen VII to treat patients with recessive dystrophic epidermolysis bullosa (“RDEB”). This development concept utilizes applying gene therapyto fibroblasts to up-regulate and produce collagen VII in a controlled manner for localized or systematic treatment of RDEB.In connection with the execution of the Channel Agreement on October 5, 2012, the Company entered into a Stock Issuance Agreement withIntrexon. In connection with the stock issuance, Intrexon became a party to the Registration Rights Agreement, which provides Intrexon with a demandregistration right with respect to the resale of the Technology Access Shares. For additional details see Note 9.On June 28, 2013, the Company and Intrexon entered into a First Amendment to the parties’ Channel Agreement. The Amendment broadens theexisting collaboration to include potential treatments based on engineered autologous fibroblast cells for the localized treatment of autoimmune andinflammatory disorders including morphea profunda / linear scleroderma, cutaneous eosinophilias and moderate to severe psoriasis. In connection with theexecution of the First amendment to the Channel Agreement on June 28, 2013, the Company entered into a Supplemental Stock Issuance Agreement withIntrexon. For additional details see Note 9.On January 10, 2014, the Company and Intrexon entered into a Second Amendment to the parties’ Exclusive Channel Collaboration Agreementdated October 5, 2012, as previously amended on September 28, 2013 (the “Channel Agreement” and such previous amendment, the “First Amendment”).The Channel Agreement provides for a “channel collaboration” arrangement governing a strategic collaboration for the development and commercializationof autologous fibroblasts and autologous dermal cells, with and without gene therapy, in the United States. The Channel Agreement originally granted theCompany an exclusive license to use proprietary technologies and other intellectual property of Intrexon to research, develop, use, import, export, make,have made, sell, and offer for sale certain products in the field in the United States.Pursuant to the Channel Agreement and Amendments, the Company engaged Intrexon for support services for the development of new productscovered under the Channel Agreement and Amendment, and will reimburse Intrexon for its fully-loaded cost for time and materials for transgenes, cellprocessing, or other work performed by Intrexon for such research and manufacturing. For the years ended December 31, 2014, 2013 and 2012, the Companyincurred expenses of $4.2 million, $3.7 million and $0.1 million, respectively, for work performed. As of December 31, 2014 and 2013, the Company hadoutstanding trade payables with Intrexon of $1.0 million and $1.3 million, respectively. The Company will pay quarterly cash royalties on improvedproducts equal to one-third of cost of goods sold savings less any such savings developed by the Company outside of the Channel Agreement orAmendment. On all other developed products, the Company will pay Intrexon quarterly cash royalties of 7% on aggregate annualized net sales up to $100million, and 14% on aggregate annualized net sales greater than $100 million. Sales from the Company’s products (including new indications) marketed atthe time of the Channel Agreement are not subject to royalty payments unless they are improved upon through the Channel Agreement. Note 14. Commitments and ContingenciesLeasesOn April 6, 2005, the Company entered into a non-cancellable operating lease (the “Lease”) for its office, warehouse and laboratory facilities inExton, Pennsylvania. The lease agreement had a term of 8 years. On February 17, 2012, the Company entered into an amended and restated lease (the“Amended Lease”) for an additional term of 10 years through the year 2023. The Lease and the Amended Lease provide for rent payments escalating on anannual basis. In accordance with ASC 840-20 Operating Leases, the Company calculated the total minimum payments under the lease and divided themequally over the life of the lease to account for the lease on a straight-line basis. The Company has the option to renew the lease for an additional 5 years atfair market value. Rental expense totaled $1.6 million, $1.5 million and $1.4 million for the years ended December 31, 2014, 2013 and 2012, respectively.License AgreementsOn May 3, 2012, the Company entered into an exclusive license agreement with The Regents of the University of California, under which theCompany acquired the rights to commercially apply discoveries resulting from the scientificF 22Table of Contentscollaboration between the University of California, Los Angeles (“UCLA”) and the Company. Under the terms of the license agreement, the Company agreedto pay UCLA a non-refundable initial license fee and to pay UCLA an annual license maintenance fee of a percentage of product royalties, and milestonepayments based on the Company’s achievement of certain clinical and regulatory related milestones for these rights. The Company’s ability to meet themilestones is dependent on a number of factors including final approvals by regulatory agencies and the continued enforceability of patent claims. On June 13, 2014 the Company entered into two exclusive license agreements with The Regents of the University of California. Pursuant to the firstexclusive license agreement (the “BMP2 Agreement”), UCLA granted to the Company an exclusive, sublicensable right and license to use certain patentrights developed in collaboration between UCLA and the Company relating to the use of human skin cells to produce Bone Morphogenetic Protein (BMP2)for use in osteogenic therapies. In consideration of the license granted under the BMP2 Agreement, the Company will pay UCLA a license issue fee, certainone-time milestone payments, a license maintenance fee, earned royalties on net sales of all licensed products (including sales by sublicensees and affiliates)and a percentage of amounts received from sublicensing activities. The Company is subject to minimum annual royalty payments to UCLA beginning afterfirst commercial sale of a licensed product.Under the terms of the second of the exclusive license agreements (the “Genomic Stability Agreement”), UCLA granted to the Company anexclusive, sublicensable right and license to use certain patent rights developed in collaboration between UCLA and the Company relating to media thatpromotes genomic stability in induced pluripotent stem cell cultures for all research and commercialization purposes. In consideration of the license grantedunder the Genomic Stability Agreement, the Company will pay to UCLA a license issue fee, certain one-time milestone payments, a license maintenance fee,earned royalties on net sales of all licensed products (including sales by affiliates) and a percentage of amounts received from sublicensing activities. TheCompany is subject to minimum annual royalty payments to UCLA beginning after first commercial sale of a licensed product.On May 3, 2012, the Company also entered into a sponsored research agreement with the Massachusetts Institute of Technology (“MIT”). Researchis currently focused on mesenchymal stem cells derived from adult human skin. The agreement is currently scheduled to terminate in June 2015.The amounts in the table below assume the foregoing agreements are continued through their respective terms. The agreements may be terminatedat the option of either party. In such event, the Company’s obligation would be limited to costs through the date of such termination.Contractual ObligationsThe following table summarizes the Company’s contractual obligations as of December 31, 2014: Payments due by period($ in thousands)Total 2015 2016and 2017 2018and 2019 2020and thereafterLicense fee obligations(1)$950 $483 $308 $106 $53Operating lease obligations(2)$11,168 $1,211 $2,508 $2,670 $4,779Total$12,118 $1,694 $2,816 $2,776 $4,832(1)Obligations for license agreement with the University of California, Los Angeles (UCLA) and sponsored research agreement with theMassachusetts Institute of Technology (MIT). The amounts in the table assume the foregoing agreements are continued through their respectiveterms. The agreements may be terminated at the option of either party. In such event, the Company’s obligation would be limited to costs throughthe date of such termination.(2)Operating lease obligations are stated based on the Amended Lease agreement for the office, warehouse and laboratory facilitiesexecuted in February 2012. F 23Table of ContentsNote 15. Supplemental Cash Flow InformationThe following table contains additional cash flow information for the years ended:($ in thousands)December 31, 2014 December 31, 2013 December 31, 2012Supplemental disclosures of cash flow information: Cash paid for interest$— $— $1,885Cash paid for income taxes$— $— $—Non-cash investing and financing activities: Subscription receivable$— $— $2,004Conversion of note payable$— $— $2,385Issuance of additional warrants$— $— $11,077Conversion of preferred stock derivative balance into common stock$— $— $1,350Cashless exercise of warrants previously recorded as a liability$— $298 $17Warrant liability reclassified to equity$— $— $15,048Accrued derivative liability$— $— $793Note 16. Discontinued OperationsOn August 31, 2012, the Company sold all of the shares of common stock of Agera held by the Company, which represented 57% of the outstandingcommon stock of Agera, to Rohto Pharmaceutical Co., Ltd. for approximately $1.0 million. Accordingly, all operating results from continuing operationsexclude the results for Agera which are presented as discontinued operations. The Company recorded a gain for the year ended December 31, 2012 ofapproximately $0.5 million on the sale.The financial results of Agera are classified as discontinued operations in the accompanying Consolidated Statement ofOperations for the year ended December 31, 2012.Summary financial information related to discontinued operations is as follows:($ in thousands)Year ended, December31, 2012Product sales$516Cost of sales275Gross profit241Operating income (loss)$27Net loss$(2)In addition, there were other minimal losses from foreign subsidiaries which were classified as discontinued operationsfor the year ended December 31, 2012.F 24Table of ContentsNote 17. Quarterly Financial Information (unaudited)This table summarizes the unaudited consolidated financial results of operations for the quarters ended (amounts in thousands except per sharedata): March 31, June 30, September 30, December 31,2014 Quarter Ended Net product sales$46 $58 $20 $56Cost of sales793 547 512 460Gross loss(747) (489) (492) (404)Operating expenses10,253 6,107 5,699 5,763Other income (expense)(3,009) 4,339 179 2,795Net loss$(14,009) $(2,257) $(6,012) $(3,372)Basic net loss per share$(0.35) $(0.06) $(0.15) $(0.08)Diluted net loss per share$(0.35) $(0.09) $(0.17) $(0.09)2013 Quarter Ended Net product sales$26 $62 $68 $44Cost of sales2,213 2,104 1,792 1,392Gross loss(2,187) (2,042) (1,724) (1,348)Operating expenses3,721 3,777 11,401 4,303Other income (expense)1,338 (8,818) 6,520 (91)Net loss$(4,570) $(14,637) $(6,605) $(5,742)Basic net loss per share$(0.17) $(0.63) $(0.24) $(0.15)Diluted net loss per share$(0.18) $(0.63) $(0.31) $(0.15)EXHIBIT INDEXEXHIBITNO. IDENTIFICATION OF EXHIBIT*10.22 Amendment to Stock Option Agreement by and between the Company and David Pernock dated March 11, 2015*23.1 Consent of BDO USA, LLP*31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), required under Section 302 of the Sarbanes-Oxley Act of 2002*31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), required under Section 302 of the Sarbanes-Oxley Act of 2002*32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*Filed herewith.F 25Exhibit 10.22AMENDMENT TO OPTION GRANT AGREEMENTThis Amendment (“Amendment”) to the Nonqualified Stock Option Grant Agreement, between Fibrocell Science, Inc. and David Pernock, dated asof July 19, 2013 (the “Option Agreement”) is made and entered into as of March 11, 2015 (the “Effective Date”), by and between Fibrocell Science, Inc. (the“Company”) and David Pernock (the “Executive”).WHEREAS, the Company and the Executive have entered into the Option Agreement, which was issued pursuant to the Fibrocell Science, Inc.2009 Equity Incentive Plan; andWHEREAS, the Company and the Executive desire to amend certain provisions of the Option Agreement to reduce the period of time the Executivecould exercise the option granted pursuant to the Agreement upon his termination of service with the Company.NOW, THEREFORE, in consideration of the promises and covenants set forth herein, and intending to be legally bound hereby, the parties agreeas follows:1.Effective upon the date hereof, Section 3 of the Option Agreement is deleted and shall be replace in its entirety with thefollowing:“3. Term of Option.(a) The Option shall have a term of 10 years from the Date of Grant and shall terminate at the expiration of that period, unless itis terminated at an earlier date pursuant to the provisions of this Agreement or the Plan.(b) The Option shall automatically terminate upon the happening of the first of the following events:(i) The expiration of the six-month period after the Grantee ceases to be employed by, or provide service to, theEmployer, if the termination is for any reason other than Disability (as defined in the Plan), or death (as defined in the Plan).(ii) The expiration of the one‑year period after the Grantee ceases to be employed by, or provide service to, theEmployer on account of the Grantee’s Disability.(iii) The expiration of the one‑year period after the Grantee ceases to be employed by, or provide service to, theEmployer, if the Grantee dies while employed by, or providing service to, the Employer or while the Option remains outstandingas described in subparagraph (i) or (ii) above.Notwithstanding the foregoing, in no event may the Option be exercised after the date that is immediately before the tenth anniversary ofthe Date of Grant. Any portion of the Option that is not exercisable at the time the Grantee ceases to be employed by, or provide service to,the Employer shall immediately terminate.”2.Capitalized terms not defined herein shall have the meaning set forth in the Option Agreement.3.All other provisions of the Option Agreement not amended by this Amendment shall continue in full force and effect.IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first set forth above.FIBROCELL SCIENCE, INC.By:/s/ Kimberly M. Smith Name:Kimberly M. Smith Its:Interim Chief Financial Officer EXECUTIVEBy:/s/ David Pernock Name:David Pernock Exhibit 23.1 Consent of Independent Registered Public Accounting Firm Fibrocell Science, Inc.Exton, PennsylvaniaWe hereby consent to the incorporation by reference in the Registration Statements on Form S-1 (No. 333-183791, No. 333-183792, No. 333-183793 andNo. 333-183794), Form S-3 (No. 333-185463, No. 333-185466 and No. 333-190649) and Form S-8 (No. 333-172776, No. 333-190650 and No. 333-196964)of Fibrocell Science Inc. of our report dated March 13, 2015 relating to the consolidated financial statements and the effectiveness of Fibrocell Science, Inc.'sinternal control over financial reporting, which appear in this Form 10-K. /s/ BDO USA, LLPPhiladelphia, PennsylvaniaMarch 13, 2015Exhibit 31.1 OFFICER’S CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, David Pernock, Chief Executive Officer of Fibrocell Science, Inc., certify that: 1. I have reviewed this Annual Report on Form 10-K of Fibrocell Science, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. Dated: March 13, 2015By:/s/ David Pernock David Pernock Chief Executive Officer Exhibit 31.2 OFFICER’S CERTIFICATION PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Kimberly M. Smith, Interim Chief Financial Officer of Fibrocell Science, Inc., certify that: 1. I have reviewed this Annual Report on Form 10-K of Fibrocell Science, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrantand have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Dated: March 13, 2015By:/s/ Kimberly M. Smith Kimberly M. Smith Interim Chief Financial Officer Exhibit 32.1 CERTIFICATION BY THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. Section 1350, I, David Pernock, Chief Executive Officer of Fibrocell Science, Inc. (the "Company"), hereby certify that, to the best ofmy knowledge: i.the Annual Report on Form 10-K of the Company for the year ended December 31, 2014, as filed with the Securities and ExchangeCommission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of1934, as amended; andii. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Dated: March 13, 2015 By:/s/ David Pernock David Pernock Chief Executive Officer Fibrocell Science, Inc. A signed original of this written statement required by Section 906 has been provided to Fibrocell Science, Inc. and will be retained by FibrocellScience, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.Exhibit 32.2 CERTIFICATION BY THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. Section 1350, I, Kimberly M. Smith, Interim Chief Financial Officer of Fibrocell Science, Inc. (the "Company"), hereby certify that, tothe best of my knowledge: i.the Annual Report on Form 10-K of the Company for the year ended December 31, 2014, as filed with the Securities and ExchangeCommission on the date hereof (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of1934, as amended; andii. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.Dated: March 13, 2015 By:/s/ Kimberly M. Smith Kimberly M. Smith Interim Chief Financial Officer Fibrocell Science, Inc. A signed original of this written statement required by Section 906 has been provided to Fibrocell Science, Inc. and will be retained by FibrocellScience, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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