Stemline Therapeutics
Annual Report 2013

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K xx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 For the fiscal year ended December 31, 2013 OR oo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 For the transition period from to . Commission File Number: 001-35619 STEMLINE THERAPEUTICS, INC.(Exact name of registrant as specified in its charter) Delaware45-0522567(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number) 750 Lexington AvenueEleventh FloorNew York, New York 10022 (Address of principal executive offices) (Zip Code) (646)-502-2311 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $0.0001 per share(Title of Class)NASDAQ Capital Market(Name of Each Exchange on Which Registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. xYes o No Indicate by check mark where the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File requiredto be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). xYes o No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, andwill not be contained, to the best of registrant’s knowledge, 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. o Yes x No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One): Large-accelerated filer oAccelerated filer o Non-accelerated filer xSmaller reporting company o(Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No The aggregate market value of voting common stock held by non-affiliates of the registrant (assuming, for purposes of this calculation, withoutconceding, that all executive officers and directors are “affiliates”) was $253,653,000 as of June 28, 2013, based on the closing sale price of such stock asreported on the NASDAQ Capital Market. There were 13,199,254 shares of the registrant’s common stock outstanding as of March 28, 2014. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s Proxy Statement for the 2014 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Reporton Form 10-K. Table of Contents TABLE OF CONTENTS Part I3Item 1. Business3Item 1A. Risk Factors33Item 1B. Unresolved Staff Comments58Item 2. Properties59Item 3. Legal Proceedings59Item 4. Mine Safety Disclosures59Part II60Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities60Item 6. Selected Financial Data62Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations63Item 7A. Quantitative and Qualitative Disclosures About Market Risk71Item 8. Financial Statements and Supplementary Data72Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure72Item 9A. Controls and Procedures72Item 9B. Other Information72Part III72Item 10. Directors, Executive Officers and Corporate Governance72Item 11. Executive Compensation72Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters73Item 13. Certain Relationships and Related Transactions and Director Independence73Item 14. Principal Accounting Fees and Services73Part IV74Item 15. Exhibits, Financial Statements Schedules74Signatures This Annual Report on Form 10-K contains trademarks and trade names of Stemline Therapeutics, Inc., including our name and logo. All other trademarks,service marks, or trade names referenced in this Annual Report on Form 10-K are the property of their respective owners. 1Table of Contents SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This annual report on Form 10-K (“Form 10-K”) includes statements that are, or may be deemed, “forward-looking statements.” In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,”“plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “approximately” or, in each case, their negative or other variations thereon or comparableterminology, although not all forward-looking statements contain these words. They appear in a number of places throughout this Form 10-K and includestatements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our ongoing and planneddiscovery and development of drugs targeting cancer stem cells, the strength and breadth of our intellectual property, our ongoing and planned preclinicalstudies and clinical trials, the timing of and our ability to make regulatory filings and obtain and maintain regulatory approvals for our product candidates,the degree of clinical utility of our product candidates, particularly in specific patient populations, expectations regarding clinical trial data, our results ofoperations, financial condition, liquidity, prospects, growth and strategies, the length of time that we will be able to continue to fund our operating expensesand capital expenditures, our expected financing needs and sources of financing, the industry in which we operate and the trends that may affect the industryor us. By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, and healthcare, regulatoryand scientific developments and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelinesthan anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Form 10-K, we caution you thatforward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and thedevelopment of the industry in which we operate may differ materially from the forward-looking statements contained in this Form 10-K. In addition, even ifour results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-lookingstatements contained in this Form 10-K, they may not be predictive of results or developments in future periods. Some of the factors that we believe could cause actual results to differ from those anticipated or predicted include: · the success and timing of our preclinical studies and clinical trials, including patient accrual;· our ability to obtain and maintain regulatory approval of our product candidates for trial initiation or marketing, and the labeling under anyapproval we may obtain;· our plans to develop and commercialize our product candidates;· the loss of key scientific or management personnel;· the size and growth of the potential markets for our product candidates and our ability to serve those markets;· regulatory developments in the United States and foreign countries;· the rate and degree of market acceptance of any of our product candidates;· our available cash;· the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;· our ability to obtain additional funding;· our ability to obtain and maintain intellectual property protection for our product candidates;· our ability to maintain the license agreements for SL-401, SL-701 and our other in-licensed product candidates;· the ability of our product candidates to successfully perform in clinical trials;· the successful development of our sales and marketing capabilities;· our ability to manufacture and the performance of third-party manufacturers, clinical research organizations, or CROs, clinical trial sponsors andclinical trial investigators; and· our ability to successfully implement our strategy. Any forward-looking statements that we make in this Form 10-K speak only as of the date of such statement, and we undertake no obligation to update suchstatements to reflect events or circumstances after the date of this Form 10-K. You should also read carefully the factors described in the “Risk Factors”section of this Form 10-K to better understand the risks and uncertainties inherent in our business and underlying any forward-looking statements. As a resultof these factors, we cannot assure you that the forward-looking statements in this Form 10-K will prove to be accurate. This Form 10-K includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studiesconducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtainedfrom sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industrypublications and third-party research, surveys and studies are reliable, we have not independently verified such data. We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claimthe protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. 2Table of Contents Part I Unless the context requires otherwise, references in this report to “Stemline,” “Company,” “we,” “us” and “our” refer to Stemline Therapeutics, Inc. Item 1. Business Overview We are a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing proprietary therapeutics that targetboth cancer stem cells, or CSCs, and tumor bulk. We are currently developing two clinical-stage product candidates, SL-401 and SL-701. SL-401 is a targetedtherapy directed to the interleukin-3 receptor, or IL-3R, present on CSCs and tumor bulk. To date, SL-401 has demonstrated single-agent activity, includingdurable complete responses, or CRs, in investigator sponsored Phase 1/2 trials in several indications including blastic plasmacytoid dendritic cell neoplasm,or BPDCN, and relapsed or refractory acute myeloid leukemia, or AML. We plan to advance SL-401 into corporate sponsored trials for multiple hematologiccancer indications including BPDCN, where we intend to pursue a Phase 2 registration-directed path. We also plan to initiate trials in additional rare IL-3R+malignancies including mastocytosis, hypereosinophilic syndrome, other myeloproliferative syndromes, and hairy cell leukemia. These studies could beexpanded to serve as platform trials for potential registration. We also intend to pursue larger indications including trials in multiple myeloma, or MM, andAML in first CR as consolidation therapy, and a Phase 3 trial in third-line AML for potential registration. SL-701 is a subcutaneously-administeredtherapeutic cancer vaccine comprised of multiple synthetic peptides. To date, the vaccine has demonstrated single-agent activity, including durable CRs andpartial responses, or PRs, in investigator sponsored Phase 1/2 trials in advanced adult and pediatric brain cancers. We plan to advance SL-701 into acorporate sponsored Phase 2 trial in adult patients with recurrent glioblastoma multiforme, or GBM, following initial treatment with surgery, radiation, andchemotherapy. We believe that the design of this study may enable SL-701 to obtain accelerated regulatory approval and/or serve as the foundation for asubsequent Phase 3 pivotal trial in this indication. We also plan to pursue a Phase 2 trial of SL-701 in pediatric patients with brainstem and non-brainstemhigh-grade glioma, which are also areas of unmet medical need. In addition, we have built a robust preclinical pipeline which includes next generation IL-3R-targeted compounds, SL-501 and SL-101, an innovative discovery platform, and an extensive intellectual property portfolio including some of theearliest patents in the CSC area. We believe this establishes us as a leader in this rapidly emerging area of oncology. The field of CSCs is an emerging area of cancer biology that we believe is fundamentally altering the approach to oncology drug development. CSCs havebeen identified in virtually all major tumor types, including leukemia and cancers of the brain, breast, colon, prostate and pancreas. CSCs are the highlymalignant “seeds” of a tumor that self-renew and generate more mature cells that comprise the bulk of the tumor, or the “tumor bulk.” As such, we believe thatCSCs are responsible for tumor initiation, propagation, and metastasis. Moreover, many of the characteristics of CSCs, such as their slow growth, presence ofmulti-drug resistance proteins, anti-cell death mechanisms, and increased activity of cellular mechanisms that repair damaged DNA, may enable CSCs toresist therapeutic agents traditionally used to treat cancer. Further, we believe there is now a significant body of evidence indicating that while standardtherapies may initially shrink tumors by targeting the tumor bulk, their failure to effectively eradicate CSCs contributes to treatment failure, tumor relapseand poor survival. Accordingly, we believe that targeting both CSCs and the tumor bulk may represent a major advance in the fight against cancer. Thispremise has formed the basis of our drug development strategy, as illustrated below. 3Table of Contents Our Company We were incorporated under the laws of the State of Delaware in August 2003. Our principal executive offices are located at 750 Lexington Avenue, EleventhFloor, New York, New York 10022 and our telephone number is (646) 502-2311. Our website address is www.stemline.com. The information set forth on our website is not a part of this report. We will make available free of charge throughour website our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to these reports, as soonas reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission, or SEC. We arenot including the information on our website as a part of, nor incorporating it by reference into, this report. You may read and copy any materials we file atthe SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public ReferenceRoom by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains a website that contains annual, quarterly, and current reports, proxystatements, and other information that issuers (including us) file electronically with the SEC. The SEC’s website address is http://www.sec.gov/. Management We are led by a team with extensive experience in managing biopharmaceutical companies and in oncology drug development, including: · Ivan Bergstein, M.D. — Chairman, Chief Executive Officer and President. Dr. Bergstein is Chief Executive Officer and Founder of StemlineTherapeutics. He led Stemline through multiple rounds of private financing and ultimately its successful IPO and subsequent follow-on offering,raising over $100 million as a public company. Dr. Bergstein’s early and broad intellectual property founded and positioned Stemline with acompetitive edge and deep domain expertise in the rapidly emerging CSC field. Prior to founding Stemline, Dr. Bergstein was Medical Directorof Access Oncology, Inc., a clinical stage oncology-focused biotechnology company where he was a key member of a small team responsible forthe acquisition and development of the company’s clinical stage assets and ultimately the sale of the company. Previously, he was a seniorbiopharmaceuticals analyst at a Wall Street-based firm that advised mutual funds and hedge funds on investments in public companies with lateclinical stage assets. He completed an internal medicine residency and hematology-oncology fellowship at the New York Presbyterian Hospital—Weill Medical College of Cornell University. · Eric K. Rowinsky, M.D. — Executive Vice President, Chief Medical Officer and Head of Research and Development. Dr. Rowinsky waspreviously the Chief Medical Officer for ImClone Systems, Inc. Dr. Rowinsky has more than 25 years of experience managing clinical trials anddeveloping drugs in oncology, including leading the Food and Drug Administration, or FDA, approval of Erbitux® for head and neck andcolorectal cancers and advancing eight other biological therapeutics through clinical development while at ImClone. He has also playedintegral roles in the development and registration of a wide range of cancer therapeutics, including paclitaxel, docetaxel, irinotecan, topotecan,erlotinib, gefitinib, panitumumab, lapatinib, and temsirolimus, among others. Dr. Rowinsky currently serves on the Board of Directors of BiogenIdec Inc., as well as several other public biopharmaceutical companies, and is an Adjunct Professor at New York University School of Medicine. He completed a medical oncology fellowship at The Johns Hopkins Hospital. Dr. Rowinsky was an Associate Professor of Oncology at JohnsHopkins and then Head of Clinical Research and Director of the Institute for Drug Development of the Cancer Therapy and Research Center inSan Antonio, Texas. · Kenneth Hoberman — Chief Operating Officer. Mr. Hoberman was previously Vice President of Corporate and Business Development of KeryxBiopharmaceuticals, Inc., where he was instrumental in securing multiple sources of capital including over $200 million in equity investmentsthrough public and private offerings. He also initiated and executed a $100 million strategic alliance and originated, negotiated and closeddozens of licensing and operational contracts, helping to grow the company’s market capitalization to over $1 billion. He received a B.S.B.A. inFinance from Boston University and completed post-baccalaureate studies at Columbia University. · David Gionco —Vice President of Finance and Chief Accounting Officer. Mr. Gionco was previously Vice President, Chief Financial Officerand Chief Accounting Officer of Savient Pharmaceuticals, Inc. where he oversaw the finance function for the organization and was instrumentalin helping to grow the company, raising over $350 million. Prior to this, Mr. Gionco held audit, corporate accounting, financial planning,finance and controller roles at companies including Merck & Co., Inc. (“Merck”) and, previously, Medco Health Solutions, Inc., which wasacquired by Merck during his tenure. At Merck, Mr. Gionco held various financial and accounting positions of increasing responsibility.Mr. Gionco 4Table of Contents also held senior financial positions at Progenics Pharmaceuticals, Inc. and Odyssey Pharmaceuticals, Inc. (a subsidiary of Pliva, Inc., now TevaPharmaceutical Industries Ltd.). Mr. Gionco previously had 7 years of financial auditing experience with a major public accounting firm. Mr. Gionco holds a B.S. in Accounting from Fairleigh Dickinson University and an MBA in Finance from Rutgers University. Mr. Gionco is aCertified Public Accountant in the State of New York. Strategy Our goal is to maintain and fortify a leadership position in the discovery, acquisition and development of novel oncology therapies that target CSCs and tobuild a fully integrated pharmaceutical company with commercial infrastructure to support the marketing of our CSC-targeted oncology drugs, if approved.The fundamental components of our business strategy to achieve this goal include the following: · Develop and commercialize SL-401 in multiple hematological cancers. We plan to advance SL-401 into corporate sponsored trials for multiplehematologic cancer indications including blastic plasmacytoid dendritic cell neoplasm, or BPDCN, where we intend to pursue a Phase 2registration-directed path. We also plan to initiate trials in additional rare IL-3R+ malignancies including mastocytosis, hypereosinophilicsyndrome, other myeloproliferative syndromes, and hairy cell leukemia. These studies could be expanded to serve as platform trials for potentialregistration. We also intend to pursue larger indications including trials in myeloma myeloma, or MM, and acute myeloid, or AML, in first CRas consolidation therapy, and a Phase 3 trial in third-line AML for potential registration. · Develop and commercialize SL-701 in brain cancer. We plan to advance SL-701 into a corporate sponsored Phase 2 trial in adult patients withrecurrent glioblastoma multiforme, or GBM, following initial treatment with surgery, radiation, and chemotherapy. We believe that the designof this study may enable SL-701 to obtain accelerated regulatory approval and/or serve as the foundation for a subsequent Phase 3 pivotal trialin this indication. We also plan to pursue a Phase 2 trial of SL-701 in pediatric patients with brainstem and non-brainstem high-grade glioma,which are also areas of unmet medical need. · Continue to advance and build out our pipeline. We also plan to advance and build out our pipeline of product candidates. In particular, weplan to advance SL-501 and SL-101, our next generation IL-3R-targeted compounds, into IND-enabling studies. · Leverage our proprietary drug discovery platform, StemScreen®, to identify new therapeutic candidates. We intend to utilize our proprietarydiscovery platform, StemScreen®, to continue to identify new CSC-targeted drug candidates. We may conduct some of these efforts internallyand/or leverage our platform to engage in strategic collaborations. · Develop commercialization capabilities in North America and Europe. We believe that the infrastructure required to commercialize ouroncology product candidates may make it cost-effective for us to internally develop a marketing effort and sales force. If SL-401, SL-701 or anyof our other product candidates is approved by the FDA or other regulatory authorities, we intend to commercialize our product candidates inNorth America, and potentially in Europe through direct sales and distribution. However, we will remain opportunistic in seeking strategicpartnerships in these and other markets when advantageous to us. · Continue to both leverage and fortify our intellectual property portfolio. We believe that we have a very strong intellectual property positionrelating to the development and commercialization of our product candidates and technology and CSC-targeting in general. We plan tocontinue to leverage this portfolio to create value. In addition to fortifying our existing intellectual property position, we intend to file newpatent applications, and we may in-license new intellectual property and take other steps to strengthen, leverage, and expand our intellectualproperty position. SL-401—A targeted therapy directed to IL-3R on CSCs and tumor bulk Overview SL-401 is a clinically active targeted therapy directed to the interleukin-3 receptor, or IL-3R. IL-3R is overexpressed on CSCs and/or more mature cancercells derived from CSCs (i.e., tumor bulk) of multiple hematologic cancers including acute myeloid leukemia, or AML, chronic myeloid leukemia, or CML,myelodysplastic syndrome, or MDS, certain lymphomas including Hodgkin’s disease, multiple myeloma, or MM, and multiple rare hematologicmalignancies such as blastic plasmacytoid dendritic cell neoplasm, or 5Table of Contents BPDCN, and others. In a completed investigator sponsored Phase 1/2 clinical trial in patients with advanced hematologic cancers, single agent SL-401administered in a single cycle regimen demonstrated anti-tumor activity, including durable CRs, in relapsed or refractory patients. Specifically, a single cycleof single-agent SL-401 induced seven CRs: five CRs in BPDCN and two CRs in relapsed or refractory AML. Notably, SL-401 also improved the medianoverall survival, or OS, relative to historical data, of the 16 most heavily pretreated AML patients who had failed at least two previous therapies (i.e., third-line or greater) and who received therapeutically relevant doses of SL-401, with only a single cycle. Further, SL-401 has not demonstrated the protractedmyelosuppression typically seen with traditional chemotherapy, which is a key differentiating feature relative to many other hematologic cancer therapiesand which we believe is due to the lack of IL-3R expression on normal hematopoietic stem cells. Currently, there are limited effective treatment options forpatients with relapsed or refractory hematologic cancers including BPDCN and AML. We believe that a major reason for the failures of traditional treatmentsto provide long-term benefit is that these traditional treatments target tumor bulk rather than both tumor bulk and CSCs, and are often toxic to the bonemarrow. Accordingly, by pursuing hematologic cancer indications with SL-401, a therapeutic that uniquely targets both CSCs and tumor bulk and does notinduce the protracted myelosuppression associated with standard therapy, we intend to provide benefit to patients who historically have been difficult totreat with traditional therapies. We plan to advance SL-401 into corporate sponsored trials for multiple hematologic cancer indications including BPDCN and additional rare malignancies,as well as larger indications including AML and MM. In preparation for these studies, we have completed commercial-scale cGMP production of activepharmaceutical ingredient, or API. Upon completion of drug product formulation and fill-finish, which is currently underway, we plan to submit a corporatesponsored investigational new drug, or IND, application, and initiate trials in multiple indications including BPDCN, where we intend to pursue a Phase 2registration-directed path. We also plan to initiate trials in additional rare IL-3R+ malignancies including mastocytosis, hypereosinophilic syndrome, othermyeloproliferative syndromes, and hairy cell leukemia. These studies could be expanded to serve as platform trials for potential registration. We also intendto pursue larger indications including trials in patients with relapsed or refractory MM and AML in first CR as consolidation therapy, as well as a randomizedPhase 3 trial in third-line AML for potential registration. Accordingly, we believe that SL-401 may represent a significant market opportunity. In June 2013, SL-401 was awarded Orphan Drug designation from the FDA for the treatment of BPDCN. Previously, in February 2011, SL-401 was awardedOrphan Drug designation from the FDA for the treatment of AML. Blastic plasmacytoid dendritic cell neoplasm (BPDCN) BPDCN is a rare and aggressive hematologic cancer that carries a poor prognosis. BPDCN had been previously classified as blastic NK cell lymphoma,agranular CD4+/CD56+ hematodermic neoplasm, and plasmacytoid dendritic cell cancer. In 2008, this disease was renamed BPDCN by the World HealthOrganization, or WHO, due to its derivation from plasmacytoid dendritic cells, which are specialized immune cells. BPDCN most commonly affects middle-aged and older patients and is approximately three times more common in men than women. This malignancy has features of both lymphomas, includingcutaneous lymphomas, as well as leukemias, and typically presents with skin lesions, as well as extracutaneous disease that may include the bone marrow,blood, lymph nodes, and spleen. BPDCN growth in the bone marrow results in decreased blood cell counts, which can lead to serious infections, fatigue,bleeding, and death. Although BPDCN can be controlled for brief periods with various combination chemotherapy regimens, including high dosechemotherapy with allogeneic stem cell transplantation, overall prognosis remains poor. There are currently no approved therapies for BPDCN, and anoptimal therapeutic regimen for BPDCN has not yet been established. Other rare IL-3R cancers A number of other rare hematologic diseases, each qualifying as an unmet medical need, express IL-3R including hairy cell leukemia, and variousmyeloproliferative syndromes including mastocytosis, eosinophilic disorders, myelofibrosis, and chronic myelomonocytic leukemia. For a majority ofpatients with these conditions, there is no effective, disease modifying therapy. Hairy cell leukemia. Hairy cell leukemia, or HCL, is an uncommon hematological malignancy characterized by a clonal accumulation of abnormal Blymphocytes. Approximately 2,000 new cases of HCL occur annually in the United States. The median age at diagnosis is approximately 62 years with malepredominance. Although the 6-year overall survival rate has been estimated to be approximately 80% and there are FDA approved therapies for HCL,including cladribine (Litak and Movectro) and pentostatin (Nipant), there is no permanent cure for the disease. Mastocytosis. Systemic mastocytosis is a proliferative disorder characterized by an overabundance of mast cells in various organs and tissues. Mastocytosiscan be systemic or localized to one or a few organs. The WHO classifies mastocytosis into the following categories: cutaneous, indolent, systemic (withassociated hematologic non-mast cell lineage disease), aggressive systemic, mast cell leukemia, mast cell sarcoma, and extracutaneous astrocytoma. There areapproximately 3,000 cases of mastocytosis diagnosed annually in the United States. Patients with indolent disease typically have a favorable prognosis,whereas aggressive cases of 6®®®Table of Contents mastocytosis carry an overall survival of under 3.5 years. There are no currently approved drugs and no cure for mastocytosis. Treatment for aggressivevariants includes various chemotherapy agents, imatinib (Gleevec), corticosteroids, and antihistamines. Eosinophilic disorders. Primary eosinophilic disorders include chronic eosinophilic leukemia, or CEL, idiopathic hypereosinophilic syndrome, or HES,lymphocyte-variant HES, and primary eosinophilia associated with an 8p11 chromosomal translocation. These rare disorders are characterized by apersistently elevated eosinophil count that may result in various symptoms depending on which organs are involved. Damage to the heart, lungs, peripheralnervous system, and other organs can occur. An acquired (non-familial) form of HES is particularly aggressive and debilitating. Acquired forms of HES aresubclassified as secondary (reactive), idiopathic, and clonal HES, the latter often transitioning into CEL, which can result in myocardial fibrosis andcongestive heart failure. Eosinophils are known to ubiquitously express the IL-3R. Current treatments for CEL include corticosteroids, mepolizumab,alemtuzumab (Campath), and imatinib (Gleevec), the latter of which is approved by the FDA for a very small proportion of HES patients who express theFIP1L1-PDGFRA fusion protein. However, some of these agents can cause severe toxicity and may not induce durable responses. Therefore, newer and moreeffective therapies are needed for certain patients, including those with symptomatic disease and/or extra-cutaneous organ involvement. Myelofibrosis. Primary myelofibrosis, or PMF, is characterized by the proliferation of an abnormal clone of hematopoietic progenitor cells in the bonemarrow and other sites, which results in fibrosis, or the replacement of the bone marrow with collagenous connective tissue fibers that, in turn, causesdecreased blood cell counts. The yearly calculated incidence of PMF in the U.S. ranges from approximately 1,260 to 4,410 individuals per year. Median ageat diagnosis is 65 years. About 20% of affected patients are less than 55 years of age. Manifestations include decreased blood cell counts, splenomegaly thatis commonly painful, and increased immature white blood cells and basophils in the peripheral blood. The one known treatment of potential long-termbenefit is high-dose chemotherapy followed by allogeneic stem cell transplantation. Other treatment options are largely supportive, and do not alter thecourse of the disorder. These options may include administration of folic acid, allopurinol, and/or blood cell transfusions. Corticosteroids, alpha-interferonand/or hydroxyurea are also used. Splenectomy is sometimes considered as a treatment option for patients with PMF in whom massive splenomegaly iscontributing to anemia because of hypersplenism, particularly if there is a heavy requirement for blood transfusions. Ruxolitinib (Jakafi), which hasrecently received regulatory approval in the United States and elsewhere for the treatment for PMFs, has been associated with symptomatic improvement andincreased overall survival, but its overall benefits can be short lived. Lenalidomide (Revlimid) and thalidomide (Thalomid) may also be used in itstreatment, though peripheral neuropathy can be a troublesome side effect. Chronic myelomonocytic leukemia. Chronic myelomonocytic leukemia, or CMML, is characterized by increased numbers of monocytes and immature bloodcells (blasts) in the peripheral blood and bone marrow, as well as abnormal appearing cells (dysplasia) in at least one type of blood cell. CMML featurescharacteristics of both a myelodysplastic syndrome, or MDS, as well as a myeloproliferative disorder, or MPD. In the United States, the incidence of CMMLis approximately less than 3,150 individuals per year and the disease affects approximately 9,450 individuals per year. One of the most common symptomsof CMML is splenomegaly, found in approximately half of cases. Other less frequent symptoms consist of anemia, fever, weight loss, night sweats, infection,bleeding, synovitis, lymphadenopathy, skin rashes, pleural effusion, pericardial effusion and peritoneal effusion. CMML can transform into acute myeloidleukemia, or AML, in about 20%-30% of cases. Most cases are dealt with as supportive rather than curative because most therapies do not effectivelyincrease survival. Supportive measures include blood transfusions and growth factors such as erythropoietic and granulocyte-stimulating factor. Reasons formore definitive treatment include the presence of fevers, chills, weight loss, symptomatic organ involvement, increasing blood counts, leukostasis, bloodclotting, and/or progressive decreasing blood cell counts. The demethylating agents azacitidine (Vidaza) and decitabine (Dacogen) have been used to treatCMML. High dose chemotherapy followed by bone marrow transplantation is also employed to treat CMML, and may provide long term benefit. Acute myeloid leukemia (AML) AML is a hematologic cancer characterized by dysregulated maturation of myeloid cells and failure of the bone marrow to properly function. AML is themost common type of acute leukemia in adults. Approximately 19,000 new AML cases occur annually in the United States, and approximately 27,000 newcases occur annually in Europe. The average age of an AML patient is 67 years. The National Cancer Institute estimated that the one-year survival rate foradult patients with AML was approximately 34%. The one-year survival rate for AML after first relapse is approximately 20%, and after second relapse isapproximately 8%. The median OS for AML patients after failing second-line treatment, based on two large series, is 1.5 months. Current first-line treatmentsfor AML include chemotherapy drugs such as cytarabine in combination with an anthracycline such as daunorubicin. In certain circumstances, allogeneicstem cell transplantation is also used. In second-line AML, while there are currently no approved treatments, typical therapies include additionalchemotherapy, often cytarabine again at various dosages and regimens. Despite a moderate to high proportion of patients obtaining a CR with first- andsecond-line chemotherapy, the high relapse rate and poor OS indicate that most patients harbor drug-resistant CSCs following chemotherapy. In third-lineAML, there are currently no approved treatments, and these 7®®®®®®®®Table of Contents patients frequently have depressed bone marrow function and are often no longer optimal candidates for additional chemotherapy. As such, third-line AMLconstitutes an unmet medical need. Multiple myeloma (MM) MM is a hematologic malignancy that is characterized by the dysfunction of plasma cells, which are white blood cells that produce antibodies. During MM,malignant plasma cells overproduce abnormal monoclonal antibodies and can interfere with normal blood cell function in the bone marrow leading toimmunodeficiency. Other common clinical manifestations of advanced MM include osteolytic bone lesions and renal disease. The bone marrow, or BM,microenvironment confers growth, survival, and drug resistance of MM cells, and it has recently been shown that plasmacytoid dendritic cells, or pDCs,which express high levels of IL-3R, are significantly increased in the BM of patients with MM and promote MM proliferation. Approximately 22,000 newcases of MM are reported annually in the United States and approximately 33,000 new MM cases are reported annually in Europe. The median age atdiagnosis is approximately 62 years for men and 61 years for women. The median overall survival after conventional treatments is 3-4 years, but high-dosetreatment followed by autologous stem cell transplantation can extend the median survival to 5-7 years. Despite FDA approved therapies for MM, includingthalidomide (Thalomid, lenalidomide (Revlimid), bortezomib (Velcade), dexamethasone (Decadron), carfilzomib (Krypolis), and pomalidomide(Pomalyst), most patients invariably relapse from the disease. Myelodysplastic syndrome (MDS) MDS is a group of hematologic malignancies characterized by dysfunction of the blood and bone marrow, resulting in decreased peripheral blood countsand, at times, evolution into AML. Approximately 16,000 new cases of MDS are reported annually in the United States and approximately 15,000 to 25,000new MDS cases are reported annually in Europe. MDS occurs most commonly in males 70 years or older. Five-year survival rates for MDS patients varysignificantly depending on disease severity and prognosis and range from approximately 55% for low-risk patients, to 7% to 35% for intermediate-riskpatients. Virtually all high-risk MDS patients die within five years. Treatment paradigms for MDS patients vary depending on disease classification and riskcategory. Current first-line treatments include azacitidine (Vidaza®), decitabine (Dacogen®), lenalidomide (Thalomid®), growth factors such aserythropoietic and granulocyte-stimulating factor, chemotherapy, and stem cell transplantation in certain cases. We believe that a large number of patientseither do not respond or relapse following first-line treatment, and there are no approved therapies and limited effective treatment options in this high-risksetting. Chronic Myeloid Leukemia (CML) Chronic myeloid leukemia, or CML, is a hematopoietic stem cell disease resulting in impaired bone marrow function. Annually, approximately 5,000 newcases are reported in the United States each year and approximately 4,000 to 9,000 new cases are reported each year in Europe. The five-year OS rate for CMLpatients is 57%. When CML advances to an accelerated or blastic phase, the median OS is less than one year. In patients who have failed or are intolerant totyrosine kinase inhibitors, or TKIs, a relapsed or refractory setting, the median OS is four to 11 months. Current first-line treatments for CML include threeTKIs: imatinib (Gleevec), nilotinib (Tasigna) and dasatinib (Sprycel). In cases of relapse, second and third-line treatments include a TKI not previouslyused in that patient. In certain circumstances, interferon or bone marrow transplantation is also used. Hodgkin’s lymphoma (HL) Hodgkin’s lymphoma, or HL, is a cancer of the lymphatic system that commonly affects lymph nodes in the neck or the area between the lungs and behindthe breastbone. Approximately 9,000 new HL cases occur annually in the United States and approximately 12,000-17,000 cases occur annually in Europe.The disease has four subtypes, including nodular sclerosis, lymphocyte-rich, mixed cellularity, and lymphocyte-depleted HL, all of which produce increasednumbers of a unique cell type called “Reed-Sternberg” cells. These cells are considered to be the clonal tumor cells of HL and are known to express the IL-3R. Although combination chemotherapy and/or radiation therapy are affective at combating this disease, 20-30% of patients relapse after initial treatment orhave primary refractory disease. Of these patients, those who do not obtain a complete remission, or CR, prior to transplantation, or who relapse after secondline therapy, have few effective therapeutic options. Recently, brentuximab vedotin (Adcentris) received regulatory approval in the United States andelsewhere for the treatment of recurrent or refractory HL. Design of SL-401 and mechanism of action SL-401 is a biologic targeted therapy directed to the IL-3R. SL-401 consists of IL-3 recombinantly linked to a truncated diphtheria toxin payload.Mechanistically, the IL-3 domain of SL-401 directs the cytotoxic payload to IL-3R+ cells. SL-401 is then internalized by target cells, leading to intracellularrelease of the payload, inhibition of protein synthesis and cell death, or apoptosis. Accordingly, the targeting and mechanism by which SL-401 kills cellsdiffers from therapeutics that are commonly used to treat hematologic malignancies. Traditional therapies, such as chemotherapy, largely target rapidlydividing cells, whether malignant or normal, by 8®)®®®®®®®®®Table of Contents interfering with DNA replication and other processes. SL-401, in contrast, is a targeted therapy that specifically recognizes and binds to cells expressing IL-3R, a target which is overexpressed on leukemia cells relative to normal cells. Thus, SL-401 preferentially targets malignant, not normal cells, a featureexpected to result in fewer toxicities relative to traditional therapies. Moreover, by inhibiting protein synthesis, we believe that SL-401 is able to kill not justrapidly dividing cells, but also slower-growing cells such as CSCs. In addition, the SL-401 payload does not appear to be subject to multi-drug resistanceproteins highly expressed on CSCs and tumor bulk. Therefore, unlike traditional therapies which largely target and kill tumor bulk only, SL-401 is designedto target and kill both CSCs and tumor bulk. IL-3R is normally expressed on certain maturing hematopoietic cells, including maturing myeloid cells, B cells, dendritic cells, mast cells, basophils andeosinophils, and appears to be involved in cell maturation, differentiation, and survival. Importantly, IL-3R is not expressed to a significant degree on normalhematopoietic stem cells. IL-3R is, however, overexpressed on multiple hematological malignancies including AML, BPDCN, MDS, CML, B cell acutelymphoid leukemia, Hodgkin’s and certain aggressive non-Hodgkin’s lymphomas, hairy cell leukemia, and rare malignancies and myeloproliferativedisorders involving mast cell, basophilic and eosinophilic lineages including mastocytosis and hypereosinophilic syndrome. In addition to expression ontumor bulk, IL-3R is also expressed on the CSCs of multiple hematologic cancers including AML, CML, MDS, and T-cell acute lymphoid leukemia.Elevated IL-3R expression has been correlated with poor patient prognosis. For example, as described by Vergez in Haematologica in 2011, a higherpercentage of IL-3R-expressing, or IL-3R+, CSCs within a patient’s entire tumor correlates with poor outcome. In particular, AML patients with IL-3R+ CSCsthat comprise greater than or equal to 1% of their entire leukemia were found to have a worse prognosis than patients with IL-3R+ CSCs that comprise lessthan 1% of their entire leukemia. We believe that these findings further validate that IL-3R is an important oncology target. SL-401 preclinical activity and safety SL-401 has demonstrated preclinical in vitro and in vivo activity against a wide range of hematologic cancer types. In AML, SL-401 is highly active againstboth leukemia blasts (i.e., tumor bulk) and CSCs of a variety of human leukemia cell lines and primary leukemia cells from patients. In particular, SL-401demonstrated potent cytotoxicity against leukemic cells in vitro in a dose-dependent fashion with concentrations that inhibit the growth of fifty-percent(50%) of cells, or an IC, in the low picomolar range. Notably, normal bone marrow stem cells were relatively insensitive to SL-401. SL-401 also exhibitedanti-CSC activity. In particular, SL-401 inhibited AML colony formation, an assay for stem cell activity, compared with normal human bone marrow. Asfurther validation of an anti-CSC effect, SL-401 reduced the incorporation and growth (i.e., tumorigenicity) of AML cells, relative to normal human bonemarrow, when treated ex vivo and reimplanted into immunodeficient mice—indicating activity at the level of the CSC. In addition, SL-401 prolonged thesurvival of mice implanted with human leukemia xenografts compared with untreated mice. In addition, SL-401 demonstrated very high potency against BPDCN cells from patients, with an IC in the femtomolar (10 molar) range. SL-401 has alsodemonstrated preclinical activity against a variety of additional hematologic cancers including certain rare IL-3R+ malignancies such as chroniceosinophilic leukemia, where it produced IC values in the low single-digit picomolar (10 molar) range. SL-401 has also shown potent in vitro anti-leukemia activity against CML tumor bulk and CML CSCs, and increased survival in mouse models of human CML taken from patients who were resistant totyrosine kinase inhibitors, or TKIs. SL-401 has also been shown to possess a synergistic anti-CML effect when used in combination with certain TKIs. SL-401has also demonstrated potent in vitro anti-tumor activity against several lymphoid cancer types, including lymphoid leukemia (e.g. T cell acute lymphoidleukemia, or T-ALL), Hodgkin’s and non-Hodgkin’s lymphoma, and multiple myeloma, or MM. Interestingly, SL-401 appears to have both a direct as well asan indirect anti-MM effect, the latter seemingly caused by SL-401’s ability to target IL-3R+ hyperproliferative dendritic cells (the cells of origin of BPDCN)that appear to provide a microenvironmental growth stimulus to their neighboring MM cells. This is notable for several reasons including the drug’s novelmechanism of anti-MM action as well as linking the MM and BPDCN diseases via a common plasmacytoid dendritic cell, and IL-3R, target. SL-401 has alsobeen shown to have a synergistic effect against MM when combined with existing therapies including lenalidomide (Revlimid) and bortezomib (Velcade). Phase 1/2 clinical trial—advanced hematologic cancers Overview SL-401 demonstrated single agent clinical efficacy, including durable CRs, in a multi-center investigator sponsored Phase 1/2 clinical trial of patients withadvanced hematologic cancers, which we refer to as the 401-AHC Study. Specifically, an interim analysis of this trial presented at the annual meeting of theAmerican Society of Hematology (ASH) in December 2013 show that a single cycle of single agent SL-401 induced seven CRs: five CRs in BPDCN and twoCRs in relapsed or refractory AML. Although the study was designed so that all patients received only a single cycle of SL-401 treatment, the median OS,relative to historical data, was improved in the 16 most heavily pretreated AML patients who had failed at least two previous therapies (i.e., third-line orgreater) and were treated with therapeutically relevant doses, with only a single cycle. Of note, we intend to administer multiple cycles of SL-401 in ourfuture trials, which we believe may increase the efficacy with respect to both clinical response and survival. Further, SL-401 has not resulted in the protractedhematologic toxicity associated with traditional chemotherapy, which we believe is a key differentiating feature relative to other hematologic cancertherapies. 95050-1550-12®®Table of Contents This 401-AHC Study was undertaken in 84 patients with advanced hematologic cancers, including relapsed or refractory AML patients (n=59), AML patientswho were poor risk and not candidates for chemotherapy (n=11), high risk MDS patients (n=7), or patients with blastic plasmacytoid dendritic cell neoplasm(BPDCN) (n=7, with “n” representing the number of patients). The median patient age was 65 years, with a range of seven to 84 years of age. Patients receiveda single cycle of single-agent SL-401 of doses ranging from 4.0 to 22.1 µg/kg/day, consisting of a 15-minute intravenous infusion on either an every-other-day schedule for up to six treatments, or daily for a five-day schedule. Participating sites in the 401-AHC Study were MD Anderson Cancer Center (Houston,TX), Duke University (Durham, NC), the Scott and White Cancer Research Institute/Texas A&M (Temple, TX), the University of Texas Southwestern (Dallas,TX), and the British Columbia Cancer Agency (Vancouver, Canada). Results from the 401-AHC Study, which are set forth below, were presented at theannual meetings of the American Society of Clinical Oncology (ASCO) in June 2013 and ASH in December 2013. Well-tolerated at clinically active doses SL-401 was well-tolerated at clinically active doses and had a generally acceptable side effect profile relative to other agents used for advanced hematologiccancers. This included largely transient transaminitis, hypoalbuminemia, edema, thrombocytopenia, fever and chills. This is largely similar to that reportedwith denileukin diftitox (Ontak), a compound comprised of human interleukin-2 linked to a truncated diphtheria toxin payload, which is FDA approved andhas been marketed for certain forms of cutaneous T-cell lymphoma for over a decade. Of note, many of the side effects of Ontak have been reported todecrease with each successive cycle administered. Importantly, however, the anticancer activity of Ontak appears to be maintained, and even augmented,with each successive cycle. In particular, patients who do not respond to an initial cycle have been shown capable of responding to later cycles, and patientswho partially responded to an initial or early cycle have also been shown capable of converting to complete responders in subsequent cycles. Ontak isapproved on a daily-for-five-days schedule for eight cycles. The maximum tolerated dose, or MTD, of SL-401 was 16.6 µg/kg/day for five consecutive days, with tolerable and active doses at 16.6 µg/kg/day as well as12.5, 9.4, and 7.1 µg/kg/day. Anti-tumor activity In the 401-AHC Study, to date, one cycle of SL-401 has demonstrated robust single agent activity, including an 86% overall response rate, or ORR, including5 CRs, in BPDCN. Additionally, SL-401 reduced leukemia blast counts in the bone marrow (i.e., reduced tumor bulk) or stabilized disease, in approximatelyhalf of all treated patients, the majority of whom were heavily pretreated, as summarized below. More specifically, tumor shrinkages or disease stabilizationswere seen in 46% of patients with relapsed or refractory AML, 55% of AML who were poor risk and thus not candidates for chemotherapy, 43% of high-riskMDS patients and 86% of BPDCN patients. There were also multiple additional cases of tumor shrinkages in response to a single cycle of SL-401 treatment.Durable CRs were induced in two patients with relapsed or refractory AML. Five additional CRs and one PR occurred after a single cycle of SL-401 in sevenpatients with BPDCN. Activity of a single-cycle of SL-401in patients with advanced hematological cancers BPDCN(n=7)AML(relapsed refractory)(n=59)AML(> 3rd line)(n=35*) AML(not chemocandidate)(n=11) MDS(high risk)(n=7)Tumor shrinkages/disease stabilization86%46%43% 55% 43%Tumor shrinkages86%25%23% 27% 29%5CRs2CRs1CR AML, Acute myeloid leukemia; MDS, Myelodysplastic syndrome; BPDCN, Blastic plasmacytoid dendritic cell neoplasm; chemo, Chemotherapy; CR,Complete response * Subpopulation of relapsed, refractory A single cycle of SL-401 administered as a single agent induced major objective anti-tumor responses in 6 of 7 (86%) patients with BPDCN, including 5 CRsand 1 PR. Four of the five CRs had durations of at least 3 months, with 2 CR patients still in remission at 15+ and 5+ months. In addition, a single cycle ofSL-401 as a single agent induced durable CRs in advanced AML patients. This included a CR of 25+ months duration in a fourth-line AML patient who hadfailed three previous treatment regimens, including two treatments with high-dose therapy followed by allogeneic stem cell transplantations, prior to entryinto the 401-AHC Study. In addition, a patient with AML that was refractory to standard induction chemotherapy experienced a CR lasting 8 monthsfollowing treatment with a single cycle of SL-401. 10®®®®Table of Contents Anti-CSC effect SL-401 was shown to have potential dual activity not only against tumor bulk (as evidenced by tumor shrinkages and stabilizations) but also against CSCs.Bone marrow samples were collected from three patients both before (day 0) and after SL-401 treatment (day 15 and 30) and were tested for CSC activity inan ex vivo colony formation assay (an assay that measures the ability of CSCs to form colonies). As demonstrated by Konopleva in Blood in 2010, and asillustrated below, a considerable decrease in CSC activity was noted at 15 and 30 days after patients were treated with SL-401. At 30 days post-treatment,CSC activity decreased by an average of 79% of that measured at pretreatment, suggesting a clinical anti-CSC effect. We believe that these studies alsoprovide preliminary evidence that the beneficial clinical effects noted in some patients in the 401-AHC Study may have been due, in part, to the anti-CSCactivity of SL-401. In particular, reductions in leukemic CSC activity 30 days post-treatment of 79% and 84% were observed in two patients, both of whomnotably outlived the historical median OS of heavily pretreated AML patients, with overall survival values of 7.2 months and 13.6 months, respectively. Weintend to follow-up on these positive preliminarily provocative data in future clinical trials. SL-401 demonstrates clinical anti-CSC effect(adapted from Konopleva et al. Blood 2010; 116:21: Abstract #3298) Survival signal In the 401-AHC Study, the median overall survival, or OS was 5.6 months (95% CI: 2.5, 10.8 months) in the 16 most heavily pretreated AML patients treatedwith therapeutically relevant doses of single cycle SL-401, which is an improvement of several months over historical data reported by Giles et al. in Cancerin 2005. 11Table of Contents Overall survival signal in AML patients (>3rd line) treated withonly a single cycle of SL-401 (at therapeutically relevant doses*; n = 16 patients)(Konopleva et al. American Society of Hematology 2012 Abstract #3625) *Patients received the MTD (16.6 µg/kg/d) or one or two doses below the MTD (9.4 and 12.5 µg/kg/d) Notably, these results derive from the 401-AHC Study wherein only a single cycle regimen of SL-401 was utilized. We believe that a multiple-cycleadministration of SL-401 will further increase the clinical benefit of SL-401. Accordingly, to maximize the potential benefits of SL-401, we plan toadminister multiple cycles of SL-401 in all of our planned clinical trials of SL-401. Clinical and regulatory strategy for SL-401 We plan to advance SL-401 into corporate sponsored trials for multiple hematologic cancer indications including blastic plasmacytoid dendritic cellneoplasm, or BPDCN, and additional rare IL-3R+ malignancies, as well as larger indications including acute myeloid leukemia, or AML and multiplemyeloma, or MM. In preparation for these studies, we have completed commercial-scale cGMP production of API. Upon completion of drug productformulation and fill-finish, which is currently underway, we plan to submit a corporate-sponsored IND application, and initiate trials in multiple indicationsincluding BPDCN, where we intend to pursue a Phase 2 registration-directed path. We also plan to initiate trials in additional rare IL-3R+ malignanciesincluding mastocytosis, hypereosinophilic syndrome, other myeloproliferative disorders, and hairy cell leukemia. If the results of these studies are notable,Stemline expects to meet with the appropriate regulatory agencies to define pathways leading to potential registration. We also intend to pursue largerindications including trials in patients with relapsed or refractory MM and AML in first CR as consolidation therapy, as well as a randomized Phase 3 trial inthird-line AML for potential registration. We may also pursue investigator sponsored studies in additional indications which may include chronic myeloidleukemia, or CML, and certain lymphomas, including Hodgkin’s lymphoma. SL-701—a subcutaneously-administered cancer vaccine comprised of synthetic peptides Overview SL-701, a clinically active therapeutic cancer vaccine comprised of multiple synthetic peptides, is designed to direct the immune system to attack targetspresent on the CSCs and tumor bulk of brain cancer. High-grade gliomas, or HGGs, are the most aggressive 12Table of Contents brain cancers and have a poor prognosis. Treatment options are limited, particularly for adult patients with recurrent or refractory HGG, includingglioblastoma multiforme, or GBM, and pediatric patients with HGG, including brainstem glioma, or BSG, and non-brainstem glioma, indications where SL-701 has shown activity. In two completed investigator sponsored Phase 1/2 clinical trials conducted at the University of Pittsburgh School of Medicine, thevaccine, now being developed by Stemline as SL-701, demonstrated single agent anti-tumor activity, including CRs, which is uncommon for a cancervaccine, particularly in these indications. Tumor shrinkage or stabilization was noted in 59% (13/22) of HLA-A2+ (as defined below) adult patients withrecurrent or refractory HGG (the 701-Adult-RHGG Study), and 87% (26/30) of HLA-A2+ pediatric glioma patients (the 701-Ped-G Study). To date, there havebeen eight major objective tumor responses (i.e., tumor regressions) in these two studies, consisting of two CRs and six PRs. SL-701 has also induced anadditional tumor shrinkage, in the form of a minor response, or MR, a prolonged disease free survival following complete surgical resection (i.e. a clinicalcomplete response, or CCR). We plan to advance SL-701 into a corporate sponsored Phase 2 trial in adults, as well as a cooperative group led study in children. In preparation for thesestudies, we have completed commercial-scale cGMP production of API, as well as drug product formulation and fill-finish. Upon submission and acceptanceby the FDA of a corporate-sponsored IND, we expect to initiate a Phase 2 trial of SL-701 in adult patients with recurrent GBM, following initial treatmentwith surgery, radiation, and chemotherapy. We believe that the design of this study may enable SL-701 to obtain accelerated regulatory approval and/orserve as the foundation for a subsequent Phase 3 pivotal trial in this indication. We also plan to pursue a Phase 2 trial of SL-701 in pediatric patients withbrainstem and non-brainstem high-grade glioma, which are also areas of unmet medical need. High-grade glioma (including adult glioblastoma and pediatric non-brainstem and brainstem glioma) Gliomas are histologically heterogeneous tumors that are derived from glial cells in the brain. Gliomas are graded from 1 to 4, based on WHO classifications,with grade 4 glioma (i.e., glioblastoma, or GBM) and grade 3 glioma (i.e., anaplastic glioma, or AG) as the most aggressive gliomas and referred to as high-grade gliomas, or HGGs. GBM makes up the majority of HGG cases, with an annual incidence in adults of approximately 10,000 in the United States and15,000 to 18,000 in Europe. The standard of care for newly diagnosed adult GBM is resection, if operable, followed by a combination of radiation and temozolomide (i.e., the Stuppregimen). Although this combination treatment has improved patient outcomes, 85% to 90% of patients ultimately relapse, with a median OS from diagnosisof 15 months. Bevacizumab (Avastin) received accelerated, but not full, approval for adults with recurrent or refractory adult GBM based, in part, on aresponse rate endpoint. However, most recurrent patients receiving bevacizumab (Avastin) do not have durable clinical benefit, and the median OS for thesesecond-line patients is approximately eight to nine months. Currently, no therapies have been approved for GBM patients who fail bevacizumab, whichcarries a median OS of three to four months. Pediatric HGG, which includes non-brainstem HGG and brainstem glioma, or BSG, is a highly malignant disease with very poor outcomes. The annualincidence of pediatric HGG is approximately 1,600 to 2,000 in the United States and approximately 3,400 in Europe. No therapy has been shown to have afavorable outcome in this population and almost all patients relapse after receiving first-line treatment. Pediatric patients with newly diagnosed HGG aretypically treated with surgery, chemotherapy and/or radiation and have an expected median OS from diagnosis of less than one year. Design of SL-701 and mechanism of action SL-701 is a therapeutic cancer vaccine comprised of several short synthetic peptides that correspond to epitopes of targets including IL-13Rα2, EphA2, andsurvivin, present on the tumor bulk and/or CSCs of brain cancer. The synthetic peptides that correspond to IL-13Rα2 and survivin are novel artificiallyconstructed mutants designed to be immunogenic to amplify the vaccine’s clinical anti-tumor immune response. SL-701, like other cancer vaccines, is combined with additional elements designed to promote an immune response, such as a helper peptide and an adjuvant.A helper peptide helps activate cytotoxic T-cells, and is mixed with SL-701 prior to administration. An adjuvant similarly helps stimulate the immunesystem, and is administered to the patient concurrently with vaccine administration. Whereas the previous studies have used poly-ICLC as an adjuvant, weplan to use granulocyte-colony-stimulating factor, or GM-CSF, and imiquimod, a toll-like receptor 7, or TLR7, agonist, which we believe are commerciallyviable and state-of-the-art adjuvants. Phase 1/2 clinical trial—adult recurrent or refractory high-grade glioma In an investigator sponsored Phase 1/2 clinical trial, the vaccine, now being developed by Stemline as SL-701, was evaluated in adult patients with recurrentor refractory HGG. This study, which we refer to as the 701-Adult-RHGG Study, enrolled 22 HLA-A2+ adult patients with recurrent or refractory HGG, 13 ofwhich had refractory or recurrent GBM, and nine of which had anaplastic glioma, or AG. 50% of patients were second relapse or greater and two of therefractory or recurrent GBM patients had received prior treatment 13®®Table of Contents with bevacizumab (Avastin). The vaccine was loaded ex vivo onto dendritic cells that had been removed from the patient, which were then re-injectedintra/peri-nodally back into the patient with a separate concurrent injection of an adjuvant. This delivery method contrasts with that used in the 701-Ped-GStudy and 701-Adult-LGG Study, in which the vaccine was administered to patients and demonstrated activity as a direct subcutaneous injection. The 701-Adult-RHGG Study was a single-arm trial whose objectives were to determine the general safety, dosage and efficacy of the vaccine. Well-tolerated at clinically active doses The vaccine was well-tolerated at clinically active doses in the 701-Adult-RHGG Study. Injection site reactions were the most common adverse events andgenerally resolved within 24 hours. These side effects do not overlap with those of radiation, chemotherapy agents, and anti-angiogenic agents likebevacizumab (Avastin), which are mainstay therapies used to treat adult HGG. We believe this implies that the development of SL-701-based combinationregimens may be feasible. Clinical activity In the 701-Adult-RHGG Study, the vaccine demonstrated single agent clinical activity. Forty-six percent (6/13) of refractory or recurrent GBM and 78% (7/9)of recurrent AG patients sustained an anti-tumor response or disease stabilization. This included two durable CRs, one of which occurred in a 62-year-oldmale GBM patient who was refractory to prior surgical resection, radiation therapy and temozolomide. Following vaccine treatment, this patient’sgadolinium enhanced tumor mass disappeared, and the patient was determined to have sustained a durable CR that exceeded 23 months. Notably, in thispatient there was also a significant increase in target-specific T-cells by week 29 as determined by a tetramer assay, consistent with a positive immuneresponse to the vaccine. A recurrent AG patient with anaplastic oligoastrocytoma sustained a CR that exceeded nine months. In addition to the two durableCRs, there were also three PRs. One PR was sustained by a patient with recurrent GBM (second salvage, i.e., third-line) and lasted seven months. Notably, apost-vaccine brain biopsy from this PR patient demonstrated the presence of macrophages and CD8+ T lymphocytes, which are cells of the immune system,within the tumor. We believe this indicates that the vaccine induced the immune system, and cytotoxic T-cells in particular, to migrate to the area of the braintumor and induce tumor shrinkage by targeting specific antigen-bearing CSCs and tumor bulk. This activity is consistent with the proposed mechanism ofaction of the vaccine wherein it induces the immune system, and cytotoxic T cell in particular, to cross the blood-brain barrier and attack the antigenexpressing tumor. A second PR was sustained by a patient with recurrent GBM whose PR exceeded 11 months in duration. The third PR was seen in arecurrent AG patient. Eighty-one percent (13/16) of evaluable patients had at least one positive immunological assay. We believe this indicates that the vaccine stimulated theimmune system in a highly specific fashion. Survival signal The vaccine improved the median, six-month, and 12-month OS of adult patients with refractory or recurrent GBM as well as recurrent AG, compared withhistorical data. In refractory or recurrent GBM patients treated with vaccine, median OS was 13 months, six-month OS was 80%, and 12-month OS was 55%,as illustrated in the figure below. These rates represent improvements over the historical median OS of five to seven months, the historical six-month OS of38% to 55%, and the historical 12-month OS of 14% to 25%. Recurrent AG patients treated with vaccine also experienced an improvement in OS comparedwith historical results. Kaplan-Meier survival curveof recurrent or refractory adult HGG patients treated with vaccine(Okada et al., Journal of Clinical Oncology 2011; 29:330-336) 14®®Table of Contents Phase 1/2 clinical trial—pediatric glioma In a completed investigator sponsored Phase 1/2 trial, the vaccine was evaluated in pediatric patients with glioma. This study, which we refer to as the 701-Ped-G-Study, was undertaken in 30 HLA-A2+ pediatric patients with glioma. Twenty of these patients had newly diagnosed brainstem glioma, or BSG, fourhad newly diagnosed non-brainstem HGG, three had recurrent non-brainstem HGG and three had multiply recurrent low-grade glioma, or LGG. Patientsreceived a direct subcutaneous injection of the vaccine (without dendritic cells) in the right or left upper arms associated with intact draining auxiliary lymphnodes once every three weeks with a separate concurrent injection of an adjuvant. This 701-Ped-G Study was a single-arm trial whose objectives were todetermine the general safety, dosage and efficacy of the vaccine. Well-tolerated at clinically active doses The vaccine was well-tolerated at clinically active doses in this 701-Ped-G Study. Adverse effects included local injection site reactions and low grade feverin almost all patients, which were generally mild and controlled with analgesics. Clinical activity In this 701-Ped-G Study, the vaccine demonstrated single agent clinical activity. Eighty seven percent (26/30) of evaluable patients sustained durable tumorreductions or disease stabilizations, including three patients who experienced durable PRs. One of these PR patients is a child with newly diagnosed BSGwhose PR demonstrated greater than 50% tumor shrinkage and was 15 months in duration. The second PR occurred in a child with newly diagnosed non-brainstem HGG and was 14 months in duration. The third PR occurred in a child with multiply recurrent LGG and was nine months in duration. Also, a MRwas induced in a pediatric patient with non-brainstem HGG. An additional child with newly diagnosed non-brainstem HGG had prolonged disease-free statusof 20 months following surgery. In addition, there were four stable disease patients who survived at least 13 months. In five cases, tumor pseudoprogression was seen. Tumor pseudoprogression is believed to represent a positive sign, or surrogate marker, of anti-tumoractivity. Tumor pseudoprogression is manifested by edema and contrast enhancement on MRI and can transiently mimic tumor progression prior toregression and thus must be carefully monitored. Pseudoprogression has been noted with the introduction of effective treatments for brain tumors, such asstereotactic radiotherapy, which have led to tumor responses. Notably, the PR patient whose response lasted 15 months is believed to have experienced tumorpseudoprogression prior to the PR. Positive immunological assays (both ELISPOT and tetramer assays) were demonstrated in six of seven evaluable children, including the newly diagnosedBSG pediatric patient who sustained a durable PR that lasted 15 months. We believe that these data indicate that vaccine treatment stimulated the immunesystem in a highly specific fashion. Low-grade glioma trial in adult patients An investigator sponsored study of the vaccine was also conducted at the University of Pittsburgh School of Medicine in adult patients with LGG, which werefer to as the 701-Adult-LGG Study. Twenty-three HLA-A2+ patients have been enrolled, including twelve with newly diagnosed high-risk LGG withoutprior radiotherapy, one with newly diagnosed high-risk LGG with prior radiotherapy and ten with recurrent LGG. Patients were treated with the vaccine viadirect subcutaneous injection every three weeks. The vaccine was well-tolerated and demonstrated immune responses in high-risk adult patients with LGG.Side effects were minimal with one grade 3 fever. Sustained and specific immune responses, as assessed by ELISPOT assays, were observed in the majority ofevaluable patients. A positive correlation between immune response and progression-free survival, or PFS, was noted. Although a thorough evaluation of PFSrequires a longer observation period, among 17 patients who completed eight courses, 10 had stable disease. Clinical and regulatory strategy for SL-701 We plan to advance SL-701 into a corporate sponsored Phase 2 trial in adults, as well as a cooperative group led study in children. In preparation for thesestudies, we have completed commercial-scale cGMP production of API, as well as drug product formulation and fill-finish for use in our clinical trials. Uponsubmission and acceptance by the FDA of a corporate-sponsored IND, we expect to initiate a Phase 2 trial of SL-701 in adult patients with recurrent GBM,following initial treatment with surgery, radiation, and chemotherapy. We believe that the design of this study may enable SL-701 to obtain acceleratedregulatory approval and/or serve as the foundation for a subsequent Phase 3 pivotal trial in this indication. We also plan to pursue a Phase 2 trial of SL-701 inpediatric patients with brainstem and non-brainstem HGG, which are also areas of unmet medical need. 15Table of Contents StemScreen®-1 StemScreen®-1 is a validated, proprietary drug discovery platform designed to identify CSC-targeted compounds based on the isolation of CSCs andevaluation of CSC gene expression profiles. CSCs are isolated from primary tumor tissue or cell lines, and then subjected to gene expression analysis using avariety of technologies, including microarray. A control tissue, such as normal bone marrow is analyzed as a comparator against the gene expression profileof the isolated CSCs. These data are then interfaced with an information base of compounds and their mechanisms of action (i.e. which gene products andpathways they impact). Compound classes are then identified as likely to impact CSC-specific pathways discovered by the gene expression analyses. Selectcompounds within these classes are then tested in our anti-CSC functional in vitro and in vivo assays. Compounds that demonstrate anti-CSC activity arethen considered for further development, which may include lead optimization. We have utilized StemScreen®-1 to discover a number of our preclinical drugcandidates. StemScreen®-2 StemScreen®-2 is a proprietary high throughput drug discovery platform we are developing to discover novel anti-CSC compounds. Traditional oncologydrug discovery screens have largely relied upon readouts that measure activity against tumor bulk, and have not been specifically designed to identifycompounds with activity against CSCs. StemScreen®-2 is based on a key discovery that immortal cancer cell lines harbor not only tumor bulk but also CSCs.This discovery enables compounds to be screened, in a high throughput manner, for activity against CSCs in their natural state. StemScreen®-2 utilizes an assay that uses live cells to track and follow CSCs in their natural state during high throughput screening and permits the rapidtesting of many compounds on a small scale for enhanced efficiency. In particular, StemScreen®-2 utilizes a CSC-specific promoter linked to a reporter as amethod for identifying and following CSCs in their native environment of surrounding tumor bulk, as illustrated below. In this way, StemScreen®-2 enablesthe identification of compound “hits,” in a high throughput manner, with anti-CSC activity. Notably, prior to the development of StemScreen®-2, screens for anti-CSC compounds had been limited due to 1) reliance on finite sources of primary tissuespecimens rather than immortal cancer cell lines, and 2) purification of CSCs away from the rest of the tumor, each thereby limiting screens to small librariesin relatively low throughput systems. Moreover, displacement of CSCs from their tumor microenvironment is not ideal because it can lead to unwantedchanges in the CSC phenotype. Additionally, other CSC-focused screens have recently been developed that require artificial manipulation to create the CSCphenotype from non-CSCs in the context of an immortal cell line. Thus, we believe that StemScreen®-2, unlike other CSC-focused screening systems, isdistinct because it is both high throughput and accurately represents the CSC phenotype in its native, unaltered state. An initial screen of a moderately sized chemical compound library led to the identification of several “hits,” comprising 2.4% of the library whichdemonstrated activity against CSCs with greater than 50% growth inhibition. Several of these compounds were then further validated using secondaryfunctional assays to confirm anti-CSC activity. We are currently optimizing and miniaturizing StemScreen®-2 for larger scale screening as well as expand itsapplicability for use in a broad range of tumor types. We have partnered with a major academic research institution with significant experience in highthroughput and high-content screening for assay optimization and plans to undergo a large chemical library screening are underway. 16Table of Contents Preclinical pipeline Stemline has discovered and developed a pipeline of small molecules and monoclonal antibody-based, or mAb-based, compounds directed to targets onCSCs and tumor bulk. This pipeline was built through a variety of methods, including target and lead discovery via StemScreen®, as well as through in-licensing of certain key intellectual property (see Table below). TargetCompound Class In VitroEfficacy In VivoEfficacyIL-3RSL-501Targeted therapy++IL-3R-alpha (CD123)SL-101mAb-based+Glypican-3, Tie-1mAb-basedUndisclosedSL-601mAb-basedFrz, Smo, PtcmAb-basedCD133mAb-basedNotchSL-301Small molecule++UndisclosedSL-201Small molecule+ IL-3R-targeted platform. We have leveraged our demonstration of clinical proof of concept for the IL-3R target with SL-401 as well as our know-how andintellectual property around IL-3R, to invest in and build out a larger IL-3R-targeted platform which currently includes the two additional productcandidates: SL-501 and SL-101, our second and third generation IL-3R-targeted product candidates, respectively. Each of these product candidates hasdistinguishing characteristics. SL-501 is a rationally designed variant of SL-401 that binds to IL-3R with high affinity and has shown elevated potencyagainst hematologic cancer cells both in vitro and in in vivo xenograft experiments. Because of the high potency of SL-501, less drug may be required to treatpatients. SL-101 is a mAb-conjugate that binds to the alpha chain of IL-3R (CD123). IL-3R is comprised of both an alpha and beta chain. SL-101 hasdemonstrated potent in vitro cytotoxic activity against several hematologic cancer cell lines. We plan to advance SL-501 and SL-101 into IND-enablingstudies. In addition, we have identified small molecules, SL-301 and SL-201, directed to Notch and an undisclosed target, as well as a mAb program, SL-601, directedto an undisclosed target, which are all in early development. We have also in-licensed intellectual property directed to mAb-based therapeutics to validatedoncology targets including Glypican-3, Tie-1, CD133, Frizzled, Smoothened and Patched. Some of these antibody targets are also being pursued by otherbiopharmaceutical companies. We may develop, or partner with third parties to develop, one or more of these mAbs. As with our StemScreen® discoveryprogram, we may conduct some of these efforts by using third party contractors or by building/acquiring internal laboratories facilities. 17Table of Contents Patents and Proprietary Rights We strive to protect our product candidates and exclusivity rights, as well as both maintain and fortify our position in the CSC field. We believe ourintellectual property portfolio consists of early and broad filings in the area. We have focused on patents and patent applications covering, where possible,our products and methods of use of our products in disease treatment. We have also focused on patents and patent applications covering, wherever possible,broad facets of CSC-directed therapeutics, diagnostics, including companion diagnostics, and drug discovery. We have sought and continue to seek thestrongest possible intellectual property protection available to us in order to prevent others from directly competing with us, as well as to excludecompetition around our products, their methods of use in disease treatment, as well as, more generally, CSC-directed therapeutics, diagnostics includingcompanion diagnostics, and drug discovery. Our intellectual property portfolio contains 18 issued patents and 35 pending applications in the U.S. and worldwide of both in-licensed and Stemline-originated inventions. This portfolio includes patents and proprietary rights around (i) Stemline’s drug candidates and (ii) CSC-focused intellectual property,which includes early and broad filings in the CSC field covering CSC therapeutics, diagnostics, including companion diagnostics, and drug discovery. Patents and Proprietary Rights Covering Stemline’s Drug Candidates We have an exclusive worldwide license to SL-401. These patent rights include issued U.S. patents 8,470,307 and 7,763,242 covering methods of treatingAML and MDS that both expire in 2027. There are also additional pending U.S. applications directed to methods of using SL-401 to treat other diseases that,if issued, would also expire in 2027. In addition, we have filed foreign patent applications for the method of using SL-401 to treat various diseases, althoughthere can be no assurances that such patents will be issued. In addition to patent protection, we also have the exclusivity afforded by the FDA’s orphandesignation of SL-401 for the treatment of both AML and BPDCN and by the provisions of the Biologics Price Competition and Innovation Act of 2009. See“Government Regulation — Orphan Drug Designation” and “— U.S. Patent Term Restoration and Marketing Exclusivity—Biologics Price Competition andInnovation Act of 2009”. We have an exclusive worldwide license to SL-701 component, IL-13Rα2 mutant, a non-exclusive worldwide license to SL-701 component, EphA2, andhave filed a PCT patent application to SL-701 component, survivin mutant. This intellectual property consists of an issued U.S. composition of matter patent(U.S. Patent 7,612,162) directed to an immunogenic mutant IL-13Rα2 peptide expiring in 2025, issued U.S. method of use patents (U.S. Patents 7,297,337and 8,114,407) directed to the use of EphA2 peptides used in SL-701 expiring in 2024 and 2025, and a pending PCT patent application directed to the use ofan immunogenic mutant survivin peptide that, to the extent it issues, would be expected to expire in 2033. We also have additional pending patentapplications directed to methods of using SL-701 components to treat certain diseases which if issued, for which there can be no guarantee, would provideadditional protection in the United States and certain non-U.S. territories and would expire in 2024, 2025, or 2033. We also in-licensed or own exclusive patent rights, which includes issued patents and pending patent applications in the U.S. and abroad to our preclinicalassets. Patents and Proprietary Rights Covering CSC-Focused Intellectual Property We have exclusive worldwide rights to early and broad patents and patent applications in the CSC field covering CSC therapeutics, diagnostics, includingcompanion diagnostics, and drug discovery: · A therapeutic patent (U.S. Patent 8,038,998) that covers a method to treat cancer through use of monoclonal antibodies and other antibody-based compounds that target CSCs, and related pending applications that cover methods to treat cancer through use of small molecule oroligonucleotide-based compounds that target CSCs. Patent protection for these patent families extends from 2017 or 2019, as applicable; · A diagnostic patent (U.S. Patent 6,004,528), and related pending applications, that covers the diagnosis of cancer through detection of CSCs.Patent protection extends from 2017 or 2019, as applicable; · Four issued patents that cover methods to treat cancer through use of monoclonal antibodies and other antibody-based compounds directed tosix specific key targets: Frizzled, Glypican-3, Tie-1, CD133, Smoothened, and Patched. These U.S. Patents are: 7,361,336; 7,427,400;7,504,103; and 7,608,259. Patent protection extends from 2017 or 2019, as applicable; · Two pending patent applications filed in 2006 directed to CSC-directed therapies and regimens, including CSC-directed therapies andregimens for use in combination with companion diagnostics. Patent protection, to the extent it issues, would be expected to extend to 2027; 18Table of Contents · A pending patent application that covers oligonucleotide-based oncology therapies, including CSC-targeted therapeutics, which targetmicroRNA. Patent protection, to the extent it issues, would be expected to extend to 2022; · A family of intellectual property covering methods to treat cancer through use of antibody-based compounds directed to IL-3R, including U.S.Patent 7,651,678; U.S. Patent 6,733,743; U.S. Patent 8,163,279; and other pending applications. Patent protection, to the extent it has or mayissue, would be expected to extend to 2021; and · Pending patent applications covering CSC-focused drug discovery, including a novel high throughput screen to discover compounds thattarget CSCs. Patent protection, to the extent it issues, would be expected to extend to 2025. Intellectual Property Strategy We continually assess our intellectual property strategy in order to fortify our position in our market space. To that end, we are prepared to file additionalpatent applications in any of the above families should our intellectual property strategy require such filings and/or where we seek to adapt to competition orseize business opportunities. Further, we are prepared to file patent applications relating to the other products in our pipeline soon after the experimental datanecessary for a strong application become available and our cost-benefit analyses justify filing such applications. In addition to filing and prosecuting patent applications in the United States, we typically file counterpart patent applications in Europe, Canada, Japan,Australia, and additional countries where we think such foreign filing is likely to be beneficial. We do not know if patents will be issued for all of the patent applications in our portfolio. Furthermore, for patent claims now issued and for claims to beissued in the future, we do not know if such claims will provide significant proprietary protection to our drug candidates and proprietary technologies or ifthey will be challenged, circumvented, or invalidated. Our success will in part depend on our ability to obtain and maintain patents protecting our drugcandidates, technologies and inventions, to operate without infringing the proprietary rights of third parties, and to enforce and defend our patents and ensureothers do not infringe on our proprietary rights. The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, thepatent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, a patent’s term may be shortened if a patent isterminally disclaimed over another patent or as a result of delays in patent prosecution by the patentee, and a patent’s term may be lengthened by patent termadjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent. The term of a patent that covers an FDA-approved drug or biologic may also be eligible for patent term extension, which permits patent term restoration ascompensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984, or theHatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is relatedto the length of time the drug or biologic is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 yearsfrom the date of product approval and only one patent applicable to an approved drug or biologic may be extended. Similar provisions are available inEurope and other foreign jurisdictions to extend the term of a patent that covers an approved drug or biologic. In the future, if and when our pharmaceuticalproducts receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We anticipate that some of our issuedpatents may be eligible for patent term extensions. For more information regarding U.S. patent laws, see “Business — Government Regulation.” In addition to the patent term extension rights described above, any of our product candidates that receive FDA approval may also be eligible for marketexclusivity protection under the Federal Food, Drug and Cosmetic Act or the Biologics Price Competition and Innovation Act of 2009. For more informationregarding market exclusivity laws, see “Business — Government Regulation.” Many pharmaceutical companies, biotechnology companies and academic institutions are competing with us in the field of oncology and filing patentapplications potentially relevant to our business. In order to contend with the inevitable possibility of third-party intellectual property conflicts, from time totime, we review and assess the third-party intellectual property landscape for competitive and other developments that may inform or impact our intellectualproperty development and commercialization strategies. From time to time, we may find it necessary or prudent to obtain licenses from third-party intellectual property holders. Where licenses are readily available atreasonable cost, such licenses are considered a normal cost of doing business. In other instances, however, where a third-party holds relevant intellectualproperty and is a direct competitor, a license might not be available on commercially reasonable terms or available at all. Accordingly, we attempt to managethe risk that such third-party intellectual property may pose by conducting, among other measures, freedom-to-operate studies to guide our early-stageresearch away from 19Table of Contents areas where we are likely to encounter obstacles in the form of third-party intellectual property. As our programs advance, we continue to monitor theintellectual property landscape in an effort to assess the advisability of licensing third-party intellectual property or taking other appropriate steps to addresssuch freedom-to-operate or development issues in the manner we deem in the best interests of the Company. With respect to third-party intellectual property, it is impossible to establish with certainty that our product candidates or discovery platform will be free ofclaims by third-party intellectual property holders or whether we will require licenses from such third parties. Even with modern databases and on-line searchengines, literature searches are imperfect and may fail to identify relevant patents and published applications. Even when a third-party patent is identified, wemay conclude upon a thorough analysis, that we do not infringe the patent or that the patent is invalid. If the third-party patent owner disagrees with ourconclusion and we continue with the business activity in question, we might face patent litigation by the third-party. Alternatively, we might decide toinitiate litigation in an attempt to have a court declare the third-party patent invalid or not infringed by our activity. In either scenario, patent litigationtypically is costly and time-consuming, and the outcome is uncertain. The outcome of patent litigation is subject to uncertainties that cannot be quantified inadvance, for example, the credibility of expert witnesses who may disagree on technical interpretation of scientific data. Ultimately, in the case of an adverseoutcome in litigation, we could be prevented from commercializing a product or using certain aspects of our discovery platform as a result of patentinfringement claims asserted against us and/or face a significant monetary damages award. This could have a material adverse effect on our business. To protect our competitive position, it may be necessary to enforce our patent rights through litigation against infringing third parties. Litigation to enforceour own patent rights is subject to the same uncertainties discussed above. In addition, however, litigation involving our patents carries the risk that one ormore of our patents will be held invalid (in whole or in part, on a claim-by-claim basis) or held unenforceable. Such an adverse court ruling could allow thirdparties to commercialize our products or our platform technology, and then compete directly with us, without payment to us. License and Research Agreements Scott and White Memorial Hospital Research and License Agreement (SL-401) In June 2006, we entered into a research and license agreement with Scott and White Memorial Hospital for SL-401, our biologic targeted therapy directed tothe IL-3R. Under the agreement, Scott and White has granted us an exclusive, royalty-bearing, worldwide license under certain patent rights, know-how andmaterials to research, develop, make, have made, formulate, use, sell, offer to sell and import SL-401, and any products containing or comprising suchcompound in finished dosage pharmaceutical form, for the diagnosis, prophylaxis and/or treatment of any disease or condition in humans or animals. Thepatent rights exclusively licensed to us under the agreement are described in more detail above under “Business — Patents and Proprietary Rights.” We must pay Scott and White royalties based on adjusted gross sales, by us or our sublicensees, of products containing the licensed compound for a period often years following the first commercial sale of each product in each country. The royalty rates for each product range from the low- to mid-single digits andare tiered based on our annual sales. We have sublicensing rights under the agreement, subject to our paying to Scott and White a percentage of the up-frontpayments we receive from a sublicensee. We must exercise commercially reasonable efforts to develop and commercialize a licensed product and to achieve certain regulatory milestones withincertain periods, subject to extensions based on unforeseen technical, scientific, intellectual property or regulatory issues. If we fail to comply with ourdiligence obligations with respect to at least one licensed product, then Scott and White may convert our exclusive license to a non-exclusive license. The agreement survives until the later of the expiration of the last to expire licensed patent or the date on which we owe no further payments to Scott andWhite, after which our license becomes fully paid, irrevocable, perpetual, non-exclusive and royalty-free. We may terminate the license in whole or on acountry-by-country and product-by-product basis upon prior written notice to Scott and White. If either we or Scott and White breach a material obligationunder the agreement, and such obligation is not cured within a specified period of time following written notice from the other party, then the non-breachingparty may terminate the agreement upon an additional written notice. In addition, the agreement provides for Scott and White to conduct a research program with SL-401. In March 2010, the agreement was amended to furtherthe regulatory advancement of SL-401. We have made certain payments to Scott and White for such research services pursuant to the agreement, which todate total approximately $0.8 million in the aggregate. Additionally, upon our request, the agreement requires Scott and White to either assign to us its INDfor SL-401 or grant us the exclusive right to reference its IND in 20Table of Contents the event we file our own IND for SL-401. We may assign the agreement to an affiliate of ours, a purchaser of all or substantially all of our assets or inconnection with a merger, change in control or similar transaction by us. University of Pittsburgh Exclusive License Agreement to IL-13Rα2 peptide (SL-701 component) In September 2009, we entered into an exclusive license agreement with the University of Pittsburgh, or the University, for the composition of matter, and usewith other components, of a proprietary immunogenic mutant analog peptide of IL-13Rα2, an active ingredient of SL-701, our brain cancer vaccinecandidate. Under the agreement, the University grants us an exclusive worldwide license under certain patent rights to make, have made, use, sell and importbrain cancer peptide antigen vaccines (including SL-701, which has been developed by the University under a separate vaccine name designated by theUniversity). The patent rights exclusively licensed to us under the agreement are described in more detail above under “Business — Patents and ProprietaryRights.” The University retains the right to practice the licensed patent rights for non-commercial education and research purposes. The license is also subjectto certain retained rights of the United States government. Our right to grant sublicenses to third parties is subject to the prior written approval of theUniversity, which the University may not unreasonably withhold or delay. We paid the University an initial license fee and will pay the University annual license maintenance fees until the first commercial sale of a licensed product.To date, we have paid an aggregate of approximately $0.4 million in fees to the University under the agreement. We must also pay the University a low-single digit royalty as a percentage of net sales of licensed products by us or our sublicensees, with standard provisions for royalty offsets to the extent weneed to obtain any rights from third parties to commercialize the licensed products. We must also pay a minimum annual royalty following the firstcommercial sale of a licensed product, but only to the extent the minimum annual royalty amount is greater than the annual royalty otherwise due. We alsomust pay the University a percentage of non-royalty revenue we receive from our sublicensees, which decreases if we enter into the applicable sublicenseagreement after a certain clinical milestone has been met. We also must make certain payments to the University of up to approximately $4.1 million uponthe achievement of specific regulatory and commercial milestone events. We must use our commercially reasonable best efforts to develop or commercialize a licensed product as soon as practicable, and to continue active, diligentmarketing efforts throughout the term of the agreement. We also must adhere to certain specific regulatory milestones with respect to initiating clinical trialsand submitting an application for regulatory approval of a licensed product. If we fail to meet any such milestone through no fault of our own, we maynegotiate with the University a one-time extension of the applicable dates, subject to paying the University a fee. If we do not meet the extended milestonedates, then the University may terminate the agreement. The agreement survives until the expiration of the last to expire licensed patent. The University may terminate the agreement if we default in the performanceof any of our obligations and do not cure the default within a specified period of time after receiving notice from the University, or if we challenge thevalidity, enforceability or ownership of the license patent rights anywhere in the world. The University may also terminate the agreement if we cease to carryout our business or become bankrupt or insolvent. We may terminate the agreement for any reason upon prior written notice to the University and payment ofall amounts due to the University through the date of termination. Any sublicense agreement entered into prior to termination will survive, subject to certaincustomary conditions. We may assign the agreement to an affiliate of ours, a purchaser of all or substantially all of our assets or in connection with a merger,change in control or similar transaction by us. Non-Exclusive License Agreement to EphA2 peptide (SL-701 component) In March 2012, we entered into a non-exclusive license agreement with the University for the use of EphA2 epitopes, another active ingredient of SL-701.Under the agreement, the University grants us a non-exclusive worldwide license under certain patent rights to use the EphA2 peptide in or packaged withthe IL-13Rα2 peptide, as well as other vaccines we may develop and own or exclusively control, for the diagnosis, treatment or prevention of diseases andtumors of the brain in human patients. The patent rights licensed to us under the agreement are described in more detail above under “Business — Patents andProprietary Rights.” The University retains the right to practice the licensed patent rights for non-commercial education and research purposes. The licensegrant is also subject to certain retained rights of the United States government. We may only grant sublicenses to third parties who are permitted sublicenseesunder the exclusive IL-13Rα2 peptide license agreement with the University. We must pay the University an initial license fee, and will pay the University annual license maintenance fees until the net sales of a licensed product exceeda specified amount. To date, we have paid an aggregate of approximately $25,000 in fees to the University under the agreement. We must also pay theUniversity a customary low-single digit royalty for the license as a percentage of net sales of licensed products by us or our sublicensees, with standardprovisions for royalty offsets to the extent we need to obtain any rights 21Table of Contents from third parties to commercialize the licensed products. We must also pay a minimum annual royalty following the first commercial sale of a licensedproduct, but only to the extent the minimum annual royalty amount is greater than the annual royalty otherwise due. We must use our commercially reasonable best efforts to develop or commercialize a licensed product as soon as practicable, and to continue active, diligentmarketing efforts throughout the term of the agreement. We also must adhere to certain specific regulatory milestones with respect to initiating clinical trialsand submitting an application for regulatory approval of a licensed product. If we fail to meet any such milestone by certain specified dates, then theUniversity may terminate the agreement. The agreement survives until the expiration of the last to expire licensed patent. The University may terminate the agreement if we default in the performanceof any of our obligations and do not cure the default within a specified time period of receiving notice from the University. The University may alsoterminate the agreement if we cease to carry out our business or become bankrupt or insolvent. We may terminate the agreement for any reason upon priorwritten notice to the University and payment of all amounts due to the University through the date of termination. Any sublicense agreement entered intoprior to termination will survive, subject to certain customary conditions. We may assign the agreement to an affiliate of ours, a purchaser of all orsubstantially all of our assets or in connection with a merger, change in control or similar transaction by us. Non-Exclusive License Agreement to use and reference certain data, information and regulatory filings (SL-701) In March 2012, we entered into a non-exclusive license agreement with the University. Pursuant to the agreement, we acquired a non-exclusive, worldwidelicense to use and reference certain know-how, information and data that is contained in the INDs covering the clinical trials of SL-701 that were conductedby the University for the development, manufacture, regulatory approval and commercialization of pharmaceutical products. We may grant sublicenses inconjunction with a sublicense to a permitted sublicensee under the exclusive IL-13Rα2 peptide license agreement with the University. We paid the University an initial license fee, as well as payments following a regulatory milestone. To date, we have paid an aggregate of approximately$15,000 in fees to the University under the agreement. We also must pay the University a percentage of non-royalty revenue we receive from oursublicensees. We must use our commercially reasonable best efforts to develop or commercialize a product derived from the use of the licensed data orinformation as soon as practicable. We also must adhere to a specific regulatory milestone with respect to submitting an application for regulatory approvalthat incorporates the licensed data or information, and if we fail to meet the milestone, the University may terminate the agreement unless we have pre-paidthe milestone payment listed above. The term of the license agreement is 20 years, and the University may terminate the agreement earlier (i) if we default in the performance of any of ourobligations and do not cure the default within a specified time period, (ii) upon the termination of the exclusive IL-13Rα2 peptide license agreement with theUniversity, or (iii) if we cease to carry out our business or become bankrupt or insolvent. We may terminate the agreement at any time prior to incorporatingor referencing the data or University INDs, after a specified number of days following written notice. We may assign the agreement to an affiliate of ours, apurchaser of all or substantially all of our assets or in connection with a merger, change in control or similar transaction by us. Cambridge University Technical Services Limited Exclusive Patent and Non-Exclusive Know-How License Agreement (Platform Technology) In September 2004, we entered into a license agreement with Cambridge University Technical Services Limited, or CUTS, relating to ourStemScreen platform technology. Under the agreement, we acquired an exclusive, royalty-bearing, worldwide license under patent rights owned by CUTS todevelop, manufacture, have manufactured, use, sell, offer to sell, market, have marketed, import, have imported, export and have exported products coveredby the patent rights, including a platform technology to discover and screen for compounds that target CSCs. The patent rights exclusively licensed to usunder the agreement are described in more detail above under “Business — Patents and Proprietary Rights.” The license is subject to certain rights retainedby CUTS for academic research and teaching. We also acquired a non-exclusive, worldwide license to know-how related to the licensed patent rights. Theagreement provides us with full sublicensing rights. Under the agreement, we paid an upfront license fee and are obligated to make milestone payments of upto an aggregate of $1.7 million upon specified regulatory events, as well as pay royalties of less than 1% on sales of licensed products. CUTS may terminatethe agreement, including our rights to the platform technology, for specified cause or upon certain events involving our bankruptcy or insolvency. Competition The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis onproprietary products. While we believe that our scientific knowledge, technology, and development experience provide us with competitive advantages, weface potential competition from many different sources, including major pharmaceutical, 22®Table of Contents specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Anyproduct candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in thefuture. There are several biopharmaceutical companies whose primary focus appears to be developing therapies against CSCs, including Verastem, Inc., OncoMedPharmaceuticals, Inc., Dainippon Sumitomo Pharma Co. Ltd., Bionomics Limited and Stem CentRx, Inc. There are also several biopharmaceutical companiesthat do not appear to be primarily focused on CSCs, but may be developing at least one CSC-directed compound. These companies include Astellas PharmaUS, Inc., Boehringer Ingelheim GmbH, Geron Corp., GlaxoSmithKline plc, Macrogenics Inc., Micromet, Inc. (an Amgen, Inc. Company), Pfizer Inc., RocheHolding AG, Sanofi U.S. LLC, and others. Additionally, there are a number of companies working to develop new treatments for hematologic cancers, whichmay compete with SL-401, including Ambit Biosciences Corporation, Celator Pharmaceuticals, Inc., Celgene Corporation, Clavis Pharma ASA, CyclacelPharmaceuticals, Inc., Eisai Co. Ltd., Genzyme Corporation (now a Sanofi company), CSL Limited and Sunesis Pharmaceuticals, Inc., Janssen PharmaceuticalCompanies of Johnson and Johnson, among others. There are also a number of drugs used for the treatment of brain cancer that may compete with SL-701,including, Avastin (Roche Holding AG), Gliadel (Eisai Co. Ltd.), and Temodar (Merck & Co., Inc.). There are a number of companies working to developbrain cancer therapeutics with programs in clinical testing, including Celldex Therapeutics, Inc., ImmunoCellular Therapeutics, Ltd., NorthwestBiotherapeutics, Inc., Agenus Inc., Merck & Co. Inc., Novartis AG, Roche Holding AG and others. Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical,biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Thesecompetitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patientregistration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Small or early-stage companies may alsoprove to be significant competitors, particularly through collaborative arrangements with large and established companies. The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience, price, thelevel of generic competition and the availability of reimbursement from government and other third-party payors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have feweror less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or otherregulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong marketposition before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payorsseeking to encourage the use of generic products. If our therapeutic product candidates are approved, we expect that they will be priced at a significantpremium over any competitive generic products. The most common methods of treating patients with cancer are surgery, radiation and drug therapy, including chemotherapy, hormone therapy and targeteddrug therapy. These therapies are numerous and varied in their design, therapeutic application and mechanism of action. As a result, they may providesignificant competition for any of our product candidates for which we obtain market approval. In addition to currently marketed oncology therapies, thereare also a number of products in late stage clinical development to treat cancer. These products in development may provide efficacy, safety, convenienceand other benefits that are not provided by currently marketed therapies. As a result, they may provide significant competition for any of our productcandidates for which we obtain market approval. Competition for SL-401 There are a number of companies working to develop new treatments for AML and other hematologic cancers, including Cyclacel Pharmaceuticals, Inc.,Sunesis Pharmaceuticals Inc., Genzyme Corporation (now a Sanofi company), Clavis Pharma ASA, Ambit Biosciences Corporation, Celgene Corporation,Eisai Co. Ltd., Macrogenics Inc., Janssen Pharmaceutical Companies of Johnson and Johnson, and Celator Pharmaceuticals, Inc., among others. Unlike many of these drug candidates, SL-401 has been developed to target both tumor bulk and CSCs and, to date, has been shown to spare the bone marrowof toxicity. While SL-401 is currently being developed as a single agent, its favorable safety profile suggests the potential to safely combine it with otheragents. 23®®®Table of Contents Competition for SL-701 There are a limited number of drugs used for the treatment of brain cancer, including Temodar (Merck & Co., Inc.), nitrosureas includingGliadel (Eisai Co., Inc.), and Avastin (Roche Holding AG). There are a number of companies working to develop brain cancer therapeutics with programsin clinical testing including Roche Holding AG, Novartis AG, Merck & Co., Inc., Celldex Therapeutics, Inc., ImmunoCellular Therapeutics, Ltd., NorthwestBiotherapeutics, Inc., Agenus Inc., and others. Unlike many of these drug candidates, SL-701 has been developed to target both tumor bulk and CSCs. While SL-701 is currently being developed as asingle agent, its favorable safety profile suggests the potential to safely combine it with other agents. Government Regulation Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research,development, approval, manufacture, testing, quality control, packaging, labeling, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. Any pharmaceutical candidate that wedevelop must be approved by the FDA before it may be legally marketed in the United States or by the appropriate foreign regulatory agency before it may belegally marketed in foreign countries. United States Drug Development Process In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act, or FDCA, and implementing regulations. Drugs are also subjectto other federal, state and local statutes and regulations. Biologics are subject to regulation by the FDA under the FDCA, the Public Health Service Act, or thePHSA, and related regulations, and other federal, state and local statutes and regulations. Biological products include, among other things, viruses,therapeutic serums, vaccines and most protein products. The process of obtaining regulatory approvals and the subsequent compliance with appropriatefederal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with theapplicable United States requirements at any time during the product development process, approval process or after approval, may subject an applicant toadministrative or judicial sanctions. FDA sanctions could include a clinical hold, refusal to approve pending applications, warning letters, product recalls,product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement ofprofits, civil or criminal penalties, or withdrawal of an approval. Any administrative action or judicial enforcement action could have a material adverseeffect on us. The process required by the FDA before a drug or biological product may be marketed in the United States generally involves the following: · Completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices or other applicableregulations; · Submission to the FDA of an Investigational New Drug Application, or an IND, which must become effective before human clinical trials maybegin; · Performance of adequate and well-controlled human clinical trials according to the FDA’s current good clinical practices, or GCPs, to establishthe safety and efficacy of the proposed drug or biologic for its intended use; · Submission to the FDA of a New Drug Application, or an NDA, for a new drug product, or a Biologics License Application, or a BLA, for a newbiological product; · Satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug or biologic is to beproduced to assess compliance with the FDA’s current good manufacturing practice regulations, or cGMP, to assure that the facilities, methodsand controls are adequate to preserve the drug’s or biologic’s identity, strength, quality and purity; · Potential FDA inspection of the nonclinical and clinical trial sites that generated the data in support of the NDA or BLA; and · FDA review and approval of the NDA or BLA. The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditureof substantial resources. There can be no certainty that approvals will be granted. 24®®®Table of Contents Before testing any compounds with potential therapeutic value in humans, the drug or biological candidate enters the preclinical testing stage. Preclinicaltests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of thedrug or biological candidate. The conduct of the preclinical tests must comply with federal regulations and requirements including good laboratorypractices. The sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data orliterature and a proposed clinical protocol, to the FDA as part of the IND. The IND automatically becomes effective 30 days after receipt by the FDA, unlessthe FDA places the clinical trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstandingconcerns before the clinical trial can begin. The FDA may also impose clinical holds on a drug or biological candidate at any time before or during clinicaltrials due to safety concerns or non-compliance. Accordingly, we cannot assure that submission of an IND will result in the FDA allowing clinical trials tobegin, or that, once begun, issues will not arise that suspend or terminate such trial. Clinical trials involve the administration of the drug or biological candidate to healthy volunteers or patients having the disease being studied under thesupervision of qualified investigators; often these are physicians not employed by or under the trial sponsor’s control. Clinical trials are conducted underprotocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters tobe used to monitor subject safety. Each protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted in accordance with theFDA’s good clinical practices requirements and with applicable cGMP requirements. Further, each clinical trial must be reviewed and approved by anindependent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted. An IRB is charged withprotecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical trials areminimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be used as part of the informedconsent process with each clinical trial subject or his or her legal representative and must monitor the clinical trial until it is completed. Human clinical trials prior to approval are typically conducted in three sequential Phases that may overlap or be combined: · Phase 1. The drug or biologic is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption,metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases, especially when the product may betoo inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients having the specificdisease. · Phase 2. The drug or biologic is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarilyevaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule forpatients having the specific disease. · Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population atgeographically dispersed clinical trial sites. These clinical trials, which usually involve more subjects than earlier trials, are intended toestablish the overall risk/benefit ratio of the product and provide an adequate basis for product labeling. Generally, at least two adequate andwell-controlled Phase 3 clinical trials are required by the FDA for approval of an NDA or BLA. Post-approval studies, or Phase 4 clinical trials, may be conducted after initial marketing approval. These studies are used to gain additional experience fromthe treatment of patients in the intended therapeutic indication and may be required by the FDA as part of the approval process. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and written IND safety reports must be submitted tothe FDA by the investigators for serious and unexpected adverse events or any finding from tests in laboratory animals that suggests a significant risk forhuman subjects. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsoror its data safety monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients arebeing exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is notbeing conducted in accordance with the IRB’s requirements or if the drug or biologic has been associated with unexpected serious harm to patients. Concurrent with clinical trials, companies usually complete additional animal studies and develop additional information about the chemistry and physicalcharacteristics of the drug or biologic as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMPrequirements. The manufacturing process must be capable of consistently producing quality batches of the drug or biological candidate. In addition,companies must develop and validate analytical methods for testing the identity, strength, quality and purity of raw materials, in-process material and thefinal drug or biologic. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drugor biological candidate does not undergo unacceptable deterioration over its shelf life. 25Table of Contents U.S. Review and Approval Processes The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted onthe drug or biologic, proposed packaging and labeling and other relevant information are submitted to the FDA as part of an NDA or BLA requestingapproval to market the product. The submission of an NDA or BLA is subject to the payment of substantial user fees; a waiver of such fees may be obtainedunder certain limited circumstances. We believe that we will be required to submit BLAs for SL-401 and SL-701. In addition, under the Pediatric Research Equity Act, or PREA, an NDA or a BLA, or supplement to an NDA or a BLA, that covers a new active ingredient,new indication, new dosage form, new dosing regimen, or new route of administration must contain data to assess the safety and effectiveness of the drug orbiologic for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation forwhich the product is safe and effective. The FDA may grant deferrals for submission of pediatric data or full or partial waivers. PREA does not apply to anydrug or biologic for an indication for which orphan designation has been granted unless FDA were to issue a regulation to require pediatric assessments. The FDA reviews all NDAs and BLAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA orBLA for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA or BLA. Under the goals and policies agreed to bythe FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has ten months in which to complete its initial review of a standard NDA or BLA andrespond to the applicant, and six months for a priority NDA or BLA. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs andBLAs. After the NDA or BLA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed product is safeand effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity,strength, quality and purity. The FDA reviews a BLA to determine, among other things, whether the product is safe, pure and potent and the facility in whichit is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, purity and potency. In addition to its ownreview, the FDA may refer applications for novel drug or biological products or drug or biological products 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 whether theapplication should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers suchrecommendations carefully when making decisions. During the approval process, the FDA also will determine whether a risk evaluation and mitigationstrategy, or REMS, is necessary to assure the safe use of the drug or biologic. If the FDA concludes that a REMS is needed, the sponsor of the NDA or BLAmust submit a proposed REMS; the FDA will not approve the NDA or BLA without a REMS, if required. Before approving an NDA or BLA, the FDA will inspect the facilities at which the product is to be manufactured. The FDA will not approve the productunless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent productionof the product within required specifications. Also, in this inspection, FDA seeks to determine whether the manufacturing conforms with applicationcommitments, the authenticity and accuracy of data, and the adequacy of the company’s analytical methodology. Additionally, before approving an NDA orBLA, the FDA will typically inspect one or more clinical sites to assure compliance with current good clinical practice, or cGCP. If the FDA determines theapplication, manufacturing process or manufacturing facilities are not acceptable it will outline the deficiencies in the submission and often will requestadditional testing or information. The NDA or BLA review and approval process is lengthy and difficult and the FDA may refuse to approve an NDA or BLA if the applicable regulatory criteriaare not satisfied or the agency requires additional clinical data or other data and information. Even if such data and information is submitted, the FDA mayultimately decide that the NDA or BLA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and may besusceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA will issue a “complete response” letter if the agencydecides not to approve the NDA or BLA. The complete response letter usually describes all of the specific deficiencies in the NDA or BLA identified by theFDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials.Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition forapproval. If a complete response letter is issued, the applicant may either resubmit the NDA or BLA, addressing all of the deficiencies identified in the letter,or withdraw the application. If a product receives regulatory approval, the approval may be limited to specific diseases and dosages or the indications for use may otherwise be limited,which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included inthe product labeling. In addition, the FDA may require Phase 4 testing which involves clinical trials designed to further assess a product’s safety andeffectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. 26Table of Contents Orphan Drug Designation Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which isgenerally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States andfor which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States for this typeof disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting an NDA or BLA. Afterthe FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphanproduct designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, theproduct is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biologicalproduct for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphanexclusivity. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtainapproval for the same product but for a different indication for which the orphan product has exclusivity. Orphan product exclusivity also could block theapproval of one of our products for seven years if a competitor obtains approval of the same drug or biological product for the same indication as defined bythe FDA or if our drug or biological candidate is determined to be contained within the competitor’s product for the same indication or disease. If a drug orbiological product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled toorphan product exclusivity. Orphan drug status in the European Union has similar but not identical benefits in the European Union. In June 2013, SL-401 was awarded Orphan Drug designation from the FDA for the treatment of BPDCN. Previously, in February 2011, we received OrphanDrug Designation for SL-401 for the treatment of AML in the United States. Expedited Development and Review Programs The FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new drug and biological products that meet certaincriteria. Specifically, new drug and biological products are eligible for Fast Track designation if they are intended to treat a serious or life-threateningcondition and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the drug product alone or incombination with one or more other drugs for the specific indication for which it is being studied. Unique to a Fast Track product, the FDA may considerreviewing sections of the NDA or BLA on a rolling basis before the complete application is submitted. In addition, the sponsor and FDA would agree on aschedule for the submission of the sections of the NDA or BLA. If the FDA agrees to a rolling review of a NDA or BLA, and determines that the schedule isacceptable, the sponsor pays any required user fees upon submission of the first section of the NDA or BLA. Any product submitted to the FDA for marketing approval, including those submitted to a Fast Track program, may also be eligible for other types of FDAprograms intended to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it hasthe potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis orprevention of a disease compared with marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a newdrug or biological product designated for priority review in an effort to facilitate the review with the goal of taking Agency action on a marketing applicationwithin 6 months. Additionally, a product may be eligible for accelerated approval. Drug or biological products studied for their safety and effectiveness in treating serious orlife-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that theymay be approved on the basis of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate endpoint that isreasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a conditionof approval, the FDA generally requires that a sponsor of a drug or biological product receiving accelerated approval perform adequate and well-controlledpost-marketing clinical studies to establish safety and efficacy for the approved indication. Failure to conduct such studies, or conducting such studies thatdo not establish the required safety and efficacy may result in revocation of the original approval. In addition, the FDA currently requires as a condition foraccelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch or subsequent marketing ofthe product. Fast Track designation, priority review and accelerated approval may expedite the development or approval process. 27Table of Contents Post-Approval Requirements Any drug or biological products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of unanticipated changes in distributed products which would require field alert reports (FARs) for NDAs and biologicalproduct deviation reports (BPDRs) for BLAs, reporting of adverse events, providing the FDA with updated safety and efficacy information on an annual basisor as required more frequently for specific events, product sampling and distribution requirements, complying with certain electronic records and signaturerequirements and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising,prohibitions against promoting drugs and biologics for uses or in patient populations that are not described in the drug’s or biologic’s approved labeling(known as “off-label promotion”), rules for conducting industry-sponsored scientific and educational activities, and promotional activities involving theinternet. Failure to comply with FDA requirements can have negative consequences, including for cause inspections; warning letters from the FDA, includingdemands for immediate discontinuation of noncomplying materials; adverse publicity; mandated corrective advertising or communications with doctors; andcivil or criminal penalties. Although physicians may prescribe legally available drugs and biologics for off-label uses, manufacturers may not market orpromote such off-label uses. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our product candidates. Manufacturers ofour product candidates are required to comply with applicable FDA manufacturing requirements contained in the FDA’s cGMP regulations. cGMPregulations require among other things, quality control and quality assurance as well as the corresponding maintenance of comprehensive records anddocumentation. Drug and biologic manufacturers and other entities involved in the manufacture and distribution of approved drugs and biologics are alsorequired to register their establishments and list any products made there with the FDA and comply with related requirements in certain states, and are subjectto periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers mustcontinue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a productafter approval may result in serious and extensive restrictions on a product, manufacturer, or holder of an approved NDA or BLA, including suspension of aproduct until the FDA is assured that quality standards can be met, continuing oversight of manufacturing by the FDA under a “consent decree,” whichfrequently includes the imposition of penalties for failure to comply with the terms of the consent decree, audits conducted by outside experts, extensivereporting requirements, and possible withdrawal of the product from the market. Historically, the minimum term of an FDA consent decree has been fiveyears, and violation of consent decree terms results in the extension of the consent decree term. Major changes to the manufacturing process and other types of major changes, such as adding new indications, require prior FDA approval before beingimplemented. Moderate and minor changes require FDA notification but not prior approval. The FDA also may require post-marketing testing, known as Phase 4 testing, risk minimization action plans and surveillance to monitor the effects of anapproved product or place conditions on an approval that could otherwise restrict the distribution or use of the product. U.S. Patent Term Restoration and Marketing Exclusivity Drug Price Competition and Patent Term Restoration Act of 1984 Depending upon the timing, duration and specifics of the FDA approval of the use of our drug and biologics candidates, some of our United States patentsmay be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as theHatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lostduring federal regulatory review preceding the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patentbeyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of anIND and the submission date of an NDA or a BLA plus the time between the submission date of an NDA or a BLA and the approval of that application. Onlyone patent applicable to an approved drug or biologic is eligible for the extension and the application for the extension must be submitted within 60 days ofapproval and prior to the expiration of the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves theapplication for any patent term extension or restoration. In the future, we may apply for restoration of patent term for one of our currently owned or licensedpatents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing ofthe relevant NDA. Federal Food, Drug and Cosmetic Act Market exclusivity provisions under the FDCA, which are independent of patent status and any patent related extensions, can also delay the submission orthe approval of certain applications of companies seeking to reference another company’s NDA. If the new 28Table of Contents drug is a new chemical entity subject to an NDA, the FDCA provides a five-year period of non-patent marketing exclusivity within the United States to thefirst applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other newdrug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDAmay not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of suchdrug where the applicant does not own or have a legal right of reference to all the data required for approval. However, such an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patentslisted with the FDA by the innovator NDA holder. The FDCA also provides three years of marketing exclusivity for an NDA, or supplement to an existingNDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to beessential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only theconditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original activeagent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would berequired to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstratesafety and effectiveness. Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted by the FDA, adds six months toexisting exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may begranted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued “Written Request” for such a trial. Biologic products that aresubject to the PHSA are not eligible for pediatric exclusivity under the FDCA. Biologics Price Competition and Innovation Act of 2009 The Biologics Price Competition and Innovation Act of 2009, or BPCIA, amended the PHSA to create a new licensure framework for biosimilar products,which could ultimately subject our biological product candidates to competition. Under the BPCIA, a manufacturer may submit an application for licensureof a biological product that is “biosimilar to” or “interchangeable with” a referenced, branded biologic product. Previously, there had been no licensurepathway for such biosimilar or interchangeable products. For purposes of the BPCIA, a reference product is defined as the single biological product licensedunder a full BLA against which a biological product is evaluated in an application submitted under a follow-on BLA. The BPCIA also created a 12-year period of reference product exclusivity, which can be extended to 12.5 years with pediatric exclusivity. The 12-yearexclusivity period begins on the date of first licensure of the reference product under the PHSA and during which the licensure of a follow-on application fora biosimilar or interchangeable product cannot be made effective. During the first four years (or four and one-half years with pediatric exclusivity) of the 12-year period, an application for a biosimilar or interchangeable version of the reference product cannot be submitted to the FDA. Under the FY2014 budgetproposal President Obama submitted to Congress in 2013, the Administration requested that reference product exclusivity would decrease from 12 to sevenyears beginning in 2013. Congress has not yet enacted such a change in the BPCIA, but could move to enact such a decrease in the reference productexclusivity period. The BPCIA includes limits on obtaining 12-year reference product exclusivity for certain changes or modifications to the reference product. A separate 12-year reference product exclusivity period does not apply to: · a BLA supplement for the product that is the reference product; · a subsequent BLA filed by the same reference product sponsor or manufacturer (or a licensor, predecessor in interest, or other related entity) for achange (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosingschedule, dosage form, delivery system, delivery device or strength; or · a modification to the structure of the biological product that does not result in a change in safety, purity or potency. In February 2012, the FDA issued three draft guidance documents on biosimilar product development. The FDA is soliciting comments on the draft guidancedocuments which are described by the FDA as follows: (1) Scientific Considerations in Demonstrating Biosimilarity to a Reference Product, which isintended to assist companies in demonstrating that a proposed therapeutic protein product is biosimilar to a reference product for the purpose of submittingan application, called a “351(k)” application, to the FDA. This draft guidance describes a risk-based “totality-of-the-evidence” approach that the FDA intendsto use to evaluate the data and information submitted in support of a determination of biosimilarity of the proposed product to the reference product;(2) Quality Considerations in Demonstrating Biosimilarity to a Reference Protein Product, which provides an overview of 29Table of Contents analytical factors to consider when assessing biosimilarity between a proposed therapeutic protein product and a reference product for the purpose ofsubmitting a 351(k) application; and (3) Biosimilars: Questions and Answers Regarding Implementation of the Biologics Price Competition and InnovationAct of 2009, which provides answers to common questions from people interested in developing biosimilar products. We cannot predict when or whetherthese draft guidance documents will be finalized or what changes the agency may make in its approach to implementation of the BPCIA. In addition to creating a 12-year period of reference product exclusivity, the BPCIA clarifies the interaction of that exclusivity with orphan drug exclusivity,such that, if a reference product has been designated for a rare disease or condition the licensure of a biosimilar or interchangeable version of a referenceproduct for such disease or condition may only occur after the later of the expiration of any applicable seven-year orphan drug exclusivity or the 12-yearreference product exclusivity (or seven and one-half years and 12.5 years with pediatric exclusivity). Like pediatric exclusivity applicable to drug products approved under the FDCA, pediatric exclusivity applicable to biological reference products is subjectto an exception. Pediatric exclusivity will not apply to either the 12-year reference product or the seven-year orphan drug exclusivity periods if the FDA hasnot determined that the study reports a BLA sponsor submitted in response to a written request for pediatric studies met the terms of that request before ninemonths prior to the expiration of such period . Our biological product candidates, if approved, could be considered reference products entitled to 12-year exclusivity. Even if our products are considered tobe reference products eligible for exclusivity, another company could market a competing version of any of our biological products if the FDA approves afull BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety,purity and potency of their product. The BPCIA also sets forth a complex mechanism for resolving patent disputes that involves a step-wise exchange of information prior to the initiation of apatent infringement lawsuit against a biosimilar or interchangeable product sponsor. Unlike the Hatch-Waxman Act, the BPCIA provides no automatic stayon approval of a biosimilar product application, except an interchangeable product receives the lesser of one year of exclusivity after the date of firstcommercial marketing or 18 months of exclusivity after a final court decision or dismissal of a patent challenge or, if the applicant has not been sued, afterapproval. The BPCIA does not prevent a competitor from conducting its own clinical trials and submitting a full BLA on the same or similar product. Other U.S. Healthcare Laws and Compliance Requirements In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including theCenters for Medicare and Medicaid Services (formerly the Health Care Financing Administration), other divisions of the United States Department of Healthand Human Services (e.g., the Office of Inspector General and the Office of Civil Rights), the United States Department of Justice and individual United StatesAttorney offices within the Department of Justice, state attorney generals and state and local governments. For example, sales, marketing andscientific/educational grant programs must comply with the federal Antikickback Statute, the federal False Claims Act, the privacy and security provisions ofthe Health Insurance Portability and Accountability Act, or HIPAA, and similar state laws, each as amended. Pricing and rebate programs must comply withthe Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990, the Veterans Health Care Act of 1992, and the federal AntikickbackStatute, each as amended. If products are made available to authorized users of the Federal Supply Schedule (FSS) of the General Services Administration,additional laws and requirements apply. Under the Veterans Health Care Act, or VHCA, drug companies are required to offer certain pharmaceutical productsat a reduced price to four federal agencies including the United States Department of Veterans Affairs, the United States Department of Defense, the CoastGuard, the Public Health Service and certain private Public Health Service designated entities (including the Indian Health Service) in order forreimbursement to be available for our product under Medicare and Medicaid. FSS pricing to these four agencies must be equal to or less than the federalceiling price (“FCP”), which is, at a minimum, 24% off the Non-Federal Average Manufacturer Price for the prior fiscal year. Participation under the VHCArequires submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into governmentprocurement contracts governed by the Federal Acquisition Regulations. In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors ofpharmaceutical products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers ordistributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree ofproduct in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracingproduct as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical companies to establish marketingcompliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities,and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data topharmaceutical companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. All of our activities are potentiallysubject to federal and state consumer protection and unfair competition laws. 30Table of Contents Europe and Worldwide Government Regulation In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinicaltrials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to thecommencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process thatrequires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials. In the European Union, forexample, a clinical trial application, or CTA, must be submitted to each country’s national health authority and an independent ethics committee, much likethe FDA and IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, clinical trials may proceed. The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In allcases, the clinical trials are conducted in accordance with International Conference on Harmonisation (ICH) / WHO Good Clinical Practice standards and theapplicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. To obtain regulatory approval of an investigational drug or biological product under European Union regulatory systems, we must submit a marketingauthorization application to the European Medicines Agency, or the EMA. The application used to file an NDA or a BLA in the United States is similar tothat required in the European Union, with the exception of, among other things, country-specific document requirements. For example, the EMA has alreadyestablished a number of guidelines for approval of various biosimilars. For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct ofclinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordancewith GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatoryapprovals, product recalls, seizure of products, operating restrictions and criminal prosecution. Pharmaceutical Coverage, Pricing and Reimbursement Significant uncertainty exists as to the coverage and reimbursement status of any drug or biological candidates for which we obtain regulatory approval. Inthe United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part onthe availability of reimbursement from third-party payors. Third-party payors include government health administrative authorities, managed care providers,private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug or biological product may beseparate from the process for setting the price or reimbursement rate that the payor will pay for the drug or biological product. Third-party payors may limitcoverage to specific drug or biological products on an approved list, or formulary, which might not include all of the FDA-approved drug or biologicalproducts for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness ofmedical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstratethe medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Our drug or biological candidatesmay not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug or biological product does not imply that anadequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient torealize an appropriate return on our investment in product development. In 2003, the United States government enacted legislation providing a partial prescription drug benefit for Medicare recipients, which became effective at thebeginning of 2006. Government payment for some of the costs of prescription drugs and biologics may increase demand for any products for which wereceive marketing approval. However, to obtain payments under this program, we would be required to sell products to Medicare recipients throughprescription drug plans operating pursuant to this legislation. These plans will likely negotiate discounted prices for our products. Federal, state and localgovernments in the United States continue to consider legislation to limit the growth of healthcare costs, including the cost of prescription drugs andbiologics. Future legislation could limit payments for pharmaceuticals such as the drug or biological candidates that we are developing. 31Table of Contents Different pricing and reimbursement schemes exist in other countries. In the European Community, governments influence the price of pharmaceuticalproducts through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products toconsumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has beenagreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectivenessof a particular drug or biological candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, butmonitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription drugs and biologics, has become veryintense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country. The marketability of any drug or biological candidates for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expectwill continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even iffavorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policiesand reimbursement rates may be implemented in the future. Manufacturing We do not currently own or operate any manufacturing facilities for the clinical or commercial production of our drug candidates. For past investigatorsponsored studies, all drug substance and drug product for SL-401 and SL-701 was manufactured at academic and contract manufacturing organizations, orCMO, facilities, as directed by our academic collaborators. We have now developed manufacturing processes that are suitable for full-scale cGMPmanufacturing. Additionally, we are currently qualifying FDA-audited third-party CMOs to produce sufficient quantities of SL-401 and SL-701 drugsubstance and drug product of suitable quality for our contemplated corporate sponsored clinical trials and potential commercialization. Our manufacturingprograms are being managed by our manufacturing team, which is comprised of full-time employees and consultants with experience in manufacturingpharmaceutical drug substance and drug products. SL-401 Manufacturing and Supply SL-401 is a recombinant protein generated from an antibiotic-resistance driven DNA-based plasmid vector and manufactured by bacterial fermentation in E.Coli. For past investigator sponsored studies, SL-401 was manufactured at Wake Forest University. We have optimized the protein expression, generatedcGMP master and working cell banks, and developed the fermentation and purification steps of our manufacturing process to be suitable for scale-up instandard manufacturing equipment. This technology has been transferred to a third-party CMO with expertise in bacterial fermentation, which has furtheroptimized and scaled-up the process in their cGMP production suite. The SL-401 drug substance has now met standard industry quality specifications and isadequate to support our planned corporate sponsored clinical trials. The drug product formulation and manufacturing process has been finalized and iscurrently being transferred to a third-party CMO with expertise in product manufacture for clinical and commercial supply. SL-701 Manufacturing and Supply SL-701 is a multi-peptide vaccine that is comprised of several short synthetic peptides. Each of the component peptides of SL-701 is manufacturedindividually by solid-phase synthesis and all have been prepared to acceptable quality specifications in cGMP manufacturing equipment by our third partyCMO. The manufacturing scale and product quality is adequate to supply our planned corporate sponsored clinical studies. We have also now developed astable formulation that combines the individual peptides in a single sterile solution to generate SL-701 drug product. This manufacturing process wastransferred to a third-party CMO with expertise in sterile product manufacture. This CMO has now produced cGMP drug product of sufficient quality andquantity to supply our planned corporate sponsored clinical trials and at a scale that we believe will be suitable for commercialization. Sales and Marketing We believe that the infrastructure required to commercialize oncology products is relatively limited, which makes it cost-effective for us to internallydevelop a marketing and sales force. If SL-401 and SL-701 are approved by the FDA and other regulatory authorities, we plan to build the infrastructure tocommercialize these products in North America and Europe ourselves. However, we will remain opportunistic in seeking strategic partnerships in these andother markets when advantageous. The commercial infrastructure of specialty oncology products typically consists of a targeted, specialty sales force that calls on a limited and focused groupof physicians supported by sales management, internal sales support, an internal marketing group, and distribution support. Additional capabilities importantto the oncology marketplace include the management of key accounts, such as managed care organizations, group-purchasing organizations, specialtypharmacies, oncology group networks, and government accounts. As SL-401 and SL-701 are being developed for orphan indications with a relatively smallnumber of treating physicians, we anticipate that a reduced infrastructure, including a small, targeted sales force, will be sufficient to support our sales andmarketing 32Table of Contents objectives. In order to implement this infrastructure, we will have to allocate management resources and make significant financial investments includingsome prior to product approval. We may elect in the future to utilize strategic partners, distributors, or contract sales forces to assist in the commercialization of our products. Research and Development Company sponsored research and development expenses totaled $16.2 million in 2013, $3.4 million in 2012, and $1.6 million in 2011. “Research anddevelopment expenses” consist of costs associated with the development of our product candidates and our platform technology, which include: clinical trialcosts, CMC-related costs, nonclinical costs, employee related expenses, external research and development expenses, license fees and milestone paymentsrelated to in-licensed products and technology, and facilities, depreciation and other allocated expenses. See “Item 7. Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Overview.” Employees As of March 28, 2014, we had 17 full-time employees, 6 of whom hold Ph.D. or M.D. degrees. None of our employees is subject to a collective bargainingagreement or represented by a trade or labor union. We believe that we have a good relationship with our employees. Item 1A. Risk Factors You should carefully consider the following risks and uncertainties. If any of the following occurs, our business, financial condition and/or operating resultscould be materially harmed. These factors could cause the trading price of our common stock to decline, and you could lose all or part of your investment. Risks Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates We are heavily dependent on the success of our two lead product candidates, SL-401 and SL-701, and we cannot provide any assurance that any of ourproduct candidates will be commercialized. To date, we have invested a significant portion of our efforts and financial resources in the acquisition and development of our lead product candidates, SL-401 and SL-701, which are in clinical development. Our future success depends heavily on our ability to successfully develop, obtain regulatory approvalfor, and commercialize these product candidates, which may never occur. We currently generate no revenues, and we may never be able to develop orcommercialize a marketable drug. Before we generate any revenues from product sales, we must complete preclinical and clinical development of one or more of our product candidates,conduct human subject research, submit clinical and manufacturing data to the FDA, qualify a third-party contract manufacturer, receive regulatory approvalin one or more jurisdictions, satisfy the FDA that our contract manufacturer is capable of manufacturing the product in compliance with cGMP, build acommercial organization, make substantial investments and undertake significant marketing efforts ourselves or in partnership with others. We are notpermitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatoryauthorities, and we may never receive such regulatory approval for any of our product candidates. We have not submitted a biologics license application, or BLA, or a new drug application, or NDA, to the FDA, or similar market approval applications tocomparable foreign authorities, for any of our product candidates. We cannot be certain that any of our product candidates will be successful in clinical trialsor receive regulatory approval for trial initiation or marketing. Further, our product candidates may not receive regulatory approval even if they are successfulin clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfullyobtain regulatory approvals to market one or more of our product candidates, our revenues will be dependent, in part, upon the size of the markets in theterritories for which we gain regulatory approval and have commercial rights. If the markets for patient subsets that we are targeting are not as significant aswe estimate, we may not generate significant revenues from sales of such products, if approved. We plan to seek regulatory approval to commercialize our product candidates in the United States, the European Union and potentially in additional foreigncountries. While the scope of regulatory review and approval is similar in other countries, to obtain separate regulatory review and approval in many othercountries we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy, clinical trials and commercialsales, pricing and distribution of our product candidates, and we cannot predict success in these jurisdictions. 33Table of Contents Clinical drug development involves a lengthy and expensive process with an uncertain outcome. Clinical testing is expensive and, depending on the stage of development, can take a substantial amount of time to complete. Its outcome is inherentlyuncertain. In addition, failure can occur at any time during clinical development, including after significant resources have been invested. We cannot predictwhether we will encounter challenges with any of our planned clinical trials that will cause us or regulatory authorities to delay, suspend or terminate thoseclinical trials. Clinical trials can be delayed or halted for many reasons, including: · delays or failure reaching agreement on acceptable terms with prospective contract manufacturing organizations, or CMOs, contract researchorganizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly amongdifferent CROs and trial sites; · failure of our third-party contractors, such as CROs and CMOs, or our investigators to comply with regulatory requirements or otherwise meettheir contractual obligations in a timely manner; · delays or failure in obtaining the necessary approvals from regulators or institutional review boards, or IRBs, in order to commence a clinicaltrial at a prospective trial site or to market our product candidates; · our inability to manufacture, or obtain from third parties, adequate supply of drug substance or drug product sufficient to complete ourpreclinical studies and clinical trials; · our inability to manufacture, or obtain from third parties, adequate supply of drug substance, drug product or adjuvant therapies sufficient tocomplete our preclinical studies and clinical trials; · risk of loss of drug product, adjuvants and/or other components of the product, due to third-party storage and distribution of such supplies; · the FDA requiring alterations to any of our study designs, overall strategy or manufacturing plans; · delays in patient enrollment, variability in the number and types of patients available for clinical trials, poor accrual, or high drop-out rates ofpatients in our clinical trials; · clinical trial sites deviating from trial protocol or dropping out of a trial and our inability to add new clinical trial sites; · difficulty in maintaining contact with patients after treatment, resulting in incomplete data; · poor effectiveness of our product candidates during clinical trials; · safety issues, including serious adverse events associated with our product candidates and patients’ exposure to unacceptable health risks; · receipt by a competitor of marketing approval for a product targeting an indication that one of our product candidates targets, such that we arenot “first to market” with our product candidate; · governmental or regulatory delays and changes in regulatory requirements, policy and guidelines; or · differing interpretations of data by the FDA or similar foreign regulatory agencies. We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trial is being conducted, bythe Data Safety Monitoring Board, or DSMB, if one is utilized for any such trial, or by the FDA or other regulatory authorities. Such authorities may suspendor terminate a clinical trial due to a number of factors, including, among other things, failure to conduct the clinical trial in accordance with regulatoryrequirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in theimposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmentalregulations or administrative actions or lack of adequate funding to continue the clinical trial. We have not initiated or completed a Company-sponsored clinical trial. Consequently, we may not have the necessary expertise or capabilities, includingadequate staffing, to successfully manage the initiation, execution and completion of any of our clinical trials, including our planned Company-sponsoredclinical trials of SL-401 and SL-701, to lead to our obtaining marketing approval for our product candidates in a timely manner, or at all. 34Table of Contents If we are able to conduct our intended pivotal clinical trial of a product candidate, the results of such trial may not be adequate to support marketingapproval. Because our product candidates are intended for use in life-threatening diseases, in most cases we ultimately intend to seek marketing approval foreach product candidate based on the results of a single pivotal clinical trial. As a result, these trials may receive enhanced scrutiny from the FDA. For anysuch pivotal trial, if the FDA disagrees with our choice of primary endpoint or the results for the primary endpoint are not robust or significant relative tocontrol, are subject to confounding factors, or are not adequately supported by other study endpoints, including possibly overall survival, or OS, or overallresponse rate, or ORR, the FDA may refuse to approve a BLA or NDA based on such intended pivotal trial. The FDA may require the completion of additionalclinical trials as a condition for approving our product candidates. If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our productcandidates will be harmed, which will have a negative impact on our ability to commence product sales and generate product revenues from any of ourproduct candidates. In addition, any delays in completing our clinical trials will increase our costs and slow down our product candidate development andapproval process. Delays in completing our clinical trials could also allow our competitors to obtain marketing approval before we do or shorten the patentprotection period during which we may have the exclusive right to commercialize our product candidates. Any of these occurrences may harm our business,financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinicaltrials may also ultimately lead to the denial of regulatory approval of our product candidates. Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials. The results of preclinical studies and early-stage clinical trials of product candidates may not be predictive of the results of subsequent later-stage clinicaltrials. Product candidates in later-stage clinical trials may fail to show the safety and efficacy results demonstrated in earlier studies despite having progressedthrough preclinical studies and earlier clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in later-stageclinical trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in earlier studies. Similarly, our future clinical trial resultsmay not be successful for these or other reasons. This drug candidate development risk is heightened by any changes in planned clinical trials compared to completed clinical trials. As product candidatesare advanced through preclinical studies to early and later-stage clinical trials towards approval and commercialization, it is customary that various aspects ofthe development program, such as manufacturing and methods of administration and dosing, are altered along the way in an effort to optimize processes andresults. While these types of changes are common and are intended to optimize the product candidates for late stage clinical trials, approval andcommercialization, such changes do carry the risk that they will not achieve these intended objectives. For example, the results of our planned clinical trialsmay be adversely affected by the following anticipated changes: · As we optimize and scale-up production of SL-401 and SL-701, there will be manufacturing, formulation and other process and analyticalchanges that are part of the optimization and scale-up typically necessary for producing drug substance and drug product of a quality andquantity sufficient for later-stage clinical development and commercialization. Delays in any of these steps may delay initiation andcompletion of clinical trials. We will also need to demonstrate comparability between newly manufactured drug substance and/or drug productrelative to previously manufactured drug substance and/or drug product. Demonstrating comparability may cause us to incur additional costs ordelay initiation or completion of our clinical trials including the need or choice to initiate a dose escalation study and, if unsuccessful, couldrequire us to complete additional preclinical or clinical studies of our product candidates. We may determine that certain doses and regimens areoptimal for initial near-term therapy whereas the same, or other, doses and regimens are optimal for longer-term maintenance therapy. · We plan to treat patients with certain indications that have not yet been treated with SL-401. These may include certain rare malignancies suchas mastocytosis, hypereosinophilic syndrome, myelofibrosis, chronic myelomonocytic leukemia, hairy cell leukemia, and others, as well asmultiple myeloma, or MM, and early stages of acute myeloid leukemia, or AML. In these instances, we may choose to treat patients at severaldifferent doses and multi-cycle dosing regimens to determine to optimal doses and regimens for both near-term and long-term disease control ineach indication. · We plan to develop SL-701 as an injection administered under the skin, or subcutaneously, in future trials. The 701-Ped-G Study and 701-Adult-LGG Study used this method of delivery. The 701-Adult-RHGG Study used a different method of delivery, in which dendritic cells, whichare a type of immune cell, were removed from the patient, exposed to vaccine peptides, and then re-injected into or near a lymph node of thepatient (intra/peri-nodally). Thus, our plan continues the subcutaneous injection method used in two of the previous studies and represents achange from one of the previous studies. 35Table of Contents · We plan to manufacture and formulate SL-701 as a mixture of IL-13Rα2 mutant peptide, EphA2 peptide, survivin mutant peptide, and a helperpeptide. In the 701-Ped-G and 701-Adult-RHGG Studies, the vaccine, which is comprised of IL-13Rα2 and EphA2, was mixed with additionalpeptides, including YKL-40 and GP-100 peptides in the Adult-RHGG Study, and survivin wildtype peptide in the 701-Ped-G Study. We havedecided to advance SL-701 into future trials with an additional peptide — an immunogenic mutant form of survivin. Whereas wildtype survivinhad been used previously in the 701-Ped-G Study in combination with IL-13Rα2 and EphA2, we believe that an immunogenic mutant form ofsurvivin may provide benefit over wildtype when combined with IL-13Rα2 and EphA2. · We plan to change the adjuvant used in the administration of the vaccine from poly-ICLC to granulocyte-colony-stimulating factor, or GM-CSF, and imiquimod which we believe are commercially viable and state-of-the-art adjuvants. · In some of our future trials, we may combine SL-401 or SL-701 with other therapies such as chemotherapy, radiation, targeted therapy, or anti-angiogenic therapy. We have not yet clinically tested these combinations. While there do not appear to be overlapping toxicities with thesecombinations, there is always the risk of unforeseen toxicities. Accordingly, we plan to conduct early analyses of safety in such trials and makeany appropriate adjustments, if necessary. Any of the aforementioned, or other, changes could make the timing, including initiation, patient accrual, or results of our planned clinical trials or otherfuture clinical trials, less predictable and could cause our product candidates to perform differently, including causing toxicities, which could delaycompletion of our clinical trials, delay approval of our product candidates, and/or jeopardize our ability to commence product sales and generate revenues. If we experience delays in the enrollment of patients in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented. We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligiblepatients to participate in these trials as required by the FDA or other regulatory authorities. Patient enrollment, a significant factor in the timing of clinicaltrials, is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria forthe trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug beingstudied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. SL-401 and SL-701are being developed in hematologic and brain cancers, respectively, both of which are orphan indications (i.e., rare diseases). In particular, SL-401 is beingdeveloped initially in BPDCN and other rare diseases as well as AML; and SL-701 is being developed in adult and pediatric brain cancer. Some of theserepresent orphan indications for which there are very limited independently reported data on annual incidences. If the incidences of these diseases are verylow, including lower than our estimates or estimates of our third-party contractors, this could significantly delay patient enrollment in any one or more of ourplanned clinical trials. If we fail to enroll and maintain the number of patients for which the clinical trial was designed, the statistical power of that clinical trial may be reduced,which would make it harder to demonstrate that the product candidate being tested in such clinical trial is safe and effective. Additionally, enrollment delaysin our clinical trials may result in increased development costs for our product candidates, which would cause the value of our Common Stock to decline andlimit our ability to obtain additional financing. Our inability to enroll a sufficient number of patients for any of our current or future clinical trials wouldresult in significant delays or may require us to abandon one or more clinical trials altogether. The regulatory review and approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming and inherently unpredictable,and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed. The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable and depends upon numerous factors, including thesubstantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of preclinical and clinical datanecessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We may berequired to undertake and complete certain additional preclinical studies to generate data related to toxicity and other data required to support thesubmission of a BLA or an NDA to the FDA. We have not obtained regulatory approval for any product candidate and it is possible that none of our existingproduct candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval. Furthermore, approval by the FDAdoes not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensureapproval by regulatory authorities in other foreign countries or by the FDA. 36Table of Contents Our product candidates could fail to receive regulatory approval for many reasons, including the following: · the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials; · we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe andeffective for its proposed indication; · the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities forapproval; · we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; · the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials; · the data collected from clinical trials of our product candidates or the adequacy of our right of reference to it may not be sufficient to support thesubmission of a BLA or an NDA or other submission or to obtain regulatory approval in the United States or elsewhere; · the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers withwhich we contract for clinical and commercial supplies; · the FDA or comparable foreign regulatory authorities may fail to approve any companion diagnostics we develop; and · the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering ourclinical data insufficient for approval. This lengthy and costly review process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval tomarket SL-401 and SL-701, or any of our other product candidates that we may advance into clinical trials, which would significantly harm our business. In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications thanwe request, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label thatdoes not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. In addition, we may not be able toultimately achieve the price we intend to charge for our product candidates. Moreover, in many foreign countries, a product candidate must be approved forreimbursement before it can be approved for sale in that country. Any of the foregoing scenarios could materially harm the commercial prospects for ourproduct candidates. Our approach to the discovery and development of product candidates that target CSCs is unproven, and we do not know whether we will be able todevelop any products of commercial value. Research on CSCs is an emerging field and, consequently, there is ongoing debate regarding the importance of CSCs as an underlying cause of tumorinitiation, propagation, recurrence, resistance, and metastasis. In addition, there is some debate in the scientific community regarding the definingcharacteristics of these cells. Although there is general consensus that some cancer cells have tumor-initiating capacity, there also is some debate in the scientific community regardingthe defining characteristics and the origin of these cells. Some believe that normal adult stem cells transform into CSCs. Others believe that non-CSC cancercells can transform into CSCs and, therefore, a definitive CSC cannot be readily isolated or targeted. In addition, some believe that targeting CSCs should besufficient for a positive clinical outcome, while others believe that, at times or always, targeting CSCs should be coupled with targeting tumor bulk for apositive clinical outcome. We believe that SL-401 and SL-701 target both tumor bulk and CSCs. However, it is conceivable that SL-401, SL-701 and any other product candidates thatwe develop may not effectively target tumor bulk or CSCs or, even if they do, they may not have a beneficial clinical outcome. In addition, it is conceivablethat our platform technology may ultimately fail to identify any commercially viable drugs to treat human patients with cancer. 37Table of Contents If we are not successful in discovering, developing and commercializing additional product candidates, our ability to expand our business and achieve ourstrategic objectives may be impaired. Although we expect to focus a substantial amount of our efforts on the continued clinical testing and potential approval of SL-401 and SL-701, another keyelement of our strategy is to identify and test additional compounds that target CSCs in a variety of different types of cancer, including SL-501 and SL-101.A portion of the research that we are conducting involves new and unproven drug discovery methods, including our proprietary StemScreen platformtechnology, as well as the testing of new compounds and potential new uses of existing compounds. The drug discovery that we are conducting using ourStemScreen platform technology may not be successful in identifying compounds that are useful in treating humans with cancer. Research programsdesigned to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimatelyidentified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinicaldevelopment or commercialization for many reasons, including the following: · the research methodology used may not be successful in identifying potential product candidates; · competitors may develop alternatives that render our product candidates obsolete; · a product candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective orotherwise does not meet applicable regulatory criteria; · a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and · a product candidate may not be accepted as safe and effective by regulatory authorities, patients, the medical community or third-party payors. If we are unable to identify suitable compounds for preclinical and clinical development, we may not be able to obtain sufficient product revenues in futureperiods, which could result in significant harm to our financial position and adversely impact our stock price. Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing FDA regulatory requirements, which requiresignificant resources. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and wemay be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products. Any regulatory approvals that we or our potential strategic partners receive for our product candidates may also be subject to limitations on the approvedindicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing,including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the FDA approves any of ourproduct candidates, the manufacturing processes, testing, packaging, labeling, storage, distribution, field alert or biological product deviation reporting,adverse event reporting, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. Theserequirements include submissions of safety and other post-marketing information and reports, as well as continued compliance with cGMP for commercialmanufacturing and compliance with cGMP and good clinical practices, or GCP, for any clinical trials that we conduct post-approval. Later discovery ofpreviously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers ormanufacturing processes, or failure to comply with regulatory requirements, may result in, among other things: · restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls; · warning letters or holds on clinical trials; · refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners, or suspension orrevocation of product license approvals; · product seizure or detention, or refusal to permit the import or export of products; and · injunctions, fines or the imposition of other civil penalties or criminal penalties. 38®®Table of Contents We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in theUnited States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are notable to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability,which would adversely affect our business. Risks Related to Our Financial Position and Capital Requirements We have incurred net operating losses since our inception and anticipate that we will continue to incur substantial operating losses for the foreseeablefuture. We may never achieve or sustain profitability, which would depress the market price of our common stock, and could cause you to lose all or a partof your investment. We have incurred net losses from operations from our inception through December 31, 2013 of approximately $44.9 million. We do not know whether orwhen we will become profitable. To date, we have not commercialized any products or generated any revenues from product sales. Our losses have resultedprincipally from costs incurred in development and discovery activities. We anticipate that our operating losses will substantially increase over the nextseveral years as we execute our plan to expand our discovery, research, development and potential commercialization activities. We believe that our existingcash and cash equivalents will be sufficient to fund our operations and our capital expenditures for at least the next two years. If our cash is insufficient tomeet future operating requirements, we will have to raise additional funds. If we are unable to obtain additional funds on terms favorable to us or at all, wemay be required to cease or reduce our operating activities or sell or license to third parties some or all of our intellectual property. If we raise additionalfunds by selling additional shares of our capital stock, the ownership interests of our stockholders will be diluted. If we need to raise additional funds throughthe sale or license of our intellectual property, we may be unable to do so on terms favorable to us, if at all. In addition, if we do not continue to meet ourdiligence obligations under our license agreements for our product candidates that we have in-licensed, including SL-401 and SL-701, we will lose our rightsto develop and commercialize those product candidates. If we do not successfully develop and obtain regulatory approval for our existing and future product candidates and effectively manufacture, market and sellany product candidates that are approved, we may never generate product sales, and even if we do generate product sales, we may never achieve or sustainprofitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the market price of our common stock and couldimpair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the market price of ourcommon stock also could cause you to lose all or a part of your investment. We will require additional financing to achieve our goals, and a failure to obtain this capital when needed could force us to delay, limit, reduce orterminate our product development or commercialization efforts. Since our inception, most of our resources have been dedicated to the discovery, acquisition and preclinical and clinical development of our productcandidates. We have expended and believe that we will continue to expend substantial resources for the development of our lead product candidates, SL-401and SL-701, as well as our preclinical product candidates and drug discovery and acquisition efforts. These expenditures will include costs associated withgeneral administration, facilities, research and development, acquiring new technologies, manufacturing product candidates, conducting preclinicalexperiments and clinical trials, obtaining regulatory approvals, commercializing any products approved for sale, and costs associated with operating as apublic company. We have no significant current source of revenue to sustain our present activities, and we do not expect to generate revenue until, and unless, we obtainapproval from the FDA or other regulatory authorities, and we successfully commercialize one or more of our compounds. As the outcome of our planned andanticipated clinical trials is highly uncertain, our estimates of clinical trial costs necessary to successfully complete the development and commercializationof our product candidates may differ significantly from our actual costs. In addition, other unanticipated costs may arise. As a result of these and other factorscurrently unknown to us, we may need to seek additional funds sooner than planned, through public or private equity, debt financings or other sources, suchas strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorable market conditions or strategicconsiderations even if we believe we have sufficient funds for our current or future operating plans. 39Table of Contents Our future capital requirements depend on many factors, including: · the number and characteristics of the product candidates we pursue; · the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical trials; · the ability of our product candidates to progress through clinical development successfully; · the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates; · the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales and distribution costs; · the cost associated with securing and establishing commercialization and manufacturing capabilities for our product candidates and any productswe successfully commercialize; · our ability to establish and maintain strategic partnerships, licensing or other arrangements and the economic and other terms of such agreements; · the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcomeof such litigation; · the timing, receipt and amount of sales of, or royalties on, our future products, if any; · our need and ability to hire additional management and scientific and medical personnel; · the effect of competing technological and market developments; and · our need to implement additional internal systems and infrastructure, including financial and reporting systems. Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timelybasis, we may be required to: · delay, limit, reduce or terminate preclinical studies, clinical trials (including patient accrual) or other research and development activities for one ormore of our product candidates; or · delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize ourproduct candidates. We will need to raise additional funds to complete our clinical trials and achieve positive cash flow. Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies orproduct candidates. We will likely seek to raise additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships andalliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownershipinterests of existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect stockholder rights. Debtfinancing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt,making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements withthird parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. If weare unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our productdevelopment or commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and marketourselves. 40Table of Contents Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price. There can be no assurance that deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general businessstrategy may be adversely affected by an economic downturn, a volatile business environment or an unpredictable and unstable market. If equity and creditmarkets deteriorate, it may make any necessary debt or equity financing more difficult to secure, more costly, and/or more dilutive. Failure to secure anynecessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stockprice and could require us to delay or abandon our business and clinical development plans. In addition, there is a risk that one or more of our current serviceproviders, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operatinggoals on schedule and on budget. There is a possibility that our stock price may decline, due in part to the volatility of the stock market and the generaleconomic downturn. Risks Related to Our Business and Industry We are a clinical-stage company with no approved products, which makes it difficult to assess our future viability. We are a clinical-stage biopharmaceutical company with a limited operating history. We have not yet demonstrated an ability to successfully overcome manyof the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. Forexample, to execute our business plan, we will need to successfully: · execute product candidate development activities; · obtain required regulatory approvals for the development and commercialization of our product candidates; · maintain, leverage and expand our intellectual property portfolio; · build and maintain robust sales, distribution and marketing capabilities, either on our own or in collaboration with strategic partners; · gain market acceptance for our products; · develop and maintain any strategic relationships we elect to enter into; · satisfy our obligations under our in-license agreements; and · manage our spending as costs and expenses increase due to drug discovery, preclinical development, clinical trials, regulatory approvals,manufacturing and commercialization. If we are unsuccessful in accomplishing these objectives, we may not be able to develop product candidates, raise capital, expand our business or continueour operations. We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do. Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the design, development andcommercialization of product candidates. Our competitors may succeed in developing competing products before we do for the same indications we arepursuing, obtaining regulatory approval for products or gaining acceptance for the same markets that we are targeting. If we are not “first to market” with oneof our product candidates, our competitive position could be compromised because it may be more difficult for us to obtain marketing approval for thatproduct candidate and successfully market that product candidate as a second competitor. 41Table of Contents We expect any product candidate that we commercialize will compete with products from other companies in the biotechnology and pharmaceuticalindustries. For example, there are a number of biopharmaceutical companies focused on developing therapeutics that target CSCs, including Verastem, Inc.,OncoMed Pharmaceuticals, Inc., Dainippon Sumitomo Pharmaceuticals, Bionomics Limited and Stem CentRx, Inc. There are also several biopharmaceuticalcompanies that do not appear to be primarily focused on CSCs, but may be developing at least one CSC-directed compound. These companies includeAstellas Pharma US, Inc., Boehringer Ingelheim GmbH, Geron Corp., GlaxoSmithKline plc, Macrogenics Inc., Micromet, Inc. (an Amgen, Inc. Company),Pfizer Inc., Roche Holding AG, Sanofi U.S. LLC, and others. Additionally, there are a number of companies working to develop new treatments forhematologic cancers, which may compete with SL-401, including Ambit Biosciences Corporation, Celator Pharmaceuticals, Inc., Celgene Corporation,Cyclacel Pharmaceuticals, Inc., Eisai Co. Ltd., Genzyme Corporation (now a Sanofi company), Janssen Pharmaceutical Companies of Johnson and Johnson,and Sunesis Pharmaceuticals, Inc., among others. There are also a number of drugs used for the treatment of brain cancer that may compete with SL-701,including, Avastin® (Roche Holding AG), Gliadel® (Eisai Co. Ltd.), and Temodar® (Merck & Co., Inc.). There are a number of companies working todevelop brain cancer therapeutics with programs in clinical testing, including Celldex Therapeutics, Inc., ImmunoCellular Therapeutics, Ltd., NorthwestBiotherapeutics, Inc., Agenus, Inc., Merck & Co. Inc., Novartis AG, Roche Holding AG and others. Many of our competitors have substantially greater commercial infrastructures and financial, technical and personnel resources than we have. We may not beable to compete successfully unless we successfully: · design and develop products that are superior to other products in the market; · attract qualified scientific, medical, sales and marketing and commercial personnel; · obtain patent and/or other proprietary protection for our processes and product candidates; · obtain required regulatory approvals; and · collaborate with others in the design, development and commercialization of new products. Established competitors may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete. In addition,any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in orderto overcome price competition and to be commercially successful. If we are not able to compete effectively against our current and future competitors, ourbusiness will not grow and our financial condition and operations will suffer. If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop our product candidates, conductour clinical trials and commercialize our product candidates. Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. We arehighly dependent upon our senior management, particularly Ivan Bergstein, M.D., our Chairman, Chief Executive Officer and President, and Eric K.Rowinsky, M.D., our Executive Vice President, Chief Medical Officer and Head of Research and Development, Ken Hoberman, our Chief Operating Officer,David Gionco, our Vice President of Finance and Chief Accounting Officer, as well as other employees, consultants and scientific and medical collaborators.As of March 28, 2014, we had 17 full-time employees, which may make us more reliant on our individual employees than companies with a greater number ofemployees. Although none of these individuals has informed us to date that he or she intends to retire or resign in the near future, the loss of services of any ofthese individuals or one or more of our other members of senior management could delay or prevent the successful development of our product pipeline,completion of our planned clinical trials or the commercialization of our product candidates. Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems in thefuture. For example, competition for qualified personnel in the biotechnology and pharmaceuticals field is intense. We will need to hire additional personnelas we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development andcommercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting oradvisory contracts with other entities that may limit their availability to us. 42Table of Contents If our employees commit fraud or other misconduct, including noncompliance with regulatory standards and requirements, our business may experienceserious adverse consequences. We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDAregulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and statehealthcare fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular,sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, salescommission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of informationobtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of BusinessConduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activitymay not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuitsstemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defendingourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or othersanctions. We may encounter difficulties in managing our growth and expanding our operations successfully. As we seek to advance our product candidates through clinical trials, we will need to expand our development, regulatory, manufacturing, marketing andsales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manageadditional relationships with various strategic partners, suppliers, manufacturers and other third parties. Future growth will impose significant addedresponsibilities on members of management. Our future financial performance and our ability to commercialize our product candidates and to competeeffectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts andclinical trials effectively and hire, train and integrate additional management, administrative and sales and marketing personnel. The hiring, training andintegration of new employees may be more difficult, costly and/or time-consuming for us because we have fewer resources than a larger organization. We maynot be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our Company. If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our productcandidates. We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercializeany products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing,manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warnof dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts.If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization ofour product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome,liability claims may result in: · decreased demand for our product candidates or products that we may develop; · injury to our reputation; · withdrawal of clinical trial participants; · costs to defend the related litigation; · a diversion of management’s time and our resources; · substantial monetary awards to trial participants or patients; · product recalls, withdrawals or labeling, marketing or promotional restrictions; · loss of revenue; · the inability to commercialize our product candidates; and · a decline in our stock price. Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims couldprevent or inhibit the commercialization of products we develop. Although we maintain liability insurance, any claim that may be brought against us couldresult in a court judgment or settlement in an amount that is not covered, in whole or in part, by 43Table of Contents our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to aproduct liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed ourcoverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Our relationships with customers and third-party payors in the United States and elsewhere will be subject to applicable anti-kickback, fraud and abuseand other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm anddiminished profits and future earnings. Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of anyproduct candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadlyapplicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships throughwhich we market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable federal, state and foreign healthcarelaws and regulations include the following: · the federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receivingor providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase,order or recommendation of, any good or service for which payment may be made under federal and state healthcare programs such as Medicareand Medicaid; · the federal False Claims Act imposes criminal and civil penalties, against individuals or entities for knowingly presenting, or causing to bepresented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal anobligation to pay money to the federal government and also includes provisions allowing for private, civil whistleblower or “qui tam” actions; · the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology forEconomic and Clinical Health Act (“HITECH”), imposes criminal and civil liability for executing a scheme to defraud any healthcare benefitprogram. HIPAA and HITECH also regulate the use and disclosure of identifiable health information by healthcare providers, health plans andhealthcare clearinghouses, and impose obligations, including mandatory contractual terms, with respect to safeguarding the privacy, securityand transmission of identifiable health information as well as requiring notification of regulatory breaches. HIPAA and HITECH violations mayprompt civil and criminal enforcement actions as well as enforcement by state attorneys general; · the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making anymaterially false statement in connection with the delivery of or payment for healthcare benefits, items or services; · the federal transparency requirements under the Health Care Reform Law requires manufacturers of drugs, devices, biologics and medicalsupplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value andphysician ownership and investment interests; · analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements andclaims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some statelaws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevantcompliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related topayments to physicians and other healthcare providers or marketing expenditures; and · analogous anti-kickback, fraud and abuse and healthcare laws and regulations in foreign countries. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs.It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case lawinvolving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any othergovernmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion fromgovernment funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians orother providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civilor administrative sanctions, including exclusions from government funded healthcare programs. 44Table of Contents If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that couldhave a material adverse effect on the success of our business. We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use,storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicalsand biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materialsand wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use ofhazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costsassociated with civil or criminal fines and penalties. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from theuse of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmentalliability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current orfuture laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result insubstantial fines, penalties or other sanctions. Risks Related to Commercialization of Our Product Candidates If, in the future, we are unable to establish our own sales, marketing and distribution capabilities or enter into licensing or collaboration agreements forthese purposes, we may not be successful in commercializing our product candidates. We currently have a relatively small number of employees and do not have a sales or marketing infrastructure, and we, including our executive officers, donot have any significant sales, marketing or distribution experience. We will be opportunistic in seeking to either build our own commercial infrastructure tocommercialize SL-401, SL-701 and any future product candidates if and when they are approved, or enter into licensing or collaboration agreements to assistin the future development and commercialization of such product candidates. To develop internal sales, distribution and marketing capabilities, we will have to invest significant amounts of financial and management resources, some ofwhich will be committed prior to any confirmation that SL-401 or SL-701 will be approved. For product candidates for which we decide to perform sales,marketing and distribution functions ourselves, we could face a number of additional risks, including: · our inability to recruit and retain adequate numbers of effective sales and marketing personnel; · the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future products; · the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companieswith more extensive product lines; · unforeseen costs and expenses associated with creating an independent sales and marketing organization; and · our inability to build our own commercial infrastructure to manufacture, market and sell our product candidates; and · our inability to build and staff, or enter a partnership to support, a commercial distribution capability. Where and when appropriate, we may elect to utilize contract sales forces or strategic partners to assist in the commercialization of our product candidates. Ifwe enter into arrangements with third parties to perform sales, marketing and distribution services for our products, the resulting revenues or the profitabilityfrom these revenues to us are likely to be lower than if we had sold, marketed and distributed our products ourselves. In addition, we may not be successful inentering into arrangements with third parties to sell, market and distribute our product candidates or may be unable to do so on terms that are favorable to us.We likely will have little control over such third parties, and any of these third parties may fail to devote the necessary resources and attention to sell, marketand distribute our products effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not besuccessful in commercializing our product candidates. 45Table of Contents Our commercial success depends upon attaining significant market acceptance of our product candidates, if approved, including SL-401 and SL-701,among physicians and other healthcare providers, patients, third-party payors and, in the cancer market, acceptance by the major operators of cancerclinics. Even if SL-401, SL-701 or any other product candidate that we may develop or acquire in the future obtains regulatory approval, the product may not gainmarket acceptance among physicians, third-party payors, patients and the medical community. For example, current cancer treatments such as chemotherapyand radiation therapy are well established in the medical community, and doctors may continue to rely on these treatments. The degree of market acceptanceof any products for which we receive approval for commercial sale depends on a number of factors, including: · the efficacy and safety of our products, as demonstrated in clinical trials, and the degree to which our products represent a clinically meaningfulimprovement in care as compared with other available therapies; · the clinical indications for which our products are approved; · acceptance by physicians, major operators of cancer clinics and patients of our products as a safe and effective treatment; · the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; · the potential and perceived advantages of our products over alternative treatments; · the cost of treatment in relation to alternative treatments; · the availability of adequate reimbursement and pricing by third parties and government authorities; · the continued projected growth of oncology drug markets; · relative convenience and ease of administration; · the prevalence and severity of adverse side effects; and · the effectiveness of our sales and marketing efforts. If our approved drugs fail to achieve market acceptance, we would not be able to generate significant revenue. Even if we are able to commercialize any product candidates, the products may become subject to unfavorable pricing regulations, third-partyreimbursement practices or healthcare reform initiatives, which would harm our business. The regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. In the United States,recently passed legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtainingapprovals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins aftermarketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmentalcontrol even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject toprice regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able togenerate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more productcandidates, even if our product candidates obtain marketing approval. Our ability to commercialize any products successfully also will depend in part on the extent to which reimbursement for these products and relatedtreatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities andthird-party payors, such as private health insurers and health maintenance organizations, decide which medications they will cover and how much they willpay for them. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors haveattempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiringthat drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot besure that reimbursement will be available for any product that we commercialize and, if reimbursement is available, the level of reimbursement.Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. Obtaining reimbursement for ourproducts may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician. Ifreimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which weobtain marketing approval. 46Table of Contents There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which thedrug is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any drugwill be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursementlevels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according tothe use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporatedinto existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcareprograms or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower pricesthan in the United States. Third-party payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement policies.Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products that wedevelop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financialcondition. Healthcare policy changes may have a material adverse effect on us. Our business may be affected by the efforts of government and third-party payors to contain or reduce the cost of healthcare through various means. Forexample, the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, theAffordable Care Act or ACA), enacted in March 2010, substantially changed the way healthcare is financed by both governmental and private insurers, andsignificantly impacted the pharmaceutical industry. With regard to pharmaceutical products, among other things, the ACA is expected to expand andincrease industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare Part D program. Although the Supreme Court has upheld the ACA in the main challenge to the constitutionality of the statute and the 2012 elections maintained dividedgovernment at the federal level, Congressional efforts to repeal the ACA continue. In addition, there may be Congressional efforts to expand the Medicaiddrug rebate program to the Medicare Part D program (or to provide authority for the government to negotiate drug prices under the Medicare Part D program). This adds to the uncertainty of the legislative changes enacted as part of the ACA, and we cannot predict the impact that the ACA or any other legislative orregulatory proposals will have on our business. Regardless of whether or not the ACA is repealed, we expect both government and private health plans tocontinue to require healthcare providers, including healthcare providers that may one day purchase our products, to contain costs and demonstrate the valueof the therapies they provide. Our therapeutic product candidates for which we intend to seek approval as biological products may face competition sooner than expected. With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the Health Care Reform Law, an abbreviatedpathway for the approval of biosimilar and interchangeable biological products was created. The new abbreviated regulatory pathway establishes legalauthority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable.” The FDA definesan interchangeable biosimilar as a product that, in terms of safety or diminished efficacy, presents no greater risk when switching between the biosimilar andits reference product than the risk of using the reference product alone. Under the BPCIA, an application for a biosimilar product cannot be submitted to theFDA until four years, or approved by the FDA until 12 years, after the original brand product identified as the reference product was approved under a BLA.The new law is complex and is only beginning to be interpreted by the FDA. As a result, its ultimate impact, implementation and meaning are subject touncertainty. While it is uncertain when any such processes may be fully adopted by the FDA, any such processes could have a material adverse effect on thefuture commercial prospects for our biological products. We believe that if any of our product candidates, such as SL-401 or SL-701, were to be approved as biological products under a BLA, such approved productsshould qualify for the 12-year period of exclusivity. However, there is a risk that the U.S. Congress could amend the BPCIA to significantly shorten thisexclusivity period as proposed by President Obama or that may be proposed by his successors, potentially creating the opportunity for generic competitionsooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that issimilar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors thatare still developing. In addition, a competitor could decide to forego the biosimilar route and submit a full BLA after completing its own preclinical studiesand clinical trials. In such cases, any exclusivity to which we may be eligible under the BPCIA would not prevent the competitor from marketing its productas soon as it is approved. 47Table of Contents Risks Related to Our Dependence on Third Parties Third parties have conducted all clinical trials of SL-401 and SL-701 so far, and our ability to influence the design and conduct of such trials was limited.Our plans to assume control over the future clinical and regulatory development of such product candidates will entail additional expenses and require usto rely on additional third parties. Any failure by a third-party to meet its obligations with respect to the clinical and regulatory development of ourproduct candidates may delay or impair our ability to obtain regulatory approval for our products. To date, we have not sponsored any clinical trials relating to SL-401 or SL-701. Instead, faculty members at academic institutions have conducted andsponsored all clinical trials relating to SL-401 and SL-701 under their own INDs. Because the completed SL-401 and SL-701 clinical trials were investigatorsponsored, we did not control the design or conduct of the previous trials, and it is possible that the FDA will not view these previous trials as providingadequate support for future clinical trials, whether controlled by us or third parties, for any one or more reasons, including elements of the design or executionof the previous trials or safety concerns or other trial results. While we plan to assume control of the overall clinical and regulatory development of SL-401 and SL-701 going forward, we have so far been dependent oncontractual arrangements with each investigator and their respective academic institutions, and will continue to be until we assume control. Sucharrangements provide us certain information rights with respect to the completed trials, including access to and the ability to use and reference the data,including for our own regulatory filings, resulting from the completed trials. If these obligations are breached by the investigators or institutions, or if thedata prove to be inadequate compared to the first-hand knowledge we might have gained had the completed trials been Company-sponsored trials, then ourability to design and conduct our planned Company-sponsored clinical trials may be adversely affected. Additionally, the FDA may disagree with theadequacy of our interpretation of preclinical, manufacturing, or clinical data from these clinical trials. If so, the FDA may require us to obtain and submitadditional preclinical, manufacturing, or clinical data before we may initiate our planned trials and/or may not accept such additional data as adequate toinitiate our planned trials. 48Table of Contents We rely on, and expect to continue to rely on, third-parties to monitor, support, conduct and/or oversee clinical trials of our product candidates and, insome cases, to maintain regulatory files for our product candidates. If we are not able to maintain or secure agreements with such third parties onacceptable terms to monitor, support, conduct and/or oversee these clinical trials, if these third parties do not perform their services as required, or if thesethird parties fail to timely transfer any regulatory information held by them to us, we may not be able to obtain regulatory approval for, or commercialize,our product candidates. To date, we have relied on academic institutions, CROs, hospitals, clinics and other third-party collaborators who are outside our control to monitor, support,conduct and/or oversee preclinical and clinical studies of our product candidates. As a result, we had less control over the timing and cost of these studies andthe ability to recruit trial subjects than if we had conducted these trials wholly by ourselves. If we successfully assume control of the further clinical andregulatory development of SL-401 and SL-701, we will likely need to engage additional third parties. Because we currently lack and may lack in the futuresufficient internal staff to monitor such third parties and to interact with the FDA, we will also be required to build out our internal staff and/or engageconsultants for such purposes. If we are unable to maintain or enter into agreements with these third parties on acceptable terms, or if any such engagement isterminated, we may be unable to enroll patients on a timely basis or otherwise conduct our trials in the manner we anticipate. In addition, there is noguarantee that these third parties will devote adequate time and resources to our studies or perform as required by contract or in accordance with regulatoryrequirements. If these third parties fail to meet expected deadlines, fail to adhere to protocols or fail to act in accordance with regulatory requirements or ouragreements with them, or if they otherwise perform in a substandard manner or in a way that compromises the quality or accuracy of their activities or the datathey obtain, then clinical trials of our product candidates may be extended, delayed or terminated, and as a result we may not be able to commercialize ourproduct candidates. We may not be successful in establishing and maintaining strategic partnerships, which could adversely affect our ability to develop and commercializeproducts. We may seek to enter into strategic partnerships in the future, including alliances with other biotechnology or pharmaceutical companies, to enhance andaccelerate the development and commercialization of our products in territories outside the United States. We face significant competition in seekingappropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish astrategic partnership or other alternative arrangements for any future product candidates and programs because our research and development pipeline may beinsufficient, our product candidates and programs may be deemed to be at too early of a stage of development for collaborative effort and/or third parties maynot view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy. Even if we are successful in our efforts toestablish strategic partnerships, the terms that we agree upon may not be favorable to us and we may not be able to maintain such strategic partnerships if, forexample, development or approval of a product candidate is delayed or sales of an approved product are disappointing. If we ultimately determine that entering into strategic partnerships is in our best interest but either fail to enter into, are delayed in entering into or fail tomaintain such strategic partnerships: · the development of certain of our current or future product candidates may be terminated or delayed; · our cash expenditures related to development of certain of our current or future product candidates would increase significantly and we mayneed to seek additional financing; · we may be required to hire additional employees or otherwise develop expertise, such as sales and marketing expertise, for which we have notbudgeted; · we will bear all of the risk related to the development of any such product candidates; · the competitiveness of any product candidate that is commercialized could be reduced; and · with respect to our platform technology, StemScreen, we may not realize its potential as a means of identifying and validating new cancertherapies. 49®Table of Contents We intend to rely on third-party manufacturers to produce our clinical and preclinical product candidate supplies and we intend to rely on third-partymanufacturers to produce commercial supplies of any approved product candidates. Any failure by a third-party manufacturer to produce supplies for usmay delay or impair our ability to initiate or complete our clinical trials, commercialize our product candidates or continue to sell any products wecommercialize. We do not currently own or operate any manufacturing facilities, and we lack sufficient internal staff to produce clinical and preclinical product candidatesupplies ourselves. As a result, we work with third-party contract manufacturers to produce sufficient quantities of SL-401 and SL-701 for future clinicaltrials, preclinical testing and commercialization. If we are unable to arrange for or maintain such third-party manufacturing sources, or fail to do so oncommercially reasonable terms or on a timely basis, we may not be able to successfully produce, develop, and market SL-401 or SL-701 or may be delayed indoing so. We also expect to rely upon third parties to produce drug product required for the clinical trials and commercialization of our other product candidates,including SL-101 and SL-501. If we are unable to arrange for third-party manufacturing sources, or to do so on commercially reasonable terms or on a timelybasis, we may not be able to complete development of such other product candidates or market them. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates ourselves, including reliance onthe third-party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement by the third-party because of factorsbeyond our control (including a failure to synthesize and manufacture our product candidates in accordance with our product specifications) and thepossibility of termination or nonrenewal of the agreement by the third-party, based on its own business priorities, at a time that is costly or damaging to us.We will be dependent on the ability of these third-party manufacturers to produce adequate supplies of drug product to support our clinical developmentprograms and future commercialization of our product candidates. In addition, the FDA and other regulatory authorities require that our product candidatesbe manufactured according to cGMP and similar foreign standards. Any failure by our third-party manufacturers to comply with cGMP or failure to scale upmanufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or failure toobtain, regulatory approval for trial initiation or marketing of any of our product candidates. In addition, such failure could be the basis for action by the FDAto withdraw approvals for product candidates previously granted to us and for other regulatory action, including recall or seizure, fines, imposition ofoperating restrictions, total or partial suspension of production or injunctions. We rely on our third-party manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinicalstudies. There are a small number of suppliers for certain capital equipment and materials that we use to manufacture our drugs. Such suppliers may not sellthese materials to our manufacturers at the times we need them or on commercially reasonable terms. We do not have control over the process or timing of theacquisition of these materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these materials.Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete the clinical trial, anysignificant delay in the supply of a product candidate or the material components thereof for a clinical trial, including an ongoing clinical trial, due to theneed to replace a third-party manufacturer could considerably delay completion of our clinical studies, product testing and potential regulatory approval ofour product candidates. If our manufacturers or we are unable to purchase these materials after regulatory approval has been obtained for our productcandidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability togenerate revenues from the sale of our product candidates. We are working with our contract manufacturer to optimize the manufacturing processes for SL-401 and SL-701 drug substance and drug product so thatthese product candidates may be routinely produced in adequate quantities of adequate quality, and at an acceptable cost, to support our planned clinicaltrials and ultimate commercialization. Our manufacturer may not be able to adequately demonstrate that an optimized product candidate is comparable to apreviously manufactured product candidate which could cause significant delays and increased costs to our programs. Our manufacturer may not be able tomanufacture our product candidates at a cost or in quantities or in a timely manner necessary to develop and commercialize them. If we successfullycommercialize any of our drugs, we may be required to establish or access large-scale commercial manufacturing capabilities. In addition, assuming that ourdrug development pipeline increases and matures, we will have a greater need for clinical trial and commercial manufacturing capacity. To meet ourprojected needs for commercial manufacturing, third parties with whom we currently work may need to increase their scale of production and/or we will needto secure additional suppliers. 50Table of Contents We rely on a single third-party to manufacture and supply each of our lead product candidates. Any problems experienced by a vendor could result in adelay or interruption in the supply of our product candidate to us until this vendor cures the problem or until we locate and qualify an alternative source ofsupply. The manufacturers of our product candidates require specialized equipment and utilize complicated production processes that would be difficult, timeconsuming and costly to duplicate. For each of our lead product candidates we currently rely on a single third-party to purchase from third-party suppliers thematerials necessary to produce our product candidates for our clinical studies. Any prolonged disruption in the operations of our third-party manufacturercould have a significant negative impact on our ability to manufacture products on our own and would cause us to seek additional third-party manufacturingcontracts, thereby increasing our development and any commercialization costs. In addition, we may face losses related to the supply of drug substances,drug product, adjuvants and other components of the product due to third-party distribution and storage of such product. We may suffer losses as a result ofbusiness interruptions that exceed coverage under our manufacturer’s insurance policies. Events beyond our control, such as natural disasters, fire, sabotageor business accidents could have a significant negative impact on our operations by disrupting our product candidate development and commercializationefforts until our third-party manufacturer can repair its facility or we can put in place alternate third-party contract manufacturers to assume thismanufacturing role, which we may not be able to do on reasonable terms, if at all. In addition, if we are required to change manufacturers for any reason, wewill be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulationsand guidelines and that they can successfully transfer our manufacturing processes to produce product of equivalent quality and quantity. The delaysassociated with the verification of a new manufacturer or the reverification of an existing manufacturer could negatively affect our ability to develop productcandidates or produce approved products in a timely manner. Any delay or interruption in our clinical studies or in the validation and commercialization ofour product candidates could negatively affect our business. 51Table of Contents To the extent we elect to enter into licensing or collaboration agreements to partner our product candidates, our dependence on such relationships mayadversely affect our business. Our commercialization strategy for certain of our product candidates may depend on our ability to enter into agreements with collaborators to obtainassistance and funding for the development and potential commercialization of these product candidates. Supporting diligence activities conducted bypotential collaborators and negotiating the financial and other terms of a collaboration agreement are long and complex processes with uncertain results.Even if we are successful in entering into one or more collaboration agreements, collaborations may involve greater uncertainty for us, as we have less controlover certain aspects of our collaborative programs than we do over our proprietary development and commercialization programs. We may determine thatcontinuing a collaboration under the terms provided is not in our best interest, and we may terminate the collaboration. Our collaborators could delay orterminate their agreements, and our products subject to collaborative arrangements may never be successfully commercialized. Further, our future collaborators may develop alternative products or pursue alternative technologies either on their own or in collaboration with others,including our competitors, and the priorities or focus of our collaborators may shift such that our programs receive less attention or resources than we wouldlike, or they may be terminated altogether. Any such actions by our collaborators may adversely affect our business prospects and ability to earn revenues. Inaddition, we could have disputes with our future collaborators, such as the interpretation of terms in our agreements. Any such disagreements could lead todelays in the development or commercialization of any potential products or could result in time-consuming and expensive litigation or arbitration, whichmay not be resolved in our favor. Even with respect to certain other programs that we intend to commercialize ourselves, we may enter into agreements with collaborators to share in theburden of conducting clinical trials, manufacturing and marketing our product candidates or products. In addition, our ability to apply our proprietarytechnologies to develop proprietary compounds will depend on our ability to establish and maintain licensing arrangements or other collaborativearrangements with the holders of proprietary rights to such compounds. We may not be able to establish such arrangements on favorable terms or at all, andour future collaborative arrangements may not be successful. Risks Related to Our Intellectual Property Rights We could be unsuccessful in obtaining adequate patent protection for one or more of our product candidates. We cannot be certain that patents will be issued or granted with respect to applications that are currently pending, or that issued or granted patents will notlater be found to be invalid and/or unenforceable. The patent position of biotechnology and pharmaceutical companies is generally uncertain because itinvolves complex legal and factual considerations. The standards applied by the U.S. Patent and Trademark Office and foreign patent offices in grantingpatents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scopeof claims allowable in biotechnology and pharmaceutical patents. Consequently, patents may not issue from our pending patent applications. As such, we donot know the degree of future protection that we will have on our proprietary product candidates and technology. Our patents and patent applications may not be sufficient to protect our products and product candidates from commercial competition. For example, wecannot obtain a composition of matter patent for SL-401 due to earlier published prior art. We have however obtained U.S. patents for certain methods ofusing SL-401 to treat AML and MDS. In addition, we have filed additional U.S. and foreign patent applications for the method of using SL-401 to treat AML,MDS, BPDCN, and other diseases although there can be no assurances that such patents will issue. Failure to obtain patents directed to all approved uses ofSL-401 would enable a competitor to market SL-401 for such unpatented indication(s), which could lead to price erosion for sales of SL-401 for our patentedindications through off-label use. Although we have an issued U.S. patent directed to the composition of matter for the mutant immunogenic IL-13Rα2peptide used in SL-701, which has been altered to make it more stimulatory to the immune system and thus designed to increase a patient’s immune responseto SL-701, we do not have any foreign composition of matter patent protection. We do not expect that we will be able to obtain such protection outside theU.S. in the future although we do have foreign pending patent applications that seek to cover certain uses of this peptide. While we have a non-exclusivelicense to issued U.S. patents directed to methods of use for the EphA2 peptide used in SL-701, we do not have any composition of matter patent protection.We do not expect that we will be able to obtain such protection in the future. While we have filed a PCT pending patent applications directed to methods ofuse of a survivin mutant peptide to be used in SL-701, we do not have any composition of matter patent protection. We do not expect that we will be able toobtain such protection in the future. While we have patent applications pending in the United States and Canada directed to our StemScreen® technology,we currently have no issued patents covering StemScreen®. Although we have various patent applications pending in the United States and/or abroad that we anticipate may result in additional protection for both SL-401, SL-701 and StemScreen®, there can be no assurance that any of these applications will result in an issued patent, or that if they issue, they will providemeaningful protection for SL-401, SL-701 or StemScreen®. Our inability to obtain adequate patent protection for our product candidates or platformtechnology could adversely affect our business. 52Table of Contents Issued patents covering one or more of our product candidates could be found invalid or unenforceable if challenged in court. If we were to initiate legal proceedings against a third-party to enforce a patent covering one of our product candidates, the defendant could counterclaimthat our patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceabilityare commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of patentablesubject matter, novelty, obviousness, written description or non-enablement. Grounds for an unenforceability assertion could be an allegation that someoneconnected with prosecution of the patent withheld relevant information from the U.S. Patent and Trademark Office, or made a misleading statement, duringprosecution. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validityquestion, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If adefendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection onone or more of our product candidates or certain aspects of our platform technology, StemScreen®. Such a loss of patent protection could have a materialadverse impact on our business. Claims that StemScreen®, our product candidates or the sale or use of our products infringe the patent rights of third parties could result in costlylitigation or could require substantial time and money to resolve, even if litigation is avoided. We cannot guarantee that our product candidates, the use of our product candidates, or our potential platform technology, StemScreen®, do not infringethird-party patents. Third parties might allege that we are infringing their patent rights or that we have misappropriated their trade secrets. Such third partiesmight resort to litigation against us. The basis of such litigation could be existing patents or patents that issue in the future. Our failure to successfully defendagainst any claims that our product candidates or platform technology infringe the rights of third parties could also adversely affect our business. Forexample, we are aware of a third-party European patent directed to one of the peptides used in SL-701. We may need to seek a license with respect to one ormore of these third-party patents in order to commercialize our products. No assurance can be given that any such licenses will be available, or that they willbe available on commercially acceptable terms. Failure to obtain any required licenses could restrict our ability to commercialize our products in certainterritories or subject us to patent infringement litigation, which could result in us having to cease commercialization of our products and subject us to moneydamages in such territories. It is also possible that we failed to identify relevant patents or applications. Patent applications covering our products or platform technology could havebeen filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be lateramended in a manner that could cover our platform technologies, our products or the use of our products. In order to avoid or settle potential claims with respect to any patent rights of third parties, we may choose or be required to seek a license from a third-partyand be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or any future strategicpartners were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property.Ultimately, we could be prevented from commercializing one or more of our product candidates, or be forced to cease some aspect of our business operations,if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. Patent litigation could also exposeus to significant monetary damages. This could harm our business significantly. Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time consuming, regardless of the outcome. Thus,even if we were to ultimately prevail, or to settle at an early-stage, such litigation could burden us with substantial unanticipated costs. In addition, litigationor threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of otherCompany business. Unfavorable outcomes in intellectual property litigation could limit our research and development activities and/or our ability to commercialize certainproducts. If third parties successfully assert intellectual property rights against us, we might be barred from using certain aspects of our platform technology, or barredfrom developing and commercializing certain products. Prohibitions against using certain technologies, or prohibitions against commercializing certainproducts, could be imposed by a court or by a settlement agreement between us and a plaintiff. In addition, if we are unsuccessful in defending againstallegations of patent infringement or misappropriation of trade secrets, we may be forced to pay substantial damage awards to the plaintiff. There is inevitableuncertainty in any litigation, including intellectual property litigation. There can be no assurance that we would prevail in any intellectual propertylitigation, even if the case against us is weak or flawed. If litigation leads to an outcome unfavorable to us, we may be required to obtain a license from thepatent owner, in order to continue our research and development programs or to market our product(s). It is possible that the necessary license will not beavailable to us on commercially acceptable terms, or at all. This could limit our research and development activities, our ability to commercialize certainproducts, or both. 53Table of Contents Most of our competitors are larger than we are and have substantially greater resources. They are, therefore, likely to be able to sustain the costs of complexpatent litigation longer than we could. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise thefunds necessary to continue our clinical trials, continue our internal research programs, in-license needed technology, or enter into strategic partnerships thatwould help us bring our product candidates to market. In addition, any future patent litigation, interference or other administrative proceedings will result in additional expense and distraction of our personnel.An adverse outcome in such litigation or proceedings may expose us or any future strategic partners to loss of our proprietary position, expose us tosignificant liabilities, or require us to seek licenses that may not be available on commercially acceptable terms, if at all. Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the market price of our common stock to decline. During the course of any patent litigation, there could be public announcements of the results of hearings, rulings on motions, and other interim proceedingsin the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our product candidates, platformtechnology, programs, or intellectual property could be diminished. Accordingly, the market price of our common stock may decline. SL-401, SL-701, some of our other product candidates and our platform technology are protected by intellectual property licensed from academicinstitutions. If the licensors terminate the licenses or fail to prosecute patent applications or maintain or enforce the underlying patents, our competitiveposition, market share, and business prospects will be harmed. We are a party to several license agreements relating to certain patents and/or patent applications owned by other institutions, upon which certain aspects ofour business depend. In particular, we hold an exclusive license from Scott and White Memorial Hospital, or Scott and White, for SL-401 and three licenses,including an exclusive license and two non-exclusive licenses, from the University of Pittsburgh for SL-701. Our license agreement with Scott and Whitesurvives, unless earlier terminated, until the later of the expiration of the last to expire licensed patent or the date on which we owe no further payments toScott and White. Our exclusive and our non-exclusive patent license agreements with the University of Pittsburgh survive, unless earlier terminated, until theexpiration of the last to expire licensed patent, and our non-exclusive license with the University of Pittsburgh to use and reference certain clinical trial dataand information survives for a term of twenty years unless earlier terminated. We also hold licenses from academic institutions relating to intellectualproperty underlying our SL-501 and SL-101 product candidates and our StemScreen platform technology. We expect to enter into additional licenseagreements as part of the development of our business. Our current or future licensors may not successfully prosecute certain patent applications under whichwe are licensed and on which our business depends. Even if patents issue from these applications, our licensors may fail to maintain these patents, may decidenot to pursue litigation against third-party infringers, may fail to prove infringement, or may fail to defend against counterclaims of patent invalidity orunenforceability. In addition, in spite of our best efforts, our licensors might conclude that we have materially breached our license agreements and mighttherefore seek to terminate the license agreements, thereby removing our ability to obtain regulatory approval and to market products covered by theselicense agreements. Our licensors may also seek to terminate the license agreements if we fail to satisfy our diligence obligations and/or meet specifiedmilestones or upon insolvency. From time to time, we have had to request extensions of our development obligations contained in some of our licenseagreements, and we may need to seek further extensions in the future. Although we have obtained such extensions in the past, there can be no assurance thatour licensors will continue to extend the development timelines or other milestones contained in our license agreements. If these in licenses are terminated, orif the underlying patents fail to provide the intended market exclusivity, we could lose our rights to develop and commercialize the product candidatesgoverned by the licenses and competitors would have the freedom to seek regulatory approval of, and to market, products identical to ours. This could have amaterial adverse effect on our competitive business position and our business prospects. We could be unsuccessful in obtaining patent protection on one or more components of our platform technology. We believe that an important factor in our competitive position relative to other companies in the field of targeted oncology therapeutics is our proprietaryinnovative platform technology, StemScreen®. We believe that this platform is useful for identifying new potential product candidates. We have pendingU.S. and Canadian patent applications for StemScreen®, however, there is no guarantee that any of such pending patent applications will result in issuedpatents, and, even if patents eventually issue, there is no certainty that the issued claims will have adequate scope to preserve our competitive position. Inaddition, by practicing our technology in jurisdictions where we do not have patent protection, third parties could substantially weaken our competitiveposition in oncology research and development. Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information. In addition to patents, we rely on trade secrets, technical know-how, and proprietary information concerning our business strategy in order to protect ourcompetitive position in the field of oncology. In the course of our research and development activities and our business activities, we often rely onconfidentiality agreements to protect our proprietary information. Such confidentiality agreements are used, for example, when we talk to vendors oflaboratory or clinical development services or potential strategic partners. In 54Table of Contents addition, each of our employees is required to sign a confidentiality agreement upon joining our Company. We take steps to protect our proprietaryinformation, and our confidentiality agreements are carefully drafted to protect our proprietary interests. Nevertheless, there can be no guarantee that anemployee or an outside party will not make an unauthorized disclosure of our proprietary confidential information. This might happen intentionally orinadvertently. It is possible that a competitor will make use of such information, and that our competitive position will be compromised, in spite of any legalaction we might take against persons making such unauthorized disclosures. Trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, or outsidescientific collaborators might intentionally or inadvertently disclose our trade secret information to competitors. Enforcing a claim that a third-party illegallyobtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the UnitedStates sometimes are less willing than U.S. courts to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge,methods and know-how. Our research and development strategic partners may have rights to publish data and other information to which we have rights. In addition, we sometimesengage individuals or entities to conduct research relevant to our business. The ability of these individuals or entities to publish or otherwise publiclydisclose data and other information generated during the course of their research is subject to certain contractual limitations. These contractual provisionsmay be insufficient or inadequate to protect our confidential information. If we do not apply for patent protection prior to such publication, or if we cannototherwise maintain the confidentiality of our proprietary technology and other confidential information, then our ability to obtain patent protection or toprotect our trade secret information may be jeopardized. 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, and may notadequately 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 future strategic partners might not have been the first to make the inventions covered by the issued patent or pendingpatent application that we own or have exclusively licensed. · We or our licensors or any future strategic partners 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 by our competitors. · Our competitors might conduct research and development activities in countries where we do not have patent rights, or where the applicablelaws provide a safe harbor exemption from infringement liability for certain research purposes, and then use the information learned from suchactivities to develop competitive products for sale in our major commercial markets. · We may not develop additional proprietary technologies that are patentable. · The patents of others may have an adverse effect on our business. Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates. As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining andenforcing patents in the biopharma industry involve both technological complexity and legal complexity. Therefore, 55Table of Contents obtaining and enforcing biopharma patents is costly, time-consuming and inherently uncertain. In addition, Congress has passed patent reform legislationwhich provides new limitations on attaining, maintaining and enforcing intellectual property. Further, the Supreme Court has ruled on several patent cases inrecent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations.In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respectto the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the U.S. Patent and Trademark Office, the lawsand regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patentsand patents that we might obtain in the future. Risks Related to Our Common Stock The market price of our common stock may be highly volatile and our stockholders could incur substantial losses. The trading price of our common stock may be highly volatile, and could be subject to wide fluctuations in response to various factors, some of which arebeyond our control. Since our initial public offering which occurred in January 2013, the price of our common stock has ranged from $10.00 per share to$47.25 per share. The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that hasoften been unrelated to the operating performance of particular companies. The market price for our common stock may be influenced by many factors,including: · results from or delays of clinical trials of our product candidates, as well as results of regulatory reviews relating to the approval of our productcandidates; · our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial; · our dependence on third parties, including CROs and CMOs, clinical trial sponsors and clinical investigators; · our ability to commercialize our product candidates, if approved; · the results of our efforts to discover, develop, acquire or in-license additional product candidates or products; · new products, product candidates or new uses for existing products or technologies introduced or announced by our competitors and the timingof these introductions or announcements; · regulatory or legal developments in the United States and other countries; · our ability to maintain the license agreements for SL-401, SL-701 and other in-licensed product candidates; · developments or disputes concerning patent applications, issued patents or other proprietary rights; · the recruitment or departure of key scientific or management personnel; · the level of expenses related to any of our product candidates or clinical development programs; · actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; · variations in our financial results or those of companies that are perceived to be similar to us; · sales of common stock by us or our stockholders in the future, as well as the overall trading volume of our common stock; · changes in the structure of healthcare payment systems; · market conditions in the pharmaceutical and biotechnology sectors; · general economic, industry and market conditions and other factors that may be unrelated to our operating performance or the operatingperformance of our competitors, including changes in market valuations of similar companies; and 56Table of Contents · the other factors described in this “Risk Factors” section. We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies could make our commonstock less attractive to investors. We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we have and intend to continueto take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growthcompanies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, and exemptionsfrom the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments notpreviously approved. We cannot predict if investors will find our common stock less attractive because we have and may continue to rely on theseexemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stockprice may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an“emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more;(ii) December 31, 2018; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date onwhich we are deemed to be a large accelerated filer under the rules of the SEC. Our executive officers, directors and principal stockholders maintain the ability to exert substantial influence over all matters submitted to stockholdersfor approval. Our executive officers, directors and principal stockholders beneficially own shares representing approximately 56.5% of our outstanding capital stock. As aresult, if these stockholders were to choose to act together, they would be able to exert substantial influence over all matters submitted to our stockholders forapproval, as well as our management and affairs. For example, these persons, if they choose to act together, would exert substantial influence over theelection of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delayor prevent an acquisition of our Company on terms that other stockholders may desire. Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders,more difficult and may prevent attempts by our stockholders to replace or remove our current management. Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholdersmay consider favorable, including transactions in which they might otherwise receive a premium for their shares. These provisions could also limit the pricethat investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Among otherthings, these provisions: · establish a classified board of directors such that not all members of the board are elected at one time; · allow the authorized number of our directors to be changed only by resolution of our board of directors; · limit the manner in which stockholders can remove directors from the board; · establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board ofdirectors; · require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by writtenconsent; · limit who may call special stockholder meetings and the matters transacted at such meetings; · authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” thatwould work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by ourboard of directors; and · require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certainprovisions of our charter or bylaws. 57Table of Contents Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, whichprohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date ofthe transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribedmanner. Any provision in our corporate charter or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit theopportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing topay for our common stock. We incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to newcompliance initiatives. As a public company, we incur and will continue to incur significant legal, accounting and other expenses. We are subject to the reporting and otherrequirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes Oxley Act of 2002, or the Sarbanes Oxley Act, and theDodd Frank Wall Street Reform and Protection Act, as well as rules subsequently adopted by the SEC and the NASDAQ Stock Market, or NASDAQ. Theserules and regulations require, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition andestablish and maintain effective disclosure and financial controls and corporate governance practices. These rules and regulations are creating uncertainty forpublic companies, increasing legal and financial compliance costs and making some activities more time consuming. Our management and other personneldevote a substantial amount of time to these compliance initiatives. If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results orprevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the tradingprice of our common stock. Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controlsand procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in theirimplementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of theSarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls overfinancial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identifyother areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information,which could have a negative effect on the trading price of our common stock. We are required to disclose changes made in our internal controls and procedures on a quarterly basis and our management is required to assess theeffectiveness of these controls annually. However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registeredpublic accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could bean emerging growth company for up to five years. An independent assessment of the effectiveness of our internal controls could detect problems that ourmanagement’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us toincur the expense of remediation. We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth anddevelopment of our business, and we do not anticipate paying any cash dividends on our capital stock in the foreseeable future. In addition, the terms of anyfuture debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gainfor the foreseeable future. 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 our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price wouldlikely decline. If one or 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 cause our stock price and trading volume to decline. Item 1B. Unresolved Staff Comments None. 58Table of Contents Item 2. Properties Our corporate and executive office is located in New York, New York. Our New York facility consists of subleased space at 750 Lexington Avenue, EleventhFloor, New York, New York 10022. Item 3. Legal Proceedings We are not a party to, and our property is not the subject of, any material pending legal proceedings. Item 4. Mine Safety Disclosures Not applicable. 59Table of Contents Part II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the NASDAQ Capital Market and trades under the symbol “STML” and has been publicly traded since January 31, 2013. Priorto that time, there was no public market for our common stock. The following table sets forth the high and low closing sales prices for our common stock asreported on the NASDAQ Capital Market for the periods indicated. Fiscal Year Ended December 31, 2013 High Low First Quarter (beginning January 31, 2013)$13.69$10.47Second Quarter25.4811.19Third Quarter45.3023.10Fourth Quarter47.1318.77 Holders The number of record holders of our common stock as of March 25, 2014 was 24. This number does not include beneficial owners whose shares are held bynominees in street name. Dividends We have never declared or paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. Anyfuture determination to pay dividends will be at the discretion of our board of directors. Securities Authorized for Issuance Under Equity Compensation Plans The following table contains information about our equity compensation plans as of December 31, 2013. Equity Compensation Plan InformationPlan Category Number ofsecurities to beissued uponexercise ofoutstanding optionsand restricted stock Weighted-averageexercise price ofoutstandingoptionsNumber ofsecuritiesremainingavailable forfuture issuanceunder equitycompensationplans (excludingsecurities reflectedin column (a)) (a) (b)(c)Equity compensation plans approved by security holdersOptions1,326,486$4,891,217,699Restricted stock229,250N/A—Equity compensation plans not approved by securityholders———Total1,555,736—1,217,699 Common Stock Performance Graph The following graph compares the cumulative total stockholder return on our common stock for the period from January 31, 2013 through December 31,2013, with the cumulative total return over such period on (i) the U.S. Index of The NASDAQ Stock Market and (ii) the Biotechnology Index of TheNASDAQ Stock Market. The graph assumes an investment of $100 on January 31, 2013, in our common stock (at the closing market price) and in each of theindices listed above, and assumes the reinvestment of dividends. 60Table of Contents COMPARISON OF 5 YEARS CUMULATIVE TOTAL RETURN*Among Stemline Therapeutics, Inc., the NASDAQ Composite Indexand the NASDAQ Biotechnology Index * $100 invested on 1/28/2013 in stock or index, including reinvestment of dividends.Fiscal year ending December 31. 61Table of Contents Item 6. Selected Financial Data You should read the following selected financial data together with our financial statements and the related notes appearing at the end of this Form 10-K andthe “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Form 10-K. We have derived the financialinformation from our audited financial statements. Our historical results for any prior period are not necessarily indicative of results to be expected in anyfuture period. Period from August 8, 2003 (inception) toYear Ended December 31, December 31,20132012 2011 2010 2009 2013 Statement of operations data:Grant Revenue$71,000$—$—$—$—$71,000Operating expenses:Research and development$16,178,744$3,376,962$1,629,026$1,329,509$1,054,446$27,624,412General and administrative7,871,7193,090,6111,088,028930,3311,026,67517,356,515Total operating expenses24,050,4636,467,5732,717,0542,259,8402,081,12144,980,927Loss from operations(23,979,463)(6,467,573)(2,717,054)(2,259,840)(2,081,121)(44,909,927)Other income:280,687301,68446,673484,905102,2571,216,205Other expense—(35)(9,670)——(9,705)Interest expense(516,871)(118,765)(98,643)(69,493)—(813,821)Interest income19,1369,90724,06843,045201,088979,719Net loss$(24,196,511)$(6,274,782)$(2,754,626)$(1,801,383)$(1,777,776)$(43,537,529)Less: accretion of preferred stockdividends———(239,720)(1,100,107)(2,591,165)Add: discount on redemption ofpreferred stock———12,171,765—12,171,765Net (loss) / income attributable tocommon stockholders$(24,196,511)$(6,274,782)$(2,754,626)$10,130,662$(2,877,883)$(33,956,929)Net (loss) / income attributable tocommon stockholders percommon share:Basic$(2.35)$(1.82)$(0.80)$3.07$(1.02)Diluted$(2.35)$(1.82)$(0.80)$2.81$(1.02)Weighted average number ofcommon shares:Basic10,317,3513,441,9953,441,9953,298,7932,824,647Diluted10,317,3513,441,9953,441,9953,607,0302,824,647 As of December 31, 2013 2012 2011 2010 2009 Balance sheet data:Cash and cash equivalents$44,200,420$2,025,338$5,829,886$7,226,366$9,236,395Total assets$85,281,196$5,029,611$6,453,096$7,502,912$9,329,341Long-term liabilities$643,000$2,037,296$1,665,346$1,017,033$—(Deficit)/earnings accumulated duringdevelopment stage$(31,365,766)$(7,169,255)$(894,473)$1,860,153$(8,510,229)Total stockholders’ (deficit)/equity$79,624,388$(2,508,420)$3,205,340$5,851,561$(6,162,215) 62Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results coulddiffer materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors, including, but not limited to,those factors discussed in “Item 1A. Risk Factors.” See also the “Special Cautionary Notice Regarding Forward-Looking Statements” set forth at thebeginning of this report. You should read the following discussion and analysis in conjunction with “Item 6. Selected Financial Data,” “Item 8. Financial Statements andSupplementary Data,” and our financial statements beginning on page F-1 of this report. Overview We are a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing proprietary therapeutics that targetboth cancer stem cells, or CSCs, and tumor bulk. We are currently developing two clinical-stage product candidates, SL-401 and SL-701. SL-401 is a targetedtherapy directed to the interleukin-3 receptor, or IL-3R, present on CSCs and tumor bulk. To date, SL-401 has demonstrated single-agent activity, includingdurable complete responses, or CRs, in investigator sponsored Phase 1/2 trials in several indications including blastic plasmacytoid dendritic cell neoplasm,or BPDCN, and relapsed or refractory acute myeloid leukemia, or AML. We plan to advance SL-401 into corporate sponsored trials for multiple hematologiccancer indications including BPDCN, where we intend to pursue a Phase 2 registration-directed path. We also plan to initiate in additional rare IL-3R+malignancies including mastocytosis, hypereosinophilic syndrome, other myeloproliferative syndromes, and hairy cell leukemia studies. These studies couldbe expanded to serve as platform trials for potential registration. We also intend to pursue larger indications including trials in multiple myeloma, or MM,and AML in first relapse as consolidation therapy, and a Phase 3 trial in third-line AML for potential registration. SL-701 is a subcutaneously administeredtherapeutic cancer vaccine comprised of multiple synthetic peptides. To date, the vaccine has demonstrated single-agent activity, including durable CRs andpartial responses, or PRs, in investigator sponsored Phase 1/2 trials in advanced adult and pediatric brain cancers. We plan to advance SL-701 into acorporate sponsored Phase 2 trial in adult patients with recurrent glioblastoma multiforme, or GBM, following initial treatment with surgery, radiation, andchemotherapy. We believe that the design of this study may enable SL-701 to obtain accelerated regulatory approval and/or serve as the foundation for asubsequent Phase 3 pivotal trial in this indication. We also plan to pursue a Phase 2 trial of SL-701 in pediatric patients with brainstem and non-brainstemhigh-grade glioma, which are also areas of unmet medical need. In addition, we have built a robust preclinical pipeline which includes next generation IL-3R-targeted compounds, SL-501 and SL-101, an innovative discovery platform, and an extensive intellectual property portfolio including some of theearliest patents in the CSC area. We believe this establishes us as a leader in this rapidly emerging area of oncology. We are a development-stage company. We have devoted substantially all of our resources to developing our product candidates and our platform technology,building our intellectual property portfolio, business planning, raising capital, and providing general and administrative support for these operations. Wehave generated minimal revenues to date, have not generated any revenue from product sales, and have funded our operations primarily through public andprivate sales of common stock and private sales of convertible preferred stock and issuances of convertible debt to our investors. From inception throughDecember 31, 2013, we have received net proceeds of $101.6 million from the sale of common stock, $12.5 million from the sale of convertible preferredstock and $0.9 million from the issuance of convertible debt. We have never been profitable and, from inception through December 31, 2013, our net losses from operations are $43.5 million. Our net loss from operationswas $24.2 million for the year ended December 31, 2013, $6.2 million for the year ended December 31, 2012, $2.8 million for the year ended December 31,2011, and $1.8 million for the year ended December 31, 2010. We expect to incur significant expenses and increasing operating losses for the foreseeablefuture. We expect our expenses to increase in connection with our ongoing activities, particularly as we advance our product candidates through preclinicalactivities and clinical trials to seek regulatory approval and, if approved, commercialize such product candidates. Furthermore, we expect to incur additionalcosts associated with operating as a public company. Accordingly, we will need additional financing to support our continuing operations. We will seek tofund our operations through public or private equity or debt financings or other sources. Adequate additional financing may not be available to us onacceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursueour business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so. Financial Operations Overview Revenue We have not generated any revenue from product sales and we have generated minimal revenues to date, all relating to a $1.0 million research grant receivedfrom the Leukemia and Lymphoma Society, or LLS, where we recognized revenue of $0.1 million during 2013. In the future, we may generate revenue fromproduct sales. In addition, to the extent we enter into licensing or collaboration arrangements, we may have additional sources of revenue. 63Table of Contents If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate futureproduct revenue, and our results of operations and financial position, would be materially adversely affected. Research and Development Expenses The following table shows our research and development expenses for the years ended December 31, 2013, 2012 and 2011: Year Ended December 31,2013 2012 2011 Clinical (SL-401 and SL-701)$16,085,742$3,292,724$1,566,141Preclinical93,00284,23862,885Total$16,178,744$3,376,962$1,629,026 Research and development expenses consist of costs associated with the development of our product candidates and our platform technology, which include: · clinical trial costs; · CMC-related costs; · nonclinical costs; · employee-related expenses, including salaries, benefits, travel and stock-based compensation expense, and consultant costs; · external research and development expenses incurred under arrangements with third parties, such as contract research organizations, or CROs,contract manufacturing organizations, or CMOs, academic institutions, and consultants; · license fees and milestone payments related to in-licensed products and technology; and · facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities,depreciation of leasehold improvements, equipment and supplies. We expense research and development costs to operations as incurred. We account for nonrefundable advance payments for goods and services that will beused in future research and development activities as expenses when the services have been performed or when the goods have been received, rather thanwhen the payments are made. We use our employee and infrastructure resources across multiple research and development projects. We do not allocate employee-related expenses ordepreciation to any particular project. The components of our research and development costs are described in more detail in “Results of Operations.” We anticipate that our research and development expenses will increase significantly in future periods as we seek to complete development of our mostadvanced product candidates, SL-401 and SL-701, and continue to develop our other product candidates and our platform technology. We anticipate themajority of our research and development expense will be devoted to the development of SL-401 and SL-701. The successful development of our product candidates is highly uncertain. As of this time, other than as discussed above, we cannot reasonably estimate orknow the nature, timing and estimated costs of the efforts that will be necessary to complete development of our product candidates or the period, if any, inwhich material net cash inflows from our product candidates may commence. This is due to the numerous risks and uncertainties associated with developingdrugs, including the uncertainty of: · the scope, rate of progress and costs of our planned, as well as any additional, clinical trials and other research and development activities; · future clinical trial results; · the potential benefits of our product candidates over other therapies; · our ability to market and commercialize, either on our own or with strategic partners, and achieve market acceptance for any of our productcandidates that we are developing or may develop in the future; 64Table of Contents · the costs, timing and outcome of regulatory approvals; and · the costs of preparing, filing, prosecuting, defending and enforcing patent claims and other intellectual property rights. A change in the outcome of any of these or similar variables with respect to the development of a product candidate could mean a significant change in thecosts and timing associated with the development of that product candidate. For example, if the FDA or other regulatory authority were to require us toconduct clinical trials beyond those which we currently anticipate will be required for the completion of clinical development of a product candidate or if weexperience significant delays in enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on thecompletion of clinical development. General and Administrative Expenses General and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation expense. The primaryfunctions included in our general and administrative expenses are legal, finance, human resources, investor relations, and business development departments.Other general and administrative expenses include facility costs, insurance expenses and professional fees for legal, consulting and accounting services. We anticipate that our general and administrative expenses will be higher in future periods to support increases in our research and development activities,which will result in increased payroll, expanded infrastructure, increased legal, compliance, accounting and investor and public relations expenses associatedwith being a public company, among other factors. Interest Income Interest income consists of interest earned on our cash, cash equivalents and long-term investments. Given the current interest rate environment and that ourprimary investments are in U.S. Treasury and Agency securities and related money market funds, we expect interest income to be minimal in future quarters. Interest Expense Interest expense consists primarily of cash and non-cash interest costs related to our previously outstanding debt. In addition, we capitalize costs incurred inconnection with the issuance of debt. We amortize these costs over the life of our debt agreements as interest expense in our statement of operations. Further,in conjunction with the conversion of our convertible notes we recorded the beneficial conversion charge as an interest expense. As a result of the successfulcompletion of our IPO in January 2013, our 2.45% Convertible Notes were converted into stock by April 2013 and all obligations under these ConvertibleNotes have been satisfied as of December 31, 2013. Critical Accounting Policies and Estimates To understand our financial statements, it is important to understand our critical accounting policies and estimates. We prepare our financial statements inaccordance with generally accepted accounting principles, or GAAP. The preparation of financial statements also requires us to make estimates andassumptions that affect the reported amounts of assets, liabilities, costs and expenses and related disclosures. We base our estimates on historical experienceand on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates madeby our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financialcondition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding ourhistorical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Our significant accounting policies are described in more detail in the notes to our financial statements appearing at the end of this Form 10-K. However, webelieve that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results ofoperations. Accrued Research and Development Expenses As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing quotations andcontracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for theservice when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears forservices performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financialstatements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers andmake adjustments if necessary. The significant estimates in our accrued research and development expenses include fees paid to CROs and CMOs, 65Table of Contents consultants and other third-party organizations in connection with research and development and administrative activities for which we have not yet beeninvoiced. We base our expenses related to CROs and CMOs on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROsand CMOs that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract tocontract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services providedand result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will beperformed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from ourestimate, we may adjust the accrual or prepaid accordingly. There have been no significant adjustments to date. Although we do not expect our estimates tobe materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status andtiming of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period. Income Taxes We use the liability method of accounting for income taxes as set forth in the authoritative guidance for income taxes. Under this method, we recognizedeferred tax liabilities and assets for the expected future tax consequences of temporary differences between the respective carrying amounts and tax bases ofour assets and liabilities. We continue to assess the realizability of our deferred tax assets, which primarily consist of net operating losses, or NOL, carry-forwards. In assessing therealizability of these deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will berealized. We establish valuation allowances when necessary to reduce deferred tax assets to the amounts expected to be realized. The factors used to assessthe likelihood of realization include our latest forecast of future taxable income and available tax planning strategies that could be implemented to realizethe net deferred tax assets. As of December 31, 2013, 2012 and 2011, our deferred tax assets had full valuation allowances on them as we did not havesufficient positive evidence to recognize such deferred tax assets. The Internal Revenue Code of 1986, as amended (the “Code”), provides for a limitation of the annual use of net operating losses and other tax attributes(such as research and development tax credit carryforwards) following certain ownership changes (as defined by the Code) that could limit our ability toutilize these carryforwards. At this time, we have not completed a study to assess whether an ownership change under section 382 of the Code has occurred, orwhether there have been multiple ownership changes since our formation, due to the costs and complexities associated with such a study. We may haveexperienced various ownership changes, as defined by the Code, as a result of past financing transactions. Accordingly, our ability to utilize theaforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against futuretaxes. Therefore, we may not be able to take full advantage of these carryforwards for federal or state income tax purposes. If any of our products are approved for commercial sale and we start to realize profitability, we may determine that there is sufficient positive evidence tosupport a reversal of, or decrease in, the valuation allowance on our deferred tax assets. If we were to reverse all or some part of our valuation allowance, ourfinancial statements in the period of reversal would likely reflect an increase in assets on our balance sheet and a corresponding tax benefit to our statementof operations in the amount of the reversal. As of December 31, 2013, we had U.S. federal net operating loss carryforwards of $50.6 million (of which $14.3 million will result in a benefit to additionalpaid in capital upon realization as they relate to excess benefits from stock option exercises) and research and development credits of $0.6 million whichexpire in 2023 through 2033. We adopted Accounting Standards Codification (ASC) 740-10, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109,on January 1, 2007. We analyzed our tax position in all jurisdictions where we are required to file an income tax return and concluded that we do not haveany material unrecognized tax benefits. We file U.S. income tax returns as well as tax returns for any state jurisdiction in which we are authorized to conductbusiness. Our policy is to recognize interest and penalties accrued on any unrecognized tax benefit within the provision for income taxes on the statement ofoperations. We have no interest or penalties accrued for any unrecognized tax benefits for any periods presented. Our annual provision for income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of managementjudgment. Management’s judgments, assumptions and estimates relative to the current provision for income taxes take into account current tax laws, ourinterpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. We operate withinfederal, state and international taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues that may requirean extended period of time to resolve. 66Table of Contents Stock-Based Compensation We account for stock-based compensation in accordance with the provisions of ASC 718, Compensation—Stock Compensation. Accordingly, compensationcosts related to equity instruments granted are recognized over the requisite service periods of the awards on a straight-line basis at the grant-date fair valuecalculated by either using a Black-Scholes option pricing model for stock option valuations or the closing stock price on date of grant for restricted stock.Additionally, under the provisions of ASC 718, we are required to include an estimate of the number of awards that will be forfeited in calculatingcompensation costs. Any changes to the estimated forfeiture rates are accounted for prospectively. For stock options granted as consideration for services rendered by non-employees, we recognize expense in accordance with the requirements of ASC Topic505-50, Equity Based Payments to Non-Employees . Non-employee option grants that do not vest immediately upon grant are recorded as an expense overthe vesting period of the underlying stock options. At the end of each financial reporting period prior to vesting, the value of these options, as calculatedusing the Black-Scholes option-pricing model, is re-measured using the fair value of our common stock and the non-cash expense recognized during theperiod is adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change in the future, the amount of the futureexpense will include fair value re-measurements until the stock options are fully vested. Revenue Recognition We have not yet generated any revenue from product sales. Our sole source of revenue is grant revenue related to a $1.0 million research grant received fromthe Leukemia and Lymphoma Society in October 2013. Grant payments received prior to our performance of work required by the terms of the research grantare recorded as deferred revenue and recognized as grant revenue once work is performed and qualifying costs are incurred. Results of Operations Comparison of Years Ended December 31, 2013 and 2012 Research and development expense. Research and development expense was $16.2 million for the year ended December 31, 2013, compared with $3.4million for the year ended December 31, 2012, and increase of $12.8 million. The higher costs were primarily attributable to the ramp up in developmentactivities for our lead compound SL-401. The increase in costs associated with SL-401 includes higher salaries, benefits and non-cash compensation costs of$6.0 million and manufacturing development expenses of $2.4 million. Additionally, the higher expense was partially due to $2.0 million of in-processresearch and development associated with an assignment agreement with our chief executive officer. As we begin to initiate clinical trials for SL-401 and SL-701 during 2014, we expect that our research and development expenses will ramp up and increase compared to prior periods. We expect this increase incosts will continue for the foreseeable future. General and administrative expense. General and administrative expenses were $7.9 million for the year ended December 31, 2013, compared with $3.0million for the year ended December 31, 2012, an increase of $4.9 million. The higher expenses were driven by increased salary, benefit and non-cashcompensation costs of $2.6 million to support the increased governance responsibility of a public company coupled with one-time IPO bonuses. Additionally, we incurred higher expenses for consultants, insurance and rent during 2013. Interest expense. Interest expense was $0.5 million for the year ended December 31, 2013, compared with $0.1 million for the year ended December 31,2012. The increase in expense of $0.4 million is due to the amortization of the debt discount of the 2.45% convertible notes and due to the charge toearnings for the beneficial conversion of the 2.45% convertible notes. The 2.45% convertible notes were converted to common stock in April 2014. Other income. Other income was $0.3 million for both of the years ended December 31, 2013 and December 31, 2012. This income was primarily related tothe research and development credit refund received from the City of New York in both years. Comparison of Years Ended December 31, 2012 and 2011 Research and development expense. Research and development expense was $3.4 million for the year ended December 31, 2012, compared with$1.6 million for the year ended December 31, 2011, an increase of $1.8 million. This increase was primarily attributable to increased costs pertaining to thecontinued development of our lead compound SL-401, including $1.6 million of consulting fees and $1.5 million of salary and related costs including stock-based compensation. 67Table of Contents General and administrative expense. General and administrative expense was $3.0 million for the year ended December 31, 2012, compared with$1.1 million for the year ended December 31, 2011. This increase was primarily attributable to $2.0 million of corporate legal fees and professional fees. Interest expense. Interest expense was $118,765 for the year ended December 31, 2012, compared with $98,643 for the year ended December 31, 2011,resulting in a $20,122 increase. Interest income. Interest income was $9,907 for the year ended December 31, 2012, compared with $24,068 for the year ended December 31, 2011. The$14,161 decrease in interest income for 2012 as compared to 2011 reflected lower cash balances in 2012. Other income. Other income was $301,684 for the year ended December 31, 2012, compared with $46,673 for the year ended December 31, 2011. The$255,011 increase in other income for 2012 as compared to 2011 was primarily due to the tax filing in the third quarter of 2012 for a $203,806Biotechnology Tax Credit from the City of New York for calendar year 2011 and the $68,815 mark to market of the put option liability. There are nocontinuing performance or refund obligations related to these grants. Liquidity and Capital Resources Sources of Liquidity We have generated minimal revenues to date and have funded our operations primarily through public and private sales of common stock and private sales ofconvertible preferred stock and issuances of convertible debt to our investors. From inception through December 31, 2013, we have received net proceeds of$101.6 million from the sale of common stock, $12.5 million from the sale of convertible preferred stock and $0.9 million from the issuance of convertibledebt. We may continue to incur substantial operating losses even if we begin to generate revenue from our drug candidate. As of December 31, 2013, our cash, cash equivalents and long-term investments totaled $84.4 million. We primarily invest our cash, cash equivalents andlong-term investments in U.S. Treasury and Agency securities and related U.S. Treasury money market funds with the balance in commercial operatingaccounts. We believe that our existing cash, cash equivalents and long-term investments will be sufficient to fund our operations and our capitalexpenditures for at least the next two years. Cash Flows The following table sets forth the primary sources and uses of cash for each of the periods set forth below: Year Ended December 31, 2013 2012 2011 Net cash used in operating activities$(16,118,487)$(4,126,548)$(1,936,480)Net cash used in investing activities(40,708,687)——Net cash provided by financing activities99,002,256322,000540,000Net increase (decrease) in cash and cash equivalents$42,175,082$(3,804,548)$(1,396,480) Operating activities. The use of cash in all periods resulted primarily from our net losses adjusted for non-cash stock-based compensation expense, non-cashinterest expense, the beneficial conversion of convertible interest, depreciation and charges associated with the mark to market of the put option liability andchanges in the components of working capital. The net cash used in operating activities increased in 2013, 2012 and 2011 mainly due to the ramp up andacceleration of the continued clinical and manufacturing development of our lead product candidates, SL-401 and SL-701. As we begin to initiate clinicaltrials for SL-401 and SL-701 during 2014, we expect that our research and development expenses will ramp up and increase compared to prior periods. Weexpect these higher costs will continue over the next two to three years, which will increase our use of cash to fund operations. The cash used for the yearsended December 31, 2013, 2012 and 2011 was also impacted by higher research and development expenses as we increased our research and developmentheadcount coupled with an increase in general and administrative expenses to support our IPO and becoming a public company. Investing activities. The net cash used in investing activities during 2013 resulted primarily from the purchase of long-term U.S. Treasury Agency securities. Financing activities. The net cash provided by financing activities for the year ended December 31, 2013 were the net proceeds from our initial publicoffering in January 2013 and secondary public offering in May 2013. The net cash provided by financing activities for the year ended December 31, 2012and, 2011 were due to the issuance of $0.4 million and $0.5 million of convertible notes, respectively. Funding Requirements All of our product candidates are still in clinical or preclinical development. We expect to continue to incur significant expenses and increasing operatinglosses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we: 68Table of Contents · continue the ongoing clinical trials, and initiate the planned clinical trials, of our lead product candidates, SL-401 and SL-701; · continue the research and development of our other product candidates and our platform technology; · seek to identify additional product candidates; · acquire or in-license other products and technologies; · seek marketing approvals for our product candidates that successfully complete clinical trials; · establish, either on our own or with strategic partners, a sales, marketing and distribution infrastructure to commercialize any products for whichwe may obtain marketing approval; · maintain, leverage and expand our intellectual property portfolio; and · add operational, financial and management information systems and personnel, including personnel to support our product development andfuture commercialization efforts. Our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least the next two years. Wehave based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, and the extent to whichwe may enter into collaborations with third parties for development and commercialization of our product candidates, we are unable to estimate the amountsof increased capital outlays and operating expenses associated with completing the development of our current product candidates. Our future capitalrequirements will depend on many factors, including: · the progress and results of the clinical trials of our lead product candidates; · the scope, progress, results and costs of compound discovery, preclinical development, laboratory testing and clinical trials for our otherproduct candidates; · the extent to which we acquire or in-license other products and technologies; · the costs, timing and outcome of regulatory review of our product candidates; · the costs of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our productcandidates for which we receive marketing approval; · revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval; · our ability to obtain government funding and operational support for our planned clinical trial of SL-701 in pediatric patients; · the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defendingintellectual property-related claims; and · our ability to establish any future collaboration arrangements on favorable terms, if at all. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debtfinancings, collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raiseadditional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of thesesecurities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involveagreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expendituresor declaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have torelinquish valuable rights to our technologies, future revenue streams, research programs or product 69Table of Contents candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings whenneeded, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop andmarket product candidates that we would otherwise prefer to develop and market ourselves. Expected Cash Requirements for Contractual Obligations The following table presents our expected cash requirements for contractual obligations for each of the following years subsequent to December 31, 2013: Less than 1-3 3-5 More thanTotal1 year years years 5 yearsOperating lease obligations (1) $1,518,750$607,500$911,250$—$—Investigator initiated clinical trials (2) 972,931243,233729,698——Clinical trial CRO obligations (3) 12,507,7575,156,4527,351,305——Bioprocessing Contract (4) 1,066,1641,066,164———License agreements (5) 695,40081,300273,900137,600202,600Total$16,761,002$7,154,649$9,266,153$137,600$202,600 (1) Operating lease obligations reflects our lease agreement with respect to our corporate offices at 750 Lexington Avenue, New York, New York, for amonthly rent of $50,625. The term of this lease agreement is 36 months. (2) Reflects our investigator initiated clinical trial agreement with a leading research hospital and other participating health institutions relating to theperformance of our feasibility/pilot study to evaluate the effects of SL-701, for a period through 2017. (3) We have agreements in place with two contract research organizations (CRO’s) to facilitate research, clinical and data management services inconnection with our two clinical-stage product candidates, SL-401 and SL-701. (4) In February 2013, the Company entered into a bioprocessing services agreement with a vendor for approximately $2.9 million if all services areperformed under the contract. Services under this contract are expected to be performed during 2013 and 2014. (5) We have executed several license agreements. Other than the payments noted in the table above, milestone and royalty payments associated withlicensing have not been included as management cannot reasonably estimate if or when they will occur. These agreements include the following: · Under a research and license agreement with Scott and White Hospital for SL-401, we are required to pay royalties on annual sales of licensedproducts. · Under three separate license agreements with the University of Pittsburgh, we are required to make aggregate development and regulatorymilestone payments associated with SL-701 and pay royalties on net sales of licensed products. · Under an exclusive patent and non-exclusive know-how license agreement with the Cambridge University Technical Services Limited, relatedto our StemScreen platform technology, we are required to make milestone payments upon specified regulatory events and pay royalties onsales of licensed products. Certain contractual payment obligations will extend beyond five years until certain specified milestones are achieved. For purposes of this calculation,we have assumed that these payment obligations have only been made in the sixth year. However, these payments would continue each subsequentyear until the specified milestones are achieved. 70®Table of Contents Off-Balance Sheet Arrangements We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivativeinstruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variableinterest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support, or engages in leasing, hedging, or researchand development services on our behalf. Tax Loss Carryforwards As of December 31, 2013, we had federal net operating loss carryforwards of $50.6 million, which may be available to reduce future taxable income. We alsohad federal tax credits of $0.6 million, which may be used to offset future tax liabilities. The net operating loss and tax credit carryforwards will expire atvarious dates through 2033. Net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Serviceand state tax authorities and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significantstockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, as well as similar stateprovisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of theannual limitation is determined based on the value of our Company immediately prior to the ownership change. Subsequent ownership changes may furtheraffect the limitation in future years. At December 31, 2013, we recorded a 100% valuation allowance against our net operating loss and tax creditcarryforwards, as we believe it is more likely than not that the tax benefits will not be fully realized. In the future, if we determine that a portion or all of thetax benefits associated with our tax carryforwards will be realized, net income would increase in the period of determination. Recently Adopted Accounting Standards See Note 2 to our financial statements for recently adopted accounting standards. Jumpstart Our Business Startups Act of 2012 We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we have and intend to continueto take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growthcompanies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, and exemptionsfrom the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments notpreviously approved. We are choosing to “opt out” of a provision that would allow us to take advantage of an extended transition period to comply withnew or revised accounting standards applicable to public companies and, as a result, we will comply with new or revised accounting standards as requiredwhen they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable. Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk related to changes in interest rates. We had cash, cash equivalents and long-term investments of $84.4 million as ofDecember 31, 2013, $2.0 million as of December 31, 2012 and $5.8 million as of December 31, 2011, consisting of cash, U. S. Treasury and Agency securitiesand Treasury-related money market funds. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level ofU.S. interest rates, particularly because our investments are in short-term securities. Our available for sale securities are subject to interest rate risk and will fallin value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio. We contract with CROs and CMOs. We may be subject to fluctuations in foreign currency rates in connection with these agreements. Transactionsdenominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. As of December 31,2013, 2012 and 2011, all of our liabilities were denominated in our functional currency. 71Table of Contents Item 8. Financial Statements and Supplementary Data Our financial statements and the notes thereto, included in Part IV, Item 15(a), part 1, are incorporated by reference into this Item 8. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures. As of December 31, 2013, management carried out, under the supervision and with the participation ofour Chief Executive Officer and Chief Accounting Officer, an evaluation of the effectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonableassurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in applicable rules and forms. Based upon that evaluation, our Chief Executive Officer and Chief AccountingOfficer concluded that, as of December 31, 2013, our disclosure controls and procedures were effective. Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequateinternal control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act). Our management assessed the effectivenessof our internal control over financial reporting as of December 31, 2013. In making this assessment, our management used the criteria set forth by theCommittee of Sponsoring Organizations of the Treadway Commission, known as COSO, in the 1992 Internal Control-Integrated Framework. Ourmanagement has concluded that, as of December 31, 2013, our internal control over financial reporting was effective based on these criteria. This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financialreporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SecuritiesExchange Commission that permit us to provide only management’s report on internal control in this report. Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter endedDecember 31, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Limitations on the Effectiveness of Controls. Our management, including our Chief Executive Officer and Chief Accounting Officer, does not expect that ourdisclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how wellconceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of acontrol system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of theinherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,within our company have been detected. Item 9B. Other Information None. Part III Item 10. Directors, Executive Officers and Corporate Governance The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2014 Annual Meeting of Stockholders. Item 11. Executive Compensation The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2014 Annual Meeting of Stockholders. 72Table of Contents Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2014 Annual Meeting of Stockholders. Item 13. Certain Relationships and Related Transactions and Director Independence. The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2014 Annual Meeting of Stockholders. Item 14. Principal Accounting Fees and Services. The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2014 Annual Meeting of Stockholders. 73Table of Contents Part IV Item 15. Exhibits, Financial Statements Schedules. (a) 1. Financial Statements The following financial statements of Stemline Therapeutics, Inc. are filed as part of this report. Contents Page Report of Independent Registered Public Accounting FirmF-2 Balance Sheets as of December 31, 2013 and 2012F-3 Statements of Operations for the Years ended December 31, 2013, 2012 and 2011, and the Period from August 8, 2003 (Inception) toDecember 31, 2013F-4 Statements of Comprehensive Loss for the Years ended December 31, 2013, 2012 and 2011, and the Period from August 8, 2003 (Inception) toDecember 31, 2013F-5 Statements of Preferred Stock and Stockholders’ Equity (Deficit) for the Period from August 8, 2003 (Inception) to December 31, 2013F-6 Statements of Cash Flows for the Years ended December 31, 2013, 2012 and 2011, and the Period from August 8, 2003 (Inception) toDecember 31, 2013F-7 Notes to the Financial StatementsF-8 2. Financial Statement Schedules All schedules are omitted as the information required is inapplicable or the information is presented in the financial statements or the related notes. 3. Exhibits Exhibit No. Description 3.1Restated Certificate of Incorporation of Stemline Therapeutics, Inc., filed as Exhibit 3.1 to Form 8-K filed on February 6, 2013 (FileNo.001-35619) and incorporated herein by reference. 3.2Amended and Restated Bylaws of Stemline Therapeutics, Inc., filed as Exhibit 3.2 to Form 8-K filed on February 6, 2013 (File No. 001-35619) and incorporated herein by reference. 3.3Certificate of Amendment of Restated Certificate of Incorporation of Stemline Therapeutics, Inc., filed as Exhibit 3.3 to Form 10-Q onAugust 14, 2013 (File No. 001-35691) and incorporated herein by reference. 4.1Specimen certificate evidencing shares of common stock, filed as Exhibit 4.1 to Form S-1/A filed on June 20, 2012 (File No. 333-180515) and incorporated herein by reference. 4.2Form of Representative’s Warrant Agreement, filed as Exhibit 4.2 to Form S-1/A filed on November 14, 2012 (File No. 333-180515) andincorporated herein by reference. 10.1†Research and License Agreement by and among the Company, Scott and White Memorial Hospital, Scott, Sherwood and BrindleyFoundation and Arthur E. Frankel, M.D., dated June 15, 2006; as amended by that certain First Amendment to Research and LicenseAgreement dated December 9, 2008, that certain Second Amendment to Research and License Agreement dated March 17, 2010 and thatcertain Third Amendment to Research and License Agreement dated July 12, 2011., filed as Exhibit 10.1 to Form S-1/A filed on June 20,2012 (File No. 333-180515) and incorporated herein by reference. 10.2†Exclusive License Agreement between the Company and the University of Pittsburgh, dated September 30, 2009, filed as Exhibit 10.2to Form S-1/A filed on June 20, 2012 (File No. 333-180515) and incorporated herein by reference. 10.3†Exclusive Patent and Non-Exclusive Know-How License Agreement between the Company and Cambridge 74Table of Contents University Technical Services Limited, commenced September 16, 2004, filed as Exhibit 10.3 to Form S-1/A filed on June 20, 2012 (FileNo. 333-180515) and incorporated herein by reference. 10.4†Non-Exclusive License Agreement between the Company and the University of Pittsburgh, dated March 30, 2012, filed as Exhibit 10.4to Form S-1/A filed on June 20, 2012 (File No. 333-180515) and incorporated herein by reference. 10.5†Non-Exclusive License Agreement between the Company and the University of Pittsburgh, dated March 21, 2012, filed as Exhibit 10.5to Form S-1 filed on April 2, 2012 (File No. 333-180515) and incorporated herein by reference. 10.6*Employment Agreement, dated November 6, 2011, between the Registrant and Eric K. Rowinsky, M.D., filed as Exhibit 10.6 to Form S-1filed on April 2, 2012 (File No. 333-180515) and incorporated herein by reference. 10.7*Employment Agreement, dated March 27, 2012, between the Company and John T. Cavan, filed as Exhibit 10.7 to Form S-1/A filed onJune 20, 2012 (File No. 333-180515) and incorporated herein by reference. 10.8*Employment Agreement, dated June 15, 2012, between the Registrant and Ivan Bergstein, M.D., filed as Exhibit 10.8 to Form S-1/Afiled on June 20, 2012 (File No. 333-180515) and incorporated herein by reference. 10.9*Form of Indemnification Agreement between the Registrant and each director, filed as Exhibit 10.9 to Form S-1/A filed on June 20, 2012(File No. 333-180515) and incorporated herein by reference. 10.10*Amended and Restated 2004 Employee, Director and Consultant Stock Plan, filed as Exhibit 10.10 to Form S-1 filed on April 2, 2012(File No. 333-180515) and incorporated herein by reference. 10.11*Form of Incentive Stock Option Agreement under Amended and Restated 2004 Employee, Director and Consultant Stock Plan, filed asExhibit 10.11 to Form S-1 filed on April 2, 2012 (File No. 333-180515) and incorporated herein by reference. 10.12*Form of Non-qualified Stock Option Agreement under Amended and Restated 2004 Employee, Director and Consultant Stock Plan, filedas Exhibit 10.12 to Form S-1 filed on April 2, 2012 (File No. 333-180515) and incorporated herein by reference. 10.13*2012 Equity Incentive Plan, filed as Exhibit 10.13 to Form S-1/A on July 19. 2012 (File No. 333-180515) and incorporated herein byreference. 10.14*Form of Incentive Stock Option Agreement under 2012 Equity Incentive Plan, filed as Exhibit 10.14 to Form S-1/A on July 19. 2012(File No. 333-180515) and incorporated herein by reference. 10.15*Form of Nonstatutory Stock Option Agreement under 2012 Equity Incentive Plan, filed as Exhibit 10.15 to Form S-1/A on July 19. 2012(File No. 333-180515) and incorporated herein by reference. 10.16*2011 Employee Cash Bonus Plan, filed as Exhibit 10.16 to Form S-1 filed on April 2, 2012 (File No. 333-180515) and incorporatedherein by reference. 10.17Senior Unsecured Convertible Note issued by the Company in favor of NB Athyrium LLC, dated March 16, 2010, filed as Exhibit 10.17to Form S-1 filed on April 2, 2012 (File No. 333-180515) and incorporated herein by reference. 10.18Exclusive License Agreement between the Company and Dr. Ivan Bergstein M.D., effective as of December 1, 2003, filed asExhibit 10.18 to Form S-1/A filed on June 20, 2012 (File No. 333-180515) and incorporated herein by reference. 10.19*Amended and Restated 2011 Employee Cash Bonus Plan, filed as Exhibit 10.19 to Form S-1/A filed on May 21, 2012 (File No. 333-180515) and incorporated herein by reference. 10.20Assignment Agreement between the Company and Ivan Bergstein, M.D., effective as of June 15, 2012, filed as Exhibit 10.20 to Form S-1/A filed on June 20, 2012 (File No. 333-180515) and incorporated herein by reference. 75Table of Contents 10.21*Offer Letter between the Company and Eric L. Dobmeier, dated April 25, 2012, filed as Exhibit 10.21 to Form S-1/A filed on June 20,2012 (File No. 333-180515) and incorporated herein by reference. 10.22*Offer Letter between the Company and J. Kevin Buchi, dated March 2, 2012, filed as Exhibit 10.22 to Form S-1/A filed on June 20, 2012(File No. 333-180515) and incorporated herein by reference. 10.23*Offer Letter between the Company and Kenneth Zuerblis, dated March 8, 2012, filed as Exhibit 10.23 to Form S-1/A filed on June 20,2012 (File No. 333-180515) and incorporated herein by reference. 10.24Amendment, dated July 26, 2012, to Senior Unsecured Convertible Note issued by the Company in favor of NB Athyrium LLC, filed asExhibit 10.24 to Form S-1/A on July 27, 2012 (File No.333-180515) and incorporated herein by reference. 10.25*Letter Agreement between the Company and John T. Cavan, dated July 26, 2012, filed as Exhibit 10.25 to Form S-1/A on July 27, 2012(File No.333-180515) and incorporated herein by reference. 10.26Amendment No. 1 to Assignment Agreement between the Company and Ivan Bergstein, M.D., dated as of November 7, 2012, filed asExhibit 10.26 to Form S-1/A on November 14, 2012 (File No. 333-180515) and incorporated herein by reference. 10.27Amendment No. 2 dated November 14, 2012, to Senior Unsecured Convertible Note issued by the Company in favor of NB AthyriumLLC, filed as Exhibit 10.27 to Form S-1/A on November 14, 2012 (File No. 333-180515) and incorporated herein by reference. 10.28*Offer Letter between the Company and Stephen P. Hall, dated October 1, 2012, filed as Exhibit 10.28 to Form S-1/A on January 8, 2013(File No. 333-180515) and incorporated herein by reference. 10.29*Employment Agreement between the Company and David G. Gionco, dated January 16, 2014, filed as Exhibit 10.1 to Form 8-K onJanuary 23, 2014 (File No. 001-35619) and incorporated herein by reference. 21.1List of subsidiaries of Stemline Therapeutics, Inc. 23.1Consent of Ernst & Young, LLP. 24.1Power of Attorney (included on signature page). 31.1Certificate of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2Certificate of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-OxleyAct of 2002. 32.1Certificate of principal executive officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002. 32.2Certificate of principal financial officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002. 101The following financial information from Stemline Therapeutics, Inc.’s Annual Report on Form 10-K for the year ended December 31,2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements ofOperations, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, (v) the Notes toConsolidated Financial Statements. † Confidential treatment has been granted with respect to the omitted portions of this exhibit. Confidential materials omitted and filed separately with theSecurities and Exchange Commission.* Management contract or compensatory plan, contract or agreement. 76Table of Contents STEMLINE THERAPEUTICS, INC.(A DEVELOPMENT STAGE COMPANY) Index to Financial Statements Contents Report of Independent Registered Public Accounting FirmF-2Balance Sheets as of December 31, 2013 and 2012F-3Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011, and the Period From August 8, 2003 (Inception) to December 31,2013F-4Statements of Comprehensive loss for the Years Ended December 31, 2013, 2012 and 2011, and the Period From August 8, 2003 (Inception) toDecember 31, 2013F-5Statements of Preferred Stock and Stockholders’ Equity (Deficit) for the Period From August 8, 2003 (Inception) to December 31, 2013F-6Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011, and the Period From August 8, 2003 (Inception) to December 31,2013F-7Notes to Financial StatementsF-8 F-1Table of Contents Report of Independent Registered Public Accounting Firm The Board of Directors and StockholdersStemline Therapeutics, Inc. We have audited the accompanying balance sheets of Stemline Therapeutics, Inc. (a development stage company) as of December 31, 2013 and 2012, and therelated statements of operations, comprehensive loss, preferred stock and stockholders’ equity (deficit) and cash flows for each of the three years in the periodended December 31, 2013 and the period from August 8, 2003 (Inception) to December 31, 2013. These financial statements are the responsibility of theCompany’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. We were not engagedto perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stemline Therapeutics, Inc. atDecember 31, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2013 and theperiod from August 8, 2003 (Inception) to December 31, 2013, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New JerseyMarch 31, 2014 F-2Table of Contents STEMLINE THERAPEUTICS, INC.(A DEVELOPMENT STAGE COMPANY)Balance Sheets December 31,2013 2012AssetsCurrent assets:Cash and cash equivalents$44,200,420$2,025,338Related party receivable199,615—Prepaid expenses and other current assets292,916299,089Total current assets44,692,9512,324,427Furniture and fixtures, net383,333—Long-term investments40,204,912—Deferred financing fees—2,705,184Total assets$85,281,196$5,029,611Liabilities and stockholders’ equity (deficit)Current liabilities:Accounts payable and accrued expenses$5,013,808$5,500,735Total current liabilities5,013,8085,500,735Deferred grant revenue643,000—Convertible notes—2,006,881Put option liability—30,415Total liabilities5,656,8087,538,031Stockholders’ equity:Preferred stock $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding atDecember 31, 2013 and 2012——Common stock $0.0001 par value, 33,750,000 shares authorized at December 31, 2013 and 22,500,000shares authorized at December 31, 2012, 13,095,726 shares issued and outstanding at December 31, 2013and 3,476,501 shares issued and outstanding at December 31, 20121,310347Additional paid-in capital111,032,6194,660,488Accumulated other comprehensive loss(43,775)—Accumulated deficit during the development stage(31,365,766)(7,169,255)Total stockholders’ equity (deficit)79,624,388(2,508,420)Total liabilities and stockholders’ equity (deficit)$85,281,196$5,029,611 See accompanying notes. F-3Table of Contents STEMLINE THERAPEUTICS, INC.(A DEVELOPMENT STAGE COMPANY)Statements of Operations Period FromAugust 8, 2003 (Inception) toYear Ended December 31, December 31,20132012 2011 2013 Revenues:Grant revenue$71,000$—$—$71,000Operating expenses:Research and development16,178,7443,376,9621,629,02627,624,412General and administrative7,871,7193,090,6111,088,02817,356,515Total operating expenses24,050,4636,467,5732,717,05444,980,927Loss from operations(23,979,463)(6,467,573)(2,717,054)(44,909,927)Other income280,687301,68446,6731,216,205Other expense—(35)(9,670)(9,705)Interest expense(516,871)(118,765)(98,643)(813,821)Interest income19,1369,90724,068979,719Net loss from operations(24,196,511)(6,274,782)(2,754,626)(43,537,529)Less accretion of preferred stock dividends———(2,591,165)Add discount on redemption of preferred stock———12,171,765Net loss attributable to common stockholders$(24,196,511)$(6,274,782)$(2,754,626)$(33,956,929)Net loss attributable to common stockholders per commonshare:Basic and Diluted$(2.35)$(1.82)$(0.80)Weighted-average shares outstanding:Basic and Diluted10,317,3513,441,9953,441,995 See accompanying notes. F-4Table of Contents Stemline Therapeutics, Inc.(A Development Stage Company)Statements of Comprehensive Loss Period from August 8, 2003 (Inception) toYear Ended December 31 December 31,20132012 2011 2013 Net loss$(24,196,511)$(6,274,782)$(2,754,626)$(33,956,929)Other comprehensive loss:Unrealized loss on investments(43,775)——(43,775)Other comprehensive loss(43,775)——(43,775)Comprehensive loss$(24,240,286)$(6,274,782)$(2,754,626)$(34,000,704) F-5Table of Contents Stemline Therapeutics, Inc.(A Development Stage Company)Statements of Preferred Stock and Stockholders’ Equity (Deficit)Period from August 8, 2003 (Inception) to December 31, 2013 Earnings (Deficit) AccumulatedAccumulated AdditionalOtherDuring theTotal Preferred Stock Common StockSubscriptionPaid-inComprehensiveDevelopmentStockholders’ Shares Capital Shares CapitalReceivableCapitalLossStageEquity (Deficit) Balance, August 8, 2003(Inception)Issuance of common stockto founder——1,807,050$181$—$11,756—$—$11,937Nonemployee stock basedcompensation—————16,670——16,670Issuance of common stock——451,75845—499,955——500,000Subscription receivable————(25,000)———(25,000)Net loss———————(166,538)(166,538)Balance, December 31, 2003———2,258,808226(25,000)528,381—(166,538)337,069Issuance of common stock——489,34949—1,999,951——2,000,000Nonemployee stock basedcompensation—————551,826——551,826Payment of subscriptionreceivable————25,000———25,000Net loss———————(950,448)(950,448)Balance, December 31, 2004———2,748,157275—3,080,158—(1,116,986)1,963,447Nonemployee stock basedcompensation—————286,931——286,931Net loss———————(807,622)(807,622)Balance, December 31, 2005———2,748,157275—3,367,089—(1,924,608)1,442,756Issuance of common stock——75,4717—739,703——739,710Stock-based compensation—————403,132——403,132Net loss———————(1,415,982)(1,415,982)Balance, December 31, 2006———2,823,628282—4,509,924—(3,340,590)1,169,616Issuance of preferred stock455,51812,500,000———————Issuance of common stock——1,019——10,043——10,043Stock-based compensation—————(35,706)——(35,706)Accretion of preferredstock dividend—230,137———(230,137)——(230,137)Net loss———————(1,571,755)(1,571,755)Balance, December 31, 2007—455,51812,730,1372,824,647282—4,254,124—(4,912,345)(657,939)Stock-based compensation—————143,738——143,738Accretion of preferredstock dividend—1,021,201———(1,021,201)——(1,021,201)Net loss———————(1,820,108)(1,820,108)Balance, December 31, 2008—455,51813,751,3382,824,647282—3,376,661—(6,732,453)(3,355,510)Stock-based compensation—————71,177——71,177Accretion of preferredstock dividend—1,100,107———(1,100,107)——(1,100,107)Net loss———————(1,777,776)(1,777,776)Balance, December 31,2009 —455,51814,851,4452,824,647282—2,347,731—(8,510,229)(6,162,216)Issuance of common stock——617,34862—1,802,518——1,802,580Stock-based compensation—————80,535——80,535Accretion of preferredstock dividend—239,720———(239,720)——(239,720)Redemption of preferredstock(455,518)(15,091,165)—————12,171,76512,171,765Net loss———————(1,801,383)(1,801,383)Balance, December 31, 2010——3,441,995344—3,991,064—1,860,1535,851,561Stock-based compensation—————108,405——108,405Net loss———————(2,754,626)(2,754,626)Balance, December 31, 2011——3,441,995344—4,099,469—(894,473)3,205,340Stock-based compensation—————561,022——561,022Restricted stock grants——34,5063—(3)———Net loss———————(6,274,782)(6,274,782)Balance, December 31, 2012——3,476,501347—4,660,488—(7,169,255)(2,508,420)Issuance of common stockfor cash in connectionwith initial andsecondary publicofferings, net ofissuance costs——8,573,911857—97,707,649——97,708,506Restricted stock grants——304,52830—(30)———Forfeiture of restrictedstock grants——(43,982)(4)—4———Stock-based compensation—————4,847,086——4,847,086Issuance of common stockin connection with theexercise of stockoptions——550,80156—1,293,694——1,293,750Issuance of common stockin connection with theconversion ofconvertible notes——233,96724—2,101,080——2,101,104Beneficial conversionrelated to interestexpense—————422,648——422,648Net loss———————(24,196,511)(24,196,511)Other comprehensive loss——————(43,775)—(43,775)Balance, December 31, 2013—$—13,095,726$1,310$—$111,032,619$(43,775)$(31,365,766)$79,624,388 See accompanying notes. F-6Table of Contents STEMLINE THERAPEUTICS, INC.(A DEVELOPMENT STAGE COMPANY)Statements of Cash Flows Period From August 8, 2003 (Inception) toYear Ended December 31, December 31,20132012 2011 2013Cash flows from operating activitiesNet loss$(24,196,511)$(6,274,782)$(2,754,626)$(43,537,529)Adjustments to reconcile net loss to net cash used inoperating activities:Depreciation76,667——76,667Stock-based compensation expense4,847,086561,022108,4057,046,753Non-cash interest expense94,223118,76598,643391,173Mark-to-market of put option liability(30,415)(68,815)9,670(111,420)Beneficial conversion of convertible interest422,648——422,648Changes in operating assets and liabilities:Prepaid expenses and other current assets6,173(75,879)53,336(292,916)Related party receivable(199,615)——(199,615)Accounts payable and accrued expenses2,218,2571,613,141548,0925,013,808Deferred grant revenue643,000——643,000Net cash used in operating activities(16,118,487)(4,126,548)(1,936,480)(30,547,431)Cash flows from investing activitiesPurchase of furniture and fixtures(460,000)——(460,000)Purchase of marketable securities(40,248,687)——(60,793,774)Redemption of marketable securities———20,545,087Net cash used in investing activities(40,708,687)——(40,708,687)Cash flows from financing activitiesProceeds from issuance of preferred stock, net———12,500,000Redemption of preferred stock———(750,000)Proceeds from issuance of common stock, net97,708,506——101,550,788Proceeds from exercise of stock options1,293,750——1,293,750Proceeds from issuance of convertible notes—322,000540,000862,000Net cash provided by financing activities99,002,256322,000540,000115,456,538Net increase (decrease) in cash and cash equivalents42,175,082(3,804,548)(1,396,480)44,200,420Cash and cash equivalents at beginning of period2,025,3385,829,8867,226,366—Cash and cash equivalents at end of period$44,200,420$2,025,338$5,829,886$44,200,420Supplemental disclosure of non-cash transactionsDiscount on redemption of preferred stock$—$—$—$12,921,765Issuance of common stock on redemption of preferred stock$—$—$—$1,200,000Accretion of preferred stock dividend$—$—$—$1,339,827 See accompanying notes. F-7Table of Contents STEMLINE THERAPEUTICS, INC.(A DEVELOPMENT STAGE COMPANY)NOTES TO FINANCIAL STATEMENTSDecember 31, 2013 1. Organization and Basis of Presentation Organization Stemline Therapeutics, Inc. (the “Company”) is a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing andcommercializing proprietary therapeutics that target both cancer stem cells (“CSCs”) and tumor bulk. The Company’s activities to date have primarilyconsisted of advancing its two clinical stage programs, expanding and strengthening its intellectual property portfolio, developing its proprietary drugdiscovery platform, identifying and acquiring additional product and technology rights and raising capital. Accordingly, the Company is considered to be inthe development stage as defined in Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 915, Development StageEntities. The Company was incorporated in Delaware on August 8, 2003 (“Inception”) and has its principal office in New York, New York. Stemline Therapeutics, Inc. has incurred losses from operations since inception of $43.5 million. Since its inception, most of its resources have beendedicated to the discovery, acquisition and preclinical and clinical development of its product candidates. In particular, it has expended and will continue toexpend substantial resources for the foreseeable future developing its clinical candidates, SL-401 and SL-701, as well as its preclinical product candidatesand drug discovery and acquisition efforts. These expenditures will include costs associated with general and administrative costs, facilities costs, researchand development, acquiring new technologies, manufacturing product candidates, conducting preclinical experiments and clinical trials and obtainingregulatory approvals, as well as commercializing any products approved for sale. Furthermore, it expects to incur additional costs associated with operatingas a public company. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its productscurrently in development. The Company expects its research and development expenses to increase significantly in connection with its planned Phase 2bclinical trial of SL-401 in BPDCN and its planned randomized Phase 2b clinical trial of SL-401 for the treatment of patients with AML as well as its plannedPhase 2b clinical trials of SL-701 for the treatment of patients with brain cancer. As a result, the Company expects to continue to incur significant andincreasing operating losses for the foreseeable future. Initial Public Offering On January 31, 2013, the Company completed its initial public offering (the “IPO”), selling 3,317,644 shares at an offering price of $10.00 per share. OnJanuary 29, 2013, the underwriters exercised in full their over-allotment option to purchase an additional 497,647 shares at an offering price of $10.00 pershare. Aggregate gross proceeds from the IPO, including the exercise of the over-allotment option, were $38.2 million and net proceeds received afterunderwriting fees and offering expenses were approximately $32.3 million. Additionally, upon the closing of the IPO, certain transactions were triggeredbased on a successful completion of an IPO. Convertible debt of $1.4 million principal, plus accrued interest thereon, was converted into 166,769 shares ofcommon stock. The Company recorded approximately $1.5 million of compensation expense related to certain bonuses and salary increases payable uponcontinued employment and the occurrence of a specified financing, including the consummation of an initial public offering. Finally, the Company recordedone-time compensation expense of approximately $1.4 million for certain options and restricted stock that fully vested upon the closing of the IPO. Secondary Public Offering On May 16, 2013, the Company completed a follow-on public offering (the “Secondary Offering”), selling 4,137,931 shares at an offering price of $14.50 pershare. On May 22, 2013, the underwriters exercised in full their over-allotment option to purchase an additional 620,689 shares at an offering price of $14.50per share. Aggregate gross proceeds from the Secondary Offering, including the exercise of the over-allotment option, were $69.0 million, and net proceedsreceived after underwriting fees and offering expenses were approximately $64.5 million. The Company may seek additional capital through a combination of private and public equity offerings, debt financings and collaborations and strategic andlicensing arrangements. If adequate funds are not available to the Company on a timely basis, or at all, the Company may be required to terminate or delay clinical trials or otherdevelopment activities for SL-401 or SL-701, or for one or more indications for which it is developing SL-401 and SL-701, or delay its establishment of salesand marketing capabilities or other activities that may be necessary to commercialize SL-401 or SL-701, if the Company obtains marketing approval. F-8Table of Contents 1. Organization and Basis of Presentation (continued) Common Stock Splits and Amendments to Certificate of Incorporation In March 2012, the Company amended its certificate of incorporation to increase the number of authorized shares of common stock from 3,000,000 shares to3,515,000 shares. On July 16, 2012, the Company filed an amendment to its Certificate of Incorporation whereby it (i) increased the number of authorized shares of commonstock from 3,515,000 to 45,000,000 shares and increased the number of authorized shares of preferred stock from 100,000 to 10,000,000 shares and(ii) effectuated a 3.6141-for-1 forward stock split of its common stock. On November 8, 2012, the Company filed an amendment to its Certificate of Incorporation whereby it (i) decreased the number of authorized shares ofcommon stock from 45,000,000 to 22,500,000 shares and decreased the number of authorized shares of preferred stock from 10,000,000 to 5,000,000 sharesand (ii) effectuated a 1-for 2.0 reverse stock split of its common stock. The accompanying audited financial statements and notes to the audited financialstatements give retroactive effect to the July 16, 2012 and the November 8, 2012 stock splits for all periods presented. At the 2013 meeting of stockholders held on June 19, 2013, stockholders voted in favor of an amendment to the Company’s Restated Certificate ofIncorporation to increase the Company’s authorized share capital by 11,250,000 shares of common stock. As of December 31, 2013, the Company wasauthorized to issue 33,750,000 shares of common stock. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the US (US GAAP) requires management to makeestimates and assumptions that affect the reported financial position at the date of the financial statements and the reported results of operations during thereporting period. Such estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assetsand liabilities in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications Certain prior period amounts have been reclassified to conform to the current year presentation. Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid instruments purchased with an original maturity of three months or less. At December 31, 2013 and 2012,cash equivalents consist of deposits in financial institutions. The Company maintains its cash deposits and cash equivalents with well-known and stablefinancial institutions. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash equivalents. The Companyinvests its excess cash in major U.S. banks and financial institutions, and its deposits, at times, exceed federally insured limits. The Company has notexperienced any losses from credit risks. Investments The Company’s investments are considered to be available-for-sale and are carried at fair value. Unrealized gains and losses, if any, are reported as a separatecomponent of stockholders’ equity (deficit) and are not reflected in the statements of operations until a sale transaction occurs or when declines in fair valueare deemed to be other-than-temporary (“OTT”). The cost of investments classified as available-for-sale are adjusted for the amortization of premiums andaccretion of discounts to maturity and recorded in other income (expense), net. Realized gains and losses, if any, are determined using the specificidentification method and are included in other income (expense), net. Investments with original maturities beyond 90 days at the date of purchase and whichmature at, or less than twelve months from, the balance sheet date are classified as current. Investments with a maturity beyond twelve months from thebalance sheet date are classified as long-term. Fair Value of Financial Instruments The Company’s financial instruments consist principally of cash and cash equivalents, investments, other current assets, accounts payable and accruedliabilities. Cash and cash equivalents, and long-term investments are carried at fair value (see Note 6). Financial instruments including other assets, accountspayable and accrued liabilities are carried at cost, which approximated fair value given their short-term nature. F-9Table of Contents 2. Summary of Significant Accounting Policies (continued) Other-Than-Temporary Impairment Losses on Investments The Company regularly monitors its available-for-sale portfolio to evaluate the necessity of recording impairment losses for OTT declines in the fair value ofinvestments. Management makes this determination through the consideration of various factors such as management’s intent and ability to retain aninvestment for a period of time sufficient to allow for any anticipated recovery in market value. OTT impairment losses result in a permanent reduction of thecost basis of an investment. The Company established its available for sale portfolio in 2013. For the year ended December 31, 2013 the Company did notrealize any investment losses due to OTT declines in fair value. Furniture and Fixtures Furniture and fixtures are stated at cost, less accumulated depreciation. Depreciation is provided over the estimated useful lives of the respective assets, whichis three years, using the straight-line method. Impairment of Long-Lived Assets The Company reviews long-lived assets, (the Company’s furniture and fixtures), for impairment whenever events or changes in business circumstancesindicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted futurecash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. The impairment loss, if recognized, wouldbe based on the excess of the carrying value of the impaired asset over its respective fair value. The Company purchased fixed assets during 2013. For theyear ended December 31, 2013 the Company did not realize any impairment losses. Deferred Financing Fees Deferred financing fees include legal, accounting, printing, and other fees directly attributable to the Company’s offering of its equity securities. These feesare deferred and capitalized on the balance sheet. Costs attributable to equity offerings are charged against proceeds of the offering once the offering iscompleted. Grant Revenue Recognition The Company has not yet generated any revenue from product sales. The Company’s sole source of revenue is grant revenue related to a $1.0 million researchgrant received from the Leukemia and Lymphoma Society in October 2013. This research grant was awarded to the Company to support funding some of thecosts for the upcoming SL-401 clinical trials. Grant payments received prior to the Company’s performance of work required by the terms of the researchgrant are recorded as deferred revenue and recognized as grant revenue once work is performed and qualifying costs are incurred. The Company hasrecognized approximately $0.1 million of revenue related to the Leukemia and Lymphoma Society grant for the year ended December 31, 2013, whichreflects three months of revenue recognized on a straight line basis, based on the Company’s best estimates of the timing of work to be performed andqualifying costs incurred. Accrued Clinical Development Costs Outside research costs are a component of research and development expense. These expenses include fees paid to contract research organizations and otherservice providers that conduct certain clinical and product development activities on behalf of the Company. Depending upon the timing of payments to theservice providers, the Company recognizes prepaid expenses or accrued expenses related to these costs. These accrued or prepaid expenses are based onmanagement’s estimates of the work performed under service agreements, milestones achieved and experience with similar contracts. The Company monitorseach of these factors and adjusts estimates accordingly. Research and Development Costs Research and development costs are comprised primarily of costs for personnel, including salaries and benefits; clinical studies performed by third parties;materials and supplies to support the Company’s clinical programs; contracted research; manufacturing; related consulting arrangements; costs related toupfront and milestone payments under license agreements; and other expenses incurred to sustain the Company’s overall research and developmentprograms. Internal research and development costs are expensed as incurred. Third-party research and development costs are expensed as the contracted workis performed. In certain circumstances, the Company is required to make advance payments to vendors for goods or services that will be received in the futurefor use in research and development activities. In such circumstances, the advance payments are deferred and are expensed when activities have beenperformed or when the goods have been received. F-10Table of Contents 2. Summary of Significant Accounting Policies (continued) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to the differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases and operatingloss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years inwhich those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date. The asset and liability method requires that deferred tax assets and liabilities be recorded without consideration as to their realizability. The deferred tax assetprimarily includes net operating loss and tax credit carryforwards, accrued expenses not currently deductible and the cumulative temporary differencesrelated to certain research and patent costs, which have been charged to expense in the accompanying statements of operations but have been recorded asassets for income tax purposes. The portion of any deferred tax asset for which it is more likely than not that a tax benefit will not be realized must then beoffset by recording a valuation allowance. A valuation allowance has been established against all of the deferred tax assets (see Note 12), as it is more likelythan not that these assets will not be realized given the history of operating losses. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on thetechnical merits of the position. The amount of the accrual for which an exposure exists is measured as the largest amount of benefit determined on acumulative probability basis that the Company believes is more likely than not to be realized upon ultimate settlement of the position. Stock-Based Compensation The Company accounts for stock-based compensation in accordance with the provisions of ASC 718, Compensation—Stock Compensation. Accordingly,compensation costs related to equity instruments granted are recognized over the requisite service periods of the awards on a straight-line basis at the grant-date fair value calculated using a Black-Scholes option pricing model for stock options and the closing stock price on date of grant for restricted stock.Additionally, under the provisions of ASC 718, the Company is required to include an estimate of the number of awards that will be forfeited in calculatingcompensation costs. Any changes to the estimated forfeiture rates are accounted for prospectively. For stock options granted as consideration for services rendered by non-employees, the Company recognizes expense in accordance with the requirements ofASC Topic 505-50, Equity Based Payments to Non-Employees . Non-employee option grants that do not vest immediately upon grant are recorded as anexpense over the vesting period of the underlying stock options. At the end of each financial reporting period prior to vesting, the value of these options, ascalculated using the Black-Scholes option-pricing model, is re-measured using the fair value of the Company’s common stock and the non-cash expenserecognized during the period is adjusted accordingly. Since the fair market value of options granted to non-employees is subject to change in the future, theamount of the future expense will include fair value re-measurements until the stock options are fully vested. Segment information The Company reports segment information in accordance with applicable guidance on segment disclosures. The Company has one reportable segment. F-11Table of Contents 2. Summary of Significant Accounting Policies (continued) Recent Accounting Pronouncements In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating LossCarryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under this new guidance, companies must present this unrecognized tax benefit inthe consolidated financial statements as a reduction to deferred tax assets created by net operating losses or other tax credits from prior periods that occur inthe same taxing jurisdiction. If the unrecognized tax benefit exceeds such credits it should be presented in the consolidated financial statements as a liability.This update is effective for annual and interim reporting periods for fiscal years beginning after December 15, 2013. The adoption of this standard isdisclosure related only and will not have any impact on the Company’s operating results and financial position. In February 2013, the FASB issued ASU 2013-03, Financial Instruments (Topic 825). The amendments in the Update clarifies the scope and applicability of adisclosure exemption that resulted from the issuance of Accounting Standards Update No. 2011-04, “Fair Value Measurement (Topic 820): Amendments toAchieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. The amendment clarifies that the requirement to disclose“the level of the fair value hierarchy within which the fair value measurements are categorized in their entirety (Level 1, 2, or 3)” does not apply to nonpublicentities for items that are not measured at fair value in the statement of financial position, but for which fair value is disclosed. ASU 2013-03 is effective uponits issuance. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements. In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated OtherComprehensive Income (ASU 2013-02). This ASU requires companies to present either in a single note or parenthetically on the face of the financialstatements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and theincome statement line items affected by the reclassification. This guidance is effective for annual reporting periods beginning after December 15, 2012. Theadoption of this standard did not have a material impact on the Company’s consolidated financial statements. In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05). This ASUamends Accounting Standards Codification (ASC) Topic 220, Comprehensive Income , to require an entity to present the total of comprehensive income, thecomponents of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in twoseparate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement ofequity. ASU 2011-05 became effective for the Company in 2012 and was applied retrospectively. The Company adopted this pronouncement and elected topresent a separate statement of comprehensive income. The adoption of ASU 2011-05 did not have any impact on the Company’s operating results andfinancial position. 3. Net Income (Loss) Per Common Share The Company accounts for and discloses net income (loss) per share using the treasury stock method. Net income (loss) per common share, or basic income(loss) per share, is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Net income (loss) per commonshare assuming dilutions, or diluted income (loss) per share, is computed by reflecting the potential dilution from the exercise of in-the-money stock options,non-vested restricted stock and non-vested restricted stock units. The following table sets forth the computation of basic and diluted net loss per share for the periods indicated: Year Ended December 31,20132012 2011Basic and Diluted loss per common share calculation:Net income loss attributable to common shareholders — basic and diluted$(24,196,511)$(6,274,782)$(2,754,626)Basic and diluted weighted-average common shares10,317,3513,441,9953,441,995Basic and diluted net loss per share$(2.35)$(1.82)$(0.80) F-12Table of Contents 3. Net Income (Loss) Per Common Share (continued) The difference between basic and diluted weighted-average common shares generally results from the assumption that dilutive stock options outstandingwere exercised, dilutive restricted stock has vested, outstanding warrants are issued and the conversion of convertible notes. For the years ended 2013, 2012,and 2011, the Company reported a loss from operations and therefore, all potentially dilutive stock options, restricted stock, outstanding warrants andconvertible notes as of such date were excluded from the computation of diluted net loss per share as their effect would have been anti-dilutive. The totalshares of stock options, restricted stock, outstanding warrants and convertible notes that could potentially dilute earnings per share in the future, but whichwere not included in the calculation of diluted net loss per share because their affect would have been anti-dilutive were as follows: Year Ended December 31 2013 2012 2011 Unvested restricted stock229,25034,506—Options outstanding1,228,4861,819,8391,233,074Warrants99,529——Convertible notes—233,967233,967Total1,557,2652,088,3121,467,041 4. Investments The following table summarizes the Company’s cash equivalents and investments: December 31, 2013 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses ValueCash equivalents:Money market funds$41,441,975$—$—$41,441,975Long-term investments:Fixed-income treasury portfolio:Federal home loan bank13,789,246—(14,752)13,774,494Federal farm credit bank11,476,874—(13,701)11,463,173Freddie Mac10,020,626—(8,340)10,012,286Fannie Mae4,961,941—(6,982)4,954,959Total Long-term investments40,248,687—(43,775)40,204,912Total$81,690,662$—$(43,775)$81,646,887 The company did not hold any investments or cash equivalents at December 31, 2012. At December 31, 2013, remaining contractual maturities of available-for-sale investments classified as current on the balance sheet were less than 12 months,and remaining contractual maturities of available-for-sale investments classified as long-term were less than two years. There were no unrealized gains or losses on investments reclassified from accumulated other comprehensive income to other income (expense) in theStatement of Operations during the year ended December 31, 2013. F-13Table of Contents 5. Furniture and Fixtures Furniture and fixtures consist of the following at December 31, 2013 and 2012: December 31, December 31, 2013 2012Office furniture and fixtures$460,000$—Less accumulated depreciation(76,667)—Furniture and fixtures, net$383,333$— Depreciation expense was $76,667 for the year ended December 31, 2013. 6. Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that aremeasured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes theuse of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1 — Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 — Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly. Level 3 — Inputs that are unobservable for the asset or liability. F-14Table of Contents 6. Fair Value Measurements (continued) The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liability measured at fair valueon a recurring basis as of December 31, 2013 and 2012: December 31, 2013 Quoted Prices in Active Significant Markets for Other Significant Balance Identical Observable Unobservabl at Assets Inputs Inputs December 31, (Level 1) (Level 2) (Level 3) 2013Assets:Cash and cash equivalents$44,200,420$—$—$44,200,420Long-term investments40,204,912——40,204,912Total assets at fair value$84,405,332$—$—$84,405,332 December 31, 2012 Quoted Prices in Active Significant Markets for Other Significant Balance Identical Observable Unobservabl at Assets Inputs Inputs December 31, (Level 1) (Level 2) (Level 3) 2012Assets:Cash and cash equivalents$2,025,338$—$—$2,025,338Total assets at fair value$2,025,338$—$—$2,025,338Liabilities:Put option$—$—$(30,415)$(30,415)Total liabilities at fair value$—$—$(30,415)$(30,415) There were no transfers between levels in the fair value hierarchy during any of the periods presented herein. F-15Table of Contents 6. Fair Value Measurements (continued) Level 3 Disclosures The changes in fair value of the Company’s Level 3 put option liability during the years ended December 31, 2013, December 31, 2012 and December 31,2011 were as follows: Level 3Balance at December 31, 2010$89,560Fair value adjustment to put option liability included in other expense9,670Balance at December 31, 201199,230Fair value adjustment to put option liability included in other income(68,815)Balance as of December 31, 201230,415Fair value adjustment to put option liability included in other income(30,415)Balance as of December 31, 2013$— For the year ended December 31, 2013, the changes in the fair value of the put option liability resulted from the expiration of the put option in conjunctionwith the conversion of half of the principal of the 2.45% convertible note, along with accrued interest, into common stock as a result of the IPO. The balanceof the note was converted into common stock in April 2013. No other changes in valuation techniques or inputs occurred during the year endedDecember 31, 2013. For the year ended December 31, 2012, the changes in the fair value of the put option liability resulted from an adjustment to the remaining period to theexpected outcome and taking into consideration the July 26, 2012 and November 14, 2012 amendments to the 2.45% convertible note described under“Convertible Notes” below. No other changes in valuation techniques or inputs occurred during the year ended December 31, 2012. The fair value of the put option liability was determined utilizing a probability weighted discounted financial model based on management’s assessment ofthe likelihood of achievement of certain outcomes based on significant inputs not observable in the market, which causes it to be classified as a Level 3measurement within the fair value hierarchy. The valuation of the put option liability uses assumptions and estimates the Company believes would be madeby a market participant in making the same valuation. 7. Other Accrued Liabilities Other accrued liabilities consist of the following: December 31,2013 2012Accrued research and development costs$1,966,360$972,218Accrued compensation2,043,704100,000Short-term portion of deferred revenue286,000—Accrued legal372,2673,289,806Other accrued liabilities345,4771,138,711Total$5,013,808$5,500,735 F-16Table of Contents 8. Convertible Notes The following table summarizes the Company’s convertible notes at December 31, 2013 and 2012: December 31, 2013 Accrued Interest and Principal bond discount Total 2.45% Convertible Notes$—$—$—1.27% Convertible Notes——— Total$—$—$— December 31, 2012 Accrued Interest and Principal bond discount Total 2.45% Convertible Notes$1,250,000$(116,036)$1,133,9641.27% Convertible Notes862,00010,917872,917 Total$2,112,000$(105,119)$2,006,881 As a result of the successful completion of the IPO in January 2013, $625,000 in principal amount, plus accrued interest thereon, of the 2.45% ConvertibleNote converted into 66,913 shares of the Company’s common stock at the initial public offering price of $10.00 per share. In addition, in April 2013, theCompany and NB Athyrium LLC, the holder of the 2.45% Convertible Note, entered into an amendment to the 2.45% Convertible Notes pursuant to whichNB Athyrium agreed to convert the remaining $625,000 in principal amount, plus accrued interest thereon, into 67,198 shares of the Company’s commonstock at the initial public offering price of $10.00 per share. As of December 31, 2013, all of the obligations under the 2.45% Convertible Note had beensatisfied. As a result of the successful completion of the IPO in January 2013, the 1.27% Convertible Notes and related accrued interest were converted into 99,856shares of the Company’s common stock at a conversion price equal to 87.5% of the initial public offering of $10.00 per share. The Company originally issued the 2.45% Convertible Note on March 16, 2010, in the amount of $1.25 million in connection with the redemption of theSeries A preferred stock. The 2.45% Convertible Note was initially recorded at fair value of $0.90 million and due on March 16, 2015 bearing interest at therate of 2.45% per annum. Pursuant to the terms of the 2.45% Convertible Notes, upon the occurrence of a non-qualified financing event, as defined in the agreement, the 2.45%Convertible Note and any accrued interest are convertible at the option of the holder into cash or shares (the “Put Option”) of the same securities issued in thenon-qualified financing event at the same price per share used in the non-qualified financing event, or the holder may elect to continue to retain the note. The Put Option was originally recorded at approximately $111,000, its fair value on the date of issuance and marked to fair value at each reporting period.The Fair value of the Put Option was zero and $30,415 at December 31, 2013 and 2012, respectively. The change in the fair value of the put option liabilityresulted from the expiration of the put option in conjunction with the conversion of half of the principal of the 2.45% convertible note, along with accruedinterest, into common stock as a result of the IPO in January 2013. The balance of the note was converted into common stock in April 2013. For the yearsended December 31, 2013, 2012 and 2011, changes in the fair value of the Put Option of $(30,415), $(68,815), and $9,760 respectively, were recorded inOther Income and Other Expense in the Statement of Operations. The 2.45% and the 1.27% Convertible Notes contained a beneficial conversion option such that immediately upon the occurrence of one of the financingsdiscussed above. As a result of the successful completion of the IPO in January 2013 and the Secondary Offering in May 2013, the Company recorded abeneficial conversion charge to interest expense with a corresponding credit to additional paid-in capital in the amount of $422,648, which reflects thedifference between the conversion price and the fair value of the new shares multiplied by the number of shares. F-17Table of Contents 8. Convertible Notes (continued) For the years ended December 31, 2013, 2012 and 2011, the Company recorded interest expense of $76,355, 77,224 and $99,000, respectively, related to theamortization of the debt discount on the Convertible Notes. 9. Capital Structure Common Stock At the 2013 annual meeting of stockholders held on June 19, 2013, the stockholders voted in favor of an amendment to the Company’s Restated Certificateof Incorporation to increase the Company’s authorized share capital by 11,250,000 shares of common stock. As of December 31, 2013, the Company wasauthorized to issue 33,750,000 shares of common stock. Dividends on common stock will be paid when, and if, declared by the board of directors. Each holder of common stock is entitled to vote on all matters andis entitled to one vote for each share held. The Company will, at all times, reserve and keep available, out of its authorized but unissued shares of commonstock, sufficient shares to effect the conversion of the shares of the stock options. Representative’s Warrants On October 1, 2012, the Company agreed to issue to the representative of the underwriters in the IPO warrants to purchase up to 99,529 shares of theCompany’s common stock in the event of a successful public offering. The warrants are exercisable for cash or on a cashless basis at a price per share equal to$15.00. The term of the warrants is four years and they expire on January 28, 2018. Based on a successful public offering in January of 2013, these warrantswere issued and accounted for as a cost of issuance. The Company has determined, based upon a Black-Scholes model, that the fair value of the warrants onthe date of IPO was $413,146. The Company has accounted for the fair value of the warrants as a cost of issuance of common stock from the IPO resulting in acharge directly to stockholder’s equity. 10. Revenue In October 2013, the Company entered into an award contract (“the Agreement”) with The Leukemia and Lymphoma Society (LLS). LLS is a nationalvoluntary health agency which, among other activities encourages and sponsors research relating to Leukemia, lymphoma, Hodgkin’s disease and myelomato develop therapies to cure or mitigate these Disease’s. To further its mission, LLS provides research funding to entities that can demonstrate after LLS’sreview process that their proposed research projects have scientific promise to advance LLS’s effort to find treatments and cures for the above Diseases andtheir complications. Pursuant to the Agreement LLS agreed to provide funding to the Company not to exceed $3.5 million to fund the Company’sdevelopment program related to the Company’s pre-clinical and clinical product development activities. The Company received $1.0 million inOctober 2013, upon execution of the Agreement and could receive the additional $2.5 million based on the completion of certain milestone events. TheCompany has recognized approximately $0.1 million of revenue related to the Leukemia and Lymphoma Society grant for the year ended December 31,2013, which reflects three months of revenue recognized on a straight line basis, based on the Company’s best estimates of work performed and qualifyingcosts incurred. The agreement terminates when there are no longer any payment obligations. 11. Stock-Based Compensation The Company’s 2012 Stock Equity Incentive Plan (the “2012 Plan”), which was adopted by the board of directors and approved by the stockholders inJuly 2012, became effective immediately prior to the closing of the Company’s initial public offering. In addition, the Company’s 2004 Stock Option andGrant Plan (the “2004 Plan”) was terminated effective immediately prior to the closing of the Company’s initial public offering. The 1,819,839 options topurchase common stock and 34,506 restricted stock awards executed prior to the effective date of such termination remain in full force and effect pursuant totheir terms and the terms of the 2004 Plan. The 2012 Plan initially authorized the Company to grant up to 1,663,727 shares of common stock to eligibleemployees, directors, and non-employee consultants and advisors to the Company in the form of options to purchase common stock of the Company at aprice not less than the estimated fair value at the date of grant. Under the provisions of the 2012 Plan, no option will have a term in excess of 10 years. As of December 31, 2013, there were 1,217,699 shares of common stock available for future grants under the 2012 Plan. F-18Table of Contents 11. Stock-Based Compensation (continued) Total compensation cost that has been charged against operations related to the above plans was approximately $4.8 million, $0.6 million and $0.1 millionfor the years ended December 31, 2013, 2012 and 2011, respectively. The exercise of stock options and the vesting of restricted stock during the year endedDecember 31, 2013 generated an income tax deduction of approximately $16.1 million. The Company does not recognize a tax benefit with respect to anexcess stock compensation deduction until the deduction actually reduces the Company’s income tax liability. At such time, the Company utilizes the netoperating losses generated by excess stock-based compensation to reduce its income tax payable and the tax benefit is recorded as an increase in additionalpaid-in-capital. No income tax benefit was recognized in the statements of operations for share-based compensation arrangements for the years endedDecember 31, 2013, 2012 and 2011. The following table summarizes stock-based compensation related to the above plans by expense category for the years ended December 31, 2013, 2012 and2011: Year Ended December 31,2013 2012 2011Research and development$3,301,996$412,536$79,955General and administrative1,545,090148,48628,450Total$4,847,086$561,022$108,405 Stock Options The Company grants stock options to employees, Directors and non-employee consultants, with exercise prices equal to the closing price of the underlyingshares of the Company’s common stock on the date that the options are granted. Options granted have a term of 10 years from the grant date. Options grantedto employees generally vest over a four-year period and options granted to directors vest in equal yearly installments over a three-year period from the date ofgrant. Options to Directors are granted on an annual basis and represent compensation for services performed on the Board of Directors. Compensation costfor stock options granted to employees and Directors is charged against operations using the straight-line attribution method between the grant date for theoption and each vesting date. The Company estimates the fair value of stock options on the grant date by applying the Black-Scholes option pricingvaluation model. The application of this valuation model involves assumptions that are highly subjective, judgmental and sensitive in the determination ofcompensation cost. The weighted-average key assumptions used in determining the fair value of options granted for the years ended December 31, 2013, 2012 and 2011, are asfollows: Year Ended December 31, 2013 2012 2011 Risk-free interest rate2.10%0.95%2.66%Expected volatility78.23%78.95%72.86%Dividend yield———Expected life6.26 years6.25 years6.26 years Due to the lack of trading history, the Company’s computation of stock-price volatility is based on the volatility rates of comparable publicly heldcompanies over a period equal to the estimated useful life of the options granted by the Company. The Company’s computation of expected life wasdetermined using the “simplified” method which is the midpoint between the vesting date and the end of the contractual term. The Company believes that itdoes not have sufficient reliable exercise data in order to justify the use of a method other than the “simplified” method of estimating the expected exerciseterm of employee stock option grants. The Company has paid no dividends to stockholders. The risk-free interest rate is based on the zero-coupon U.S.Treasury yield at the date of grant for a term equivalent to the expected term of the option. For the year ended December 31, 2013 the Company issued approximately 550,801 shares of the Company’s common stock upon the exercise of outstandingstock options and received proceeds of approximately $1.3 million. There were no exercises of stock options for the years ended December 31, 2012 and2011. For the years ended December 31, 2013, 2012 and 2011 the Company realized no tax benefit from the exercise of stock options. As of December 31,2013, there was approximately $2.8 of unrecognized compensation cost, adjusted for estimated forfeitures, related to unamortized stock option compensationwhich is expected to be recognized over a remaining weighted-average period of approximately 2.4 years. Total unrecognized compensation cost will beadjusted for future changes in estimated forfeitures. F-19Table of Contents 11. Stock-Based Compensation (continued) The Company’s stock options outstanding at December 31, 2013, 2012 and 2011 and changes during the years ended December 31, 2013, 2012 and 2011 arepresented below: Options Weighted-AverageExercise Price Weighted-AverageRemainingContractual Life AggregateIntrinsicValueOutstanding at December 31, 20101,009,007$2.42Options granted224,0672.92Options exercised——Options forfeited——Outstanding at December 31, 20111,233,074$2.51Options granted621,8283.30Options exercised——Options forfeited(35,063)3.30Outstanding at December 31, 20121,819,839$2.76Options granted159,50019.08Options exercised(550,801)2.37Options forfeited(102,052)2.71Outstanding at December 31, 20131,326,486$4.897.08$19,937,678Options exercisable at December 31, 2013751,752$3.446.12$12,149,061 The aggregate intrinsic value in the previous table reflects the total pretax intrinsic value (the difference between the Company’s closing stock price on thelast trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options) that would have been receivedby the option holders had all option holders exercised their options on December 31, 2013. The intrinsic value of the Company’s stock options changesbased on the closing price of the Company’s common stock. The total intrinsic value of options exercised (the difference in the market price of theCompany’s common stock on the exercise date and the price paid by the optionee to exercise the option) was approximately $14.8 million for the year endedDecember 31, 2013. There were no exercises of stock options for the years ended December 31, 2012 and 2011. Restricted Stock The Company grants restricted stock to its employees and Directors. Restricted stock is recorded as deferred compensation and charged against income on astraight-line basis over the vesting period, which ranges from one to four years in duration. Restricted stock to Directors are granted on a yearly basis andrepresent compensation for services performed on the Company’s Board of Directors. Restricted stock awards to Directors vest in equal installments over athree-year period from the grant date. Compensation cost for restricted stock is based on the award’s grant date fair value, which is the closing market price ofthe Company’s common stock on the grant date, multiplied by the number of shares awarded. The Company’s non-vested restricted stock at December 31, 2013, 2012 and 2011, and changes during the years ended December 31, 2013 and 2012 arepresented below: Number of Shares Weighted-Average GrantDate Fair ValuePer ShareOutstanding at December 31, 2011—$—Shares granted34,5065.97Shares vested——Shares forfeited——Outstanding at December 31, 201234,506$5.97Shares granted304,52818.18Shares vested(65,802)11.53Shares forfeited(43,982)23.35Outstanding at December 31, 2013229,250$17.34 For the year ended December 31, 2013, the Company granted 304,528 shares of restricted stock, at a weighted-average grant date fair value of $18.18 pershare amounting to approximately $5.5 million in total aggregate fair value. At December 31, 2013, approximately 229,250 shares remained unvested andthere was approximately $3.1 million of unrecognized compensation cost related to restricted F-20Table of Contents 11. Stock-Based Compensation (continued) stock which is expected to be recognized over a remaining weighted-average period of approximately 2.9 years. The total fair value of restricted stock vestedduring the year ended December 31, 2013 was approximately $1.3 million. There were no vestings of restricted stock for the years ended December 31, 2012and 2011. Performance Share Awards Subsequent to the closing of the IPO, certain options and restricted stock began to vest to directors, consultants and key employees. The Company recordedapproximately $1.4 million of stock-based compensation expense associated with 573,424 options with a weighted average exercise price of $2.38 and 8,625shares of restricted stock that fully vested upon consummation of an IPO. In addition, 281,895 options commenced vesting based upon the consummation ofthe IPO and the Company will record $1.8 million on the vesting of these options over their expected lives. For awards with performance conditions, such as capital raises, an IPO, a change in control or a sale of the company, no expense is recognized, and nomeasurement date can occur, until the occurrence of the event is probable. As of December 31, 2012, it was not probable that one of these performanceconditions would be met, and as such, there is no accounting for these shares as of December 31, 2012. Awards Granted to Non-Employees The Company periodically re-measures the fair value of stock-based awards issued to non-employees and records expense over the requisite service period.Total compensation cost that has been charged against operations related to options granted to non-employees was approximately $0.8 million, $0.1 millionand $24,000 for the years ended December 31, 2013, 2012 and 2011, respectively. F-21Table of Contents 12. Income Taxes The benefit for income taxes consists of the following for the years ended December 31: 20132012 2011Deferred:Federal$(8,861,971)$(1,775,748)$(786,282)State and local(2,813,740)(1,062,155)(470,377)(11,675,711)(2,837,903)(1,256,659)Increase in valuation allowance11,675,7112,837,9031,256,659Total tax expense$—$—$— A reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows: Year Ended December 31, 2013 2012 2011Percent of pre-tax income:U.S. federal statutory income tax rate(34.0)%(34.0)%(34.0)%State taxes, net of federal benefit(11.6)(11.3)(12.2)Permanent items(2.6)(0.3)0.6Change in valuation allowance48.245.645.6Effective income tax rate—%—%—% The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets were as follows: December 31,2013 2012Current deferred tax assets:Accrued expenses$1,259,692$712,590Valuation allowance(1,259,692)(712,590)Total current deferred tax assets$—$— Noncurrent deferred tax assets:Net operating loss carryforwards$16,374,002$6,682,819Research credits644,203473,380Convertible debt interest expense—81,087Nonqualified stock compensation2,188,701824,89819,206,9068,062,184Valuation allowance(19,206,906)(8,062,184)Total noncurrent deferred tax assets$—$— In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assetswill not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which thetemporary differences representing net future deductible amounts become deductible. Due to the Company’s history of losses, the deferred tax assets are fullyoffset by a valuation allowance at December 31, 2013, 2012 and 2011. The following table summarizes carryforwards of net operating losses and tax credits as of December 31, 2013: AmountExpirationFederal net operating losses$50,590,000(A)2023 — 2033State net operating losses$50,648,000(A)2023 — 2033Research and development credits$644,2032023 — 2033 (A) Of which $14.3 million will be a benefit to additional paid in capital upon realization as they relate to excess benefits from stock option exercises. F-22Table of Contents 12. Income Taxes (continued) The Internal Revenue Code of 1986, as amended (the “Code”) provides for a limitation of the annual use of net operating losses and other tax attributes (suchas research and development tax credit carryforwards) following certain ownership changes (as defined by the Code) that could limit the Company’s abilityto utilize these carryforwards. At this time, the Company has not completed a study to assess whether an ownership change under section 382 of the Code hasoccurred, or whether there have been multiple ownership changes since the Company’s formation, due to the costs and complexities associated with such astudy. The Company may have experienced various ownership changes, as defined by the Code, as a result of past financing transactions. Accordingly, theCompany’s ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwardsmay be applied against future taxes. Therefore, the Company may not be able to take full advantage of these carryforwards for federal or state income taxpurposes. The Company did not have unrecognized tax benefits as of December 31, 2013 and does not expect this to change significantly over the next twelve months.As of December 31, 2013, the Company has not accrued interest or penalties related to uncertain tax positions. The Company’s tax returns for the years endedDecember 31, 2008 through December 31, 2013 are still subject to examination by major tax jurisdictions. 13. Commitments and Contingencies License Agreements The Company has entered into research and development agreements with third parties for the development of oncology products. These agreements requirethe Company to fund the development of such products and potentially make milestone payments and royalties on net sales in the future based on theCompany’s successful development of the products. The timing and the amount of milestone payments in the future are not certain. Under the Company’s license agreements, the Company could be required to pay up to a total of $29.0 million upon achieving certain milestones, such as theinitiation of clinical trials or the granting of patents. From inception through December 31, 2013, the Company has paid or accrued $2.2 million in paymentsresulting from the execution of certain agreements, patent approvals, the initiation of sponsor research agreements, and compound development agreements.Milestone payments will also be due upon the issuance of certain patents, the initiation of certain clinical trials, the submission of regulatory applicationsand certain regulatory approvals, in addition to sales milestones and single digit royalties payable on commercial sales if any occur. Scott and White In June 2006, the Company entered into a research and license agreement, as amended in December 2008, March 2010 and July 2011 (collectively the “S&WAgreement”), with Scott and White Memorial Hospital and Scott, Sherwood and Brindley Foundation, and its affiliate Scott and White Clinic (collectively“S&W”) to fund the activities of S&W to conduct research involving SL-401, a clinical-stage compound that the Company has exclusively licensed. Thiscompound is being developed to treat patients with AML, BPDCN, and other hematologic cancers. The Company is required to pay customary single digitroyalties on sales, if any, of new products approved utilizing the licensed compounds, and a percentage of up-front payments the Company receives from asublicensee. The S&W Agreement will expire in its entirety upon the later of (i) the 10th anniversary of the first commercial sale of a product, or (ii) theexpiration of the last issued patent claiming or covering a product. The Company may terminate the S&W Agreement at its sole discretion at any time after aspecified number of days following written notice and either party may terminate for a material breach of the agreement that is not cured within a specifiednumber of days. F-23Table of Contents University of Pittsburgh In September 2009, the Company entered into an exclusive license agreement with the University of Pittsburgh (“UP”) that covers patent rights claiming ananalog peptide of IL-13Rα2, an active ingredient of SL-701, a vaccine that is being developed to treat patients with advanced brain cancer (the “UPAgreement”). The Company paid UP an upfront license fee that was expensed to research and development cost for the year ended December 31, 2009. Inaddition to the upfront payment, the Company will be required to pay annual fees, milestones (which are contingent upon achievement of pre-definedclinical, regulatory and commercial events), single-digit royalties on net sales, if any, of new products approved utilizing the licensed compounds, and apercentage of non-royalty revenue from sublicensees, which decreases if the applicable sublicense agreement is entered into after a certain clinical milestonehas been met. The UP Agreement will expire in its entirety upon the expiration of the last issued patent claiming or covering the product. The Company mayterminate the UP Agreement at its sole discretion at any time after a specified number of days following written notice and UP may terminate for a materialbreach of the agreement by the Company that is not cured within a specified number of days. In March 2012, the Company entered into a non-exclusive license agreement with UP that covers patent rights claiming a peptide of EphA2, another activeingredient of SL-701, which the Company may use in or packaged with proprietary vaccines, including SL-701, for the diagnosis, treatment or prevention ofdiseases and tumors of the brain. The Company paid UP an initial license fee and will be required to pay UP annual license maintenance fees until the firstcommercial sale of a licensed product, a customary single digit royalty on sales, and a minimum annual royalty following the first commercial sale of alicensed product. The UP Agreement will expire in its entirety upon the expiration of the last issued patent claiming or covering the product. The Companymay terminate the UP Agreement at its sole discretion at any time after a specified number of days following written notice and UP may terminate for amaterial breach of the agreement by the Company that is not cured within a specified number of days. In March 2012, the Company also entered into a non-exclusive license agreement with UP for the right to use certain information and data contained in theINDs for the clinical trials of SL-701 that were conducted by UP. The Company may use the information and data for the development, manufacture,regulatory approval and commercialization of pharmaceutical products, and UP has granted the Company a right of reference to such INDs for its planned SL-701 clinical trial of pediatric patients with glioma. The Company paid UP an initial license fee, part of which is deferred until March 2013, and will berequired to make a payment following a specified regulatory milestone, and a percentage of non-royalty revenue received from any sublicensees. The UPAgreement will expire in its entirety in March 2032 unless earlier terminated by a party. The Company may terminate the UP Agreement at its sole discretionat any time prior to incorporating or referencing the data or UP INDs, after a specified number of days following written notice, and UP may terminate for amaterial breach of the agreement by the Company that is not cured within a specified number of days or if the IL-13Rα2 license agreement is terminated. Other The Company has also licensed rights to certain technologies or intellectual property in the field of oncology. The Company is generally required to makeupfront payments as well as other payments upon successful completion of preclinical, clinical, regulatory or sales milestones. In addition, these agreementsgenerally require the Company to pay royalties on sales of the products arising from these agreements. These agreements generally permit the Company toterminate the agreement with no significant continuing obligation. As part of the agreements discussed above, the Company has committed to make potential future milestone payments to third parties as part of its licensingagreements. Payments generally become due and payable only upon the achievement of certain developmental, regulatory and/or commercial milestones.Because the achievement of these milestones is neither probable nor reasonably estimable, the Company has not recorded a liability on its balance sheet forany such contingencies. Compensation Arrangements Subsequent to the closing of the IPO, certain bonuses and salary increases in the amount of $1.0 million were paid upon approval of the board of directorsand the satisfaction of certain contingencies, with an additional $0.4 million subject to the same contingencies and payable one year after the IPO. F-24Table of Contents Contractual Agreements In February 2013, the Company entered into a bioprocessing services agreement with a vendor for approximately $2.9 million if all services are performedunder the contract. As of December 31, 2013, approximately $2.1 million of the contract had been paid or accrued. The remaining services under thiscontract are expected to be performed during 2014. In October 2013, the Company entered into a clinical trial agreement with a leading research hospital and other participating institutions, relating to theperformance of our feasibility/pilot study to evaluate the effects of SL-701. As of December 31, 2013 approximately $0.1 million in costs relating to thiscontract had been incurred and paid or accrued. Services under this contract are expected to be performed through 2017. The Company’s total obligationunder the contract is expected to be approximately $1.0 million. The Company has agreements in place with two contract research organizations (CRO’s) to facilitate research and clinical and data management services inconnection with our two clinical-stage product candidates, SL-401 and SL-701. The Company’s total obligation under these contracts is expected to beapproximately $12.5 million through 2016. Lease Agreement In July 2013, the Company entered into a leasing agreement with respect to its corporate offices at 750 Lexington Avenue, New York, New York, for amonthly rent of $50,625. The term of this lease agreement is 36 months. The Company’s future annual minimum lease payments for each of the following calendar years are as follows: 2014$607,5002015607,5002016303,750$1,518,750 Rent expense charged to operations was approximately $0.3 million for the year ended December 31, 2013. Rent expense is included in general andadministrative expenses in the Company’s Statement of Operations. In June 2008, the Company entered into an office sharing agreement relating to its corporate headquarters in New York, New York. Expense incurred underthe office sharing agreement was $60,000 for each of the years ended December 31, 2010 and 2011. The Company subsequently terminated the office sharingagreement as of December 2011. In February 2012, the Company entered into a leasing agreement with respect to its current corporate offices at 750Lexington Avenue, New York, New York, for a monthly rent of $2,041. The term of this lease agreement was six months. The Company is currently leasingthe same office space on a month-to-month basis. 14. Related Party Items Receivable from Related Party In November 2013, the Company recorded a $0.2 million receivable from an executive of the Company related to New York State tax withholdings resultingfrom an exercise of stock options. This item is reflected on the Company’s December 31, 2013 balance sheet as a related party receivable. Assignment Agreement with the Company’s Chief Executive Officer On June 15, 2012, the Company entered into an assignment agreement with Dr. Bergstein, the Company’s Chairman, President and Chief Executive Officerand owner of certain proprietary patent rights and related technology. Pursuant to the assignment agreement, as amended on November 7, 2012, effectiveimmediately prior to the registration statement for the Company’s initial public offering being declared effective by the Securities and ExchangeCommission, Dr. Bergstein agrees to assign, sell, transfer and convey to the Company all of his right, title and interest in and to these patent rights and relatedtechnology in exchange for $2.0 million in cash or a combination of cash and shares of Company common stock, payable only if, within five years of thedate of transfer, the Company either (i) has a change in control, as defined in the assignment agreement, or (ii) achieves a market capitalization of at least$200 million for a prescribed period. Under the terms of the assignment agreement, as amended, 50% of such payment shall be paid in cash and the remaining50% may be paid in shares of Company common stock, or a combination of cash and common stock, as determined by the Company. If the Company electsto settle payment in shares, the Company will value the shares at the date of issuance. None of the assigned patent rights and related technology hasalternative future uses, nor have they reached a stage of technological feasibility. The Company accounted for this transaction as an asset acquisition as itachieved a market capitalization of $200 million for the prescribed period because it did not acquire any processes or activities in addition to the assignedrights and technology. The Company has recorded the entire purchase price to acquire in-process research and development expense. The assignmentagreement does not contain any vesting or rescission/refund provisions. F-25Table of Contents 15. Other Income and Expense The components of other income and other expense for the years ended December 31, 2013, 2012 and 2011are as follows: Other Income:2013 2012 2011 Mark-to-market valuation adjustment to Put Option$30,415$68,615$—New York City Biotechnology R&D tax credit249,477203,80646,673Other79529,263—Total other income$280,687$301,684$46,673 Other expense:2013 2012 2011 Mark-to-market valuation adjustment to Put Option$—$—$9,670Other—35—Total other income$—$35$9,670 Other income includes funds from the City of New York for the 2013, 2012 and 2011 Biotechnology Tax Credit program. The income from these programs isa reimbursement of expenses directly related to specific qualifying research programs in accordance with the guidelines of the respective tax credit programsand there are no performance or refund obligations. These expenses were incurred in prior periods and therefore the income was recorded when the funds werereceived. Other income and other expense also includes the mark-to-market of the put option liability associated with the issuance of convertible notes. SeeNotes 6 and 8 for further discussion of the Put Option. 16. Selected Quarterly Financial Data (Unaudited) Quarters EndedMarch31June30 September30 December 312013Net loss attributable to common stockholders$(5,505,646)$(5,450,638)$(5,573,524)$(7,666,703)Basic and diluted net loss per common share$(0.90)$(0.55)$(0.45)$(0.60)2012Net loss attributable to common stockholders$(1,170,384)$(1,844,839)$(1,965,463)$(1,294,096)Basic and diluted net loss per common share$(0.34)$(0.54)$(0.57)$(0.38) F-26Table of Contents Index to Exhibits Exhibit No.Description21.1List of subsidiaries of Stemline Therapeutics, Inc. 23.1Consent of Ernst & Young LLP. 24.1Power of Attorney (included on signature page). 31.1Certificate of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-OxleyAct of 2002. 31.2Certificate of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-OxleyAct of 2002. 32.1Certificate of principal executive officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002. 32.2Certificate of principal financial officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002. 101The following financial information from Stemline Therapeutics, Inc.’s Annual Report on Form 10-K for the year ended December 31,2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements ofOperations, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) the Notes toConsolidated Financial Statements. Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized. Date: March 31, 2014STEMLINE THERAPEUTICS, INC. By:/s/ Ivan Bergstein, M.D.Ivan Bergstein, M.D.Chairman, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ivan Bergstein, M.D. his true and lawfulattorney-in-fact and agent, with full power of substitution and resubstitution, for him and his name, place and stead, in any and all capacities, to sign any orall amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC,granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done inand about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-factand agent or any of his substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Form 10-K has been signed by the following persons on behalf of theRegistrant on March 31, 2014, and in the capacities indicated: SignaturesTitle /s/ Ivan Bergstein, M.D.Ivan Bergstein, M.D.Chairman, President and Chief Executive Officer (Principal Executive Officer) /s/ David G. GioncoDavid G. GioncoVice President of Finance and Chief Accounting Officer (Principal Financialand Accounting Officer) /s/ Ron BentsurRon BentsurDirector /s/ J. Kevin BuchiJ. Kevin BuchiDirector /s/ Eric L. DobmeierEric L. DobmeierDirector /s/ Kenneth ZuerblisKenneth ZuerblisDirector Exhibit 21.1 Stemline Therapeutics, Inc.List of Subsidiaries Stemline Therapeutics, Inc. does not have any subsidiaries. Exhibit 23.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statements: (1) Registration Statement on Form S-3 No. 333-193726 of Stemline Therapeutics, Inc., and, (2) Registration Statements on Form S-8 No. 333-188115 of Stemline Therapeutics, Inc.; of our report dated March 31, 2014, with respect to the financial statements of Stemline Therapeutics, Inc. included in this Annual Report (Form 10-K) for theyear ended December 31, 2013. /s/ Ernst & Young LLP MetroPark, New JerseyMarch 31, 2014 Exhibit 31.1 CERTIFICATION OF PERIODIC REPORTPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Ivan Bergstein, M.D., certify that: 1. I have reviewed this annual report on Form 10-K of Stemline Therapeutics, 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act 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 registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat 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 the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (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; and 5. 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; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date: March 31, 2014/s/ Ivan Bergstein, M.D.Ivan Bergstein, M.D.Chief Executive OfficerPrincipal Executive Officer Exhibit 31.2 CERTIFICATION OF PERIODIC REPORT PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002 I, David G. Gionco, certify that: 1. I have reviewed this annual report on Form 10-K of Stemline Therapeutics, 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act 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 registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat 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 the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (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; and 5. 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; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date: March 31, 2014/s/ David G. GioncoDavid G. GioncoChief Accounting OfficerPrincipal Financial and Accounting Officer Exhibit 32.1 STATEMENT OF CHIEF EXECUTIVE OFFICER OF STEMLINE THERAPEUTICS, INC.PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of Stemline Therapeutics, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2013 as filedwith the Securities and Exchange Commission (the “Report”), I, Ivan Bergstein, M.D., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge: 1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 31, 2014/s/ Ivan Bergstein, M.D.Ivan Bergstein, M.D.Chief Executive OfficerPrincipal Executive Officer Exhibit 32.2 STATEMENT OF CHIEF ACCOUNTING OFFICER OF STEMLINE THERAPEUTICS, INC. PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of Stemline Therapeutics, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2013 as filedwith the Securities and Exchange Commission (the “Report”), I, David G. Gionco, Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C.§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge: 1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 31, 2014/s/ David G. GioncoDavid G. GioncoChief Accounting OfficerPrincipal Financial and Accounting Officer 

Continue reading text version or see original annual report in PDF format above