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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007.
 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: 000-21291
 
 Introgen Therapeutics, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    74-2704230(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)301 Congress Avenue,
    
    78701Suite 1850 Austin, Texas
    
    (Zip Code)(Address of principal executive offices)
 Registrants telephone number, including area code:
(512) 708-9310
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.001 par value per share
Securities registered pursuant to Section 12(g) of the Act:
 o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



INTROGEN THERAPEUTICS, INC.
 ANNUAL REPORT ON FORM 10-K
  
 TABLE OF CONTENTS
 PART IItem 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    30Item 1B.
    
    Unresolved Staff Comments
    
    
    45Item 2.
    
    Properties
    
    
    45Item 3.
    
    Legal Proceedings
    
    
    46Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    46PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases
of Equity Securities
    
    
    47Item 6.
    
    Selected Financial Data
    
    
    49Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    49Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    70Item 8.
    
    Financial Statements and Supplementary Data
    
    
    71Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    71Item 9A.
    
    Controls and Procedures
    
    
    71Item 9B.
    
    Other Information
    
    
    71PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    72Item 11.
    
    Executive Compensation
    
    
    72Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder
Matters
    
    
    72Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    72Item 14.
    
    Principal Accounting Fees and Services
    
    
    72PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    72Signatures
    
    
    78Employment AgreementList of SubsidiariesConsent of Independent Registered Public Accounting FirmCertification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906
  2




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PART I
 
 Item 1. Business
 This Annual Report on Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (Securities Act) and Section 21E of the
Securities Exchange Act of 1934, as amended (Exchange Act). These statements address our future
operations, financial condition, business strategies and other prospective items as well as the
statements below under Item 1A. Risk Factors, and include, among other subjects, matters
concerning our expectations regarding:
 
    
    Our expectations regarding various regulatory applications, procedures and approvals
relating to our product candidates, including but not limited to our expectations regarding
the timing of such applications, procedures and approvals;
    
    The growth of our operations, business and revenues and the growth rate of our costs
and expenses;
    
    Future increases in our research and development, sales and marketing and general and
administrative expenses;
    
    The sufficiency of our existing cash, cash equivalents, marketable securities and cash
generated from operations;
    
    Better efficacy of our product candidates through the use of biomarkers;
    
    Application of our research and development expertise to other diseases that result
from cellular dysfunction and uncontrolled cell growth; and
    
    Access to additional working capital.
 The words believe, expect, anticipate and other similar expressions generally identify
forward-looking statements. These forward-looking statements are based on our current expectations
and entail various risks and uncertainties. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements. We undertake no
obligation to revise or publicly release the results of any revision to these forward-looking
statements. These forward-looking statements are subject to certain risks and uncertainties that
could cause our actual results to differ materially from those reflected in the forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited
to, those discussed in this Annual Report on Form 10-K, and in particular, the risks discussed
under the heading Risk Factors in Part I, Item 1A of this Annual Report on Form 10-K and those
discussed in other documents we file with the Securities and Exchange Commission (SEC). Investors
should carefully review the information contained in Item 1A. Risk Factors and elsewhere in, or
incorporated by reference into, this Annual Report on Form 10-K.
 Access to Company Information
   3




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Overview
  in vivo
        4




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Background
 Targeted Therapeutics
   Delivery Systems
   An Overview of Cancer
   5




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Tumor Suppressors
   Current Treatment of Cancer
    6




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The Introgen Approach
    The Introgen Strategy
  
    
    Develop and Commercialize ADVEXIN Therapy, INGN 241, INGN 225 and INGN 401 for Multiple
Cancer Indications.We plan to continue our development programs to commercialize several
of our product candidates in multiple cancer indications, including:
 
    
    ADVEXIN therapy, using the p53 tumor suppressor;
    
    INGN 241, using the mda-7 tumor suppressor (also known as interleukin 24 or IL-24);
    
    INGN 225, using the p53 tumor suppressor as a highly specific cancer immunotherapy; and
    
    INGN 401 systemic nanoparticle therapy, using the FUS-1 tumor suppressor.
 
    
    Develop Our Portfolio of Targeted Molecular Therapies and Other Drug Products.
Utilizing our research, clinical, regulatory and manufacturing expertise, we are evaluating
development of additional molecular therapies for various cancers, including:
 
    
    INGN 234, an oral rinse or mouthwash formulation containing the p53 tumor
suppressor;
    
    INGN 402 and 403, using nanoparticle formulations for systemic delivery of the
p53 and mda-7 tumor suppressors; and
    
    INGN 007, a replication-competent viral therapy.
 
    
    Develop a Systemic Nanoparticle Administration Platform.Early pre-clinical and
clinical studies with these new nanoparticle drugs have demonstrated a good safety profile
and promising anti-cancer activity. In addition to FUS-1, we incorporate the p53 tumor
suppressor and the mda-7 tumor suppressor in these nanoparticle formulations. We also have
in-licensed technologies for systemic nanoparticle delivery of DNA, siRNA, proteins,
peptides and polypeptides.
    
    Develop the Topical Use of Tumor Suppressors.We plan to continue developing topical
product candidates for the treatment or prevention of oral and dermal cancers, specifically
INGN 234 referred to above. We believe these treatments are a logical extension of our
loco-regional delivery of cancer therapies and
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represent attractive product candidates since pre-malignant and malignant cells can be
exposed to natural, biological tumor suppressors and DNA repairing agents.
    
    Establish Targeted Sales and Marketing Capabilities.The oncology market can be
effectively addressed by a small, focused sales force because it is characterized by a
concentration of specialists in cancer centers and oncology clinics. We believe we can
address this market by a combination of building a direct sales force as part of the
ADVEXIN therapy commercialization process and pursuing marketing and distribution
agreements with corporate partners for ADVEXIN therapy as well as additional products.
    
    Expand Our Market Focus to Non-Cancer Indications.We plan to leverage our scientific,
research and process competencies in molecular therapy and vector development to pursue
targeted molecular therapies for a variety of other diseases and conditions. While our
primary emphasis at this time is on cancer, we believe these therapies could hold promise
for diseases such as cardiovascular disease and rheumatoid arthritis, which, like cancer,
result from cellular dysfunction or uncontrolled cell growth.
  Product Development Overview
 ADVEXIN Therapy (p53)
 ADVEXIN Therapy Overview and Regulatory Status
      8




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9




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
    
    Conduct efficacy and biomarker analyses of one or both of our two Phase 3 clinical
trials for recurrent head and neck cancer and plan to submit those date to the FDA and EMEA
in support of ADVEXIN therapy registration programs;
    
    Complete filings with the EMEA in support of an Exceptional Circumstance Approval
Application for Li-Fraumeni Syndrome cancers.
   ADVEXIN Therapy as a Targeted Molecular Therapy
   10




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11




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Other ADVEXIN Therapy Activities
 Cancer.
 Clinical Cancer Research.
  Clinical
Cancer Research Proceedings of the American Society for Clinical Oncology
 12




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Molecular Cancer Therapeutics .
 The Laryngoscope
   INGN 241 (mda-7)
    13




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Cancer Gene Therapy
  Molecular Therapy
    14




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Molecular Cancer Therapeutics
 Cancer Letters
 in vivo
     Journal of Leukocyte Biology Cancer Gene Therapy Cancer Research Molecular Therapy Oncogene Surgery International Immunopharmacolgy.
  15




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INGN 225 (p53 molecular immunotherapy)
 Current Opinion in Drug Discovery & Development
    INGN 234 (p53 topical)
    INGN 401 (FUS-1)
   16




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Cancer Gene Therapy Cancer Research.
 INGN 402 and INGN 403 (nanoparticle formulations of p53 and mda-7, respectively)
 DNA and Cell Biology
 INGN 007 (oncolytic viral therapy)
 Cancer Research
 Other Research and Development Programs
  17




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Cancer Research Cancer Wise
   Introgen Enabling Technologies
  Nanoscale Viral Delivery Systems
  Nanoparticle Systemic Delivery Platform
   18




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DNA and Cell Biology
 Replicating Viral Delivery Systems
  Additional Enabling Technologies
  
    
    Multi-Molecule Vector System.This technology is designed to combine multiple
therapeutic molecules with a vector. This approach has the potential for use with both
viral and non-viral delivery systems to allow the activity of more than one molecular
therapy at a time for disease treatment.
    
    Pro-Apoptotic Molecule Delivery System.This technology is designed to allow the
activity of pro-apoptotic, or apoptosis-inducing, molecules during treatment only, while
temporarily suppressing the ability of the apoptotic molecule to kill producer cells during
production. This system could facilitate more efficient production of pro-apoptotic agents.
    
    Tissue-Specific Targeting Systems.This technology is designed to promote the activity
of the therapeutic molecule in only those cells which have been affected by the disease
being targeted. It is intended to be applied to both viral and non-viral vectors.
 Manufacturing and Process Development
   19




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Business and Collaborative Arrangements
 Alliance with Colgate-Palmolive Company
    VirRx, Inc.
    20




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Silence Therapeutics plc
  Academic and Other Collaborations
  The University of Texas M. D. Anderson Cancer Center
    National Cancer Institute
   21




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Research and License Agreements for mda-7 Tumor Suppressor Programs
  Moffitt Cancer Center
  Research and Development Expense
  Marketing and Sales
  Patents and Intellectual Property
 Our Portfolio
   22




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Adenoviral p53 Compositions and Therapies
   Combination Therapy with Tumor Suppressors, including p53 and mda-7/IL24
  
    
    DNA-damaging agents and conventional chemotherapies;
    
    Immunotherapeutics (e.g., Herceptin®);
    
    COX-2 inhibitors (e.g., celecoxib);
    
    Hsp90 inhibitors;
    
    Proteasome inhibitors;
    
    VEGF inhibitors (e.g., Avastin®); and
    
    EGFr inhibitors (e.g., Tarceva®, Iressa®).
   Adenovirus Production, Purification and Formulation
  23




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Other Tumor Suppressors
  Other Therapeutic, Composition and Process Technologies
   Benzimidazole Small Molecule Cancer Therapy
  Trade Secrets
   24




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Government Regulation
 The Drug Approval Process
  
    
    Completion of preclinical laboratory and animal testing;
    
    Submission of an investigational new drug application, or IND, which must become
effective before clinical trials may begin;
    
    Performance of adequate and well controlled human clinical trials to establish the safety
and efficacy of the proposed drug or biologics intended use; and
    
    In the case of a new drug, approval by the FDA of a New Drug Application (NDA) or of a
BLA for a biologic.
    
    A complex, lengthy, cumbersome and expensive process such that we cannot be certain that
we will receive FDA approval for any of our products.
  Pre-Clinical Testing
  
    
    The results of previous testing;
    
    How, where and by whom the clinical trials will be conducted;
    
    The chemical structure of the compound;
    
    The method by which it is believed to work in the human body;
    
    Any toxic effects of the compound found in the animal trials; and
    
    How the compound is manufactured.
 Clinical Trials
  25




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National Institutes of Health
   Marketing Applications
      26




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Orphan Drug Act
    Off-Label Use
  New England Journal of
Medicine
 Fast Track Products
   27




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
    
    Priority Review.  Under FDA policies, a product is eligible for priority review, or
review within a six-month time frame from the time an NDA or BLA is accepted for filing, if
the product provides a significant improvement compared to marketed products in the
treatment, diagnosis, or prevention of a disease. A Fast Track designated product would
ordinarily meet the FDAs criteria for priority review. We cannot guarantee any of our
products will receive a priority review designation, or if a priority designation is
received, that review or approval will be faster than conventional FDA procedures.
    
    Accelerated Approval.  Under the FDAs Accelerated Approval regulations, the FDA is
authorized to approve products that have been studied for their safety and effectiveness in
treating serious or life-threatening illnesses and that provide meaningful therapeutic
benefit to patients over existing treatments based upon either a surrogate endpoint that is
reasonably likely to predict clinical benefit or on the basis of an effect on a clinical
endpoint other than patient survival. In clinical trials, surrogate endpoints are
alternative measurements of the symptoms of a disease or condition that are substituted for
measurements of observable clinical symptoms. Accelerated Approval of an application will be
subject to Phase 4 or post-approval studies to validate the surrogate endpoint or confirm
the effect on the clinical endpoint. Failure to validate a surrogate endpoint or confirm a
clinical benefit during post-marketing studies will allow the product to be withdrawn from
the market by the FDA on an expedited basis. All promotional materials for drugs approved
under accelerated regulations are subject to prior review by the FDA.
   International
    Competition
  28




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Human Resources
  Scientific Advisory Board
  Jack A. Roth, M.D., Chairman of the Scientific Advisory Board
 29




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Daniel D. Von Hoff, M.D., F.A.C.P.
 Elizabeth Grimm, Ph.D
 
 Item 1A. Risk Factors
 If we are unable to commercialize ADVEXIN therapy in various markets for multiple indications,
particularly for the treatment of recurrent head and neck cancer, our business will be harmed.
  If we fail to comply with FDA, EMEA or other foreign regulatory authority requirements or encounter
delays or difficulties in clinical trials for our product candidates we may not obtain regulatory
approval of some or all of our product candidates on a timely basis, if at all.
     30




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
    
    the product candidate is less effective and/or more toxic than current therapies;
    
    the presence of unforeseen adverse side effects of a product candidate, including its
delivery system;
    
    a longer than expected time required to determine whether or not a product candidate is
effective;
    
    the death of patients during a clinical trial, even if the product candidate did not
cause those deaths;
    
    the failure to enroll a sufficient number of patients in our clinical trials;
    
    the inability to produce sufficient quantities of a product candidate to complete the
trials; or
    
    the inability to commit the necessary resources to fund the clinical trials.
    Even if our products are approved by regulatory authorities, if we fail to comply with ongoing
regulatory requirements, or if we experience unanticipated problems with our products, these
products could be subject to restrictions or withdrawal from the market.
  31




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Failure to comply with foreign regulatory requirements governing human clinical trials and
marketing approval for drugs could prevent us from selling our products in foreign markets, which
may adversely affect our operating results and financial conditions.
  We have a history of operating losses, expect to incur significant additional operating losses and
may never become profitable.
   If we continue to incur operating losses for a period longer than we anticipate and fail to obtain
the capital necessary to fund our operations, we will be unable to advance our development program
and complete our clinical trials.
   
    
    an acceleration of the number, size or complexity of our clinical trials;
    
    slower than expected progress in developing ADVEXIN therapy, INGN 241 or other product
candidates;
    
    higher than expected costs to obtain regulatory approvals;
    
    higher than expected costs to pursue our intellectual property strategy;
    
    higher than expected costs to further develop and scale up our manufacturing
capability;
    
    higher than expected costs to develop our sales and marketing capability;
    
    faster than expected rate of progress and cost of our research and development and
clinical trial activities;
    
    a decrease in the amount and timing of milestone payments we receive from
collaborators;
 32




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
    
    higher than expected costs of preparing an application for FDA, EMEA or other foreign
regulatory approval of ADVEXIN therapy;
    
    higher than expected costs of developing the processes and systems to support FDA, EMEA
or other foreign regulatory approval of ADVEXIN therapy;
    
    an increase in our timetable and costs for the development of marketing operations and
other activities related to the commercialization of ADVEXIN therapy and our other product
candidates;
    
    a change in the degree of success in our Phase 3 clinical trial of ADVEXIN therapy and
in the clinical trials of our other products;
    
    the emergence of competing technologies and other adverse market developments; or
    
    changes in or terminations of our existing collaboration and licensing arrangements.
  If we cannot maintain our existing corporate and academic arrangements and enter into new
arrangements, we may be unable to develop products effectively, or at all.
  If we do not continue to receive grant funding from federal agencies and others we may be unable to
continue our research and development programs for certain of our product candidates at current
levels or in the manner we have planned for the future.
  33




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If we are not able to create effective collaborative marketing relationships, we may be unable to
market our products successfully or in a cost-effective manner.
  Serious and unexpected side effects attributable to molecular therapies may result in governmental
authorities imposing additional regulatory requirements or a negative public perception of our
products.
     Patient enrollment may be slow and patients may discontinue their participation in clinical
studies, which may negatively impact the results of these studies and extend the timeline for
completion of our and our collaborators development programs for our product candidates.
  
    
    the size of the patient population;
    
    the nature of the clinical protocol requirements;
 34




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
    
    the diversion of patients to other trials or marketed therapies;
    
    the ability to recruit and manage clinical centers and associated trials;
    
    the proximity of patients to clinical sites; and
    
    the patient eligibility criteria for the study.
  We cannot predict the safety profile of the use of ADVEXIN therapy when used in combination with
other therapies.
  If we fail to adequately protect our intellectual property rights our competitors may be able to
take advantage of our research and development efforts to develop competing drugs.
    35




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Third party claims of infringement of intellectual property could require us to spend time and
money to address the claims and could limit our intellectual property rights.
   36




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We may be subject to litigation and infringement claims that may be costly, divert managements
attention and materially harm our business.
   If we fail to meet our obligations under license agreements, we may lose our rights to key
technologies on which our business depends.
  37




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Competition and technological change may make our product candidates and technologies less
attractive or obsolete.
   Even if we receive regulatory approval to market our ADVEXIN therapy, INGN 241, INGN 225 or other
product candidates, we may not be able to commercialize them profitably.
  
    
    they are more effective than alternative treatments;
    
    their side effects are acceptable to patients and doctors;
    
    insurers and other third-party healthcare payers will provide adequate reimbursement
for them;
    
    we produce and sell them at a profit; and
    
    we market ADVEXIN therapy, INGN 241, INGN 225 and our other product candidates
effectively.
 38




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We must achieve significant market share and obtain high per-patient prices for our products to
achieve profitability.
  If we are unable to obtain adequate reimbursement from governments or third-party payors for any
products that we may develop or if we are unable to obtain acceptable prices for those products,
they may not be purchased or used and our revenues and prospects for profitability will suffer.
  
    
    a covered benefit under its health plan;
    
    safe, effective and medically necessary;
    
    appropriate for the specific patient;
    
    cost-effective; and
    
    neither experimental nor investigational.
  Governments outside the United States may impose strict price controls, which may adversely affect
our revenues, if any.
   39




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If we are unable to manufacture our products in sufficient quantities or obtain regulatory
approvals for our manufacturing facilities, or if our manufacturing process is found to infringe a
valid patented process or processes of another company, then we may be unable to meet demand for
our products and lose potential revenue.
      40




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We rely on a limited number of suppliers for some of our manufacturing materials. Any problems
experienced by such suppliers could negatively affect our operations.
  If product liability lawsuits are brought against us, we may incur substantial expenses and damages
and demand for our product candidates may be reduced.
  
    
    decreased demand for our product candidates;
    
    a diversion of our management and key personnel away from our core business;
    
    injury to our reputation, significant media attention and potential harm to our
market position;
    
    withdrawal of clinical trial volunteers;
    
    substantial delay in or withdrawal of FDA, EMEA or other foreign regulatory
authority approval;
    
    costs of investigation and litigation; and
    
    substantial monetary awards to plaintiffs.
  We use hazardous materials in our business. Any claims relating to improper handling, storage, use
or disposal of these materials could significantly harm our business.
  41




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Our stock price may fluctuate substantially.
  
    
    progress and results of our pre-clinical and clinical trials;
    
    announcement of technological innovations by us or our competitors;
    
    developments concerning proprietary rights, including patent and litigation matters;
    
    publicity regarding actual or potential results with respect to products under
development by us or by our competitors;
    
    regulatory developments;
    
    the announcement of new products by us or our competitors;
    
    quarterly variations in our or our competitors results of operations;
    
    failure to achieve operating results projected by securities analysts;
    
    changes in earnings estimates or recommendations by securities analysts;
    
    developments in our industry; and
    
    general market conditions and other factors.
  If we do not progress in our programs as anticipated, our stock price could decrease.
  Our research and development efforts may not result in additional product candidates being
discovered on anticipated timelines, if at all, which could limit our ability to generate revenues.
  Recently enacted legislation may make it more difficult and costly for us to obtain regulatory
approval of our product candidates and to produce, market and distribute our existing products.
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Any acquisition we might make may be costly and difficult to integrate, divert management resources
or dilute stockholder value.
  
    
    potential exposure to unknown liabilities of acquired companies;
    
    the difficulty and expense of assimilating the operations and personnel of acquired
businesses;
    
    diversion of management time and attention and other resources;
    
    loss of key employees and customers as a result of changes in management;
    
    the incurrence of amortization expense; and
    
    possible dilution to our stockholders.
  If we lose key personnel or are unable to attract and retain additional, highly skilled personnel
required to develop our products or obtain new collaborations, our business will suffer.
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Future changes in financial accounting standards or practices or existing taxation rules or
practices may cause adverse unexpected financial reporting fluctuations and affect our reported
results of operations.
  Our corporate governance structure, including provisions in our certificate of incorporation and
by-laws, and Delaware law, may prevent a change in control or management that stockholders may
consider desirable.
   Our executive officers, directors and principal stockholders will maintain the ability to control
all matters submitted to stockholders for approval.
  Some of our insiders are parties to transactions with us that may cause conflicting obligations.
  44




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Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
    45




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Item 3. Legal Proceedings
   
 Item 4. Submission of Matters to a Vote of Security Holders
 
 46




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
 Market and Equityholder Information
  High
    
    LowFiscal Year Ended December 31, 2006:First Fiscal Quarter
    
    $
    6.45
    
    
    $
    4.91Second Fiscal Quarter
    
    
    5.62
    
    
    
    3.50Third Fiscal Quarter
    
    
    4.88
    
    
    
    3.78Fourth Fiscal Quarter
    
    
    5.20
    
    
    
    4.28Fiscal Year Ended December 31, 2007:First Fiscal Quarter
    
    $
    6.25
    
    
    $
    3.50Second Fiscal Quarter
    
    
    6.35
    
    
    
    3.52Third Fiscal Quarter
    
    
    4.85
    
    
    
    3.06Fourth Fiscal Quarter
    
    
    4.68
    
    
    
    2.75
  Dividend Policy
  Stock Repurchases
  Securities Authorized for Issuance Under Equity Compensation Plans
  47




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Stock Price Performance Graph
 COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
 
 *
    
    $100 invested on 12/31/02 in stock or index-including reinvestment of dividends.Fiscal year ending December 31.  48




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Item 6. Selected Financial Data
  Year Ended December 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007Statement of Operations Data:Contract services, grants and other revenue
    
    $
    304
    
    
    $
    1,808
    
    
    $
    1,867
    
    
    $
    1,151
    
    
    $
    1,011Operating costs and expense:Research and development
    
    
    14,973
    
    
    
    20,474
    
    
    
    21,400
    
    
    
    18,221
    
    
    
    19,102General and administrative
    
    
    6,102
    
    
    
    6,597
    
    
    
    7,834
    
    
    
    13,163
    
    
    
    13,955Total operating costs and expense
    
    
    21,075
    
    
    
    27,071
    
    
    
    29,234
    
    
    
    31,384
    
    
    
    33,057Loss from operations
    
    
    (20,771
    )
    
    
    (25,263
    )
    
    
    (27,367
    )
    
    
    (30,233
    )
    
    
    (32,046
    )Interest income (expense), net
    
    
    393
    
    
    
    (191
    )
    
    
    166
    
    
    
    343
    
    
    
    593Other income
    
    
    1,052
    
    
    
    1,067
    
    
    
    1,098
    
    
    
    1,089
    
    
    
    1,004Loss before non-controlling and minority
interests in consolidated subsidiaries
    
    
    (19,326
    )
    
    
    (24,387
    )
    
    
    (26,103
    )
    
    
    (28,801
    )
    
    
    (30,449
    )Non-controlling and minority interests in
consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Net loss
    
    $
    (19,326
    )
    
    $
    (24,387
    )
    
    $
    (26,103
    )
    
    $
    (28,801
    )
    
    $
    (30,455
    )Net loss per share, basic and diluted
    
    $
    (0.84
    )
    
    $
    (0.91
    )
    
    $
    (0.80
    )
    
    $
    (0.77
    )
    
    $
    (0.70
    )Shares used in computing basic and diluted
net loss per share
    
    
    22,902
    
    
    
    26,943
    
    
    
    32,780
    
    
    
    37,594
    
    
    
    43,805
 December 31,2003
    
    2004
    
    2005
    
    2006
    
    2007Balance Sheet Data:Cash, cash equivalents, and
short-term investments
    
    $
    36,397
    
    
    $
    38,180
    
    
    $
    33,122
    
    
    $
    41,345
    
    
    $
    14,905Working capital
    
    
    31,091
    
    
    
    31,981
    
    
    
    29,529
    
    
    
    39,957
    
    
    
    18,536Total assets
    
    
    44,483
    
    
    
    48,057
    
    
    
    42,981
    
    
    
    54,161
    
    
    
    30,483Notes payable, net of current portion
    
    
    6,714
    
    
    
    7,901
    
    
    
    7,784
    
    
    
    7,448
    
    
    
    7,155Deferred revenue and other, long-term
    
    
    876
    
    
    
    1,132
    
    
    
    1,404
    
    
    
    923
    
    
    
    79Accumulated deficit
    
    
    (92,969
    )
    
    
    (117,356
    )
    
    
    (143,459
    )
    
    
    (172,260
    )
    
    
    (202,715
    )Stockholders equity
    
    
    31,285
    
    
    
    32,166
    
    
    
    27,011
    
    
    
    37,048
    
    
    
    16,003
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis should be read in conjunction with our Condensed
Consolidated Financial Statements and the related notes thereto included in this Annual Report on
Form 10-K. The discussion and analysis contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements include the
statements under Item 1A. Risk Factors. These forward-looking statements are based on our current
expectations and entail various risks and uncertainties. Our actual results could differ materially
from those projected in the forward-looking statements as a result of various factors, including
those set forth under Item 1A. Risk Factors.
 Overview
  49




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
    
    Cash, cash equivalents and short-term investments of $14.9 million; and
    
    Marketable securities of $10.2 million for which we paid approximately $3.0 million and
which we sold in their entirety subsequent to December 31, 2007 for net proceeds of $7.4
million.
  Year Ended December 31,2005
    
    2006
    
    2007Operating activities
    
    $
    21,748
    
    
    $
    19,208
    
    
    $
    23,946Purchases of property and equipment
    
    
    509
    
    
    
    185
    
    
    
    288Payment of offering costs related to sale of common stock
    
    
    
    
    
    
    
    
    
    
    1,872Principal payments on notes payable
    
    
    707
    
    
    
    901
    
    
    
    906
  Year Ended December 31,2005
    
    2006
    
    2007Sales of our common stock
    
    $
    19,585
    
    
    $
    27,702
    
    
    $
    Proceeds from notes payable
    
    
    772
    
    
    
    727
    
    
    
    282Proceeds from stock option exercises
    
    
    615
    
    
    
    65
    
    
    
    296
     50




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##### Table of Contents



Subsidiaries
  Introgen Global Limited and Gendux Molecular Limited
  
    
    Introgen Global Limited (IGL), incorporated in the Cayman Islands and owned 100%
by Introgen;
    
    Gendux Pharmaceuticals Limited (GPL), owned approximately 85% by IGL; and
    
    Gendux Molecular Limited (GML), incorporated in Ireland owned 100% by IGL.
   Introgen Research Institute
  51




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##### Table of Contents



Magnum Therapeutics Corporation
  Marketable Securities
  Mortgage Note Payable
  Stock Options and Stock Purchase Warrants
 Stock Options
  
    
    Options issued to members of our Board of Directors vest monthly over 12 months.
    
    Options issued to our Chief Executive Officer vest 100% on the date of grant.
    
    Options issued to all other persons vest over four years at the rate of 25% per year on
each annual anniversary of the grant date.
  52




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##### Table of Contents



Restricted Stock
  Stock Purchase Warrants
   Critical Accounting Policies
 Use of Estimates.
 Cash, Cash Equivalents and Short-term Investments.
 Marketable Securities.
 Revenue Recognition.
 
    
    Contract services revenue is recognized when the related services are completed and
delivered to the customer. We record deferred revenue for cash received for which the
related work has not been completed and/or the related expense has not been incurred.
    
    Grant revenue is recognized when research expense relating to a grant is incurred
and the work contemplated under the grant has been performed.
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##### Table of Contents




    
    Rental income from the sublease of laboratory space to third parties under leases
that have variable monthly rent amounts over the term of the lease is recognized on a
straight-line basis over the term of the lease. Cash payments received in excess of
rental income recognized is recorded as deferred revenue, which then declines when the
straight-line basis rental income is greater than the cash received. Rental income is
included in other income in the accompanying condensed consolidated statement of
operations.
 Research and Development Costs.
  Share-Based Compensation.
    Recently Issued Accounting Pronouncements
  54




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##### Table of Contents




    
    It applies to all tax positions accounted for under SFAS 109. FIN 48 refers to tax
positions as positions taken in a previously filed tax return or positions expected to be
taken in a future tax return which are reflected in measuring current or deferred income
tax assets and liabilities reported in the financial statements.
    
    It clarifies that a tax benefit may be reflected in the financial statements only if it
is more likely than not that a company will be able to sustain the tax return position,
based on its technical merits. If a tax benefit meets this criterion, it should be
measured and recognized based on the largest amount of benefit that is cumulatively greater
than 50% likely to be realized.
    
    It requires we make qualitative and quantitative disclosures, including:
 o
    
    A discussion of reasonably possible changes that might occur in unrecognized
tax benefits over the next 12 months;o
    
    A description of open tax years by major jurisdictions; ando
    
    A roll-forward of all unrecognized tax benefits, presented as a reconciliation
of the beginning and ending balances of the unrecognized tax benefits on an aggregated
basis.
     55




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##### Table of Contents




    
    The ownership interests in subsidiaries held by parties other than the parent be
clearly identified, labeled, and presented in the consolidated statement of financial
position within equity, but separate from the parents equity;
    
    The amount of consolidated net income attributable to the parent and to the
non-controlling interests be clearly identified and presented on the face of the
consolidated statement of income;
    
    Entities provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the non-controlling owners.
  Results of Operations
    
    
    The future expense we will incur developing these product candidates;
    
    When we will complete our work in developing these product candidates;
    
    When, if ever, we will earn significant revenue from approved products
that might result from these product development programs.
  
    
    If we are unable to commercialize ADVEXIN therapy in various markets for multiple
indications, particularly for the treatment of recurrent head and neck cancer, our business
will be harmed;
 56




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##### Table of Contents




    
    If we fail to comply with FDA, EMEA or other foreign regulatory authority requirements
or encounter delays or difficulties in clinical trials for our product candidates, we may
not obtain regulatory approval of some or all of our product candidates on a timely basis,
if at all;
    
    Even if our products are approved by regulatory authorities, if we fail to comply with
ongoing regulatory requirements, or if we experience unanticipated problems with our
products, these products could be subject to restrictions or withdrawal from the market;
    
    Failure to comply with foreign regulatory requirements governing human clinical trials
and marketing approval for drugs could prevent us from selling our products in foreign
markets, which may adversely affect our operating results and financial conditions;
    
    If we continue to incur operating losses for a period longer than we anticipate and fail
to obtain the capital necessary to fund our operations, we will be unable to advance our
development program and complete our clinical trials;
    
    If we cannot maintain our existing corporate and academic arrangements and enter into
new arrangements, we may be unable to develop products effectively, or at all;
    
    If we are not able to create effective collaborative marketing relationships, we may be
unable to market our products successfully or in a cost-effective manner; and
    
    Even if we receive regulatory approval to market our ADVEXIN therapy, INGN 241, INGN 225
or other product candidates, we may not be able to commercialize them profitably.
  57




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##### Table of Contents



Comparison of Years Ended December 31, 2007, 2006 and 2005
  Contract Services, Grant and Other Revenue
 2005
    
    2006
    
    2007Contract services, grant and other revenue
    
    $
    1,867
    
    
    $
    1,151
    
    
    $
    1,011Percent decrease from previous period
    
    
    N/A
    
    
    
    (38
    )%
    
    
    (12
    )%
  
    
    Contract services revenue for research work we performed for third parties;
    
    Revenue earned under research grants from U. S. government agencies; and
    
    Contract manufacturing process development and product production services revenue.
  
    
    Revenue earned under research grants from U. S. government agencies; and
    
    Contract manufacturing process development and product production services revenue.
   
    
    Decreased contract manufacturing process development and product production services
revenue as a result of the completion of certain such work previously in process that was
not replaced with additional such work;
  
    
    Increased contract services revenue for research work we performed for third parties;
and
    
    Increased revenue earned under research grants from U. S. government agencies;
  
    
    Decreased revenue earned under research grants from U.S. Government agencies as a result
of us substantially completing, subsequent to the 2005 period, work to be performed under
the grant held by Magnum;
  
    
    Increased contract manufacturing process development and product production services
revenue as a result of the completion of certain contract services which allowed us to
recognize revenue for those services that had been deferred in previous periods.
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Research and Development Expense
 2005
    
    
    2006
    
    
    2007Pre-clinical stage programs expense
    
    $
    2,644
    
    
    $
    1,349
    
    
    $
    1,991Clinical stage programs expense
    
    
    15,713
    
    
    
    13,462
    
    
    
    13,478General research and development expense
    
    
    3,043
    
    
    
    3,410
    
    
    
    3,633Total research and development expense
    
    $
    21,400
    
    
    $
    18,221
    
    
    $
    19,102Percent increase (decrease) in total from previous period
    
    
    N/A
    
    
    
    (15
    )%
    
    
    5
    %
   
    
    Increased costs related to our preparation of regulatory filings with the FDA and EMEA
for ADVEXIN therapy;
  
    
    Decreased expense related to the amortization of grant rights acquired in the purchase
of Magnum as a result of the completion of our work and related funding under that grant in
the 2006 period;
    
    Decreased costs of manufacturing supplies of clinical materials as our manufacturing
activities in earlier periods provided us with adequate quantities of clinical materials to
conduct our clinical trials for the foreseeable future such that we were able to reduce
such manufacturing activities in the 2007 period;
    
    Reaching an agreement with a third party that resulted in us not having to pay certain
of their invoices that were previously included in our accounts payable;
    
    The expiration of the requirement to purchase additional shares of VirRx, discussed in
Note 10 to our Consolidated Financial Statements titled Licenses and Research Agreements
  VirRx, Inc;
    
    Decreased legal expenses associated with patents and trademarks due to the completion
of certain intellectual property legal activities. We have ongoing programs involving the
filing of additional patents and trademarks and defending the patents and trademarks we
have in place such that our expenses related to that work could increase materially in the
future; and
    
    Credits to expense resulting from the reduction of amounts previously accrued for
possible state sales and use tax liabilities. As a result of the completion of audits by
taxing authorities of our sales and use tax liability for certain prior periods, our
liability for those taxes was less than previously estimated.
  
    
    Lower costs in the 2006 period compared to the 2005 period since the 2005 period included
higher costs related to our pursuit of an initial rolling BLA filing strategy for ADVEXIN
therapy;
    
    Decreased expense related to the amortization of grant rights acquired in the purchase of
Magnum as a result of the completion of our work and related funding under that grant in the
2006 period;
    
    Decreased costs of manufacturing supplies of clinical materials as our manufacturing
activities in earlier periods provided us with adequate quantities of clinical materials to
conduct our clinical trials for the foreseeable future such that we were able to reduce such
manufacturing activities in the 2006 period; and
    
    The expiration of the requirement to purchase additional shares of VirRx, discussed in
Note 10 to our Consolidated Financial Statements titled License and Research Agreements 
VirRx, Inc.;
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##### Table of Contents




    
    Higher share-based compensation expense, which increased for the reasons discussed below
under Share-Based Compensation Expense.
 General and Administrative Expense
 2005
    
    2006
    
    2007General and administrative expense
    
    $
    7,834
    
    
    $
    13,163
    
    
    $
    13,955Percent increase from previous period
    
    
    N/A
    
    
    
    68
    %
    
    
    6
    %
   
    
    Increased legal fees incurred with respect to certain matters arising during the normal
course of our business;
    
    Increased security listing fees primarily resulting from our sale of common stock in
November and December 2006;
    
    Increased legal, accounting and professional fees related to the formation of our new
subsidiaries IGL, GPL and GML;
    
    Increased fees related to investor and public relations activities;
    
    Increased insurance costs primarily due to the effects of hurricane activity on
property insurance premiums; and
    
    Increased administrative activities in support of our preparation of regulatory filings
with the FDA and EMEA for ADVEXIN therapy;
  
    
    Decreased share-based compensation expense, which is discussed further below under
Share-Based Compensation Expense; and
    
    Decreased financial advisory fees associated with raising capital since we did not
conduct an offering of our common stock 2007 such as we did in 2006.
  Share-Based Compensation Expense
 2005
    
    2006
    
    2007Share-based compensation expense
    
    $
    1,332
    
    
    $
    7,041
    
    
    $
    6,060Percent increase (decrease) from previous period
    
    
    N/A
    
    
    
    429
    %
    
    
    (14
    )%
 60




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##### Table of Contents



s
 
    
    A decrease in the number of options granted to purchase common stock from 1.8 million
            shares in 2006 to 1.3 million shares in 2007, primarily as a result of a broad-based issue
of stock options to substantially all employees in 2006 for which there was not a similar
event in 2007;
    
    Variances in the risk-free interest rate, the volatility of our stock price and other
factors considered in our determination of share-based compensation expense using the
Black-Scholes option pricing model.
  
    
    Higher expense due to a greater number of our common shares issued in replacement of
expiring options to purchase shares of our common stock in 2007 compared to 2006 and;
 s
   Interest Income
 2005
    
    2006
    
    2007Interest income
    
    $
    787
    
    
    $
    1,032
    
    
    $
    1,274Percent increase from previous period
    
    
    N/A
    
    
    
    31
    %
    
    
    23
    %
  
    
    A higher overall average balance of cash, cash equivalents and short-term investments
in the first three quarters of the 2007 period compared to the 2006 period as a result of
the investment of proceeds from our sales of our common stock in November 2006 and December
2006 as further discussed in the Financial Overview section above; and
    
    Generally higher interest rates during the 2007 period compared to the 2006 period.
  
    
    Higher interest rates earned on our invested funds in the 2006 period compared to the
2005 period;
  
    
    A lower overall average balance of cash, cash equivalents and short-term investments in
the 2006 period
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compared to the 2005 period.
 Interest Expense
 2005
    
    2006
    
    2007Interest expense
    
    $
    621
    
    
    $
    689
    
    
    $
    681Percent increase (decrease) from previous period
    
    
    N/A
    
    
    
    11
    %
    
    
    (1
    )%
  
    
    Reductions in the total principal balance on which we are paying interest as a result
of normal debt service payments;
  
    
    Additional borrowings subsequent to the 2006 period to finance equipment acquisitions
and higher interest rates on those additional borrowings; and
    
    A higher interest rate on our mortgage note payable for all of the 2007 period compared
to that higher rate being in effect for less than all of the 2006 period as a result of an
adjustment to that interest rate during the 2006 period in connection with the exercise of
our option to extend the term of that note payable.
  
    
    Additional borrowings subsequent to the 2005 period to finance equipment acquisitions and
higher interest rates on those additional borrowings; and
    
    An increased interest rate on our mortgage note payable in the 2006 period compared to
the 2005 period as a result of an adjustment to that interest rate during the 2006 period in
connection with the exercise of our option to extend the term of that note payable.
 Other Income
 2005
    
    2006
    
    2007Other income
    
    $
    1,098
    
    
    $
    1,089
    
    
    $
    1,004Percent decrease from previous period
    
    
    N/A
    
    
    
    (1
    )%
    
    
    (8
    )%
  Liquidity and Capital Resources
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2005
    
    
    2006
    
    
    2007Cash and cash equivalents
    
    $
    28,090
    
    
    $
    25,578
    
    
    $
    11,320Short-term investments
    
    
    5,032
    
    
    
    15,767
    
    
    
    3,585Total cash, cash equivalents and short-term investments
    
    
    33,122
    
    
    
    41,345
    
    
    
    14,905Marketable securities
    
    
    2,892
    
    
    
    6,957
    
    
    
    10,165Total cash, cash equivalents, short-term investments
and marketable securities
    
    $
    36,014
    
    
    $
    48,302
    
    
    $
    25,070
   2005
    
    2006
    
    2007(Used) in operating activities
    
    $
    (21,748
    )
    
    $
    (19,208
    )
    
    $
    (23,946
    )Provided (Used) by investing activities
    
    $
    (589
    )
    
    $
    (10,920
    )
    
    $
    11,894Provided (Used) by financing activities
    
    $
    20,265
    
    
    $
    27,593
    
    
    $
    (2,200
    )
  Equity sales in December 2003, December 2004, November 2006 and
December 2006 through registered direct offerings under a shelf
registration filed with the SEC
    
    $
    69.1Collaborative research and development payments from Aventis from
1994 to 2000
    
    
    49.7Private equity sales to Aventis from 1994 to 1999
    
    
    39.4Initial public offering in October 2000
    
    
    32.2Private equity sales to various other parties
    
    
    29.8Contract services, grants, interest and other income
    
    
    25.7Equity sales to Colgate-Palmolive under a shelf registration filed
with the SEC and pursuant to an alliance agreement entered into in
November 2005
    
    
    19.6Mortgage financing from banks for our facilities
    
    
    9.9Sales of ADVEXIN therapy product to Aventis for use in later-stage
clinical trials from 1997 to 2000
    
    
    7.5Leases and notes payable from commercial lessors and lenders to
acquire equipment pledged as collateral for those leases and notes
    
    
    6.5
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Net Cash Used in Operating Activities
 2005
    
    2006
    
    2007Net cash used in operating activities
    
    $
    21,748
    
    
    $
    19,208
    
    
    $
    23,946
  
    
    Net loss  The net loss reported in our statement of operations includes certain expenses
that do not involve the use of cash. The following table illustrates the portion of our net
loss for which we use cash:
 2005
    
    
    2006
    
    
    2007Net loss
    
    $
    (26,103
    )
    
    $
    (28,801
    )
    
    $
    (30,455
    )Less expenses not requiring the use of cash:Non-controlling interests in income of consolidated subsidiary
    
    
    
    
    
    
    
    
    
    
    6Depreciation
    
    
    1,605
    
    
    
    1,388
    
    
    
    1,018Share-based compensation
    
    
    922
    
    
    
    7,013
    
    
    
    5,982Amortization of grant rights acquired
    
    
    1,419
    
    
    
    133
    
    
    
    Portion of net loss for which we use cash
    
    $
    (22,157
    )
    
    $
    (20,267
    )
    
    $
    (23,449
    )Percent increase (decrease) from previous period
    
    
    N/A
    
    
    
    (9
    )%
    
    
    16
    %
  
    
    Accounts payable and accrued liabilities  Changes in these accounts arise primarily from
variations in the timing of payments to vendors and employees that arise in the ordinary
course of business. This timing is a function of:
 
    
    Variations in our general business activities;
    
    The nature of vendors to whom we have obligations;
    
    The nature of payment terms we receive from vendors;
    
    The timing of when we elect to make payments to vendors based on our available cash
balances and cash flow needs; and
    
    The timing of our regularly scheduled paydays for our employees relative to the end
of our accounting periods.
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
    
    Reaching an agreement in 2007 with a third party that we would not have to pay certain of
their invoices
that were previously included in our accounts payable;
 
    
    Payment in 2007 of $1.6 million to a placement agent in connection with their work
supporting the sale of our common stock in November 2006 and December 2006 that was accrued
as of December 31, 2006;
 
    
    Elimination in 2007 of a liability accrued at December 31, 2006 for consulting services
that we determined would not have to be paid; and
 
    
    Completion during 2007 of a sales tax audit by state taxing authorities resulting in a
reduction in the liability accrued for this matter;
  
    
    An increase in accrued liabilities related to BLA costs due to increased activity in that area
in 2007.
  
    
    Deferred revenue and other  These accounts relate to:
 
    
    Cash payments for contract manufacturing, process development and product
production services work received in advance of completing the work to which the payments
relate, which increases our deferred revenue. This deferred revenue decreases, with no
effect on cash, as we complete the work and recognize the related revenue;
    
    Rental income we receive from the sublease of laboratory space to third parties
under leases that have variable monthly rent amounts over the term of the lease. We
recognize this income on a straight-line basis over the term of the lease. Cash payments
received in excess of rental income recognized is recorded as deferred revenue. This
deferred revenue decreases, with no effect on cash, when the cash payments we receive are
less than the rental income recognized on a straight-line basis; and
    
    At December 31, 2006, the long-term portion of fees payable to a placement agent
that assisted with our sale of common stock in November 2006 and December 2006. There is
no long term portion of this obligation at December 31, 2007.
  
    
    The monthly rent payments we received under a sublease of a portion of our
facilities to M. D. Anderson Cancer Center being less than the monthly revenue we
recognized on a straight-line basis for all of the 2007 period whereas, that situation
existed for only a portion of the 2006 period due to a scheduled decrease in those rent
payments becoming effective during the 2006 period; and
    
    A decrease in other liabilities related to the long-term portion of fees payable to a
placement agent that assisted with our sale of common stock in November 2006 and December
2006 as a result of us making scheduled payments of those fees.
  
    
    A scheduled decrease during the 2006 period in the amount of the monthly rent
payments we received under a sublease of a portion of our facilities to M. D. Anderson
Cancer Center, resulting in the monthly rent payments we received during the 2006 period
being less than the monthly revenue we recognized on a straight-line basis, which caused
deferred revenue to decrease during the 2006 period; and
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
    
    Completion of certain contract services during the 2006 period for which revenue
recognition had been previously deferred, which allowed us to recognize revenue for those
services thereby causing a decrease in deferred revenue;
  
    
    An increase in other liabilities arising from the long-term portion of fees payable
to a placement agent that assisted with our sale of common stock in November 2006 and
December 2006.
 
    
    Other assets  Other assets increased during the 2007 and 2006 periods and decreased in
the 2005 period. Changes in other assets vary in direction and amount based on the timing of
and dollars involved in transactions related to items such as prepaid expenses, grant
funding receivable and deposits. The aggregate changes in prepaid assets during the 2007,
2006 and 2005 periods resulted from such activities that arose during the normal course of
our business, with no component of those aggregate changes being material to our business as
a whole.
   Net Cash Provided (Used) In Investing Activities
 2005
    
    2006
    
    2007Net cash provided (used) in investing activities
    
    $
    (589
    )
    
    $
    (10,920
    )
    
    $
    11,894
   
    
    A higher level of net activity in purchases of short-term investments in the 2006 period
compared to the 2005 period arising from (1) normal variations in the amount and timing of
purchases and sales of short-term investments based on our operating needs for cash and cash
equivalents and (2) the availability of cash from December 2005 sales of our common stock,
with those activities offset by; and
    
    A lower level of equipment purchases to support our business being necessary in the 2006
period compared to the 2005 period since our facilities were substantially fully outfitted
in previous periods.
  66




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##### Table of Contents



Net Cash Provided (Used) by Financing Activities
 2005
    
    2006
    
    2007Cash provided (used) by financing activities
    
    $
    20,265
    
    
    $
    27,593
    
    
    $
    (2,200
    )
  
    
    The 2006 period including proceeds from sales of our common stock for which there was
no comparable event in 2007;
    
    The payment during the 2007 period of approximately $1.9 million of fees payable to a
placement agent that we accrued as of December 31, 2006, which were for the placement
agents work supporting the sale of our common stock in November 2006 and December 2006;
and
    
    A decrease in proceeds from borrowings to finance equipment purchases due to the 2006
period including borrowings related to 2005 equipment purchases that were notably higher
than equipment purchases in subsequent years (there can be a time lag between when the
equipment is purchased and when financing proceeds are received);
  
    
    An increase in proceeds from exercise of options for common stock in the 2007 period
compared to the 2006 period, which is activity that can vary based upon the discretionary
actions of the individuals holding such options.
  
    
    An increase in proceeds from sales of common stock due to our success in selling more
shares of our common stock to raise capital in the 2006 period compared to the 2005
period;
  
    
    A decrease in proceeds from exercise of options for common stock in the 2006 period
compared to the 2005 period, which is activity that can vary based upon the actions of the
individuals holding such options; and
    
    An increase in principal payments under notes payable in the 2006 period compared to
the 2005 period due to additional borrowings during and subsequent to the 2005 period to
finance equipment purchased during that period.
 Debt Service, Lease and Other Obligations
  Total debt service payments due during the year ending December 31:2008
    
    $
    1,1582009
    
    
    9502010
    
    
    8202011
    
    
    7352012
    
    
    735Thereafter
    
    
    8,918Total debt service payments
    
    
    13,316Less portion representing interest
    
    
    (5,575
    )Total principal balance at December 31, 2007
    
    $
    7,741
 67




---



##### Table of Contents



Principal balance presented on the
December 31, 2007 balance sheet as liabilities in these categories:Current portion of notes payable
    
    $
    586Notes payable, net of current portion
    
    
    7,155Total principal balance at December 31, 2007
    
    $
    7,741
  
    
    A ground lease for the land on which we built our primary research and
manufacturing facilities with annual rent payments of $156,000 through September 2026.
These payments are subject to adjustment in the future for inflation.
    
    A lease for a building housing our second production facility with annual rent
payments of $98,000 through January 2009.
    
    A lease for our corporate office space with annual rent payments of $230,000
through July 2009.
   Year ending December 31,2008
    
    $
    5192009
    
    
    3172010
    
    
    1662011
    
    
    1612012
    
    
    156Thereafter
    
    
    2,147Total minimum lease payments under operating leases
    
    $
    3,466
     68




---



##### Table of Contents



VirRx, Inc.
    Quarterly Results of Operations
  Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007(Unaudited)(In thousands, except per share amounts)Statement of Operations Data:Contract services, grant and
other revenue
    
    $
    225
    
    
    $
    98
    
    
    $
    733
    
    
    $
    95
    
    
    $
    322
    
    
    $
    82
    
    
    $
    139
    
    
    $
    468Operating expense:Research and development
    
    
    5,046
    
    
    
    4,896
    
    
    
    4,256
    
    
    
    4,023
    
    
    
    3,175
    
    
    
    4,763
    
    
    
    5,074
    
    
    
    6,090General and administrative
    
    
    3,796
    
    
    
    3,273
    
    
    
    2,546
    
    
    
    3,548
    
    
    
    3,267
    
    
    
    3,533
    
    
    
    2,980
    
    
    
    4,175Loss from operations
    
    
    (8,617
    )
    
    
    (8,071
    )
    
    
    (6,069
    )
    
    
    (7,476
    )
    
    
    (6,120
    )
    
    
    (8,214
    )
    
    
    (7,915
    )
    
    
    (9,797
    )Interest income (expense), net
    
    
    143
    
    
    
    92
    
    
    
    50
    
    
    
    58
    
    
    
    263
    
    
    
    207
    
    
    
    112
    
    
    
    11Other income
    
    
    255
    
    
    
    288
    
    
    
    281
    
    
    
    265
    
    
    
    254
    
    
    
    244
    
    
    
    257
    
    
    
    249Loss before non-controlling
interests in consolidated
subsidiaries
    
    
    (8,219
    )
    
    
    (7,691
    )
    
    
    (5,738
    )
    
    
    (7,153
    )
    
    
    (5,603
    )
    
    
    (7,763
    )
    
    
    (7,546
    )
    
    
    (9,537
    )Non-controlling interests in
consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    14
    
    
    
    
    
    
    
    (6
    )Net loss
    
    $
    (8,219
    )
    
    $
    (7,691
    )
    
    $
    (5,738
    )
    
    $
    (7,153
    )
    
    $
    (5,617
    )
    
    $
    (7,749
    )
    
    $
    (7,546
    )
    
    $
    (9,543
    )Basic and diluted net loss per
share
    
    $
    (0.22
    )
    
    $
    (0.21
    )
    
    $
    (0.15
    )
    
    $
    (0.19
    )
    
    $
    (0.13
    )
    
    $
    (0.18
    )
    
    $
    (0.17
    )
    
    $
    (0.22
    )Shares used in computing
basic and diluted net loss
per share
    
    
    37,180
    
    
    
    37,214
    
    
    
    37,245
    
    
    
    38,723
    
    
    
    43,655
    
    
    
    43,801
    
    
    
    43,845
    
    
    
    43,916
 69




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##### Table of Contents



Contractual Obligations
  One Year
    
    
    Two to
    
    
    Four to
    
    
    More ThanTotal
    
    
    or Less
    
    
    Three Years
    
    
    Five Years
    
    
    Five YearsLong-term debt
    
    $
    13,316
    
    
    $
    1,158
    
    
    $
    1,770
    
    
    $
    1,470
    
    
    $
    8,918Operating leases
    
    
    3,466
    
    
    
    519
    
    
    
    483
    
    
    
    317
    
    
    
    2,147Employment agreements
    
    
    1,719
    
    
    
    666
    
    
    
    1,053
    
    
    
    
    
    
    
    Consulting agreements
    
    
    805
    
    
    
    622
    
    
    
    183
    
    
    
    
    
    
    
    Total
    
    $
    19,306
    
    
    $
    2,965
    
    
    $
    3,489
    
    
    $
    1,787
    
    
    $
    11,065
 Off-Balance Sheet Arrangements
 
 
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  Interest Rate Risk
    Foreign Currency Exchange Rate Risk
  70




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control over Financial Reporting.
 Managements Annual Report on Internal Control over Financial Reporting.
   
 Item 9B. Other Information
  71




---



##### 



PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accounting Fees and Services
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 Consolidated Financial Statements
   
 PageReport of Independent Registered Public Accounting Firm
    
    F-1Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets
    
    F-3Consolidated Statements of Operations
    
    F-4Consolidated Statements of Stockholders Equity
    
    F-5Consolidated Statements of Cash Flows
    
    F-6Notes to Consolidated Financial Statements
    
    F-7
  Financial Statement Schedules
  72




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##### Table of Contents



Exhibits
 Exhibits
 ExhibitNumber
    
    
    
    Description of Document3.1(a)(6)
    
    
    
    Certificate of Incorporation as currently in effect3.1(b)(6)
    
    
    
    Amendment to Certificate of Incorporation, effective as of December 21, 20013.1(c)(10)
    
    
    
    Amendment to Certificate of Incorporation, effective as of August 6, 20043.2(4)
    
    
    
    Bylaws of Introgen Therapeutics, Inc. (Introgen) as currently in effect4.1(2)
    
    
    
    Specimen Common Stock Certificate4.2(5)
    
    
    
    Certificate of Designations of Series A Non-Voting Convertible Preferred Stock4.3(8)
    
    
    
    Form of Stock Purchase Warrant4.4(13)
    
    
    
    Form of Stock Purchase Warrant10.1(1)
    
    
    
    Form of Indemnification Agreement between Introgen and each directors and officers10.2(1)*
    
    
    
    1995 Stock Plan and form of stock option agreement thereunder10.3(3)*
    
    
    
    2000 Stock Option Plan and forms of stock option agreement thereunder10.3(11)*
    
    
    
    2000 Stock Option Plan form of stock option agreement, as amended10.4(3)*
    
    
    
    2000 Employee Stock Purchase Plan and forms of agreements thereunder10.5
    
    
    
    Reserved10.6
    
    
    
    Reserved10.7(a)(1)
    
    
    
    Assignment of Leases, dated November 23, 1998, by TMX Realty Corporation and
Riverway Bank, and other related agreements10.7(b)(1)
    
    
    
    Lease Agreement, dated June 7, 1996, by and between Introgen and Plaza del Oro
Business Center10.7(c)(2)
    
    
    
    Amendment No. 1 to Lease Agreement, effective as of May 9, 199710.7(d)(2)
    
    
    
    Amendment No. 2 to Lease Agreement, effective as of July 31, 199810.7(e)(2)
    
    
    
    Amendment No. 3 to Lease Agreement, effective as of June 29, 200010.7(f)(10)
    
    
    
    Modification Agreement effective April 1, 2004 by TMX Realty Corporation and Texas
State Bank (formerly known as Riverway Bank), and other related agreements10.8(a)(1)
    
    
    
    Patent and Technology License Agreement, effective as of July 20, 1994, by and
between The Board of Regents of The University of Texas System, M. D. Anderson
Cancer Center and Introgen10.8(b)(1)
    
    
    
    Amendment No. 1 to Patent License Agreement, effective as of September 1, 199610.9(3)
    
    
    
    Sponsored Research Agreement for Clinical Trial, No. CS 93-27, dated February 11,
1993, between Introgen and M. D. Anderson, as amended10.10
    
    
    
    Reserved10.11(3)
    
    
    
    Sponsored Research Agreement No. SR 93-04, dated February 11, 1993 between M. D.
Anderson and Introgen, as amended10.12
    
    
    
    Reserved10.13(3)
    
    
    
    Sponsored Research Agreement No. SR 96-004 between Introgen and M. D. Anderson,
dated January 17, 199610.14
    
    
    
    Reserved
 73




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Document10.15(3)
    
    
    
    License Agreement, dated March 29, 1996 between Introgen and SKCC10.16(1)
    
    
    
    Consulting Agreement between Introgen and Jack A. Roth, M.D., effective as of
October 1, 199410.17(1)
    
    
    
    Consulting Agreement between EJ Financial Enterprises, Inc. and Introgen,
effective as of July 1, 199410.18(d)*
    
    
    
    Employment Agreement dated as of August 1, 2007 between Introgen and David G. Nance10.19
    
    
    
    Reserved10.20(a)(1)
    
    
    
    Collaboration Agreement (p53 Products), effective as of October 7, 1994, between
Introgen and RPR, as amended10.20(b)(3)
    
    
    
    Addendum No. 1 to Collaboration Agreement (p53 Products), dated January 23, 1996,
between Introgen and RPR10.20(c)(1)
    
    
    
    1997 Agreement Memorandum, effective as of July 22, 1997, between Introgen and RPR10.20(d)(3)
    
    
    
    Letter Agreement, dated April 19, 1999, from Introgen to RPR regarding
manufacturing process for ADVEXIN therapy10.21(a)(1)
    
    
    
    Collaboration Agreement (K-ras Products), effective as of October 7, 1994, between
Introgen and RPR, as amended10.21(b)(1)
    
    
    
    Amendment No. 1 to Collaboration Agreement (K-ras Products), effective as of
September 27, 1995, between Introgen and RPR10.22(3)
    
    
    
    Collaborative Research and Development Agreement dated October 30, 1998 between
Introgen, RPR and NCI10.23(1)
    
    
    
    Non-Exclusive License Agreement, effective as of April 16, 1997, by Introgen and
Iowa Research Foundation10.24(3)
    
    
    
    Option Agreement, effective as of June 1, 1998, by Introgen and Imperial Cancer
Research Technology Limited (ICRT)10.25(3)
    
    
    
    Option Agreement, effective as of January 1, 1999, by Introgen and ICRT10.26(3)
    
    
    
    Exclusive License Agreement, effective as of July 19, 1999, by Introgen and Corixa
Corporation10.27(a)
    
    
    
    Reserved10.27(b)(1)
    
    
    
    Letter dated January 28, 2000, from Introgen to LXR Biotechnology (LXR), notifying
LXR of its exercise of its option10.27(c)(2)
    
    
    
    Exclusive License Agreement, effective as of May 16, 2000, by and between Introgen
and LXR10.28(3)
    
    
    
    Administrative Services and Management Agreement, effective as of January 1, 1999,
by and between Introgen and Gendux, Inc.10.29(3)
    
    
    
    Research and Development Agreement, effective as of January 1, 1999, by and
between Introgen and Gendux, Inc.10.30(3)
    
    
    
    Delivery Technology License Agreement, effective as of January 1, 1999, by and
between Introgen and Gendux, Inc.10.31(3)
    
    
    
    Target Gene License Agreement, effective as of January 1, 1999, by and between
Introgen and Gendux, Inc.10.32(1)
    
    
    
    Non-Exclusive License Agreement, effective as of August 17, 1998, by and between
Introgen and National Institutes of Health10.33
    
    
    
    Reserved
 74




---



##### Table of Contents



ExhibitNumber
    
    
    
    Description of Document10.34(2)
    
    
    
    Master Lease Agreement, effective as of August 4, 1999, by and between Introgen
and Finova Capital Corporation10.35(2)
    
    
    
    Construction Loan Agreement, effective as of July 24, 2000, by and between
Introgen and Compass Bank10.36(5)
    
    
    
    Restated p53 and K-ras Agreement, effective as of June 30, 2001, by and among
Introgen, Aventis Pharmaceuticals Inc. (API) and Aventis Pharma S.A. (Aventis)10.37(5)
    
    
    
    p53 Assignment Agreement, effective as of June 30, 2001, by and among Introgen,
API and Aventis10.38(5)
    
    
    
    K-ras Assignment Agreement, effective as of June 30, 2001, by and among Introgen,
API and Aventis10.39
    
    
    
    Reserved10.40(5)
    
    
    
    Voting Agreement, effective as of June 30, 2001, by and among Introgen, API and RPR10.41
    
    
    
    Reserved10.42(7)
    
    
    
    Series A Preferred Stock Purchase Agreement, effective as of March 7, 2002, by and
between Introgen and VirRx, Inc.10.43(7)
    
    
    
    Collaboration and License Agreement, effective as of March 7, 2002, by and between
Introgen and VirRx, Inc.10.44(8)
    
    
    
    Securities Purchase Agreement, effective as of June 18, 2003, by and among
Introgen and the Investors named therein10.45
    
    
    
    Reserved10.46
    
    
    
    Reserved10.47
    
    
    
    Reserved10.48
    
    
    
    Reserved10.49
    
    
    
    Reserved10.50
    
    
    
    Reserved10.51
    
    
    
    Reserved10.52
    
    
    
    Reserved10.53(15)
    
    
    
    Oral Healthcare Alliance Agreement dated November 4, 2005, by and between Introgen
and Colgate-Palmolive Company10.54(15)
    
    
    
    Common Stock Purchase Agreement dated November 4, 2005, by and between Introgen
and Colgate-Palmolive Company10.55(14)
    
    
    
    Letter Agreement dated February 24, 2006, by and between Introgen and Aventis
Pharmaceuticals, Inc.10.56(16)
    
    
    
    Form of Restricted Stock Purchase Agreement by and between Introgen and each of
its non-executive directors10.57(17)
    
    
    
    Amendment No. 4 to Patent and Technology License Agreement dated August 1, 2006,
by and among Introgen, The University of Texas M. D. Anderson Cancer Center and
the Board of Regents of The University of Texas System10.58(18)
    
    
    
    Placement Agent Agreement dated November 7, 2006, by and between Introgen and
Mulier Capital Limited10.59(20)
    
    
    
    Patent and Technology License Agreement dated November 13, 2006, by and among
Introgen, The University of Texas M. D. Anderson Cancer Center and the Board of
Regents of The University of Texas System
 75




---



##### Table of Contents



ExhibitNumber
    
    
    
    Description of Document10.60(19)
    
    
    
    Placement Agent Agreement dated December 13, 2006, by and between Introgen and
Mulier Capital Limited10.61(20)
    
    
    
    Amendment No. 5 to Patent and Technology License Agreement dated December 18,
2006, by and among Introgen, The University of Texas M. D. Anderson Cancer Center
and the Board of Regents of The University of Texas System10.62(12)
    
    
    
    Cooperative Research and Development Agreement effective as of March 22, 2007, by
and between Introgen and the U.S. Department of Health and Human Services, as
represented by the National Cancer Institute10.63(21)*
    
    
    
    Form of Restricted Stock Purchase Agreement entered into with certain directors,
officers and employees of Introgen for the purchase of
ordinary shares of GPL14.1(9)
    
    
    
    Code of Conduct and Ethics21.1
    
    
    
    List of subsidiaries of Introgen23.1
    
    
    
    Consent of Independent Registered Public Accounting Firm24.1
    
    
    
    Power of Attorney (See page 78)31.1
    
    
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended32.1
    
    
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to
18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 
 (1)
    
    Incorporated by reference to the same-numbered exhibit filed with our Registration Statement on
Form S-1 (No. 333-30582) filed with the SEC on February 17, 2000.(2)
    
    Incorporated by reference to the same-numbered exhibit filed with Amendment No. 2 to our
Registration Statement on Form S-1 (No. 333-30582) filed with the SEC on September 8, 2000.(3)
    
    Incorporated by reference to the same-numbered exhibit filed with Amendment No. 3 to our
Registration Statement on Form S-1 (No. 333-30582) filed with the SEC on October 4, 2000.(4)
    
    Incorporated by reference to the same-numbered exhibit filed with our Quarterly Report on
Form 10-Q, for the quarter ended December 31, 2000, (File No. 000-21291), filed with the SEC on
February 14, 2001.(5)
    
    Incorporated by reference to the same-numbered exhibit filed with our Annual Report on Form 10-K
for the fiscal year ended June 30, 2001 (File No. 000-21291), filed with the SEC on September 19,
2001.(6)
    
    Incorporated by reference to the same-numbered exhibit filed with our Transition Report on
Form 10-KT for the six-month transition period ended December 31, 2001 (File No. 000-21291),
filed with the SEC on March 20, 2002.(7)
    
    Incorporated by reference to the same-numbered exhibit filed with our Quarterly Report on
Form 10-Q, for the quarter ended March 31, 2002 (File No. 000-21291), filed with the SEC on
May 15, 2002.(8)
    
    Incorporated by reference to the same-numbered exhibit filed with our Current Report on Form 8-K,
filed with the SEC on June 18, 2003.(9)
    
    See Part I, Item 1. Business  Access to Company Information of this Annual Report on Form 10-K.(10)
    
    Incorporated by reference to the same-numbered exhibit filed with our Quarterly Report on
Form 10-Q, for the quarter ended June 30, 2004 (File No. 000-21291), filed with the SEC on
August 16, 2004.(11)
    
    Incorporated by reference to the same-numbered exhibit filed with our Quarterly Report on
Form 10-Q, for the quarter ended September 30, 2004 (File No. 000-21291), filed with the SEC on
November 15, 2004. 76




---



##### Table of Contents



(12)
    
    Incorporated by reference to the same-numbered exhibit filed with our Quarterly Report on
Form 10-Q, for the quarter ended March 31, 2007 (File No. 000-21291), filed with the SEC on May
4, 2007.(13)
    
    Incorporated by reference to the same-numbered exhibit filed with our Quarterly Report on
Form 10-Q, for the quarter ended September 30, 2005 (File No. 000-21291), filed with the SEC on
November 9, 2005.(14)
    
    Incorporated by reference to the exhibit filed with our Current Report on Form 8-K, filed with
the SEC on February 24, 2006.(15)
    
    Incorporated by reference to the same-numbered exhibit filed with our Annual Report on Form 10-K,
for the year ended December 31, 2005 (File No. 000-21291), filed with the SEC on March 16, 2006.(16)
    
    Incorporated by reference to the exhibit filed with our Current Report on Form 8-K, filed with
the SEC on May 30, 2006.(17)
    
    Incorporated by reference to the exhibit filed with our Quarterly Report on Form 10-Q, filed with
the SEC on November 6, 2006.(18)
    
    Incorporated by reference to the exhibit filed with our Current Report on Form 8-K, filed with
the SEC on November 7, 2006.(19)
    
    Incorporated by reference to the exhibit filed with our Current Report on Form 8-K, filed with
the SEC on December 14, 2006.(20)
    
    Incorporated by reference to the same-numbered exhibit filed with our Annual Report on Form 10-K
for the fiscal year ended December 31, 2006 (File No. 000-21291), filed with the SEC on March 8,
2007.(21)
    
    Incorporated by reference to the same-numbered exhibit filed with our Quarterly Report on
Form 10-Q, for the quarter ended June 30, 2007 (File No. 000-21291), filed with the SEC on August
9, 2007.
    
    Confidential treatment has been granted for portions of this exhibit.
    
    Confidential treatment has been requested for portions of this exhibit.*
    
    Indicates management contract or compensatory plan or arrangement. Exhibits
  Financial Statement Schedules
  77




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##### Table of Contents



SIGNATURES
  INTROGEN THERAPEUTICS, INC.By:
    
    /s/ DAVID G. NANCE

David G. NancePresident, Chief Executive Officer, Chairman ofthe Board and Director(Principal Executive Officer)By:
    
    /s/ JAMES W. ALBRECHT, JR.

James W. Albrecht, Jr.Chief Financial Officer(Principal Financial and Accounting Officer)
  POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ DAVID G. NANCE

(David G. Nance)
    
    President, Chief Executive
Officer, Chairman of the Board,
and Director (Principal Executive
Officer)
    
    March 17, 2008/s/ JAMES W. ALBRECHT, JR.

(James W. Albrecht, Jr.)
    
    Chief Financial Officer (Principal 
Financial and Accounting Officer)
    
    March 17, 2008/s/ JOHN N. KAPOOR, PH.D.

(John N. Kapoor, Ph.D.)
    
    Director
    
    March 17, 2008/s/ WILLIAM H. CUNNINGHAM, PH.D.

(William H. Cunningham, Ph.D.)
    
    Director
    
    March 17, 2008/s/ MALCOLM GILLIS, PH.D.

(Malcolm Gillis, Ph.D.)
    
    Director
    
    March 17, 2008/s/ CHARLES E. LONG

(Charles E. Long)
    
    Director
    
    March 17, 2008/s/ PETER BARTON HUTT

(Peter Barton Hutt)
    
    Director
    
    March 17, 2008
 78




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      .
  /s/  Ernst & Young LLP 
 F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      .
 /s/  Ernst & Young LLP 
 F-2




---



##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2006
    
    
    2007(Amounts in thousands)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    25,578
    
    
    $
    11,320Short-term investments
    
    
    15,767
    
    
    
    3,585Total cash, cash equivalents and short-term investments
    
    
    41,345
    
    
    
    14,905Marketable securities
    
    
    6,957
    
    
    
    10,165Prepaid expense and other current assets
    
    
    397
    
    
    
    706Total current assets
    
    
    48,699
    
    
    
    25,776Property and equipment, net of accumulated depreciation of $13,976 and $14,994
    
    
    5,172
    
    
    
    4,442Other assets
    
    
    290
    
    
    
    265Total assets
    
    $
    54,161
    
    
    $
    30,483LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    2,384
    
    
    $
    1,813Accrued liabilities and other
    
    
    4,817
    
    
    
    4,225Deferred revenue and other
    
    
    624
    
    
    
    616Current portion of notes payable
    
    
    917
    
    
    
    586Total current liabilities
    
    
    8,742
    
    
    
    7,240Notes payable, net of current portion
    
    
    7,448
    
    
    
    7,155Deferred revenue and other, long-term
    
    
    923
    
    
    
    79Total liabilities
    
    
    17,113
    
    
    
    14,474Non-controlling and minority interests in
consolidated subsidiaries
    
    
    
    
    
    
    6Commitments and Contingencies (Note 11)Stockholders Equity:Preferred stock, $.001 par value per share; 5,000 shares authorized; 4,900
shares issuable; zero Series A shares issued and outstanding in 2006 and
2007, respectively
    
    
    
    
    
    
    Common stock, $.001 par value per share; 100,000 shares authorized; shares
issued and outstanding of 43,591 in 2006 and 44,004 in 2007
    
    
    44
    
    
    
    44Additional paid-in capital
    
    
    205,350
    
    
    
    211,558Accumulated deficit
    
    
    (172,260
    )
    
    
    (202,715
    )Accumulated other comprehensive gain
    
    
    3,914
    
    
    
    7,116Total stockholders equity
    
    
    37,048
    
    
    
    16,003Total liabilities and stockholders equity
    
    $
    54,161
    
    
    $
    30,483
  F-3




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,2005
    
    
    2006
    
    
    2007(Amounts in thousands, except per share amounts)Contract services, grant and other revenue
    
    $
    1,867
    
    
    $
    1,151
    
    
    $
    1,011Operating costs and expense:Research and development, including share-based
compensation of $396, $1,024 and $1,008 for the years ended
December 31, 2005, 2006 and 2007, respectively
    
    
    21,400
    
    
    
    18,221
    
    
    
    19,102General and administrative, including share-based
compensation of $936, $6,017 and $5,052 for the years ended
December 31, 2005, 2006 and 2007, respectively
    
    
    7,834
    
    
    
    13,163
    
    
    
    13,955Total operating costs and expense
    
    
    29,234
    
    
    
    31,384
    
    
    
    33,057Loss from operations
    
    
    (27,367
    )
    
    
    (30,233
    )
    
    
    (32,046
    )Interest income
    
    
    787
    
    
    
    1,032
    
    
    
    1,274Interest expense
    
    
    (621
    )
    
    
    (689
    )
    
    
    (681
    )Other income
    
    
    1,098
    
    
    
    1,089
    
    
    
    1,004Loss before non-controlling and minority interests in
consolidated subsidiaries
    
    
    (26,103
    )
    
    
    (28,801
    )
    
    
    (30,449
    )Non-controlling and minority interest in consolidated
subsidiaries
    
    
    
    
    
    
    
    
    
    
    (6
    )Net loss
    
    $
    (26,103
    )
    
    $
    (28,801
    )
    
    $
    (30,455
    )Net loss per share, basic and diluted
    
    $
    (0.80
    )
    
    $
    (0.77
    )
    
    $
    (0.70
    )Shares used in computing basic and diluted net loss per share
    
    
    32,780
    
    
    
    37,594
    
    
    
    43,805
  F-4




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 Series ANon-Voting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedConvertible
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    OtherPreferred Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    Deferred
    
    
    Accumulated
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    Loss
    
    
    Total(Amounts in thousands)Balance, December 31, 2004
    
    
    100
    
    
    $
    1
    
    
    
    30,622
    
    
    $
    30
    
    
    $
    149,652
    
    
    $
    (161
    )
    
    $
    (117,356
    )
    
    $
    
    
    
    $
    32,166Issuance of common stock in a direct
equity offering in November 2005, net of
offering
costs of $414
    
    
    
    
    
    
    
    
    
    
    3,611
    
    
    
    4
    
    
    
    19,581
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,585Issuance of common stock in connection
with exercise of stock options
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    
    
    
    
    615
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    615Issuance of common stock in connection
with the grant of stock
    
    
    
    
    
    
    
    
    
    
    113
    
    
    
    
    
    
    
    687
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    687Addition to deferred compensation
relating to issuance of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    142
    
    
    
    (142
    )
    
    
    
    
    
    
    
    
    
    
    Conversion of preferred stock to common
stock
    
    
    (100
    )
    
    
    (1
    )
    
    
    2,344
    
    
    
    3
    
    
    
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
and share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    235
    
    
    
    
    
    
    
    
    
    
    
    235Net Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,103
    )
    
    
    
    
    
    
    (26,103
    )Unrealized loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (149
    )
    
    
    (149
    )Foreign currency translation
adjustment, cumulative translation loss
of $25 at December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    (25
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,277
    )Balance, December 31, 2005
    
    
    
    
    
    $
    
    
    
    
    37,147
    
    
    $
    37
    
    
    $
    170,675
    
    
    $
    (68
    )
    
    $
    (143,459
    )
    
    $
    (174
    )
    
    $
    27,011Issuance of common stock in direct
equity offerings in November and
December 2006,
net of offering costs of $2,333
    
    
    
    
    
    
    
    
    
    
    6,313
    
    
    
    6
    
    
    
    27,696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,702Issuance of common stock in connection
with exercise of stock options
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    1
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65Issuance of common stock in connection
with the grant of stock
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    251
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251Reduction of purchase price for Magnum
Therapeutics Corporation upon final
settlement
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,762
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,762Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68
    )
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    Net Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,801
    )
    
    
    
    
    
    
    (28,801
    )Unrealized gain on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,065
    
    
    
    4,065Foreign currency translation
adjustment, cumulative translation loss
of $2 at December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    23Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,713
    )Balance, December 31, 2006
    
    
    
    
    
    $
    
    
    
    
    43,591
    
    
    $
    44
    
    
    $
    205,350
    
    
    $
    
    
    
    $
    (172,260
    )
    
    $
    3,914
    
    
    $
    37,048Issuance of common stock in direct
equity offerings in December 2006,
net of offering costs of $69
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69
    )Issuance of common stock in connection
with exercise of stock options
    
    
    
    
    
    
    
    
    
    
    333
    
    
    
    
    
    
    
    296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    296Issuance of common stock in connection
with the grant of stock
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    347Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,634
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,634Net Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,455
    )
    
    
    
    
    
    
    (30,455
    )Unrealized gain on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,208
    
    
    
    3,208Foreign currency translation
adjustment, cumulative translation loss
of $5 at December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,253
    )Balance, December 31, 2007
    
    
    
    
    
    $
    
    
    
    
    44,004
    
    
    $
    44
    
    
    $
    211,558
    
    
    $
    
    
    
    $
    (202.715
    )
    
    $
    7,116
    
    
    $
    16,003
  F-5




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2005
    
    
    2006
    
    
    2007(Amounts in thousands)Cash flows from operating activities:Net loss
    
    $
    (26,103
    )
    
    $
    (28,801
    )
    
    $
    (30,455
    )Adjustments to reconcile net loss to net cash used in operating activities:Non-controlling interests in consolidated subsidiary
    
    
    
    
    
    
    
    
    
    
    6Depreciation
    
    
    1,605
    
    
    
    1,388
    
    
    
    1,018Share-based compensation
    
    
    922
    
    
    
    7,013
    
    
    
    5,982Amortization of grant rights acquired
    
    
    1,419
    
    
    
    133
    
    
    
    Changes in assets and liabilities:(Increase) decrease in other assets
    
    
    395
    
    
    
    (64
    )
    
    
    (284
    )Increase (decrease) in accounts payable
    
    
    (425
    )
    
    
    126
    
    
    
    (571
    )Increase (decrease) in accrued liabilities
    
    
    (275
    )
    
    
    1,520
    
    
    
    910Increase (decrease) in deferred revenue and other
    
    
    714
    
    
    
    (523
    )
    
    
    (552
    )Net cash used in operating activities
    
    
    (21,748
    )
    
    
    (19,208
    )
    
    
    (23,946
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (509
    )
    
    
    (185
    )
    
    
    (288
    )Purchases of short-term investments
    
    
    (31,869
    )
    
    
    (40,774
    )
    
    
    (29,553
    )Maturities of short-term investments
    
    
    34,830
    
    
    
    30,039
    
    
    
    41,735Purchase of marketable securities
    
    
    (3,041
    )
    
    
    
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (589
    )
    
    
    (10,920
    )
    
    
    11,894Cash flows from financing activities:Payment of offering costs related to sale of common stock
    
    
    
    
    
    
    
    
    
    
    (1,872
    )Proceeds from sale of common stock, net of offering costs
    
    
    19,585
    
    
    
    27,702
    
    
    
    Proceeds from exercise of options for common stock
    
    
    615
    
    
    
    65
    
    
    
    296Proceeds from notes payable
    
    
    772
    
    
    
    727
    
    
    
    282Principal payments under notes payable
    
    
    (707
    )
    
    
    (901
    )
    
    
    (906
    )Net cash (used in) provided by financing activities
    
    
    20,265
    
    
    
    27,593
    
    
    
    (2,200
    )Effect of exchange rate changes on cash
    
    
    (25
    )
    
    
    23
    
    
    
    (6
    )Net increase (decrease) in cash
    
    
    (2,097
    )
    
    
    (2,512
    )
    
    
    (14,258
    )Cash and cash equivalents, beginning of period
    
    
    30,187
    
    
    
    28,090
    
    
    
    25,578Cash and cash equivalents, end of period
    
    $
    28,090
    
    
    $
    25,578
    
    
    $
    11,320Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    580
    
    
    $
    638
    
    
    $
    645Cash paid for taxes for the issuance of common stock in connection
with the grant of common stock
    
    $
    411
    
    
    $
    28
    
    
    $
    82Supplemental disclosure of non-cash investing and financing activities:Grant rights acquired in asset acquisition
    
    $
    
    
    
    $
    30
    
    
    $
    Non-cash unrealized gain (loss) on marketable securities
    
    $
    (149
    )
    
    $
    4,065
    
    
    $
    3,208Issuance of common stock in connection with the grant of stock
    
    $
    687
    
    
    $
    251
    
    
    $
    347Construction allowance for leasehold improvements
    
    $
    
    
    
    $
    194
    
    
    $
    Proceeds from insurance financing notes
    
    $
    117
    
    
    $
    251
    
    
    $
    
  F-6




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 1.  Business of the Company
  in vivo
        F-7




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   2.  Basis of Presentation and Significant Accounting Policies
 Basis of Presentation
  Use of Estimates
  Cash and Cash Equivalents
  Short-term Investments
  Marketable Securities
  F-8




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Fair Value of Financial Instruments
  Risks and Uncertainties
  Property and Equipment
   December 31,2006
    
    
    2007Facilities
    
    $
    12,813
    
    
    $
    12,800Equipment
    
    
    6,335
    
    
    
    6,636Total property and equipment
    
    
    19,148
    
    
    
    19,436Less accumulated depreciation
    
    
    (13,976
    )
    
    
    (14,994
    )Net property and equipment
    
    $
    5,172
    
    
    $
    4,442
  Federal Income Taxes
  Accrued Liabilities
  December 31,2006
    
    
    2007Clinical costs due unrelated parties
    
    $
    146
    
    
    $
    481Pre-clinical costs due related parties
    
    
    419
    
    
    
    211Pre-clinical costs due unrelated parties
    
    
    63
    
    
    
    37Property taxes
    
    
    372
    
    
    
    418Franchise and use taxes
    
    
    440
    
    
    
    141
 F-9




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 December 31,2006
    
    
    2007Payroll
    
    
    168
    
    
    
    191Vacation
    
    
    407
    
    
    
    512Legal and accounting fees
    
    
    452
    
    
    
    885Securities offering costs
    
    
    1,802
    
    
    
    300Other vendor charges not yet billed
    
    
    548
    
    
    
    1,049Total accrued liabilities
    
    $
    4,817
    
    
    $
    4,225
   Revenue Recognition
    Research and Development Costs
   F-10




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Net Loss Per Share
  Share-Based Compensation
     Recent Accounting Pronouncements
  
    
    It applies to all tax positions accounted for under SFAS 109. FIN 48 refers to tax
positions as positions taken in a previously filed tax return or positions expected to be
taken in a future tax return which are reflected in measuring current or deferred income
tax assets and liabilities reported in the financial statements.
    
    It clarifies that a tax benefit may be reflected in the financial statements only if it
is more likely than not that a company will be able to sustain the tax return position,
based on its technical merits. If a tax benefit meets this criterion, it should be
measured and recognized based on the largest amount of benefit that is cumulatively greater
than 50% likely to be realized.
    
    It requires we make qualitative and quantitative disclosures, including:
 F-11




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 o
    
    A discussion of reasonably possible changes that might occur in unrecognized
tax benefits over the next 12 months;o
    
    A description of open tax years by major jurisdictions; ando
    
    A roll-forward of all unrecognized tax benefits, presented as a reconciliation
of the beginning and ending balances of the unrecognized tax benefits on an aggregated
basis.
     
    
    The ownership interests in subsidiaries held by parties other than the parent be
clearly identified, labeled, and presented in the consolidated statement of financial
position within equity, but separate from the parents equity;
    
    The amount of consolidated net income or loss attributable to the parent and to the
non-controlling interests be clearly identified and presented on the face of the
consolidated statement of operations;
    
    Entities provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the non-controlling owners.
 F-12




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  3.  Investment in Silence Therapeutics plc
  4.  Intangible Assets
 Intangible Assets With Definite Lives
  December 31,2006
    
    
    2007Gross
    
    
    Adjustment
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetCarrying
    
    
    to Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAsset Acquisition:Acquired Grant
Rights (22 month
amortization
period)
    
    $
    1,741
    
    
    $
    (30
    )
    
    $
    (1,711
    )
    
    $
    
    
    
    $
    1,711
    
    
    $
    (1,711
    )
    
    $
    Ending Balance
    
    $
    1,741
    
    
    $
    (30
    )
    
    $
    (1,711
    )
    
    $
    
    
    
    $
    1,711
    
    
    $
    (1,711
    )
    
    $
    
  5.  Stock Options
   
    
    An exercise price equal to the fair value of the Companys stock at the date of grant;
    
    A term of ten years;
    
    Vesting under one of the following general terms:
 
    
    For options issued to members of the Board of Directors, vesting monthly over
12 months.
    
    For options issued to our Chief Executive Officer, 100% vesting on the date of grant.
 F-13




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 
    
    For options issued to all other persons, vesting at the rate of 25% per year over
four years on each annual anniversary date of the option grant.
     2005Net loss, as reported
    
    $
    (26,103
    )Add: Share-based employee compensation expense included in reported net loss
    
    
    1,098Deduct: Total share-based employee compensation expense determined under
the fair value based method for all awards
    
    
    (5,268
    )Pro forma net loss
    
    $
    (30,273
    )Loss per share:Basic and Diluted  as reported
    
    $
    (0.80
    )Basic and Diluted  pro forma
    
    $
    (0.92
    )
  Increase for 2006
    
    Increase for 2007Total
    
    Per Share
    
    Total
    
    Per ShareResearch and development expense
    
    $
    1,024
    
    
    $
    0.03
    
    
    $
    1,008
    
    
    $
    0.02General and administrative expense
    
    $
    6,017
    
    
    $
    0.16
    
    
    $
    5,052
    
    
    $
    0.12
 F-14




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Weighted
    
    WeightedAverage
    
    Average
    
    AggregateOptions
    
    Exercise Price
    
    Remaining
    
    IntrinsicOutstanding
    
    per Share
    
    Contractual Life
    
    Value(In thousands)Balance, December 31, 2005
    
    
    5,978,369
    
    
    $
    4.49
    
    
    
    6.84
    
    
    $
    7,446Activity in 2006:Granted
    
    
    1,799,350
    
    
    
    4.78
    
    
    
    
    
    
    
    14Exercised
    
    
    (83,389
    )
    
    
    0.78
    
    
    
    
    
    
    
    336Cancelled
    
    
    (132,150
    )
    
    
    6.25
    
    
    
    
    
    
    
    Balance, December 31, 2006
    
    
    7,562,180
    
    
    
    4.57
    
    
    
    6.69
    
    
    
    4,855Activity in 2007:Granted
    
    
    1,308,418
    
    
    
    4.35
    
    
    
    
    
    
    
    Exercised
    
    
    (332,723
    )
    
    
    0.89
    
    
    
    
    
    
    
    1,174Cancelled
    
    
    (143,050
    )
    
    
    3.64
    
    
    
    
    
    
    
    Balance, December 31, 2007
    
    
    8,394,825
    
    
    
    4.70
    
    
    
    6.46
    
    
    
    1,774Vested at December 31, 2007 and
expected to vest
    
    
    8,215,359
    
    
    
    4.69
    
    
    
    6.42
    
    
    
    1,774Exercisable at December 31, 2007
    
    
    6,007,374
    
    
    
    4.56
    
    
    
    5.79
    
    
    
    1,774
  2005
    
    2006
    
    2007Weighted average fair value of options granted per share
    
    $
    5.71
    
    
    $
    3.50
    
    
    $
    2.93Aggregate intrinsic value of stock options at exercise
(000s)
    
    $
    2,498
    
    
    $
    336
    
    
    $
    1,174Aggregate intrinsic value of stock options vested (000s)
    
    $
    406
    
    
    $
    114
    
    
    $
    167
   Year Ended December 31,2005
    
    2006
    
    2007Weighted average expected volatility
    
    
    89.07
    %
    
    
    85.26
    %
    
    
    74.36
    %Weighted average risk free interest rate
    
    
    4.08
    %
    
    
    4.74
    %
    
    
    4.66
    %Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Weighted average expected life, in years
    
    
    10.00
    
    
    
    5.76
    
    
    
    5.72Range of Assumptions Used:Expected volatility range
    
    
    86.0%-91.8
    %
    
    
    74.2%-90.5
    %
    
    
    67.3%-84.4
    %Risk free interest rate range
    
    
    3.94%-4.49
    %
    
    
    4.29%-5.10
    %
    
    
    3.59%-5.07
    %
  
    
    The expected volatility is calculated using the daily historical volatility of our common
stock over a term that approximates the expected life of the option grants;
    
    The risk-free interest rate is based on the U.S. treasury yield curve for five to
seven-year terms for the years ended December 31, 2007 and 2006 and the ten-year zero coupon
treasury bill rate for the year ended December 31, 2005.; and
    
    As allowed by Staff Accounting Bulletin No. 107, we have elected to apply the shortcut
approach in developing our estimate of expected term for plain vanilla stock options by
using the mid-point between the vesting date and contractual termination date.
  F-15




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 6.  Stock Purchase Warrants
    7.  Stockholders Equity
 Stock Sales
   Common Stock Grant to Officers
   F-16




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Employee Stock Purchase Plan
  
    
    Employees could purchase our common stock at 85% of the appropriate market price.
    
    Employees could authorize payroll deductions of up to 10% of their qualified
compensation to purchase our common stock.
    
    An employee could purchase up to 10,000 shares of our common stock in a single offering
period.
  Shares Reserved For Future Issuance
  8.  Federal Income Taxes
   F-17




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2006
    
    2007Deferred tax assets:Current deferred tax assetsAccrued liabilities
    
    $
    665
    
    
    $
    285Unrealized gains and losses
    
    
    1,332
    
    
    
    2,423Valuation allowance for current deferred tax assets
    
    
    (1,994
    )
    
    
    (2,707
    )Net current deferred tax assets
    
    
    3
    
    
    
    1Noncurrent deferred tax assetsNet operating loss carryforwards
    
    
    44,499
    
    
    
    51,786Research and development tax credits
    
    
    1,103
    
    
    
    1,365Orphan drug tax credits
    
    
    11,357
    
    
    
    10,609State tax credits
    
    
    
    
    
    
    2,256Tax basis of property and equipment in excess of book basis
    
    
    3,001
    
    
    
    3,070Stock compensation
    
    
    2,427
    
    
    
    2,261Deferred rent
    
    
    337
    
    
    
    145Investments
    
    
    841
    
    
    
    842Other
    
    
    60
    
    
    
    70Valuation allowance for noncurrent deferred tax assets
    
    
    (63,527
    )
    
    
    (72,372
    )Net noncurrent deferred tax assets
    
    
    98
    
    
    
    32Deferred tax liabilities:Current deferred tax liabilitiesPrepaid expense
    
    
    (101
    )
    
    
    (33
    )Total current deferred tax liabilities
    
    
    (101
    )
    
    
    (33
    )Net current deferred tax asset (liability)
    
    
    (98
    )
    
    
    (32
    )Net noncurrent deferred tax asset (liability)
    
    $
    98
    
    
    $
    32
    Year Ended December 31,2005
    
    2006
    
    2007Federal statutory rate
    
    
    (34.0
    )%
    
    
    (34.0
    )%
    
    
    (34.0
    )%State taxes, net of federal benefit
    
    
    (2.8
    )
    
    
    
    
    
    
    Increase in deferred tax valuation allowance
    
    
    42.5
    
    
    
    20.9
    
    
    
    33.8Stock option compensation
    
    
    1.1
    
    
    
    4.0
    
    
    
    6.8Orphan drug tax credits
    
    
    (5.0
    )
    
    
    (3.4
    )
    
    
    (3.3
    )Research and development tax credits
    
    
    (0.7
    )
    
    
    (0.4
    )
    
    
    (0.3
    )Change in Texas tax law
    
    
    
    
    
    
    10.7
    
    
    
    (8.8
    )Foreign income taxed at different rates
    
    
    
    
    
    
    
    
    
    
    5.4Other
    
    
    (1.1
    )
    
    
    2.2
    
    
    
    0.4
    %
    
    
    
    %
    
    
    
    %
  F-18




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Balance at January 1, 2007
    
    
    1,720Additions based on tax positions related to the current year
    
    
    313Additions for tax positions of prior years
    
    
    Reductions for tax positions of prior years
    
    
    Settlements
    
    
    Balance at December 31, 2007
    
    
    2,033
     9.  Notes Payable
    Year ending December 31,2008
    
    $
    5862009
    
    
    7,0772010
    
    
    782011
    
    
    2012
    
    
    Thereafter
    
    
    Total
    
    $
    7,741
  F-19




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 10.  License and Research Agreements
 Patent and Technology License Agreement With The University of Texas System
  VirRx, Inc.
      Alliance Agreement With Colgate-Palmolive Company
   F-20




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Other Technology Option and License Agreements
  11.  Commitments and Contingencies
 Lease Commitments
  F-21




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Year ending December 31,2008
    
    $
    5192009
    
    
    3172010
    
    
    1662011
    
    
    1612012
    
    
    156Thereafter
    
    
    2,147Total
    
    $
    3,466
 Insurance and Litigation
  Employment Agreement
  12.  Related Parties
     F-22




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##### Table of Contents



INTROGEN THERAPEUTICS, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   13.  Registration Statement
  14. Quarterly Results of Operations
  Three Months EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2006
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007(Unaudited)(In thousands, except per share amounts)Statement of Operations Data:Contract services, grant and
other revenue
    
    $
    225
    
    
    $
    98
    
    
    $
    733
    
    
    $
    95
    
    
    $
    322
    
    
    $
    82
    
    
    $
    139
    
    
    $
    468Operating expense:Research and development
    
    
    5,046
    
    
    
    4,896
    
    
    
    4,256
    
    
    
    4,023
    
    
    
    3,175
    
    
    
    4,763
    
    
    
    5,074
    
    
    
    6,090General and administrative
    
    
    3,796
    
    
    
    3,273
    
    
    
    2,546
    
    
    
    3,548
    
    
    
    3,267
    
    
    
    3,533
    
    
    
    2,980
    
    
    
    4,175Loss from operations
    
    
    (8,617
    )
    
    
    (8,071
    )
    
    
    (6,069
    )
    
    
    (7,476
    )
    
    
    (6,120
    )
    
    
    (8,214
    )
    
    
    (7,915
    )
    
    
    (9,797
    )Interest income (expense), net
    
    
    143
    
    
    
    92
    
    
    
    50
    
    
    
    58
    
    
    
    263
    
    
    
    207
    
    
    
    112
    
    
    
    11Other income
    
    
    255
    
    
    
    288
    
    
    
    281
    
    
    
    265
    
    
    
    254
    
    
    
    244
    
    
    
    257
    
    
    
    249Loss before non-controlling
interests in consolidated
subsidiaries
    
    
    (8,219
    )
    
    
    (7,691
    )
    
    
    (5,738
    )
    
    
    (7,153
    )
    
    
    (5,603
    )
    
    
    (7,763
    )
    
    
    (7,546
    )
    
    
    (9,537
    )Non-controlling interests in
consolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    14
    
    
    
    
    
    
    
    (6
    )Nt loss s
    
    $
    (8,219
    )
    
    $
    (7,691
    )
    
    $
    (5,738
    )
    
    $
    (7,153
    )
    
    $
    (5,617
    )
    
    $
    (7,749
    )
    
    $
    (7,546
    )
    
    $
    (9,543
    )Basic and diluted net loss per
share
    
    $
    (0.22
    )
    
    $
    (0.21
    )
    
    $
    (0.15
    )
    
    $
    (0.19
    )
    
    $
    (0.13
    )
    
    $
    (0.18
    )
    
    $
    (0.17
    )
    
    $
    (0.22
    )Shares used in computing
basic and diluted net loss
per share
    
    
    37,180
    
    
    
    37,214
    
    
    
    37,245
    
    
    
    38,723
    
    
    
    43,655
    
    
    
    43,801
    
    
    
    43,845
    
    
    
    43,916
 F-23




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    
    
    Description of Document10.18(d)
    
    
    
    Employment Agreement dated as of August 1, 2007 between Introgen and David G. Nance10.62
    
    
    
    Cooperative Research and Development Agreement effective as of March 22, 2007, by
and between Introgen and the U.S. Department of Health and Human Services, as
represented by the National Cancer Institute10.63
    
    
    
    Form of Restricted Stock Purchase Agreement entered into with certain directors,
officers and employees.21.1
    
    
    
    List of subsidiaries of Introgen23.1
    
    
    
    Consent of Independent Registered Public Accounting Firm24.1
    
    
    
    Power of Attorney (See page 78)31.1
    
    
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended32.1
    
    
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to
18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 
 
    
    Confidential treatment has been requested for portions of this exhibit.