ZIOPHARM Oncology, Inc Annual Report 2017

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549FORM 10-K ☒ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017OR ☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number 001-33038ZIOPHARM Oncology, Inc.(Exact Name of Registrant as Specified in Its Charter) Delaware 84-1475642(State or Other Jurisdiction ofIncorporation or Organization) (IRS EmployerIdentification No.)One First Avenue, Parris Building 34, Navy Yard PlazaBoston, Massachusetts 02129(Address of Principal Executive Offices) (Zip Code)(617) 259-1970(Registrant’s Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act:Common Stock (par value $0.001 per share)Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ 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 1934 during the past12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and postsuch files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best ofregistrant’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. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of“large accelerated filer,” “accelerate filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer ☒ Accelerated Filer ☐Non-Accelerated Filer ☐ Smaller Reporting Company ☐ Emerging growth company ☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒The aggregate market value of the registrant’s common stock held by non-affiliates was $808,804,937 as of June 30, 2017 (the last business day of the registrant’s mostrecently completed second fiscal quarter), based on a total of 130,032,948 shares of common stock held by non-affiliates and a closing price of $6.22 as reported on theNasdaq Capital Market on June 30, 2017. For purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates.Such determination should not be deemed to be an admission that such officers, directors or 10% beneficial owners, are, in fact, affiliates of the registrant.As of February 21, 2018, there were 142,398,936 shares of the registrant’s common stock, $0.001 par value per share, outstanding.DOCUMENTS INCORPORATED BY REFERENCE:Portions of the definitive proxy statement for the registrant’s 2018 annual meeting of stockholders, which is to be filed within 120 days after the end of the fiscal year endedDecember 31, 2017, are incorporated by reference into Part III of this Form 10-K, to the extent described in Part III.Table of ContentsZIOPHARM Oncology, Inc.ANNUAL REPORT ON FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2017TABLE OF CONTENTS Page PART I Item 1. Business 4 Item 1A. Risk Factors 35 Item 1B. Unresolved Staff Comments 69 Item 2. Properties 69 Item 3. Legal Proceedings 70 Item 4. Mine Safety Disclosures 70 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 71 Item 6. Selected Financial Data 73 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 73 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 85 Item 8. Financial Statements and Supplementary Data 85 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 85 Item 9A. Controls and Procedures 85 Item 9B. Other Information 86 PART III Item 10. Directors, Executive Officers and Corporate Governance 87 Item 11. Executive Compensation 87 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 87 Item 13. Certain Relationships and Related Transactions, and Director Independence 87 Item 14. Principal Accountant Fees and Services 87 PART IV Item 15. Exhibits and Financial Statement Schedules 88 Item 16. Form 10-K Summary 92 Signatures 93 Financial Statements F-1 All trademarks, trade names and service marks appearing in this Annual Report on Form 10-K are the property of their respective owners 1Table of ContentsSpecial Note Regarding Forward-Looking StatementsThis Annual Report on Form 10-K contains forward-looking statements that are based on management’s current beliefs and assumptions and oninformation currently available to management. All statements other than statements of historical facts contained in this Annual Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as: “anticipate,” “believe,” “estimate,” “expect,”“forecast,” “intend,” “may,” “plan,” “project,” “target,” “will” and other words and terms of similar meaning.These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to bematerially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonablebasis for each forward-looking statement contained in this report, we caution you that these statements are based on a combination of facts and factorscurrently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements in this Annual Report include,but are not limited to, statements about: • our ability to raise substantial additional capital to fund our planned operations and to continue as a going concern; • our estimates regarding expenses, use of cash, timing of future cash needs and capital requirements; • the development of our product candidates, including statements regarding the timing of initiation, completion and the outcome of clinicalstudies or trials and related preparatory work and the period during which the results of the trials will become available; • our ability to advance our product candidates through various stages of development, especially through pivotal safety and efficacy trials; • the risk that final trial data may not support interim analysis of the viability of our product candidates; • our expectation regarding the safety and efficacy of our product candidates; • the progress and timing of our research and development programs; • the timing, scope or likelihood of regulatory filings and approvals from the U.S. Food and Drug Administration or equivalent foreignregulatory agencies for our product candidates and for which indications; • our ability to license additional intellectual property relating to our product candidates from third parties and to comply with our existinglicense agreement; • our ability to achieve the results contemplated by our collaboration agreements and the benefits to be derived from relationships withcollaborators; • developments and projections relating to competition from other pharmaceutical and biotechnology companies or our industry; • our estimates regarding the potential market opportunity for our product candidates; • the anticipated rate and degree of market acceptance of our product candidates for any indication if approved; • the anticipated amount, timing and accounting of deferred revenues, milestones and other payments under licensing, collaboration oracquisition agreements, research and development costs and other expenses; • our intellectual property position, including the strength and enforceability of our intellectual property rights; • our ability to attract and retain qualified employees and key personnel; 2Table of Contents • the impact of government laws and regulations in the United States and foreign countries; and • other risks and uncertainties, including those listed under Part II, Item 1A, Risk Factors.Any forward-looking statements in this Annual Report reflect our current views with respect to future events and with respect to our future financialperformance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements tobe materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors thatmay cause actual results to differ materially from current expectations include, among other things, those described under Part II, Item 1A, Risk Factorsand elsewhere in this Annual Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except asrequired by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomesavailable in the future.Unless the context requires otherwise, references in this Annual Report to “Ziopharm,” the “Company,” “we,” “us” and “our” refer to ZiopharmOncology, Inc. and its subsidiaries. 3Table of ContentsPART IItem 1. BusinessBusiness OverviewZiopharm Oncology, Inc. is a biopharmaceutical company focused on discovering, acquiring, developing and commercializing next generationimmunotherapy platforms that leverage gene- and cell-based therapies to treat patients with cancer on its own and with partners. We are developingtwo immuno-oncology platform technologies designed to utilize the patient’s immune system by employing novel, controlled gene expression andinnovative cell engineering technologies to deliver safe, effective, and scalable cell- and viral-based therapies for the treatment of multiple cancertypes. Our first platform is Controlled IL-12, which delivers interleukin 12 or IL-12, a master regular of the immune system, in a controlled and safemanner to focus the patient’s immune system to cancer. Our second platform is referred to as Sleeping Beauty and is based on the genetic engineeringof T-cells using the Sleeping Beauty (SB) system to rapidly reprogram T-cells outside of the body for subsequent infusion. We believe these twoplatforms provide or will provide unique and powerful solutions intended to advance the field of immune-oncology and address the issues associatedwith (1) treating heterogenous solid tumors and unknown antigens therein through control of IL-12 and (2) providing rapid and cost-effectivemanufacturing solutions for CAR and TCR-based cell therapies for hematologic malignancies and solid tumors against known antigens.With our partner Precigen, Inc., or Precigen, a wholly owned subsidiary of Intrexon Corporation we are in late stage development of a gene therapy thatdelivers controlled IL-12 to treat patients with brain cancer, and based on technology licensed from MD Anderson Cancer Center, we are developingchimeric antigen receptor (CAR) T-cell (CAR+ T) and T-cell receptor (TCR) T-cell (TCR+ T) therapies. These programs are being advanced incollaboration with Precigen and selectively with MD Anderson Cancer Center (MD Anderson), the National Cancer Institute (NCI) and Ares Trading, orAres, a biopharmaceutical division of Merck KGaA, Darmstadt, Germany.Control of IL-12 is achieved from a replication-incompetent adenoviral (AD) vector administered via a single injection of virus into the brain tumorand engineered to conditionally express human IL-12 (hIL-12. The conditional expression of hIL-12 is modulated with the RheoSwitch TherapeuticSystem® (RTS®) by the small molecule veledimex, an activator ligand orally administered which has been shown to cross the blood-brain barrier. APhase 1 trial in patients at high risk for death due to disease progression produced data demonstrating the safety of controlled local expression of IL-12and showed that IL-12 by itself apparently can improve the survival of patients with recurrent glioblastoma, or rGBM. The mechanism by which thesepatients developed an anti-tumor effect is due to IL-12 turning “cold tumors hot” as shown from repeat biopsies that revealed a new and sustainedinfiltrate of activated T-cells producing interferon gamma (IFN-g) within the brain-tumor lesion. These data are consistent with biopsy data frompatients with breast cancer that also showed IL-12 turning cold tumors hot, which could have a profound impact for oncology in general.Initially, we are developing this controlled IL-12 therapy as a mono therapy entering a Phase 3 randomized control trial for the treatment of rGBM in2018 and as Phase 1 trials that are underway to evaluate stereotactic administration and for pediatric brain tumors. In addition, we are pursuing thedevelopment of controlled IL-12 combined with a checkpoint inhibitor, for which a Phase 1 trial is currently underway.We are using the non-viral SB transposon/transposase system to develop targeted therapies relating to novel CARs and TCRs. The SB technologyreprograms T-cells to recognize and attack cancer cells with certain pre-defined antigens. We believe our manufacturing process for producing and theninfusing genetically-modified T-cells holds significant potential to greatly reduce time of manufacture and cost which, we predict, will improvescalability to meet demand. SB-modified T-cells are being studied in Phase 1 studies to treat hematologic cancers, and we, together with our partners,intend to pursue other Phase 1 trials this year in additional indications, including solid tumors. 4Table of ContentsWe are developing these technologies pursuant to an exclusive channel partner agreement, or Channel Agreement, with Precigen, through which weobtained certain exclusive rights to Precigen’s technologies for use in the fields of oncology. In addition, we, together with Precigen, hold exclusiveworldwide rights to certain additional immuno-oncology technologies owned and licensed by MD Anderson, including technologies relating to SB.The Channel Agreement and the MD Anderson License, as well as other licensing agreements and collaborations with the NCI, Merck KGaA and othersare discussed in more detail below.Recent DevelopmentsControlled IL-12 PlatformIn January 2018, we provided updates on the continued development of our Controlled IL-12 platform and development programs for the treatment ofbrain cancer [at JPM?]. We announced the initiation of a Phase I clinical trial to evaluate Ad-RTS-hIL-12 plus veledimex in combination withOPDIVO® (nivolumab), an immune checkpoint, or PD-1 inhibitor, in adult patients with rGBM. We also updated guidance on our planned pivotal trialof Ad-RTS-hIL-12 plus veledimex and announced that we currently anticipate initiation in the second half of 2018, subject to regulatory approval. Wehave designed a Phase 3 randomized control trial to evaluate Controlled IL-12 for the treatment of patients with rGBM and following meetings withU.S. and European regulators, we are completing execution of Chemistry Manufacturing and Control (CMC) technical requirements.In November 2017, during the 22nd Annual Meeting and Education Day of the Society for Neuro-Oncology (SNO) in San Francisco, we made multiplepresentations on controlled IL-12. New data presented included sustained median overall survival (mOS) of 12.5 months for patients treated withAd-RTS-hIL-12 plus 20mg of veledimex (n=15) at a longer mean follow-up time of 11.1 months as of October 18, 2017, which compares favorably tothe 5- to 8-months overall survival data of approved therapies. Additional data relative to an influx of cytotoxic T-cells, increased expression levels ofPD-1 and PD-L1, peripheral biomarkers and the impact of low-dose steroids on survival were presented.In October 2017, we announced the first patient dosed in a Phase 1 trial of Ad-RTS-hIL-12 + veledimex for the treatment of pediatric brain tumors.Sleeping Beauty PlatformIn December 2017, we delivered multiple presentations on our adoptive cell therapy programs and application of the SB technology at the 59thAmerican Society of Hematology (ASH) Annual Meeting and Exposition in Atlanta. We presented on the advancement of our SB platform towardspoint-of-care (P-O-C) for very rapid manufacturing of genetically modified CAR+ T cells. Data presented from first- and second-generation SB clinicaltrials demonstrate tolerability, disease response, long-term survival and persistence of infused CD19-specific CAR+ T cells. Preclinical studiespresented at ASH and at the Keystone Symposia in February 2018 showed that P-O-C CAR+ T cells co-expressing membrane-bound interleukin-15(mbIL15) and a control switch manufactured within two days do not require activation or propagation in tissue culture to achieve anti-tumor effectsand prolonged T-cell survival in mice. Building on these data, we plan to initiate an investigator-led first P-O-C clinical trial in the second half of 2018at MD Anderson.We also updated guidance on the anticipated start of the NCI-led Phase 1 trial to evaluate adoptive cell transfer (ACT)-based immunotherapiesgenetically modified using the SB transposon/transposase system to express TCRs for the treatment of solid tumors. We, Intrexon (now Precigen), andNCI last year entered into a Cooperative Research and Development Agreement (CRADA) to develop and evaluate ACT for patients with advancedcancers using autologous peripheral blood lymphocytes (PBL) genetically modified using the non-viral SB system to express TCRs that recognizespecific immunogenic mutations, or neoantigens, expressed within a patient’s cancer. We expect this Phase 1 trial, which is being led by andconducted at the NCI, to be initiated in the second half of 2018. 5Table of ContentsRefocusing of Research and Development EffortsWe previously entered into an agreement with Intrexon (now Precigen) to pursue, through collaboration, the potential treatment and prevention of graftversus host disease, or GvHD. As a result of an in-depth review of our research and development portfolio, we determined that the pursuit of GvHD asan indication was not a material part of our corporate strategy and therefore have decided to stop pursuing the development of engineered cell therapystrategies, used either separately or in combination, for targeted treatment of GvHD. We have reverted our rights under the GvHD program back toPrecigen [and are in the process of winding down the related activities]. We made this decision to focus our efforts and resources on the development ofour Controlled IL-12 and Sleeping Beauty platforms for the treatment of oncology indications.Platform TechnologiesImmuno-oncology, which typically utilizes a patient’s own immune system to treat cancer, is one of the most actively pursued areas of research bybiotechnology and pharmaceutical companies today. Cancer cells contain mutated proteins and may overexpress other proteins usually found in thebody at low levels. The immune system typically recognizes unusual or aberrant cell protein expression and eliminates these cells in an efficientprocess known as immune surveillance. Central to immune surveillance are types of white blood cells known as T-cells and NK cells. In healthyindividuals, T-cells and NK cells can identify and kill infected or abnormal cells, including cancer cells. Cancer cells develop the ability to evadeimmune surveillance, which is a key factor in their growth, spread, and persistence. In the recent past, there has been substantial scientific progress incountering these evasion mechanisms using immunotherapies, or therapies that activate the immune system.Our approach to immuno-oncology entails the application of engineering principles to biological systems for designing and constructing newbiological systems or redesigning/modifying existing biological systems. Biological systems are governed by DNA, the building block of geneticprograms, which control cellular processes by coding to produce proteins and other molecules that have a functional purpose and by regulating theactivities of these molecules. This regulation occurs via complex biochemical and cellular reactions working through intricate cell signaling pathways,and control over these molecules modifies the output of biological systems. Our approach to immuno-oncology has been enabled by the application ofinformation technology and advanced statistical analysis, also known as bioinformatics, to genetic engineering, as well as by improvements in DNAsynthesis. This approach aims to engineer gene-based programs or codes to modify cellular function to achieve a desired biological outcome. Itsapplication is intended to allow more precise control of drug concentration and dose, thereby improving the therapeutic index associated with theresulting drug. A further embodiment of this technology is the ability to eliminate genetically modified immune cells after infusion.We are developing two platform technologies which we use in the implementation of our product candidates: • Controlled IL-12: An immune system master regulator which weaponizes the immune system delivered in a tunable dose; • Sleeping Beauty: A non-viral genetic manipulation that empowers and directs T-cells to fight cancer. 6Table of ContentsProduct CandidatesThe following chart identifies our immuno-oncology product candidates and their current stage of development, each of which are described in moredetail below. 7Target Indication Preclinical Phase 1 Phase 2 Pivotal Controlled IL-12 Platform Ad-RTS-hIL-12 Multicenter GBM GBM & OPDIVO® (nivolumab) GBM Stereotactic Treatment Pediatric Brain Tumor Sleeping Beauty Platform CAR CD19 2nd Gen shortened manufacture CD19 3rd Gen CAR with mbIL 15 (P-O-C) CD33 Merck Targets P-O-C Leukemia/Lymphoma Leukemia/Lymphoma AML Undisclosed Hematologic TCR Sleeping Beauty neoantigen Sleeping Beauty neoantigen and cytokine NK cells Genetically engineered Solid tumors TBD TBD P-O-C = Point-of-Care Initiated Planned MD Anderson Cancer Center Merck KGaA NATIONAL CANCER INSTITUTE Making Cancer History® NIH Darmstadt GermanyTable of ContentsControlled IL-12 PlatformBackgroundAd-RTS-hIL-12 plus veledimex, our most advanced product candidate, uses our gene delivery system to produce IL-12, a potent, naturally occurringanti-cancer protein. We have developed a replication-incompetent adenoviral vector, Ad-RTS-IL-12, administered intra-tumorally under the control ofa “switch” referred to as the RTS®, expression platform. Activation of the switch and therefore conditional gene expression and subsequent IL-12protein production is tightly controlled by the activator ligand, veledimex, delivered to the patient as an oral capsule. When veledimex is administeredto a patient, the switch is turned “on” and IL-12 as well as downstream IFN-g, are produced; when veledimex is withdrawn, the switch is turned “off”and production of recombinant IL-12 ceases. IL-12 is a potent pro-inflammatory cytokine capable of reversing immune escape mechanisms andimproving the function of tumor fighting natural killer, or NK, and T-cells. We have found direct evidence of infiltration of activated T-cells inpreviously “cold” tumors (i.e. turning cold tumors hot) following administration of Ad-RTS-IL-12 plus veledimex; the presence of such T-cells hasfurthermore been sustained months after administration of the Ad-RTS-hIL-12 plus veledimex. Gliomas represent a unique form of aggressive cancerthat spreads loco-regionally and are particularly well suited to IL-12 local therapy. We tested Ad-RTS-IL-12 plus veledimex in several Phase 1 and 2 clinical trials including the treatment of metastatic melanoma, breast cancer, andbrain cancer patients. Since 2015, our focus has been on clinical trials of the product in rGBM, a deadly form of brain cancer with limited treatmentoptions.Glioblastoma MarketWe are developing controlled IL-12 to treat patients with rGBM. Glioblastoma is an aggressive primary brain tumor affecting approximately 74,000people worldwide each year; it is a fast-growing, aggressive type of central nervous system tumor, with an estimated 12,390 new adult cases predictedin the United States for 2017 according to the American Brain Tumor Association. Recurrence rates for this type of cancer are near 90 percent, andprognosis for adult patients is poor with treatment often combining multiple approaches including surgery, radiation and chemotherapy. 8Ad-RTS-hIL-12 An adenoviral vector administered via a single injection into the tumor and engineered to express and control hIL-12, a powerful cytokine that stimulates a targeted, immune anti-tumor response.Table of ContentsRecurrent glioblastoma is an aggressive cancer with one of the lowest 3-year survival rates, at 3%, among all cancers. For patients who haveexperienced multiple recurrences, the prognosis is particularly poor, with a mOS of 6-7 months, while overall survival in patients who have failedtemozolomide and bevacizumab, or equivalent salvage chemotherapy, is approximately 3-5 months. Given the poor overall prognosis and lack ofeffective treatments, new therapeutic approaches for malignant gliomas are needed.In children, the incidence of brain cancer is approximately 4.84 per 100,000, according to the NCI. Glioma in the cortex (cerebrum) of children isunusual and is treated along the same lines as in adults with occurrence common and survival poor. Glioma in the pontine region of the brain, ordiffuse intrinsic pontine glioma (DIPG), accounts for approximately 15 percent of all cases of pediatric brain tumors, with a median survival time of lessthan one year. Because of where these tumors are situated, DIPG is inaccessible to surgery and there are no curative options.Monotherapy: Clinical development Ad-RTS-IL-12 + veledimex for rGBMOur multi-center Phase 1 trial in patients with rGBM, which was initiated in June 2015, continues to show promising data with preliminary evidence ofa survival benefit and a good safety profile.The primary objective of the Phase 1 trial is to determine the safety and tolerability of a single intratumoral Ad-RTS-hIL-12 injection activated upondosing with oral veledimex. Secondary objectives are to determine the maximum tolerated dose, the immune responses elicited, and assessment ofbiologic response. The study has enrolled patients at doses ranging from 10 mg to 40 mg of veledimex. 20 mg has been identified as the target dose forfurther study; we plan to continue to enroll patients at the 20 mg dose level and are preparing for initiation of a pivotal trial later in the year.We have presented updates of data from the ongoing Phase 1 study at a variety of major medical conferences including the annual meetings ofAmerican Society for Clinical Oncology (ASCO), American Academy of Neurological Surgery (AAcNS) and Society for Neuro-oncology (SNO).Most recently, during the 22nd Annual Meeting and Education Day of SNO on November 16-19, 2017, we delivered an oral presentation entitled, “APhase 1 study of Ad-RTS-hIL-12 + veledimex in adult rGBM” with new data showing median overall survival (mOS) of 12.5 months had beensustained for patients treated with Ad-RTS-hIL-12 plus 20mg of veledimex (n=15) and a longer mean follow-up time of 11.1 months in this on-goingstudy. This mOS of 12.5 months continues to compare favorably to the 5 to 8 months survival established in historical controls for patients with rGBM.We also reported an anti-tumor effect evident with centralized review of magnetic resonance imaging showing decreasing size of brain tumor lesions inseveral patients.Additionally, data linking the intra-tumor production of hIL-12 to patients’ overall survival was presented: • Immunohistochemistry analyses from three of three patient biopsies after completion of veledimex demonstrated that IL-12 activates andsustains an immune response in rGBM; • All three biopsies of rGBM lesions demonstrated evidence of an anti-tumor response with extensive infiltration of CD8+ T cells within therGBM; • Biopsies all showed sustained (greater than 4 months) production of interferon-gamma, a cytokine crucial to arming an immune response inthe tumor microenvironment; • Ratio of circulating killer CD8+ T cells to suppressor FOXP3+ T cells appeared to correlate with survival; • Interferon-gamma was undetectable in the blood at the time of biopsies while observed in the tumor providing further evidence of asustained on-target response; 9Table of Contents • Expression levels of both PD-1 and PD-L1 were upregulated in all the biopsies, which suggests added potential efficacy for combiningAd-RTS-hIL-12 plus veledimex with an immune checkpoint inhibitor;Dr. Chiocca, the 2017 President of the Society for Neuro-Oncology, was the lead author of this presentation.We also delivered two additional oral presentations: “Controlled expression of IL-12 improves survival in glioma by activating the immune responsein mice and humans” and “Controlled local expression of IL-12 as gene therapy concomitant with systemic chemotherapy improves survival inglioma”.In our Phase 1 trial in rGBM, Ad-RTS-hIL-12 plus veledimex continues to be safe and well tolerated, as adverse events (AE) were predictable andreversible, neurologic AEs were relatively mild and transient, and there were no drug-related deaths.We plan to conduct a multi-center, randomized pivotal trial to evaluate Ad-RTS-hIL-12 plus veledimex as a treatment for patients with rGBM. We havemet with the U.S. Food and Drug Administration (FDA) in an End-of-Phase 2 meeting as well with European regulators in multiple meetings during2017. We have designed a pivotal trial consistent with this guidance and are completing CMC technical requirements. We continue to engage inpartnership discussions for further development in this indication and are collecting additional clinical data from the open Phase 1 trial, including acombination study with an immune checkpoint inhibitor (iCPI).Ad-RTS-IL-12 + veledimex for the treatment of malignant glioma was granted orphan drug designation by the FDA in July 2015. Orphan drugdesignation provides eligibility for a seven-year period of market exclusivity in the United States after product approval, an accelerated review process,accelerated approval where appropriate, grant funding, tax benefits and an exemption from user fees.PediatricsOn October 16, 2017, we announced the first patient dosed in a new Phase 1 trial of Ad-RTS-hIL-12 with veledimex for the treatment of pediatric braintumors. This open label study will assess the safety and tolerability of a single intratumoral injection of Ad-RTS-hIL-12, and is conducted in twogroups: the first is comprised of pediatric patients with recurrent or progressive brain tumors, while the second is comprised of pediatric patients withDIPG. This Phase 1 trial is being conducted at leading pediatric cancer centers across the United States, including Ann & Robert H. Lurie Children’sHospital in Chicago, Dana-Farber Cancer Institute in Boston and the University of California, San Francisco. The first pediatric patient has receivedAd-RTS-hIL-12 plus veledimex at Lurie Children’s Hospital. Stewart Goldman, MD, presented a poster, entitled “Phase 1 study of Ad-RTS-hIL-12 +veledimex in pediatric brain tumors” at the 2017 Annual Meeting of SNO describing the study design.Combination therapyOur enthusiasm about Controlled IL-12 as a platform has recently increased based on emerging clinical data demonstrating that this cytokine recruitsimmune cells such as T-cells into rGBM turning “cold” tumor sites “hot” for long periods of time. As the Phase 1 survival data matured over the latterhalf of 2017, we saw compelling evidence from biopsies, taken more than four months after administration of Ad-hIL-12 plus veledimex,demonstrating that Controlled IL-12 causes a sustained influx of activated killer T-cells into brain tumors and upregulated expression of PD-1/PDL-1biomarkers.We have previously reported, in May 2016 at the Annual Meeting of the American Society of Gene and Cell Therapy, or ASGCT, preclinical trialssuggesting that combination of Ad-RTS-hIL-12 plus veledimex with an iCPI improves the anti-tumor effect. We believe these data support afirst-in-human study combining Ad-RTS-IL-12 + veledimex with an iCPI for the investigational treatment of rGBM. 10Table of ContentsOur first study with an iCPI is with nivolumab and will explore the potentially synergistic effect of this combination. This study was initiated in 2018.Other indicationsAd-RTS-IL-12 plus veledimex has been evaluated in four clinical trials prior to shifting our focus to brain cancer. The first, a Phase 1/2 study for thetreatment of metastatic melanoma, and the second, a Phase 2 study for the treatment of unresectable recurrent or metastatic breast cancer. We have alsoconcluded enrollment of a single-center Phase 1b/2 study, following standard chemotherapy, for the treatment of patients with locally advanced ormetastatic breast cancer. In January 2017, we announced that we paused the breast cancer studies after successfully collecting the desired biomarkerdata demonstrating the intratumoral influx of CD8+ T cells. Prospective partnership discussions include GBM, breast cancer, and melanomaindications.SB-Modified T-cells PlatformWe are actively pursuing non-viral genetic engineering technologies to develop novel CAR+ T and TCR therapies. The platform we, together withIntrexon (now Precigen), exclusively licensed from MD Anderson uses the SB, non-viral genetic modification system to generate and characterize newCAR+ T and TCR designs. We believe this non-viral gene transfer using the SB system is the most advanced non-viral gene transfer system in the fieldof oncology and has distinct advantages in terms of cost and time to produce compared with viral gene transfer, e.g., retrovirus and lentivirus. First, itmay reduce the manufacturing expense and challenges associated with viral gene transfer systems in creating T-cells engineered to express CAR andTCR. The SB system simply uses DNA plasmid and does not require time-consuming and laborious manufacture of virus.Furthermore, the T-cell manufacturing process with SB has the potential to significantly shorten virus-based manufacturing time. Our technologyreferred to as P-O-C enables rapid manufacture of autologous (patient-derived) genetically modified T-cells in near real time. In the preclinical setting,the time to administration of third-generation SB-modified T-cells co-expressing mbIL15 and kill switch has been reduced to less than two daysthrough elimination of the need for in vitro T-cell activation and propagation which avoids the need to culture T-cells. The addition of our proprietarymbIL15 likely enables the administration of CAR-expressing “younger” T-cells with an ability to be long-lived after infusion in animals. The ability ofCAR+ T cells to signal via recombinant IL-15 increases CAR persistence and has the potential to eliminate lymphodepletion.Non-viral gene transfer and our P-O-C technology also enables the potential for a hospital-based, manufacturing model rather than the centralizedmanufacturing approach currently being employed for other CAR+ T products, including Kymriah and Yescarta. For example, patient-derived cellsmay no longer need to be shipped to and from the manufacturing site, thereby eliminating cumbersome and time-consuming shipment and receipt.Finally, the use of the SB platform may be significantly more customizable, therefore enabling us to prepare personalized TCR therapies againstunique, and potentially multiple, patient-specific neoantigens. This approach would be cost prohibitive with viral gene transfer and may allow us todevelop TCR therapies against both hematologic malignancies and solid tumors.We expect to build upon these data to co-express immunoreceptors with cytokines and to leverage its ability to control expression with the RTS®and/or kill switches. The IL-12 data arising from the brain cancer trial with Ad-RTS-hIL-12 + veledimex firmly establishes that the RTS® is acontrollable switch in humans. The RTS® technology is being further developed for use in T-cells. In addition, kill switches have been developed toeliminate gene-modified T-cells in the event of adverse events.The improvements our P-O-C technology may bring to both the reduction in vein-to-vein time as well as the personalization of treatment will besignificant advances in the field of immuno-oncology. The development technology platform is focused on (1) shortening the time the patient mustwait for treatment with engineered T-cells, (2) increasing the access of hospitals to deliver, and patients to receive, cell therapies, and (3) providing safeand efficacious personalized cell therapies to patients across a wide range of cancers. 11Table of ContentsHematologic and solid tumor malignancy marketAccording to the Leukemia and Lymphoma Society, an estimated 1,237,824 people in the U.S. are living with, or are in remission from leukemia,lymphoma, or myeloma. New diagnoses for such hematologic malignancies in the U.S. were estimated to be 171,500 and represented approximately10% of the new cancer cases in the U.S. in 2016. Acute myeloid leukemia (AML) is the most common form of acute leukemia in adults and has aparticularly poor prognosis with a relative 5-year survival rate of only 26% overall. An estimated 19,950 new cases of AML were estimated in the US in2016.In 2016 more than 15.5 million people in the U.S. were living with, or are in remission from some form of cancer. Approximately 1,688,780 new cancercases were expected to be diagnosed in the US in 2017 according to the American Cancer Society. Of these, the majority were caused by solid tumors.Malignancies of epithelial tissue, or carcinomas, represent 80 to 90 percent of all cancer cases according to the Surveillance, Epidemiology, and EndResults (SEER) Program of the National Cancer Institute. These diseases include colorectal, non-small cell lung, skin, bladder and head and neckcancers, among others. Despite significant advances in immunotherapy many patients with metastatic carcinomas will die from disease progression.Cancer is the second most common cause of death in the US, accounting for nearly 1 of every 4 deaths.Clinical Development CAR+ TThrough the MD Anderson License, we entered the clinic with three CAR+ T therapies in 2015 utilizing the non-viral genetic modification capabilitiesof the SB system. Two of these trials are with “first generation” technologies, the results from which were published in the Journal of ClinicalInvestigation in September 2016. An update on patients in the first-generation trials was presented in a poster at the 2017 Annual Meeting of ASH. Thetrials demonstrated that first-generation SB-modified CD19-specific CAR+ T cells appear to provide long term cancer control when infused afterhematopoietic stem-cell transplantation (HSCT) for patients with advanced CD19+ malignancies and could be detected years after administration insome recipients. All seven patients with advanced CD19+ non-Hodgkin’s lymphoma (NHL) that received autologous T-cells were alive at a mediansurvival of 40 months since infusion, with progression-free survival (PFS) reported at 86% and overall survival (OS) at 100%. For 19 patients withadvanced CD19+ acute lymphoblastic leukemia (ALL) and NHL infused with allogeneic T-cells following HSCT, nine patients were alive with amedian survival of 31 months. The PFS rate and OS rates are 32% and 49%, respectively. Of the subset of eight patients who received donor-derivedT-cells after haploidentical HSCT, PFS and OS rates are 50% and 63%, respectively. Persistence of circulating SB-modified CAR+ T cells wasdemonstrated at two years in an autologous and allogeneic patient and for four years in two autologous patients.We are currently enrolling patients in an investigator-led Phase 1 study using second-generation CD19-specific CAR+ T cells with a revised CARstructure in patients with advanced lymphoid malignancies at MD Anderson. Our second-generation CD19 trial employs a revised CAR design andshortened manufacturing process advancement, with culturing times as short as two weeks. A summary of this ongoing trial was presented byDr. Partow Kebriaei of MDACC in a presentation at the 2017 Annual Meeting of ASH in December. Interim data from the trial demonstrated thatautologous T-cells infused after lymphodepleting chemotherapy could be detected, and exhibited anti-tumor effects and an encouraging safety profilein patients with relapsed/refractory CD19+ malignancies. Complete responses at one month were reported in four of eight patients with either ALL(n=5), chronic lymphocytic leukemia (n=1), or diffuse large B-cell lymphoma (n=2), with two morphologic complete responses at three months. Followup blood tests demonstrated sustained persistence of infused T-cells and targeting of malignant and normal B cells. There were no dose limitingtoxicities with only grade 1 or 2 adverse events being reported. T-cell dose escalation continues. We anticipate stopping enrollment in this trial in2018 as our third-generation trial moves forward in the clinic.In the preclinical setting, the time to manufacture and administration of third-generation SB-modified CAR+ T cells co-expressing mbIL15 has beenreduced to less than two days. This shortened very rapid manufacturing 12Table of Contentsprocess, referred to as P-O-C, delivers genetically modified T-cells with superior proliferative potential in vivo. Preclinical studies of third generationSB CAR+ T cells, presented at the 2017 Annual Meeting of ASH, demonstrated that a single low-dose of T-cells co-expressing a CD19-specific CAR,mbIL15, and kill switch resulted in sustained in vivo persistence that produced potent anti-tumor effects and superior leukemia-free survival in mice.These preclinical data support our P-O-C plans to very rapidly infuse SB CAR+ T cells in a Phase 1 trial in 2018. Our intent to administer clinical-gradeSB CAR+ T cells in less than 48 hours, this non-viral CAR+ T approach has the potential to outpace viral-based methods in terms of time to theadministration of therapy concomitant with a reduction in cost. The P-O-C technology is based on the non-viral gene transfer to stably integrate bothCAR and mbIL15 with a kill switch.Overview of the “Point-of-Care” (P-O-C) using the Sleeping Beauty (SB) system to very rapidly generate CAR+ T cells against known tumorantigens. We are also progressing an ongoing Phase 1 adoptive cellular therapy clinical trial at MD Anderson infusing autologous T-cells transduced withlentivirus to express a CD33-specific CAR co-expressed with a kill switch in patients with relapsed or refractory AML. Preclinical studies, presented atthe 2017 annual meeting of ASH, demonstrated that lentiviral transduced CAR-T cells targeting CD33 exhibit specific cytotoxic activity for CD33+AML cells. A proof-of-concept study utilizing an in vivo mouse model for AML showed that these CAR-T cells could reduce disease burden andsignificantly enhance survival as compared to control groups. These positive preliminary results indicated biological activity and are suggestive ofpotential therapeutic effect for the treatment of AML. This Phase 1 clinical trial is now open for enrollment at MD Anderson. The anticipated clinicaldata may establish that CD33 can be targeted by CAR on genetically modified T-cells, which will provide a foundation for considering then toadvance this program under the P-O-C approach.Clinical Development TCRMany of these genetic engineering technologies can also be applied toward targeting intracellular antigens with one or more tumor-specific TCRs.This approach is particularly important for addressing the complexity of solid tumors. We believe that the SB non-viral platform is ideally suited fortargeting intracellular antigens by TCR as it may be more cost-effective, should allow for rapid manufacturing, and is expected to be customizable forindividual patient therapies with the ability to include multiple TCRs in a single therapy. We are pursuing a discovery program in TCR therapies forneoantigen targets. The development of an approach to create a truly personalized therapy for each cancer patient based on his/her unique neoantigensis a strategic goal of ours.On January 10, 2017, we announced the signing of a CRADA with the NCI for the development of ACT-based immunotherapies genetically modifiedusing the SB transposon/transposase system to express TCRs for the 13Table of Contentstreatment of solid tumors. The principal goal of the CRADA is to develop and evaluate ACT for patients with advanced cancers using autologous PBLgenetically modified using the non-viral SB system to express TCRs that recognize specific immunogenic mutations, or neoantigens, expressed withina patient’s cancer. Clinical evaluations of the ability of these SB-engineered PBL to express TCRs reactive against cancer mutations to mediate cancerregression in patients with metastatic disease will be performed. Research conducted under the CRADA will be at the direction of Steven A. Rosenberg,M.D., Ph.D., Chief of the Surgery Branch at the NCI, in collaboration with researchers at Ziopharm and Precigen. Preparations for the clinical trial areunderway at the NCI. Following validation of the manufacturing process, we anticipate submission of the IND and initiation of the clinical trial in2018.Preclinical DevelopmentIn collaboration with Precigen, we continue to develop additional CAR+ T targets, using our Sleeping Beauty platform. Under the collaboration, AresTrading has elected two CAR+ T targets for which we will perform certain research activities that will, in part, be funded by Ares Trading. We andPrecigen will also independently conduct research and development on other CAR+ T candidates, with Ares Trading having the opportunity duringclinical development to opt-in to these candidates for additional payments to us and Precigen. We anticipate further advancement of at least one targettoward the clinic in 2018.In addition, we will continue efforts to genetically modify allogeneic NK cells to improve their persistence and anti-tumor efficacy.License Agreements, Intellectual Property and Other AgreementsOur goal is to obtain, maintain, and enforce patent protection for our products, formulations, processes, methods, and other proprietary technologies topreserve our trade secrets and to operate without infringing upon the proprietary rights of other parties. Our policy is to actively seek the broadestpossible intellectual property protection for our product candidates through a combination of contractual arrangements and patents, both in the UnitedStates and abroad.Exclusive Channel Partner Agreement with Precigen for the Cancer ProgramsOn January 6, 2011, we entered into the Channel Agreement with Intrexon (now Precigen), that governs a “channel partnering” arrangement in whichwe use Precigen’s technology to research, develop and commercialize products in which DNA is administered to humans for expression of anti-cancereffectors for treatment or prophylaxis of cancer, which we collectively refer to as the Cancer Program. This Channel Agreement establishes committeescomprising representatives of us and Precigen that govern activities related to the Cancer Program in the areas of project establishment, chemistry,manufacturing and controls, clinical and regulatory matters, commercialization efforts and intellectual property.The Channel Agreement grants us a worldwide license to use patents and other intellectual property of Precigen in connection with the research,development, use, importing, manufacture, sale, and offer for sale of products involving DNA administered to humans for expression of anti-cancereffectors for the purpose of treatment or prophylaxis of cancer, which are collectively referred to as the Ziopharm Products. Such license is exclusivewith respect to any clinical development, selling, offering for sale or other commercialization of Ziopharm Products, and otherwise is non-exclusive.Subject to limited exceptions, we may not sublicense these rights without Precigen’s written consent.Under the Channel Agreement, and subject to certain exceptions, we are responsible for, among other things, the performance of the Cancer Program,including the development, commercialization and certain aspects of manufacturing of Ziopharm Products. Precigen is responsible for establishingmanufacturing capabilities and facilities for the bulk manufacture of products developed under the Cancer Program, certain other aspects ofmanufacturing and costs of discovery-stage research with respect to platform improvements and costs of filing, prosecution and maintenance ofPrecigen’s patents. 14Table of ContentsAfter the 2016 Exclusive Channel Partner (ECP) Amendment, discussed below, and subject to certain expense allocations and other offsets provided inthe Channel Agreement, we are obligated to pay Precigen on a quarterly basis 20% of net profits derived in that quarter from the sale of ZiopharmProducts, calculated on a Ziopharm Product-by- Ziopharm Product basis. We likewise agreed to pay Precigen on a quarterly basis 50% of revenueobtained in that quarter from a sublicensor in the event of a sublicensing arrangement. In addition, in partial consideration for each party’s executionand delivery of the Channel Agreement, we entered into a stock purchase agreement with Precigen.Upon termination of the Channel Agreement, we may continue to develop and commercialize any Ziopharm Product that, at the time of termination: • Is being commercialized by us; • Has received regulatory approval; • Is a subject of an application for regulatory approval that is pending before the applicable regulatory authority; or • Is the subject of at least an ongoing Phase 2 clinical trial (in the case of a termination by Precigen due to an uncured breach or a voluntarytermination by us), or an ongoing Phase 1 clinical trial in the field (in the case of a termination by us due to an uncured breach or atermination by Precigen following an unconsented assignment by us or its election not to pursue development of a Superior Therapy (asdefined in the Channel Agreement)).With respect to these “retained” Ziopharm Products, our obligation to pay 20% of net profits derived from the sale of Ziopharm Products and 50% ofrevenue derived from a sublicensor will survive termination of the Channel Agreement.Amendment of Collaborations with PrecigenOn March 27, 2015, we, together with Intrexon, now Precigen, entered into an ECP Amendment, amending the Channel Agreement. The ECPAmendment modifies the scope of the parties’ collaboration under the Channel Agreement in connection with the Ares Trading Agreement discussedbelow. Pursuant to the ECP Amendment, the chimeric antigen receptor T-cell products to be developed and commercialized pursuant to the AresTrading Agreement shall be included within the Precigen/ Ziopharm collaboration under the Channel Agreement. The ECP Amendment provides thatPrecigen will pay us fifty percent of all payments Precigen receives for upfronts, milestones and royalties under the Ares Trading Agreement.On June 29, 2016, we entered into (1) the 2016 ECP Amendment with Intrexon (now Precigen), amending the Channel Agreement, and (2) the 2016GvHD Amendment, amending our Exclusive Channel Collaboration Agreement we entered into with Intrexon (now Precigen) in September 2015, orthe GvHD Agreement. The 2016 ECP Amendment reduced the royalty percentage that we will pay to Precigen under the Channel Agreement on aquarterly basis from 50% to 20% of net profits derived in that quarter from the sale of Ziopharm Products, calculated on a Ziopharm Product-by-Ziopharm Product basis, subject to certain expense allocations and other offsets provided in the Channel Agreement. The 2016 GvHD Amendmentreduced the royalty percentage that we would pay to Precigen under the GvHD Agreement on a quarterly basis from 50% to 20% of net profits derivedin that quarter from the sale of Products (as defined in the GvHD Agreement), subject to certain expense allocations and other offsets provided in theGvHD Agreement. The reductions in the royalty percentages provided by the 2016 ECP Amendment and the 2016 GvHD Amendment do not apply tosublicensing revenue or royalties under the Channel Agreement and GvHD Agreement, nor do they apply to any royalties or other payments made withrespect to sublicensing revenue from our existing collaboration with Ares Trading S.A., or Ares Trading, a subsidiary of the biopharmaceutical businessof Merck KGaA. We have recently announced our decision to stop pursuing the development of engineered cell therapy strategies for targetedtreatment of GvHD. We have reverted our rights under the GvHD Agreement back to Precigen [and are in the process of winding down the relatedactivities]. 15Table of ContentsIn consideration for the execution and delivery of the 2016 ECP Amendment and the 2016 GvHD Amendment, we agreed to issue to Intrexon 100,000shares of its Series 1 preferred stock. Each share of our Series 1 preferred stock has a stated value of $1,200, subject to appropriate adjustment in theevent of any stock dividend, stock split, combination or other recapitalization, and certain other rights, preferences, privileges and obligations (seeNote 9 to the accompanying financial statements).Exclusive Channel Collaboration Agreement with Precigen for GvHDOn September 28, 2015, we entered into the GvHD Agreement with Intrexon (now Precigen), whereby we would use Precigen’s technology directedtowards in vivo expression of effectors to research, develop and commercialize products for use in the treatment or prevention of GvHD. The GvHDAgreement granted us a worldwide license to use specified patents and other intellectual property of Precigen in connection with the research,development, use, importing, manufacture, sale, and offer for sale of products developed under the GvHD Agreement.We paid Intrexon a technology access fee of $10.0 million in cash in October 2015 and agreed to reimburse Intrexon for all related research anddevelopment costs pursuant to the GvHD Agreement. We have determined that the rights acquired in the GvHD Agreement represent in-processresearch and development with no alternative future use. Accordingly, we recorded a charge of $10.0 million to research and development expense inSeptember 2015.As a result of an in-depth review of our research and development portfolio, we determined that the pursuit of GvHD as an indication was not a materialpart of our corporate strategy and therefore have decided to stop pursuing the development of engineered cell therapy strategies, used either separatelyor in combination, for targeted treatment of GvHD. We have reverted our rights under the GvHD program back to Precigen [and are in the process ofwinding down the related activities]. We made this decision to focus our efforts and resources on the development of our Controlled IL-12 andSleeping Beauty platforms for the treatment of oncology indications.License Agreement—The University of Texas MD Anderson Cancer CenterOn January 13, 2015, we, together with Intrexon (now Precigen), entered into a License Agreement, or the MD Anderson License, with The Universityof Texas MD Anderson Cancer Center, or MD Anderson. Pursuant to the MD Anderson License, we, together with Precigen, hold an exclusive,worldwide license to certain technologies owned and licensed by MD Anderson including technologies relating to novel chimeric antigen receptor, orCAR, T cell therapies, non-viral gene transfer systems, genetic modification and/or propagation of immune cells and other cellular therapy approaches,Natural Killer, or NK Cells, and T-cell receptors, or TCRs, arising from the laboratory of Laurence Cooper, M.D., Ph.D., who became our ChiefExecutive Officer in May 2015 and was formerly a tenured professor of pediatrics at MD Anderson and is now currently a visiting scientist under thatinstitution’s policies, as well as either co-exclusive or non-exclusive licenses under certain related technologies.Pursuant to the terms of the MD Anderson License, MD Anderson received consideration consisting of $50.0 million in shares of our common stock (or10,124,561 shares), and $50.0 million in shares of Intrexon’s common stock, in each case based on a trailing 20 day volume weighted average of theclosing price our and Intrexon’s common stock ending on the date prior to the announcement of the entry into the MD Anderson License, collectivelyreferred to as the License Shares, pursuant to the terms of the License Shares Securities Issuance Agreement described below. The License Shares wereissued to MD Anderson on March 11, 2015, pursuant to the terms of the MD Anderson License.On January 9, 2015, in order to induce MD Anderson to enter into the MD Anderson License on an accelerated schedule, we, together with Intrexonentered into a letter agreement, or the Letter Agreement, pursuant to which MD Anderson received consideration of $7.5 million in shares of ourcommon stock (or 1,597,602 shares), and 16Table of Contents$7.5 million in shares of Intrexon’s common stock, in each case based on a trailing 20-day volume-weighted average of the closing price of our andIntrexon’s common stock ending on the date prior to the execution of the Letter Agreement, collectively referred to as the Incentive Shares, in theevent that the MD Anderson License was entered into on January 14, 2015. The Incentive Shares were issued to MD Anderson on March 11, 2015,pursuant to the terms of the Incentive Shares Securities Issuance Agreement described below.On August 17, 2015, we, Intrexon (now Precigen) and MD Anderson entered into a research and development agreement, or the Research andDevelopment Agreement, to formalize the scope and process for the transfer by MD Anderson, pursuant to the terms of the MD Anderson License, ofcertain existing research programs and related technology rights, as well as the terms and conditions for future collaborative research and developmentof new and ongoing research programs.Pursuant to the Research and Development Agreement, we, Intrexon (now Precigen) and MD Anderson have agreed to form a joint steering committeethat will oversee and manage the new and ongoing research programs. As provided under the MD Anderson License, we provided funding for researchand development activities in support of the research programs under the Research and Development Agreement for a period of three years and in anamount of no less than $15.0 million and no greater than $20.0 million per year. During the twelve months ended December 31, 2017, we madepayments in the aggregate amount of $13.0 million to MD Anderson compared to $15.0 million during the twelve months ended December 31, 2016.The decrease in cash paid to MD Anderson during 2017 is a result of approved expenditures incurred by us being deducted from the April, July, andOctober quarterly payments. As of December 31, 2017, MD Anderson had used $7.3 million to offset costs incurred pursuant to the MD AndersonLicense and the Research and Development Agreement. The net balance of cash resources on hand at MD Anderson is $31.9 million, of which$18.5 million is included in other current assets and the remaining $13.4 million is included in non-current assets at December 31, 2017. Subsequent tothe balance sheet date, the final payment to MD Anderson was made in January 2018 for $2.7 million.The term of the MD Anderson License expires on the last to occur of (a) the expiration of all patents licensed thereunder, or (b) the twentiethanniversary of the date of the MD Anderson License; provided, however, that following the expiration of the term of the MD Anderson License, we,together with Precigen, shall then have a fully-paid up, royalty free, perpetual, irrevocable and sublicensable license to use the licensed intellectualproperty thereunder. After ten years from the date of the MD Anderson License and subject to a 90-day cure period, MD Anderson will have the right toconvert the MD Anderson License into a non-exclusive license if we and Precigen are not using commercially reasonable efforts to commercialize thelicensed intellectual property on a case-by-case basis. After five years from the date of the MD Anderson License and subject to a 180-day cure period,MD Anderson will have the right to terminate the MD Anderson License with respect to specific technology(ies) funded by the government or subjectto a third-party contract if we and Precigen are not meeting the diligence requirements in such funding agreement or contract, as applicable. MDAnderson may also terminate the agreement with written notice upon material breach by us and Precigen, if such breach has not been cured within 60days of receiving such notice. In addition, the MD Anderson License will terminate upon the occurrence of certain insolvency events for both us andPrecigen and may be terminated by the mutual written agreement of us, Precigen and MD Anderson.In connection with the MD Anderson License and the issuance of the License Shares and the Incentive Shares, on January 13, 2015, we, together withMD Anderson, entered into a Registration Rights Agreement, or the Registration Rights Agreement, pursuant to which the we agreed to file a “resale”registration statement, or the Registration Statement, registering the resale of the License Shares, the Incentive Shares and any other shares of the ourcommon stock held by MD Anderson on the date that the Registration Statement is filed. Under the terms of the Registration Rights Agreement, we areobligated to maintain the effectiveness of the Registration Statement until all securities therein are sold or are otherwise can be sold pursuant to Rule144, without any restrictions. A prospectus supplement under our already effective registration statement on Form S-3 (File No. 333-201826) was filedon April 1, 2015 in satisfaction of our obligations under the Registration Rights Agreement. 17Table of ContentsWe determined that the rights acquired in the MD Anderson License represented in process research and development with no alternative future use.Accordingly, we recorded a charge of $67.3 million to research and development expense in 2015, representing the fair value of the 11,722,163 sharesof its common stock on the date the MD Anderson License was executed.Ares Trading License and Collaboration AgreementOn March 27, 2015, we, together with Intrexon (now Precigen), signed a worldwide License and Collaboration Agreement, or the Ares TradingAgreement, with Ares Trading S.A., or Ares Trading, a subsidiary of the biopharmaceutical business of Merck KGaA, Darmstadt, Germany, throughwhich the parties established a collaboration for the research and development and commercialization of certain products for the prophylactic,therapeutic, palliative or diagnostic use for cancer in humans.Under the collaboration, Ares Trading has elected two CAR+ T targets for which we will perform certain research activities that will, in part, be fundedby Ares Trading. Once these candidates reach investigational new drug, or IND, stage, the programs will be transferred to Ares Trading for clinicaldevelopment and commercialization. We expect to perform multiple preclinical development programs, each consisting of the development of oneproduct candidate, pursuant to the agreement. We, together with Precigen, will also independently conduct research and development on other CAR+ Tcandidates, with Ares Trading having the opportunity during clinical development to opt-in to these candidates for additional payments to us andPrecigen.Precigen is entitled to receive $5.0 million, from Ares Trading, payable in equal quarterly installments over two years for each identified productcandidate, which will be used to fund discovery work. We are responsible for costs exceeding the quarterly installments and all other costs of thepreclinical research and development. For the twelve months ended December 31, 2017, we have expensed $1.6 million under the Ares TradingAgreement, respectively.Ares Trading paid a non-refundable upfront fee of $115.0 million to Intrexon as consideration for entry into the Ares Trading Agreement. Pursuant tothe ECP Amendment, we were entitled to receive 50% of the upfront fee, or $57.5 million, which we received from Intrexon in July 2015.The Ares Trading Agreement provides for up to $60.0 million in development milestone payments, up to $148.0 million in regulatory milestonepayments and up to $205.0 million in commercial milestone payments for each product candidate. Development milestone payments are triggeredupon initiation of a defined phase of clinical research for a product candidate. Regulatory milestone payments are triggered upon approval to market aproduct candidate by the FDA, or other global regulatory authorities. Commercial milestone payments are triggered when an approved pharmaceuticalproduct reaches certain defined levels of net sales by the licensee. The Ares Trading Agreement also provides for up to $50.0 million of one-timepayments upon the achievement of certain technical milestones evidenced by the initiation of a defined phase of clinical research. All development,regulatory and technical milestones are considered substantive based on the contingent nature of the milestone, specifically reviewing factors such asthe scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the milestone as well as the level of effort andinvestment required. Accordingly, such amounts will be recognized as revenue in full in the period in which the associated milestone is achieved,assuming all other revenue recognition criteria are met. All commercial milestones will be accounted for in the same manner as royalties and recordedas revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met. The next potential milestone payment thatPrecigen could be entitled to receive under the Ares Trading Agreement is a $15.0 million substantive milestone for the initiation of a Phase 1 clinicaltrial. In addition, to the extent any of the product candidates licensed by Ares Trading are commercialized, Precigen would be entitled to receiveroyalties ranging from the lower-single digits to the low-teens of net sales derived from the sale of products developed under agreement. Precigen willpay 50% of all milestone and royalty payments that it receives under the Ares Trading Agreement to us pursuant to the ECP Amendment. 18Table of ContentsThe term of the Ares Trading Agreement commenced in May 2015 and may be terminated by either party in the event of a material breach as defined inthe agreement and may be terminated voluntarily by Ares Trading upon 90 days written notice to us.We considered FASB Accounting Standards Codification 605-25, Multiple-Element Arrangements, in evaluating the appropriate accounting for theAres Trading Agreement. In accordance with this guidance, we identified the license and research and development services as our deliverables in thearrangement. We concluded that the license does not have standalone value independent from the research and development services. Accordingly, theAres Trading Agreement is accounted for by us as a single unit of accounting. The $57.5 million upfront payment received by us was recorded asdeferred revenue and is being recognized over the estimated period of performance of the research and development services which are currentlyestimated to be nine years, beginning with the commencement of the research and development services. During the three and twelve months endedDecember 31, 2017 and 2016, we recognized $1.6 million, each quarter, of revenue related to the Ares Trading Agreement. As of December 31, 2017,the remaining balance of deferred revenue associated with the upfront payment is $41.5 million, of which $6.4 million is current and $35.1 million isclassified as long-term. As of December 31, 2016, the remaining balance of deferred revenue associated with the upfront payment was $47.9 million, ofwhich $6.4 million was current and $41.5 million was classified as long term.Patent and Technology License Agreement—The University of Texas MD Anderson Cancer Center and the Texas A&M University SystemOn August 24, 2004, we entered into a patent and technology license agreement with MD Anderson and the Texas A&M University System, which werefer to, collectively, as the Licensors. Under this agreement, we were granted an exclusive, worldwide license to rights (including rights to U.S. andforeign patent and patent applications and related improvements and know-how) for the manufacture and commercialization of two classes of organicarsenicals (water- and lipid-based) for human and animal use. The class of water-based organic arsenicals includes darinaparsin.We issued options to purchase 50,222 shares outside of our stock option plans following the successful completion of certain clinical milestones, ofwhich 37,666 shares have vested. The remaining 12,556 shares vested upon enrollment of the first patient in a multi-center pivotal clinical trial i.e. ahuman clinical trial intended to provide the substantial evidence of efficacy necessary to support the filing of an approvable New Drug Application, orNDA. An expense of $87 thousand was charged to research and development expense for the vesting event which occurred in March 2016. This trialwas initiated by Solasia Pharma K.K., or Solasia, on March 28, 2016 and triggered a $1.0 million milestone payment to us from Solasia which wasreceived in May 2016. An equivalent of $1.0 million milestone payment was subsequently made to MD Anderson and reported net. In addition, theLicensors are entitled to receive certain milestone payments. In addition, we may be required to make additional payments to the Licensors (as definedin the MD Anderson License) upon achievement of certain other milestones in varying amounts which, on a cumulative basis could total up to anadditional $4.5 million. In addition, the Licensors are entitled to receive single digit percentage royalty payments on sales from a licensed product andwill also be entitled to receive a portion of any fees that we may receive from a possible sublicense under certain circumstances.Collaboration Agreement with Solasia Pharma K.K.On March 7, 2011, we entered into a License and Collaboration Agreement with Solasia. Pursuant to the License and Collaboration Agreement, wegranted Solasia an exclusive license to develop and commercialize darinaparsin in both intravenous and oral forms and related organic arsenicmolecules, in all indications for human use in a pan-Asian/Pacific territory comprising Japan, China, Hong Kong, Macau, Republic of Korea, Taiwan,Singapore, Australia, New Zealand, Malaysia, Indonesia, Philippines and Thailand.As consideration for the license, we received an upfront payment of $5.0 million to be used exclusively for further clinical development of darinaparsinoutside of the pan-Asian/Pacific territory and will be entitled to 19Table of Contentsreceive additional payments of up to $32.5 million in development-based milestones and up to $53.5 million in sales-based milestones. We will alsobe entitled to receive double digit royalty payments from Solasia based upon net sales of licensed products in the applicable territories, oncecommercialized, and a percentage of sublicense revenues generated by Solasia. The $5.0 million upfront payment received in March 2011 wasamortized over the period of the research and development effort, which was completed in March 2016.On July 31, 2014, we entered into an amendment and restatement of the License and Collaboration Agreement granting Solasia an exclusiveworldwide license to develop and commercialize darinaparsin, and related organoarsenic molecules, in both intravenous and oral forms in allindications for human use. In exchange, we will be eligible to receive from Solasia development- and sales-based milestones, a royalty on net sales ofdarinaparsin, once commercialized, and a percentage of any sublicense revenues generated by Solasia.Solasia will be responsible for all costs related to the development, manufacturing and commercialization of darinaparsin. Our Licensors, as defined inthe agreement, will receive a portion of all milestone and royalty payments made by Solasia to us in accordance with the terms of our license agreementwith the Licensors.On March 28, 2016, Solasia initiated a multi-center pivotal clinical trial intended to provide substantial evidence of efficacy necessary to support thefiling of an application for an NDA for darinaparsin in certain of the territories assigned to Solasia. The initiation of the trial on March 28, 2016triggered a $1.0 million milestone payment from Solasia to us which was received in May 2016. We subsequently made an equivalent payment to MDAnderson as the ultimate licensor of darinaparsin (see above).License Agreement with Baxter Healthcare S.A.On November 3, 2006, we entered into a definitive Asset Purchase Agreement for indibulin and a License Agreement to proprietary nanosuspensiontechnology with affiliates of Baxter Healthcare S.A. The purchase included the entire indibulin intellectual property portfolio as well as existing drugsubstance and capsule inventories. The terms of the Asset Purchase Agreement included an upfront cash payment and an additional payment forexisting inventory. During the year ending December 31, 2017, we made the final payment of $250 thousand under the asset agreement. We are notactively pursuing the development of indibulin.Patents and Other Intellectual Property Rights and ProtectionPatents extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patentprotection is obtained. The actual protection offering by a patent, which can vary from country to country, depends of the type of patent, the scope ofits coverage and the availability of legal remedies in the country.Pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, some of our patents,under certain conditions, may be eligible for limited patent term extension for a period of up to five years as compensation for patent term lost duringdrug development and the FDA regulatory review process. However, this extension period cannot be extended beyond 14 years from the drug’sapproval date. The patent term restoration period is generally one-half the period of time elapsed between the effective date of an IND application orthe issue date of the patent, whichever is later, and the submission date of an NDA, plus the period of time between the submission date of the NDA orthe issue date of the patent, whichever is later, and FDA approval. The United States Patent and Trademark Office, in consultation with the FDA,reviews and approves applications for any patent term extension or restoration. We intend to seek the benefits of this statute, but there can be noassurance that we will be able to obtain any such benefits.We also depend upon the skills, knowledge, and experience of our scientific and technical personnel, as well as those of our advisors, consultants, andother contractors, none of which is patentable. To help protect proprietary know-how, which is not patentable, and for inventions for which patentsmay be difficult to enforce, we currently 20Table of Contentsrely, and in the future, will continue to rely, on trade secret protection and confidentiality agreements to protect our interests. To this end, we generallyrequire employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit the disclosure of confidentialinformation and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to ourbusiness.Our patent position and proprietary rights are subject to certain risks and uncertainties. Please read the “Risk Related to Our Intellectual Property”section for further information about certain risks and uncertainties that may affect our patent position and proprietary rights.Additional information as of December 31, 2017 about material patents and other proprietary rights covering our product candidates is set forth below.Ad-RTS-IL-12 + veledimex and DC-RTS-IL-12 + veledimexThe patent estate licensed to us by Precigen covering Ad-RTS-IL-12 + activator ligands, such as veledimex and DC-RTS-IL-12 + activator ligandcompositions, methods of use, methods of manufacture, and formulations includes over one hundred patents and applications. This portfolio alsoincludes issued and pending foreign patents in Europe, Canada, Japan, Australia and other countries. The term of one or more of the issued patents maybe extended due to the regulatory approval process.CAR+ TIn January 2015, we in-licensed from MD Anderson a technology portfolio that includes intellectual property directed to certain non-viral SB systemand CAR+ T cell and bioprocessing technology. Under the terms of the agreement, we have an exclusive license to certain of the intellectual property,a co-exclusive license to certain of the intellectual property technology and a non-exclusive license to certain of the intellectual property technology.Our rights to the MD Anderson intellectual property flow to us via our agreement with Precigen.Governmental Regulation and Product ApprovalAs a biopharmaceutical company, we are subject to extensive regulation. Our programmed T-cell product candidates, if approved, will be regulated asbiologics. With this classification, commercial production of our products will need to occur in registered and licensed facilities in compliance withcurrent Good Manufacturing Practices, or cGMPs, for biologics.Human immunotherapy products are a new category of therapeutics. The FDA categorizes human cell- or tissue-based products as either minimallymanipulated or more than minimally manipulated, and has determined that more than minimally manipulated products require clinical trials todemonstrate product safety and efficacy and the submission of a Biologics License Application, or BLA, for marketing authorization.Government authorities in the United States (at the federal, state and local level) and in other countries and jurisdictions, including the EuropeanUnion, extensively regulate, among other things, the research, development, preclinical and clinical testing, manufacturing, quality control, labeling,packaging, storage, record-keeping, promotion, advertising, sale, distribution, post-approval monitoring and reporting, marketing and export andimport of biopharmaceutical products such as those we are developing. Our product candidates must be approved by the FDA before they may belegally marketed in the United States and by the appropriate foreign regulatory agency before they may be legally marketed in foreign countries.Generally, our activities in other countries will be subject to regulation that is similar in nature and scope as that imposed in the United States,although there can be important differences. Additionally, some significant aspects of regulation in Europe are addressed in a centralized way, butcountry-specific regulation remains essential in many respects. The process for obtaining regulatory marketing approvals and the subsequentcompliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. 21Table of ContentsU.S. Product Development ProcessIn the United States, the FDA regulates biological products under the Public Health Service Act, or PHSA, and the Federal Food, Drug and CosmeticAct, or FDCA, and implementing regulations. Products are also subject to other federal, state and local statutes and regulations. The process ofobtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require theexpenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the productdevelopment process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions couldinclude, among other actions, refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters and similar publicnotice of alleged non-compliance with laws, product recalls or withdrawals from the market, product seizures, total or partial suspension of productionor distribution, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal penalties. Any agency or judicialenforcement action could have a material adverse effect on us. The process required by the FDA before a biological product may be approved formarketing in the United States generally involves the following: • completion of preclinical laboratory tests and animal studies according to Good Laboratory Practices, or GLPs, and applicablerequirements for the humane use of laboratory animals or other applicable regulations; • submission to the FDA of an Investigational New Drug Application, or IND, which must become effective before human clinical trials maybegin; • performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as GoodClinical Practices, or GCPs, and any additional requirements for the protection of human research subjects and their health information, toestablish the safety and efficacy of the proposed biological product for its intended use; • preparation and submission to the FDA of a Biologics License Application, or BLA, for marketing approval that includes substantiveevidence of safety, purity, and potency from results of nonclinical testing and clinical trials; • satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities where the biological product is producedto assess compliance with cGMP to assure that the facilities, methods and controls used in product manufacture are adequate to preserve thebiological product’s identity, strength, quality and purity and, if applicable, the FDA’s current Good Tissue Practices, or GTPs, for the useof human cellular and tissue products; • potential FDA audit of the nonclinical study and clinical trial sites that generated the data in support of the BLA; • payment of user fees for FDA review of the BLA; and • FDA acceptance, review and approval, or licensure, of the BLA, which might include review by an advisory committee, a panel typicallyconsisting of independent clinicians and other experts who provide recommendations as to whether the application should be approvedand under what conditions.Before testing any biological product candidate, including our product candidates, in humans, the product candidate must undergo rigorous thepreclinical testing. Preclinical tests, also referred to as nonclinical studies, include laboratory evaluations as well as in vitro and animal studies toassess the potential safety and efficacy of the product candidate. After sufficient preclinical testing has been conducted, the conduct of the preclinicaltests must comply with federal regulations and requirements including GLPs. The clinical trial sponsor must submit an IND to the FDA before clinicaltesting can begin in the United States. An IND must contain the results of the preclinical tests, manufacturing information, analytical data, anyavailable clinical data or literature, a proposed clinical protocol, an investigator’s brochure, a sample informed consent form, and other materials.Clinical trial protocols detail, among other things, the objectives of the clinical trial, dosing procedures, subject selection and 22Table of Contentsexclusion criteria, and the parameters to be used to monitor subject safety, including stopping rules that assure a clinical trial will be stopped if certainadverse events should occur. Each protocol and any amendments to the protocol must be submitted to the FDA as part of the IND. Some preclinicaltesting, such as toxicity studies, may continue even after the IND is submitted.The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinicaltrials or places the 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 biological product candidate at any time before or duringclinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization andthen only under terms authorized by the FDA. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trialsto begin, or that, once begun, issues will not arise that suspend or terminate such trials.Further, each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution atwhich the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers such items aswhether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB alsoapproves the form and content of the informed consent that must be signed by each clinical trial subject or his or her legal representative and mustmonitor the clinical trial until completed. Clinical trials involving recombinant or synthetic nucleic acid molecules also must be reviewed by aninstitutional biosafety committee, or IBC, a local institutional committee that reviews and oversees basic and clinical research conducted at thatinstitution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment.Clinical trials involve the administration of the biological product candidate to healthy volunteers or patients under the supervision of qualifiedinvestigators, generally physicians not employed by or under the trial sponsor’s control. Clinical trials must be conducted and monitored inaccordance with the FDA’s regulations comprising the GCP requirements, including the requirement that all research patients provide informedconsent.Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: • Phase 1. The biological product is initially introduced into healthy human subjects and tested for safety. In the case of some products forsevere or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers,the initial human testing is often conducted in patients with the target disease or condition. • Phase 2. The biological product is evaluated in a limited patient population to identify possible adverse effects and safety risks, topreliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage anddosing schedule. • Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded patient population,generally at geographically dispersed clinical trial sites. These clinical trials are intended to generate enough data to statistically evaluatethe efficacy and safety of the product for approval, to establish the overall risk to benefit profile of the product and to provide an adequatebasis for product labeling.Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all.Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These clinical trials areused to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up.During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, andclinical trial investigators. Annual progress reports detailing the results of the 23Table of Contentsclinical trials must be submitted to the FDA. Written IND safety reports must be promptly submitted to the FDA, the NIH and the investigators forserious and unexpected adverse events, any findings from other studies, tests in laboratory animals or in vitro testing that suggest a significant risk forhuman patients, or any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigatorbrochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor determines that the information qualifies forreporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within seven calendar days afterthe sponsor’s initial receipt of the information. The FDA or the sponsor or its data safety monitoring board, an independent group of experts thatevaluates study data for safety and makes recommendations concerning continuation, modification, or termination of clinical trials, may suspend orterminate a clinical trial at any time on various grounds, including a finding that the research patients are being exposed to an unacceptable health risk,including risks inferred from other unrelated immunotherapy trials. Similarly, an IRB can suspend or terminate approval of a clinical trial at itsinstitution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the biological product has been associated withunexpected serious harm to patients.Because this is a relatively new and expanding area of novel therapeutic interventions, there can be no assurance as to the length of the trial period, thenumber of patients the FDA will require to be enrolled in the trials in order to establish the safety, efficacy, purity and potency of immunotherapyproducts, or that the data generated in these trials will be acceptable to the FDA to support marketing approval.Concurrently with clinical trials, companies usually complete additional nonclinical studies and must also develop additional information about thephysical characteristics of the biological product as well as finalize a process for manufacturing the product in commercial quantities in accordancewith cGMP requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHSA emphasizes theimportance of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable ofconsistently producing quality batches of the product candidate and, among other things, the sponsor must develop methods for testing the identity,strength, quality, potency and purity of the final biological product. Additionally, appropriate packaging must be selected and tested and stabilitystudies must be conducted to demonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life.U.S. Review and Approval ProcessesAfter the completion of clinical trials of a biological product, FDA approval of a BLA must be obtained before commercial marketing of the biologicalproduct. The BLA must include results of product development, laboratory and animal studies, human trials, information on the manufacture andcomposition of the product, proposed labeling and other relevant information. The testing and approval processes require substantial time and effortand there can be no assurance that the FDA will accept the BLA for filing and, even if filed, that any approval will be granted on a timely basis, if at allas the FDA has significant discretion to approve or reject the BLA and to require additional preclinical or clinical trials.Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a significant user fee. The FDA adjusts thePDUFA user fees on an annual basis. PDUFA also imposes an annual program fee for approved biological products. Fee waivers or reductions areavailable in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user feesare assessed on BLAs for products designated as orphan drugs, unless the product also includes a non-orphan indication.Within 60 days following submission of the application, the FDA reviews a BLA submitted to determine if it is substantially complete before theagency accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and mayrequest additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject 24Table of Contentsto review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA.The FDA reviews the BLA to determine, among other things, whether the proposed product is safe, potent, and/or effective for its intended use, and hasan acceptable purity profile, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity,safety, strength, quality, potency and purity. The FDA may refer applications for novel biological products or biological products that present difficultquestions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and arecommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of anadvisory committee, but it considers such recommendations carefully when making decisions. During the biological product approval process, theFDA also will determine whether a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to ensure that the benefits of the product outweighits risks and to assure the safe use of the biological product, which could include medication guides, physician communication plans, or elements toassure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. FDA determines the requirement for aREMS, as well as the specific REMS provisions, on a case-by-case basis. If the FDA concludes a REMS is needed, the sponsor of the BLA must submita proposed REMS. The FDA will not approve a BLA without a REMS, if required.Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless itdetermines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production ofthe product within required specifications. For immunotherapy products, the FDA also will not approve the product if the manufacturer is not incompliance with the GTPs, to the extent applicable. These are FDA regulations and guidance documents that govern the methods used in, and thefacilities and controls used for, the manufacture of human cells, tissues, and cellular and tissue based products, or HCT/Ps, which are human cells ortissue intended for implantation, transplant, infusion, or transfer into a human recipient. The primary intent of the GTP requirements is to ensure thatcell and tissue based products are manufactured in a manner designed to prevent the introduction, transmission and spread of communicable disease.FDA GTP regulations also require tissue establishments to register and list their HCT/Ps with the FDA and, when applicable, to evaluate donorsthrough screening and testing. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that theclinical trials were conducted in compliance with IND trial requirements and GCP requirements. To assure cGMP, GTP and GCP compliance, anapplicant must incur significant expenditure of time, money and effort in the areas of training, recordkeeping, production, and quality control.Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteriafor approval and deny approval. If the agency decides not to approve the BLA in its present form, the FDA will issue a Complete Response Letter,which generally outlines the specific deficiencies in the BLA identified by the FDA and may require additional clinical or other data or impose otherconditions that must be met in order to secure final approval of the application. The deficiencies identified may be minor, for example, requiringlabeling changes, or major, for example, requiring additional clinical trials. Even with the submission of additional information, the FDA mayultimately decide that the application does not satisfy the regulatory criteria for approval. If a Complete Response Letter is issued, the applicant mayeither resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application.If a product receives regulatory approval, the approval is limited to the conditions of use (e.g., patient population, indication) described in theapplication.Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling, or otherwise limit the scopeof any approval. In addition, the FDA may require post marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to furtherassess a biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have beencommercialized. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes andadditional labeling claims, are subject to further testing requirements and FDA review and approval. 25Table of ContentsIn addition, under the Pediatric Research Equity Act, or PREA, a BLA or supplement to a BLA must contain data to assess the safety and effectivenessof the product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatricsubpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers.Post-Approval RequirementsAny products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keepingrequirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product samplingand distribution requirements, and complying with FDA promotion and advertising requirements, which include, among others, standards fordirect-to-consumer advertising, restrictions on promoting products for uses or in patient populations that are not described in the product’s approveduses (known as “off-label use”), limitations on industry-sponsored scientific and educational activities, and requirements that important safetyinformation and material facts related to the product be disclosed. Although physicians may prescribe legally available products for off-label uses, ifthe physicians deem to be appropriate in their professional medical judgment, manufacturers may not market or promote such off-label uses. The FDAand other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to haveimproperly promoted off-label uses may be subject to significant liability.In addition, quality control and manufacturing procedures must continue to conform to applicable manufacturing requirements after approval to ensurethe long-term stability of the product. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantitiesof our products in accordance with cGMP regulations. cGMP regulations require among other things, quality control and quality assurance as well asthe corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturersand other entities involved in the manufacture and distribution of approved products are required to register their establishments with the FDA andcertain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and otherlaws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMPcompliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved BLA,including, among other things, recall or withdrawal of the product from the market.The FDA also may require post-marketing testing, known as Phase 4 testing, and surveillance to monitor the effects of an approved product. Discoveryof previously unknown problems with a product, including adverse events of unanticipated severity or frequency, with manufacturing processes, or thefailure to comply with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrativeenforcement, complete withdrawal from the market, product recalls, warning letters from the FDA, mandated corrective advertising or communicationswith doctors, product seizure or detention, injunctions, and civil or criminal penalties, among others. Newly discovered or developed safety oreffectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also mayrequire the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation,may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development.U.S. Marketing ExclusivityThe Biologics Price Competition and Innovation Act, or BPCIA, amended the PHSA to authorize the FDA to approve similar versions of innovativebiologics, commonly known as biosimilars. Biosimilars are approved pursuant to an abbreviated pathway whereby applicants need not submit the fullslate of preclinical and clinical data, and approval is based in part on the FDA’s findings of safety, purity, and potency for the original biologic (i.e., thereference product). Original BLAs are eligible to receive 12 years of exclusivity from the time of first 26Table of Contentslicensure of the product, which prevents the FDA from approving any biosimilars to the reference product through the abbreviated pathway, but doesnot prevent approval of BLAs that are accompanied by a full data package and that do not rely on the reference product. A biosimilar may be approvedif the product is highly similar to the reference product notwithstanding minor differences in clinically inactive components and there are no clinicallymeaningful differences with the reference product in terms of the safety, purity, and potency.Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existingexclusivity 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.Coverage, Pricing and ReimbursementSignificant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In theUnited States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, insignificant part, on the extent to which third-party payors provide coverage, and establish adequate reimbursement levels for such products. In theUnited States, third-party payors include federal and state healthcare programs, private managed care providers, health insurers and other organizations.The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the price of aproduct or for establishing the reimbursement rate that such a payor will pay for the product. Third-party payors may limit coverage to specificproducts on an approved list, also known as a formulary, which might not include all of the FDA-approved products for a particular indication. Third-party payors are increasingly challenging the price, examining the medical necessity of and reviewing the cost-effectiveness of medical products,therapies and services, in addition to questioning their safety and efficacy.Reimbursement may impact the demand for, and/or the price of, any product candidate which obtains marketing approval. Even if coverage andreimbursement is obtained for a given product candidate by a third-party payor, the resulting reimbursement payment rates may not be adequate or mayrequire co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and theirprescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with those medications. Patients are unlikelyto use a product, and physicians may be less likely to prescribe a product, unless coverage is provided and reimbursement is adequate to cover all or asignificant portion of the cost of the product. Therefore, coverage and adequate reimbursement is critical to new drug product acceptance.The downward pressure on health care costs in general, particularly prescription drugs and biologics, has become very intense. Governments haveshown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements forsubstitution of generic products. As a result, increasingly high barriers are being erected to the entry of new products. The marketability of any productcandidates for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide favorablecoverage and adequate reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue toincrease the pressure on healthcare pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverageand reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies andreimbursement rates may be implemented in the future.Health Care Laws Governing Interactions with Healthcare ProvidersIn addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws restrict our business activities,including certain marketing practices. These laws include, without limitation, anti-kickback laws, false claims laws, data privacy and security laws, aswell as transparency laws regarding payments or other items of value provided to healthcare providers. 27Table of ContentsThe federal healthcare program Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receivingremuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, purchasing, leasing, ordering or arranging for the purchase,lease or order of any healthcare item, good, facility or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcareprograms. The term ‘‘remuneration’’ has been broadly interpreted to include anything of value. This statute has been interpreted to apply toarrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other hand. Althoughthere are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatorysanctions, the exceptions and safe harbors are drawn narrowly, and practices that involve remuneration that are alleged to be intended to induceprescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of therequirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federalhealthcare program Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulativereview of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of anarrangement involving remuneration is to induce referrals of federal healthcare covered business, the federal healthcare program Anti-Kickback Statutehas been violated. Additionally, the intent standard under the federal healthcare program Anti-Kickback Statute was amended by the Patient Protectionand Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, collectively the Affordable Care Act, orACA, to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order tohave committed a violation. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the federalhealthcare program Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.Federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalties laws, prohibit any person or entity from,among other things, knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, orcausing to be made, a false statement to have a false claim paid. Pharmaceutical and other healthcare companies have been prosecuted under these lawsfor, among other things, allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare andMedicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federalprograms for the product. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. Further,pharmaceutical manufacturers can be held liable under the False Claims Act even when they do not submit claims directly to government payors ifthey are deemed to “cause” the submission of false or fraudulent claims.The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created new federal criminal statutes that prohibit among otheractions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of ahealthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious orfraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Like the federal healthcare program Anti-Kickback Statute, the ACA amended the intent standard for certain healthcare fraud under HIPAA such that a person or entity no longer needs to haveactual knowledge of the statute or specific intent to violate it in order to have committed a violation.In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business.HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations,imposes certain requirements on “covered entities,” including healthcare providers, health plans and healthcare clearinghouses, as well as theirrespective “business associates” that create, receive, maintain or transmit individually identifiable health information for or on behalf of a coveredentity, relating to the privacy, security, transmission and breach of 28Table of Contentsindividually identifiable health information. Further, HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civiland criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages orinjunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions.Additionally, the federal Physician Payments Sunshine Act, created under the ACA, and its implementing regulations, require certain manufacturers ofdrugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program(with certain exceptions) to report information related to certain payments or other transfers of value provided to physicians (defined to includedoctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, or to entities or individuals at the request of, or designated onbehalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and theirimmediate family members.Finally, the majority of states also have statutes or regulations similar to the aforementioned federal laws, some of which are broader in scope and applyto items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Some state laws requirepharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidancepromulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to clinicians and otherhealthcare providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in somecircumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.Because of the breadth of these laws and the narrowness of their exceptions and safe harbors, it is possible that business activities can be subject tochallenge under one or more of such laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the currentenvironment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies haverecently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations,prosecutions, convictions and settlements in the healthcare industry.Ensuring that business arrangements with third parties comply with applicable healthcare laws and regulations is costly and time consuming. Ifbusiness operations are found to be in violation of any of the laws described above or any other applicable governmental regulations a pharmaceuticalmanufacturer may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, individualimprisonment, exclusion from governmental funded healthcare programs, such as Medicare and Medicaid, additional reporting obligations andoversight if subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, contractualdamages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of operations, any of which could adversely affecta pharmaceutical manufacturer’s ability to operate its business and the results of its operations.Healthcare Reform EffortsA primary trend in the United States healthcare industry and elsewhere is cost containment. Over the last several years, there have been federal and stateproposals and legislation enacted regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement fordrugs and other medical products, and making changes to healthcare financing and the delivery of care in the United States.In March 2010, the ACA was enacted, which includes measures that have significantly changed health care financing by both governmental andprivate insurers. The provisions of the ACA of importance to the pharmaceutical and biotechnology industry are, among others, the following: • an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drug agents or biologic agents, whichis apportioned among these entities according to their market share in certain government healthcare programs; 29Table of Contents • an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the averagemanufacturer price for branded and generic drugs, respectively; • a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (and 70% commencing January 1,2019) point-of-sale discounts to negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as acondition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; • extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managedcare organizations, unless the drug is subject to discounts under the 340B drug discount program; • a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that areinhaled, infused, instilled, implanted or injected; • expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additionalindividuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the federalpoverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability; • expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; • new requirements under the federal Physician Payments Sunshine Act for drug manufacturers to report information related to payments andother transfers of value made to physicians and teaching hospitals as well as ownership or investment interests held by physicians and theirimmediate family members; • a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectivenessresearch, along with funding for such research; • establishment of a Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery models to lowerMedicare and Medicaid spending, potentially including prescription drug spending; and • a licensure framework for follow on biologic products.Some of the provisions of the ACA have yet to be implemented, and there have been legal and political challenges to certain aspects of the ACA. SinceJanuary 2017, President Trump has signed two executive orders and other directives designed to delay, circumvent or loosen certain requirementsmandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. WhileCongress has not passed repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been signed into law. The TaxCuts and Jobs Act of 2017, includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACAon certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”.Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed theimplementation of certain ACA- mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, theannual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices.Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1,2019, to close the coverage gap inmost Medicare drug plans, commonly referred to as the “donut hole”. Congress may consider other legislation to repeal or replace elements of theACA.In addition, other federal health reform measures have been proposed and adopted in the United States since the ACA was enacted. For example, as aresult of the Budget Control Act of 2011, providers are subject to Medicare payment reductions of 2% per fiscal year, which went into effect on April 1,2013 and, due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2027 unless additional 30Table of ContentsCongressional action is taken. Further, the American Taxpayer Relief Act of 2012 reduced Medicare payments to several providers and increased thestatute of limitations period for the government to recover overpayments from providers from three to five years. The Medicare Access and CHIPReauthorization Act of 2015 also introduced a quality payment program under which certain individual Medicare providers will be subject to certainincentives or penalties based on new program quality standards. Payment adjustments for the Medicare quality payment program will begin in 2019.At this time, it is unclear how the introduction of the quality payment program will impact overall physician reimbursement under the Medicareprogram.Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost ofprescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and statelegislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturerpatient programs, and reform government program reimbursement methodologies for products. At the federal level, the Trump administration’s budgetproposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other futurelegislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allowsome states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. While any proposedmeasures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicatedthat it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasinglyenacted legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patientreimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in somecases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individualhospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in theirprescription drug and other healthcare programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure onour product pricing.U.S. Foreign Corrupt Practices Act, U.K. Bribery Act and Other LawsThe Foreign Corrupt Practices Act, or the FCPA, prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering ofanything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of theforeign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities arelisted in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflectall transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controlsfor international operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines,imprisonment, disgorgement, oversight, and debarment from government contracts.Our operations are also subject to non-U.S. anti-corruption laws such as the U.K. Bribery Act 2010, or the Bribery Act. As with the FCPA, these lawsgenerally prohibit us and our employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, improper orprohibited payments, or anything else of value, to government officials or other persons to obtain or retain business or gain some other businessadvantage. Under the Bribery Act, we may also be liable for failing to prevent a person associated with us from committing a bribery offense.We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of theUnited Kingdom and the United States and authorities in the European Union, including applicable export control regulations, economic sanctionsand embargoes on certain countries and persons, anti-money laundering laws, import and customs requirements and currency exchange regulations,collectively referred to as trade control laws. 31Table of ContentsFailure to comply with the Bribery Act, the FCPA and other anti-corruption laws and trade control laws could subject us to criminal and civil penalties,disgorgement and other sanctions and remedial measures, and legal expenses.CompetitionThe development and commercialization for new products to treat cancer, including the indications we are pursuing is highly competitive, andconsiderable competition exists from major pharmaceutical, biotechnology and specialty cancer companies. In addition, many of these companieshave more experience in preclinical and clinical development, manufacturing, regulatory, and global commercialization. We are also competing withacademic institutions, governmental agencies, and private organizations that are conducting research in the field of cancer. Competition for highlyqualified employees and their retention is intense, particularly as companies adjust to the current economic environment.The biopharmaceutical industry, and the rapidly evolving market for developing genetically engineered T-cells and NK cells, is characterized byintense competition and rapid innovation. Genetically engineering T-cells and NK cells faces significant competition in the CAR and TCR technologyspace from multiple companies and their collaborators. Two such companies have now commercialized autologous CAR+ T cells against CD19:Novartis (Kymriah™ for treatment of pediatric and young adult patients with relapsed/refractory B-cell precursor ALL) and Kite Pharma/Gilead(Yescarta™ for treatment of adult patients with relapsed/refractory DLBCL). Additional companies developing autologous CAR+ T targets includeJuno Therapeutics/Celgene (CD19), bluebird bio, in collaboration with Celgene (BCMA), Nanjing Legend Biotech and Janssen Biotech, Inc., asubsidiary of Johnson & Johnson (BCMA), Kite Pharma/Gilead (BCMA), Bellicum Pharmaceuticals (PSCA), Juno Therapeutics (CD22, BCMA, WT1,MUC16, L1CAM, ROR1), Autolus Limited (BCMA and TACI), CARsgen (EGFRvIII, Claudin-18.1), Mustang Bio (CD123, IL-13Ralpha2) and AuroraBioPharma (HER2 and CMV).At least one company, Cellectis is pursuing the development of allogeneic CAR+ T therapies (in collaboration with Pfizer) and CD123 which maycompete with our product candidates.In the TCR arena, we face competition from companies targeting shared antigens including Adaptimmune in collaboration with GlaxoSmithKline (NYESO, MAGE-A10, MAGE-A4, AFP), Kite Pharma/Gilead (MAGE-A3/A6), Tmunity and others. Additional competitors are pursuing a vaccine platformto target neoantigens for solid tumors. This includes Advaxis/Amgen, BioNTech, Neon Therapeutics and Gritstone Oncology. Neon has alsoannounced that they are developing a T-cell therapy against neoantigens using a technology which may compete with our product candidates.Other companies are developing non-viral gene therapies including Poseida Therapeutics (piggyBac). The CRISPR technology is being developed byseveral competitors and is being adapted for stable integration; although this genetic approach for insertion of transgenes is not yet in the clinic.We also face competition from non-cell based treatments offered by other companies such as Amgen, AstraZeneca, Bristol-Myers, Incyte, Merck, andRoche.In addition, our gene therapy, immuno-oncology product Ad-RTS-hIL-12 + veledimex faces competition in glioblastoma. Immunotherapy is anattractive approach for the treatment of glioma, an aggressive cancer with few treatment options. IL-12 is among the most potent anti-cancer immunecytokines, yet carries equally significant potential for immune-mediated toxicities. Our ability to control IL-12 expression e.g., on and off and up anddown using an orally activated gene switch, particularly in the brain’s immune privileged environment, is an advancement in the potential of thistherapeutic approach. Delivery of Ad-RTS-hIL-12 is done at the time of surgery and takes approximately one minute to administer and then the patienttakes an oral pill. We believe this is an important distinction between the Ziopharm immunotherapy and other immunotherapies.Companies that sell marketed drugs for recurrent glioblastoma are Genentech and Roche with Avastin (bevacizumab), a vascular endothelial growthfactor directed antibody indicated for the treatment of adults with 32Table of ContentsrGBM. Arbor Pharmaceuticals markets GLIADEL Wafer which is indicated in patients with newly diagnosed high-grade malignant glioma as anadjunct to surgery and radiation and is also indicated in patients with recurrent glioblastoma multiforme as an adjunct to surgery.Four companies have product candidates in Phase 3 development for the treatment of glioblastoma. Immunocellular Therapeutics is developingICT-107, a dendritic cell immunotherapy, for the treatment of newly diagnosed glioblastoma. Tocagen is conducting a Phase 2/3 randomized, open-label study of Toca 511, a retroviral replicating vector, combined with Toca FC in subjects undergoing planned resection for recurrent glioblastoma.VBL Therapeutics is developing VB-111, an anti-angiogenic non-replicating adenovirus, combined with bevacizumab vs. bevacizumab monotherapyin patients with recurrent glioblastoma. DelMar is developing VAL-083, dianhydrogalactitol a systemic alkylating agent, in patients with recurrentglioblastoma who have failed standard temozolomide/radiation therapy and bevacizumab.Other competitors with product candidates currently in Phase 2 clinical trials include Abbvie’s Depatus-M (ABT-414) and DNA-2401, a conditionallyreplicative adenovirus being evaluated in combination with pembrolizumab (KEYTRUDA®) for recurrent glioblastoma by DNATrix and Merck. DukeUniversity is enrolling a randomized Phase 2 study of oncolytic polio/rhinovirus recombinant (PVSRIPO) alone or in combination with lomustine inrecurrent WHO Grade IV malignant glioma patients. Also, MedImmune/Astra-Zeneca’s durvalumab was evaluated in a Phase 2 trial in patients withrGBM.In addition, OncoSec is advancing IL-12 for the treatment of melanoma and has generated Phase 2 data for ImmunoPulse® IL-12 in combination withpembrolizumab.EmployeesAs of February 21, 2018, we had 46 full-time employees, 33 of whom were engaged in research and development activities and 13 of whom wereengaged in business development, finance, information systems, facilities, human resources or administrative support. None of our employees aresubject to a collective bargaining agreement.Corporate InformationWe originally incorporated in Colorado in September 1998 (under the name Net Escapes, Inc.) and later changed our name to “EasyWeb, Inc.” inFebruary 1999. We re-incorporated in Delaware on May 16, 2005 under the same name. On September 13, 2005, we completed a “reverse” acquisitionof privately held Ziopharm, Inc., a Delaware corporation. To affect this transaction, we caused ZIO Acquisition Corp., our wholly-owned subsidiary, tomerge with and into Ziopharm, Inc., with Ziopharm, Inc. surviving as our wholly owned subsidiary. In accordance with the terms of the merger, theoutstanding common stock of Ziopharm, Inc. automatically converted into the right to receive an aggregate of approximately 97.3% of ouroutstanding common stock (after giving effect to the transaction). Following the merger, we caused Ziopharm, Inc. to merge with and into us and wechanged our name to “Ziopharm Oncology, Inc.” Although EasyWeb, Inc. was the legal acquirer in the transaction, we accounted for the transaction asa reverse acquisition under generally accepted accounting principles. As a result, Ziopharm, Inc. became the registrant with the Securities andExchange Commission, or the SEC, and the historical financial statements of Ziopharm, Inc. became our historical financial statements.Our principal executive offices are located at One First Avenue, Parris Building 34, Navy Yard Plaza, Boston, Massachusetts 02129, and our telephonenumber is (617) 259-1970. 33Table of ContentsAvailable InformationOur website address is www.ziopharm.com. Our website and information included in or linked to our website are not part of this Annual Report onForm 10-K. We file reports with the SEC, which we make available on our website free of charge. These reports include annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, each of which is provided on our website as soon asreasonably practicable after we electronically file such materials with or furnish them to the SEC. You can also read and copy any materials we file withthe SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can obtain additional information about the operationof the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website (www.sec.gov) that contains reports,proxy and information statements, and other information regarding issuers, like us, that file electronically with the SEC, including us. 34Table of ContentsItem 1A. Risk FactorsAn investment in our common stock is very risky. In addition to the other information in this Annual Report on Form 10-K, you should carefullyconsider the following risk factors in evaluating us and our business. If any of the events described in the following risk factors were to occur, ourbusiness, financial condition, results of operation and future growth prospects would likely be materially and adversely affected. In that event, thetrading price of our common stock could decline, and you could lose all or a part of your investment in our common stock. Therefore, we urge you tocarefully review this entire report and consider the risk factors discussed below. Moreover, the risks described below are not the only ones that weface. Additional risks not presently known to us or that we currently deem immaterial may also affect our business, financial condition, operatingresults or prospects.RISKS RELATED TO OUR BUSINESSOur plans to develop and commercialize non-viral and viral adoptive cellular therapies based on engineered cytokines and CAR T-cell or NK celltherapies as well as TCR therapies can be considered as new approaches to cancer treatment, the successful development of which is subject tosignificant challenges.We intend to employ technologies such as the technology licensed from MD Anderson pursuant to the MD Anderson License described above, andfrom Precigen, pursuant to the Channel Agreement, to pursue the development and commercialization of non-viral and viral adoptive cellular therapiesbased on cytokines, T-cells, NK cells, CARs and TCRs, possibly under control of the RTS® and other switch technologies targeting both hematologicand solid tumor malignancies. Because this is a new approach to cancer immunotherapy and cancer treatment generally, developing andcommercializing product candidates subjects us to a number of challenges, including: • obtaining regulatory approval from the FDA and other regulatory authorities that have very limited experience with the commercialdevelopment of genetically modified and/or unmodified T-cell and NK-cell therapies for cancer; • developing and deploying consistent and reliable processes for engineering a patient’s and/or donor’s T-cells or NK cells ex vivo andinfusing the T-cells or NK cells back into the patient; • possibly conditioning patients with chemotherapy in conjunction with delivering each of the potential products, which may increase therisk of adverse side effects of the potential products; • educating medical personnel regarding the potential side effect profile of each of the potential products, such as the potential adverse sideeffects related to cytokine release; • addressing any competing technological and market developments; • developing processes for the safe administration of these potential products, including long-term follow-up for all patients who receive thepotential products; • sourcing additional clinical and, if approved, commercial supplies for the materials used to manufacture and process the potential products; • developing a manufacturing process and distribution network with a cost of goods that allows for an attractive return on investment; • establishing sales and marketing capabilities after obtaining any regulatory approval to gain market acceptance; • developing therapies for types of cancers beyond those addressed by the current potential products; • maintaining and defending the intellectual property rights relating to any products we develop; and • not infringing the intellectual property rights, in particular, the patent rights, of third parties, including competitors, such as developingT-cell and/or NK-cell therapies. 35Table of ContentsWe cannot be sure that immunotherapy technologies that we intend to develop in partnership with MD Anderson and Precigen will yield satisfactoryproducts that are safe and effective, scalable, or profitable. Moreover, public perception of therapy safety issues, including adoption of newtherapeutics or novel approaches to treatment, may adversely influence the willingness of subjects to participate in clinical trials, or if approved, ofphysicians to subscribe to the novel treatment mechanics. Physicians, hospitals and third-party payors often are slow to adopt new products,technologies and treatment practices that require additional upfront costs and training. Physicians may not be willing to undergo training to adopt thisnovel and personalized therapy, may decide the therapy is too complex to adopt without appropriate training and may choose not to administer thetherapy. Based on these and other factors, hospitals and payors may decide that the benefits of this new therapy do not or will not outweigh its costs.We cannot assure you that we will be able to successfully address these challenges, which could prevent us from achieving our research, developmentand commercialization goals.Our current product candidates are based on novel technologies and are supported by limited clinical data and we cannot assure you that ourcurrent and planned clinical trials will produce data that supports regulatory approval of one or more of these product candidates.Our Channel Agreement with Precigen described the terms of our use of Precigen’s Controlled IL-12 platform technology. The immuno-oncologyeffector platform in which we have acquired rights represents early-stage technology in the field of human oncology biotherapeutics, withAd-RTS-IL-12 + veledimex having completed trials, in melanoma and breast cancer. We are continuing to pursue intratumoral injection ofAd-RTS-IL-12 + veledimex in brain cancer. Although we plan to leverage Precigen’s immuno-oncology platform for additional products targeting keypathways used by cancers to grow and metastasize, we may not be successful in developing and commercializing these products for a variety ofreasons.Similarly, our genetically modified and/or non-modified T-cell and/or NK cell product candidates are supported by limited clinical data, all of whichhas been generated through trials conducted by MD Anderson, not by us. We plan to assume control of the overall clinical and regulatory developmentof our T-cell and NK-cell product candidates, and any failure to obtain, or delays in obtaining, sponsorship of new INDs, or in filing INDs sponsored byus for these or any other product candidates we determine to advance could negatively affect the timing of our potential future clinical trials. Such animpact on timing could increase research and development costs and could delay or prevent obtaining regulatory approval for our product candidates,either of which could have a material adverse effect on our business. Further, we did not control the design or conduct of the previous trials. It ispossible that the FDA will not accept these previous trials as providing adequate support for future clinical trials, whether controlled by us or thirdparties, for any of one or more reasons, including the safety, purity, and potency of the product candidate, the degree of product characterization,elements of the design or execution of the previous trials or safety concerns, or other trial results. We may also be subject to liabilities arising from anytreatment-related injuries or adverse effects in patients enrolled in these previous trials. As a result, we may be subject to unforeseen third-party claimsand delays in our potential future clinical trials. We may also be required to repeat in whole or in part clinical trials previously conducted by MDAnderson or other entities, which will be expensive and delay the submission and licensure or other regulatory approvals with respect to any of ourproduct candidates.In addition, the results of the limited clinical trials conducted by us, Precigen and MD Anderson to date may not be replicated in future clinical trials.Our Ad-RTS-IL-12 + veledimex and genetically modified and non-modified T-cell and NK-cell product candidates, as well as other product candidates,may fail to show the desired safety and efficacy in clinical development, and we cannot assure you that the results of any future trials will demonstratethe value and efficacy of our product candidates. Moreover, there are a number of regulatory requirements that we must satisfy before we can continueclinical trials of CAR+ T or other cellular therapy product candidates in the United States. Satisfaction of these requirements will entail substantialtime, effort and financial resources. Any time, effort and financial resources we expend on our Ad-RTS-IL-12 + veledimex and 36Table of Contentsgenetically modified and non-modified T-cell and NK-cell product candidates and other early-stage product candidate development programs mayadversely affect our ability to continue development and commercialization of our immuno-oncology product candidates.We report interim data on certain of our clinical trials and we cannot assure you that interim data will be predictive of either future interim resultsor final study results.As part of our business, we provide updates related to the development of our product candidates, which may include updates related to interim clinicaltrial data. To date, our clinical trials have involved small patient populations and because of the small sample size, the interim results of these clinicaltrials may be subject to substantial variability and may not be indicative of either future interim results or final results.If we cannot compete successfully for market share against other biopharmaceutical companies, we may not achieve sufficient product revenues andour business will suffer.The biopharmaceutical industry, and the rapidly evolving market for developing genetically engineered T-cells and NK cells in particular, ischaracterized by intense competition and rapid innovation. Genetically engineering T-cells and NK cells faces significant competition in the CAR andTCR technology space from multiple companies and their collaborators. Two such companies have now commercialized autologous CAR+ T-cellsagainst CD19: Novartis and Kite Pharma. Additional companies developing autologous CAR+ T targets include Juno Therapeutics/Celgene, bluebirdbio, in collaboration with Celgene, Nanjing Legend Biotech and Janssen Biotech, Inc., a subsidiary of Johnson & Johnson, Kite Pharma/Gilead,Bellicum Pharmaceuticals, Juno Therapeutics, Autolus Limited, CARsgen, Mustang Bio and Aurora BioPharma. At least one company, Cellectis ispursuing the development of allogeneic CAR+ T therapies (in collaboration with Pfizer) and CD123 which may compete with our product candidates.In the TCR arena, we face competition from companies targeting shared antigens including Adaptimmune in collaboration with GlaxoSmithKline, KitePharma/Gilead, Tmunity and others. Additional competitors are pursuing a vaccine platform to target neoantigens for solid tumors. This includesAdvaxis/Amgen, BioNTech, Neon Therapeutics and Gritstone Oncology. Neon has also announced that they are developing a T-cell therapy againstneoantigens using a technology which may compete with our product candidates.Other companies are developing non-viral gene therapies including Poseida Therapeutics. We also face competition from non-cell based treatmentsoffered by other companies such as Amgen, AstraZeneca, Bristol-Myers, Incyte, Merck, and Roche. Companies that sell marketed drugs for recurrentglioblastoma are Genentech and Roche with Avastin and Arbor Pharmaceuticals. Four companies have product candidates in Phase 3 development forthe treatment of glioblastoma. Immunocellular Therapeutics, Tocagen, VBL Therapeutics, and DelMar. Other competitors with product candidatescurrently in Phase 2 clinical trials include Abbvie’s Depatus-M (ABT-414) and DNA-2401, a conditionally replicative adenovirus being evaluated incombination with pembrolizumab (KEYTRUDA®) for recurrent glioblastoma by DNATrix and Merck. Duke University is enrolling a randomizedPhase 2 study of oncolytic polio/rhinovirus recombinant (PVSRIPO) alone or in combination with lomustine in recurrent WHO Grade IV malignantglioma patients. Also, MedImmune/Astra-Zeneca’s durvalumab was evaluated in a Phase 2 trial in patients with rGBM. In addition, OncoSec isadvancing IL-12 for the treatment of melanoma and has generated Phase 2 data for ImmunoPulse® IL-12 in combination with pembrolizumab.Even if we obtain regulatory approval of potential products, we may not be the first to market and that may affect the price or demand for our potentialproducts. Existing or future competing products may provide greater therapeutic convenience or clinical or other benefits for a specific indication thanour products, or may offer comparable performance at a lower cost. Additionally, the availability and price of our competitors’ products could limit thedemand and the price we are able to charge for our potential products. We may not be able to implement our business plan if the acceptance of ourpotential products is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our potentialproducts, or if physicians 37Table of Contentsswitch to other new drug or biologic products or choose to reserve our potential products. Additionally, a competitor could obtain orphan productexclusivity from the FDA with respect to such competitor’s product. If such competitor product is determined to be the same product as one of ourpotential products, that may prevent us from obtaining approval from the FDA for such potential products for the same indication for seven years,except in limited circumstances. If our products fail to capture and maintain market share, we may not achieve sufficient product revenues and ourbusiness will suffer.We compete against fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies,academic institutions, government agencies and other public and private research organizations. Many of these competitors have products alreadyapproved or in development. In addition, many of these competitors, either alone or together with their collaborative partners, operate larger researchand development programs or have substantially greater financial resources than we do, as well as significantly greater experience in: • developing drugs and biopharmaceuticals; • undertaking preclinical testing and human clinical trials; • obtaining FDA and other regulatory approvals of drugs and biopharmaceuticals; • formulating and manufacturing drugs and biopharmaceuticals; and • launching, marketing, and selling drugs and biopharmaceuticals.Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are 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 orother regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing astrong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or otherthird-party payors seeking to encourage the use of generic products.Any termination of our licenses with Precigen or MD Anderson could result in the loss of significant rights and could harm our ability to developand commercialize our product candidates.We are dependent on patents, know-how, and proprietary technology that are licensed from others, particularly MD Anderson and Precigen. Anytermination of these licenses could result in the loss of significant rights and could harm our ability to commercialize our product candidates. Disputesmay also arise between us and these licensors regarding intellectual property subject to a license agreement, including those relating to: • the scope of rights granted under the applicable license agreement and other interpretation-related issues; • whether and the extent to which our technology and processes, and the technology and processes of Precigen, MD Anderson and our otherlicensors, infringe on intellectual property of the licensor that is not subject to the applicable license agreement; • our right to sublicense patent and other rights to third parties pursuant to our relationships with our licensors and partners; • whether we and/or Precigen are complying with our diligence obligations with respect to the use of the licensed technology in relation toour development and commercialization of our potential products under the MD Anderson License; and • the allocation of ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensorsand by us.If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements, particularlywith MD Anderson and Precigen, on acceptable terms, we may be unable to 38Table of Contentssuccessfully develop and commercialize the affected potential products. We are generally also subject to all of the same risks with respect to protectionof intellectual property that we license as we are for intellectual property that we own. If we or our licensors fail to adequately protect this intellectualproperty, our ability to commercialize potential products under our applicable licenses could suffer.There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries,as well as administrative proceedings for challenging patents, including interference, derivation, and reexamination proceedings before the UnitedStates Patent and Trademark Office, or USPTO, or oppositions and other comparable proceedings in foreign jurisdictions. Recently, due to changes inU.S. law referred to as patent reform, new procedures including inter partes review and post-grant review have been implemented, which addsuncertainty to the possibility of challenge to our or our licensors’ patents in the future.We will require additional financial resources in order to continue ongoing development of our product candidates; if we are unable to obtain theseadditional resources, we may be forced to delay or discontinue clinical testing of our product candidates.We have not generated significant revenue and have incurred significant net losses in each year since our inception. For the year ended December 31,2017, we had a net loss of $54.3 million, and, as of December 31, 2017, we have incurred approximately $712.4 million of accumulated deficit sinceour inception in 2003. We expect to continue to incur significant operating expenditures and net losses. Further development of our productcandidates, including product candidates that we may develop under our Channel Agreement with Precigen, pursuant to the MD Anderson License orpursuant to the Ares Trading Agreement, will likely require substantial increases in our expenses as we: • continue to undertake clinical trials for product candidates; • scale-up the formulation and manufacturing of our product candidates; • seek regulatory approvals for product candidates; • work with regulatory authorities to identify and address program-related inquiries; • implement additional internal systems and infrastructure; • hire additional personnel; • begin to advance candidates pursuant to the MD Anderson License; and • commence providing funding for certain research and development activities of MD Anderson pursuant to the terms of the MD AndersonLicense.We continue to seek additional financial resources to fund the further development of our product candidates. If we are unable to obtain sufficientadditional capital, one or more of these programs could be placed on hold. Because we are currently devoting a significant portion of our resources tothe development of immuno-oncology, further progress with the development of our other candidates may be significantly delayed and may depend onthe licensing of those compounds to third parties.As of December 31, 2017, we have approximately $70.9 million of cash and cash equivalents. Given our development plans, we anticipate cashresources will be sufficient to fund our operations into the fourth quarter of 2018, and we have no committed sources of additional capital at thistime. The forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses couldvary materially and adversely as a result of a number of factors. We have based our estimates on assumptions that may prove to be wrong, and ourexpenses could prove to be significantly higher than we currently anticipate. Management does not know whether additional financing will be onterms favorable or acceptable to us when needed, if at all. If adequate additional funds are not available when required, or if we are unsuccessful in 39Table of Contentsentering into partnership agreements for further development of our product candidates, management may need to curtail development efforts. Basedon the forecast, management determined that there is substantial doubt regarding our ability to continue as a going concern. As a result, ourindependent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern in their report datedMarch 1, 2018 included in this Annual Report on Form 10-K.We need to raise additional capital to fund our operations. The manner in which we raise any additional funds may affect the value of yourinvestment in our common stock.As of December 31, 2017, we have incurred approximately $712.4 million of accumulated deficit and had approximately $70.9 million of cash andcash equivalents. Given our current development plans, we anticipate that our current cash resources will be sufficient to fund our operations into thefourth quarter of 2018. However, changes may occur that would consume our existing capital prior to then, including expansion of the scope of, and/orslower than expected progress of, our research and development efforts and changes in governmental regulation. Actual costs may ultimately vary fromour current expectations, which could materially impact our use of capital and our forecast of the period of time through which our financial resourceswill be adequate to support our operations. Also our estimates include the advancement of our immuno-oncology product candidates in the clinicunder our Channel Agreement with Precigen and our increased expenses as we begin to advance candidates pursuant to the MD Anderson License withMD Anderson and commence providing funding for certain research and development activities of MD Anderson pursuant to the terms of the MDAnderson License, and we expect that the costs associated with these and any additional product candidates we pursue will increase the level of ouroverall research and development expenses significantly going forward.In addition to above factors, our actual cash requirements may vary materially from our current expectations for a number of other factors that mayinclude, but are not limited to, changes in the focus and direction of our development programs, competitive and technical advances, costs associatedwith the development of our product candidates, our ability to secure partnering arrangements, and costs of filing, prosecuting, defending andenforcing our intellectual property rights. If we exhaust our capital reserves more quickly than anticipated, regardless of the reason, and we are unableto obtain additional financing on terms acceptable to us or at all, we will be unable to proceed with development of some or all of our productcandidates on expected timelines and will be forced to prioritize among them.The unpredictability of the capital markets may severely hinder our ability to raise capital within the time periods needed or on terms we consideracceptable, if at all. Moreover, if we fail to advance one or more of our current product candidates to later-stage clinical trials, successfullycommercialize one or more of our product candidates, or acquire new product candidates for development, we may have difficulty attracting investorsthat might otherwise be a source of additional financing.Our need for additional capital and limited capital resources may force us to accept financing terms that could be significantly dilutive to existingstockholders. To the extent that we raise additional capital by issuing equity securities, our stockholders may experience dilution. In addition, we maygrant future investors rights superior to those of our existing stockholders. If we raise additional funds through collaborations and licensingarrangements, it may be necessary to relinquish some rights to our technologies, product candidates or products, or grant licenses on terms that are notfavorable to us. If we raise additional funds by incurring debt, we could incur significant interest expense and become subject to covenants in therelated transaction documentation that could affect the manner in which we conduct our business.Clinical trials are very expensive, time-consuming, and difficult to design, initiate and implement.Human clinical trials are very expensive and difficult to design, initiate and implement, in part because they are subject to rigorous regulatoryrequirements. The clinical trial start-up and process itself is also time-consuming and results are inherently uncertain. We estimate that clinical trials ofour product candidates will take at least 40Table of Contentsseveral years to complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to delay the start of,abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including: • Additional nonclinical data requests by regulatory agencies; • Unforeseen safety issues; • Determination of dosing issues; • Lack of effectiveness during clinical trials; • Slower than expected rates of patient recruitment and enrollment; • Inability to monitor patients adequately during or after treatment; • Inability or unwillingness of medical investigators to follow our clinical protocols; and • Regulatory determinations to temporarily or permanently cease enrollment for other reasons not related to patient safety.Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. In addition, we or the FDA may suspendour clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the FDA finds deficiencies in our INDsubmission or in the conduct of these trials.See also “Risks Related to the Clinical Testing, Regulatory Approval and Manufacturing of our Product Candidates—Our product candidates are invarious stages of clinical trials, which are very expensive and time-consuming. We cannot be certain when we will be able to submit a BLA, to theFDA and any failure or delay in completing clinical trials for our product candidates could harm our business.”We may not be able to obtain or maintain orphan drug exclusivity for our product candidates.We have received orphan drug designation for Ad-RTS-IL-12 + veledimex for the treatment of malignant glioma in the United States, and we may beable to receive additional orphan drug designation from the FDA and the European Medicines Agency, or EMA, for our other product candidates. Inthe United States, orphan designation is available to drugs intended to treat, diagnose or prevent a rare disease or condition that affects fewer than200,000 people in the United States at the time of application for orphan designation. Orphan designation qualifies the sponsor of the product for a taxcredit and marketing incentives. The first sponsor to receive FDA marketing approval for a drug with an orphan designation is entitled to a seven-yearexclusive marketing period in the United States for that product for that indication and, typically, a waiver of the prescription drug user fee for itsmarketing application. However, a drug that the FDA considers to be clinically superior to, or different from, the approved orphan drug, even thoughfor the same indication, may also obtain approval in the United States during the seven-year exclusive marketing period. Orphan drug exclusivemarketing rights may also be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unableto assure sufficient quantity of the drug. There is no guarantee that any of our other product candidates will receive orphan drug designation or that,even if such product candidate is granted such status, the product candidate’s clinical development and regulatory approval process will not bedelayed or will be successful.We may not be able to commercialize any products, generate significant revenues, or attain profitability.To date, none of our product candidates have been approved for commercial sale in any country. The process to develop, obtain regulatory approvalfor, and commercialize potential product candidates is long, complex, and costly. Unless and until we receive approval from the FDA and/or otherforeign regulatory authorities for our product candidates, we cannot sell our drugs and will not have product revenues. Even if we obtain regulatoryapproval for one or more of our product candidates, if we are unable to successfully commercialize our products, we may not be able to generatesufficient revenues to achieve or maintain profitability, or to continue our business without raising significant additional capital, which may not beavailable. Our failure to achieve or maintain profitability could negatively impact the trading price of our common stock. 41Table of ContentsEthical, legal and social concerns about synthetic biologically engineered products could limit or prevent the use of our product candidates.Our product candidates use an immuno-oncology platform. Public perception about the safety and environmental hazards of, and ethical concernsover, genetically engineered products could influence public acceptance of our product candidates. If we and our collaborators are not able toovercome the ethical, legal and social concerns relating to biological engineering, our product candidates may not be accepted. These concerns couldresult in increased expenses, regulatory scrutiny, delays or other impediments to the public acceptance and commercialization of our productcandidates. Our ability to develop and commercialize products could be limited by public attitudes and governmental regulation.The subject of genetically modified organisms has received negative publicity, which has aroused public debate. This adverse publicity could lead togreater regulation and trade restrictions on the development and commercialization of genetically altered products. Further, there is a risk that ourproduct candidates could cause adverse health effects or other AEs, which could also lead to negative publicity.The biological platform that we use may have significantly enhanced characteristics compared to those found in naturally occurring organisms,enzymes or microbes. While we believe we produce biological technologies only for use in a controlled laboratory and industrial environment, therelease of such biological technologies into uncontrolled environments could have unintended consequences. Any adverse effect resulting from such arelease could have a material adverse effect on our business and financial condition, and we may have exposure to liability for any resulting harm.We will incur additional expenses in connection with our Channel Agreement with Precigen.Under the Channel Agreement, and subject to certain exceptions, we are responsible for, among other things, the performance of the Cancer Program,including the development, commercialization and certain aspects of manufacturing of Ziopharm Products. Precigen is responsible for establishingmanufacturing capabilities and facilities for the bulk manufacture of products developed under the Cancer Program, certain other aspects ofmanufacturing and costs of discovery-stage research with respect to platform improvements and costs of filing, prosecution and maintenance ofPrecigen’s patents. We expect our overall research and development expenses will continue to increase as we move forward and particularly as wemove into pivotal trials. Although all human clinical trials are expensive and difficult to design and implement, we believe that due to complexity,costs associated with clinical trials for immuno-oncology products are greater than the corresponding costs associated with clinical trials for small-molecule candidates. In addition to increased research and development costs, we may need to [continue to?] add headcount to support our ChannelAgreement endeavors, which would add to our general and administrative expenses going forward.Although our forecasts for expenses and the sufficiency of our capital resources take into account our plans to develop the products under the CancerProgram, the actual costs associated therewith may be significantly in excess of forecasted amounts. In addition to the amount and timing of expensesrelated to the clinical trials, our actual cash requirements may vary materially from our current expectations for a number of other factors that mayinclude, but are not limited to, changes in the focus and direction of our development programs, competitive and technical advances, costs associatedwith the development of our product candidates and costs of filing, prosecuting, defending and enforcing our intellectual property rights. If we exhaustour capital reserves more quickly than anticipated, regardless of the reason, and we are unable to obtain additional financing on terms acceptable to usor at all, we will be unable to proceed with development of some or all of our product candidates on expected timelines and will be forced to prioritizeamong them.Failing to pay any dividends on our Series 1 preferred stock issued to Precigen may have adverse consequences.In June 2016, we amended our Channel Agreement and GvHD Agreement with Intrexon (now Precigen) in order to, among other things, reduce theroyalty rate on operating profits payable by us to Precigen from 50% to 20%. 42Table of ContentsIn consideration for these amendments, we issued to Intrexon shares of our Series 1 preferred stock, $0.001 par value per share, or Series 1 preferredstock, which include, among other things, a monthly dividend of 1% payable in additional shares of Series 1 preferred stock. If we fail to pay suchdividends when due, it would affect our eligibility to file Registration Statements on Form S-3 and our status as a “well-known seasoned issuer,” whichmay increase the expense and time associated with both the filing and effectiveness of future registration statements and the consummation of futurefinancing transactions or other offerings of our securities.Our common stockholders may experience additional dilution as a result of the Series 1 preferred stock issued to Intrexon.The shares of our Series 1 preferred stock include a monthly dividend of 1% which shall accrue and be paid each month in the form of additional sharesof Series 1 preferred stock. For the year ended December 31, 2017, we issued an aggregate of 13,460 shares, as dividends, of our Series 1 preferred stockto Intrexon, the holder of all the outstanding shares of our Series 1 preferred stock. As a result of the monthly dividend, the number of shares ofoutstanding Series 1 preferred stock will increase each month that they are outstanding. Since the number of shares of our common stock issuable uponconversion of the Series 1 preferred stock is based on the 20-day volume-weighted average price of our common stock immediately prior to the publicannouncement of the first approval in the United States of (i) a Ziopharm Product under the Channel Agreement, (ii) a Product under the GvHDAgreement or (iii) a Product under the Ares Trading Agreement, if, at the time of such public announcement, the 20-day volume-weighted average priceof our common stock has not increased by more than the cumulative amount of the dividends on the shares of Series 1 preferred stock that weoriginally issued to Intrexon, then our common stockholders may experience additional dilution as a result of the conversion of the Series 1 preferredstock into shares of our common stock.The holders of our Series 1 preferred stock are entitled to rights and preferences that are significantly greater than the rights and preferences of theholders of our common stock, including payments upon a liquidation event, as well as dividend and registration rights associated with their shares.The shares of Series 1 preferred stock that we issued to Intrexon in June 2016 in consideration for amending the Channel Agreement and GvHDAgreement are entitled to a number of rights and preferences which our common stock do not and will not have. Among these rights and preferences isthe right to receive a portion of all funds to be distributed in connection with a voluntary or involuntary liquidation, dissolution or winding up of theCompany or Deemed Liquidation Event, as defined in our Amended and Restated Certificate of Designation, Preferences and Rights of Series 1preferred stock, or the Certificate of Designation (which includes a change of control or the sale, lease transfer or exclusive license of all orsubstantially all of our assets), in proportion to the holders’ proportionate share of our common stock on an as-converted to common stock basis. Forpurposes of determining the Series 1 preferred stock’s proportionate share on an as-converted basis in such a transaction, it would be assumed that theSeries 1 preferred stock is convertible into a number of shares of common stock equal to (i) the stated value of all outstanding shares of Series 1preferred stock, divided by (ii) the volume weighted average price of our common stock for the 20-day period ending on the date of the publicannouncement of such voluntary or involuntary liquidation, dissolution or winding up of the Company or Deemed Liquidation Event, rounded downto the nearest whole share, unless such transaction occurred following the public announcement of the first approval in the United States of a ZiopharmProduct under the Channel Agreement, a Product under the GvHD Agreement or a Product under the Ares Trading Agreement, in which case the statedvalue would be divided by the volume weighted average price of the Company’s common stock for the 20-day period ending on the date of the publicannouncement such approval. We refer to this proportionate share allocated to the holders of Series 1 preferred stock as the Series 1 LiquidationAmount. In addition, the Company may elect to redeem the shares of Series 1 preferred stock in connection with or following a Deemed LiquidationEvent at a price per share equal to the Series 1 Liquidation Amount. Since the conversion rate is based on the stated value of the shares of Series 1preferred stock, which was initially $120 million and increases at a rate of 1% per month, the holders of shares of our Series 1 preferred stock couldreceive a disproportionate amount of the proceeds of any voluntary or involuntary liquidation, dissolution or winding up of the Company or DeemedLiquidation Event if 43Table of Contentsour stock price has not sufficiently increased prior to the time that their proportionate share is calculated. Further, pursuant to the terms of a SecuritiesIssuance Agreement we entered into with Intrexon in connection with the issuance of the Series 1 preferred stock, we agreed that the holders ofcommon stock issued upon the conversion of the shares of Series 1 preferred stock issued to Intrexon shall be entitled to piggy-back registration rightswith respect to any common stock registered by us following such conversion.The Series 1 preferred stock contains protective provisions that may limit our business flexibility.For so long as any shares of Series 1 preferred stock are outstanding, we may not, without first obtaining the consent of the holders of at least a majorityof the Series 1 preferred stock then outstanding, voting together as a single class: • amend our certificate of incorporation or the Certificate of Designation of the Series 1 preferred stock, in each case in a manner thatadversely affects the powers, preferences or rights of the Series 1 preferred stock in a manner that is more adverse than the effect on anyother class or series of our capital stock; • authorize, create, issue or obligate us to issue (by reclassification, merger or otherwise) any security (or any class or series thereof) that hasany powers, preferences or rights senior to the Series 1 preferred stock with respect to the distribution of assets on the liquidation,dissolution or winding up of the Company, the payment of dividends or rights of redemption; or • enter into any transaction (or series of related transactions) the effect of which would adversely affect the holders of the Series 1 preferredstock in a manner that is more adverse than the effect on any other class or series of our capital stock.As a result, we will not be able to take any of these actions without first seeking and obtaining the approval of the holders of our Series 1 preferredstock. In addition, we may not be able to obtain such approval in a timely manner or at all, even if we think that taking the action for which we seekapproval is in our best interests. Any failure to obtain such approval could harm our business and result in a decrease in the value of our common stock.We may not be able to retain the exclusive rights licensed to us by Precigen to develop and commercialize products involving DNA administered tohumans for expression of anti-cancer effectors for the purpose of treatment or prophylaxis of cancer.Under the Channel Agreement, we use Precigen’s technology directed towards in vivo expression of effectors in connection with the development ofAd-RTS-IL-12 + veledimex, our cell therapy programs and generally to research, develop and commercialize products, in each case in which DNA isadministered to humans for expression of anti-cancer effectors for the purpose of treatment or prophylaxis of cancer, which we collectively refer to asthe Cancer Program. The Channel Agreement grants us a worldwide license to use patents and other intellectual property of Precigen in connectionwith the research, development, use, importing, manufacture, sale, and offer for sale of products involving DNA administered to humans for expressionof anti-cancer effectors for the purpose of treatment or prophylaxis of cancer, which we refer to collectively as the Ziopharm Products. Such license isexclusive with respect to any clinical development, selling, offering for sale or other commercialization of Ziopharm Products, and otherwise isnon-exclusive. Subject to limited exceptions, we may not sublicense the rights described without Precigen’s written consent. Under the ChannelAgreement, and subject to certain exceptions, we are responsible for, among other things, the performance of the Cancer Program, includingdevelopment, commercialization and certain aspects of manufacturing of Ziopharm Products.Precigen may terminate the Channel Agreement if we fail to use diligent efforts to develop and commercialize Ziopharm Products or if we elect not topursue the development of a Cancer Program identified by Precigen that is a “Superior Therapy” as defined in the Channel Agreement. We mayvoluntarily terminate the Channel 44Table of ContentsAgreement upon 90 days written notice to Precigen. Upon termination of the Channel Agreement, we may continue to develop and commercialize anyZiopharm Product that, at the time of commercialization: • is being commercialized by us; • has received regulatory approval; • is a subject of an application for regulatory approval that is pending before the applicable regulatory authority; or • is the subject of at least an ongoing Phase 2 clinical trial (in the case of a termination by Precigen due to an uncured breach or a voluntarytermination by us), or an ongoing Phase 1 clinical trial in the field (in the case of a termination by us due to an uncured breach or atermination by Precigen following an unconsented assignment by us or our election not to pursue development of a Superior Therapy).With respect to these “retained” Ziopharm Products, our obligation to pay 20% of net profits derived from the sale of Ziopharm Products and 50% ofrevenue derived from a sublicensor will survive termination of the Channel Agreement, as described further in Note 7 to our financial statements(Commitments and Contingencies), as well as additional disclosures in our Annual Report on Form 10-K under the heading “Business—LicenseAgreements, Intellectual Property and Other Agreements—Exclusive Channel Partner Agreement with Precigen for the Cancer Program.”There can be no assurance that we will be able to successfully perform under the Channel Agreement and if the Channel Agreement is terminated itmay prevent us from achieving our business objectives.The technology on which our Channel Agreement with Precigen is based relies in part on early stage technology in the field of human oncologic andautoimmune therapeutics.Our Channel Agreement with Precigen contemplates our use of Precigen’s advanced transgene engineering platform for the controlled and precisecellular production of anti-cancer effectors. The synthetic immuno-oncology effector platform in which we have acquired rights represents early-stagetechnology in the field of human oncology biotherapeutic, with Ad-RTS-IL-12 + veledimex having completed two Phase 2 studies, in melanoma andbreast cancer. We are continuing to pursue intratumoral injection of Ad-RTS-IL-12 + veledimex in brain cancer. Although we plan to leveragePrecigen’s synthetic immuno-oncology platform for additional products targeting key pathways used by cancers to grow and metastasize, we may notbe successful in developing and commercializing these products for a variety of reasons. The risk factors set forth herein that apply to our smallmolecule drug candidates, which are in various stages of development, also apply to product candidates that we seek to develop under our ChannelAgreement with Precigen.We may not be able to retain the exclusive rights licensed to us by Precigen to develop and commercialize products involving DNA administered tohumans for expression of anti-cancer effectors for the purpose of treatment or prophylaxis of cancer.Under the Channel Agreement, we use Precigen’s technology directed towards in vivo expression of effectors in connection with the development ofAd-RTS-IL-12+ veledimex and generally to research, develop and commercialize products, in each case in which DNA is administered to humans forexpression of anti-cancer effectors for the purpose of treatment or prophylaxis of cancer, which we collectively refer to as the Cancer Program. TheChannel Agreement grants us a worldwide license to use patents and other intellectual property of Precigen in connection with the research,development, use, importing, manufacture, sale, and offer for sale of products involving DNA administered to humans for expression of anti-cancereffectors for the purpose of treatment or prophylaxis of cancer, which we refer to collectively as the Ziopharm Products. Such license is exclusive withrespect to any clinical development, selling, offering for sale or other commercialization of Ziopharm Products, and otherwise is non-exclusive. Subjectto limited exceptions, we may not sublicense the rights described without Precigen’s written consent. Under the Channel Agreement, and subject tocertain 45Table of Contentsexceptions, we are responsible for, among other things, the performance of the Cancer Program, including development, commercialization and certainaspects of manufacturing of Ziopharm Products.Precigen may terminate the Channel Agreement if we fail to use diligent efforts to develop and commercialize Ziopharm Products or if we elect not topursue the development of a Cancer Program identified by Precigen that is a “Superior Therapy” as defined in the Channel Agreement. We mayvoluntarily terminate the Channel Agreement upon 90 days written notice to Precigen.With respect to any “retained” Ziopharm Products, our obligation to pay 20% of net profits derived from the sale of Ziopharm Products and 50% ofrevenue derived from a sublicensor will survive termination of the Channel Agreement, as described further in our Annual Report on Form 10-K underthe heading “Business—License Agreements, Intellectual Property and Other Agreements—Exclusive Channel Partner Agreement with Precigen”.There can be no assurance that we will be able to successfully perform under the Channel Agreement and if the Channel Agreement is terminated itmay prevent us from achieving our business objectives.We will incur additional expenses in connection with our License Agreement with M.D. AndersonPursuant to the MD Anderson License with MD Anderson, we, together with Precigen, obtained an exclusive, worldwide license to certain technologiesowned and licensed by MD Anderson including technologies relating to novel CAR+ T cell, NK cell and TCR cell therapies arising from the laboratoryof Laurence Cooper, M.D., Ph.D., who was then at MD Anderson, as well as either co-exclusive or non-exclusive licenses under certain relatedtechnologies. Pursuant to the MD Anderson License, MD Anderson agreed to transfer to us certain existing research programs described in the MDAnderson License and we, together with Precigen, entered into a research and development agreement with MD Anderson pursuant to which we agreedto provide funding for certain research and development activities of MD Anderson for a period of three years from the date of the MD AndersonLicense, in an amount between $15.0 and $20.0 million per year. We made the final payment in January 2018. In addition, we also expect to enter intoadditional collaboration and technology transfer agreements with MD Anderson and Precigen to accelerate technology and clinical development ofthese product candidates. We expect to increase the level of our overall research and development expenses significantly going forward as a result ofeach of these items.Although our forecasts for expenses and the sufficiency of our capital resources takes into account our plans to develop the technology licensed fromMD Anderson and our obligations under the MD Anderson License, the MD Anderson License is still only beginning to be implemented, therefore theactual costs associated therewith may be significantly in excess of forecasted amounts. In addition to the amount and timing of expenses related to ourrelationship with MD Anderson, our actual cash requirements may vary materially from our current expectations for a number of other factors that mayinclude, but are not limited to, changes in the focus and direction of our development programs, competitive and technical advances, costs associatedwith the development of our product candidates and costs of filing, prosecuting, defending and enforcing our intellectual property rights. If we exhaustour capital reserves more quickly than anticipated, regardless of the reason, and we are unable to obtain additional financing on terms acceptable to usor at all, we will be unable to proceed with development of some or all of our product candidates on expected timelines and will be forced to prioritizeamong them.We may not be able to retain the rights licensed to us and Precigen by M.D. Anderson to technologies relating to CAR, T-cell therapies and otherrelated technologies.Under the MD Anderson License, we, together with Precigen, received an exclusive, worldwide license to certain technologies owned and licensed byMD Anderson including technologies relating to novel CAR+ T cell, NK cell and TCR cell therapies arising from the laboratory of Laurence Cooper,M.D., Ph.D., who was then at MD Anderson, as well as either co-exclusive or non-exclusive licenses under certain related technologies. When 46Table of Contentscombined with Precigen’s technology suite and Ziopharm’s clinically tested RTS® interleukin-12 modules, the resulting proprietary methods andtechnologies may help realize the promise of genetically modified CAR+ T cell and other immune cells by controlling cell expansion and activation inthe body, minimizing off-target and unwanted on-target effects and toxicity while maximizing therapeutic efficacy. The term of the MD AndersonLicense expires on the last to occur of (a) the expiration of all patents licensed thereunder, or (b) the twentieth anniversary of the date of the MDAnderson License; provided, however, that following the expiration of the term, the Company and Precigen shall then have a fully-paid up, royaltyfree, perpetual, irrevocable and sublicensable license to use the licensed intellectual property thereunder.After 10 years from the date of the MD Anderson License and subject to a 90-day cure period, MD Anderson will have the right to convert the MDAnderson License into a non-exclusive license if we and Precigen are not using commercially reasonable efforts to commercialize the licensedintellectual property on a case-by-case basis. After five years from the date of the MD Anderson License and subject to a 180-day cure period, MDAnderson will have the right to terminate the MD Anderson License with respect to specific technology(ies) funded by the government or subject to athird-party contract if we and Precigen are not meeting the diligence requirements in such funding agreement or contract, as applicable. Subject to a30-day cure period, MD Anderson has the right to terminate the MD Anderson License if we and Precigen fail to timely deliver the shares due inconsideration for the MD Anderson License. MD Anderson may also terminate the agreement with written notice upon material breach by us orPrecigen, if such breach has not been cured within 60 days of receiving such notice. In addition, the MD Anderson License will terminate upon theoccurrence of certain insolvency events for both us or Precigen and may be terminated by the mutual written agreement of us, Precigen and MDAnderson.There can be no assurance that we will be able to successfully perform under the MD Anderson License and if the MD Anderson License is terminatedit may prevent us from achieving our business objectives.We have a limited operating history upon which to base an investment decision.We have not demonstrated an ability to perform the functions necessary for the successful commercialization of any product candidates. The successfulcommercialization of any product candidates will require us to perform a variety of functions, including: • Continuing to undertake preclinical development and clinical trials; • Participating in regulatory approval processes; • Formulating and manufacturing products; and • Conducting sales and marketing activities.Our operations have been limited to organizing and staffing our company, acquiring, developing and securing our proprietary product candidates, andundertaking preclinical and clinical trials of our product candidates. These operations provide a limited basis for you to assess our ability tocommercialize our product candidates and the advisability of investing in our securities.Because we currently neither have nor intend to establish internal research capabilities, we are dependent upon pharmaceutical and biotechnologycompanies and academic and other researchers to sell or license us their product candidates and technology.Proposing, negotiating, and implementing an economically viable product acquisition or license is a lengthy and complex process. We compete forpartnering arrangements and license agreements with pharmaceutical, biopharmaceutical, and biotechnology companies, many of which havesignificantly more experience than we do and have significantly more financial resources. Our competitors may have stronger relationships with certainthird parties including academic research institutions, with whom we are interested in collaborating and may have, therefore, a competitive advantagein entering into partnering arrangements with those third parties. We may not be able to acquire rights to additional product candidates on terms thatwe find acceptable, or at all. 47Table of ContentsWe expect that any product candidate to which we acquire rights will require significant additional development and other efforts prior to commercialsale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All drug product candidates aresubject to the risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate will not be shownto be sufficiently safe or effective for approval by regulatory authorities. Even if our product candidates are approved, they may not be economicallymanufactured or produced, or be successfully commercialized.We actively evaluate additional product candidates to acquire for development. Such additional product candidates, if any, could significantlyincrease our capital requirements and place further strain on the time of our existing personnel, which may delay or otherwise adversely affect thedevelopment of our existing product candidates. We must manage our development efforts and clinical trials effectively, and hire, train and integrateadditional management, administrative, and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure toaccomplish any of them could prevent us from successfully growing.We may not be able to successfully manage our growth.In the future, if we are able to advance our product candidates to the point of, and thereafter through, clinical trials, we will need to expand ourdevelopment, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide for these capabilities. Any futuregrowth will place a significant strain on our management and on our administrative, operational, and financial resources. Therefore, our future financialperformance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage anyfuture growth effectively. To manage this growth, we must expand our facilities, augment our operational, financial and management systems, and hireand train additional qualified personnel. If we are unable to manage our growth effectively, our business may be harmed.Our business will subject us to the risk of liability claims associated with the use of hazardous materials and chemicals.Our contract research and development activities may involve the controlled use of hazardous materials and chemicals. Although we believe that oursafety procedures for using, storing, handling and disposing of these materials comply with federal, state and local laws and regulations, we cannotcompletely eliminate the risk of accidental injury or contamination from these materials. In the event of such an accident, we could be held liable forany resulting damages and any liability could have a materially adverse effect on our business, financial condition, and results of operations. Inaddition, the federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactivematerials and waste products may require our contractors to incur substantial compliance costs that could materially adversely affect our business,financial condition, and results of operations.We rely on key executive officers and scientific and medical advisors, and their knowledge of our business and technical expertise would be difficultto replace.We are highly dependent on Dr. Laurence J.N. Cooper, our Chief Executive Officer; Dr. David Mauney, our Executive Vice President and ChiefBusiness Officer and interim Chief Operating Officer; Dr. Francois Lebel, our Chief Medical Officer, and Executive Vice President of Research andDevelopment and our principal scientific, regulatory, and medical advisors. Each of Drs. Cooper, Mauney, and Lebel may terminate their employmentwith us at any time, subject, however, to certain non-compete and non-solicitation covenants. The loss of the technical knowledge and managementand industry expertise of each of Drs. Cooper, Mauney, Lebel, or any of our other key personnel, could result in delays in product development, loss ofcustomers and sales, and diversion of management resources, which could adversely affect our operating results. We do not carry “key person” lifeinsurance policies on any of our officers or key employees. 48Table of ContentsIf we are unable to hire additional qualified personnel, our ability to grow our business may be harmed.We will need to hire additional qualified personnel with expertise in preclinical and clinical research and testing, government regulation, formulationand manufacturing, and eventually, sales and marketing. We compete for qualified individuals with numerous biopharmaceutical companies,universities, and other research institutions. Competition for such individuals is intense and we cannot be certain that our search for such personnelwill be successful. Attracting and retaining qualified personnel will be critical to our success. If we are unable to hire additional qualified personnel,our ability to grow our business may be harmed.We may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits.The testing and marketing of medical products entail an inherent risk of product liability. If we cannot successfully defend ourselves against productliability claims, we may incur substantial liabilities or be required to limit commercialization of our products, if approved. Even a successful defensewould require significant financial and management resources. Regardless of the merit or eventual outcome, liability claims may result in: • Decreased demand for our product candidates; • Injury to our reputation; • Withdrawal of clinical trial participants; • Withdrawal of prior governmental approvals; • Costs of related litigation; • Substantial monetary awards to patients; • Product recalls; • Loss of revenue; and • The inability to commercialize our product candidates.We currently carry clinical trial insurance and product liability insurance. However, an inability to renew our policies or to obtain sufficient insuranceat an acceptable cost could prevent or inhibit the commercialization of pharmaceutical products that we develop, alone or with collaborators.Our business and operations would suffer in the event of system failures.Despite the implementation of security measures, our internal computer systems and those of our current and future contractors and consultants arevulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Whilewe are not aware of any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in ouroperations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial datafrom completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover orreproduce the data. Likewise, we rely on third parties to manufacture our product candidates and conduct clinical trials, and similar events relating totheir computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in aloss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and thefurther development and commercialization of our product candidates could be delayed. 49Table of ContentsRISKS RELATED TO THE CLINICAL TESTING, REGULATORY APPROVAL AND MANUFACTURING OF OUR PRODUCT CANDIDATESIf we are unable to obtain the necessary U.S. or worldwide regulatory approvals to commercialize any product candidate, our business will suffer.We may not be able to obtain the approvals necessary to commercialize our product candidates, or any product candidate that we may acquire ordevelop in the future for commercial sale. We will need FDA approval to commercialize our product candidates in the United States and approvals fromregulatory authorities in foreign jurisdictions equivalent to the FDA to commercialize our product candidates in those jurisdictions. In order to obtainFDA approval of any product candidate, we must submit to the FDA a Biologics License Application, or BLA, demonstrating that the productcandidate is safe for humans and effective for its intended use. This demonstration requires significant research and animal tests, which are referred to aspreclinical studies, as well as human tests, which are referred to as clinical trials. Satisfaction of the FDA’s regulatory requirements typically takes manyyears, depending upon the type, complexity, and novelty of the product candidate, and will require substantial resources for research, development,and testing. We cannot predict whether our research, development, and clinical approaches will result in drugs that the FDA will consider safe forhumans and effective for their intended uses. The FDA has substantial discretion in the drug approval process and may require us to conduct additionalpreclinical and clinical testing or to perform post-marketing studies. The approval process may also be delayed by changes in government regulation,future legislation, or administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays in obtaining regulatoryapprovals may: • Delay commercialization of, and our ability to derive product revenues from, our product candidates; • Impose costly procedures on us; and • Diminish any competitive advantages that we may otherwise enjoy.Even if we comply with all FDA requests, the FDA may ultimately reject one or more of our BLAs. We cannot be sure that we will ever obtainregulatory approval for any of our product candidates. Failure to obtain FDA approval for our product candidates will severely undermine our businessby leaving us without a saleable product, and therefore without any potential revenue source, until another product candidate can be developed. Thereis no guarantee that we will ever be able to develop or acquire another product candidate or that we will obtain FDA approval if we are able to do so.In foreign jurisdictions, we similarly must receive approval from applicable regulatory authorities before we can commercialize any drugs. Foreignregulatory approval processes generally include all of the risks associated with the FDA approval procedures described above.Our product candidates are in various stages of clinical trials, which are very expensive and time-consuming. We cannot be certain when we will beable to submit a BLA to the FDA and any failure or delay in completing clinical trials for our product candidates could harm our business.Our product candidates are in various stages of development and require extensive clinical testing. Notwithstanding our current clinical trial plans foreach of our existing product candidates, we may not be able to commence additional trials or see results from these trials within our anticipatedtimelines. As such, we cannot predict with any certainty if or when we might submit a BLA for regulatory approval of our product candidates orwhether such a BLA will be accepted. Because we do not anticipate generating revenues unless and until we submit one or more BLAs and thereafterobtain requisite FDA approvals, the timing of our BLA submissions and FDA determinations regarding approval thereof, will directly affect if andwhen we are able to generate revenues. 50Table of ContentsOur product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit thecommercial profile of an approved label, or result in significant negative consequences following any potential marketing approval.As with many pharmaceutical and biological products, treatment with our product candidates may produce undesirable side effects or adverse reactionsor events, including potential adverse side effects related to cytokine release. If our product candidates or similar products or product candidates underdevelopment by third parties demonstrate unacceptable AEs, we may be required to halt or delay further clinical development of our productcandidates. The FDA or other foreign regulatory authorities could order us to cease further development of or deny approval of our product candidatesfor any or all targeted indications.The product-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential productliability claims. In addition, these side effects may not be appropriately or timely recognized or managed by the treating medical staff, particularlyoutside of the institutions that collaborate with us, as toxicities resulting from our novel technologies may not be normally encountered in the generalpatient population and by medical personnel. We expect to have to train medical personnel using our product candidates to understand their side effectprofiles, both for our planned clinical trials and upon any commercialization of any product candidates. Inadequate training in recognizing ormanaging the potential side effects of our product candidates could result in adverse effects to patients, including death.Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused bysuch products, including during any long-term follow-up observation period recommended or required for patients who receive treatment using ourproducts, a number of potentially significant negative consequences could result, including: • regulatory authorities may withdraw approvals of such product; • regulatory authorities may require additional warnings on the label; • we may be required to create a risk evaluation and mitigation strategy plan, which could include a medication guide outlining the risks ofsuch side effects for distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use; • we could be sued and held liable for harm caused to patients; and • our reputation may suffer.Any of the foregoing could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved. Furthermore,any of these occurrences may harm our business, financial condition and prospects significantly.Our cell-based and gene therapy immuno-oncology products rely on the availability of reagents, specialized equipment, and other specialtymaterials and infrastructure, which may not be available to us on acceptable terms or at all. For some of these reagents, equipment, and materials,we rely or may rely on sole source vendors or a limited number of vendors, which could impair our ability to manufacture and supply our products.Manufacturing our product candidates will require many reagents, which are substances used in our manufacturing processes to bring about chemicalor biological reactions, and other specialty materials and equipment, some of which are manufactured or supplied by small companies with limitedresources and experience to support commercial biologics production. We currently depend on a limited number of vendors for certain materials andequipment used in the manufacture of our product candidates. Some of these suppliers may not have the capacity to support commercial productsmanufactured under current good manufacturing practices by biopharmaceutical firms or may otherwise be ill-equipped to support our needs. We alsodo not have supply contracts with many of these suppliers and may not be able to obtain supply contracts with them on acceptable terms or at all.Accordingly, we may experience delays in receiving key materials and equipment to support clinical or commercial manufacturing. 51Table of ContentsFor some of these reagents, equipment, infrastructure, and materials, we rely and may in the future rely on sole source vendors or a limited number ofvendors. An inability to continue to source product from any of these suppliers, which could be due to regulatory actions or requirements affecting thesupplier, adverse financial or other strategic developments experienced by a supplier, labor disputes or shortages, unexpected demands, or qualityissues, could adversely affect our ability to satisfy demand for our product candidates, which could adversely and materially affect our product salesand operating results or our ability to conduct clinical trials, either of which could significantly harm our business.As we continue to develop and scale our manufacturing process, we expect that we will need to obtain rights to and supplies of certain materials andequipment to be used as part of that process. We may not be able to obtain rights to such materials on commercially reasonable terms, or at all, and ifwe are unable to alter our process in a commercially viable manner to avoid the use of such materials or find a suitable substitute, it would have amaterial adverse effect on our business. Even if we are able to alter our process so as to use other materials or equipment, such a change may lead to adelay in our clinical development and/or commercialization plans. If such a change occurs for product candidate that is already in clinical testing, thechange may require us to perform both ex vivo comparability studies and to collect additional data from patients prior to undertaking more advancedclinical trials.The results of our clinical trials may not support our product candidate claims.Even if our clinical trials are completed as planned, we cannot be certain that their results will support approval of our product candidates. The FDAnormally expects two randomized, well-controlled Phase 3 pivotal trials in support of approval of a BLA. Success in preclinical testing and earlyclinical trials does not ensure that later clinical trials will be successful, and we cannot be certain that the results of later clinical trials will replicate theresults of prior clinical trials and preclinical testing. The clinical trial process may fail to demonstrate that our product candidates are safe for humansand effective for the indicated uses. This failure would cause us to abandon a product candidate and may delay development of other productcandidates. Any delay in, or termination of, our clinical trials will delay the submission of our BLAs with the FDA and, ultimately, our ability tocommercialize our product candidates and generate product revenues. In addition, our clinical trials involve small patient populations. Because of thesmall sample size, the results of these clinical trials may not be indicative of future results.Our synthetic immuno-oncology product candidates are based on a novel technology, which makes it difficult to predict the time and cost of productcandidate development and subsequently obtaining regulatory approval. Currently, few gene therapy products have been approved in the UnitedStates and Europe.We are currently focused on developing products in immuno-oncology that employ novel gene expression, control and cell technologies to deliversafe, effective and scalable cell- and viral-based therapies for the treatment of cancer. Due to the novelty of this medical technology, there can be noassurance that any development problems we experience in the future related to our immuno-oncology platform will not cause significant delays orunanticipated costs, or that such development problems can be solved. We may also experience unanticipated problems or delays in expanding ourmanufacturing capacity or transferring our manufacturing process to commercial partners, which may prevent us from completing our clinical trials orcommercializing our immuno-oncology product candidates on a timely or profitable basis, if at all.In addition, the clinical study requirements of the FDA, the EMA and other regulatory agencies and the criteria these regulators use to determine thesafety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potentialproducts. The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, betterknown or extensively studied pharmaceutical or other product candidates. Currently, two gene therapy products, Glybera and Strimvelis, have receivedapproval from the EMA. UniQure’s Glybera, received marketing authorization from the EMA in 2012 but has struggled commercially as a result ofhigh cost and limited demand. 52Table of ContentsGlaxoSmithKline’s Strimvelis was approved by the EMA in May 2016 and in March 2017 dosed its first patient. According to GlaxoSmithKline,delays in Strimvelis’s commercialization were due to cross-border European reimbursement. These factors make it difficult to determine how long itwill take or how much it will cost to obtain regulatory approvals for our product candidates in either the United States or Europe. Approvals by theEMA may not be indicative of what the FDA may require for approval. The FDA approved its first gene therapy, Luxturna, in December 2017.Regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the future. For example,the FDA has established the Office of Cellular, Tissue and Gene Therapies within its Center for Biologics Evaluation and Research, or CBER, toconsolidate the review of gene therapy and related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on itsreview. Gene therapy clinical trials conducted at institutions that receive funding for recombinant DNA research from the U.S. National Institutes ofHealth, or the NIH, are also subject to potential review by the NIH Office of Biotechnology Activities’ Recombinant DNA Advisory Committee, or theRAC. Although the FDA decides whether individual gene therapy protocols may proceed, the RAC review process can impede the initiation of aclinical trial, even if the FDA has reviewed the trial and approved its initiation. Conversely, the FDA can put an IND on clinical hold even if the RAChas provided a favorable review. Also, before a clinical trial can begin at an NIH-funded institution, that institution’s institutional review board, orIRB, and its Institutional Biosafety Committee will have to review the proposed clinical trial to assess the safety of the trial. In addition, adversedevelopments in clinical trials of gene therapy products conducted by others may cause the FDA or other regulatory bodies to change the requirementsfor approval of any of our product candidates.These regulatory review committees and advisory groups and the new guidelines they promulgate may lengthen the regulatory review process, requireus to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approvaland commercialization of these treatment candidates or lead to significant post-approval limitations or restrictions. As we advance our immuno-oncology product candidates, we will be required to consult with these regulatory and advisory groups, and comply with applicable guidelines. If wefail to do so, we may be required to delay or discontinue development of our product candidates. These additional processes may result in a review andapproval process that is longer than we otherwise would have expected for oncology product candidates. Delay or failure to obtain, or unexpectedcosts in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient productrevenue to maintain our business.Because we are dependent upon clinical research institutions and other contractors for clinical testing and for research and development activities,the results of our clinical trials and such research activities are, to a certain extent, beyond our control.We materially rely upon independent investigators and collaborators, such as universities and medical institutions, to conduct our preclinical andclinical trials under agreements with us. These collaborators are not our employees and we cannot control the amount or timing of resources that theydevote to our programs. These investigators may not assign as great a priority to our programs or pursue them as diligently as we would if we wereundertaking such programs ourselves. If outside collaborators fail to devote sufficient time and resources to our drug development programs, or if theirperformance is substandard, the approval of our FDA applications, if any, and our introduction of new products, if any, will be delayed. Thesecollaborators may also have relationships with other commercial entities, some of whom may compete with us. If our collaborators assist ourcompetitors to our detriment, our competitive position would be harmed.Our reliance on third parties to formulate and manufacture our product candidates exposes us to a number of risks that may delay the development,regulatory approval and commercialization of our products or result in higher product costs.We do not have experience in drug formulation or manufacturing of drugs or biologics and do not intend to establish our own manufacturing facilities.Although we will work closely with and rely upon Precigen on the 53Table of Contentsmanufacturing and scale-up of Precigen product candidates, we lack the resources and expertise to formulate or manufacture our own productcandidates. We currently are contracting for the manufacture of our product candidates. We intend to contract with one or more manufacturers tomanufacture, supply, store, and distribute drug supplies for our clinical trials. If a product candidate we develop or acquire in the future receives FDAapproval, we will rely on one or more third-party contractors or Precigen to manufacture our products. Our anticipated future reliance on a limitednumber of third-party manufacturers exposes us to the following risks: • We may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited and theFDA must approve any replacement contractor. This approval would require new testing and compliance inspections. In addition, a newmanufacturer would have to be educated in, or develop substantially equivalent processes for, production of our products after receipt ofFDA approval, if any. • Our third-party manufacturers might be unable to formulate and manufacture our products in the volume and of the quality required to meetour clinical needs and commercial needs, if any. • Our future contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time requiredto supply our clinical trials or to successfully produce, store, and distribute our products. • Drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA, the Drug Enforcement Administration andcorresponding state and foreign agencies to ensure strict compliance with current good manufacturing practices, or cGMP, and othergovernment regulations and corresponding foreign standards. We do not have control over third-party manufacturers’ compliance withthese regulations and standards. • If any third-party manufacturer makes improvements in the manufacturing process for our products, we may not own, or may have to share,the intellectual property rights to the innovation. • Our third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the UnitedStates. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions beingimposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, licenserevocation, seizures or recalls of drug candidates or products, operating restrictions and criminal prosecutions, any of which couldsignificantly and adversely affect supplies of our products.Each of these risks could delay our clinical trials, the approval, if any, of our product candidates by the FDA or the commercialization of our productcandidates or result in higher costs or deprive us of potential product revenues.Any product candidate for which we obtain marketing approval could be subject to post-marketing restrictions or withdrawal from the market andwe may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, whenand if any of them are approved.Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling,advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatoryauthorities. These requirements include, among other things, submissions of safety and other post-marketing information and reports, registration andlisting requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records anddocuments, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate isgranted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval,including the requirement to implement a risk evaluation and mitigation strategy, or REMS, which could include requirements for a restricteddistribution system. If any of our product candidates receives marketing approval, the accompanying label may limit the approved uses, which couldlimit sales of the product. 54Table of ContentsThe FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of ourapproved products. The FDA closely regulates the post-approval marketing and promotion of products to ensure that they are marketed only for theapproved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’communications regarding off-label use and if we market our products outside of their approved indications, we may be subject to enforcement actionfor off-label marketing. Violations of the Federal Food, Drug and Cosmetic Act relating to the promotion of prescription drugs may lead toinvestigations alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.In addition, later discovery of previously unknown AEs or other problems with our products, manufacturers or manufacturing processes, or failure tocomply with regulatory requirements, may yield various results, including: • Litigation involving patients taking our product; • Restrictions on such products, manufacturers or manufacturing processes; • Restrictions on the labeling or marketing of a product; • Restrictions on product distribution or use; • Requirements to conduct post-marketing studies or clinical trials; • Warning letters; • Withdrawal of the products from the market; • Refusal to approve pending applications or supplements to approved applications that we submit; • Recall of products; • Fines, restitution or disgorgement of profits or revenues; • Suspension or withdrawal of marketing approvals; • Damage to relationships with existing and potential collaborators; • Unfavorable press coverage and damage to our reputation; • Refusal to permit the import or export of our products; • Product seizure; or • Injunctions or the imposition of civil or criminal penalties.Noncompliance with similar EU requirements regarding safety monitoring or pharmacovigilance can also result in significant financial penalties.Similarly, failure to comply with U.S. and foreign regulatory requirements regarding the development of products for pediatric populations and theprotection of personal health information can also lead to significant penalties and sanctions.RISKS RELATED TO OUR ABILITY TO COMMERCIALIZE OUR PRODUCT CANDIDATESIf we are unable either to create sales, marketing and distribution capabilities or enter into agreements with third parties to perform these functions,we will be unable to commercialize our product candidates successfully.We currently have no marketing, sales, or distribution capabilities. If and when we become reasonably certain that we will be able to commercialize ourcurrent or future product candidates, we anticipate allocating resources to the marketing, sales and distribution of our proposed products in NorthAmerica and in certain other countries; however, we cannot assure that we will be able to market, sell, and distribute our products successfully. Ourfuture success also may depend, in part, on our ability to enter into and maintain collaborative relationships for 55Table of Contentssuch capabilities and to encourage the collaborator’s strategic interest in the products under development, and such collaborator’s ability tosuccessfully market and sell any such products. Although we intend to pursue certain collaborative arrangements regarding the sale and marketing ofcertain of our product candidates, there are no assurances that we will be able to establish or maintain collaborative arrangements or, if we are able todo so, whether we would be able to conduct our own sales efforts. There can also be no assurance that we will be able to establish or maintainrelationships with third-party collaborators or develop in-house sales and distribution capabilities. To the extent that we depend on third parties formarketing and distribution, any revenues we receive will depend upon the efforts of such third parties, and there can be no assurance that such effortswill be successful. In addition, there can also be no assurance that we will be able to market and sell our product candidates in the United States oroverseas.If we are not able to partner with a third party and are not successful in recruiting sales and marketing personnel or in building a sales and marketinginfrastructure, we will have difficulty commercializing our product candidates, which would harm our business. If we rely on pharmaceutical orbiotechnology companies with established distribution systems to market our products, we will need to establish and maintain partnershiparrangements, and we may not be able to enter into these arrangements on acceptable terms or at all. To the extent that we enter into co-promotion orother arrangements, any revenues we receive will depend upon the efforts of third parties that may not be successful and that will be only partially inour control.If we cannot compete successfully for market share against other biopharmaceutical companies, we may not achieve sufficient product revenues andour business will suffer.The market for our product candidates is characterized by intense competition and rapid technological advances. If a product candidate receives FDAapproval, it will compete with a number of existing and future products and therapies developed, manufactured and marketed by others. Existing orfuture competing products may provide greater therapeutic convenience or clinical or other benefits for a specific indication than our products, or mayoffer comparable performance at a lower cost. If our products fail to capture and maintain market share, we may not achieve sufficient product revenuesand our business will suffer.We will compete against fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceuticalcompanies, academic institutions, government agencies and other public and private research organizations. Many of these competitors have productsalready approved or in development. In addition, many of these competitors, either alone or together with their collaborative partners, operate largerresearch and development programs or have substantially greater financial resources than we do, as well as significantly greater experience in: • Developing drugs and biopharmaceuticals; • Undertaking preclinical testing and human clinical trials; • Obtaining FDA and other regulatory approvals of drugs and biopharmaceuticals; • Formulating and manufacturing drugs and biopharmaceuticals; and • Launching, marketing, and selling drugs and biopharmaceuticals.Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are 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 orother regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing astrong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or otherthird-party payors seeking to encourage the use of generic products. 56Table of ContentsIf physicians and patients do not accept and use our product candidates, our ability to generate revenue from sales of our products will be materiallyimpaired.Even if the FDA and/or foreign equivalents thereof approve our product candidates, physicians and patients may not accept and use them. Acceptanceand use of our products will depend upon a number of factors including: • Perceptions by members of the healthcare community, including physicians, about the safety and effectiveness of our drugs; • Pharmacological benefit and cost-effectiveness of our products relative to competing products; • Availability of coverage and adequate reimbursement for our products from government or other healthcare payors; • Effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any; and • The price at which we sell our products.Because we expect sales of our current product candidates, if approved, to generate substantially all of our product revenues for the foreseeable future,the failure of a drug to find market acceptance would harm our business and could require us to seek additional financing in order to fund thedevelopment of future product candidates.Our ability to generate product revenues will be diminished if our products do not obtain coverage or adequate reimbursement from payors.Our ability to commercialize our product candidates, if approved, alone or with collaborators, will depend in part on the extent to which coverage andreimbursement will be available from government and health administration authorities, private health maintenance organizations and health insurersand other third-party payors.Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costsassociated with their prescription drugs. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare andMedicaid, and commercial payors is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards thatdisfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Evenif we obtain coverage for our product candidates, the resulting reimbursement payment rates might not be adequate or may require co-payments thatpatients find unacceptably high. Patients are unlikely to use our product candidates unless coverage is provided and reimbursement is adequate tocover a significant portion of the cost of our product candidates.In addition, the market for our product candidates for which we may receive regulatory approval will depend significantly on access to third-partypayors’ drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement, which might not include all of theFDA-approved drugs for a particular indication. The industry competition to be included in such formularies often leads to downward pricing pressureson pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patientaccess to a branded drug when a less costly generic equivalent or other alternative is available.Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controllinghealthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors.Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process isoften a time-consuming and costly process that requires us to provide scientific and clinical support for the use of our products to each payorseparately, with no assurance that approval will be obtained. If we are unable to obtain coverage of and adequate payment levels for our productcandidates from third-party payors, physicians may limit how much or under what circumstances they will prescribe or administer our products andpatients may decline to purchase them. This in turn could affect our ability to successfully 57Table of Contentscommercialize our products and impact our profitability, results of operations, financial condition, and future success.In addition, in many foreign countries, particularly the countries of the EU, the pricing of prescription drugs is subject to government control. In somenon-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricingvary widely from country to country. For example, the EU provides options for its member states to restrict the range of medicinal products for whichtheir national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state mayapprove a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the companyplacing the medicinal product on the market. We may face competition for our product candidates from lower-priced products in foreign countries thathave placed price controls on pharmaceutical products. In addition, there may be importation of foreign products that compete with our own products,which could negatively impact our profitability.The market opportunities for our product candidates may be limited to those patients who are ineligible for or have failed prior treatments and maybe small.Cancer therapies are sometimes characterized as first line, second line, or third line, and the FDA often approves new therapies initially only for thirdline use. When cancer is detected early enough, first line therapy is sometimes adequate to cure the cancer or prolong life without a cure. Whenever firstline therapy, usually chemotherapy, hormone therapy, surgery, or a combination of these, proves unsuccessful, second line therapy may beadministered. Second line therapies often consist of more chemotherapy, radiation, antibody drugs, tumor targeted small molecules, or a combinationof these. Third line therapies can include bone marrow transplantation, antibody and small molecule targeted therapies, more invasive forms of surgery,and new technologies. We expect to initially seek approval of our product candidates as a third line therapy for patients who have failed otherapproved treatments.Subsequently, for those products that prove to be sufficiently beneficial, if any, we would expect to seek approval as a second line therapy andpotentially as a first line therapy, but there is no guarantee that our product candidates, even if approved, would be approved for second line or firstline therapy. In addition, we may have to conduct additional clinical trials prior to gaining approval for second line or first line therapy.Our projections of both the number of people who have the cancers we are targeting, as well as the subset of people with these cancers in a position toreceive third line therapy and who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates.These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations, or market researchand may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these cancers. The number of patients mayturn out to be lower than expected. Additionally, the potentially addressable patient population for our product candidates may be limited or may notbe amenable to treatment with our product candidates. Even if we obtain significant market share for our product candidates, because the potentialtarget populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications, including use as afirst or second line therapy.Our market opportunities may also be limited by competitor treatments that may enter the market. See also “Risks Related to Our Ability toCommercialize Our Product Candidates—If we cannot compete successfully for market share against other biopharmaceutical companies, we may notachieve sufficient product revenues and our business will suffer.”Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory enactments in recent years thatchange the healthcare system in ways that could impact our future ability to sell our product candidates profitably. 58Table of ContentsFurthermore, there have been and continue to be a number of initiatives at the federal and state level that seek to reduce healthcare costs. Mostsignificantly, in March 2010, President Obama signed into law the Patient Protection and Affordable Health Care Act, as amended by the Health Careand Education Reconciliation Act, or collectively the ACA, which includes measures that significantly change the way healthcare is financed by bothgovernmental and private insurers. Among the provisions of the ACA of importance to the pharmaceutical industry are the following: • An annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents,apportioned among these entities according to their market share in certain government healthcare programs; • An increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of theaverage manufacturer price for most branded and generic drugs, respectively; • A new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts offnegotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’soutpatient drugs to be covered under Medicare Part D; • An extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managedcare organizations; • New methodologies by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that areinhaled, infused, instilled, implanted or injected, and for drugs that are line extensions; • Expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additionalindividuals with income at or below 133% of the Federal Poverty Level, thereby potentially increasing both the volume of sales andmanufacturers’ Medicaid rebate liability; • Expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; • A new requirement to annually report drug samples that certain manufacturers and authorized distributors provide to physicians; • Expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new governmentinvestigative powers, and enhanced penalties for noncompliance; • A licensure framework for follow-on biologic products; • A new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectivenessresearch, along with funding for such research; and • Establishment of a Center for Medicare & Medicaid Innovation at the Centers for Medicare & Medicaid Services, or CMS to testinnovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drugspending.We cannot predict the full impact of the ACA, as many of the reforms require the promulgation of detailed regulations implementing the statutoryprovisions, some of which have not yet fully occurred. Further, since its enactment there have been judicial and Congressional challenges to certainaspects of the ACA. As a result, there have been delays in the implementation of, and action taken to repeal or replace, certain aspects of the ACA. InJanuary 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive,defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states,individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. More recently, the U.S. House of 59Table of ContentsRepresentatives passed legislation known as the American Health Care Act of 2017, and Senate Republicans have released a draft bill known as theBetter Care Reconciliation Act of 2017, each of which would repeal certain aspects of the ACA if ultimately enacted. The Senate Republicans alsointroduced legislation to repeal the ACA without companion legislation to replace it, and a “skinny” version of the Better Care Reconciliation Act of2017. Each of these measures was rejected by the full Senate. The prospects for enactment of these legislative initiatives remain uncertain. Further,Congress will likely consider other legislation to replace elements of the ACA. We cannot know how efforts to repeal and replace the ACA or anyfuture healthcare reform legislation will impact our business.We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteriaand in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or othergovernment programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or otherhealthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.In addition, other legislative changes have been proposed and adopted since the ACA was enacted. For example, in August 2011, President Obamasigned into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommendproposals in spending reductions to Congress. The Joint Select Committee on Deficit Reduction did not achieve its targeted deficit reduction of atleast $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reductions to several government programs. These reductionsinclude aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013, and, due to subsequentlegislative amendments, will stay in effect through 2025 unless additional Congressional action is taken. In January 2013, President Obama signedinto law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers and increasedthe statute of limitations period for the government to recover overpayments to providers from three to five years. Further, there have been severalrecent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review therelationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. The fullimpact of these new laws, as well as laws and other reform and cost containment measures that may be proposed and adopted in the future, remainsuncertain, but may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our futurecustomers and accordingly, our ability to generate revenue, attain profitability, or commercialize our products.If we fail to comply with federal and state healthcare laws, including fraud and abuse and health information privacy and security laws, we couldface substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.As a pharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid orother third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will beapplicable to our business. For example, we could be subject to healthcare fraud and abuse and patient privacy regulation by both the federalgovernment and the states in which we conduct our business. The laws that may affect our ability to operate include, among others: • The federal Anti-Kickback Statute, which regulates our business activities, including our marketing practices, educational programs,pricing policies, and relationships with healthcare providers or other entities, by prohibiting, among other things, soliciting, receiving,offering or paying remuneration, directly or indirectly, to induce, or in return for, either the referral of an individual or the purchase orrecommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; 60Table of Contents • Federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entitiesfrom knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that arefalse or fraudulent; • The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes thatprohibit, among other things, executing a scheme to defraud any healthcare benefit program or making false statements relating tohealthcare matters; • HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and itsimplementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individuallyidentifiable health information; • Requirements to report annually to CMS certain financial arrangements with physicians and teaching hospitals, as defined in the ACA andits implementing regulations, including reporting any “transfer of value” made or distributed to teaching hospitals, prescribers, and otherhealthcare providers and reporting any ownership and investment interests held by physicians and their immediate family members andapplicable group purchasing organizations during the preceding calendar year; and • State and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to itemsor services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies tocomply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federalgovernment that otherwise restricts certain payments that may be made to healthcare providers and entities; state laws that require drugmanufacturers to report information related to payments and other transfer of value to physicians and other healthcare providers andentities; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differfrom each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our businessactivities, including our consulting agreements with physicians, some of whom receive stock or stock options as compensation for their services, couldbe subject to challenge under one or more of such laws. In addition, recent health care reform legislation has further strengthened these laws. Forexample, the ACA, among other things, amends the intent requirement of the federal anti-kickback statute and certain criminal healthcare fraudstatutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the ACA provides thatthe government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false orfraudulent claim for purposes of the False Claims Act.To the extent that any of our product candidates is ultimately sold in a foreign country, we may be subject to similar foreign laws and regulations.If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we maybe subject to penalties, including administrative, civil and criminal penalties, damages, fines, exclusion from participation in United States federal orstate health care programs, such as Medicare and Medicaid, disgorgement, individual imprisonment and the curtailment or restructuring of ouroperations any of which could materially adversely affect our ability to operate our business and our financial results. Although compliance programscan mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us forviolation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’sattention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security andfraud laws may prove costly. 61Table of ContentsOur ability to use net operating loss carryforwards and research tax credits to reduce future tax payments may be limited or restricted.We have generated significant net operating loss carryforwards, or NOLs, and research and development tax credits, or R&D credits, as a result of ourincurrence of losses and our conduct of research activities since inception. We generally are able to carry NOLs and R&D credits forward to reduce ourtax liability in future years. However, our ability to utilize the NOLs and R&D credits is subject to the rules of Sections 382 and 383 of the InternalRevenue Code of 1986, as amended, or the Code, respectively. Those sections generally restrict the use of NOLs and R&D credits after an “ownershipchange.” An ownership change occurs if, among other things, the stockholders (or specified groups of stockholders) who own or have owned, directlyor indirectly, 5% or more of a corporation’s common stock or are otherwise treated as 5% stockholders under Section 382 of the code and the UnitedStates Treasury Department regulations promulgated thereunder increase their aggregate percentage ownership of that corporation’s stock by more than50 percentage points over the lowest percentage of the stock owned by these stockholders over the applicable testing period. In the event of anownership change, Section 382 imposes an annual limitation on the amount of taxable income a corporation may offset with NOL carry forwards andSection 383 imposes an annual limitation on the amount of tax a corporation may offset with business credit (including the R&D credit) carry forwards.Any unused annual limitation may be carried over to later years until the applicable expiration date for the respective NOL or R&D credit carryforwards. We may have experienced an “ownership change” within the meaning of Section 382 in the past and there can be no assurance that we willnot experience additional ownership changes in the future. As a result, our NOLs and business credits (including the R&D credit) may be subject tolimitations and we may be required to pay taxes earlier and in larger amounts than would be the case if our NOLs or R&D credits were freely usable.Our synthetic immuno-oncology product candidates may face competition in the future from biosimilars.The Biologics Price Competition and Innovation Act of 2009, or BPCIA, provides an abbreviated pathway for the approval of follow-on biologicalproducts. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded productwas approved under a BLA. However, there is a risk that the U.S. Congress could amend the BPCIA to significantly shorten this exclusivity period,potentially creating the opportunity for generic competition sooner than anticipated. Further, this data exclusivity does not prevent another companyfrom developing a product that is highly similar to the original branded product, generating its own data and seeking approval. Data exclusivity onlyassures that another company cannot rely upon the data within the innovator’s application to support the biosimilar product’s approval.RISKS RELATED TO OUR INTELLECTUAL PROPERTYIf we or our licensors fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of ourintellectual property rights would diminish and our ability to successfully commercialize our products may be impaired.Our success, competitive position, and future revenues will depend in part on our ability and the abilities of our licensors to obtain and maintain patentprotection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on ourproprietary rights, and to operate without infringing the proprietary rights of third parties.To date, we have exclusive rights to certain U.S. and foreign intellectual property with respect to the Precigen technology, including the existingPrecigen product candidates, such as Ad-RTS-IL-12 + veledimex, and with respect to CAR+ T, NK and TCR cell therapies arising from the laboratory ofLaurence Cooper, M.D., Ph.D., who was then at MD Anderson. Under our Channel Agreement with Precigen, Precigen has the sole right to conduct andcontrol the filings, prosecution and maintenance of the patents and patent applications licensed to us. Although under the agreement Precigen hasagreed to consider in good faith and consult with us regarding any comments we may have regarding these patents and patent applications, we cannotguarantee that our comments will be solicited or followed. Under the MD Anderson License, future filings and applications require the 62Table of Contentsagreement of each of MD Anderson, Precigen and us, and MD Anderson has the right to control the preparation and filing of additional patentapplications unless the parties agree that we or Precigen may prosecute the application directly. Although under the agreement MD Anderson hasagreed to review and incorporate any reasonable comments that we or Precigen may have regarding these patents and patent applications, we cannotguarantee that our comments will be solicited or followed. Without direct control of the channel program patents and patent applications, we aredependent on Precigen or MD Anderson, as applicable, to keep us advised of prosecution, particularly in foreign jurisdictions where prosecutioninformation may not be publicly available. We anticipate that we, Precigen and MD Anderson will file additional patent applications both in theUnited States and in other countries. However, we cannot predict or guarantee: • The degree and range of protection any patents will afford us against competitors, including whether third parties will find ways toinvalidate or otherwise circumvent our patents; • If and when patents will be issued; • Whether or not others will obtain patents claiming subject matter related to or relevant to our product candidates; or • Whether we will need to initiate litigation or administrative proceedings that may be costly whether we win or lose.The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patentapplications at a reasonable cost, in a timely manner, or in all jurisdictions. It is also possible that we will fail to identify patentable aspects of ourresearch and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to controlthe preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. Wemay also require the cooperation of our licensors in order to enforce the licensed patent rights, and such cooperation may not be provided. Therefore,these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions andhas in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as thelaws of the United States and we may fail to seek or obtain patent protection in all major markets. For example, European patent law restricts thepatentability of methods of treatment of the human body more than United States law does. Publications of discoveries in the scientific literature oftenlag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months afterfiling, or in some cases not at all.Changes in patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual propertyor narrow the scope of our patent protection. In September 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law,resulting in a number of significant changes to United States patent law. These changes include provisions that affect the way patent applications willbe prosecuted and may also affect patent litigation. In addition, the United States Supreme Court has ruled on several patent cases in recent years,either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Thiscombination of events has created uncertainty with respect to the value of patents, once obtained, and with regard to our ability to obtain patents in thefuture. As the USPTO continues to implement the Leahy-Smith Act, and as the federal courts have the opportunity to interpret the Leahy-Smith Act, thelaws and regulations governing patents, and the rules regarding patent procurement could change in unpredictable ways that would weaken our abilityto obtain new patents or to enforce our existing patents and patents that we might obtain in the future.Certain technologies utilized in our research and development programs are already in the public domain. Moreover, a number of our competitors havedeveloped technologies, filed patent applications or obtained 63Table of Contentspatents on technologies, compositions and methods of use that are related to our business and may cover or conflict with our owned or licensed patentapplications, technologies or product candidates. Such conflicts could limit the scope of the patents that we may be able to obtain or may result in therejection of claims in our patent applications. Because patent applications in the United States and many foreign jurisdictions are typically notpublished until eighteen months after filing, or in some cases not at all, and because publications of discoveries in the scientific literature often lagbehind actual discoveries, neither we nor our licensors can be certain that others have not filed or maintained patent applications for technology usedby us or covered by our pending patent applications without our being aware of these applications. Therefore, we cannot know with certainty whetherwe were the first to make the inventions claimed in our owned patents or pending patent applications, or that we were the first to file for patentprotection of such inventions, nor can we know whether those from whom we license patents were the first to make the inventions claimed or were thefirst to file. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending andfuture patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectivelyprevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws inthe United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. In addition, our own earlierfiled patents and applications or those of Precigen may limit the scope of later patents we obtain or may result in the rejection of claims in our laterfiled patent applications. If third parties filed patent applications or obtained patents on technologies, compositions and methods of use that are relatedto our business and that cover or conflict with our owned or licensed patent applications, technologies or product candidates, we may be required tochallenge such protection, terminate or modify our programs impacted by such protection or obtain licenses from such third parties, which might notbe available on acceptable terms, or at all.Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection,prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent ourowned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may bechallenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or inpatent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using orcommercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given theamount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expirebefore or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficientrights to exclude others from commercializing products similar or identical to ours.If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.Our success also depends upon the skills, knowledge, and experience of our scientific and technical personnel, our consultants and advisors, as well asour licensors and contractors. To help protect our proprietary know-how and our inventions for which patents may be unobtainable or difficult toobtain, and to maintain our competitive position, we rely on trade secret protection and confidentiality agreements. To this end, it is our general policyto require our employees, consultants, advisors, and contractors to enter into agreements that prohibit the disclosure of confidential information and,where applicable, require disclosure and assignment to us of the ideas, developments, discoveries, and inventions important to our business. Theseagreements may not provide adequate protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized useor disclosure or the lawful development by others of such information. Moreover, we may not be able to obtain adequate remedies for any breaches ofthese agreements. Our trade secrets may also be obtained by third parties by other means, such as breaches of our physical or computer security systems.Enforcing a claim 64Table of Contentsthat a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. Inaddition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to belawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, fromusing that technology or information to compete with us. If any of our trade secrets, know-how or other proprietary information is disclosed, the valueof our trade secrets, know-how and other proprietary rights would be significantly impaired and our business and competitive position would suffer.Third-party claims of intellectual property infringement would require us to spend significant time and money and could prevent us from developingor commercializing our products.In order to protect or enforce patent rights, we, or Precigen, may initiate patent infringement litigation against third parties. Similarly, we may be suedby others for patent infringement. We also may become subject to proceedings conducted in the United States Patent and Trademark Office, includinginterference proceedings to determine the priority or derivation of inventions, or post-grant review, inter partes review, or reexamination proceedingsreviewing the patentability of our patented claims. In addition, any foreign patents that are granted may become subject to opposition, nullity, orrevocation proceedings in foreign jurisdictions having such proceedings. The defense and prosecution, if necessary, of intellectual property actions arecostly and divert technical and management personnel away from their normal responsibilities.Our commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our product candidateswithout infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceuticalindustries. While no such litigation has been brought against us and we have not been held by any court to have infringed a third party’s intellectualproperty rights, we cannot guarantee that our products or use of our products do not infringe third-party patents. It is also possible that we have failedto identify relevant third-party patents or applications. For example, applications filed before November 29, 2000 and certain applications filed afterthat date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhereare published approximately 18 months after the earliest filing, which is referred to as the priority date. Therefore, patent applications covering ourproducts or technology could have been filed by others without our knowledge. Additionally, pending patent applications which have been publishedcan, subject to certain limitations, be later amended in a manner that could cover our products or the use of our products.Our research, development and commercialization activities, as well as any product candidates or products resulting from these activities, may infringeor be claimed to infringe patents or patent applications under which we do not hold licenses or other rights. Patents do not protect its owner from aclaim of infringement of another owner’s patent. Therefore, our patent position cannot and does not provide any assurance that we are not infringingthe patent rights of another.The patent landscape in the field of synthetic immuno-oncology, which we are pursuing under our Channel Agreement with Precigen, is particularlycomplex. We are aware of numerous United States and foreign patents and pending patent applications of third parties that cover compositions,methods of use and methods of manufacture of synthetic immuno-oncology, including biotherapeutics involving the in vivo expression of humanIL-12. In addition, there may be patents and patent applications in the field of which we are not aware. The technology we license from Precigen isearly-stage technology and we are in the process of designing and developing products using this technology. Although we will seek to avoidpursuing the development of products that may infringe any patent claims that we believe to be valid and enforceable, we may fail to do so. Moreover,given the breadth and number of claims in patents and pending patent applications in the field of synthetic immuno-oncology and the complexitiesand uncertainties associated with them, third parties may allege that we are infringing upon patent claims even if we do not believe such claims to bevalid and enforceable.If a claim for patent infringement is asserted, there can be no assurance that the resolution of the claim would permit us to continue marketing therelevant product on commercially reasonable terms, if at all. We may not 65Table of Contentshave sufficient resources to bring these actions to a successful conclusion. If we do not successfully defend any infringement actions to which webecome a party or are unable to have infringed patents declared invalid or unenforceable, we may have to pay substantial monetary damages, whichcan be tripled if the infringement is deemed willful, or be required to discontinue or significantly delay commercialization and development of theaffected products.Any legal action against us or our collaborators claiming damages and seeking to enjoin developmental or marketing activities relating to affectedproducts could, in addition to subjecting us to potential liability for damages, require us or our collaborators to obtain licenses to continue to develop,manufacture, or market the affected products. Such a license may not be available to us on commercially reasonable terms, if at all.An adverse determination in a proceeding involving our owned or licensed intellectual property may allow entry of generic substitutes for ourproducts.Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and otherrequirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with theserequirements.Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of thepatent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment andother similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or byother means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent orpatent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result inabandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed timelimits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter themarket, which would have a material adverse effect on our business.If we breach any of the agreements under which we license rights to products or technology from others, we could lose license rights that arematerial to our business or be subject to claims by our licensors.We license rights to products and technology that are important to our business, and we expect to enter into additional licenses in the future. Forinstance, we have exclusively licensed patents and patent applications under our Channel Agreement, and the ECP with Precigen as well as under theMD Anderson License. Under these agreements, we are subject to a range of commercialization and development, sublicensing, royalty, patentprosecution and maintenance, insurance and other obligations.Any failure by us to comply with any of these obligations or any other breach by us of our license agreements could give the licensor the right toterminate the license in whole, terminate the exclusive nature of the license or bring a claim against us for damages. Any such termination or claimcould have a material adverse effect on our financial condition, results of operations, liquidity or business. Even if we contest any such termination orclaim and are ultimately successful, such dispute could lead to delays in the development or commercialization of potential products and result intime-consuming and expensive litigation or arbitration. On termination we may be required to license to the licensor any related intellectual propertythat we developed.In addition, in certain cases, the rights licensed to us are rights of a third party licensed to our licensor. In such instances, if our licensors do not complywith their obligations under such licenses, our rights under our license agreements with our licensor may be adversely affected.We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claimingownership of what we regard as our own intellectual property.Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors orpotential competitors. Although we try to ensure that our employees do 66Table of Contentsnot use the proprietary information or know-how of others in their work for us, we may be subject to claims that these employees or we have used ordisclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may benecessary to defend against these claims.In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to executeagreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact developsintellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may beforced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectualproperty.If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights orpersonnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction tomanagement.OTHER RISKS RELATED TO OUR COMPANYOur stock price has been, and may continue to be, volatile.The market price for our common stock is volatile and may fluctuate significantly in response to a number of factors, most of which we cannot control,including: • Price and volume fluctuations in the overall stock market; • Market conditions or trends in our industry or the economy as a whole; • Laboratory or clinical trial results; • Public concern as to the safety of drugs developed by us or others; • Changes in operating results and performance and stock market valuations of other biopharmaceutical companies generally, or those thatdevelop and commercialize cancer drugs in particular; • The financial or operational projections we may provide to the public, any changes in these projections or our failure to meet theseprojections; • Comments by securities analysts or changes in financial estimates or ratings by any securities analysts who follow our common stock, ourfailure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock; • The public’s response to press releases or other public announcements by us or third parties, including our filings with the SecuritiesExchange Commission, or the SEC, and announcements of the status of development of our products, announcements of technologicalinnovations or new therapeutic products by us or our competitors, announcements regarding collaborative agreements and otherannouncements relating to product development, litigation and intellectual property impacting us or our business; • Government regulation; • FDA determinations on the approval of a product candidate BLA submission; • The sustainability of an active trading market for our common stock; • Future sales of our common stock by our executive officers, directors and significant stockholders; • Announcements of mergers or acquisition transactions; • Our inclusion or deletion from certain stock indices; • Developments in patent or other proprietary rights; 67Table of Contents • Changes in reimbursement policies; • Announcements of medical innovations or new products by our competitors; • Announcements of changes in our senior management; • Other events or factors, including those resulting from war, incidents of terrorism, natural disasters or responses to these events; and • Changes in accounting principles.In addition, the stock market from time to time experiences significant price and volume fluctuations unrelated to the operating performance ofparticular companies. The stock markets, and in particular the Nasdaq Capital Market, have experienced extreme price and volume fluctuations thathave affected and continue to affect the market prices of equity securities of many biopharmaceutical companies. Stock prices of manybiopharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past,stockholders have instituted securities class action litigation following periods of market volatility. If we were involved in securities litigation, wecould incur substantial costs and our resources and the attention of management could be diverted from our business.Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us, which may be beneficial to ourstockholders, more difficult.Provisions of our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for athird party to acquire us, even if doing so would benefit our stockholders. These provisions authorize the issuance of “blank check” preferred stock thatcould be issued by our board of directors to increase the number of outstanding shares and hinder a takeover attempt, and limit who may call a specialmeeting of stockholders. In addition, Section 203 of the Delaware General Corporation Law generally prohibits a publicly-held Delaware corporationfrom engaging in a business combination with a party that owns at least 15% of its common stock unless the business combination is approved by thecompany’s board of directors before the person acquires the 15% ownership stake or later by its board of directors and two-thirds of its stockholders.Section 203 could have the effect of delaying, deferring or preventing a change in control that our stockholders might consider to be in their bestinterests.In connection with our January 2011 issuance of shares of common stock to Intrexon in a private placement transaction, our board of directors waivedthe Section 203 prohibition with respect to a future business combination with Intrexon.Because we do not expect to pay dividends, you will not realize any income from an investment in our common stock unless and until you sell yourshares at profit.We have never paid dividends on our common stock and we do not anticipate that we will pay any dividends for the foreseeable future. Accordingly,any return on an investment in us will be realized, if at all, only when you sell shares of our common stock.If securities and/or industry analysts fail to continue publishing research about our business, if they change their recommendations adversely or ifour results of operations do not meet their expectations, our stock price and trading volume could decline.The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or ourbusiness. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in thefinancial markets, which in turn could cause our stock price or trading volume to decline. In addition, it is likely that in some future period ouroperating results will be below the expectations of securities analysts or investors. If one or more of the analysts who cover us downgrade our stock, orif our results of operations do not meet their expectations, our stock price could decline. 68Table of ContentsOur principal stockholders, executive officers and directors have substantial control over the company, which may prevent you and otherstockholders from influencing significant corporate decisions and may harm the market price of our common stock.As of December 31, 2017, our executive officers, directors and holders of five percent or more of our outstanding common stock, beneficially owned, inthe aggregate, 21.8% of our outstanding common stock. These stockholders may have interests that conflict with our other stockholders and, if actingtogether, have the ability to influence the outcome of matters submitted to our stockholders for approval, including the election and removal ofdirectors and any merger, consolidation or sale of all or substantially all of our assets. Accordingly, this concentration of ownership may harm themarket price of our common stock by: • Delaying, deferring or preventing a change in control; • Impeding a merger, consolidation, takeover or other business combination involving us; or • Discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.On December 22, 2017, President Trump signed into law new legislation that significantly revises the Code. The newly enacted federal income tax law,among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% toa flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation ofthe deduction for NOLs to 80% of current year taxable income and elimination of NOL carrybacks, one time taxation of offshore earnings at reducedrates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediatedeductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many businessdeductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain andour business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to thenewly enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. We urge ourstockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holdingour common stock.The SEC staff issued Staff Accounting Bulletin (SAB 118) to address the application of US GAAP in situations when a registrant does not have thenecessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act andallows the registrant to record provisional amounts during the measurement period. We are in the process of analyzing the impact of the variousprovisions of the Tax Act. We expect to complete our analysis within the measurement period in accordance with SAB 118.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesOur corporate office is located at One First Avenue, Parris Building #34, Navy Yard Plaza, Boston, Massachusetts 02129. The Boston office is leasedpursuant to a lease agreement that expires in August 2021. On May 22, 2015, we subleased vacant office space in our Boston office for approximately$105 thousand in total rent for the period of June 2015 through August 2016. On December 21, 2015, we renewed a portion of the lease for Bostonoffice through August 31, 2021 for $427 thousand, annually. We believe that our existing facilities are adequate to meet our current needs. 69Table of ContentsWe also lease office space in New York and at MD Anderson in Houston, Texas. Our New York office was leased pursuant to a lease agreement thatexpires in October 2018. Under the terms of our New York lease agreement, we lease approximately seven thousand square feet and are required tomake rental payments at an average monthly rate of approximately $41 thousand. On October 17, 2013, we entered into a sublease agreement to leaseall of our New York office space to a subtenant. We remain primarily liable to pay rent on the original lease. Under the sublease agreement, we receivesublease payments at an average monthly rate of approximately $28 thousand through the remainder of the term of the lease. In accordance with thesublease agreement, the subtenant provided us with a security deposit of an irrevocable standby letter of credit for approximately $167 thousand.Our leased office space at MD Anderson in Houston is pursuant to a lease agreement that expires in April 2021. Under the terms of the Houston leaseagreement, we lease approximately two hundred and ten square feet and are required to make rental payments at an average monthly rate ofapproximately $1 thousand. The monthly rent expense will be deducted from our prepayment at MD Anderson. See Note 7 to the accompanyingfinancial statements.Item 3. Legal ProceedingsIn the ordinary course of business, we may periodically become subject to legal proceedings and claims arising in connection with ongoing businessactivities. The results of litigation and claims cannot be predicted with certainty, and unfavorable resolutions are possible and could materially affectour results of operations, cash flows or financial position. In addition, regardless of the outcome, litigation could have an adverse impact on us becauseof defense costs, diversion of management resources and other factors.There are no matters, as of December 31, 2017, that, in the opinion of management, might have a material adverse effect on our financial position,results of operation or cash flows.Item 4. Mine Safety DisclosuresNot applicable. 70Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity SecuritiesMarket for Common StockOur common stock trades on the Nasdaq Capital Market under the symbol “ZIOP.” The following table sets forth the high and low sale prices for ourcommon stock during each quarter within the two most recently completed fiscal years as reported by the Nasdaq Capital Market. 2017 2016 Quarter Ended High Low High Low March 31 $6.91 $5.41 $9.59 $4.89 June 30 $7.51 $5.37 $8.92 $5.31 September 30 $6.57 $4.99 $6.04 $4.49 December 31 $6.54 $4.00 $7.60 $4.88 Record HoldersAs of February 21, 2018, we had approximately 335 holders of record of our common stock, one of which was Cede & Co., a nominee for DepositoryTrust Company, or DTC. Shares of common stock that are held by financial institutions as nominees for beneficial owners are deposited intoparticipant accounts at DTC, and are considered to be held of record by Cede & Co. as one stockholder. As of February 21, 2018, we hadapproximately 32,332 beneficial holders of our common stock.DividendsWe have never declared or paid a cash dividend on our common stock and do not anticipate paying any cash dividends in the foreseeable future.Recent Sales of Unregistered SecuritiesIn June 2016, we amended our Channel Agreement and GvHD Agreement with Intrexon (now Precigen) in order to, among other things, reduce theroyalty rate on operating profits payable by us to Precigen from 50% to 20%. In consideration for these amendments, we issued to Intrexon shares ofour Series 1 preferred stock, which include, among other things, a monthly dividend of 1% payable in additional shares of Series 1 preferred stock. Forthe three months ended December 31, 2017, we issued an aggregate of 3,517 shares of Series 1 preferred stock to Intrexon, the holder of all of theoutstanding shares of our Series 1 preferred stock, as dividends, representing monthly dividends due from October 1, 2017 through December 31, 2017to Intrexon. The issuances of the dividend shares were exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. 71Table of ContentsIssuer Purchases of Equity SecuritiesDuring the three months ended December 31, 2017, we purchased an aggregate of 245,602 shares of restricted stock from certain employees andmembers of our board of directors to cover the applicable withholding taxes due from them for the shares of restricted stock at the time that theapplicable forfeiture restrictions lapsed. The following table provides information about these purchases of restricted shares for the three months endedDecember 31, 2017: Period Total Number ofShares Purchased Average Price PaidPer Share October 1 to 31, 2017 — $— November 1 to 30, 2017 — — December 1 to 31, 2017 245,602 4.14 Total 245,602 Stockholder Return ComparisonThe information included in this section is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14Cunder the Exchange Act or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filingunder the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.The graph below matches the cumulative 5-year total return of holders of our common stock with the cumulative total returns of the Nasdaq Compositeindex and the Nasdaq Biotechnology index. The graph assumes that the value of the investment in our common stock and in each of the indexes(including reinvestment of dividends) was $100 on December 31, 2012 and tracks it through December 31, 2017. 72Table of ContentsItem 6. Selected Financial DataThe selected financial data presented below has been derived from our financial statements. This data may not be indicative of our future financialcondition or results of operations and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” and our financial statements and accompanying notes included elsewhere herein. Year Ended December 31, (in thousands, except share data and per share amounts) 2017 2016 2015 2014 2013 Statements of Operations Data: Collaboration revenue $6,389 $6,861 $4,332 $1,373 $800 Total operating expenses 59,882 172,168 124,432 44,872 58,513 Loss from operations (53,493) (165,307) (120,100) (43,499) (57,713) Other income (expense), net 465 134 12 (5) (579) Change in fair value of warrants — — — 11,723 1,185 Change in fair value of derivative liabilities (1,295) (124) — — — Net loss (54,323) (165,297) (120,088) (31,781) (57,107) Preferred stock dividends (18,938) (7,123) — — — Not loss applicable to common stockholders (73,261) (172,420) (120,088) (31,781) (57,107) Basic and diluted net loss per share $(0.53) $(1.32) $(0.96) $(0.31) $(0.66) Weighted average number of common shares outstanding:basic and diluted 136,938,264 130,391,463 125,416,084 101,130,710 85,943,175 Year Ended December 31, (in thousands) 2017 2016 2015 2014 2013 Balance Sheet Data: Cash and cash equivalents $70,946 $81,053 $140,717 $42,803 $68,204 Total assets 105,606 106,348 153,724 45,237 71,754 Warrant liabilities — — — — 11,776 Derivative liabilities 2,424 862 — — — Total liabilities 58,420 58,325 66,353 11,396 22,371 Series 1 Preferred Stock 143,992 125,321 — — — Stockholders’ equity (deficit) (96,806) (77,298) 87,371 33,841 49,383 Item 7. Management Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidatedfinancial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, thefollowing discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially fromthose contained in or implied by any forward-looking statements. Factors that could cause or contribute to these differences include those under“Risk Factors” included in Part I, Item 1A and under “Special Note Regarding Forward-Looking Statements” or in other parts of this Annual Reporton Form 10-K. 73Table of ContentsBusiness OverviewZiopharm Oncology, Inc. is a biopharmaceutical company focused on discovering, acquiring, developing and commercializing next generationimmunotherapy platforms that leverage gene- and cell-based therapies to treat patients with cancer on its own and with partners. We are developingtwo immuno-oncology platform technologies designed to utilize the patient’s immune system by employing novel, controlled gene expression andinnovative cell engineering technologies to deliver safe, effective, and scalable cell- and viral-based therapies for the treatment of multiple cancertypes.Recent DevelopmentsIn January 2018, we provided updates on the continued development of our Controlled IL-12 platform and development programs for the treatment ofbrain cancer [at JPM?]. We announced the initiation of a Phase I clinical trial to evaluate Ad-RTS-hIL-12 plus veledimex in combination withOPDIVO® (nivolumab), an immune checkpoint, or PD-1 inhibitor, in adult patients with rGBM. We also updated guidance on our planned pivotal trialof Ad-RTS-hIL-12 plus veledimex and announced that we currently anticipate initiation in the second half of 2018, subject to regulatory approval. Wehave designed a Phase 3 randomized control trial to evaluate Controlled IL-12 for the treatment of patients with rGBM and following meetings withU.S. and European regulators, we are completing execution of Chemistry Manufacturing and Control (CMC) technical requirements.In November 2017, during the 22nd Annual Meeting and Education Day of the Society for Neuro-Oncology (SNO) in San Francisco, we made multiplepresentations on controlled IL-12. New data presented included sustained median overall survival (mOS) of 12.5 months for patients treated withAd-RTS-hIL-12 plus 20mg of veledimex (n=15) at a longer mean follow-up time of 11.1 months as of October 18, 2017, which compares favorably tothe 5- to 8-months overall survival data of approved therapies. Additional data relative to an influx of cytotoxic T-cells, increased expression levels ofPD-1 and PD-L1, peripheral biomarkers and the impact of low-dose steroids on survival were presented.In October 2017, we announced the first patient dosed in a Phase 1 trial of Ad-RTS-hIL-12 + veledimex for the treatment of pediatric brain tumors.In December 2017, we delivered multiple presentations on our adoptive cell therapy programs and application of the SB technology at the 59thAmerican Society of Hematology (ASH) Annual Meeting and Exposition in Atlanta. We presented on the advancement of our SB platform towardspoint-of-care (P-O-C) for very rapid manufacturing of genetically modified CAR+ T cells. Data presented from first- and second-generation SB clinicaltrials demonstrate tolerability, disease response, long-term survival and persistence of infused CD19-specific CAR+ T cells. Preclinical studiespresented at ASH and at the Keystone Symposia in February 2018 showed that P-O-C CAR+ T cells co-expressing membrane-bound interleukin-15(mbIL15) and a control switch manufactured within two days do not require activation or propagation in tissue culture to achieve anti-tumor effectsand prolonged T-cell survival in mice. Building on these data, we plan to initiate an investigator-led first P-O-C clinical trial in the second half of 2018at MD Anderson.The Company also updated guidance on the anticipated start of the National Cancer Institute (NCI)-led Phase 1 trial to evaluate adoptive cell transfer(ACT)-based immunotherapies genetically modified using the SB transposon/transposase system to express TCRs for the treatment of solid tumors. We,Precigen and NCI last year entered into a Cooperative Research and Development Agreement (CRADA) to develop and evaluate ACT for patients withadvanced cancers using autologous peripheral blood lymphocytes genetically modified using the non-viral SB system to express TCRs that recognizespecific immunogenic mutations, or neoantigens, expressed within a patient’s cancer. We expect this phase 1 trial, which is being led by andconducted at the NCI, to be initiated in the second half of this year.Lastly, as a result of an in-depth review of our research and development portfolio, we determined that the pursuit of GvHD as an indication was not amaterial part of our corporate strategy and therefore have decided to 74Table of Contentsstop pursuing the development of engineered cell therapy strategies, used either separately or in combination, for targeted treatment of GvHD. We havereverted our rights under the GvHD program back to Precigen [and are in the process of winding down the related activities]. We made this decision tofocus our efforts and resources on the development of our Controlled IL-12 and Sleeping Beauty platforms for the treatment of oncology indications.Financial OverviewOverview of Results of OperationsCollaboration RevenueWe recognize research and development funding revenue over the estimated period of performance. We have not generated product revenues since ourinception. Unless and until we receive approval from the FDA and/or other regulatory authorities for our product candidates, we cannot sell ourproducts and will not have product revenues.Research and Development ExpensesOur research and development expense consists primarily of salaries and related expenses for personnel, costs of contract manufacturing services, costsof facilities and equipment, fees paid to professional service providers in conjunction with our clinical trials, fees paid to contract researchorganizations in conjunction with preclinical animal studies, costs of materials used in research and development, consulting, license and milestonepayments and sponsored research fees paid to third parties.We have not accumulated and tracked our internal historical research and development costs or our personnel and personnel-related costs on aprogram-by-program basis. Our employee and infrastructure resources are allocated across several projects, and many of our costs are directed tobroadly applicable research endeavors. As a result, we cannot state the costs incurred for each of our oncology programs on a program-by-programbasis.For the twelve months ended December 31, 2017, our clinical stage projects included a Phase 1 trial with Ad-RTS-IL-12 + veledimex in progressiveglioblastoma; a Phase 1b/2 trial with Ad-RTS-IL-12 + veledimex in metastatic breast cancer; an investigator-led Phase 1 trial infusing our 2ndgeneration CD19-specific CAR+ T cells in patients with advanced lymphoid malignancies; an investigator-led Phase 1 trial infusing our CD33-specificCAR+ T therapy for relapsed or refractory acute myeloid leukemia; and a Phase 1 trial of Ad-RTS-hIL-12 with veledimex for the treatment of pediatricbrain tumors. The expenses incurred by us to third parties for our Phase 1 trial with Ad-RTS-IL-12 + veledimex in progressive glioblastoma were$0.8 million for the three months ended December 31, 2017, and $4.4 million from the project’s inception in June 2015 through December 31, 2017.There were no expenses incurred by us to third parties for our Phase 1b/2 trial with Ad-RTS-IL-12 + veledimex in metastatic breast cancer for the threemonths ended December 31, 2017, and expenses from the project’s inception in April 2015 through December 31, 2017 were $0.8 million. Theexpenses incurred by us to third parties for our investigator-led Phase 1 trial infusing our 2nd generation CD19-specific CAR+ T cells in patients withadvanced lymphoid malignancies were $0.2 million for the three months ended December 31, 2017 and $2.8 million from the project’s inception inDecember 2015 through December 31, 2017. The expenses incurred by us to third parties for our investigator-led Phase 1 trial infusing our CD33-specific CAR+ T therapy for relapsed or refractory acute myeloid leukemia were $0.9 million for the three months ended December 31, 2017 and$1.4 million from the project’s inception in September 2017 through December 31, 2017. The expenses incurred by us to third parties for ourinvestigator-led Phase 1 trial of Ad-RTS-hIL-12 with veledimex for the treatment of pediatric brain tumors were $0.6 million for the three monthsended December 31, 2017 and the projects inception in October 2017.Our future research and development expenses in support of our current and future programs will be subject to numerous uncertainties in timing andcost to completion. We test potential products in numerous preclinical studies for safety, toxicology and efficacy. We may conduct multiple clinicaltrials for each product. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain products in order to focus ourresources on more promising products or indications. Completion of clinical trials may take several years or more, and the length of time generallyvaries substantially according to the type, complexity, novelty and intended use of a product. It is not unusual for preclinical and clinical developmentof each of these types of products to require the expenditure of substantial resources. 75Table of ContentsWe estimate that clinical trials of the type generally needed to secure new drug approval are typically completed over the following timelines: Clinical Phase Estimated Completion PeriodPhase 1 1 - 2 yearsPhase 2 2 - 3 yearsPhase 3 2 - 4 yearsThe duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development,including, among others, the following: • The number of clinical sites included in the trials; • The length of time required to enroll suitable patents; • The number of patients that ultimately participate in the trials; • The duration of patient follow-up to ensure the absence of long-term product-related adverse events; and • The efficacy and safety profile of the product.As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our programs or when and to whatextent we will receive cash inflows from the commercialization and sale of a product. Our inability to complete our programs in a timely manner or ourfailure to enter into appropriate collaborative agreements could significantly increase our capital requirements and could adversely impact ourliquidity. These uncertainties could force us to seek additional, external sources of financing from time-to-time in order to continue with our productdevelopment strategy. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success ofour business.General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries, benefits and stock-based compensation, consulting and professional fees, includingpatent related costs, general corporate costs and facility costs not otherwise included in research and development expenses or cost of product revenue.Other Income (Expense)Other income (expense) consists primarily of changes in the fair value of Series 1 Preferred Stock.Results of Operations for the Fiscal Year ended December 31, 2017 versus December 31, 2016Collaboration RevenuesRevenues for the years ended December 31, 2017 and 2016 were as follows: Year ended December 31, 2017 2016 Change ($ in thousands) Collaboration revenue $6,389 $6,861 $(472) -7% Revenue for the year ended December 31, 2017 decreased by $472 thousand in comparison to revenue for the year ended December 31, 2016. Duringeach of the years ended December 31, 2017 and 2016, we recognized revenue of $6.4 million under the Ares Trading Agreement. During the yearended December 31, 2016, we recognized $272 thousand from our agreement with Solasia and $200 thousand from our agreement with PredictiveTherapeutics. We recognized no revenue from our agreements with Solasia and Predictive Therapeutics during the year ended December 31, 2017. 76Table of ContentsResearch and Development ExpensesResearch and development expenses during the years ended December 31, 2017 and 2016 were as follows: Year ended December 31, 2017 2016 Change ($ in thousands) Research and development $45,084 $157,791 $(112,707) -71% Research and development expenses for the year ended December 31, 2017 decreased by $112.7 million when compared to the year endedDecember 31, 2016. During the year ended December 31, 2016, we incurred a noncash charge of $119.0 million related to Series 1 preferred stockissued to Intrexon under our 2016 ECP Amendment and 2016 GvHD Amendment and related dividends. Excluding the noncash charge of $119.0 inthe prior year, research and development expenses would have been higher by $6.3 million for the year ended December 31, 2017 compared to the yearended December 31, 2016. The increase in expenses during the year ended December 31, 2017 was due to an increase of $2.8 million for salary andemployee related expense due to increased headcount, $1.6 million in cell therapy expenses to support our ongoing trials at MD Anderson,$1.2 million to support our ongoing gene therapy programs, and $0.7 million in other operating expense.General and Administrative ExpensesGeneral and administrative expenses during the years ended December 31, 2017 and 2016 were as follows: Year ended December 31, 2017 2016 Change ($ in thousands) General and administrative $14,798 $14,377 $421 3% General and administrative expenses for the year ended December 31, 2017 increased by $421 thousand as compared to the prior year. The change wasprimarily due to increased salary and employee related expenses as a result of headcount additions during the year ended December 31, 2017.Other Income (Expense)Other income (expense) during the years ended December 31, 2017 and 2016 were as follows: Year ended December 31, 2017 2016 Change ($ in thousands) Other income (expense), net $465 $134 $331 247% Change in fair value of derivative liabilities (1,295) (124) (1,171) 944% Total $(830) $10 $(840) During the year ended December 31, 2017 and 2016, we recorded a loss on the change in fair value of the derivative liabilities of $1.3 million and$124 thousand, respectively (see Note 10 to the accompanying financial statements). These changes are derived from the number of outstanding sharesof preferred stock and their respective valuations. Additionally, we recorded $465 thousand in other income for the year ended December 31, 2017,compared to $134 thousand earned in the prior year, due to increases in the fair value of our cash equivalent accounts (see Note 3 to the accompanyingfinancial statements). 77Table of ContentsResults of Operations for the Fiscal Year ended December 31, 2016 versus December 31, 2015Collaboration RevenuesRevenues for the years ended December 31, 2016 and 2015 were as follows: Year endedDecember 31, 2016 2015 Change ($ in thousands) Collaboration revenue $6,861 $4,332 $2,529 58% Revenue for the year ended December 31, 2016 increased by $2.5 million compared to revenue for the year ended December 31, 2015. During the yearended December 31, 2016, we recognized revenue of $6.4 million under the Ares Trading Agreement, $272 thousand recognized from our agreementwith Solasia, and $200 thousand recognized from our agreement with Predictive Therapeutics. During the year ended December 31, 2015, werecognized revenue of $3.2 million under the Ares Trading Agreement, $1.1 million from our agreement with Solasia, and $50 thousand from ouragreement with Predictive Therapeutics.Research and Development ExpensesResearch and development expenses during the years ended December 31, 2016 and 2015 were as follows: Year ended December 31, 2016 2015 Change ($ in thousands) Research and development $157,791 $106,785 $51,006 48% Research and development expenses for the year ended December 31, 2016 increased by $51.0 million when compared to the year ended December 31,2015. During the year ended December 31, 2016, the company incurred a noncash charge of $126.2 million related to Series 1 preferred stock issued toIntrexon under our 2016 ECP Amendment and 2016 GvHD Amendment and related dividends. In 2015, we issued $67.3 million of common shares toMD Anderson in consideration for the MD Anderson agreement and a $10.0 million charge for in process research and development with Intrexon (seeNote 7 to the accompanying financial statements) for costs related to our GvHD program. The remaining $2.1 million in increased spending for 2016relates primarily to increased research and development expenses for cell therapy programs.General and Administrative ExpensesGeneral and administrative expenses during the years ended December 31, 2016 and 2015 were as follows: Year ended December 31, 2016 2015 Change ($ in thousands) General and administrative $14,377 $17,647 $(3,270) -19% General and administrative expenses for the year ended December 31, 2016 decreased by $3.3 million when compared to the year ended December 31,2015. The change was primarily due to decreases in employee related and stock compensation expense, as a result of business development costsincurred in the prior year related to the MD Anderson License. 78Table of ContentsOther Income (Expense)Other income (expense) during the years ended December 31, 2016 and 2015 were as follows: Year ended December 31, 2016 2015 Change ($ in thousands) Other income (expense), net $134 $12 $122 1017% Change in fair value of derivative liabilities (124) — (124) 100% Total $10 $12 $(2) The increase in other income (expense) from year ended December 31, 2016 as compared to year ended December 31, 2015 was due primarily tointerest received on our cash balance. The change in derivative liabilities was not applicable in 2015.Liquidity and Capital ResourcesAs of December 31, 2017, we have approximately $70.9 million of cash and cash equivalents. Given our development plans, we anticipate our cashresources will be sufficient to fund our operations into the fourth quarter of 2018 and currently have no committed sources of additional capital. Theforecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses could varymaterially and adversely as a result of a number of factors. We have based our estimates on assumptions that may prove to be wrong, and our expensescould prove to be significantly higher than we currently anticipate. Management does not know whether additional financing will be on termsfavorable or acceptable to us when needed, if at all. If adequate additional funds are not available when required, or if we are unsuccessful in enteringinto partnership agreements for further development of our products, management may need to curtail development efforts. Based on the forecast,management determined that there is substantial doubt regarding our ability to continue as a going concern. As a result, our independent registeredaccounting firm has expressed substantial doubt as to our ability to continue as a going concern in their report dated March 1, 2018 included in thisAnnual Report on the Form 10-K.In addition to these factors, our actual cash requirements may vary materially from our current expectations for a number of other factors that mayinclude, but are not limited to, changes in the focus and direction of our development programs, competitive and technical advances, costs associatedwith the development of our product candidates, our ability to secure partnering arrangements, and the costs of filing, prosecuting, defending andenforcing our intellectual property rights. If we exhaust our capital reserves more quickly than anticipated, regardless of the reason, and we are unableto obtain additional financing on terms acceptable to us or at all, we will be unable to proceed with development of some or all of our productcandidates on expected timelines and will be forced to prioritize among them.We expect that we will need additional financing to support our long-term plans for clinical trials and new product development. We expect to financeour cash needs through the sale of equity securities, strategic collaborations and/or debt financings, or through other sources that may be dilutive toexisting stockholders. There can be no assurance that we will be able to obtain funding from any of these sources or, if obtained, what the terms of suchfunding(s) may be, or that any amount that we are able to obtain will be adequate to support our working capital requirements until we achieveprofitable operations. We have no current committed sources of additional capital. Recently, capital markets have experienced a period of instabilitythat may severely hinder our ability to raise capital within the time periods needed or on terms we consider acceptable, if at all. If we are unable to raiseadditional funds when needed, we may not be able to continue development and regulatory approval of our products, or we could be required to delay,scale back or eliminate some or all our research and development programs. 79Table of ContentsRecent Financing TransactionsFebruary 2015 Public OfferingOn February 3, 2015, we entered into an underwriting agreement with J.P. Morgan Securities LLC, as representative of the several underwriters namedtherein, relating to the issuance and sale of 10,000,000 shares of our common stock. The price to the public in the offering was $8.75 per share, and theunderwriters agreed to purchase the shares from us pursuant to the underwriting agreement at a purchase price of $8.225 per share. Under the terms ofthe underwriting agreement, we also granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 1,500,000 shares ofcommon stock at a purchase price of $8.225 per share. The offering was made pursuant to our registration statement on Form S-3 (SEC FileNo. 333-201826) previously filed with the SEC, and a prospectus supplement thereunder. The underwriters purchased the 10,000,000 shares and theadditional 1,500,000 shares on February 9 and February 17, 2015, respectively. The net proceeds from the offering were approximately $94.3 millionafter deducting underwriting discounts and estimated offering expenses paid by us.May 2017 Public OfferingOn May 11, 2017, we sold in an underwritten public offering an aggregate of 9,708,738 shares of our common stock to a single institutional investor inan underwritten offering. The price to the investor in the offering was $5.15 per share, and the underwriters agreed to purchase the shares from uspursuant to the underwriting agreement at a purchase price of $4.893 per share. The offering was made pursuant to a registration statement on FormS-3ASR previously filed with the SEC, and a prospectus supplement thereunder. The net proceeds from the offering were approximately $47.3 millionafter deducting underwriting commissions and estimated offering expenses payable by us.Cash Increases and (Decreases)The following table summarizes our net increase (decrease) in cash and cash equivalents for the years ended December 31, 2017, 2016 and 2015: Year ended December 31, 2017 2016 2015 ($ in thousands) Net cash provided by (used in): Operating activities $(54,669) $(58,325) $(10) Investing activities (737) (551) (412) Financing activities 45,299 (788) 98,336 Net increase (decrease) in cash and cash equivalents $(10,107) $(59,664) $97,914 Cash flows from operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financingactivities. Operating cash flow is derived by adjusting our net loss for: • Non-cash operating items such as depreciation and amortization, stock-based compensation and common and preferred stock issued inexchange for license agreements; • Changes in operating assets and liabilities which reflect timing differences between the receipt and payment of cash associated withtransactions and when they are recognized in results of operations; and • Changes associated with the fair value of our derivative liabilities.Net cash used in operating activities for the twelve months ended December 31, 2017 was $54.7 million, as compared to net cash used in operatingactivities of $58.3 million and $10 thousand for the years ended December 31, 2016 and 2015, respectively. The net cash used in operating activitiesfor the twelve months ended 80Table of ContentsDecember 31, 2017 was primarily a result of our net loss of $54.3 million, offset by the decrease in prepaid expenses of $4.0 million, an increase inother noncurrent assets of $13.0 million, and an increase in accounts payable and accrued expenses of $5.1 million. The net cash used in operatingactivities for the twelve months ended December 31, 2016 was primarily a result of our net loss of $165.3 million, an increase of $12.5 million incharges related to prepayments for cell therapy programs under our license agreements, a decrease in deferred revenue of $6.9 million, a decrease inaccounts payable and accrued expenses of $1.6 million and an increase in stock compensation of $0.4 million.Net cash used in investing activities was $737 thousand for the twelve months ended December 31, 2017 compared to $551 thousand and$412 thousand for the years ended December 31, 2016 and December 31, 2015, respectively. The change was due primarily to equipment purchasesunder our agreement with MD Anderson to support our ongoing clinical trials in Houston, Texas.Net cash provided by financing activities was $45.3 million for the twelve months ended December 31, 2017 compared to $788 thousand used infinancing activities and $98.3 million provided by financing activities for the years ended December 31, 2016 and 2015, respectively. The$45.3 million provided by financing activities during the twelve months ended December 31, 2017 is a result of our May 2017 offering which isdescribed in Note 2 to the accompanying financial statements. The $99.1 million decrease in cash provided by financing activities for the year endedDecember 31, 2016 is primarily attributable to proceeds of approximately $94.3 million associated with our February 2015 public offering and$4.6 million from stock option exercises, compared to $712 thousand in stock option exercises for the year ended December 31, 2015.Operating Capital and Capital Expenditure RequirementsWe anticipate that losses will continue for the foreseeable future. At December 31, 2017, our accumulated deficit was approximately $712.4 million.Our actual cash requirements may vary materially from those planned because of a number of factors including: • Changes in the focus, direction and pace of our development programs; • Competitive and technical advances; • Costs associated with the development of our product candidates; • Our ability to secure partnering arrangements; • Costs of filing, prosecuting, defending and enforcing any patent claims and any other intellectual property rights, or other developments;and • Other matters identified under Part I – Item 1A. “Risk Factors.”Working capital as of December 31, 2017 was $69.9 million, consisting of $90.8 million in current assets and $20.9 million in current liabilities.Working capital as of December 31, 2016 was $89.1 million, consisting of $104.9 million in current assets and $15.8 million in current liabilities.Contractual ObligationsThe following table summarizes our outstanding obligations as of December 31, 2017, and subsequent events, and the effect those obligations areexpected to have on our liquidity and cash flows in future periods: ($ in thousands) Total Less than1 year 2 - 3 years 4 - 5 years More than5 years Operating leases $3,075 $1,129 $1,458 $488 $— CRADAs $5,000 2,500 2,500 — — Royalty and license fees $2,729 2,729 — — — Total $10,804 $6,358 $3,958 $488 $— 81Table of ContentsOur commitments for operating leases relate to the lease for our corporate headquarters in Boston, Massachusetts, and office space in New York, NewYork and Houston, Texas. On December 21, 2015 and April 15, 2016, we renewed the sublease for our corporate headquarters in Boston, MA throughAugust 31, 2021. Included in the above table are obligations for the subleased portion of our New York and Houston office space (see Note 7 to theaccompanying financial statements). We expect to receive a total of $278 thousand in the next year from our subtenants in the New York office.On January 13, 2015, we entered into the MD Anderson License (see Note 6 to the accompanying financial statements). The agreement includesminimum quarterly payments of $3.8 million less approved deductions included in the above table within “Royalty and License Fees.” Ourobligations related to this agreement includes our final quarterly payment of $2.7 million in the column “Less than 1 Year.”On January 10, 2017, we announced the signing of a CRADA with the NCI for the development of ACT-based immunotherapies genetically modifiedusing the Sleeping Beauty transposon/transposase system for the treatment of solid tumors. Our obligation for the CRADA is reflected above with$2.5 million in the column “Less than 1 Year” and $2.5 million in the column “2 – 3 Years.”Critical Accounting Policies and Significant EstimatesOur Management’s Discussion and Analysis of our financial condition and results of operations is based upon our financial statements, which havebeen prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requiresus to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities atthe date of the financial statements as well as the reported expenses during the reporting periods. We evaluate our estimates and judgments on anongoing basis. Actual results may differ materially from these estimates under different assumptions or conditions.We believe the following are our more significant estimates and judgments used in the preparation of our financial statements: • Clinical trial expenses; • Collaboration agreements; • Fair value measurements of stock-based compensation and Series 1 preferred stock (and related dividends); and • Income taxes.Clinical Trial ExpensesClinical trial expenses include expenses associated with clinical research organizations, or CROs. The invoicing from CROs for services rendered canlag several months. We accrue the cost of services rendered in connection with CRO activities based on our estimate of site management, monitoringcosts, and project management costs. We maintain regular communication with our CROs to gauge the reasonableness of our estimates. Differencesbetween actual clinical trial expenses and estimated clinical trial expenses recorded have not been material and are adjusted for in the period in whichthey become known.Revenue Recognition from Collaboration AgreementsThe Company has primarily generated revenue through collaboration arrangements with strategic partners for the development and commercializationof product candidates. The Company recognizes revenue for each unit of accounting when evidence of an arrangement exists, delivery has occurred, orservices have been rendered, the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. 82Table of ContentsThe Company’s collaboration agreements may provide for various types of payments, including upfront payments, funding of research anddevelopment, milestone payments, licensing fees and product royalties. The specifics of the Company’s significant agreements are detailed in Note 7to the accompanying financial statements.The Company considers a variety of factors in determining the appropriate method of accounting for its collaboration agreements, including whethermultiple deliverables can be separated and accounted for individually as separate units of accounting. Pursuant to the guidance in FASB AccountingStandards Codification (ASC) 605-25, Multiple-Element Arrangements (ASC 605-25), the Company evaluates multiple-element arrangements todetermine whether the individual deliverables represent separate units of accounting or whether they must be accounted for as a combined unit ofaccounting. This evaluation involves subjective determinations and requires management to make judgments about the individual deliverables andwhether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accountingprovided that: (i) the delivered item(s) has value to the customer on a standalone basis and (ii) if the arrangement includes a general right of returnrelative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of theCompany. In assessing whether an item has standalone value, the Company considers factors such as the research, manufacturing andcommercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, theCompany considers whether the collaboration partner can use the other deliverable(s) for their intended purpose without the receipt of the remainingelement(s), whether the value of the deliverable is dependent on the undelivered item(s) and whether there are other vendors that can provide theundelivered element(s). The Company’s collaboration arrangements do not contain a general right of return relative to the delivered item(s).Where there are multiple deliverables within a collaboration agreement that cannot be separated and therefore are combined into a single unit ofaccounting, revenues are deferred and recognized over the estimated period of performance, which is typically the development term. If thedeliverables can be separated, the Company applies the relevant revenue recognition guidance to each individual unit of accounting. The specificmethodology for the recognition of the underlying revenue is determined on a case-by-case basis according to the facts and circumstances applicableto each agreement. Generally, the Company has accounted for its collaboration agreements as a single unit of accounting.At the inception of an arrangement that includes milestone payments, the Company evaluates whether each milestone is substantive and at risk to bothparties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether: (i) the consideration is commensuratewith either the Company’s performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specificoutcome resulting from the Company’s performance to achieve the milestone, (ii) the consideration relates solely to past performance and (iii) theconsideration is reasonable relative to all of the deliverables and payment terms within the arrangement. The Company evaluates factors such as thescientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the respective milestone and the level of effort andinvestment required to achieve the respective milestone in making this assessment. There is considerable judgement involved in determining whether amilestone satisfies all of the criteria required to conclude that a milestone is substantive. In accordance with FASB ASC 605-28, Milestone Method(ASC 605-28), revenue from substantive milestone payments is recognized in its entirety in the period in which the milestone is achieved, assuming allother revenue recognition criteria are met. Payments from milestones that are not considered substantive payment is deferred and recognized as revenueover the estimated remaining period of performance under the contract as the Company completes its performance obligations assuming all otherrevenue recognition criteria are met. Revenue from commercial milestone payments is accounted for as royalties and recorded as revenue uponachievement of the milestone, assuming all other revenue recognition criteria are met. Royalties are recognized as earned in accordance with the termsof various research and collaboration agreements. 83Table of ContentsFair Value Measurements of Stock Based Compensation and Series 1 Preferred Stock (including related dividends)Accounting standards define fair value, establish a framework for measuring fair value under generally accepted accounting principles and enhancedisclosures about 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 most advantageous market for the asset or liability in an orderly transaction between market participants on themeasurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservableinputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the lastunobservable, that may be used to measure fair value which are the following: • Level 1—Quoted prices in active markets for identical assets or liabilities. • Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities. • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets orliabilities.We make certain assumptions in order to value and expense our share-based compensation awards and Series 1 preferred stock (including relateddividends). In connection with valuing stock options and use the Black-Scholes, which require us to estimate certain subjective assumptions. The keyassumptions we make are: the expected volatility of our stock; the expected term of the award; and the forfeiture rate related to share based awards. Inconnection with our restricted stock programs, we make assumptions principally related to the forfeiture rate. The key assumptions used to estimate fairvalue for our warrants include current and expected stock prices, volatility, dividends, forward yield curves and discount rates.We review our valuation assumptions periodically and, as a result, we may change our valuation assumptions used to value share-based awards grantedin future periods and Series 1 preferred stock. Such changes may lead to a significant change in the expense we recognize in connection with share-based payments.Income TaxesIn preparing our financial statements, we estimate our income tax liability in each of the jurisdictions in which we operate by estimating our actualcurrent tax expense together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes.These differences result in deferred tax assets and liabilities, which, prior to the consideration for the need for a valuation allowance, are included onthe balance sheet. Significant management judgment is required in assessing the realizability of our deferred tax assets. In performing this assessment,we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferredtax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Inmaking this determination, under the applicable financial accounting standards, we are allowed to consider the scheduled reversal of deferred taxliabilities, projected future taxable income, and the effects of tax planning strategies. Our estimates of future taxable income include, among otheritems, our estimates of future income tax deductions related to the exercise of stock options. In the event that actual results differ from our estimates, weadjust our estimates in future periods and we may need to establish a valuation allowance, which could materially impact our financial position andresults of operations.We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluationof uncertain tax positions is based on factors that include, but are not limited to, changes in tax law, the measurement of tax positions taken orexpected to be taken in tax returns, the 84Table of Contentseffective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. We evaluate uncertaintax positions on an annual basis and adjust the level of the liability to reflect any subsequent changes in the relevant facts surrounding the uncertainpositions. Our liabilities for uncertain tax positions can be relieved only if the contingency becomes legally extinguished through either payment tothe taxing authority or the expiration of the statute of limitations, the recognition of the benefits associated with the position meet the“more-likely-than-not” threshold or the liability becomes effectively settled through the examination process. We consider matters to be effectivelysettled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrativereviews; we have no plans to appeal or litigate any aspect of the tax position; and we believe that it is highly unlikely that the taxing authority wouldexamine or re-examine the related tax position. We also accrue for potential interest and penalties, related to unrecognized tax benefits in income taxexpense.Recent Accounting PronouncementsFor a discussion of new accounting standards, please read Note 3 to the accompanying financial statements, Summary of Significant AccountingPrinciples included in this report.Off-Balance Sheet ArrangementsWe have not entered into, nor do we currently have any special purpose entities or off-balance sheet financing arrangements as defined under SECrules.Item 7A. Quantitative and Qualitative Disclosures About Market RiskOur exposure to market risk is limited to our cash. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs andfiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk. To achieve ourgoals, we maintain our cash in interest-bearing cash accounts. As all of our investments are cash deposits in a global bank, it is subject to minimalinterest rate risk.Effect of Currency Exchange Rates and Exchange Rate Risk ManagementWe conduct a number of clinical trials outside of the United States, primarily in Western Europe. These business operations are not material at thistime, and therefore we do not anticipate that currency fluctuations will have a material impact on our financial position, results of operations or cashflows at this time.Item 8. Financial Statements and Supplementary DataThe information required by this Item 8 is contained on pages F-1 through F-40 of this Annual Report on Form 10-K and is incorporated herein byreference.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosuresNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and Procedures.Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Accounting Officer, we haveevaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) or 15d-15(e) promulgated under theExchange Act, as of December 31, 2017. Based on that evaluation, our Chief Executive Officer and Chief Accounting Officer have concluded that as ofsuch date, our disclosure controls and procedures were effective. 85Table of ContentsManagement’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting for us. Internal control overfinancial reporting (as defined in Rule 13a-15(f) of the Exchange Act) is a process to provide reasonable assurance regarding the reliability of ourfinancial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal controlover financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonableassurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts andexpenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorizedacquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on atimely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that amisstatement of our financial statements would be prevented or detected.Management conducted an evaluation of the effectiveness, as of December 31, 2017, of our internal control over financial reporting based on theframework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2017.RSM US LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting as ofDecember 31, 2017. That report is included in this Annual Report on Form 10-K.Changes in Internal Controls over Financial ReportingThere were no changes in our internal control over financial reporting during the year ended December 31, 2017 that have materially affected, or arereasonably likely to materially affect, our internal control over financial reporting.Item 9B. Other InformationNone. 86Table of ContentsPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceInformation in response to this Item is incorporated herein by reference to the information from our definitive proxy statement to be filed pursuant toRegulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K under the sections titled Proposals—Election of Directors, Executive Officers, Information Regarding the Board of Directors and Corporate Governance and Stock Ownership.Item 11. Executive CompensationInformation in response to this Item is incorporated herein by reference to the information from our definitive proxy statement to be filed pursuant toRegulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K under the section entitled ExecutiveCompensation.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersSecurities Authorized for Issuance under Equity Compensation PlansOur Amended and Restated 2003 Stock Option Plan, or the 2003 Plan, and our 2012 Stock Option Plan, or the 2012 Plan, are our only equitycompensation plans approved by our stockholders. The following table sets forth certain information as of December 31, 2017 with respect to the 2003and 2012 Plans: Number of Securities tobe Issued Upon Exerciseof Outstanding Options Weighted-AverageExercise Price ofOutstanding Options Number of SecuritiesRemaining Available forFuture Issuance UnderEquity CompensationPlans (ExcludingSecurities Reflected inColumn (A)) Plan Category (A) (B) (C) Equity compensation plans approved bystockholders: 2003 Stock Option Plan 674,167 $4.31 — 2012 Stock Option Plan 3,177,968 5.30 303,928 Total: 3,852,135 $5.12 303,928 Equity compensation plans not approved bystockholders: Inducement Award 500,000 6.19 — Total: 500,000 $6.19 — Additional information in response to this Item is incorporated herein by reference to the information from our definitive proxy statement to be filedpursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K under the sectiontitled Stock Ownership.Item 13. Certain Relationships and Related Transactions, and Director IndependenceInformation in response to this Item is incorporated herein by reference to the information from our definitive proxy statement to be filed pursuant toRegulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K under the section titled CertainRelationships and Related Transactions and Information Regarding the Board of Directors and Corporate Governance.Item 14. Principal Accountant Fees and ServicesInformation in response to this Item is incorporated herein by reference to the information from our definitive proxy statement to be filed pursuant toRegulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K under the section titled IndependentRegistered Public Accounting Firm Fees and Other Matters. 87Table of ContentsPART IVItem 15. Exhibits, Financial Statement Schedules(1) Financial Statements:The Financial Statements required to be filed by Item 8 of this Annual Report on Form 10-K, and filed in this Item 15, are as follows: Page Balance Sheets as of December 31, 2017 and 2016 F-4 Statements of Operations for the Years Ended December 31, 2017, 2016, and 2015 F-5 Statements of Changes Stockholders’ Equity (Deficit) for the Years Ended December 31, 2017, 2016, and 2015 F-6-8 Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015 F-9 Notes to Financial Statements F-10 (2) Financial Statement Schedules:Schedules are omitted because they are not applicable, or are not required, or because the information is included in the financial statements andnotes thereto.(3) Exhibits: Exhibit No. Description of Document 2.1 Agreement and Plan of Merger among the Registrant (formerly “EasyWeb, Inc.”), ZIO Acquisition Corp. and ZIOPHARM, Inc.,dated August 3, 2005 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, SEC File No. 000-32353, filedAugust 9, 2005). 3.1 Amended and Restated Certificate of Incorporation, as filed with the Delaware Secretary of State on April 26, 2006(incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 000-32353, filedApril 26, 2006). 3.2 Certificate of Merger dated September 13, 2005, relating to the merger of ZIO Acquisition Corp. with and into ZIOPHARM, Inc.(incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K, SEC File No. 000-32353, filed September 19, 2005). 3.3 Certificate of Ownership of the Registrant (formerly “EasyWeb, Inc.”) dated as of September 14, 2005, relating the merger ofZIOPHARM, Inc. with and into the Registrant, and changing the Registrant’s corporate name from EasyWeb, Inc. toZIOPHARM Oncology, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Form 8-K, SEC File No. 000-32353,filed September 19, 2005). 3.4 Amended and Restated Certificate of Designation, Preferences and Rights of Series 1 Preferred Stock, as filed with the DelawareSecretary of State on July 1, 2016 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K/A,SEC File No. 001-33038, filed July 1, 2016). 3.5 Bylaws, as amended to date (incorporated by reference to Exhibit 3.3 to the Registrant’s Form 8-K, SEC File No. 000-32353,filed September 19, 2005). 4.1 Specimen common stock certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on FormSB-2, SEC File No. 333-129020, filed October 14, 2005). 4.2 Form of Indenture between the registrant and one or more trustees to be named (incorporated by reference to Exhibit 4.4 to theRegistrant’s Registration Statement on Form S-3ASR, SEC File No. 333-201826, filed February 2, 2015). 88Table of ContentsExhibit No. Description of Document 4.3 Form of Common Stock Warrant Agreement and Warrant Certificate (incorporated by reference to Exhibit 4.5 to the Registrant’sRegistration Statement on Form S-3ASR, SEC File No. 333-201826, filed February 2, 2015). 4.4 Form of Preferred Stock Warrant Agreement and Warrant Certificate (incorporated by reference to Exhibit 4.6 to the Registrant’sRegistration Statement on Form S-3ASR, SEC File No. 333-201826, filed February 2, 2015). 4.5 Form of Debt Securities Warrant Agreement and Warrant Certificate (incorporated by reference to Exhibit 4.7 to the Registrant’sRegistration Statement on Form S-3ASR, SEC File No. 333-201826, filed February 2, 2015). 4.6 Form of Option for the Purchase of Shares of common stock dated August 30, 2004 and issued to The University of Texas M. D.Anderson Cancer Center (incorporated by reference to Exhibit 4.6 to the Registrant’s Annual Report on Form 10-KSB, SEC File No.000-32353, filed March 20, 2006). 4.7 Schedule identifying Material Terms of Options for the Purchase of Shares of Common Stock (incorporated by reference to Exhibit4.7 to the Registrant’s Annual Report on Form 10-KSB, SEC File No. 000-32353, filed March 20, 2006).10.1 ZIOPHARM Oncology, Inc. Amended and Restated 2003 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to theRegistrant’s Annual Report on Form 10-K SEC File No. 001-33038 filed March 1, 2011).10.2 Form of Incentive Stock Option Agreement granted under the Registrant’s 2003 Stock Option Plan (incorporated by reference toExhibit 10.8 to the Registrant’s Annual Report on Form 10-KSB, SEC File No. 000-32353, filed March 20, 2006).10.3 Form of Employee Non-Qualified Stock Option Agreement granted under the Registrant’s 2003 Stock Option Plan (incorporated byreference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-KSB, SEC File No. 000-32353, filed March 20, 2006).10.4 Form of Director Non-Qualified Stock Option Agreement granted under the Registrant’s 2003 Stock Option Plan (incorporated byreference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-KSB, SEC File No. 000-32353, filed March 20, 2006).10.5 Form of Restricted Stock Agreement granted under the Registrant’s 2003 Stock Option Plan (incorporated by reference to Exhibit10.1 to the Registrant’s Current Report on Form 8-K SEC File No. 001-33038 filed December 18, 2007).10.6 ZIOPHARM Oncology, Inc. 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s CurrentReport on Form 8-K SEC File No. 001-33038 filed June 26, 2012).10.7 Form of Restricted Stock Agreement Granted Under the ZIOPHARM Oncology, Inc. 2012 Equity Incentive Plan (incorporated byreference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K SEC File No. 001-33038 filed June 26, 2012).10.8 Form of Option Agreement Granted Under the ZIOPHARM Oncology, Inc. 2012 Equity Incentive Plan (incorporated by reference toExhibit 10.3 to the Registrant’s Current Report on Form 8-K SEC File No. 001-33038 filed June 26, 2012).10.11+ Patent and Technology License Agreement dated August 24, 2004, among ZIOPHARM, Inc. (predecessor to the Registrant), theBoard of Regents of the University of Texas System on behalf of the University of Texas M.D. Anderson Cancer Center and theTexas A&M University System (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form SB-2,SEC File No. 333-129020, filed October 14, 2005). 89Table of ContentsExhibit No. Description of Document10.12+ Asset Purchase Agreement dated November 3, 2006 by and among Baxter Healthcare S.A., Baxter International, Inc., BaxterOncology GmbH and the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-QSB, SEC File No. 001-33038, filed November 13, 2006).10.13+ License Agreement dated November 3, 2006 by and among Baxter Healthcare S.A., Baxter International, Inc. and the Registrant(incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-QSB, SEC File No. 001-33038, filedNovember 13, 2006).10.14 Amendment to License Agreement dated September 24, 2009 by and among Baxter Healthcare S.A., Baxter International, Inc. andthe Registrant (incorporated by reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 17, 2010).10.15+ Exclusive Channel Partner Agreement by and between the Registrant and Intrexon Corporation dated as of January 6, 2011(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filedJanuary 12, 2011).10.16 First Amendment to Exclusive Channel Partner Agreement dated September 13, 2011 by and between the Registrant and IntrexonCorporation (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, SEC File No. 001-33038,filed May 3, 2012)10.17 Stock Purchase Agreement by and between the Registrant and Intrexon Corporation dated as of January 6, 2011 (incorporated byreference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed January 12, 2011).10.18 Amendment to Stock Purchase Agreement by and between the Registrant and Intrexon Corporation dated as of February 1, 2011(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filedFebruary 7, 2011).10.19 Registration Rights Agreement dated January 12, 2011 by and between the Registrant and Intrexon Corporation (incorporated byreference to Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K, SEC File No. 001-33038, filed March 1, 2011).10.20 Form of Indemnity Agreement for directors and executive officers (incorporated by reference to Exhibit 99.1 to the Registrant’sCurrent Report on Form 8-K, SEC File No. 001-33038, filed January 31, 2013).10.21 Letter Agreement by and among the Registrant, Intrexon Corporation and The University of Texas System Board of Regents onbehalf of The University of Texas M.D. Anderson Cancer Center dated as of January 9, 2015 (incorporated by reference to Exhibit10.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed January 14, 2015).10.22 Securities Issuance Agreement by and between the Registrant and The University of Texas System Board of Regents on behalf ofThe University of Texas M.D. Anderson Cancer Center dated as of January 13, 2015 (incorporated by reference to Exhibit 10.2 tothe Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed January 14, 2015).10.23 Securities Issuance Agreement by and between the Registrant and The University of Texas System Board of Regents on behalf ofThe University of Texas M.D. Anderson Cancer Center dated as of January 13, 2015 (incorporated by reference to Exhibit 10.3 tothe Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed January 14, 2015).10.24 Registration Rights Agreement by and between the Registrant and The University of Texas System Board of Regents on behalf ofThe University of Texas M.D. Anderson Cancer Center dated as of January 13, 2015 (incorporated by reference to Exhibit 10.4 tothe Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed January 14, 2015). 90Table of ContentsExhibit No. Description of Document10.25 License Agreement by and among the Registrant, Intrexon Corporation and The University of Texas System Board of Regents onbehalf of The University of Texas M.D. Anderson Cancer Center dated as of January 13, 2015 (incorporated by reference to Exhibit10.5 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed January 28, 2015).10.26+ License and Collaboration Agreement by and among the Registrant, Intrexon Corporation and ARES TRADING Trading S.A. datedas of March 27, 2015 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, SEC FileNo. 001-33038, filed April 2, 2015).10.27 Second Amendment to Exclusive Channel Partner Agreement by and between the Registrant and Intrexon Corporation dated as ofMarch 27, 2015 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, SEC FileNo. 001-33038, filed April 2, 2015).10.28 Employment Agreement by and between the Registrant and Laurence James Neil Cooper, M.D., Ph.D. dated as of May 5, 2015(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed May 7,2015).10.29 Amended and Restated Employment Agreement by and between the Registrant and Caesar J. Belbel dated as of June 1, 2015(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed June 2,2015).10.30 Research and Development Agreement by and among the Registrant, Intrexon Corporation and The University of Texas M.D.Anderson Cancer Center dated as of August 17, 2015 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Reporton Form 8-K, SEC File No. 001-33038, filed August 21, 2015).10.31 Exclusive Channel Collaboration Agreement by and between the Registrant and Intrexon Corporation dated September 28, 2015(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed October 1,2015).10.32 Third Amendment to Exclusive Channel Partner Agreement by and between the Registrant and Intrexon Corporation dated as ofJune 29, 2016 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038,filed June 30, 2016).10.33 Amendment to Exclusive Channel Collaboration Agreement by and between the Registrant and Intrexon Corporation dated as ofJune 29, 2016 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038,filed June 30, 2016).10.34 Securities Issuance Agreement by and between the Registrant and Intrexon Corporation dated as of June 29, 2016 (incorporated byreference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed June 30, 2016).10.35 Offer Letter by and between the Registrant and David Mauney, M.D., dated as of September 26, 2017 (incorporated by reference toExhibit 10.1 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed September 28, 2017).10.36 Severance Agreement by and between the Registrant and David Mauney, M.D., dated as of September 28, 2017 (incorporated byreference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, SEC File No. 001-33038, filed September 28, 2017).23.1 Consent of Independent Registered Public Accounting Firm24.1 Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K).31.1 Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302of the Sarbanes-Oxley Act of 2002. Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a),as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 91Table of ContentsExhibit No. Description of Document31.2 Certification of Chief Accounting Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2 Certification of Chief Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase DocumentItem 16. Form 10-K SummaryNot applicable. 92Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. ZIOPHARM ONCOLOGY, INC.Date: March 1, 2018 By: /s/ Laurence J.N. Cooper Laurence J.N. Cooper, M.D., Ph.D. Chief Executive Officer (Principal Executive Officer)Date: March 1, 2018 By: /s/ Kevin G. Lafond Kevin G. Lafond Senior Vice President, Chief Accounting Officer and Treasurer (PrincipalFinancial and Accounting Officer)KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Laurence J.N. Cooper andKevin G. Lafond, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, forhim or her, and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with allexhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact andagents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises herebyratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Title Date/s/ Laurence J.N. CooperLaurence J.N. Cooper, M.D., Ph.D. Chief Executive Officer (Principal Executive Officer) March 1, 2018/s/ Kevin G. LafondKevin G. Lafond Senior Vice President, Chief Accounting Officer andTreasurer (Principal Financial and Accounting Officer) March 1, 2018 /s/ Murray BrennanMurray Brennan Director March 1, 2018/s/ James CannonJames Cannon Director March 1, 2018/s/ Wyche Fowler, Jr.Wyche Fowler, Jr. Director March 1, 2018/s/ Randal J. KirkRandal J. Kirk Director March 1, 2018 93Table of ContentsSignature Title Date/s/ Scott TariffScott Tariff Director March 1, 2018/s/ Michael WeiserMichael Weiser Director March 1, 2018 94Table of ContentsZIOPHARM Oncology, Inc.INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm F-2 Balance Sheets as of December 31, 2017 and 2016 F-4 Statements of Operations for the Years Ended December 31, 2017, 2016, and 2015 F-5 Statements of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2017, 2016, and 2015 F-6-8 Statements of Cash Flows for the Years Ended December 31, 2017, 2016, and 2015 F-9 Notes to Financial Statements F-10 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Stockholders and the Board of Directors ofZIOPHARM Oncology, Inc.Boston, MAOpinions on the Financial Statements and Internal Control Over Financial ReportingWe have audited the accompanying balance sheets of ZIOPHARM Oncology, Inc. (the Company) as of December 31, 2017 and 2016, and the relatedstatements of operations, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2017, and therelated notes (collectively, the financial statements). We also have audited the Company’s internal control over financial reporting as of December 31,2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission in 2013.In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, inconformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in allmaterial respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.Emphasis of MatterThe accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 tothe financial statements, the Company has suffered recurring losses from operations. This raises substantial doubt about the Company’s ability tocontinue as a going concern. Management’s plans in regard to these matters also are described in Note 1. The financial statements do not include anyadjustments that might result from the outcome of this uncertainty.Basis for OpinionsThe Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for itsassessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on InternalControl over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’sinternal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company AccountingOversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securitieslaws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effectiveinternal control over financial reporting was maintained in all material respects.Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whetherdue to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regardingthe amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimatesmade by management, as well as evaluating the overall presentation of the financial F-2Table of Contentsstatements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on theassessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our auditsprovide a reasonable basis for our opinions.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could havea material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate./s/ RSM US LLPWe or our predecessor firms have served as the Company’s auditor since 2005.Boston, MassachusettsMarch 1, 2018 F-3Table of ContentsZIOPHARM Oncology, Inc.BALANCE SHEETS(in thousands, except share and per share data) December 31,2017 December 31,2016 ASSETS Current assets: Cash and cash equivalents $70,946 $81,053 Receivables 19 21 Prepaid expenses and other current assets 19,818 23,810 Total current assets 90,783 104,884 Property and equipment, net 1,211 843 Deposits 128 128 Other non-current assets 13,484 493 Total assets $105,606 $106,348 LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $4,417 $156 Accrued expenses 9,909 9,109 Deferred revenue - current portion 6,389 6,389 Deferred rent - current portion 141 155 Total current liabilities 20,856 15,809 Deferred revenue, net of current portion 35,139 41,528 Deferred rent, net of current portion 1 126 Derivative liabilities 2,424 862 Total liabilities 58,420 58,325 Commitments and contingencies (Note 7) Preferred stock, $0.001 par value, 30,000,000 shares authorized Series 1 preferred stock, $1,200 stated value; 250,000 designated; 119,644 and 106,184 shares issued andoutstanding at December 31, 2017 and respectively; liquidation value of $143.6 million and $127.4 millionat December 31, 2017 and 2016, respectively 143,992 125,321 Stockholders’ deficit: Common stock, $0.001 par value; 250,000,000 shares authorized; 142,658,037 and 132,376,670 sharesissued and outstanding at December 31, 2017 and 2016, respectively 143 132 Additional paid-in capital - common stock 615,493 580,567 Accumulated deficit (712,442) (657,997) Total stockholders’ deficit (96,806) (77,298) Total liabilities and stockholders’ deficit $105,606 $106,348 The accompanying notes are an integral part of these financial statements. F-4Table of ContentsZIOPHARM Oncology, Inc.STATEMENTS OF OPERATIONS(in thousands, except share and per share data) For the Year Ended December 31, 2017 2016 2015 Collaboration revenue $6,389 $6,861 $4,332 Operating expenses: Research and development 45,084 157,791 106,785 General and administrative 14,798 14,377 17,647 Total operating expenses 59,882 172,168 124,432 Loss from operations (53,493) (165,307) (120,100) Other income (expense), net 465 134 12 Change in fair value of derivative liabilities (1,295) (124) — Net loss $(54,323) $(165,297) $(120,088) Preferred stock dividends $(18,938) $(7,123) $— Net loss applicable to common stockholders $(73,261) $(172,420) $(120,088) Basic and diluted net loss per share $(0.53) $(1.32) $(0.96) Weighted average common shares outstanding used to compute basic anddiluted net loss per share 136,938,264 130,391,463 125,416,084 The accompanying notes are an integral part of these financial statements. F-5Table of ContentsZIOPHARM Oncology, Inc.STATEMENTS OF CHANGES IN PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)(in thousands, except share and per share data) Series 1 PreferredStock-Mezzanine Common Stock AdditionalPaid-inCapitalCommonStock AccumulatedDeficit TotalStockholders’Equity (Deficit) Shares Amount Shares Amount Balance at December 31, 2014 — $— 104,452,105 $104 $406,349 $(372,612) $33,841 Stock-based compensation — — — — 7,997 — 7,997 Exercise of employee stock options — — 2,519,267 3 4,566 — 4,568 Issuance of restricted common stock — — 1,590,574 2 (2) — — Repurchase of shares of restricted common stock — — (61,819) — (518) — (518) Repurchase of common stock — — (3,711) — (34) — (34) Issuance of common stock, net of commissions andexpenses of $6,305 — — 11,500,000 12 94,309 — 94,320 Issuance of common stock in licensing agreement — — 11,722,163 12 67,273 — 67,285 Net loss — — — — — (120,088) (120,088) Balance at December 31, 2015 — $— 131,718,579 $132 $579,939 $(492,700) $87,371 F-6Table of ContentsZIOPHARM Oncology, Inc.STATEMENTS OF CHANGES IN PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (Cont.)(in thousands, except share and per share data) Series 1 PreferredStock-Mezzanine Common Stock AdditionalPaid InCapitalCommonStock AccumulatedDeficit TotalStockholders’Equity (Deficit) Shares Amount Shares Amount Exercise of employee stock options — — 189,696 2 712 — 714 Stock-based compensation — — — — 8,452 — 8,452 Issuance of restricted common stock 711,770 712 (712) — — Issuance of common stock in a license agreement — — 87 — 87 Repurchase of common stock — — (243,207) (2) (1,498) — (1,500) Stock buy-back — — (168) — (2) — (2) Issuance of Series 1 Preferred Stock in a licenseagreement with Intrexon, net of issuance costs of$109 100,000 118,242 — — — — — Preferred stock dividends 6,184 7,079 — — (7,123) — (7,123) Net loss — — — — — (165,297) (165,297) Balance at December 31, 2016 106,184 $125,321 132,376,670 $132 $580,567 $(657,997) $(77,298) F-7Table of ContentsZIOPHARM Oncology, Inc.STATEMENTS OF CHANGES IN PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (Cont.)(in thousands, except share and per share data) Series 1 PreferredStock-Mezzanine Common Stock AdditionalPaid InCapitalCommonStock AccumulatedDeficit TotalStockholders’Equity (Deficit) Shares Amount Shares Amount Cumulative effect adjustment(Note 3) — — — — 122 (122) — Exercise of stock options — — 59,864 1 87 — 88 Stock-based compensation — — — — 8,454 — 8,454 Issuance of restricted common stock — — 907,032 1 (1) — — Repurchase of common stock — — (394,267) (1) (2,058) — (2,059) Issuance of common stock, net of commissions andexpenses of $2.7 million — — 9,708,738 10 47,260 — 47,270 Preferred stock dividends 13,460 18,672 — — (18,938) — (18,938) Net loss — — — — — (54,323) (54,323) Balance at December 31, 2017 119,644 $143,993 142,658,037 $143 $615,493 $(712,442) $(96,806) F-8Table of ContentsZIOPHARM Oncology, Inc.STATEMENTS OF CASH FLOWS(in thousands) For the Year Ended December 31, 2017 2016 2015 Cash flows from operating activities: Net loss $(54,323) $(165,297) $(120,088) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 369 290 357 Stock-based compensation 8,454 8,452 7,997 Common stock issued in exchange for license agreement — — 67,285 Preferred stock issued in exchange for 2016 ECP amendment — 118,936 — Change in fair value of derivative liabilities 1,295 124 Issuance of common stock in a license agreement — 87 — Change in operating assets and liabilities: (Increase) decrease in: Receivables 2 425 (301) Prepaid expenses and other current assets 3,992 (12,452) (10,214) Other noncurrent assets (12,991) — (3) Increase (decrease) in: Accounts payable 4,261 (1,852) 4 Accrued expenses 800 203 1,724 Deferred revenue (6,389) (6,861) 53,418 Deferred rent (139) (380) (189) Net cash used in operating activities (54,669) (58,325) (10) Cash flows from investing activities: Purchases of property and equipment (737) (551) (412) Net cash used in investing activities (737) (551) (412) Cash flows from financing activities: Proceeds from exercise of stock options 88 714 4,568 Issuance of restricted common stock (2,059) (1,500) (518) Repurchase of common stock — (2) (34) Proceeds from issuance of common stock, net 47,270 — 94,320 Net cash provided by (used in) financing activities 45,299 (788) 98,336 Net decrease in cash and cash equivalents (10,107) (59,664) 97,914 Cash and cash equivalents, beginning of period 81,053 140,717 42,803 Cash and cash equivalents, end of period $70,946 $81,053 $140,717 Supplementary disclosure of cash flow information: Cash paid for interest $— $— $— Cash paid for income taxes $— $— $— Supplementary disclosure of noncash investing and financing activities: Issuance of common stock in license agreement $— $— $67,285 Series 1 preferred stock issued as consideration for a license agreement $— $119,045 $— Payment of Series 1 preferred stock dividends in preferred stock $18,938 $7,123 $— The accompanying notes are an integral part of these financial statements. F-9Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 1. Organization and Going ConcernZIOPHARM Oncology, Inc., which is referred to herein as “ZIOPHARM,” the “Company,” or “we”, is a biopharmaceutical company seeking todevelop, acquire, and commercialize, on its own or with partners, a diverse portfolio of immuno-oncology therapies.The Company’s operations to date have consisted primarily of raising capital and conducting research and development. The Company’s fiscal yearends on December 31.The Company has operated at a loss since its inception in 2003 and has minimal revenues. The Company anticipates that losses will continue for theforeseeable future. At December 31, 2017, the Company’s accumulated deficit was approximately $712.4 million. Given its current development plans,the Company anticipates cash resources will be sufficient to fund operations into the fourth quarter of 2018. The Company’s ability to continueoperations after its current cash resources are exhausted depends on its ability to obtain additional financing or to achieve profitable operations, as towhich no assurances can be given. Cash requirements may vary materially from those now planned because of changes in the Company’s focus anddirection of its research and development programs, competitive and technical advances, patent developments, regulatory changes or otherdevelopments. Additional financing will be required to continue operations after the Company exhausts its current cash resources and to continue itslong-term plans for clinical trials and new product development (Note 3).As of December 31, 2017, the Company had approximately $70.9 million of cash and cash equivalents. Given its development plans, the Companyanticipates cash resources will be sufficient to fund its operations into the fourth quarter of 2018 and the Company has no committed sources ofadditional capital. The forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of theCompany’s expenses could vary materially and adversely as a result of a number of factors. The Company has based its estimates on assumptions thatmay prove to be wrong, and the Company’s expenses could prove to be significantly higher than currently anticipated. Management does not knowwhether additional financing will be on terms favorable or acceptable to the Company when needed, if at all. If adequate additional funds are notavailable when required, or if the Company is unsuccessful in entering into partnership agreements for further development of its products,management may need to curtail development efforts. Based on the forecast, management determined that there is substantial doubt regarding ourability to continue as a going concern. 2. FinancingsOn February 3, 2015, the Company entered into an underwriting agreement with J.P. Morgan Securities LLC, as representative of the severalunderwriters named therein, relating to the issuance and sale of 10,000,000 shares of its common stock. The price to the public in the offering was$8.75 per share, and the underwriters agreed to purchase the shares from the Company pursuant to the underwriting agreement at a purchase price of$8.225 per share. Under the terms of the underwriting agreement, the Company also granted the underwriters an option, exercisable for 30 days, topurchase up to an additional 1,500,000 shares of common stock at a purchase price of $8.225 per share. The offering was made pursuant to theCompany’s registration statement on Form S-3 (SEC File No. 333-201826) previously filed with the SEC, and a prospectus supplement thereunder. Theunderwriters purchased the 10,000,000 shares and the additional 1,500,000 shares on February 9 and February 17, 2015, respectively. The net proceedsfrom the offering were approximately $94.3 million after deducting underwriting discounts and estimated offering expenses paid by the Company.On May 11, 2017, the Company sold in an underwritten offering an aggregate of 9,708,738 shares of its common stock to a single investor. The priceto the investor in the offering was $5.15 per share, and the underwriters F-10Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 2. Financings (Continued) agreed to purchase the shares from the Company pursuant to the underwriting agreement at a purchase price of $4.893 per share. The offering was madepursuant to the Company’s registration statement on Form S-3ASR (File No. 333-201826) previously filed with the SEC, and a prospectus supplementthereunder. The net proceeds from the offering were approximately $47.3 million after deducting underwriting commissions and estimated offeringexpenses payable by the Company. 3. Summary of Significant Accounting PoliciesBasis of PresentationThe accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States ofAmerica or U.S. GAAP.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although theCompany regularly assesses these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in whichthey become known.The Company’s most significant estimates and judgments used in the preparation of our financial statements are: • Clinical trial expenses; • Collaboration agreements; • Fair value measurements of stock-based compensation and Series 1 preferred stock (and related dividends); and • Income taxes.Subsequent EventsThe Company evaluated all events and transactions that occurred after the balance sheet date through the date of this filing. During this period, theCompany did not have any material subsequent events that impacted its financial statements or disclosures.Cash and Cash EquivalentsCash equivalents consist primarily of demand deposit accounts and deposits in short-term U.S. treasury money market mutual funds. Cash equivalentsare stated at cost, which approximates fair market value.Concentrations of Credit RiskFinancial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. TheCompany maintains cash accounts in commercial banks, which may, at times, exceed federally insured limits. The Company has not experienced anylosses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents. F-11Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 3. Summary of Significant Accounting Policies (Continued) Property and EquipmentProperty and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to expense while the costs of significantimprovements are capitalized. Depreciation is provided using the straight-line method over the following estimated useful lives of the related assets,which is between three and five years. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation areeliminated from the balance sheets and related gains or losses are reflected in the statements of operations.Restricted CashRestricted cash consists of $388 thousand, which is restricted as collateral for the Company’s facility leases and included in current assets, and$104 thousand, which is restricted as collateral for a line of credit and is included in other assets.Long-Lived AssetsThe Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate thatthe carrying amounts of the assets may not be recoverable. Any long-lived assets held for disposal are reported at the lower of their carrying amounts orfair values less costs to sell.Operating SegmentsOperating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by thechief operating decision maker, the Company’s Chief Executive Officer, in making decisions regarding resource allocation and assessing performance.The Company views its operations and manages its business in one operating segment and does not track expenses on a program-by-program basis.Fair Value MeasurementsThe Company has certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair valuehierarchy as described in the accounting standards for fair value measurements. • Level 1—Quoted prices in active markets for identical assets or liabilities. • Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data forsubstantially the full term of the assets or liabilities. • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets orliabilities. F-12Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 3. Summary of Significant Accounting Policies (Continued) Assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016 are as follows: ($ in thousands) Fair Value Measurements at Reporting Date Using Description Balance as ofDecember 31,2017 Quoted Prices inActive Markets forIdenticalAssets/Liabilities(Level 1) Significant OtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Cash equivalents $66,156 $66,156 $— $— Derivative liabilities $(2,424) $— $— $(2,424) ($ in thousands) Fair Value Measurements at Reporting Date Using Description Balance as ofDecember 31,2016 Quoted Prices inActive Markets forIdenticalAssets/Liabilities(Level 1) Significant OtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Cash equivalents $77,120 $77,120 $— $— Derivative liabilities $(862) $— $— $(862) The cash equivalents represent deposits in a short term United States treasury money market mutual fund quoted in an active market and classified as aLevel 1 asset.As discussed further in Notes 7 and 9, the Company issued Intrexon 100,000 shares of the Company’s Series 1 preferred stock, a new class of preferredstock authorized by the Company’s board of directors, in consideration of the parties entering into a Third Amendment to Exclusive Channel PartnerAgreement, or the 2016 ECP Amendment, amending their existing Exclusive Channel Partner Agreement, effective January 6, 2011 and as amended todate, which the Company refers to as the Channel Agreement, and an Amendment to Exclusive Channel Collaboration Agreement, or the 2016 GvHDAmendment, amending their existing Exclusive Channel Collaboration Agreement, effective September 28, 2015, which the Company refers to as theGvHD Agreement.At June 30, 2016, the Company’s Series 1 preferred stock was valued using a probability-weighted approach and a Monte Carlo simulation model.Additionally, the monthly dividends issued on the outstanding Series 1 preferred stock are valued using the same probability-weighted approach and aMonte Carlo simulation model. However, there is no adjustment or further revaluation after the initial valuation on the Series 1 preferred stock.The Company’s Level 3 financial liabilities consist of a conversion option and a redemption feature associated with the Company’s Series 1 preferredstock issued to Intrexon that has been bifurcated from the Series 1 preferred stock and are accounted for as derivative liabilities at fair value. Thepreferred stock derivative liabilities were valued using a probability-weighted approach and a Monte Carlo simulation model. The fair value of theembedded derivatives was estimated using the “with” and “without” method where the preferred stock was first valued with all of its features (“with”scenario) and then without derivatives subject to the valuation analysis (“without” scenario). The fair value of the derivatives was then estimated as thedifference between the fair value of the preferred stock in the “with” scenario and the preferred stock in the “without” scenario. See Note 7 foradditional disclosures on the 2016 ECP Amendment and 2016 GvHD Amendment and Note 9 for additional disclosure on the rights and preferences ofthe Series 1 preferred stock and valuation methodology. F-13Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 3. Summary of Significant Accounting Policies (Continued) Revenue Recognition from Collaboration AgreementsThe Company has primarily generated revenue through collaboration arrangements with strategic partners for the development and commercializationof product candidates. The Company recognizes revenue for each unit of accounting when evidence of an arrangement exists, delivery has occurred orservices have been rendered, the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured.The Company’s collaboration agreements may provide for various types of payments, including upfront payments, funding of research anddevelopment, milestone payments, licensing fees and product royalties. The specifics of the Company’s significant agreements are detailed in Note 7.The Company considers a variety of factors in determining the appropriate method of accounting for its collaboration agreements, including whethermultiple deliverables can be separated and accounted for individually as separate units of accounting. Pursuant to the guidance in FASB AccountingStandards Codification (ASC) 605-25, Multiple-Element Arrangements (ASC 605-25), the Company evaluates multiple-element arrangements todetermine whether the individual deliverables represent separate units of accounting or whether they must be accounted for as a combined unit ofaccounting. This evaluation involves subjective determinations and requires management to make judgments about the individual deliverables andwhether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accountingprovided that: (i) the delivered item(s) has value to the customer on a standalone basis and (ii) if the arrangement includes a general right of returnrelative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of theCompany. In assessing whether an item has standalone value, the Company considers factors such as the research, manufacturing andcommercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, theCompany considers whether the collaboration partner can use the other deliverable(s) for their intended purpose without the receipt of the remainingelement(s), whether the value of the deliverable is dependent on the undelivered item(s) and whether there are other vendors that can provide theundelivered element(s). The Company’s collaboration arrangements do not contain a general right of return relative to the delivered item(s).Where there are multiple deliverables within a collaboration agreement that cannot be separated and therefore are combined into a single unit ofaccounting, revenues are deferred and recognized over the estimated period of performance, which is typically the development term. If thedeliverables can be separated, the Company applies the relevant revenue recognition guidance to each individual unit of accounting. The specificmethodology for the recognition of the underlying revenue is determined on a case-by-case basis according to the facts and circumstances applicableto each agreement. Generally, the Company has accounted for its collaboration agreements as a single unit of accounting.At the inception of an arrangement that includes milestone payments, the Company evaluates whether each milestone is substantive and at risk to bothparties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether: (i) the consideration is commensuratewith either the Company’s performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specificoutcome resulting from the Company’s performance to achieve the milestone, (ii) the consideration relates solely to past performance and (iii) theconsideration is reasonable relative to all of the deliverables and payment terms within the arrangement. The Company evaluates factors such as thescientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the respective milestone and the level of effort andinvestment required to achieve the respective milestone in making this assessment. There is considerable F-14Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 3. Summary of Significant Accounting Policies (Continued) judgement involved in determining whether a milestone satisfies all of the criteria required to conclude that a milestone is substantive. In accordancewith FASB ASC 605-28, Milestone Method (ASC 605-28), revenue from substantive milestone payments is recognized in its entirety in the period inwhich the milestone is achieved, assuming all other revenue recognition criteria are met. Payments from milestones that are not considered substantivepayment is deferred and recognized as revenue over the estimated remaining period of performance under the contract as the Company completes itsperformance obligations assuming all other revenue recognition criteria are met. Revenue from commercial milestone payments is accounted for asroyalties and recorded as revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met. Royalties are recognizedas earned in accordance with the terms of various research and collaboration agreements.Research and Development CostsResearch and development expenditures are charged to the statement of operations as incurred. Such costs include proprietary research anddevelopment activities, purchased research and development, and expenses associated with research and development contracts, whether performed bythe Company or contracted with independent third parties.Income TaxesIncome taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequencesof temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered orsettled. The Company evaluates the realizability of its deferred tax assets and establishes a valuation allowance when it is more likely than not that allor a portion of deferred tax assets will not be realized.The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. Theevaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken orexpected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances relatedto a tax position. The Company evaluates this tax position on an annual basis. The Company also accrues for potential interest and penalties, related tounrecognized tax benefits in income tax expense (see Note 8).Accounting for Stock-Based CompensationStock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over theemployee’s requisite service period. Stock-based compensation expense is based on the number of awards ultimately expected to vest and is thereforereduced for an estimate of the awards that are expected to be forfeited prior to vesting. Consistent with prior years, the Company uses the Black-Scholesoption pricing model which requires estimates of the expected term option holders will retain their options before exercising them and the estimatedvolatility of the Company’s common stock price over the expected term.The Company recognizes the full impact of its share-based employee payment plans in the statements of operations for each of the years endedDecember 31, 2017, 2016, and 2015 and did not capitalize any such costs on the balance sheets. The Company recognized $2.5 million, $3.0 million,and $5.3 million of compensation F-15Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 3. Summary of Significant Accounting Policies (Continued) expense related to vesting of stock options during the years ended December 31, 2017, 2016, and 2015, respectively. In the years ended December 31,2017, 2016, and 2015, the Company recognized $6.0 million, $5.5 million, and $2.7 million of compensation expense, respectively, related to vestingof restricted stock (see Note 11). The total compensation expense relating to vesting of stock options and restricted stock awards for the years endedDecember 31, 2017, 2016, and 2015 was $8.5 million, $8.5 million, and $8.0 million, respectively. The following table presents share-basedcompensation expense included in the Company’s Statements of Operations: Year ended December 31, (in thousands) 2017 2016 2015 Research and development $2,401 $2,077 $1,403 General and administrative 6,053 6,375 6,594 Share based employee compensation expense before tax 8,454 8,452 7,997 Income tax benefit — — — Net share based employee compensation expense $8,454 $8,452 $7,997 The fair value of each stock option is estimated at the date of grant using the Black-Scholes option pricing model. The estimated weighted-average fairvalue of stock options granted to employees in 2017, 2016, and 2015 was approximately $3.94, $4.43, and $10.47 per share, respectively.Assumptions regarding volatility, expected term, dividend yield and risk-free interest rate are required for the Black-Scholes model. The volatilityassumption is based on the Company’s historical experience. The risk-free interest rate is based on a U.S. treasury note with a maturity similar to theoption award’s expected life. The expected life represents the average period of time that options granted are expected to be outstanding. TheCompany calculated expected term using the simplified method described in SEC Staff Accounting Bulletin, or SAB, No. 107 and No. 110 as itcontinues to meet the requirements promulgated in SAB No. 110. The assumptions for volatility, expected life, dividend yield and risk-free interest rateare presented in the table below: 2017 2016 2015Weighted average risk-free interest rate 1.85 - 2.27% 1.27 - 2.09% 1.46 - 1.93%Expected life in years 6 6 6Expected volatility 80.31 - 81.03% 79.15 - 82.95% 79.13 - 86.81%Expected dividend yield 0 0 0Net Loss Per ShareBasic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. TheCompany’s potentially dilutive shares, which include outstanding common stock options, unvested restricted stock and preferred stock, have not beenincluded in the computation of diluted net loss per share for any of the periods presented as the result would be antidilutive. Such potential commonshares at December 31, 2017, 2016, and 2015 consist of the following: December 31, 2017 2016 2015 Stock options 4,352,135 3,465,335 3,481,468 Unvested restricted stock 1,808,559 1,680,492 1,586,388 Preferred stock 34,134,524 20,465,067 — 40,295,218 25,610,894 5,067,856 F-16Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 3. Summary of Significant Accounting Policies (Continued) The Series 1 preferred stock automatically converts into shares of common stock upon the date the first approval in the United States of (i) aZIOPHARM Product, as defined in and developed under the Exclusive Channel Partner Agreement dated as of January 6, 2011 and as amended fromtime to time, by and between the Company and Intrexon (now Precigen), or (ii) a Product, as defined in and developed under the Exclusive ChannelCollaboration Agreement dated September 28, 2015 and as amended from time to time, by and between the Company and Intrexon (now Precigen), or(iii) a Product as defined in and developed under the License and Collaboration Agreement dated March 27, 2015 and as amended from time to time,by and among Intrexon (now Precigen), ARES TRADING, S.A. and the Company, is publicly announced. Assuming a conversion event date ofDecember 31, 2017, the Series 1 preferred stock would convert into 34,134,524 shares of common stock using the greater of (i) the volume weightedaverage closing price of the Company’s Common Stock as reported by the Nasdaq Stock Market, LLC over previous the 20 trading days ending on theconversion event date or (ii) $1.00 per share. See Note 7 and Note 9 for additional disclosure regarding the 2016 ECP Amendment and 2016 GvHDAmendment, valuation methodology and significant assumptions.New Accounting PronouncementsIn May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) to provide updated guidance on revenuerecognition. ASU 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount thatreflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies may need to usemore judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract,estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performanceobligation. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, whichdeferred the effective date of ASU 2014-09 by one year. Accordingly, ASU 2014-09 is effective for public business entities for annual reporting periodsbeginning after December 15, 2017, including interim reporting periods within each annual reporting period. In March 2016, the FASB issued ASUNo. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross Versus Net),which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, Revenue fromContracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies certain aspects of identifying performanceobligations and licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic606): Narrow-Scope Improvements and Practical Expedients, which relates to disclosures of remaining performance obligations, as well as otheramendments to guidance on collectability, non-cash consideration, and the presentation of sales and other similar taxes collected from customers.Collectively these amendments are referred to as “ASC 606”.ASC 606 clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP and International FinancialReporting Standards, or IFRS. This standard removes inconsistencies and weaknesses between U.S. GAAP and IFRS in revenue requirements, providesa more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries,jurisdictions, and capital markets, provides more useful information to users of financial statements through improved disclosure requirements, andsimplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. This update is effective forannual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted this standard usingthe modified retrospective approach on January 1, 2018. The Company has substantially completed our assessment and the implementation resulted ina cumulative effect adjustment to accumulated deficit as of F-17Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 3. Summary of Significant Accounting Policies (Continued) January 1, 2018 of approximately $8.1 million and a corresponding increase to the contract liability (formerly deferred revenue). The adjustment isrelated to the Company’s Ares Trading License and Collaboration Agreement (Note 7), which is the Company’s sole contract outstanding at January 1,2018 (Note 3). The Company has a full valuation allowance so there will be no effect on incomes taxes as a result of this adoption.The Company will recognize collaboration revenue under certain of the Company’s license or collaboration agreements that are within the scope ofASC 606. The terms of these agreements may contain multiple performance obligations, which may include licenses and research and developmentactivities. The Company evaluates these agreements under ASC 606 to determine the distinct performance obligations.Prior to recognizing revenue, the Company makes estimates of the transaction price, including variable consideration that are subject to a constraint.Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount ofcumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Variableconsideration may include nonrefundable upfront license fees, payments for research and development activities, reimbursement of certain third-partycosts, payments based upon the achievement of specified milestones, and royalty payments based on product sales derived from the collaboration.If there are multiple distinct performance obligations, including material rights, the Company allocates the transaction price to each distinctperformance obligation based on its relative standalone selling price. The standalone selling price is generally determined based on the prices chargedto customers or using expected cost plus margin. Revenue is recognized by measuring the progress toward complete satisfaction of the performanceobligations using an input measure, in accordance with ASC-340-40, Other Assets and Deferred Costs: Contracts with Customers.As it relates to the Ares Trading License and Collaboration Agreement (Note 7), the Company determined that there were three performanceobligations; the first performance obligation consists of the license and research development services and the other two performance obligations arematerial rights as it relates to potential future targets that have not yet been identified. The transaction price of $57.5 million was allocated to theperformance obligations based on their relative standalone selling prices.In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or ASU 2016-02. The guidance in this ASU supersedes the leasing guidancein Leases (Topic 840). Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases withterms longer than 12 months. Leases will be classified as either finance leases or operating leases, with classification affecting the pattern of expenserecognition in the statement of operations. The new standard is effective for annual reporting periods beginning after December 15, 2018, includinginterim reporting periods within each annual reporting period. The Company is currently evaluating the impact of the adoption of this ASU on thefinancial statements.In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-BasedAccounting, or ASU 2016-09, to require changes to several areas of employee share-based payment accounting in an effort to simplify share-basedreporting. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods within eachannual reporting period. The Company adopted this standard on January 1, 2017. The update revises requirements in the following areas: minimumstatutory withholding, accounting for income taxes, and forfeitures. Prior to adoption, the Company recognized share-based compensation, net ofestimated forfeitures, over the vesting period of the grant. Upon adoption of ASU 2016-09, the Company elected to change its F-18Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 3. Summary of Significant Accounting Policies (Continued) accounting policy to recognize forfeitures as they occur. The new forfeiture policy election was adopted using a modified retrospective approach witha cumulative effect adjustment recorded to retained earnings as of January 1, 2017. The update requires the Company to recognize the income taxeffect of awards in the income statement when the awards vest or are settled. It also allows the Company to repurchase more of an employee’s sharesthan it can today for tax withholding purposes without triggering a liability. The income tax related items had no effect on the current periodpresentation and the Company maintains a full valuation allowance against its deferred tax assets.In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, or ASU 2016-15, to address howcertain cash receipts and cash payments are presented and classified in the statement of cash flows in an effort to reduce existing diversity in practice.The update includes eight specific cash flow issues and provides guidance on the appropriate cash flow presentation for each. ASU 2016-15 is effectivefor annual reporting periods beginning after December 15, 2017, including interim reporting periods within each annual reporting period. TheCompany is currently evaluating the impact of the adoption of this ASU on the financial statements.In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, or ASU 2016-18, to clarify how entitiesshould present restricted cash and restricted cash equivalents in the statement of cash flows. Under this new update, entities are required to show thechanges in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flows. This guidance will beapplied retrospectively and is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods withineach annual reporting period. The Company is currently evaluating the impact of the adoption of this ASU on the financial statements and does notexpect there to be a material impact on the financial statements.In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, or ASU2017-09, to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under this new guidance,modification accounting is required if the fair value, vesting conditions, or classification of the award changes as a result of the change in terms orconditions. ASU 2017-09 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within eachannual reporting period. The Company does not expect the adoption of this guidance to have a material impact on the financial statements. 4. Property and Equipment, netProperty and equipment, net, consists of the following: December 31, (in thousands) 2017 2016 Office and computer equipment $1,215 $1,162 Software 913 907 Leasehold improvements 1,553 1,158 Research and development equipment 1,161 878 4,842 4,105 Less: accumulated depreciation (3,631) (3,262) Property and equipment, net $1,211 $843 F-19Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 4. Property and Equipment, net (Continued) Depreciation charged to the statement of operations for the years ended December 31, 2017, 2016, and 2015 was $369 thousand, $290 thousand and$357 thousand, respectively. 5. Accrued ExpensesAccrued expenses consist of the following: December 31, (in thousands) 2017 2016 Clinical consulting services $3,022 $2,342 Preclinical services 2,210 2,693 Employee compensation 1,919 1,446 Payroll taxes and benefits 1,017 646 Manufacturing services 902 1,116 Accrued vacation 361 294 Professional services 256 488 Other consulting services 222 28 Accrued rent — 56 Total $9,909 $9,109 6. Related Party TransactionsCollaborations with Intrexon/ PrecigenOn January 6, 2011, the Company entered into the Channel Agreement with Intrexon (now Precigen) (Note 7). A director of the Company, Randal J.Kirk, is the chief executive officer, a director, and the largest stockholder of Intrexon.On February 3, 2015, Intrexon purchased 1,440,000 shares of common stock in the Company’s public offering upon the same terms as others thatparticipated in the offering.On March 27, 2015, the Company and Intrexon (now Precigen) entered into a Second Amendment to the Exclusive Channel Partner Agreementamending the Channel Agreement, which is referred to as the ECP Amendment. The ECP Amendment modified the scope of the parties’ collaborationunder the Channel Agreement in connection with the Ares Trading Agreement, which the Company and Intrexon (now Precigen) entered into with AresTrading, on March 27, 2015. The ECP Amendment provided that Intrexon (now Precigen) will pay to the Company 50% of all payments that Precigenreceives for upfronts, milestones and royalties under the Ares Trading Agreement (Note 7). The Amendment also reduces Intrexon’s aggregatecommitment under a Stock Purchase Agreement that the parties executed in connection with the initial Channel Agreement to purchase the Company’scommon stock from $50.0 million to $43.5 million, which has been satisfied.On June 29, 2015, the Company re-purchased 3,711 shares of common stock from Intrexon, at a discount of 5% to the closing price of the Company’scommon stock on the date of purchase, which represented fractional shares that resulted from Intrexon’s special stock dividend of the Company’sshares to Intrexon’s shareholders, for $34 thousand. On January 8, 2016, the Company re-purchased an additional 168 shares of common stock fromIntrexon for $2 thousand at the same terms as the previous share purchase. F-20Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 6. Related Party Transactions (Continued) On September 28, 2015, the Company entered into the GvHD Agreement with Precigen, whereby the Company was granted the right to use Precigen’stechnology directed towards in vivo expression of biologics to research, develop and commercialize products for use in the treatment or prevention ofgraft-versus-host disease, or GvHD (Note 7). The Company paid Precigen a technology access fee of $10.0 million in cash in October 2015 and agreedto reimburse Precigen for all research and development costs under the GvHD Agreement.On June 29, 2016, the Company entered into the 2016 ECP Amendment, with Intrexon (now Precigen), amending the Channel Agreement, and the2016 GvHD Amendment, amending their existing Exclusive Channel Collaboration Agreement, effective September 28, 2015, which the Companyrefers to as the GvHD Agreement. The 2016 ECP Amendment reduced the royalty percentage that the Company will pay to Intrexon (now Precigen)under the Channel Agreement on a quarterly basis from 50% to 20% of net profits derived in that quarter from the sale of ZIOPHARM Products (asdefined in the Channel Agreement), calculated on a ZIOPHARM Product-by-ZIOPHARM Product basis, subject to certain expense allocations andother offsets provided in the Channel Agreement. The 2016 GvHD Amendment reduced the royalty percentage that the Company would pay toIntrexon (now Precigen) under the GvHD Agreement on a quarterly basis from 50% to 20% of net profits derived in that quarter from the sale ofProducts (as defined in the GvHD Agreement), subject to certain expense allocations and other offsets provided in the GvHD Agreement. Thereductions in the royalty percentages provided by the 2016 ECP Amendment and the 2016 GvHD Amendment do not apply to sublicensing revenue orroyalties under the Channel Agreement and GvHD Agreement, nor do they apply to any royalties or other payments made with respect to sublicensingrevenue from the Company’s existing collaboration with Merck Serono, the biopharmaceutical business of Merck KGaA.In consideration for the execution and delivery of the 2016 ECP Amendment and the 2016 GvHD Amendment, the Company issued Intrexon 100,000shares of its Series 1 preferred stock. Each share of the Company’s Series 1 preferred stock has a stated value of $1,200, subject to appropriateadjustment in the event of any stock dividend, stock split, combination or other recapitalization, and certain other rights, preferences, privileges andobligations (Note 8). The holders of the shares of Series 1 preferred stock are entitled to receive a monthly dividend, payable in additional shares ofSeries 1 preferred stock, equal to $12.00 per preferred share held by such holder per month divided by the stated value of the preferred shares, roundeddown to the nearest whole share.During the year ended December 31, 2017, the Company issued an aggregate of 13,460 shares of Series 1 preferred stock to Intrexon, the holder of allof the outstanding shares of the Company’s Series 1 preferred stock, as monthly dividend payments. The Company recorded such shares of Series 1preferred stock at a fair value of $18.9 million, which is a component of temporary equity and recorded a loss on the change of the derivative liabilitiesin the amount of $1.3 million. See Notes 4 and 8 for additional discussion regarding the accounting for and valuation of these derivative financialinstruments.During the years ended December 31, 2017, 2016, and 2015, the Company expensed $21.4 million, $22.2 million, and $16.3 million, respectively, forservices performed by Intrexon. As of December 31, 2017 and 2016, the Company recorded $6.8 million and $3.4 million, respectively, in currentliabilities on its balance sheet for amounts due to Intrexon.Collaboration with Precigen and MD AndersonOn January 13, 2015, the Company, together with Intrexon (now Precigen), entered into a license agreement with MD Anderson, which is referred to asthe MD Anderson License. Pursuant to the MD Anderson License, the F-21Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 6. Related Party Transactions (Continued) Company and Precigen hold an exclusive, worldwide license to certain technologies owned and licensed by MD Anderson, including technologiesrelating to novel CAR+ T-cell therapies arising from the laboratory of Laurence Cooper, M.D., Ph.D., who is now the Company’s Chief ExecutiveOfficer and was formerly a professor of pediatrics at MD Anderson and now currently a visiting scientist under that institution’s policies, as well aseither co-exclusive or non-exclusive licenses under certain related technologies. In partial consideration for entering into the MD Anderson License,the Company issued MD Anderson an aggregate of 11,722,163 shares of common stock for which the Company incurred a $67.3 million chargerecorded in 2015. The Company has determined that the rights acquired in the MD Anderson License represent in-process research and developmentwith no alternative future use. During the year ending December 31, 2017, the Company made four quarterly payments totaling $13.0 million, bringingthe total aggregate payments to $39.2 million under this arrangement. Subsequent to the balance sheet date, the Company made the final payment of$2.7 million bringing our total prepayment to $34.6 million for programs to be conducted at MD Anderson. 7. Commitments and ContingenciesOperating LeasesPrior to December 31, 2012, the Company entered into an operating lease in New York, NY for office space. In accordance with this agreement, theCompany entered into a letter of credit in the amount of $388 thousand, naming the Company’s landlord as beneficiary. In January 2012, the Companyamended the lease agreement, adding additional office space. The collateral for the letter of credit is restricted cash and recorded in other current assetson the balance sheet as of December 31, 2017. The collateral for the letter of credit was recorded in other current assets on the balance sheet as ofDecember 31, 2016. The lease for office space in New York, NY expires in October 2018.On October 17, 2013, the Company entered into a sublease agreement to lease all of its New York office space to a subtenant. The Company remainsprimarily liable to pay rent on the original lease. The Company recorded a loss on the sublease in the amount of $729 thousand for the year endedDecember 31, 2013, representing the remaining contractual obligation of $2.3 million, less $1.6 million in payments from its subtenant. The Companycontinues to maintain the $388 thousand letter of credit in respect of the New York office space and recorded in other current assets on the balancesheets.Prior to December 31, 2012, the Company entered into separate operating lease agreements for various spaces in a building in Boston, MA. In June2012, the Company re-negotiated a master lease for the Company’s Boston office space to incorporate all three lease agreements under the same masteragreement, which was originally set to expire in August 2016. On December 21, 2015 and April 15, 2016, the Company renewed the sublease for theCompany’s corporate headquarters in Boston, MA through August 31, 2021. As of December 31, 2017, and 2016, a total security deposit of$128 thousand is included in deposits on the balance sheet.On January 30, 2018, the Company entered into a lease agreement for office space in Houston, TX at MD Anderson. Under the terms of the Houstonlease agreement, we lease approximately two hundred and ten square feet and are required to make rental payments at an average monthly rate ofapproximately $1 thousand through April 2021. Upon signing the lease agreement, the company expensed approximately $40 thousand for rentexpense for the period beginning in May 2015 through December 2017. The $40 thousand for rent expense incurred from May 2015 throughDecember 2017, and all future rent expense incurred in Houston, will be deducted from our prepayment at MD Anderson described in the licenseagreement section below. F-22Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 7. Commitments and Contingencies (Continued) Future net minimum lease payments under operating leases as of December 31, 2017 are as follows (in thousands): 2018 1,129 2019 723 2020 736 2021 489 2022 and beyond — 3,077 Less: contractual sublease income (278) Future minimum lease payments, net $2,799 Total rent expense was approximately $0.7 million, $0.3 million, and $1.0 million for the years ended December 31, 2017, 2016, and 2015,respectively.The Company records rent expense on a straight-line basis over the term of the lease. Accordingly, the Company has recorded a liability for deferredrent at December 31, 2017 and 2016 of $145 thousand ($141 thousand current and $1 thousand long-term) and $281 thousand ($155 thousand currentand $126 thousand long-term) respectively, which is recorded in deferred rent on the balance sheet.License AgreementsExclusive Channel Partner Agreement with Precigen for the Cancer ProgramsOn January 6, 2011, the Company entered into the Channel Agreement with Intrexon (now Precigen), that governs a “channel partnering” arrangementin which the Company uses Precigen’s technology to research, develop and commercialize products in which DNA is administered to humans forexpression of anti-cancer effectors for treatment or prophylaxis of cancer, which the Company collectively refers to as the Cancer Program. ThisChannel Agreement establishes committees comprising representatives of us and Precigen that govern activities related to the Cancer Program in theareas of project establishment, chemistry, manufacturing and controls, clinical and regulatory matters, commercialization efforts and intellectualproperty.The Channel Agreement grants us a worldwide license to use patents and other intellectual property of Precigen in connection with the research,development, use, importing, manufacture, sale, and offer for sale of products involving DNA administered to humans for expression of anti-cancereffectors for the purpose of treatment or prophylaxis of cancer, which are collectively referred to as the Ziopharm Products. Such license is exclusivewith respect to any clinical development, selling, offering for sale or other commercialization of Ziopharm Products, and otherwise is non-exclusive.Subject to limited exceptions, the Company may not sublicense these rights without Precigen’s written consent.Under the Channel Agreement, and subject to certain exceptions, the Company is responsible for, among other things, the performance of the CancerProgram, including the development, commercialization and certain aspects of manufacturing of Ziopharm Products. Precigen is responsible forestablishing manufacturing capabilities and facilities for the bulk manufacture of products developed under the Cancer Program, certain other aspectsof manufacturing and costs of discovery-stage research with respect to platform improvements and costs of filing, prosecution and maintenance ofPrecigen’s patents. F-23Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 7. Commitments and Contingencies (Continued) After the 2016 Exclusive Channel Partner (ECP) Amendment, discussed below, and subject to certain expense allocations and other offsets provided inthe Channel Agreement, the Company is obligated to pay Precigen on a quarterly basis 20% of net profits derived in that quarter from the sale ofZiopharm Products, calculated on a Ziopharm Product-by- Ziopharm Product basis. The Company likewise agreed to pay Precigen on a quarterly basis50% of revenue obtained in that quarter from a sublicensor in the event of a sublicensing arrangement. In addition, in partial consideration for eachparty’s execution and delivery of the Channel Agreement, the Company entered into a stock purchase agreement with Precigen.Upon termination of the Channel Agreement, the Company may continue to develop and commercialize any Ziopharm Product that, at the time oftermination: • Is being commercialized by us; • Has received regulatory approval; • Is a subject of an application for regulatory approval that is pending before the applicable regulatory authority; or • Is the subject of at least an ongoing Phase 2 clinical trial (in the case of a termination by Precigen due to an uncured breach or a voluntarytermination by us), or an ongoing Phase 1 clinical trial in the field (in the case of a termination by us due to an uncured breach or atermination by Precigen following an unconsented assignment by us or its election not to pursue development of a Superior Therapy (asdefined in the Channel Agreement)).With respect to these “retained” Ziopharm Products, the Company’s obligation to pay 20% of net profits derived from the sale of Ziopharm Productsand 50% of revenue derived from a sublicensor will survive termination of the Channel Agreement.Amendment of Collaborations with PrecigenOn March 27, 2015, the Company, together with Intrexon, now Precigen, entered into an ECP Amendment, amending the Channel Agreement. TheECP Amendment modifies the scope of the parties’ collaboration under the Channel Agreement in connection with the Ares Trading Agreementdiscussed below. Pursuant to the ECP Amendment, the chimeric antigen receptor T-cell products to be developed and commercialized pursuant to theAres Trading Agreement shall be included within the Precigen/ Ziopharm collaboration under the Channel Agreement. The ECP Amendment providesthat Precigen will pay us fifty percent of all payments Precigen receives for upfronts, milestones and royalties under the Ares Trading Agreement.On June 29, 2016, the Company entered into (1) the 2016 ECP Amendment with Intrexon (now Precigen), amending the Channel Agreement, and(2) the 2016 GvHD Amendment, amending the Exclusive Channel Collaboration Agreement the Company entered into with Intrexon (now Precigen)in September 2015, or the GvHD Agreement. The 2016 ECP Amendment reduced the royalty percentage that the Company will pay to Precigen underthe Channel Agreement on a quarterly basis from 50% to 20% of net profits derived in that quarter from the sale of Ziopharm Products, calculated on aZiopharm Product-by- Ziopharm Product basis, subject to certain expense allocations and other offsets provided in the Channel Agreement. The 2016GvHD Amendment reduced the royalty percentage that the Company would pay to Precigen under the GvHD Agreement on a quarterly basis from 50%to 20% of net profits derived in that quarter from the sale of Products (as defined in the GvHD Agreement), subject to certain expense allocations andother offsets provided in the GvHD Agreement. The reductions in the royalty percentages provided by the 2016 ECP Amendment and the F-24Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 7. Commitments and Contingencies (Continued) 2016 GvHD Amendment do not apply to sublicensing revenue or royalties under the Channel Agreement and GvHD Agreement, nor do they apply toany royalties or other payments made with respect to sublicensing revenue from the existing collaboration with Ares Trading S.A., or Ares Trading, asubsidiary of the biopharmaceutical business of Merck KGaA. The Company has recently announced the decision to stop pursuing the development ofengineered cell therapy strategies for targeted treatment of GvHD. The Company has reverted the rights under the GvHD Agreement back to Precigen[and are in the process of winding down the related activities].In consideration for the execution and delivery of the 2016 ECP Amendment and the 2016 GvHD Amendment, the Company agreed to issue toIntrexon 100,000 shares of its Series 1 preferred stock. Each share of Series 1 preferred stock has a stated value of $1,200, subject to appropriateadjustment in the event of any stock dividend, stock split, combination or other recapitalization, and certain other rights, preferences, privileges andobligations (see Note 9 to the accompanying financial statements).Exclusive Channel Collaboration Agreement with Precigen for GvHDOn September 28, 2015, the Company entered into the GvHD Agreement with Intrexon (now Precigen), whereby the Company would use Precigen’stechnology directed towards in vivo expression of effectors to research, develop and commercialize products for use in the treatment or prevention ofGvHD. The GvHD Agreement granted us a worldwide license to use specified patents and other intellectual property of Precigen in connection with theresearch, development, use, importing, manufacture, sale, and offer for sale of products developed under the GvHD Agreement.The Company paid Intrexon a technology access fee of $10.0 million in cash in October 2015 and agreed to reimburse Intrexon for all related researchand development costs pursuant to the GvHD Agreement. The Company has determined that the rights acquired in the GvHD Agreement representin-process research and development with no alternative future use. Accordingly, the Company recorded a charge of $10.0 million to research anddevelopment expense in September 2015.As a result of an in-depth review of the Company’s research and development portfolio, the determination was made that the pursuit of GvHD as anindication was not a material part of its corporate strategy and therefore have decided to stop pursuing the development of engineered cell therapystrategies, used either separately or in combination, for targeted treatment of GvHD. The Company has reverted the rights under the GvHD programback to Precigen [and are in the process of winding down the related activities]. The Company made this decision to focus its efforts and resources onthe development of the Controlled IL-12 and Sleeping Beauty platforms for the treatment of oncology indications.License Agreement—The University of Texas MD Anderson Cancer CenterOn January 13, 2015, the Company, together with Intrexon (now Precigen), entered into a License Agreement, or the MD Anderson License, with TheUniversity of Texas MD Anderson Cancer Center, or MD Anderson. Pursuant to the MD Anderson License, the Company, together with Precigen, holdan exclusive, worldwide license to certain technologies owned and licensed by MD Anderson including technologies relating to novel chimericantigen receptor, or CAR, T-cell therapies, non-viral gene transfer systems, genetic modification and/or propagation of immune cells and other cellulartherapy approaches, Natural Killer, or NK Cells, and T-cell receptors, or TCRs, arising from the laboratory of Laurence Cooper, M.D., Ph.D., whobecame the Company’s Chief Executive Officer in May 2015 and was formerly a tenured professor of pediatrics at MD Anderson and is F-25Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 7. Commitments and Contingencies (Continued) now currently a visiting scientist under that institution’s policies, as well as either co-exclusive or non-exclusive licenses under certain relatedtechnologies.Pursuant to the terms of the MD Anderson License, MD Anderson received consideration consisting of $50.0 million in shares of common stock (or10,124,561 shares), and $50.0 million in shares of Intrexon’s common stock, in each case based on a trailing 20 day volume weighted average of theclosing price the Company’s and Intrexon’s common stock ending on the date prior to the announcement of the entry into the MD Anderson License,collectively referred to as the License Shares, pursuant to the terms of the License Shares Securities Issuance Agreement described below. The LicenseShares were issued to MD Anderson on March 11, 2015, pursuant to the terms of the MD Anderson License.On January 9, 2015, in order to induce MD Anderson to enter into the MD Anderson License on an accelerated schedule, the Company, together withIntrexon entered into a letter agreement, or the Letter Agreement, pursuant to which MD Anderson received consideration of $7.5 million in shares ofcommon stock (or 1,597,602 shares), and $7.5 million in shares of Intrexon’s common stock, in each case based on a trailing 20-day volume-weightedaverage of the closing price of the Company’s and Intrexon’s common stock ending on the date prior to the execution of the Letter Agreement,collectively referred to as the Incentive Shares, in the event that the MD Anderson License was entered into on January 14, 2015. The Incentive Shareswere issued to MD Anderson on March 11, 2015, pursuant to the terms of the Incentive Shares Securities Issuance Agreement described below.On August 17, 2015, the Company, Intrexon (now Precigen) and MD Anderson entered into a research and development agreement, or the Researchand Development Agreement, to formalize the scope and process for the transfer by MD Anderson, pursuant to the terms of the MD Anderson License,of certain existing research programs and related technology rights, as well as the terms and conditions for future collaborative research anddevelopment of new and ongoing research programs.Pursuant to the Research and Development Agreement, the Company, Intrexon (now Precigen) and MD Anderson have agreed to form a joint steeringcommittee that will oversee and manage the new and ongoing research programs. As provided under the MD Anderson License, the Company providedfunding for research and development activities in support of the research programs under the Research and Development Agreement for a period ofthree years and in an amount of no less than $15.0 million and no greater than $20.0 million per year. During the twelve months ended December 31,2017, the Company made payments in the aggregate amount of $13.0 million to MD Anderson compared to $15.0 million during the twelve monthsended December 31, 2016. The decrease in cash paid to MD Anderson during 2017 is a result of approved expenditures incurred by us being deductedfrom the April, July, and October quarterly payments. As of December 31, 2017, MD Anderson had used $7.3 million to offset costs incurred pursuantto the MD Anderson License and the Research and Development Agreement. The net balance of cash resources on hand at MD Anderson is$31.9 million, of which $18.5 million is included in other current assets and the remaining $13.4 million is included in non-current assets atDecember 31, 2017. Subsequent to the balance sheet date, the final payment to MD Anderson was made in January 2018 for $2.7 million.The term of the MD Anderson License expires on the last to occur of (a) the expiration of all patents licensed thereunder, or (b) the twentiethanniversary of the date of the MD Anderson License; provided, however, that following the expiration of the term of the MD Anderson License, theCompany, together with Precigen, shall then have a fully-paid up, royalty free, perpetual, irrevocable and sublicensable license to use the licensedintellectual property thereunder. After ten years from the date of the MD Anderson License and subject to a 90-day cure period, MD Anderson will havethe right to convert the MD Anderson License into a non-exclusive F-26Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 7. Commitments and Contingencies (Continued) license if the Company and Precigen are not using commercially reasonable efforts to commercialize the licensed intellectual property on acase-by-case basis. After five years from the date of the MD Anderson License and subject to a 180-day cure period, MD Anderson will have the right toterminate the MD Anderson License with respect to specific technology(ies) funded by the government or subject to a third-party contract if theCompany and Precigen are not meeting the diligence requirements in such funding agreement or contract, as applicable. MD Anderson may alsoterminate the agreement with written notice upon material breach by us and Precigen, if such breach has not been cured within 60 days of receivingsuch notice. In addition, the MD Anderson License will terminate upon the occurrence of certain insolvency events for both us and Precigen and maybe terminated by the mutual written agreement of us, Precigen and MD Anderson.In connection with the MD Anderson License and the issuance of the License Shares and the Incentive Shares, on January 13, 2015, the Company,together with MD Anderson, entered into a Registration Rights Agreement, or the Registration Rights Agreement, pursuant to which the Companyagreed to file a “resale” registration statement, or the Registration Statement, registering the resale of the License Shares, the Incentive Shares and anyother shares of the common stock held by MD Anderson on the date that the Registration Statement is filed. Under the terms of the Registration RightsAgreement, the Company is obligated to maintain the effectiveness of the Registration Statement until all securities therein are sold or are otherwisecan be sold pursuant to Rule 144, without any restrictions. A prospectus supplement under the Company’s already effective registration statement onForm S-3 (File No. 333-201826) was filed on April 1, 2015 in satisfaction of its obligations under the Registration Rights Agreement.The Company determined that the rights acquired in the MD Anderson License represented in process research and development with no alternativefuture use. Accordingly, the Company recorded a charge of $67.3 million to research and development expense in 2015, representing the fair value ofthe 11,722,163 shares of its common stock on the date the MD Anderson License was executed.Ares Trading License and Collaboration AgreementOn March 27, 2015, the Company, together with Intrexon (now Precigen), signed a worldwide License and Collaboration Agreement, or the AresTrading Agreement, with Ares Trading S.A., or Ares Trading, a subsidiary of the biopharmaceutical business of Merck KGaA, Darmstadt, Germany,through which the parties established a collaboration for the research and development and commercialization of certain products for the prophylactic,therapeutic, palliative or diagnostic use for cancer in humans.Under the collaboration, Ares Trading has elected two CAR+ T targets for which the Company will perform certain research activities that will, in part,be funded by Ares Trading. Once these candidates reach investigational new drug, or IND, stage, the programs will be transferred to Ares Trading forclinical development and commercialization. The Company is expected to perform multiple preclinical development programs, each consisting of thedevelopment of one product candidate, pursuant to the agreement. The Company, together with Precigen, will also independently conduct researchand development on other CAR+ T candidates, with Ares Trading having the opportunity during clinical development to opt-in to these candidates foradditional payments to us and Precigen.Precigen is entitled to receive $5.0 million, from Ares Trading, payable in equal quarterly installments over two years for each identified productcandidate, which will be used to fund discovery work. The Company is responsible for costs exceeding the quarterly installments and all other costs ofthe preclinical research and development. For the twelve months ended December 31, 2017, the Company has expensed $1.6 million under the AresTrading Agreement, respectively. F-27Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 7. Commitments and Contingencies (Continued) Ares Trading paid a non-refundable upfront fee of $115.0 million to Intrexon as consideration for entry into the Ares Trading Agreement. Pursuant tothe ECP Amendment, the Company was entitled to receive 50% of the upfront fee, or $57.5 million, which was received from Intrexon in July 2015.The Ares Trading Agreement provides for up to $60.0 million in development milestone payments, up to $148.0 million in regulatory milestonepayments and up to $205.0 million in commercial milestone payments for each product candidate. Development milestone payments are triggeredupon initiation of a defined phase of clinical research for a product candidate. Regulatory milestone payments are triggered upon approval to market aproduct candidate by the FDA, or other global regulatory authorities. Commercial milestone payments are triggered when an approved pharmaceuticalproduct reaches certain defined levels of net sales by the licensee. The Ares Trading Agreement also provides for up to $50.0 million of one-timepayments upon the achievement of certain technical milestones evidenced by the initiation of a defined phase of clinical research. All development,regulatory and technical milestones are considered substantive based on the contingent nature of the milestone, specifically reviewing factors such asthe scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the milestone as well as the level of effort andinvestment required. Accordingly, such amounts will be recognized as revenue in full in the period in which the associated milestone is achieved,assuming all other revenue recognition criteria are met. All commercial milestones will be accounted for in the same manner as royalties and recordedas revenue upon achievement of the milestone, assuming all other revenue recognition criteria are met. The next potential milestone payment thatPrecigen could be entitled to receive under the Ares Trading Agreement is a $15.0 million substantive milestone for the initiation of a Phase 1 clinicaltrial. In addition, to the extent any of the product candidates licensed by Ares Trading are commercialized, Precigen would be entitled to receiveroyalties ranging from the lower-single digits to the low-teens of net sales derived from the sale of products developed under agreement. Precigen willpay 50% of all milestone and royalty payments that it receives under the Ares Trading Agreement to us pursuant to the ECP Amendment.The term of the Ares Trading Agreement commenced in May 2015 and may be terminated by either party in the event of a material breach as defined inthe agreement and may be terminated voluntarily by Ares Trading upon 90 days written notice to us.The Company considered FASB Accounting Standards Codification 605-25, Multiple-Element Arrangements, in evaluating the appropriateaccounting for the Ares Trading Agreement. In accordance with this guidance, the Company identified the license and research and developmentservices as the deliverables in the arrangement. The Company concluded that the license does not have standalone value independent from theresearch and development services. Accordingly, the Ares Trading Agreement is accounted for by us as a single unit of accounting. The $57.5 millionupfront payment received by us was recorded as deferred revenue and is being recognized over the estimated period of performance of the research anddevelopment services which are currently estimated to be nine years, beginning with the commencement of the research and development services.During the three and twelve months ended December 31, 2017 and 2016, the Company recognized $1.6 million, each quarter, of revenue related to theAres Trading Agreement. As of December 31, 2017, the remaining balance of deferred revenue associated with the upfront payment is $41.5 million, ofwhich $6.4 million is current and $35.1 million is classified as long-term. As of December 31, 2016, the remaining balance of deferred revenueassociated with the upfront payment was $47.9 million, of which $6.4 million was current and $41.5 million was classified as long term. F-28Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 7. Commitments and Contingencies (Continued) Patent and Technology License Agreement—The University of Texas MD Anderson Cancer Center and the Texas A&M University SystemOn August 24, 2004, the Company entered into a patent and technology license agreement with MD Anderson and the Texas A&M University System,which the Company refers to, collectively, as the Licensors. Under this agreement, were granted an exclusive, worldwide license to rights (includingrights to U.S. and foreign patent and patent applications and related improvements and know-how) for the manufacture and commercialization of twoclasses of organic arsenicals (water- and lipid-based) for human and animal use. The class of water-based organic arsenicals includes darinaparsin.The Company issued options to purchase 50,222 shares outside of its stock option plans following the successful completion of certain clinicalmilestones, of which 37,666 shares have vested. The remaining 12,556 shares vested upon enrollment of the first patient in a multi-center pivotalclinical trial i.e. a human clinical trial intended to provide the substantial evidence of efficacy necessary to support the filing of an approvable NewDrug Application, or NDA. An expense of $87 thousand was charged to research and development expense for the vesting event which occurred inMarch 2016. This trial was initiated by Solasia Pharma K.K., or Solasia, on March 28, 2016 and triggered a $1.0 million milestone payment to us fromSolasia which was received in May 2016. An equivalent of $1.0 million milestone payment was subsequently made to MD Anderson and reported net.In addition, the Licensors are entitled to receive certain milestone payments. In addition, the Company may be required to make additional paymentsto the Licensors (as defined in the MD Anderson License) upon achievement of certain other milestones in varying amounts which, on a cumulativebasis could total up to an additional $4.5 million. In addition, the Licensors are entitled to receive single digit percentage royalty payments on salesfrom a licensed product and will also be entitled to receive a portion of any fees that the Company may receive from a possible sublicense under certaincircumstances.Collaboration Agreement with Solasia Pharma K.K.On March 7, 2011, the Company entered into a License and Collaboration Agreement with Solasia. Pursuant to the License and CollaborationAgreement, the Company granted Solasia an exclusive license to develop and commercialize darinaparsin in both intravenous and oral forms andrelated organic arsenic molecules, in all indications for human use in a pan-Asian/Pacific territory comprising Japan, China, Hong Kong, Macau,Republic of Korea, Taiwan, Singapore, Australia, New Zealand, Malaysia, Indonesia, Philippines and Thailand.As consideration for the license, the Company received an upfront payment of $5.0 million to be used exclusively for further clinical development ofdarinaparsin outside of the pan-Asian/Pacific territory and will be entitled to receive additional payments of up to $32.5 million in development-basedmilestones and up to $53.5 million in sales-based milestones. The Company will also be entitled to receive double digit royalty payments from Solasiabased upon net sales of licensed products in the applicable territories, once commercialized, and a percentage of sublicense revenues generated bySolasia. The $5.0 million upfront payment received in March 2011 was amortized over the period of the research and development effort, which wascompleted in March 2016.On July 31, 2014, the Company entered into an amendment and restatement of the License and Collaboration Agreement granting Solasia an exclusiveworldwide license to develop and commercialize darinaparsin, and related organoarsenic molecules, in both intravenous and oral forms in allindications for human use. In exchange, the Company will be eligible to receive from Solasia development- and sales-based milestones, a royalty onnet sales of darinaparsin, once commercialized, and a percentage of any sublicense revenues generated by Solasia. F-29Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 7. Commitments and Contingencies (Continued) Solasia will be responsible for all costs related to the development, manufacturing and commercialization of darinaparsin. The Company’s Licensors,as defined in the agreement, will receive a portion of all milestone and royalty payments made by Solasia to us in accordance with the terms of thelicense agreement with the Licensors.On March 28, 2016, Solasia initiated a multi-center pivotal clinical trial intended to provide substantial evidence of efficacy necessary to support thefiling of an application for an NDA for darinaparsin in certain of the territories assigned to Solasia. The initiation of the trial on March 28, 2016triggered a $1.0 million milestone payment from Solasia to us which was received in May 2016. The Company subsequently made an equivalentpayment to MD Anderson as the ultimate licensor of darinaparsin (see above).License Agreement with Baxter Healthcare S.A.On November 3, 2006, the Company entered into a definitive Asset Purchase Agreement for indibulin and a License Agreement to proprietarynanosuspension technology with affiliates of Baxter Healthcare S.A. The purchase included the entire indibulin intellectual property portfolio as wellas existing drug substance and capsule inventories. The terms of the Asset Purchase Agreement included an upfront cash payment and an additionalpayment for existing inventory. During the year ending December 31, 2017, the Company made the final payment of $250 thousand under the assetagreement. The Company are not actively pursuing the development of indibulin. 8. Income TaxesThere is no provision for income taxes because the Company has incurred operating losses since inception. The reported amount of income taxexpense for the years differs from the amount that would result from applying domestic federal statutory tax rates to pretax losses primarily because ofthe changes in the valuation allowance. Significant components of the Company’s deferred tax assets at December 31, 2017 and 2016 are as follows: December 31, (in thousands) 2017 2016 Net operating loss carryforwards $89,098 $100,790 Start-up and organizational costs 37,488 59,360 Research and development credit carryforwards 32,395 34,845 Stock compensation 1,330 2,014 Capitalized acquisition costs 5,822 9,389 Deferred revenue 11,126 18,636 Depreciation 136 227 Other 993 1,537 178,388 226,798 Less valuation allowance (178,388) (226,798) Effective tax rate $— $— Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. At December 31, 2017, the Company has aggregate net operating loss carryforwards for federaltax purposes of approximately $342 million and $299 million for Federal and state purposes, respectively, available to offset future federal and F-30Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 8. Income Taxes (Continued) state taxable income to the extent permitted under the Internal Revenue Code, or IRC, expiring in varying amounts through 2037. Additionally, theCompany has approximately $35 million of research and development credits at December 31, 2017, expiring in varying amounts through 2037,which may be available to reduce future taxes.In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09), which is intendedto simplify several aspects of accounting for share-based payment transactions, including the income tax effects, statutory withholding requirements,forfeitures, and classification on the statement of cash flows. ASU 2016-09 is effective for annual reporting periods after December 15, 2016, includinginterim reporting periods within each annual reporting period. The Company adopted this standard on January 1, 2017. The update revisesrequirements in the following areas: minimum statutory withholding, accounting for income taxes, and forfeitures. Prior to adoption, the Companyrecognized share-based compensation, net of estimated forfeitures, over the vesting period of the grant. Upon adoption of ASU 2016-09, the Companyelected to change its accounting policy to recognize forfeitures as they occur. The net forfeiture policy election was adopted using a modifiedretrospective approach with a cumulative effect adjustment of $122 thousand recorded to retained earnings as of January 1, 2017. The update requiresthe Company to recognize the income tax effect of awards in the income statement when the awards vest or are settled without triggering a liability.The income tax related items had no effect on the current period presentation and the Company maintains a full valuation allowance against itsdeferred tax assets. As a result, an accumulated excess tax benefit of 10.2 million was recognized as a deferred tax asset with a full valuation allowanceagainst it. Additionally, we continued to estimate the number of awards expected to be vested. The adoption had no material impact on our financialstatements for the 2017 tax year or the interim periods within.Under the IRC Section 382, certain substantial changes in the Company’s ownership may limit the amount of net operating loss carryforwards that canbe utilized in any one year to offset future taxable income.Section 382 of the IRC provides limits to which a corporation that has undergone a change in ownership (as defined) can utilize any net operating loss,or NOL, and general business tax credit carryforwards it may have. The Company commissioned an analysis to determine whether Section 382 couldlimit the use of its carryforwards in this manner. After completing the analysis, it was determined an ownership change had occurred in February 2007.As a result of this change, the Company’s NOL’s and general business tax credits from February 23, 2007 and prior would be completely limited underIRC Section 382. The deferred tax assets related to NOL’s and general business credits have been reduced by $11.2 million and $636 thousand,respectively, as a result of the change. The Company updated the IRC Section 382 analysis through December 31, 2014. It was determined a change ofownership occurred on February 28, 2011. The Company’s NOL’s were not further limited as a result of the change. The Company updated the IRCSection 382 analysis through December 31, 2016 and it was determined that there was no further change in ownership.The Company has provided a valuation allowance for the full amount of these net deferred tax assets, since it is more likely than not that these futurebenefits will not be realized. However, these deferred tax assets may be available to offset future income tax liabilities and expenses. The valuationallowance decreased by $48.4 million in 2017 primarily due to the change in the federal tax rate, net operating loss carryforwards, and the increase inresearch and development credits.Income taxes using the federal statutory income tax rate differ from the Company’s effective tax rate primarily due to non-deductible expenses relatedto the Company’s issuance of preferred stock along with the change in the valuation allowance on deferred tax assets. F-31Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 8. Income Taxes (Continued) A reconciliation of income tax expense (benefit) at the statutory federal income tax rate and income taxes as reflected in the financial statements is asfollows: Year Ended December 31, (in thousands) 2017 2016 2015 Federal income tax at statutory rates 34% 34% 34% State income tax, net of federal tax benefit 4% 1% 5% Research and development credits 3% 3% 3% Stock compensation -1% -1% -1% Channel rights 0% -25% 0% Research and development true-up -7% 0% 0% Officers compensation -2% 0% 0% Other -3% 0% 0% Federal rate change -124% 0% 0% Increase in valuation allowance 96% -12% -41% Effective tax rate 0% 0% 0% The Company adopted ASC740, “Accounting for Uncertain Tax Positions” on January 1, 2007. ASC740 clarifies the accounting for uncertainty inincome taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” ASC 740prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in a tax return. The Company did not establish anyadditional reserves for uncertain tax liabilities upon adoption of ASC 740. A summary of the company’s adjustments to its uncertain tax positions inthe years ended December 31, 2017, 2016, and 2015 are as follows: (in thousands) Balance at December 31, 2014 $238 Increase/Decrease for tax positions related to the current year — Increase/Decrease for tax positions related to prior years — Decrease for settlements with applicable taxing authorities — Decrease for previous year’s lapses of statute of limitations (20) Decrease for impact of §382 limitations (218) Decrease for lapses of statute of limitations — Balance at December 31, 2015 $— Increase/Decrease for tax positions related to the current year — Increase/Decrease for tax positions related to prior years — Decreases for settlements with applicable taxing authorities — Decrease for lapses of statute of limitations — Balance at December 31, 2016 $— Increase/Decrease for tax positions related to the current year — Increase/Decrease for tax positions related to prior years — Decrease for settlements with applicable taxing authorities — Decrease for lapses of statute of limitations — Balance at December 31, 2017 $— The Company has not recognized any interest and penalties in the statement of operations because of the Company’s net operating losses and taxcredits that are available to be carried forward. When necessary, the F-32Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 8. Income Taxes (Continued) Company will account for interest and penalties related to uncertain tax positions as part of its provision for federal and state income taxes. TheCompany does not expect the amounts of unrecognized benefits will change significantly within the next twelve months.The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and state jurisdictions for the years endedDecember 31, 1999 through 2017.The Tax Cuts and Jobs Act, or the “Tax Act,” was enacted in December 2017. The act significantly changes US tax law by, among other things,lowering US corporate income tax rates, implementing a territorial tax system, and imposing a one-time transition tax on deemed repatriated earningsof foreign subsidiaries. The Tax Act reduces the US corporate income tax rate from 35% to 21%, effective January 1, 2018. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected toreverse. As a result of the reduction in the US corporate tax rate from 35% to 21% under the Tax Act, the Company revalued its ending net deferred taxassets at December 31, 2017. There was no impact as a result of the revaluation of the deferred tax assets as the calculated provisional tax benefit ofapproximately $67.0 million was offset by the Company’s subsequent change in valuation allowance.The SEC staff issued Staff Accounting Bulletin (SAB 118) to address the application of US GAAP in situations when a registrant does not have thenecessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act andallows the registrant to record provisional amounts during the measurement period. We are in the process of analyzing the impact of the variousprovisions of the Tax Act. We expect to complete our analysis within the measurement period in accordance with SAB 118. 9. Preferred Stock and Stockholders’ Equity (Deficit)On April 26, 2006, the date of the Company’s annual stockholders meeting that year, the shareholders approved the adoption of an Amended andRestated Certificate of Incorporation pursuant to which the Company has 280,000,000 shares of authorized capital stock, of which 250,000,000 sharesare designated as common stock (par value $.001 per share), and 30,000,000 shares are designated as preferred stock (par value $.001 per share).Common StockOn February 3, 2015, the Company entered into an underwriting agreement with J.P. Morgan Securities LLC, as representative of the severalunderwriters named therein, relating to the issuance and sale of 10,000,000 shares of our common stock. The price to the public in the offering was$8.75 per share, and the underwriters agreed to purchase the shares from the Company pursuant to the underwriting agreement at a purchase price of$8.225 per share. Under the terms of the underwriting agreement, the Company also granted the underwriters an option, exercisable for 30 days, topurchase up to an additional 1,500,000 shares of common stock at a purchase price of $8.225 per share. The offering was made pursuant to theCompany’s registration statement on Form S-3 (SEC File No. 333-201826) previously filed with the SEC, and a prospectus supplement thereunder. Theunderwriters purchased the 10,000,000 shares and the additional 1,500,000 shares on February 9 and 17, 2015, respectively. The net proceeds from theoffering were approximately $94.3 million after deducting underwriting discounts and estimated offering expenses paid by the Company. F-33Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 9. Preferred Stock and Stockholders’ Equity (Deficit) (Continued) On January 13, 2015, the Company, together with Intrexon (now Precigen), entered into the MD Anderson License. Pursuant to the terms of the MDAnderson License, MD Anderson received consideration of 11,722,163 shares of the Company’s common stock (see Note 7).On May 11, 2017, the Company sold in an underwritten offering an aggregate of 9,708,738 shares of its common stock. The price to the investor in theoffering was $5.15 per share, and the underwriters agreed to purchase the shares from the Company pursuant to the Company’s registration statementon Form S-3ASR (File No. 333-201826) previously filed with the SEC, and a prospectus supplement thereunder. The net proceeds from the offeringwere approximately $47.3 million after deducting underwriting commissions and estimated offering expenses payable by the Company.Preferred StockThe Company’s Board of Directors are authorized to designate any series of Preferred Stock, to fix and determine the variations in relative rights,preferences, privileges and restrictions as between and among such series.On June 29, 2016, the Company entered into the 2016 ECP Amendment and 2016 GvHD Amendment with Intrexon (now Precigen) (see Note 7). Inconsideration for the execution and delivery of the 2016 ECP Amendment and the 2016 GvHD Amendment, the Company issued to Intrexon 100,000shares of its newly designated Series 1 preferred stock. Each share of the Company’s Series 1 preferred stock has a stated value of $1,200, subject toappropriate adjustment in the event of any stock dividend, stock split, combination or other recapitalization. The Series 1 preferred stock has thefollowing rights and preferences and certain other rights, preferences, privileges and obligations.ConversionAll shares of Series 1 preferred stock shall automatically convert into shares of common stock upon the public announcement of the first approval inthe United States of (i) a ZIOPHARM Product under the Channel Agreement, (ii) a Product under the GvHD Agreement or (iii) a Product under the AresTrading Agreement, which the Company refers to as the Conversion Event Date. On the second business day following the Conversion Event Date,each of Series 1 preferred stock shall convert into a number of shares of common stock equal to the stated value of such Series 1 preferred stock,divided by the greater of (i) the volume weighted average closing price of common stock as reported by The Nasdaq Stock Market, LLC over the 20trading days ending on the Conversion Event Date or (ii) $1.00 per share; however, without shareholder approval in accordance with the Nasdaq listingrules, the Company will not affect any conversion of the Series 1 preferred stock into shares of common stock in excess of 19.9% of the lesser of (i) thepre-transaction outstanding shares of common stock or (ii) the outstanding shares of common stock at the time of conversion. In addition, withoutshareholder approval in accordance with the Nasdaq listing rules, the Company will not affect any conversion of the Series 1 preferred stock intocommon stock to the extent that the number of shares of common stock issued in such conversion would constitute a change of control under theNasdaq listing rules.DividendsThe Series 1 preferred stock provides for a monthly dividend, payable in additional shares of Series 1 preferred stock, equal to $12.00 per share, permonth divided by the stated value per share, or the PIK Dividend; provided, that if any shares of Series 1 preferred stock are not converted on theConversion Event Date (discussed below), F-34Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 9. Preferred Stock and Stockholders’ Equity (Deficit) (Continued) then the rate of the PIK Dividend on all remaining unconverted shares of Series 1 preferred stock shall automatically increase from $12.00 to $24.00per share, per month.Liquidation PreferenceIn the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or a change of control or sale, lease transfer orexclusive license of all or substantially all of the Company’s assets prior to the conversion of the Series 1 preferred stock into shares of common stock,then the Series 1 preferred stock will participate in the proceeds of the transaction on a pro rata basis along with common stock, treating the Series 1preferred stock as if it had been converted into a number of shares of common stock equal to the aggregate stated value of the Series 1 preferred stock,divided by the volume weighted average closing price of common stock over the 20 trading days ending on the public announcement of suchvoluntary or involuntary liquidation, dissolution or winding up of the Company or change of control or sale, lease transfer or exclusive license of all orsubstantially all of the Company’s assets. Alternatively, the Company may redeem the Series 1 preferred stock at a redemption price equal to the prorata amount that the Series 1 preferred stock would have received if it had been converted using the same formula.Voting RightsThe Series 1 preferred stock does not have any voting rights except that the Company may not, without the consent of the holders of a majority of theoutstanding shares of the Series 1 preferred stock, voting as a separate class, (i) amend, alter or repeal any provision of its Certificate of Incorporation ina manner that adversely affects the powers, preferences or rights of the Series 1 preferred stock in a manner that is more adverse than the effect on anyother class or series of the Company’s capital stock; (ii) (A) create, or authorize the creation of, or issue or obligate itself to issue shares of, anyadditional class or series of the Company’s capital stock unless the same ranks junior or pari passu to the Series 1 preferred stock with respect to thedistribution of assets on the liquidation, dissolution or winding up of the Company, the payment of dividends and rights of redemption, or(B) reclassify, alter or amend any existing security that is junior or pari passu to the Series 1 preferred stock with respect to the distribution of assets onthe liquidation, dissolution or winding up of the Company, the payment of dividends or rights of redemption, if such reclassification, alteration oramendment would render such other security senior to the Series 1 preferred in respect of any such right, preference or privilege; or (iii) enter into anytransaction (or series of related transactions) the effect of which would adversely affect the holders of the Series 1 preferred stock in a manner that ismore adverse than the effect on any other class or series of capital stock.AnalysisThe Company analyzed the features of the Series 1 preferred stock and determined that the conversion option and the Company’s right to redeem theshares at liquidation are embedded derivatives that required bifurcation from the Series 1 preferred stock in accordance with FASB ASC 815,Derivatives and Hedging. The embedded derivatives were valued as described below at $0.9 million. Upon issuance of the shares on July 1, 2016 theCompany recorded the fair value of the derivatives as a liability and the fair value of the Series 1 preferred stock of $118.2 million as a component oftemporary equity. Furthermore, because of the temporary equity classification, the carrying value of the Series 1 preferred stock will not be accreted toredemption value unless or until its redemption becomes probable.The fair value of the Series 1 preferred stock was estimated using a probability-weighted approach and a Monte Carlo simulation model. The fair valueof the embedded derivatives was estimated using the “with” and F-35Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 9. Preferred Stock and Stockholders’ Equity (Deficit) (Continued) “without” method where the preferred stock was first valued with all of its features (“with” scenario) and then without derivatives subject to thevaluation analysis (“without” scenario). The fair value of the derivatives was then estimated as the difference between the fair value of the preferredstock in the “with” scenario and the preferred stock in the “without” scenario. The model also takes into account, management estimates of clinicalsuccess/failure based upon market studies and probability of potential conversion and liquidation events. If these estimates were different, thevaluations would change, and that change could be material. Inputs to the models included the following: Risk-free interest rate 1.04% Expected dividend rate 0 Expected volatility 70.50% Preferred stock conversion limit—percentage of outstanding common stock 19.90% Preferred conversion floor price $1.00 During the year ended December 31, 2017, the Company issued an aggregate of 13,460 shares of Series 1 preferred stock to Intrexon, the holder of allof the outstanding shares of its Series 1 preferred stock, as monthly dividend payments. The Company recorded such shares of Series 1 preferred stockat a fair value of $18.9 million, which is a component of temporary equity and recorded a loss on the change in fair value of the derivative liabilities inthe amount of $1.3 million (Note 10). 10. Derivative Financial InstrumentsThe Company determined that certain embedded features related to the Series 1 preferred stock are derivative financial instruments. The companyvalues the embedded derivative financial instruments related to the Series 1 preferred stock as Level 3 financial liabilities (Note 3).Fair values of derivative instruments to be classified as derivative liabilities on the balance sheet consist of the following: ($ in thousands) Liability derivatives: Balance Sheet Location Fair Value December 31, 2017: Derivative liabilities Liabilities $2,424 The change in the derivative liability for the year ended December 31, 2017 and 2016 consists of the following: ($ in thousands) Fair Value Balance, June 30, 2016 $694 Dividends 44 Change in fair value 124 Balance, December 31, 2016 $862 Dividends 267 Change in fair value 1,295 Balance, December 31, 2017 $2,424 F-36Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 10. Derivative Financial Instruments (Continued) The fair value of the Series 1 preferred stock dividends was estimated using a probability-weighted approach and a Monte Carlo simulation model. Thefair value of the embedded derivatives was estimated using the “with” and “without” method where the preferred stock was first valued with all of itsfeatures (“with” scenario) and then without derivatives subject to the valuation analysis (“without” scenario). The fair value of the derivatives was thenestimated as the difference between the fair value of the preferred stock in the “with” scenario and the preferred stock in the “without” scenario. Themodel also takes into account, management estimates of clinical success/failure based upon market studies and probability of potential conversion andliquidation events. If these estimates were different, the valuations would change, and that change could be material. Inputs to the models included thefollowing: December 31, 2017 2016Risk-free interest rate 1.92 - 2.12% 1.04% - 1.69%Expected dividend rate 0 0Expected volatility 68.7 - 80.4% 70.5% - 72.70%Preferred stock conversion limit—percentage of outstanding common stock 19.90% 19.90%Preferred conversion floor price $1.00 $1.00See Notes 3 and 7 for additional discussion regarding the accounting for and valuation of these derivative financial instruments. 11. Stock Option PlanThe Company adopted the 2012 Equity Incentive Plan, or the 2012 Plan, in May 2012, under which the Company initially reserved for the issuance of4,000,000 shares of its common stock. The 2012 Plan was approved by the Company’s stockholders on June 20, 2012. On June 18, 2014, the date ofthe Company’s annual stockholders meeting, the Company’s stockholders approved an amendment to the 2012 Plan increasing the total sharesreserved by 5,000,000 shares, for a total of 9,000,000 shares.As of December 31, 2017, the Company had outstanding options issued to its employees to purchase up to 3,214,635 shares of the Company’scommon stock, to its directors to purchase up to 627,500 shares of the Company’s common stock, as well as options to consultants in connection withservices rendered to purchase up to 10,000 shares of the Company’s common stock.Stock options to employees generally vest ratably in annual installments over three years, commencing on the first anniversary of the grant date andhave contractual terms of ten years. Stock options to directors generally vest ratably over one or three years and have contractual terms of tenyears. Stock options are valued using the Black-Scholes option pricing model and compensation is recognized based on such fair value over the periodof vesting on a straight-line basis. The Company has also reserved an aggregate of 526,364 additional shares for issuance under options grantedoutside of the 2003 and 2012 Plans.Proceeds from the option exercises during the years ended December 31, 2017, 2016, and 2015 amounted to $0.1 million, $0.7 million and$4.6 million respectively. The intrinsic value of these options amounted to $0.3 million, $1.5 million and $23.8 million for years ended December 31,2017, 2016 and 2015, respectively. F-37Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 11. Stock Option Plan (Continued) Transactions under the 2012 Plan for the years ending December 31, 2017, 2016, and 2015 were as follows: (in thousands, except share and per share data) Number ofShares Weighted-Average ExercisePrice Weighted-AverageContractualTerm (Years) AggregateIntrinsic Value Outstanding, December 31, 2014 6,505,663 $4.07 Granted 427,800 10.47 Exercised (3,249,160) 3.95 Cancelled (202,835) 4.36 Outstanding, December 31, 2015 3,481,468 4.96 Granted 362,800 6.40 Exercised (234,833) 4.57 Cancelled (144,100) 6.43 Outstanding, December 31, 2016 3,465,335 5.07 Granted 688,800 5.27 Exercised (180,000) 3.67 Cancelled (122,000) 6.64 Outstanding, December 31, 2017 3,852,135 $5.12 6.47 $1,152 Options exercisable, December 31, 2017 2,925,502 $5.12 5.58 $1,152 Options exercisable, December 31, 2016 2,671,835 $4.40 5.88 $3,383 Options available for future grant at December 31, 2017 303,928 In September 2017, the Company granted an option for 500,000 shares of its common stock, with an exercise price of $6.16 per share, which vestsratably in annual installments over three years, commencing on the first anniversary of the grant date and have contractual terms of ten years. Thisoption was granted outside of the 2012 plan and therefore, is not included in the table above. The grant date fair value was $2.2 million. As ofDecember 31, 2017, all 500,000 options are outstanding.At December 31, 2017, total unrecognized compensation costs related to non-vested stock options outstanding amounted to $5.1 million. The cost isexpected to be recognized over a weighted-average period of 1.73 years.Restricted StockIn December 2017, the Company issued 838,000 shares of restricted stock to its employees, which vest ratably in annual installments over three years,commencing on the first anniversary of the grant date. In December 2017, the Company issued 69,032 shares of restricted stock to its non-employeedirectors, which vest in their entirety on the one-year anniversary of the grant date. In December 2016, the Company issued 625,750 shares of restrictedstock to its employees, which vest ratably in annual installments over three years, commencing on the first anniversary of the grant date. In December2016, the Company issued 86,020 shares of restricted stock to its non-employee directors, which vest in their entirety on the one-year anniversary ofthe grant date. In May, June and December 2015, the Company issued 1,000,000, 50,000 and 403,083 shares of restricted stock to its employees,respectively, which vest ratably in annual installments over three years, commencing on the first anniversary of the grant date. In September andDecember 2015, the Company issued 4,186 and 133,305 shares of restricted stock to its non-employee directors, which vested in their entirety atDecember 31, 2015 and on the one-year anniversary of the grant date respectively. F-38Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 11. Stock Option Plan (Continued) In May, June and December 2017, the Company repurchased 132,000, 16,666 and 245,602 shares at average prices of $7.12, $6.11 and $4.14,respectively to cover payroll taxes. In May, June and December 2016, the Company repurchased 116,667, 6,667 and 119,873 shares at average pricesof $6.86, $7.74 and $5.35, respectively to cover payroll taxes. In September and December 2015, the Company repurchased 7,669 and 16,709 shares ataverage prices of $11.57 and $8.31, respectively to cover payroll taxes. A summary of the status of non-vested restricted stock as of December 31,2017, 2016 and 2015 is as follows: Number of Shares Weighted-AverageGrant Date Fair Value Non-vested, December 31, 2014 144,508 $4.70 Granted 1,590,574 9.01 Vested (148,694) 4.88 Cancelled — — Non-vested, December 31, 2015 1,586,388 9.00 Granted 711,770 5.35 Vested (617,666) 8.90 Cancelled — — Non-vested, December 31, 2016 1,680,492 7.49 Granted 907,032 4.14 Vested (778,965) 7.66 Cancelled — — Non-vested, December 31, 2017 1,808,559 $5.74 As of December 31, 2017, there was $8.2 million of total unrecognized stock-based compensation expense related to non-vested restricted stockarrangements. The expense is expected to be recognized over a weighted-average period of 1.59 years. 12. Employee Benefit PlanThe Company sponsors a qualified 401(k) retirement plan under which employees are allowed to contribute certain percentages of their pay, up to themaximum allowed under Section 401(k) of the IIRC. The Company may make contributions to this plan at its discretion. The Company contributedapproximately $90 thousand, $75 thousand, and $47 thousand to this plan during the years ended December 31, 2017, 2016, and 2015, respectively. F-39Table of ContentsZIOPHARM Oncology, Inc.NOTES TO FINANCIAL STATEMENTS 13. Selected Quarterly Information (Unaudited) (in thousands, except per share amount) Year Ended December 31, 2017 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Revenue $1,597 $1,597 $1,598 $1,597 Total operating expenses 15,562 14,611 14,676 15,033 Loss from operations (13,965) (13,014) (13,078) (13,436) Preferred stock dividends (4,171) (4,865) (4,903) (4,999) Net (loss) applicable to common shareholders (19,658) (17,727) (17,604) (18,272) Loss per share, basic and diluted $(0.15) $(0.13) $(0.13) $(0.12) Year Ended December 31, 2016 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Revenue $1,969 $1,697 $1,598 $1,597 Total operating expenses 14,009 132,939 12,512 12,708 Loss from operations (12,040) (131,242) (10,914) (11,111) Preferred stock dividends — — (3,591) (3,532) Net (loss) applicable to common shareholders (12,019) (131,200) (14,445) (14,756) Loss per share, basic and diluted $(0.09) $(1.01) $(0.11) $(0.11) F-40Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements (Nos. 333-129884, 333-134280, 333-142701, 333-160496, 333-167925,333-185433, 333-199304 and 333-220804) on Forms S-8 and Registration Statements (Nos. 333-134279, 333-141014, 333-161453, 333-162160,333-163517, 333-166444, 333-174292, 333-177793, and 333-201826) on Forms S-3 of our report dated March 1, 2018 relating to the financial statementsand the effectiveness of internal control over financial reporting of ZIOPHARM Oncology, Inc., appearing in this Annual Report on Form 10-K ofZIOPHARM Oncology, Inc. for the year ended December 31, 2017./s/ RSM US LLPBoston, MassachusettsMarch 1, 2018Exhibit 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERI, Laurence J.N. Cooper, certify that: 1.I have reviewed this annual report on Form 10-K of ZIOPHARM Oncology, 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 thisreport; 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, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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 forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) 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 controlover financial reporting.Date: March 1, 2018 /s/ Laurence J.N. Cooper Laurence J.N. Cooper, M.D., Ph.D.Chief Executive Officer(Principal Executive Officer)Exhibit 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERI, Kevin G. Lafond, certify that: 1.I have reviewed this annual report on Form 10-K of ZIOPHARM Oncology, 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 thisreport; 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, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, 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 forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) 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 controlover financial reporting.Date: March 1, 2018 /s/ Kevin G. LafondKevin G. LafondSenior Vice President, Chief Accounting Officer and Treasurer(Principal Financial and Accounting Officer)Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of ZIOPHARM Oncology, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2017, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Laurence J.N. Cooper, Principal Executive Officer of the Company, certify,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Laurence J.N. CooperLaurence J.N. Cooper, M.D., Ph.D.Chief Executive Officer(Principal Executive Officer)March 1, 2018Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of ZIOPHARM Oncology, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2017, as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Kevin G. Lafond, Principal Financial and Accounting Officer of the Company,certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Kevin G. LafondKevin G. LafondSenior Vice President, Chief Accounting Officer and Treasurer(Principal Financial and Accounting Officer)March 1, 2018

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