UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C.
20549





FORM
10-Q


(Mark One)


þ
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the Quarterly Period Ended September 30, 2009





or




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the Transition Period from 
to





Commission
File Number: 001-33004








Opexa
Therapeutics, Inc.


(Exact
name of registrant as specified in its charter)




Texas
            2635 North Crescent Ridge
      Drive
            76-0333165(State
      or other jurisdiction of
            The Woodlands, Texas
      77381
            (I.R.S.
      EmployerIncorporation
      or organization)
            (Address of
      principal executive
            Identification
      No.)offices
      and zip code)




(281)
272-9331


Registrant’s
telephone number, including area code





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
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes þ  No o







Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files).


oYes  o No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.




Large
      accelerated filer  o
            
            Accelerated
      filer  oNon-accelerated
      filer  o
            (Do
      not check if a smaller reporting company)
            Smaller
      reporting company  þ





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes o  No þ





As of
November 2, 2009, there were 12,908,022 shares of the issuer’s Common Stock
outstanding.









OPEXA
THERAPEUTICS, INC.


(A
development stage company)





For
the Quarter Ended September 30, 2009





INDEX





PART I – FINANCIAL
      INFORMATION
            PageItem
      1.
            Financial
      StatementsUnaudited Balance Sheets as of September 30, 2009
      and December 31, 2008
            1Unaudited
      Statements of Expenses:For the three and nine months ended September 30, 2009
      and 2008 and from Inception (January 22, 2003) through September30,
      2009
            2Unaudited
      Statements of Cash Flows:For
      the nine months ended September 30, 2009 and 2008 and from Inception(January
      22, 2003) through September 30, 2009
            3Notes to Unaudited Financial Statements
            5Item 2.
            Management’s Discussion and Analysis of Condition and
      Results of Operations
            10Item 3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            15Item 4.
            Controls and Procedures
            15PART
      II – OTHER INFORMATIONItem 1.
            Legal Proceedings
            16Item 1A.
            Risk Factors
            16Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            16Item 3.
            Defaults Upon Senior Securities
            16Item 4.
            Submission of Matters to a Vote of Security
      Holders
            16Item 5.
            Other Information
            16Item 6.
            Exhibits
            17Signatures










PART
I - FINANCIAL INFORMATION





Item 1.
Financial Statements





OPEXA THERAPEUTICS, INC.


(a
development stage company)


BALANCE
SHEETS


(unaudited)





September
      30,
              
              
              December
      31,2009
              
              
              2008AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              3,952,224
              
              
              $
              1,243,187Accounts
      receivable
              
              
              500,000
              
              
              
              -Other
      current assets
              
              
              147,880
              
              
              
              86,705Total
      current assets
              
              
              4,600,104
              
              
              
              1,329,892Property
      & equipment, net of accumulated depreciationof
      $977,529 and $847,244, respectively
              
              
              1,001,621
              
              
              
              1,166,530Total
      assets
              
              $
              5,601,725
              
              
              $
              2,496,422Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts
      payable
              
              $
              541,270
              
              
              $
              482,838Accounts
      payable - related parties
              
              
              65,702
              
              
              
              161,714Accrued
      expenses
              
              
              413,607
              
              
              
              199,272Current
      maturity of loan payable
              
              
              66,067
              
              
              
              62,423Total
      current liabilities
              
              
              1,086,646
              
              
              
              906,247Long
      term liabilities:Convertible
      promissory notes, net of discount of $283,798
              
              
              939,898
              
              
              
              -Loan
      payable
              
              
              52,890
              
              
              
              102,778Total
      liabilities
              
              
              2,079,434
              
              
              
              1,009,025Commitments
      and contingencies
              
              
              -
              
              
              
              -Stockholders'
      equity:Preferred
      stock, no par value, 10,000,000 shares authorized,none
      issued and outstanding
              
              
              -
              
              
              
              -Common
      stock, $0.50 par value, 100,000,000 shares authorized,12,737,926
      and 12,245,858 shares issued and outstanding
              
              
              6,368,922
              
              
              
              6,122,888Additional
      paid in capital
              
              
              85,242,701
              
              
              
              84,929,481Deficit
      accumulated during the development stage
              
              
              (88,089,332
              )
              
              
              (89,564,972
              )Total
      stockholders' equity
              
              
              3,522,291
              
              
              
              1,487,397Total
      liabilities and stockholders' equity
              
              $
              5,601,725
              
              
              $
              2,496,422


See
accompanying notes to consolidated financial statements




1





OPEXA THERAPEUTICS, INC.


(a
development stage company)


STATEMENTS
OF EXPENSES


Three
and nine months ended September 30, 2009 and 2008 and the


Period
from January 22, 2003 (Inception) to September 30, 2009


(unaudited)




InceptionThree
      Months Ended
              
              
              Nine
      Months Ended
              
              
              throughSeptember
      30,
              
              
              September
      30,
              
              
              September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008
              
              
              2009Research
      and development
              
              $
              490,273
              
              
              $
              2,429,258
              
              
              $
              1,653,755
              
              
              
              7,134,786
              
              
              $
              63,800,026General
      and administrative
              
              
              665,649
              
              
              
              660,814
              
              
              
              1,473,639
              
              
              
              2,668,511
              
              
              
              20,463,369Depreciation
      and amortization
              
              
              52,055
              
              
              
              58,826
              
              
              
              163,139
              
              
              
              175,896
              
              
              
              915,674Loss
      on disposal of assets
              
              
              1,771
              
              
              
              -
              
              
              
              1,771
              
              
              
              116
              
              
              
              500,103Operating
      loss
              
              
              (1,209,748
              )
              
              
              (3,148,898
              )
              
              
              (3,292,304
              )
              
              
              (9,979,309
              )
              
              
              (85,679,172
              )Interest
      income
              
              
              131
              
              
              
              23,681
              
              
              
              1,625
              
              
              
              92,885
              
              
              
              1,355,686Other
      income and expense, net
              
              
              500,000
              
              
              
              -
              
              
              
              500,000
              
              
              
              34,901
              
              
              
              606,904Gain
      on extinguishment of debt
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,612,440Gain
      (loss) on derivative instruments
              
              
              -
              
              
              
              -
              
              
              
              (366,774
              )
              
              
              -
              
              
              
              (587,609
              )Gain
      on sale of technology
              
              
              3,000,000
              
              
              
              -
              
              
              
              3,000,000
              
              
              
              -
              
              
              
              3,000,000Interest
      expense
              
              
              (69,901
              )
              
              
              (4,553
              )
              
              
              (122,529
              )
              
              
              (15,573
              )
              
              
              (8,397,581
              )Net
      income/(loss)
              
              $
              2,220,482
              
              
              $
              (3,129,770
              )
              
              $
              (279,982
              )
              
              $
              (9,867,096
              )
              
              $
              (88,089,332
              )Net
      income (loss) per shareBasic
              
              $
              0.18
              
              
              $
              (0.28
              )
              
              $
              (0.02
              )
              
              $
              (0.99
              )Diluted
              
              $
              0.14
              
              
              $
              (0.28
              )
              
              $
              (0.02
              )
              
              $
              (0.99
              )Weighted
      average shares outstandingBasic
              
              
              12,354,942
              
              
              
              11,370,527
              
              
              
              12,282,619
              
              
              
              9,977,831Diluted
              
              
              16,723,005
              
              
              
              11,370,527
              
              
              
              12,282,619
              
              
              
              9,977,831




See accompanying notes to consolidated
financial statements




2





OPEXA THERAPEUTICS,
INC.


(a
development stage company)


STATEMENTS
OF CASH FLOWS


Nine
months ended September 30, 2009 and 2008 and the


Period
from January 22, 2003 (Inception) to September 30, 2009


(unaudited)





InceptionNine
      Months Ended
              
              
              throughSeptember
      30,
              
              
              September
      30,2009
              
              
              2008
              
              
              2009Cash
      flows from operating activitiesNet
      loss
              
              $
              (279,982
              )
              
              $
              (9,867,096
              )
              
              $
              (88,089,332
              )Adjustments
      to reconcile net loss to net cashused
      in operating activitiesStock
      payable for acquired research and development
              
              
              -
              
              
              
              -
              
              
              
              112,440Stock
      issued for acquired research and development
              
              
              -
              
              
              
              -
              
              
              
              26,286,589Stock
      issued for services
              
              
              -
              
              
              
              68,561
              
              
              
              1,910,365Stock
      issued for debt in excess of principal
              
              
              -
              
              
              
              -
              
              
              
              109,070Amortization
      of discount on notes payable dueto
      warrants and beneficial conversion feature
              
              
              77,391
              
              
              
              -
              
              
              
              6,390,596Gain
      on extinguishment of debt
              
              
              -
              
              
              
              -
              
              
              
              (1,612,440
              )Depreciation
              
              
              163,139
              
              
              
              175,896
              
              
              
              915,674Amortization
      of debt financing costs
              
              
              31,891
              
              
              
              -
              
              
              
              397,801Option
      expense
              
              
              607,566
              
              
              
              1,675,891
              
              
              
              12,557,603Loss
      on derivative instruments
              
              
              366,774
              
              
              
              -
              
              
              
              587,609Loss
      on disposition of fixed assets
              
              
              1,771
              
              
              
              116
              
              
              
              500,103Changes
      in:Accounts
      receivable
              
              
              (500,000
              )
              
              
              -
              
              
              
              (500,000
              )Prepaid
      and other expenses
              
              
              65,402
              
              
              
              175,026
              
              
              
              (437,977
              )Accounts
      payable
              
              
              (45,308
              )
              
              
              (38,213
              )
              
              
              149,605Accrued
      expenses
              
              
              214,335
              
              
              
              28,019
              
              
              
              286,952Net
      cash provided by (used in) operating activities
              
              
              702,979
              
              
              
              (7,781,800
              )
              
              
              (40,435,342
              )Cash
      flows from investing activitiesPurchase
      of property & equipment
              
              
              -
              
              
              
              (31,270
              )
              
              
              (1,339,511
              )Net
      cash provided by (used in) investing activities
              
              
              -
              
              
              
              (31,270
              )
              
              
              (1,339,511
              )Cash
      flows from financing activitiesCommon
      stock and warrants  sold for cash, net of offering
      costs
              
              
              -
              
              
              
              9,254,443
              
              
              
              35,765,166Common
      stock repurchased and canceled
              
              
              -
              
              
              
              -
              
              
              
              (325
              )Proceeds
      from exercise of warrants and options
              
              
              871,316
              
              
              
              -
              
              
              
              871,316Proceeds
      from debt
              
              
              1,180,986
              
              
              
              -
              
              
              
              9,283,185Repayments
      on notes payable
              
              
              (46,244
              )
              
              
              (42,773
              )
              
              
              (192,265
              )Net
      cash provided by financing activities
              
              
              2,006,058
              
              
              
              9,211,670
              
              
              
              45,727,077Net
      change in cash and cash equivalents
              
              
              2,709,037
              
              
              
              1,398,600
              
              
              
              3,952,224Cash
      and cash equivalents at beginning of period
              
              
              1,243,187
              
              
              
              2,645,482
              
              
              
              -Cash
      and cash equivalents at end of period
              
              $
              3,952,224
              
              
              $
              4,044,082
              
              
              $
              3,952,224




3





Cash
      paid for:Income
      tax
              
              $
              -
              
              
              $
              -
              
              
              $
              -Interest
              
              
              13,246
              
              
              
              16,103
              
              
              
              60,371NON-CASH
      TRANSACTIONSIssuance
      of common stock to Sportan shareholders
              
              
              -
              
              
              
              -
              
              
              
              147,733Issuance
      of common stock for accrued interest
              
              
              -
              
              
              
              -
              
              
              
              525,513Issuance
      of warrants to placement agent
              
              
              37,453
              
              
              
              
              
              
              
              37,453Conversion
      of notes payable to common stock
              
              
              -
              
              
              
              -
              
              
              
              6,407,980Conversion
      of accrued liabilities to common stock
              
              
              -
              
              
              
              -
              
              
              
              197,176Conversion
      of accounts payable to note payable
              
              
              -
              
              
              
              -
              
              
              
              93,364Discount
      on convertible notes relating to:Warrants
              
              
              349,947
              
              
              
              -
              
              
              
              3,622,284Beneficial
      conversion feature
              
              
              89,546
              
              
              
              -
              
              
              
              1,455,572Stock
      attached to notes
              
              
              -
              
              
              
              -
              
              
              
              1,287,440Fair
      value of derivative instrument
              
              
              (1,976,457
              )
              
              
              -
              
              
              
              4,680,220Derivative
      reclassified to equity
              
              
              587,612
              
              
              
              -
              
              
              
              587,612








4




OPEXA THERAPEUTICS, INC.


(a
development stage company)


NOTES
TO FINANCIAL STATEMENTS


(unaudited)








Note
1.  Basis of Presentation





The
accompanying unaudited interim financial statements of Opexa Therapeutics, Inc.,
a development stage company, have been prepared in accordance with accounting
principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission and should be read in conjunction with
the audited financial statements and notes thereto contained in Opexa’s latest
Annual Report filed with the SEC on Form 10-K. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the interim
periods presented have been reflected herein. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the full year.  Notes to the financial statements that would
substantially duplicate the disclosure contained in the audited financial
statements for the most recent fiscal year as reported in Form 10-K, have been
omitted.




Accounting
for Derivative Instruments




In
accordance with FASB ASC 815, all derivatives are to be recorded on the balance
sheet at fair value. Opexa’s derivatives are separately valued and accounted for
on our balance sheet. Fair values for securities traded in the open market and
derivatives are based on quoted market prices. Where market prices are not
readily available, fair values are determined using market based pricing models
incorporating readily observable market data and requiring judgment and
estimates.




The
pricing model Opexa used for determining fair values of its derivatives is the
Black-Scholes option-pricing model. Valuations derived from this model are
subject to ongoing internal and external verification and review. The model uses
market-sourced inputs such as interest rates, exchange rates and option
volatilities. Selection of these inputs involves management’s judgment and may
impact net income.





Fair Value
Measurements





As defined
in FASB ASC 820, fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). The Company utilizes market
data or assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk and the risks inherent in the inputs
to the valuation technique. These inputs can be readily observable, market
corroborated, or generally unobservable. The Company classifies fair value
balances based on the observability of those inputs. FASB ASC 820 establishes a
fair value hierarchy that prioritizes the inputs used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1 measurement) and the lowest
priority to unobservable inputs (level 3 measurement).





The three
levels of the fair value hierarchy defined by FASB ASC 820 are as
follows:





Level 1 –
Quoted prices are available in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency and volume
to provide pricing information on an ongoing basis. Level 1 primarily consists
of financial instruments such as exchange-traded derivatives, marketable
securities and listed equities.





Level 2 –
Pricing inputs are other than quoted prices in active markets included in level
1, which are either directly or indirectly observable as of the reported date.
Level 2 includes those financial instruments that are valued using models or
other valuation methodologies. These models are primarily industry-standard
models that consider various assumptions, including quoted forward prices for
commodities, time value, volatility factors, and current market and contractual
prices for the underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable in the
marketplace throughout the full term of the instrument, can be derived from
observable data or are supported by observable levels at which transactions are
executed in the marketplace. Instruments in this category generally include
non-exchange-traded derivatives such as commodity swaps, interest rate swaps,
options and collars.




5





Level 3 –
Pricing inputs include significant inputs that are generally less observable
from objective sources. These inputs may be used with internally developed
methodologies that result in management’s best estimate of fair
value.





There are
no financial instruments existing at September30, 2009
that are subject to fair value measurement.





Note
2.  Marketable Securities





Opexa
considers all highly liquid investments with an original maturity of three
months or less, when purchased, to be cash equivalents. Investments with
maturities in excess of three months but less than one year are classified as
short-term investments and are stated at fair market value.





At
September30,
2009, Opexa invested approximately $3.9 million in a money market account with
an average market yield of 0.03%. Interest income of $1,625 was recognized for
the nine months ended September30, 2009
in the statements of expenses.  As of September30,
2009, the Company held no auction rate securities.





Note
3.  Commitments and Contingencies




Office
Lease




In October
2005, Opexa entered into a ten-year lease for its office and research
facilities. The facility including the property is leased for a term of ten
years with two options for an additional five years each at the then prevailing
market rate. Future minimum lease payments under the non-cancellable operating
lease are $36,885 for 2009, $147,540 for 2010, $147,540 for 2011 and $584,343
for years 2012 to 2015.




License
Agreement




In July
2007, Opexa entered into a second amended and restated license agreement with
the University of Chicago that requires Opexa to make milestone payments of up
to $1,350,000 if certain late stage clinical trial and FDA approval milestones
are achieved. Opexa has determined that these payments are not probable at this
time and thus no liability has been recorded as of September30,
2009.  Effective August 6, 2009, the University of Chicago license
agreement was assigned to Novartis as part of an agreement as further described
below.




Stem
Cell Technology Agreement




Effective
August 6, 2009, the Company entered into an exclusive agreement with Novartis
for the further development of the Company’s novel stem cell technology. This
technology, which has generated preliminary data showing the potential to
generate monocyte derived islet cells from peripheral blood mononuclear cells,
was in early preclinical development at the Company. Under the terms of the
agreement, Novartis acquired the stem cell technology from the Company and
Novartis will have full responsibility for funding and carrying out all
research, development and commercialization activities. The Company received an
upfront cash payment of $3 million, and will receive an additional $1 million as
a technology transfer fee to be paid over the course of a six month
period.  The $3 million has been recorded as a gain of sale of
technology for the three and nine months ended September 30,
2009.  The first technology transfer fee milestone was completed in
September and recorded as other income and an accounts receivable at September
30, 2009.  Payment of $0.5 million was received subsequent to quarter
end.


The
Company is eligible to receive certain clinical and commercial milestone
payments as well as royalty payments from the sale of any products resulting
from the use of the technology and the Company retains an option on certain
manufacturing rights.
 Note
4.  Loan Payable





Loan
payable consists of an equipment line of $250,000 with Wells Fargo Bank of which
$118,957 was outstanding as of September30,
2009. This loan has an interest rate of 7.61% per annum, matures in May 2011 and
is secured by furniture and equipment purchased with the loan
proceeds.  Payments are due and payable monthly until
maturity.




6





Note
5. Convertible Promissory Notes





On April
14, 2009 and May 14, 2009 the Company closed a private offering consisting of
secured convertible notes for gross proceeds of approximately $1.3 million. The
notes mature in two years from the date of issue and accrue interest
at a 10% rate, compounded annually. The interest is payable at maturity in
either cash or common stock at the Company’s option.  The notes are secured
by substantially all of the Company’s assets and are convertible
into common stock, at the option of the holders, at a price of $0.50 per share.
Additionally, subject to the satisfaction of certain conditions, the
notes are mandatorily convertible into common stock, at
the Company’s option, during their term also at $0.50 per
share.  The required conditions are: (1) the Company enters into an
agreement that will fund a Phase IIb or Phase III clinical trial for the further
development of the Company’s product known as Tovaxin®,
(2) the Company’s common stock trades at a price greater than or equal
to $1.00 per share for twenty consecutive trading days, and (3) the
Company has an effective registration statement on file with the Securities and
Exchange Commission for the re-sale of the shares of common stock
issuable upon conversion of the notes .





In
connection with the issuance of convertible promissory notes, warrants to
purchase a total of 1,302,000 shares of common stock were issued to the
investors. See Note7 for details on the warrants. The convertible promissory
notes were evaluated for a beneficial conversion feature under FASB ASC 470 and
determined to have a beneficial conversion feature totaling
$89,546.  The Company recorded a debt discount of $349,947 related to
the warrants granted to the investors. Pursuant to FASB ASC 470, the discount on
the convertible promissory notes is amortized over the period between the
issuance date and the maturity of the note under the effective interest
method.  The amortized discount for the nine month period ending
September30, 2009
was $77,391.





The
Company analyzed the convertible promissory notes and the warrants for
derivative accounting consideration under FASB ASC 470. The Company determined
the embedded conversion option in the convertible promissory notes and the
warrants met the criteria for classification in stockholders equity under FASB
ASC 470. Therefore, derivative accounting was not applicable for these
convertible notes payable or their associated warrants.





The total
of the fees associated with the financing (broker commissions and legal fees)
was $158,468.  These fees will be amortized over the life of the notes
using the effective interest method.  The amortized offering costs for
the nine month period ending September30, 2009
was $31,891.





Note
6.  Options





Share-based
Compensation:




The
June 2004 Compensatory Stock Option Plan authorizes the issuance of various
forms of stock-based awards, including incentive and non-statutory stock
options, stock purchase rights, stock appreciation rights, and restricted and
unrestricted stock awards.  A total of 2,300,000 options are
authorized to be issued under the Plan through June 2014.  As of
September30,
2009, 1,735,634 options were issued and outstanding.




The
Company accounts for share-based compensation, including options and nonvested
shares, according to the provisions of FASB ASC 718, "Share Based Payment".
During the nine month period ended September30,
2009, the Company recognized share-based compensation expense of approximately
$607,566. Activity in options during the nine month period ended September30, 2009
and related balances outstanding as of that date are reflected
below.  The weighted average exercise price per share of options
granted for the nine month period ended September30, 2009
was approximately $0.42.




A
summary of share-based compensation activity for the nine month period ended
September30, 2009
is presented below:




7




Number
      of
                Shares
              
              
              Wtd.
      Avg.
                Exercise
      Price
              
              
              Wtd.
      Avg.
                Remaining
                Contract
      Term
                (#
      years)
              
              
              Intrinsic
                ValueOutstanding
      at January 1, 2009
              
              
              1,553,347
              
              
              $
              6.47Granted
              
              
              519,339
              
              
              
              0.42Exercised
              
              
              (19,100
              )
              
              
              1.14Forfeited
      and canceled
              
              
              (317,952
              )
              
              
              10.00Oustanding
      at September 30, 2009
              
              
              1,735,634
              
              
              $
              4.07
              
              
              
              6.9
              
              
              $
              2,768,500Exercisable
      at September 30, 2009
              
              
              1,308,052
              
              
              $
              4.74
              
              
              
              6.6
              
              
              $
              1,701,785




Stock
Option Activity:





Stock
option awards issued by the Company have a ten year life and have various
vesting dates that range from partial vesting upon date of grant to full vesting
on a specified date.  The Company estimates the fair value of stock
options using the Black-Scholes option-pricing model and records the
compensation expense ratably over the service period.





The fair
values of stock options granted during the nine months ended September30, 2009
and 2008 were estimated using the following assumptions:





Nine
      Months Ended
                September 30, 2009
              
              Nine
      Months Ended
                September
      30, 2008Expected
      volatility
              192%
      - 202%
              
              115%
      - 117%Expected
      term
              5 -
      5.5 years
              
              5 -
      6 yearsRisk
      free rate
              1.47%
      - 2.46%
              
              3.07%
      - 3.44%Expected
      dividends
              - 0
      -
              
              - 0
      -




Note
7. Warrants





In
connection with the closing of the April and May 2009 private offering of
convertible notes, the investors were issued four-year warrants to purchase up
to an aggregate of 1,302,000 shares of our common stock, at an exercise
price of $0.75 per share.   The estimated fair value of the
investor warrants was $478,577 and was calculated using the Black-Scholes
valuation model. The following assumptions were used: (i) no expected
dividends, (ii) risk free interest rate of 0.86% - 0.87%,
(iii) expected volatility range of 195%, - 197% and (iv) an expected life
of 4 years.  The relative fair value of these investor warrants in the
amount of $349,947 was recognized as a discount as discussed in Note 5
above.
 
 As
additional compensation, the Company issued warrants to the broker to purchase
112,140 shares of common stock also at a price of $0.75 per
share.  The estimated fair value of the broker warrants was $37,453
and was calculated using the Black-Scholes valuation model and the assumptions
stated above. This amount was included in the $158,468 discussed in Note 5
above.


Note
8. Derivative Instruments





FASB ASC
815, “Accounting for Derivatives and Hedging Activities” (“FASB ASC 815”)
specifies that a contract that would otherwise meet the definition of a
derivative, but is both (a) indexed to its own stock and
(b) classified in stockholders’ equity in the statement of financial
position would not be considered a derivative financial instrument. FASB ASC 815
provides a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock, including
evaluating the instrument’s contingent exercise and settlement provisions, and
thus able to qualify for the FASB ASC 815-10 scope exception. It also clarifies
the impact of foreign-currency-denominated strike prices and market-based
employee stock option valuation instruments on the evaluation. FASB ASC 815 will
be effective for the first annual reporting period beginning after
December 15, 2008, and early adoption is prohibited. Initially, Opexa
evaluated all of its financial instruments and determined that the Series F
warrants associated with the August 2008 financing qualified for treatment under
FASB ASC 815 and adjusted its financial statements to reflect the adoption of
the FASB ASC 815 as of January 1, 2009. The fair value of these warrants
were reclassified as of January 1, 2009 in the amount of $220,835 from
additional paid in capital to derivative liability and the cumulative effect of
the change in accounting principle in the amount of $1,755,622 was recognized as
an adjustment to the opening balance of retained earnings. The impact of FASB
ASC 815 for the year to date period ending June 1, 2009 resulted in an increase
in the derivative liability of $366,774 with a corresponding loss on derivative
instruments. On June 1, 2009, it was determined that the floor for resetting the
exercise price was met and that any further adjustments to the exercise price of
the Series F warrants would require a vote by the shareholders of the
company.  Therefore, the Series F warrants were considered indexed to
the company’s stock and qualified for the scope exception under FASB ASC 815-10
allowing for a transfer from liability classification to equity
classification.  Consequently, the remaining derivative liability of
$587,609 at June 1, 2009 was reclassified to additional paid in
capital.




8





The fair
values of the warrants on June 1, 2009, March 31, 2009 and January 1, 2009 were
estimated using the following assumptions:




June 1,
      2009
              
              
              March
      31, 2009
              
              
              January
      1, 2009Expected
      volatility
              
              194%
              
              
              236%
              
              
              220%Expected
      term
              
              1.8
      years
              
              
              1.9
      years
              
              
              2.1
      yearsRisk
      free rate
              
              0.97%
              
              
              0.81%
              
              
              0.88%Expected
      dividends
              
              -
              
              
              -
              
              
              -Fair
      value
              $
              587,609
              
              $
              661,815
              
              $
              220,835


Note
9. Subsequent Events





In October
2009 Opexa received a $500,000 payment from Novartis for completing the first of
two technology transfer milestones pursuant to the terms of the stem cell
technology acquisition agreement with Novartis further described in Note 3
above.





In October
2009, Opexa received an aggregate of $361,305 from the exercise of stock options
and various investor and underwriter warrants and issued 170,096 shares of its
common stock.




Opexa
evaluated all subsequent events through the date of this filing.




9





Item 2.  Management’s Discussion and Analysis of
Financial Condition and Results of Operations.





The
following discussion of our financial condition and results of operations should
be read in conjunction with the accompanying financial statements and the
related footnotes thereto.




Forward-Looking
Statements





Some of
the statements contained in this report discuss future expectations, contain
projections of results of operations or financial condition, or state other
"forward-looking" information. The words "believe," "intend," "plan," "expect,"
"anticipate," "estimate," "project," "goal" and similar expressions identify
such statement was made. These statements are subject to known and unknown
risks, uncertainties, and other factors that could cause the actual results to
differ materially from those contemplated by the statements. The forward-looking
information is based on various factors and is derived using numerous
assumptions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to the risks discussed in this and our other SEC
filings. We do not promise to update forward-looking information to reflect
actual results or changes in assumptions or other factors that could affect
those statements. Future events and actual results could differ materially from
those expressed in, contemplated by, or underlying such forward-looking
statements.





The
following discussion and analysis of our financial condition is as of
September30,
2009.  Our results of operations and cash flows should be read in
conjunction with our unaudited financial statements and notes thereto included
elsewhere in this report and the audited financial statements and the notes
thereto included in our Form 10-K for the year ended December 31,
2008.




Business
Overview




Unless
otherwise indicated, we use “Opexa,” “the Company,” “we,” “our” and “us” in this
annual report to refer to the businesses of Opexa Therapeutics,
Inc.




We are a
biopharmaceutical company developing autologous cellular therapies with the
potential to treat major illnesses, including multiple sclerosis (MS). This
therapy is based on our proprietary T-cell technology. The information discussed
related to our product candidates is preliminary and investigative. Our product
candidates are not approved by the Food and Drug Administration
(FDA).




Our lead
product, Tovaxin®, an
individualized T-cell therapeutic vaccine exclusively licensed from Baylor
College of Medicine, is in clinical development for the treatment for
MS.




T-Cell
Therapy




Multiple
sclerosis is the result of a person’s own T-cells attacking the myelin sheath
that coats the nerve cells of the central nervous system -. Tovaxin consists of
attenuated patient-specific myelin reactive T-cells (MRTCs) against peptides
from one or more of the primary proteins on the surface of the myelin sheath
(myelin basic protein (MBP), proteolipid protein (PLP) and myelin
oligodendrocyte glycoprotein (MOG)). Patient-specific MRTCs are expanded in
culture with specific peptides identified by our proprietary test of the
patient’s peripheral blood. The cells are then attenuated by gamma irradiation,
and returned to the patient as a subcutaneous injection. Although further
testing is necessary, results from our initial human trials appear to indicate
that these attenuated T-cells cause an immune response directed at the
autoreactive T-cells in the patient’s body, resulting in a reduction in the
level of harmful T-cells. In 2008, we completed an FDA cleared Phase IIb
clinical trial of Tovaxin which enrolled 150-patients. The trial was entitled, A
Multicenter, Randomized, Double-Blind, Placebo-Controlled Study of Subcutaneous
Tovaxin in Subjects with Clinically Isolated Syndrome or Relapsing Remitting
Multiple Sclerosis (Tovaxin for Early Relapsing-remitting MS,
“TERMS”).




The TERMS
study was a Phase IIb multi-center, randomized, double blind, placebo-controlled
trial in 150 patients with Relapsing-Remitting Multiple Sclerosis or high risk
Clinically Isolated Syndrome (CIS). The study involved 2:1 randomization with
100 patients receiving Tovaxin and 50 receiving placebo. According to the study
protocol, patients received a total of five subcutaneous injections at weeks 0,
4, 8, 12 and 24. Top-line data from the TERMS trial is as follows:




•
            Annualized
      relapse rate (ARR) for Tovaxin-treated patients was 0.214 as compared to
      0.339 for placebo-treated patients, which represented a 37% decrease in
      ARR for Tovaxin as compared to placebo in the general
      population;




10


•
            For
      patients who had more active disease as indicated by an ARR > 1 in the
      year prior to the study, Tovaxin demonstrated a 55% reduction in ARR as
      compared to placebo; and an 87% reduction in relapse rate was observed in
      Tovaxin patients in this population compared to placebo during the 24 week
      period following the administration of the full course of treatment
      (p=0.039);




•
            Patients
      who had an ARR>1 at entry demonstrated a statistically significant
      improvement in disability score as measured by the Expanded Disability
      Status Scale (EDSS) (p =0.045) for patients treated with Tovaxin as
      compared to those receiving placebo. The EDSS score is a measure of
      disability ranging from 0-10. In addition 28.1% of the Tovaxin patients
      showed an improvement in EDSS of at least one point as compared to 5.6% in
      the placebo group;






•
            Patients
      who had an ARR>1 at entry and were treated with Tovaxin experienced an
      88% reduction in brain atrophy and a 59% reduction in absolute T-2 lesion
      volume as compared to placebo;




•
            Tovaxin
      was safe and well tolerated with no serious adverse events related to
      Tovaxin treatment. The most common adverse event was injection site
      irritation.




Further
analysis of the TERMS clinical study of 150 patients with RRMS evaluated those
patients with an annualized relapse rate of  greater than or equal to
one at study entry (ARR≥1). More than 83% of the Tovaxin-treated group (n=85)
remained relapse free at one year and the annualized relapse rate after
treatment decreased to 0.20, a 42% reduction compared to placebo.  The
results of this expanded analysis confirm those found in the previously-reported
per-protocol analysis of patients in the TERMS study with ARR>1. This
post-hoc analysis which represents 86% of the total patient population in the
TERMS study was conducted to evaluate Tovaxin treatment among study patients
with the same baseline disease activity that is being targeted for inclusion in
the forthcoming Phase IIb study. Along with a marked reduction in relapses, 73%
of the Tovaxin-treated patients with ARR≥1 showed stabilization or improvement
in MS disability, including 16.5% with a sustained improvement in the Expanded
Disability Status Scale (EDSS) of at least one full point. On MRI, the
Tovaxin-treated group also demonstrated a reduction in brain atrophy and fewer
inflammatory brain lesions that progressed to “black holes,” as compared to the
placebo-treated group. Treatment with Tovaxin was well tolerated, with no
serious adverse events reported in any Tovaxin-treated patient.




Tovaxin is
a personalized T-cell vaccine based on a patient’s individual immunologic
profile. Detailed immunology data analysis from the TERMS trial indicate that
Tovaxin can successfully induce changes in T-cell reactivity to all three
targeted myelin antigens implicated in the autoimmune attacks causing neurologic
damage in MS. These changes appear epitope-specific, are sustained for 6 months
or more, and match each patient's Tovaxin formulation. Tovaxin is not broadly
immunosuppressive, an important feature of its favorable safety
profile.




Other
Opportunities




Our
proprietary T-cell technology has enabled us to develop intellectual property
and a comprehensive sample database that may enable discovery of novel
biomarkers and other relevant peptides to be used to treat MS
patients.




Stem
Cell Therapy





Effective
August 6, 2009, the Company entered into an exclusive agreement with Novartis
for the further development of Opexa’s novel stem cell technology. This
technology, which has generated preliminary data showing the potential to
generate monocyte derived islet cells from peripheral blood mononuclear cells,
was in early preclinical development at Opexa. Under the terms of the agreement,
Novartis acquired the stem cell technology from the Company and Novartis will
have full responsibility for funding and carrying out all research, development
and commercialization activities. To date the Company has received $3.5 million
from Novartis of which $3 million was attributable to an upfront cash payment
and $0.5 million resulted from the completion of the first of two technology
transfer milestones.  The Company will receive an additional $0.5
million technology transfer fee upon the completion of the second technology
transfer milestone which is anticipated to occur within the next six months
..  The Company is also eligible to receive certain clinical and
commercial milestone payments as well as royalty payments from the sale of any
products resulting from the use of the technology and the Company retains an
option on certain manufacturing rights.




11




Critical
Accounting Policies




General




Our
discussion and analysis of our financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the U.S. The
preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities
and expenses. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions. The Company’s significant accounting policies are disclosed in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2008.  The Company has not materially changed its significant
accounting policies.




Accounting
for Derivative Instruments




FASB ASC
815, “Accounting for Derivatives and Hedging Activities” (“FASB ASC 815”)
specifies that a contract that would otherwise meet the definition of a
derivative, but is both (a) indexed to its own stock and
(b) classified in stockholders’ equity in the statement of financial
position would not be considered a derivative financial instrument. FASB ASC 815
provides a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock, including
evaluating the instrument’s contingent exercise and settlement provisions, and
thus able to qualify for the FASB ASC 815-10 scope exception. It also clarifies
the impact of foreign-currency-denominated strike prices and market-based
employee stock option valuation instruments on the evaluation. FASB ASC 815 will
be effective for the first annual reporting period beginning after
December 15, 2008, and early adoption is prohibited. Initially, Opexa
evaluated all of its financial instruments and determined that the Series F
warrants associated with the August 2008 financing qualified for treatment under
FASB ASC 815  and adjusted its financial statements to reflect the
adoption of the FASB ASC 815 as of January 1, 2009. The fair value of these
warrants were reclassified as of January 1, 2009 in the amount of $220,835
from additional paid in capital to derivative liability and the cumulative
effect of the change in accounting principle in the amount of $1,755,622 was
recognized as an adjustment to the opening balance of retained earnings. The
impact of FASB ASC 815 for the year to date period ending June 1, 2009 resulted
in an increase in the derivative liability of $366,774 with a corresponding loss
on derivative instruments. On June 1, 2009, it was determined that the floor for
resetting the exercise price was met and that any further adjustments to the
exercise price of the Series F warrants would require a vote by the shareholders
of the company.  Therefore, the Series F warrants were considered
indexed to the company’s stock and qualified for the scope exception under FASB
ASC 815-10 allowing for a transfer from liability classification to equity
classification.  Consequently, the remaining derivative liability of
$587,609 at June 1, 2009 was reclassified to additional paid in
capital.





Measuring
Fair Value





As defined
in FASB ASC 820, fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). The Company utilizes market
data or assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk and the risks inherent in the inputs
to the valuation technique. These inputs can be readily observable, market
corroborated, or generally unobservable. The Company classifies fair value
balances based on the observability of those inputs. FASB ASC 820 establishes a
fair value hierarchy that prioritizes the inputs used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1 measurement) and the lowest
priority to unobservable inputs (level 3 measurement).





The three
levels of the fair value hierarchy defined by FASB ASC 820 are as
follows:





Level 1 –
Quoted prices are available in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency and volume
to provide pricing information on an ongoing basis. Level 1 primarily consists
of financial instruments such as exchange-traded derivatives, marketable
securities and listed equities.





Level 2 –
Pricing inputs are other than quoted prices in active markets included in level
1, which are either directly or indirectly observable as of the reported date.
Level 2 includes those financial instruments that are valued using models or
other valuation methodologies. These models are primarily industry-standard
models that consider various assumptions, including quoted forward prices for
commodities, time value, volatility factors, and current market and contractual
prices for the underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable in the
marketplace throughout the full term of the instrument, can be derived from
observable data or are supported by observable levels at which transactions are
executed in the marketplace. Instruments in this category generally include
non-exchange-traded derivatives such as commodity swaps, interest rate swaps,
options and collars.




12





Level 3 –
Pricing inputs include significant inputs that are generally less observable
from objective sources. These inputs may be used with internally developed
methodologies that result in management’s best estimate of fair
value.





As
required by FASB ASC 820, financial assets and liabilities are classified in
their entirety based on the lowest level of input that is significant to the
fair value measurement. The Company’s assessment of the significance of a
particular input to the fair value measurement requires judgment, and may affect
the valuation of fair value assets and liabilities and their placement within
the fair value hierarchy levels.





There are
no financial instruments existing at September30, 2009
that are subject to fair value measurement.




Results
of Operations and Financial Condition




Three
Months Ended September 30, 2009 Compared with the Three Months Ended September
30, 2008





Net Sales.We
recorded no sales for the three months ended September30, 2009
and 2008.




Research and
Development Expenses.Research and development expense was
approximately $0.5 million for the three months ended September30, 2009, compared to approximately $2.4
million for the threemonths ended September30, 2008. The decrease in expenses was
primarily due to the completion of the Phase IIb clinical trial in August 2008,
closing the extension trial, a reduction in staff, and a decrease in stock
compensation expense. We have made and expect to continue to make substantial
investments in research and development in order to develop and market our
technology. We expense research and development costs as
incurred..




General and Administrative Expenses.General and administrative expense was approximately $666,000 for the
three months ended September30,
2009, as compared to approximately $661,000, for the three months ended
September30,
2008.   Expenses increased due to a senior management bonus
accrual and increased legal fees which were largely offset by a decrease in
stock compensation expense, overhead expenses, board compensation fees and a
reduction in staff.




Gain on sale of
technology.Gain on sale of assets for the three months ended
September 30, 2009 was $3 million compared to $-0- for the three months ended
September 30, 2008.  The gain is attributable to the sale of the
Company’s stem cell technology program to Novartis for an upfront payment of $3
million.  As there was no cost basis associated with the stem cell
assets on the Company’s financial statements, the entire upfront payment was
recognized as a gain on sale.




Other income and expense,
net.Other income for the three months ended September 30,
2009 was $0.5 million compared to $-0- for the three months ended September 30,
2008.  The increase in other income is attributable to the completion
of the initial $0.5 million technology transfer fee milestone pursuant to the
terms of the stem cell technology acquisition agreement with Novartis which was
recorded as an accounts receivable at September 30, 2009 and received subsequent
to quarter end.




Interest
Expense.Interest expense was $69,901
for the three months ended September30, 2009, compared to $4,553 for the
three months ended September30, 2008. The increase in interest
expense was primarily related to the amortized interest on the convertible notes
and the amortization of the financing fees over the life of the note with the
balance related to interest on the equipment line loan
payable.   Interest expense for the three months ended
September30, 2008 related solely to the loan
payable on the equipment line.




Interest
Income.Interest
income was $131 for the three months ended September30, 2009 compared to $23,681 for the
three months ended September30, 2008.  The decrease was
due to the reduction in available cash balances and a reduction in interest
rates.




13





Net income
(loss).We had net income
for the three months ended September30, 2009, of approximately $2.2 million,
or $0.18 per share basic and $0.14 per share diluted, compared with a net loss
of approximately $3.1 million or $0.28 per share (basic and diluted), for the
three months ended September30, 2008. The income in 2009 is
attributable to the sale of the Company’s stem cell technology program to
Novartis for an upfront payment of $3 million and a reduction of costs
associated with the Phase IIb clinical trial of Tovaxin that was completed in
2008, a reduction in staff and a decrease in stock compensation
expense.




Nine
Months Ended September 30, 2009 Compared with the Nine Months Ended September
30, 2008




Net Sales.We
recorded no sales for the nine months ended September 30, 2009 and
2008.




Research and
Development Expenses.Research and development expense was
approximately $1.7 million for the nine months ended September30, 2009 compared to approximately $7.1
million for the nine months ended September30, 2008. The decrease in expenses was
primarily due to the completion of the Phase IIb clinical trial in August 2008,
closing the extension trial, a reduction in staff, and a decrease in stock
compensation expense. We have made and expect to continue to make substantial
investments in research and development in order to develop and market our
technology. We expense research and development costs as
incurred..




General and Administrative Expenses.General and administrative expense was approximately $1.5 million for the
nine months ended September30,
2009, as compared to approximately $2.7 million, for the nine months ended
September30,
2008.  The decrease in expenses is due to a reduction in staff and a
decrease in stock compensation expense, overhead expenses, professional service
fees and board compensation fees.




Gain on sale of
technology.Gain on sale of assets for the nine months ended
September 30, 2009 was $3 million compared to $-0- for the nine months ended
September 30, 2008.  The gain is attributable to the sale of the
Company’s stem cell technology program to Novartis for an upfront payment of $3
million.  As there was no cost basis associated with the stem cell
assets on the Company’s financial statements, the entire upfront payment was
recognized as a gain on sale.




Other income and expense,
net.Other income for the nine months ended September 30, 2009
was $0.5 million compared to $-0- for the nine months ended September 30,
2008.  The increase in other income is attributable to the completion
of the initial $0.5 million technology transfer fee milestone pursuant to the
terms of the stem cell technology acquisition agreement with Novartis and
recorded as an accounts receivable at September 30, 2009.  Payment of
$0.5 million was received subsequent to quarter end.




Interest
Expense.Interest expense was
$122,529 for the nine months ended September30, 2009, compared to $15,573 for the
nine months ended September30, 2008. The increase in interest
expense was primarily related to the amortized interest on the convertible notes
and the amortization of the financing fees over the life of the notes with the
balance related to interest on the equipment line loan
payable.   The interest expense for the nine months ended
September30, 2008 related solely to the loan
payable on the equipment line.




Gain (loss) on derivative instruments
liabilities, net.We recognized a loss on
derivative instruments of $366,774 for the nine months ended September30,
2009. This loss is a result of the net unrealized (non-cash) change in the fair
value of our derivative instrument liabilities related to warrants associated
with the August 2008 financing which had been accounted for under FASB ASC 815
and which accounting treatment was discontinued on June 1, 2009.




Interest
Income.Interest
income was $1,625, for the nine months ended September30, 2009 compared to $92,885 for the
nine months ended September30, 2008.  The decrease was
due to the reduction in available cash balances and a reduction in interest
rates.




Net loss.We had a net loss for the nine months
ended September30, 2009, of approximately $0.3 million,
or $0.02 per share (basic and diluted), compared with a net loss of
approximately $9.9 million or $0.99 per share (basic and diluted), for the nine
months ended September30, 2008. The decrease in net loss is
primarily due to the $3 million gain on sale of technology, a reduction of costs
associated with the Phase IIb clinical trial of Tovaxin that was completed in
2008, a reduction in staff and a decrease in stock compensation
expense.




14




Liquidity
and Capital Resources




Historically,
we have financed our operations primarily from the sale of debt and equity
securities. As of September30, 2009
we had cash and cash equivalents of approximately $4 million.  The
Company’s current burn rate is approximately $250,000 per month. Effective
August 6, 2009, the Company completed an asset sale of the Company’s stem cell
technology and has received to date proceeds of $3.5 million The Company
believes that it has sufficient liquidity to support its operations, at current
levels, through December 2010.  The Company does not maintain any
external lines of credit, or have commitments for equity funds, and should it
need any additional capital in the future, management will be reliant upon “best
efforts” debt or equity financings.




Off-Balance
Sheet Arrangements




None.




Recent
Accounting Pronouncements





For the
period ended September 30, 2009, there were no other changes to our critical
accounting policies as identified in our annual report on Form 10-K for the year
ended December 31, 2008.





Item 3. Quantitative and Qualitative Disclosures About Market
Risk.





Not
Applicable.





Item 4. Controls and Procedures.




Disclosure
Controls and Procedures.




We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
to the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized, and reported within the
time periods specified by the Securities and Exchange Commission’s rules and
forms, and that information is accumulated and communicated to our management,
including our principal executive and principal financial officer (whom we refer
to in this periodic report as our Certifying Officer), as appropriate to allow
timely decisions regarding required disclosure. Our management evaluated, with
the participation of our Certifying Officer, the effectiveness of our disclosure
controls and procedures as of September 30, 2009, pursuant to
Rule 13a-15(b) under the Securities Exchange Act. Based upon that
evaluation, our Certifying Officer concluded that, as of September 30, 2009, our
disclosure controls and procedures were effective.




Changes
in Internal Control Over Financial Reporting.




There were
no changes in our internal control over financial reporting that occurred during
our most recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.  We will continue to evaluate the effectiveness of internal
controls and procedures on an on-going basis.




15







PART
II




OTHER
INFORMATION





Item 1.  Legal Proceedings.





None.





Item 1A.  Risk Factors.





This Item
1A should be read in conjunction with “Item 1A. Risk Factors” in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2008.




Our
ability to raise additional funding is uncertain.




We
anticipate that we will need to raise additional working capital in
2010.  As we have no external sources of debt or equity capital
committed for funding, we must rely upon best efforts third-party debt or equity
funding and we can provide no assurance that we will be successful in any
funding effort. The timing and degree of any future capital requirements will
depend on many factors, including:




•
            our
      ability to establish, enforce and maintain strategic arrangements for
      research, development, clinical testing, manufacturing and
      marketing;




•
            the
      accuracy of the assumptions underlying our estimates for capital needs in
      2010 and beyond;




•
            scientific
      progress in our research and development
  programs;




•
            the
      magnitude and scope of our research and development
    programs;




•
            our
      progress with preclinical development and clinical
  trials;




•
            the
      time and costs involved in obtaining regulatory
  approvals;




•
            the
      costs involved in preparing, filing, prosecuting, maintaining, defending
      and enforcing patent claims; and




•
            the
      number and type of product candidates that we
  pursue.




Additional
equity financings could result in significant dilution to our stockholders.
Further, if additional funds are obtained through arrangements with
collaborative partners, these arrangements may require us to relinquish rights
to some of our technologies, product candidates or products that we would
otherwise seek to develop and commercialize ourselves. If sufficient capital is
not available we may not be able to continue operations as proposed requiring us
to modify our business plan, curtail various aspects of our operations or cease
operations.





Item
2.  Unregistered Sales of Equity
Securities and Use of Proceeds.





None.





Item 3.  Defaults Upon Senior
Securities.





None.





Item 4.  Submission of Matters to a Vote of Security
Holders.





None.





Item 5.  Other Information.





None.




16





Item 6.  Exhibits.






Exhibit
      31.1*
            Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002.Exhibit
      32.1*
            Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002.


__________________




Filed
herewith







SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.






OPEXA THERAPEUTICS,
      INC.Date:
      November 3, 2009
            By:
            /s/  Neil
      K.
WarmaNeil
      K. WarmaPresident
      and Chief Executive Officer(Principal Executive
      Officer)Acting
      Chief Financial Officer(Principal
      Financial and Accounting Officer)






17