Document and Entity Information

9 Months Ended
Sep. 30, 2011

Oct. 31, 2011

Document Type

10-Q

Amendment Flag

FALSE

Document Period End Date

Sep. 30, 2011

Document Fiscal Year Focus

2011

Document Fiscal Period Focus

Q3

Trading Symbol

OPXA

Entity Registrant Name

OPEXA THERAPEUTICS, INC.

Entity Central Index Key

0001069308

Current Fiscal Year End Date

--12-31

Entity Filer Category

Smaller Reporting Company

Entity Common Stock, Shares Outstanding

23,048,488

BALANCE SHEETS (USD $)

Sep. 30, 2011

Dec. 31, 2010

Current assets:

Cash and cash equivalents

$ 8,639,856

$ 3,812,535

Other current assets

105,645

85,525

Total current assets

8,745,501

3,898,060

Property & equipment, net of accumulated depreciation of $1,222,758 and $1,109,558, respectively

953,219

815,958

Total assets

9,698,720

4,714,018

Current liabilities:

Accounts payable

429,565

358,837

Accounts payable - related parties

15,000

Accrued expenses

285,885

335,861

Current maturity of loan payable

35,607

Total current liabilities

730,450

745,305

Commitments and contingencies

Stockholders' equity:

Preferred stock, no par value, 10,000,000 shares authorized, none issued and outstanding

Common stock, $0.01 par value, 100,000,000 shares authorized, 23,048,488 and 18,466,924 shares issued and outstanding

230,485

184,670

Additional paid in capital

107,541,563

98,496,382

Deficit accumulated during the development stage

(98,803,778)

(94,712,339)

Total stockholders' equity

8,968,270

3,968,713

Total liabilities and stockholders' equity

$ 9,698,720

$ 4,714,018

BALANCE SHEETS (Parenthetical) (USD $)

Sep. 30, 2011

Dec. 31, 2010

Property & equipment, accumulated depreciation

$ 1,222,758

$ 1,109,558

Preferred stock, no par value

$ 0

Preferred stock, authorized

10,000,000

Preferred stock, issued

0

Preferred stock, outstanding

0

Common stock, par value

$ 0.01

Common stock, shares authorized

100,000,000

Common stock, shares issued

23,048,488

18,466,924

Common stock, shares outstanding

23,048,488

18,466,924

STATEMENTS OF EXPENSES (USD $)

3 Months Ended
Sep. 30,

9 Months Ended
Sep. 30,

2011

2010

2011

2010

105 Months Ended
Sep. 30, 2011

Research and development

$ 654,772

$ 625,282

$ 2,194,141

$ 2,193,919

$ 69,032,978

General and administrative

584,794

626,697

1,737,686

1,706,546

26,940,492

Depreciation and amortization

56,888

37,647

157,254

136,022

1,293,483

Loss on disposal of assets

413

500,975

Operating loss

(1,296,867)

(1,289,626)

(4,089,494)

(4,036,487)

(97,767,928)

Interest income

227

815

698

1,395

1,358,183

Other income and expense, net

661,146

Gain on extinguishment of debt

1,612,440

Gain (loss) on derivative instruments

1,388,848

Gain on sale of technology

3,000,000

Interest expense

(638)

(2,004)

(2,643)

(499,200)

(9,056,467)

Net loss

$ (1,297,278)

$ (1,290,815)

$ (4,091,439)

$ (4,534,292)

$ (98,803,778)

Basic and diluted loss per share

$ (0.06)

$ (0.07)

$ (0.18)

$ (0.27)

Weighted average shares outstanding

23,048,488

18,421,600

22,358,611

16,601,503

STATEMENTS OF CASH FLOWS (USD $)

9 Months Ended
Sep. 30,

2011

2010

105 Months Ended
Sep. 30, 2011

Cash flows from operating activities

Net loss

$ (4,091,439)

$ (4,534,292)

$ (98,803,778)

Adjustments to reconcile net loss to net cash used in operating activities:

Stock payable for acquired research and development

112,440

Stock issued for acquired research and development

26,286,589

Stock issued for services

87,028

64,350

2,061,743

Stock issued for debt in excess of principal

109,070

Amortization of discount on notes payable due to warrants and beneficial conversion feature

314,749

6,752,698

Gain on extinguishment of debt

(1,612,440)

Depreciation

157,254

136,022

1,293,483

Amortization of debt financing costs

108,117

524,378

Option expense

385,811

414,753

15,471,104

Gain on derivative instruments

(1,388,848)

Loss on disposal of assets

413

500,975

Changes in:

Other current assets

(20,120)

33,498

(522,318)

Accounts payable - third parties and related parties

59,817

(140,280)

(16,396)

Accrued expenses

(49,976)

95,316

237,321

Net cash used in operating activities

(3,471,212)

(3,507,767)

(48,993,979)

Cash flows from investing activities

Purchase of property & equipment

(284,017)

(1,658,878)

Net cash used in investing activities

(284,017)

(1,658,878)

Cash flows from financing activities

Common stock and warrants sold for cash, net of offering costs

8,618,157

49,072,488

Common stock repurchased and canceled

(325)

Proceeds from exercise of warrants and options

109,641

1,248,588

Proceeds from debt

9,283,184

Repayments on notes payable

(35,607)

(50,011)

(311,222)

Net cash provided by financing activities

8,582,550

59,630

59,292,713

Net change in cash and cash equivalents

4,827,321

(3,448,137)

8,639,856

Cash and cash equivalents at beginning of period

3,812,535

8,181,582

Cash and cash equivalents at end of period

8,639,856

4,733,445

8,639,856

Cash paid for:

Income tax

Interest

2,643

85,043

152,033

NON-CASH TRANSACTIONS

Issuance of common stock to Sportan shareholders

147,733

Issuance of common stock for accrued interest

78,091

603,604

Issuance of warrants to placement agent

37,453

Conversion of notes payable to common stock

1,302,000

7,709,980

Conversion of accrued liabilities to common stock

197,176

Conversion of accounts payable to note payable

93,364

Discount on convertible notes relating to:

Warrants

3,659,737

Beneficial conversion feature

1,805,519

Stock attached to notes

1,287,440

Fair value of derivative instrument

4,680,220

Derivative reclassified to equity

587,609

Unpaid additions to property and equipment

$ 10,911

Basis of Presentation

Note 1. Basis of Presentation

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

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by Opexa as of the specified effective date. Unless otherwise discussed, Opexa believes that the impact of recently issued accounting pronouncements that are not yet effective will not have a material impact on their financial position or results of operations upon adoption.

Cash and Cash Equivalents

Note 2. Cash and Cash Equivalents

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

At September 30, 2011, Opexa invested approximately $8.2 million in a money market fund investing exclusively in high-quality, short-term money market instruments consisting of U.S. government obligations and repurchase agreements collateralized by the U.S. Government. While this fund seeks current income while preserving capital and liquidity, the fund is subject to risk, including U.S. government obligations risk, and is not federally insured or guaranteed by or obligations of the Federal Deposit Insurance Corporation or any other agency. For the nine months ended September 30, 2011, the money market fund recognized an average market yield of 0.01%. Interest income of $227 and $698 was recognized for the three and nine months ended September 30, 2011, respectively, in the statements of expenses.

Commitments and Contingencies

Note 3. Commitments and Contingencies

Stem Cell Technology Agreement

In 2009, Novartis Pharmaceuticals acquired Opexa’s stem cell technology platform, which had been in early preclinical development, and took over all future responsibilities and opportunities for this technology, although Opexa retained an option on certain manufacturing rights. As part of the transaction, Opexa was paid an upfront fee of $3 million and a milestone payment of $500,000 for certain technology transfer activities. Opexa remained eligible to receive a second technology transfer milestone fee in addition to potential clinical and commercial milestones and royalty payments from the sale of any products resulting from the use of the technology.

As further described below in Note 6 (Subsequent Events), on November 2, 2011, Opexa re-acquired the stem cell assets transferred to Novartis in exchange for a release with respect to any further payment obligations owed to Opexa by Novartis, including the remaining $500,000 technology transfer milestone payment. A related license agreement with the University of Chicago was also assigned back to Opexa.

Equity

Note 4. Equity

In January 2011, Opexa sold an aggregate of 384,759 shares of common stock under the Continuous Offering Program Agreement dated May 14, 2010 (the “ATM Agreement”) for net proceeds of $1,033,994. Opexa paid compensation and fees totaling $10,826 to the placement agent with respect to the shares sold. The ATM Agreement was subsequently terminated by Opexa on February 7, 2011.

In February 2011, Opexa sold an aggregate of 4,146,500 units in a public offering, with each unit consisting of one share of common stock and a warrant to purchase four-tenths (0.40) of a share of common stock, at a price to the public of $2.05 per unit, for gross proceeds of $8,500,325. The shares of common stock and warrants were immediately separable and were issued separately such that no units were issued. The warrants were exercisable immediately upon issuance, having a five-year term and an exercise price of $2.61 per share. The warrants have a fair value of $3,236,584 that was calculated using the Black-Scholes valuation model with the following assumptions: (1) discount rate of 2.38%, (2) term of 5 years, (3) expected volatility of 197.60% and (4) zero expected dividends. The net proceeds to Opexa from this offering were approximately $7,584,163, after deducting underwriting discounts and commissions and other offering expenses. The offering closed on February 11, 2011.

Stock-Based Compensation

Note 5. Stock-Based Compensation

Restricted Shares

Pursuant to an agreement with a consultant for professional services, Opexa granted 50,305 restricted shares of common stock which were accounted for on March 19, 2011 pursuant to the relevant accounting rules. These shares vested immediately and were issued on April 8, 2011 and have a fair value of $87,028 based on the share price at the grant date, which was recognized as share-based compensation expense for the nine months ended September 30, 2011.

Stock Options

The 2010 Stock Incentive Plan (the “2010 Plan”) provides for the grant of equity incentive awards to employees, directors and consultants of Opexa in the form of incentive stock options or nonqualified stock options, as well as restricted stock, stock appreciation rights, restricted stock units and performance awards that may be settled in cash, stock or other property. The 2010 Plan is the successor to and continuation of Opexa’s June 2004 Compensatory Stock Option Plan (the “2004 Plan”). A total of 2,500,000 shares of common stock are authorized to be issued for awards made under the 2010 Plan through September 2020, plus (i) the number of shares subject to stock options outstanding under the 2004 Plan that are forfeited or terminate prior to exercise and would otherwise be returned to the share reserves under the 2004 Plan and (ii) any reserved shares under the 2004 Plan that were not issued or subject to outstanding grants. In addition, shares subject to awards granted under the 2010 Plan that terminate or expire before being exercised or settled will become available for grant under the 2010 Plan. As of September 30, 2011, options to purchase an aggregate of 1,739,072 shares were issued and outstanding.

Opexa accounts for share-based compensation, including options and nonvested shares, according to the provisions of FASB Accounting Standards Codification (“ASC”) 718, "Share Based Payment.” During the nine months ended September 30, 2011, Opexa recognized option expense of $385,811. Unamortized stock compensation expense as of September 30, 2011 amounted to $457,009.

Stock Option Activity

A summary of stock option activity for the nine months ended September 30, 2011 is presented below:

	Number of Shares			Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contract Term (# years)		Intrinsic Value
Outstanding at January 1, 2011		1,542,072		$	2.15
Granted		272,000			1.64
Exercised		-			-
Forfeited and canceled		(75,000	)		5.00

Outstanding at September 30, 2011		1,739,072		$	1.94		7.4	$	324,513

Exercisable at September 30, 2011		1,419,739		$	1.98		7.0	$	324,513

Option awards are granted with an exercise price equal to the market price of Opexa’s stock at the date of issuance, generally have a ten-year life, and have various vesting dates that range from no vesting or partial vesting upon date of grant to full vesting on a specified date. Opexa estimates the fair value of stock options using the Black-Scholes option-pricing model and records the compensation expense ratably over the service period.

Employee Options

During the nine months ended September 30, 2011, options to purchase an aggregate of 175,000 shares were granted to employees, based on 2010 performance objectives, at an exercise price of $1.56. These options have terms of 10 years and have a vesting schedule of three years. Fair value of $268,451 was calculated using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for the options issued during the nine month period ended September 30, 2011 include (1) discount rate of 3.36%, (2) expected term of 6 years, (3) expected volatility of 192.44% and (4) zero expected dividends.

Non-Employee Options

During the nine months ended September 30, 2011, options to purchase an aggregate of 82,000 shares were granted to non-employee directors for service on Opexa’s Board at an exercise price of $1.78. Options to purchase an aggregate of 40,000 shares have terms of 10 years, with 50% of the shares vesting immediately and 50% vesting in one year from the date of grant. Options to purchase the remaining 42,000 shares will expire on the earlier of 10 years or a change in control of the Company, with 50% of the shares vesting immediately and 50% vesting on December 31, 2011. Fair value of $142,877 was calculated using the Black-Scholes option-pricing model.

During the nine months ended September 30, 2011, an option to purchase 15,000 shares was granted to a consultant at an exercise price of $1.78. This option has a term of 10 years, with 50% of the shares vesting immediately and 50% vesting on December 31, 2011. Fair value of $26,136 was calculated using the Black-Scholes option-pricing model.

Variables used in the Black-Scholes option-pricing model for the non-employee options issued during the nine months ended September 30, 2011 include (1) discount rate of 3.50%, (2) expected term of 5.3 years, (3) expected volatility of 198.22% and (4) zero expected dividends.

Warrant Activity

A summary of warrant activity for the nine months ended September 30, 2011 is presented below:

	Number of Shares			Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contract Term (# years)		Intrinsic Value
Outstanding at January 1, 2011		11,459,576		$	2.75
Granted		1,658,600			2.61
Exercised		-			-
Forfeited and canceled		(2,687,890	)		5.93

Outstanding at September 30, 2011		10,430,286		$	1.90		2.0	$	733,987

Exercisable at September 30, 2011		10,430,286		$	1.90		2.0	$	733,987

In connection with Opexa’s February 2011 public offering, as disclosed in Note 4, Opexa issued warrants to purchase an aggregate of 1,658,600 shares of common stock to the investors at an exercise price of $2.61 per share. These warrants have a term of five years and are immediately exercisable.

Subsequent Events

Note 6. Subsequent Events

On October 27, 2011, Opexa granted ten-year options to a non-employee director to purchase an aggregate of 23,423 shares of common stock at an exercise price of $1.05. Of such options, 20,000 shares vest one-third immediately and the remaining two-thirds on the first and second anniversary of the grant date, and 1,667 shares vest one-half immediately and one-half on April 5, 2011. The remaining 1,756 option shares vest one-half immediately and one-half on December 31, 2011, and the options expire on the earlier of ten years or a change in control of the Company.

On November 2, 2011, Opexa entered into an Assignment Agreement and General Release with Novartis by which Opexa re-acquired certain novel stem cell technology assets previously transferred to Novartis pursuant to an Asset Purchase Agreement dated August 6, 2009. Novartis recently advised Opexa that the advancement of the stem cell program was no longer a priority for Novartis, and that Novartis was willing to transfer the assets back to Opexa in exchange for a release with respect to any further payment obligations owed to Opexa by Novartis, including the remaining $500,000 technology transfer milestone payment. In connection with the re-acquisition of the stem cell assets from Novartis, a related license agreement with the University of Chicago was assigned back to Opexa.