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Article by DailyStocks_admin    (01-05-14 10:33 PM)

Description

Filed with the SEC from Dec 26 to Jan 1:

BioTime (BTX)
Broadwood Partners increased its holdings to 9,515,170 shares (14.1%) after it purchased 300,042 from Dec. 26 to Dec. 30 at prices from $4.46 to $3.57 each.
BUSINESS OVERVIEW

Overview

We are a biotechnology company focused on the emerging field of regenerative medicine. Our core technologies center on stem cells capable of becoming all of the cell types in the human body, a property called pluripotency . Products made from these “pluripotent” stem cells are being developed by us and our subsidiaries, each of which concentrates on different medical specialties, including: neuroscience, oncology, orthopedics, and blood and vascular diseases. Our commercial strategy is heavily focused on near-term commercial opportunities including our current line of research products such as PureStem ™ cell lines (which we previously called ACTCellerate ™ cell line) and associated ESpan ™ culture media, HyStem ® hydrogels, human embryonic stem cell lines, and royalties from Hextend ® . Potential near term therapeutic and diagnostic product opportunities include Renevia ™ (formerly known as HyStem ® -Rx ) as a cell delivery device expected to enter clinical trials in Europe in 2013, and the launch of PanC-Dx ™ as a novel blood-based cancer screen, expected by 2014 in Europe. Our long-term strategic focus is to provide regenerative therapies for age-related degenerative diseases.

“Regenerative medicine” refers to an emerging field of therapeutic product development that may allow all human cell and tissue types to be manufactured on an industrial scale. This new technology is made possible by the isolation of human embryonic stem (“hES”) cells, and by the development of “induced pluripotent stem (“iPS”) cells” which are created from regular cells of the human body using technology that allows adult cells to be “reprogrammed” into cells with pluripotency like young hES-like cells. These pluripotent hES and iPS cells have the unique property of being able to branch out into each and every kind of cell in the human body, including the cell types that make up the brain, the blood, the heart, the lungs, the liver, and other tissues. Unlike adult-derived stem cells that have limited potential to become different cell types, pluripotent stem cells may have vast potential to supply an array of new regenerative therapeutic products, especially those targeting the large and growing markets associated with age-related degenerative disease. Unlike pharmaceuticals that require a molecular target, therapeutic strategies in regenerative medicine are generally aimed at regenerating affected cells and tissues, and therefore may have broader applicability. Regenerative medicine represents a revolution in the field of biotechnology with the promise of providing therapies for diseases previously considered incurable.

Our commercial efforts in regenerative medicine include the development and sale of products designed for research applications in the near term as well as products designed for diagnostic and therapeutic applications in the medium and long term. We offer advanced human stem cell products and technology that can be used by researchers at universities and at companies in the bioscience and biopharmaceutical industries. We have developed research and clinical grade hES cell lines that we market for both basic research and therapeutic product development. Our subsidiary, ES Cell International Pte. Ltd (“ESI”), has developed six hES cell lines that are among the best characterized and documented cell lines available today. Developed using current Good Manufacturing Practices (“cGMP”) that facilitate transition into the clinic, these hES cell lines are extensively characterized and five of the six cell lines currently have documented and publicly-available genomic sequences. The ESI hES cell lines are now included in the Stem Cell Registry of the National Institutes of Health (“NIH”), making them eligible for use in federally funded research, and all are available for purchase through http://bioreagents.lifemapsc.com . We also market human embryonic progenitor cell (“hEPCs”), which are called PureStem ™ cell lines and were developed using ACTCellerate ™ technology. These hEPCs are purified lineages of cells that are intermediate in the developmental process between embryonic stem cells and fully differentiated cells. We expect that hEPCs will simplify the scalable manufacture of highly purified and identified cell types and will possess the ability to become a wide array of cell types with potential applications in research, drug discovery, and human regenerative stem cell therapies. The PureStem ™ cell lines are also available for purchase through http://bioreagents.lifemapsc.com .

Research products can be marketed without regulatory or other governmental approval, and thus offer relatively near-term business opportunities, especially when compared to therapeutic products. The medical devices and diagnostics that we and our subsidiaries are developing will require regulatory approval for marketing, but the clinical trial and approval process for medical devices is often faster and less expensive than the process for the approval of new drugs and biological therapeutics. Our current and near-term product opportunities, combined with expected long-term revenues from the potentially very large revenue that could be derived from cell-based therapeutic products under development at our subsidiaries, provide us with a balanced commercial strategy. The value of this balance is apparent in the commercial field of regenerative medicine as competitors whose sole focus is on long-term therapeutic products have found it challenging to raise the requisite capital to fund clinical development.

Our HyStem ® hydrogel product line is one of the components in our near-term revenue strategy. HyStem ® is a patented biomaterial that mimics the human extracellular matrix, which is the network of molecules surrounding cells in organs and tissues that is essential to cellular function. Many tissue engineering and regenerative cell-based therapies will require the delivery of therapeutic cells in a matrix or scaffold to sustain cell survival after transplantation and to maintain proper cellular function. HyStem ® is a unique hydrogel that has been shown to support cellular attachment and proliferation in vivo.

Renevia ™ (formerly known as HyStem ® - Rx ) is a clinical grade formulation of HyStem-C ® , a biocompatible, implantable hyaluronan and collagen-based matrix for cell delivery in human clinical applications. As an injectable product, Renevia ™ may address an immediate need in cosmetic and reconstructive surgeries and other procedures by improving the process of transplanting adipose derived cells, mesenchymal stem cells, or other adult stem cells. We will need to obtain approval by the U.S. Food and Drug Administration (“FDA”) and comparable regulatory agencies in foreign countries in order to market Renevia ™ as a medical device. We expect to initiate clinical trials in the European Union during the first half of 2013 for CE marking.

Other HyStem ® products are currently being used by researchers at a number of leading medical schools in pre-clinical studies of stem cell therapies to facilitate wound healing, for the treatment of ischemic stroke, brain cancer, vocal fold scarring, and for myocardial infarct repair. Our HyStem ® hydrogels may have other applications when combined with the diverse and scalable cell types our scientists have isolated from hES cells.

Our subsidiary, OncoCyte Corporation, is developing PanC-Dx ™ , a novel non-invasive blood-based cancer screening test designed to detect the presence of various human cancers, including cancers of the breast, lung, bladder, uterus, stomach, and colon, during routine check -ups. We intend to initially seek regulatory approval to market PanC-Dx ™ in Europe as a screen for breast cancer before seeking regulatory approvals required to market the product in the U.S. and other countries.

Our subsidiary, LifeMap Sciences markets GeneCards ® , the leading human gene database, as part of an integrated database suite that includes LifeMap Discovery ™ , the database of embryonic development, stem cell research and regenerative medicine; and MalaCards , the human disease database. LifeMap Sciences also markets PanDaTox , a database that can be used to identify genes and intergenic regions that are unclonable in E. coli, to aid in the discovery of new antibiotics and biotechnologically beneficial functional genes. LifeMap Sciences will utilize its databases as part of its online marketing strategy for our research products to reach life sciences researchers at biotech and pharmaceutical companies and at academic institutions and research hospitals worldwide.

LifeMap Sciences is also the internet sales and marketing arm of our research products for sale through the website http://bioreagents.lifemapsc.com . We now offer 12 PureStem ™ hEPC and five hES cell lines developed under cGMP by our subsidiary ESI for sale, and hES cell lines carrying inherited genetic diseases. The hES cell lines developed by ESI are included in the NIH Stem Cell Registry, making them eligible for use in federally funded research, and five of the six cell lines currently have documented and publicly-available genomic sequences. We anticipate adding additional cell lines and related ESpan ™ growth media and differentiation kits over time.

During January 2013, we entered into an Asset Contribution Agreement with our subsidiary BioTime Acquisition Corporation (“BAC”) and Geron Corporation pursuant to which BAC will acquire a significant portfolio of patents and patent applications, cell lines, and hES technology and know-how related to potential therapeutic products in various stages of development. Two of the products under development have already been used in early stage clinical trials. The acquisition of the Geron stem cell assets is expected to occur no later than September 30, 2013. The completion of the transaction is subject to the satisfaction of certain conditions. See “BioTime Acquisition Corporation and the Asset Contribution Agreement.”

Plasma Volume Expander Products

We have developed and licensed manufacturing and marketing rights to Hextend ® , a physiologically balanced blood plasma volume expander used for the treatment of hypovolemia in surgery, emergency trauma treatment, and other applications. Hypovolemia is a condition caused by low blood volume, often from blood loss during surgery or from injury. Hextend ® maintains circulatory system fluid volume and blood pressure and helps sustain vital organs during surgery or when a patient has sustained substantial blood loss due to an injury. Hextend ® is the only blood plasma volume expander that contains lactate, multiple electrolytes, glucose, and a medically approved form of starch called hetastarch. Hextend ® is sterile, so its use avoids the risk of infection. Health insurance reimbursements and HMO coverage now include the cost of Hextend used in surgical procedures.

Hextend ® is manufactured and distributed in the United States by Hospira, Inc., and in South Korea by CJ CheilJedang Corp. (“CJ”), under license from us.

Key Accomplishments in 2012

In January 2012, we licensed key technology obtained in an exclusive license from The Wistar Institute in Philadelphia, PA for technology related to a gene designated as SP100 . Wistar Institute researchers have demonstrated pivotal roles for this gene in both cancer and stem cell biology. Scientists at BioTime’s subsidiaries OncoCyte Corporation and ReCyte Therapeutics, Inc. plan to apply this technology in the development of innovative medical products for cancer and vascular diseases. In conjunction with the license agreement, BioTime has agreed to fund research at The Wistar Institute to advance the technology, and BioTime will receive certain rights to negotiate additional licenses for any technologies invented as a result of the research.

In May 2012, through our subsidiary, LifeMap Sciences, we acquired XenneX Corporation. The acquisition integrated GeneCards ® and associated databases in a centralized resource. LifeMap now holds the exclusive, worldwide licenses to market GeneCards ® and PanDaTox . GeneCards ® is a searchable, integrated, database of human genes that provides concise genomic, transcriptomic, genetic, proteomic, functional and disease related information, on all known and predicted human genes. PanDaTox is a recently developed, searchable, database that can be used to identify genes and intergenic regions that are unclonable in E. coli, to aid in the discovery of new antibiotics and biotechnologically beneficial functional genes, and to improve the efficiency of metabolic engineering. Through this acquisition we began recognizing license revenue based upon subscription and advertising fees from customers worldwide including biotechnology, pharmaceutical and other life sciences companies, as well as organizations dealing with biotechnology intellectual property.

Through the acquisition, XenneX stockholders received 1,362,589 shares of LifeMap Sciences common stock, which represents approximately 13% of the LifeMap Sciences common stock now outstanding. XenneX shareholders also received 448,429 BioTime common shares as part of the transaction.

In August, 2012 our subsidiary OncoCyte announced the publication of a scientific report on the gene COL10A1 and its potential as a marker for numerous types of human cancers. The paper described the microarray-based approach used to identify COL10A1 as a pan-cancer biomarker with significantly elevated expression in diverse malignant tumor types including cancers of the breast, stomach, colon, lung, bladder, pancreas, and ovaries. In addition, the protein was shown to be specifically localized within tumor vasculature. Combined, these findings will be an important basis for the development and application of new diagnostic and therapeutic strategies, including the measurement of Collagen Type X in the blood as a screen for the presence of cancer, the use of antibodies that recognize and bind to the protein to visualize and locate tumors in the body, and the targeted delivery of tumor-destroying agents.

In November, 2012, we made an additional investment in our subsidiary Cell Cure Neurosciences Ltd. (“Cell Cure Neurosciences”) through which we agreed to purchase 87,456 Cell Cure Neurosciences ordinary shares in exchange for 906,735 BioTime common shares. The transaction closed in January 2013. As a result of the share purchase, BioTime owns, directly and through its wholly owned subsidiary ESI, approximately 62.6% of the outstanding ordinary shares of Cell Cure Neurosciences.

In September, 2012 we formed a new subsidiary, BAC, to acquire assets in the stem cell field for use in developing and commercializing products for regenerative medicine. In November 2012 we and BAC signed a letter of intent with Geron which contained terms of a potential transaction through which Geron would contribute to BAC its intellectual property and other assets related to Geron’s discontinued human embryonic stem cell programs and BioTime would contribute to BAC cash, BioTime common shares, warrants to purchase common shares of BioTime at a pre-specified price, rights to use certain human embryonic stem cell lines, and minority stakes in two of BioTime’s subsidiaries. In January 2013, we entered into a definitive agreement through an Asset Contribution Agreement with BAC and Geron pursuant to which Geron has agreed to contribute certain assets, including intellectual property and proprietary technology, including certain patents and know-how related to human embryonic stem cells; certain biological materials and reagents; certain laboratory equipment; certain contracts; Geron’s Phase I clinical trial of oligodendrocyte progenitor cells in patients with acute spinal cord injury, and Geron’s autologous cellular immunotherapy program, including the Phase I/II clinical trial of autologous immunotherapy in patients with acute myelogenous leukemia; and certain regulatory filings, in exchange for shares of BAC common stock, and we have agreed to contribute 8,902,077 common shares; warrants to subscribe for and purchase 8,000,000 additional common shares; $5,000,000 in cash; 10% of the issued and outstanding shares of common stock of our subsidiary OrthoCyte Corporation; 6% of the issued and outstanding ordinary shares of our subsidiary Cell Cure Neurosciences; and a quantity of certain human hES cell lines produced under cGMP, and a non-exclusive, world-wide, royalty-free license to use those hES cell lines and certain patents pertaining to stem cell differentiation technology, in exchange for BAC common stock and warrants to purchase BAC common stock. We expect the transaction to close in the third quarter of 2013.

Related to the proposed acquisition of Geron’s stem cell assets by BAC, we and BAC entered into agreements for a $10 million investment from a private investor to provide financing for the proposed acquisition of the Geron stem cell assets. Under the agreed terms, the investor will invest $5 million in BioTime in two tranches by purchasing a total of 1.35 million BioTime common shares at a purchase price of approximately $3.70 per share, and warrants to purchase approximately 650,000 additional BioTime common shares with an exercise price of $5 per share and a three year term. The initial investment tranche of $2 million was made in January, 2013. The second tranche of $3 million was originally intended to close later this year concurrent with the closing of the Asset Contribution Agreement. However, o n March 7, 2013 we executed an amendment with the investor to accelerate the closing date to April 10, 2013. In addition, the investor will contribute $5 million in cash to BAC in exchange for shares of BAC common stock that, upon issuance, will represent approximately 7% of the BAC common stock then issued and outstanding, plus warrants to purchase approximately 350,000 additional shares of BAC common stock at an exercise price of $5 per share, with a three year term.

Additional Information

HyStem ® , Hextend ® and PentaLyte ® are registered trademarks of BioTime, Inc., and Renevia ™ , PureStem ™ , ESpan ™ , and ESpy ® are trademarks of BioTime, Inc. ACTCellerate ™ is a trademark licensed to us by Advanced Cell Technology, Inc. ReCyte ™ is a trademark of ReCyte Therapeutics, Inc. PanC-Dx ™ is a trademark of OncoCyte Corporation. GeneCards ® is a registered trademark of Yeda Research and Development Co. Ltd.

We were incorporated in 1990 in the state of California. Our principal executive offices are located at 1301 Harbor Bay Parkway, Alameda, California 94502. Our telephone number is (510) 521-3390.

Business Strategy

One of our goals is to develop cell-based regenerative therapies for age-related degenerative disease. The degenerative diseases of aging meet several criteria that make them an attractive business opportunity. First, the elderly comprise a large and growing segment of both the U.S. and the world population. Second, chronic diseases account for nearly 75% of health care costs. Third, because many age-related diseases appear to be caused by the inherent limited capacity of aged human cells to regenerate damaged tissues in the body, our cell replacement technologies may eliminate the high costs associated with years of palliative care addressing these large markets.

Our effort in regenerative medicine also includes research on more than 200 purified, scalable, and novel human embryonic progenitor cell types produced from hES and iPS cells. This research has included extensive gene expression studies of the unique properties of the cells, as well as conditions that cause the cells to differentiate into many of the cell types in the body. We have filed patent applications on the compositions of these cells, the media in which they can be expanded, and a variety of uses of the cells, including drug discovery and cell replacement therapies. This novel manufacturing technology may provide us with a competitive advantage in producing highly purified, identified, and scalable cell types for potential use in therapy.

We have organized several subsidiaries to undertake our cell replacement therapeutic programs, diagnostic product programs, and our research product programs. We will partly or wholly fund these subsidiaries, recruit their management teams, assist them in acquiring technology, and provide general guidance for building the subsidiary companies. We may license patents and technology to the subsidiaries that we do not wholly own under agreements that will entitle us to receive royalty payments from the commercialization of products or technology developed by the subsidiaries.

In September 2012 we formed a new subsidiary, BAC, to acquire assets in the stem cell field for use in developing and commercializing products for regenerative medicine. During January 2013, BAC entered into the Asset Contribution Agreement to acquire the assets that Geron had used in its stem cell research and development programs. By a cquiring Geron’s stem cell assets, BAC will have the use of cell lines and other biological materials, patents, and technology developed by Geron over 12 years of work focused in the following complementary lines of research:


the establishment of cell banks of undifferentiated hES cells produced under current good manufacturing procedures “cGMP” and suitable for human therapeutic use;


the development of scalable differentiation methods which convert, at low cost, undifferentiated hES cells into functional cells suitable for human therapeutic cells that can be stored and distributed in the frozen state for “off-the-shelf” use;


the development of regulatory paradigms to satisfy both U.S. and European regulatory authority requirements to begin human clinical testing of products made from hES cells; and


the continuous filing and prosecution of patents covering inventions to protect commercialization rights, as well as consummating in-licenses to enable freedom to operate in a variety of fields.

CEO BACKGROUND

ELECTION OF DIRECTORS

At the Meeting, nine directors will be elected to hold office until the next Annual Meeting of Shareholders, and until their successors have been duly elected and qualified. All of the nominees named below are incumbent directors.

It is the intention of the persons named in the enclosed proxy, unless the proxy specifies otherwise, to vote the shares represented by such proxy FOR the election of the nominees listed below. In the unlikely event that any nominee should be unable to serve as a director, proxies may be voted in favor of a substitute nominee designated by the Board of Directors. However, if you are a beneficial owner of shares held in street name, your broker or other nominee will not be allowed to vote in the election of directors unless you instruct your broker or other nominee how to vote on the form that the broker or nominee provided to you.

Directors and Nominees

The names and ages of our directors are:

Franklin M. Berger, CFA , 64, joined the Board of Directors during May, 2013. Mr. Berger is a consultant to biotechnology industry participants, including major biopharmaceutical firms, mid-capitalization biotechnology companies, specialist asset managers and venture capital companies, providing business development, strategic advisory, financing, partnering, and royalty acquisition advice. Mr. Berger is also a biotechnology industry analyst with over 25 years of experience in capital markets and financial analysis. Mr. Berger worked at Sectoral Asset Management as a founder of the small-cap focused NEMO Fund from 2007 through June 2008. Previously, he served as Managing Director, Equity Research and Senior Biotechnology Analyst at J.P. Morgan Securities from May 1998 to March 2003. Mr. Berger served in similar capacities at Salomon Smith Barney from August 1997 to May 1998 and at Josephthal & Co. from November 1991 to August 1997. Mr. Berger serves as a director of Seattle Genetics, Inc., BELLUS Health, Inc., and Five Prime Therapeutics, Inc., which are publicly-traded biotechnology companies. In addition, Mr. Berger previously served as a director of VaxGen, Inc., Isotechnika, Inc., Emisphere Technologies, Inc., and Thallion Pharmaceuticals Inc., which was recently acquired by BELLUS Health, Inc. He holds an M.B.A. from the Harvard Graduate School of Business Administration and an M.A. in International Economics and a B.A. in International Relations both from Johns Hopkins University.

Mr. Berger’s financial background and experience as a business and financial consultant to pharmaceutical and biotechnology firms, and as an equity analyst in the biotechnology industry, combined with his experience serving on the boards of directors of multiple public companies is important to our strategic planning and financing activities as well as providing valuable experience in his role as a member of our Audit Committee and Compensation Committee.

Neal C. Bradsher, CFA, 48, joined the Board of Directors during July 2009. Since 2002, Mr. Bradsher has been the Founder and President of Broadwood Capital, Inc., a private investment firm. Mr. Bradsher holds a B.A. degree in economics from Yale College and is a Chartered Financial Analyst. Mr. Bradsher is also a director of Questcor Pharmaceuticals, Inc., a biopharmaceutical company focused on the treatment of patients with serious, difficult-to-treat autoimmune and inflammatory disorders.

Mr. Bradsher brings to the Board a wealth of experience in finance, management, and corporate governance attained through his successful investments in other companies, including companies in the pharmaceutical, medical device, health care services, and health care information systems sectors. He has worked with several health care companies to improve their management and governance, and currently serves as a director of Questcor Pharmaceuticals, Inc. Entities that Mr. Bradsher controls have invested in some of BioTime’s financing transactions over the last several years. Mr. Bradsher is the President of the general partner of Broadwood Partners, LP, currently our largest shareholder.

Stephen C . Farrell, 48, joined the Board of Directors during March 2013. Mr. Farrell currently serves as Chief Executive Officer and Director of Convey Health Solutions (formerly known as NationsHealth, Inc.), a healthcare business process outsourcing company headquartered in Sunrise, Florida. Convey Health Solutions utilizes both technology and staff to manage end-to-end insurance processes for business clients. Before joining Convey Health Solutions in 2011, he served as President of PolyMedica Corporation, a publicly traded provider of diabetes supplies and related services that was acquired in 2007 by Medco Health Solutions. During his eight year tenure at PolyMedica, Mr. Farrell served as its President, Chief Operating Officer, and as Chief Financial Officer, Chief Compliance Officer, and Treasurer. Mr. Farrell previously served as Executive Vice President and Chief Financial Officer of Stream Global Services, Inc., a business process outsourcing company. Earlier in his career, Mr. Farrell served as Senior Manager at PricewaterhouseCoopers LLP. Mr. Farrell holds an A.B. from Harvard University, and an M.B.A. from the Darden School at the University of Virginia. Mr. Farrell currently serves on the board and is chairman of the Audit Committee of Questcor Pharmaceuticals, Inc., a biopharmaceutical company focused on the treatment of patients with serious, difficult-to-treat autoimmune and inflammatory disorders.

Mr. Farrell brings to our Board significant experience in finance, financial reporting, accounting and auditing, and in management as a senior executive of a public healthcare company during a period of significant growth.

Alfred D. Kingsley , 70, joined the Board of Directors and became Chairman of the Board during July 2009. In January 2011, Mr. Kingsley became the executive Chairman of five of our subsidiaries. Mr. Kingsley has been general partner of Greenway Partners, L.P., a private investment firm, and President of Greenbelt Corp., a business consulting firm, since 1993. Greenbelt Corp. served as our financial advisor from 1998 until June 30, 2009. Mr. Kingsley was Senior Vice-President of Icahn and Company and its affiliated entities for more than 25 years. Mr. Kingsley holds a BS degree in economics from the Wharton School of the University of Pennsylvania, and a J.D. degree and LLM in taxation from New York University Law School.

Mr. Kingsley’s long career in corporate finance and mergers and acquisitions includes substantial experience in helping companies to improve their management and corporate governance, and to restructure their operations in order to add value for shareholders. Mr. Kingsley developed an intimate knowledge of our business in his role as our financial advisor before he joined our Board. Mr. Kingsley has been instrumental in structuring our equity and debt financings, and in the transition of our business focus into the field of human embryonic stem cell technology, and the business acquisitions that have helped us expand the scope of our business. Mr. Kingsley, along with entities that he controls, is currently one of our largest shareholders.

Pedro Lichtinger , 59, joined the Board of Directors during August 2009. Mr. Lichtinger served as President, Chief Executive Officer, and a director of Optimer Pharmaceuticals, Inc., from May 2010 to February 26, 2013. Mr. Lichtinger previously served as an executive of Pfizer, Inc. from 1995 to 2009, including as President of Pfizer’s Global Primary Care Unit from 2008 to 2009, Area President, Europe from 2006 to 2008, President, Global Animal Health from 1999 to 2006, and Regional President Europe Animal Health from 1995 to 1999. Before joining Pfizer, Mr. Lichtinger was an executive of Smith Kline Beecham, last serving as Senior Vice-President Europe Animal Health from 1987 to 1995. Mr. Lichtinger holds an MBA degree from the Wharton School of Business and an Engineering degree from the National University of Mexico.

Mr. Lichtinger brings to our Board more than 20 years of experience in the pharmaceutical industry, where he played a key role in the development of international business for two leading pharmaceutical companies, Pfizer and Smith Kline Beecham. We believe that Mr. Lichtinger’s experience in the international pharmaceutical industry will be of great value in our efforts to find and capitalize on opportunities in overseas markets. Mr. Lichtinger was responsible for more than $23 billion of revenues by Pfizer in 2008.

Henry L. Nordhoff , 71, joined the Board of Directors during June 2013. Mr. Nordhoff retired as Chairman of the Board of Gen-Probe Incorporated, a clinical diagnostic and blood screening company, at the end of 2011, after serving as its Chairman since September 2002. Mr. Nordhoff also served as Chief Executive Officer and President of Gen-Probe from July 1994 until May 2009. Prior to joining Gen-Probe, he was President and Chief Executive Officer of TargeTech, Inc., a gene therapy company that was merged into Immune Response Corporation. Mr. Nordhoff earlier served in senior positions at Pfizer, Inc. in Brussels, Seoul, Tokyo and New York. Mr. Nordhoff is a director of MannKind Corporation, a biopharmaceutical company, and served as a director of Gen-Probe until 2011. He received a B.A. in international relations and political economy from Johns Hopkins University and an M.B.A. from Columbia University.

The Board believes that Mr. Nordhoff’s experience as a director and executive officer of pharmaceutical and biotech companies provides our Board with valuable operational expertise and leadership skills.

Judith Segall , 60, is our Vice President of Administration and Corporate Secretary, and has served on the Board of Directors from 1990 through 1994, and from 1995 through the present date. She was a co-founder of BioTime in 1990. Ms. Segall received a B.S. in Nutrition and Clinical Dietetics from the University of California at Berkeley in 1989.

As one of our co-founders, Ms. Segall has served on our Board and as an executive for more than 20 years. During that time, she has developed a wealth of knowledge concerning our business operations, financial structure, and institutional relationships, particularly our relationships with the manufacturers and distributors of Hextend ® .

Andrew C. von Eschenbach, M.D ., 71, joined our Board of Directors during November 2011. Dr. von Eschenbach is the President of Samaritan Health Initiatives, Inc., a health care policy consultancy, and is an Adjunct Professor at University of Texas MD Anderson Cancer Center. From September of 2005 to January 2009, Dr. von Eschenbach served as Commissioner of the Food and Drug Administration. He was appointed Commissioner of the FDA after serving for four years as Director of the National Cancer Institute at the National Institutes of Health. Dr. von Eschenbach earned a B.S. from St. Joseph’s University and a medical degree from Georgetown University School of Medicine in Washington, D.C. Dr. von Eschenbach serves on the Board of Directors of Elan Corporation, plc. He also serves on the Chugai Pharmaceutical International Advisory Council; the GE Healthymagination Advisory Board; and the Scientific Advisory Board of Arrowhead Research Corporation. He is a Senior Fellow at the Milken Institute, Senior Fellow and Director of the FDA Project at the Manhattan Institute; and serves on the Expert Oncology Panel at GSK Oncology.

Dr. von Eschenbach is an internationally renowned cancer specialist and author of more than 300 scientific articles and studies, and served for over three decades as a physician, surgeon, oncologist, and executive in the healthcare industry. His roles have included serving as Chairman of the Department of Urologic Oncology and Executive Vice President and Chief Academic at the University of Texas MD Anderson Cancer Center in Houston.

Michael D. West, Ph.D ., 60, became our Chief Executive Officer during October 2007, and has served on the Board of Directors since 2002. Prior to becoming our Chief Executive Officer, Dr. West served as Chief Executive Officer, President, and Chief Scientific Officer of Advanced Cell Technology, Inc., a company engaged in developing human stem cell technology for use in regenerative medicine. Dr. West also founded Geron Corporation, and from 1990 to 1998 he was a Director and Vice-President, where he initiated and managed programs in telomerase diagnostics, oligonucleotide-based telomerase inhibition as anti-tumor therapy, and the cloning and use of telomerase in telomerase-mediated therapy wherein telomerase is utilized to immortalize human cells. From 1995 to 1998 he organized and managed the research between Geron and its academic collaborators, James Thomson and John Gearhart, that led to the first isolation of human embryonic stem and human embryonic germ cells. Dr. West received a B.S. Degree from Rensselaer Polytechnic Institute in 1976, an M.S. Degree in Biology from Andrews University in 1982, and a Ph.D. from Baylor College of Medicine in 1989 concentrating on the biology of cellular aging.

Dr. West is an internationally renowned pioneer and expert in stem cell research, and has extensive academic and business experience in age-related degenerative diseases, telomerase molecular biology, and human embryonic stem cell research and development. Dr. West brings to our Board the proven ability to conceive of and manage innovative research and development programs that have made scientifically significant discoveries in the field of human embryonic stem cells, and the ability to build companies focused on the great potential of regenerative medicine.

Executive Officers

Michael D. West, Robert W. Peabody, William P. Tew, and Lesley A. Stolz are our executive officers. Alfred D. Kingsley is an executive officer of five of our subsidiaries but he is not otherwise an executive officer of BioTime. Peter S. Garcia served as our Chief Financial Officer during 2012 but he resigned his position effective May 10, 2013 at which time Mr. Peabody reassumed the position of Chief Financial Officer, having previously held that position from September 2010 until October 2011 when Mr. Garcia was hired. There are no family relationships among our directors or officers.

Robert W. Peabody , 59, is our Senior Vice-President, Chief Operating Officer, and Chief Financial Officer. Mr. Peabody also served on an interim basis as our Chief Financial Officer from September 2010 until October 2011. Prior to joining BioTime in October 2007, Mr. Peabody served as a Vice-President of Advanced Cell Technology, Inc. (ACT), and also served on their board of directors from 1998 to 2006. Prior to joining ACT, Mr. Peabody spent 14 years as a Regional Controller for Ecolab, Inc., a Fortune 500 specialty chemical manufacturer and service company. He has also been an audit manager for Ernst and Young where he was a Certified Public Accountant on the audit staff serving the firm’s clients whose shares are publicly traded. Mr. Peabody received a Bachelor Degree in Business Administration from the University of Michigan.

William P. Tew, Ph.D. , 67, was appointed our Chief Commercial Officer in July 2011 and prior to that was Vice President of Business Development of BioTime and our subsidiary OrthoCyte Corporation. Dr. Tew co-founded Glycosan BioSystems in 2006 and served as its President and Chief Executive Officer until it was acquired by our subsidiary OrthoCyte Corporation during March 2011. Dr. Tew has extensive experience in life sciences, biopharmaceuticals, and university technology licensing. He was on the research and teaching faculty at Johns Hopkins University School of Medicine from 1979 to 1983, and served as Associate Provost and Assistant Dean of Technology Licensing from 2000 to 2004. In 1980 Dr. Tew founded Chesapeake Biological Laboratories, where he served as Chairman and Chief Executive Officer for almost two decades, developing and manufacturing bulk pharmaceuticals, parenteral drugs, and medical devices in compliance with FDA and cGMP regulations. He also oversaw the design, validation, and operation of sterile filling and packing facilities and implemented reliable ISO quality-management systems.

Lesley A. Stolz, Ph.D. , 49, became our Executive Vice President, Corporate Development in August 2013. She has over 18 years of business and corporate development experience working for companies that are both technology platform and therapeutics focused. Prior to joining BioTime, Dr. Stolz was vice president of business development for Sutro Biopharma, Inc., a company focused on protein therapeutics, from 2009 until 2012. While there she was responsible for all corporate partnering activities as well as business strategy development and implementation, and capital raising. Earlier in her career, Dr. Stolz worked with Sunesis Pharmaceuticals, Inc. from 2007 to 2009, Aerovance, Inc. from 2006 to 2007, and GPC Biotech AG in Munich, Germany from 2002 to 2006. Dr. Stolz holds a Ph.D. in chemistry from the University of Rochester, and a bachelor of science degree in chemistry from the University of Virginia. She conducted postdoctoral research at the Harvard Medical School Department of Biochemistry and Molecular Pharmacology.

MANAGEMENT DISCUSSION FROM LATEST 10K

Stem Cells and Products for Regenerative Medicine Research

We have designated our subsidiary LifeMap Sciences as our primary internet marketing arm for our research products. In addition to offering subscriptions to its database products, LifeMap Sciences is also utilizing its databases as part of its strategy for marketing our research products online to reach life sciences researchers at biotech and pharmaceutical companies and at academic institutions and research hospitals worldwide. The LifeMap Discovery ™ data base provides access to available cell-related information and resources necessary to improve stem cell research and development of therapeutics based on regenerative medicine and may promote the sale of our PureStem ™ hEPC by permitting data base users to follow the development of hES cell lines to the purified hEPC state.

Plasma Volume Expander Products

Royalties and licensing fees related to our plasma volume expander products, primarily Hextend ® , comprise a significant part of our operating revenues. Hextend ® has become the standard plasma volume expander at a number of prominent teaching hospitals and leading medical centers and is part of the Tactical Combat Casualty Care protocol of the U.S. Armed Forces.

Under our license agreements, Hospira and CJ will report sales of Hextend ® and pay us the royalties and license fees due on account of such sales after the end of each calendar quarter. We recognize revenues in the quarter in which the sales report is received, rather than the quarter in which the sales took place.

Royalties on sales of Hextend ® that occurred during the fourth quarter of 2011 through the third quarter of 2012 are reflected in our financial statements for the year ended December 31, 2012. We received $429,353 in royalties from Hextend ® sales by Hospira during 2012. Royalties for 2012 decreased 32% from $630,858 in royalties from Hospira on Hextend ® sales in 2011. In addition, we received royalties from CJ in the amount of $111,940 for the period ended December 31, 2012; representing a 9% decrease from $122,351 in royalties received for the period ended December 31, 2011.

Based on sales of Hextend ® that occurred during the fourth quarter of 2012, we received royalties of $88,946 from Hospira and $18,652 from CJ during the first quarter of 2013. Total royalties of $107,598 for the quarter decreased 27% from royalties of $147,402 received during the same period last year. These royalties will be reflected in our financial statements for the first quarter of 2013.

The decrease in royalties is attributable to a decrease in Hextend ® sales in the U.S. and in the Republic of Korea. The decrease in royalties received from Hospira based on sales during the previous quarter is generally due to the decline in the price of hetastarch-based products in the market. The blood volume expander marketing is shrinking overall and hospitals have shifted their purchases to albumin products. Hospira has reported that they have seen a rapid decline in the price of hetastarch-based plasma expanders in the market which could continue to have a negative impact on revenues from the sale of Hextend ® . Hospira implemented further price reductions for Hextend ® during 2012 in an attempt to maintain market share.

During the year ended December 31, 2006, we received $500,000 from Summit for the right to co-develop Hextend ® and PentaLyte ® in Japan, China, and Taiwan. A portion of the cash payment is a partial reimbursement of BioTime’s development costs of Hextend ® and a portion is a partial reimbursement of BioTime’s development costs of PentaLyte ® . This payment is reflected on our balance sheet as deferred revenue.

Research and Development Programs in Regenerative Medicine and Stem Cell Research

We entered the fields of stem cell research and regenerative medicine during October 2007. From that time through 2009, our activities in those fields included acquiring rights to market stem cell lines, pursuing patents, planning future products and research programs, applying for research grants, identifying the characteristics of various acquired progenitor and stem cell lines, negotiating a product distribution agreement, organizing new subsidiaries to address particular fields of product development, and planning and launching our first product development programs.

The inherent uncertainties of developing new products for stem cell research and for medical use make it impossible to predict the amount of time and expense that will be required to complete the development and commence commercialization of new products. There is no assurance that we or any of our subsidiaries will be successful in developing new technologies or stem cell products, or that any technology or products that may be developed will be proven safe and effective for treating diseases in humans, or will be successfully commercialized. Most of our potential therapeutic products are at a very early stage of preclinical development. Before any clinical trials can be conducted by us or any of our subsidiaries, the company seeking to conduct the trials would have to compile sufficient laboratory test data substantiating the characteristics and purity of the stem cells, conduct animal studies, and then obtain all necessary regulatory and clinical trial site approvals, after which a team of physicians and statisticians would need to be assembled to perform the trials. Clinical trials will be costly to undertake and will take years to complete. See our discussion of the risks inherent in our business and the impact of government regulation on our business in the “Risk Factors” section and “Business” section of this report.

We believe each of our operating subsidiaries has sufficient capital to carry out its current research and development plan during 2013. We may provide additional financing for our subsidiaries, or obtain financing from third parties, based on the following: our evaluation of progress made in their respective research and development programs, any changes to or the expansion of the scope and focus of their research, and our projection of future costs.

Critical Accounting Policies

Revenue recognition – We comply with SEC Staff Accounting Bulletin guidance on revenue recognition. Royalty revenues consist of product royalty payments. License fee revenues consist of fees under license agreements and are recognized when earned and reasonably estimable and also include subscription and advertising revenue from our online databases based upon respective subscription or advertising periods. We recognize revenue in the quarter in which the royalty reports are received rather than the quarter in which the sales took place. When we are entitled to receive up-front nonrefundable licensing or similar fees pursuant to agreements under which we have no continuing performance obligations, the fees are recognized as revenues when collection is reasonably assured. When we receive up-front nonrefundable licensing or similar fees pursuant to agreements under which we do have continuing performance obligations, the fees are deferred and amortized ratably over the performance period. If the performance period cannot be reasonably estimated, we amortize nonrefundable fees over the life of the contract until such time that the performance period can be more reasonably estimated. Milestone payments, if any, related to scientific or technical achievements are recognized in income when the milestone is accomplished if (a) substantive effort was required to achieve the milestone, (b) the amount of the milestone payment appears reasonably commensurate with the effort expended, and (c) collection of the payment is reasonably assured. Grant income and the sale of research products are recognized as revenue when earned. Revenues from the sale of research products are primarily derived from the sale of hydrogels and stem cell products.

Patent costs – Costs associated with obtaining patents on products or technology developed are expensed as general and administrative expenses when incurred. This accounting is in compliance with guidance promulgated by the Financial Accounting Standards Board (“FASB”) regarding goodwill and other intangible assets.

Research and development – We comply with FASB requirements governing accounting for research and development costs. Research and development costs are expensed when incurred, and consist principally of salaries, payroll taxes, consulting fees, research and laboratory fees, and license fees paid to acquire patents or licenses to use patents and other technology from third parties.

Stock-based compensation – We have adopted accounting standards governing share-based payments, which require the measurement and recognition of compensation expense for all share-based payment awards made to directors and employees, including employee stock options, based on estimated fair values. We utilize the Black-Scholes Merton option pricing model. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. Although the fair value of employee stock options is determined in accordance with recent FASB guidance, changes in the subjective assumptions can materially affect the estimated value. In management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of employee stock options because the option-pricing model value may not be indicative of the fair value that would be established in a willing buyer/willing seller market transaction.

Treasury stock – We account for BioTime common shares issued to subsidiaries for future potential working capital needs as treasury stock on the consolidated balance sheet. We have the intent and ability to register any unregistered shares to support the marketability of the shares.

Impairment of long-lived assets – Our long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the estimated fair value of the assets.

Deferred license and consulting fees – Deferred license and consulting fees consist of the value of warrants issued to third parties for services and to the minority shareholder in BioTime Asia for its participation in the organization of that company, and deferred license fees paid to acquire rights to use the proprietary technologies of third parties. The value of the warrants is being amortized over the lives of the warrants, and deferred license fees over the estimated useful lives of the licensed technologies or licensed research products. The estimation of the useful life any technology or product involves a significant degree of inherent uncertainty, since the outcome of research and development or the commercial life of a new product cannot be known with certainty at the time that the right to use the technology or product is acquired. We will review its amortization schedules for impairments that might occur earlier than the original expected useful lives. See also Note 6 to the Condensed Consolidated Interim Financial Statements.

Principles of consolidation – Our consolidated financial statements include the accounts of our wholly-owned subsidiaries, OrthoCyte, and ESI, the accounts of ReCyte Therapeutics, a subsidiary of which we owned approximately 95.2% of the outstanding shares of common stock as of December 31, 2012; the accounts of OncoCyte, a subsidiary of which we owned approximately 75.3% of the outstanding shares of common stock as of December 31, 2012; the accounts of BioTime Asia, a subsidiary of which we owned approximately 81.0% of the outstanding shares as of December 31, 2012, the accounts of Cell Cure Neurosciences, a subsidiary of which we owned approximately 53.6% of the outstanding shares as of December 31, 2012, the accounts of LifeMap Sciences, a subsidiary of which we owned approximately 73.2% of the outstanding shares as of December 31, 2012, and the accounts of BAC, a subsidiary of which we owned 96.7% of the outstanding shares as of December 31, 2012. All material intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements are presented in accordance with accounting principles generally accepted in the U.S. and with the accounting and reporting requirements of Regulation S-X of the SEC.

Results of Operations

Comparison of Years Ended December 31, 2012 and 2011

Our license fee revenues amounted to $899,998 and $263,757 for the years ended December 31, 2012 and 2011, respectively. License fee revenues for the year ended December 31, 2012 include subscription and advertising revenues of $752,896 from LifeMap Science’s online database business primarily related to its GeneCards ® database which LifeMap Sciences began marketing after its acquisition of XenneX during 2012. The 241% increase in license fee revenue in 2012 is primarily attributed to this new subscription and advertising revenue which is partially offset by license fee revenues of $85,358 earned through ESI in 2011 but not in 2012. License fee revenues also include $145,873 and $178,399 for the years ended December 31, 2012 and 2011, respectively from CJ and Summit. The license fees from CJ were received during April 2003 and July 2004, and the license fees from Summit were received during December 2004 and April and October of 2005, but full recognition of those license fees has been deferred, and is being recognized over the life of the contracts, which has been estimated to last until approximately 2019 based on the current expected life of the governing patent covering our products in Korea and Japan. See Note 1 to the Consolidated Financial Statements.

Under our license agreements with Hospira and CJ, our licensees report sales of Hextend ® and pay us the royalties and license fees due on account of such sales within 90 days after the end of each calendar quarter. We recognize such revenues in the quarter in which the sales report is received, rather than the quarter in which the sales took place. For example, royalties on sales made during the fourth quarter of 2011 were not recognized until the first quarter of fiscal year 2012.

Our royalty revenues from product sales for the year ended December 31, 2012 primarily consist of royalties on sales of Hextend ® made by Hospira and CJ during the period beginning October 1, 2011 and ending September 30, 2012. Royalty revenues recognized for that period were $541,681 compared with $756,950 recognized for the year ended December 31, 2011. This 28% decrease in royalties is attributable to a decrease in Hextend ® sales in the U.S. and in the Republic of Korea. The decrease in royalties received from Hospira is primarily due to the decline in the price of hetastarch-based products in the market. The blood volume expander marketing continues to contract and hospitals continue to shift their purchases to albumin products. Hospira has reported that they have seen a rapid decline in the price of hetastarch-based plasma expanders in the market which could continue to have a negative impact on revenues from the sale of Hextend ® . Hospira implemented further price reductions for Hextend ® during 2012 in an attempt to maintain market share. We expect royalty revenues from product sales to continue to decline as a percentage of total revenue.

Total grant revenue in 2012 decreased by approximately 20% as a result of the completion of the CIRM grant in August 31, 2012 compared to a full year of CIRM grant revenue in 2011. Grant revenue in 2012 included $1,047,106 from CIRM, $1,109,699 recognized through Cell Cure Neurosciences and $18,145 through Life Map Sciences, Ltd., and $47,507 of a $335,900 grant awarded to us by the NIH. The original NIH grant period ran from September 30, 2011 through September 29, 2012. However, this grant was extended for another year through September 29, 2013.

The decline in sales of research products and services in 2012 is primarily attributed to a one time sale of approximately $200,000 in revenues recognized through ESI in 2011.

Research and development expenses – Research and development expenses increased approximately 32% to $18,116,688 for the year ended December 31, 2012, from $13,699,691 for the year ended December 31, 2011. Research and development expenses include laboratory study expenses, patent and technology license fees, employee compensation, rent, insurance, and science-related consultants’ fees which are allocated to research and development expense.

Research and development expenses for the years ended December 31, 2012 and 2011, include $1,582,647 and $1,499,726, respectively, derived from the amortization of patent technology related to our acquisition of ESI and Cell Cure Neurosciences in May and October 2010, respectively. Aside from these expenses, the increase in research and development expenses during 2012 is primarily attributable to an increase of $2,116,195 in employee compensation and related costs allocated to research and development expenses, an increase of $1,019,031 in our HyStem ® program related research expenses, an increase of $456,068 in the amortization of patent technology reflecting a full year of amortization related to our acquisition of assets from CTI and merger with Glycosan in 2011, and amortization related to the merger with XenneX in 2012, an increase of $409,546 in expenditures made to cover laboratory expenses and supplies, an increase of $181,194 in stock-based compensation to employees and consultants, an increase of $148,501 in licenses, patent and trademark related fees and legal fees, an increase of $144,082 in scientific consulting fees, an increase of $142,744 in outside research and research related outside services, an increase of $160,218 in rent and building maintenance, an increase of $108,116 in travel, lodging and meals, and an increase of $96,888 in depreciation expense. These increases in 2012 over 2011 were offset in part by a decrease of $335,567 and $272,225 in ESI and Cell Cure Neurosciences research and development expenses, respectively.

General and administrative expenses – General and administrative expenses increased to $10,365,045 for the year ended December 31, 2012 from $9,341,502 for the year ended December 31, 2011. General and administrative expenses include employee and director compensation allocated to general and administrative expenses, consulting fees other than those paid for science-related consulting, insurance costs allocated to general and administrative expenses, stock exchange-related costs, depreciation expense, shipping expenses, marketing costs, and other miscellaneous expenses which are allocated to general and administrative expense.

The increase is attributable to an increase of $563,257 in employee compensation, bonuses and related costs allocated to general and administrative expenses, an increase of $180,639 in stock-based compensation to employees and consultants, an increase of $667,731 in legal fees, an increase of $107,818 in accounting and tax services, an increase of $76,745 in rent and building maintenance and an increase of $87,392 in Cell Cure Neurosciences general and administrative expenses. These increases are in part offset by a decrease of $185,456 in consulting fees, a decrease of $165,030 in recruiting service expenses, a decrease of $83,966 in travel, lodging and meals, a decrease of $83,414 in bad debt expenses, decrease of $75,573 in transfer agent, stock listing and registration fees and a decrease of $62,461 in ESI general and administrative expenses.

Interest income – During 2012, we earned $19,698 of interest income, net of $315 of interest expense. Interest income is primarily attributed to interest earned on cash balances held in interest bearing accounts during 2012. During 2011, we earned $30,053 of interest income, net of $326 of interest expense.

Other income/(expense) – Other expenses in 2012 include reversal of $207,425 in revenues recognized by ESI. The $207,425 represents US $200,000 that was recognized as revenues in 2011 upon the shipment of cell lines in accordance with an agreement between ESI and a customer. The difference of $7,425 is attributed to foreign currency rates. The revenue for the cell lines shipped to the customer was reversed during the first quarter of 2012 pending the final completion of audits and acceptance of vials by the customer which was incorrectly assumed to have occurred in December 2011. Other income in 2011 consists primarily of approximately $198,000 of reimbursement of tenant improvement expenses incurred by us.

Comparison of Years Ended December 31, 2011 and 2010

Our license fee revenue of $263,757 in 2011 and $292,904 in 2010 were primarily comprised of and license fees from CJ and Summit. The license fees were received from CJ during April 2003 and July 2004, and from Summit during December 2004 and April and October of 2005, but full recognition of the license fees has been deferred, and is being recognized over the life of the contract, which has been estimated to last until approximately 2019 based on the current expected life of the governing patent covering our products in Korea and Japan. See Note 1 to the Consolidated Financial Statements.

Our royalty revenue from product sales for the year ended December 31, 2011 consist of royalties on sales of Hextend ® made by Hospira and CJ during the period beginning October 1, 2010 and ending September 30, 2011. Royalty revenues recognized for that period were $753,140 compared with $945,461 recognized for the year ended December 31, 2010. This 20% decrease in royalties is attributable to a decrease in Hextend ® sales in the U.S., which was slightly offset by an increase in sales in the Republic of Korea. The decrease in royalties received from Hospira based on sales during 2011 is due to the rapid decline in the price of hetastarch-based products in the market. The blood volume expander marketing is shrinking overall and hospitals have shifted their purchases to albumin products. Hospira has reported that they have seen a rapid decline in the price of hetastarch-based plasma expanders in the market which could continue to have a negative impact on revenues from the sale of Hextend ® . Hospira has implemented further price reductions for Hextend ® during 2012 in an attempt to maintain market share.

We recognized $1,570,663 from our research grant from CIRM during the years ended December 31, 2011 and 2010. Grant income also included awards from other sources in the amount of $1,073,668 recognized through Cell Cure Neurosciences and $94,933 through OncoCyte and OrthoCyte and $27, 197 from an NIH grant that started in September 2011. The increase in grant income of approximately 18.4% in 2011 over 2010 is primarily attributed to the grant income recognized through Cell Cure Neurosciences compared to nil in 2010 and the NIH grant that started in September 2011. These increases were partially offset by $733,438 grant awarded to us under the U.S. Government's Qualifying Therapeutic Discovery Project ("QTDP"). This one time grant was entirely recognized in 2010.

The increase in sales of research products and services in 2011 is partially attributed to a one time sale of approximately $200,000 in revenues recognized through ESI in 2011 and the sale of research products acquired from the merger with Glycosan in March 2011 of approximately $241,000.

Research and development expenses – Research and development expenses increased to $13,699,691 for the year ended December 31, 2011, from $8,191,314 for the year ended December 31, 2010. Research and development expenses include laboratory study expenses, patent and technology license fees, employee salaries and benefits, stock compensation expense, rent, insurance and science-related consultants’ fees which are allocated to research and development expense.

The increase in 2011 is partially attributed to accounting for a full year of research and development activity by ESI and Cell Cure Neurosciences in 2011 compared to eight months and three months for ESI and Cell Cure Neurosciences, respectively in 2010. These amounts include $1,499,726 in 2011 and $790,117 in 2010 of amortization expense of patent technology acquired from the acquisition of those subsidiaries in May and October 2010, respectively. In 2011, research and development expenses also included $491,474 in amortization expense related to the patent technology acquired from CTI in January 2011 and through the acquisition of Glycosan in March 2011. In addition to these expenses, the increase in research and development expense during 2011 is primarily attributable to an increase of $768,305 in employee compensation and related costs, an increase of $348,282 in outside research and laboratory costs, an increase of $411,688 in stock-based compensation allocated to research and development expense of which $236,942 arises from Cell Cure Neurosciences, an increase of $189,406 in expenditures made to cover laboratory expenses and supplies, an increase of $170,365 in rent expenses allocated to research and development expense, an increase of $86,284 for patent related legal expenses, an increase of $89,563 in depreciation expenses allocated to research and development expense, and $402,089 in expenses related to the Renevia ® project which began in 2011. These increases were partially offset to some extent by decreases of $76,749 in scientific consulting fees.

General and administrative expenses – General and administrative expenses increased to $9,341,502 for the year ended December 31, 2011 from $5,341,119 for the year ended December 31, 2010. General and administrative expenses include salaries and benefits allocated to general and administrative accounts, stock compensation expense, consulting fees other than those paid for science-related consulting, expenditures for patent costs, trademark expenses, insurance costs allocated to general and administrative expenses, stock exchange-related costs, depreciation expense, shipping expenses, marketing costs, and other miscellaneous expenses which are allocated to general and administrative expense.

The increase in expenses in 2011 over 2010 is partially attributed to accounting for a full year of general and administrative expenses incurred by Cell Cure Neurosciences which we acquired in October of 2010. General and administrative expenses for ESI decreased to $294,310 in 2011 compared to $428,403 in 2010 due to certain non-recurring audit and accounting fees incurred in 2010 in connection with our acquisition of ESI, and due to the recognition of bad debt expense of approximately $31,000. There were no such non-recurring expenses in 2011. Excluding these non-recurring expenses, the overall increase in general and administrative expenses in 2011 is attributable to an increase of $2,190,753 in employee compensation, bonuses and related costs allocated to general and administrative expense, an increase of $424,442 in consulting fees, an increase of $191,172 in stock-based compensation to employees and consultants, an increase of $157,576 in cash and stock-based compensation paid to our independent directors, an increase of $262,205 in travel, lodging and entertainment expense, an increase in recruiting and hiring expense of $174,818, an increase of $103,062 in stock subscription, registration and agent fees, marketing and advertisement expenses of $81,595, an increase of $100,230 in bad debt expense and an increase of $57,180 in rent expenses allocated to general and administrative expense. These increases were partially offset by decreases of $133,526 in investor and public relations fees.

Interest income/(expense) – During 2011, we earned $30,053 of interest income and had $326 of interest expense. Interest income in 2011 was attributed to interest earned on higher cash balances held during 2011 compared to 2010. In 2010, almost all of the interest expense was incurred by Cell Cure Neurosciences, in which we acquired a majority equity interest in October 2010. See Note 12 to the Consolidated Financial Statements.

Other income/(expense) – Other income in 2011 consisted primarily of approximately $198,000 of reimbursement of tenant improvement expenses that we previously incurred. Other expense in 2010 of $68,573 was primarily comprised of approximately $66,000 of reimbursement of tenant improvement expenses offset to some extent by approximately $258,000 loss in share of Cell Cure Neurosciences recognized by ESI for period prior to our investment in Cell Cure in October 2010. See Note 12 to the Consolidated Financial Statements.

Modification cost of warrants – In 2010, we recognized $2,142,201 in costs for the modification of stock purchase warrants that expired on November 1, 2010. We offered a discounted exercise price of $1.818 per share to the holders of the warrants with an original strike price of $2.00 per share. The warrant discount offer commenced on June 18, 2010, and expired at 5:00 p.m., New York time, on August 18, 2010. There was no such transaction in 2011.

Taxes

At December 31, 2012 we had a cumulative net operating loss carryforward of approximately $78,000,000 for federal income tax purposes and $49,000,000 for state income tax purposes. Our effective tax rate differs from the statutory rate because we have recorded a 100% valuation allowance against our deferred tax assets, as we do not consider realization to be more likely than not.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Overview

We are a biotechnology company focused on the emerging field of regenerative medicine. Our core technologies center on stem cells capable of becoming all of the cell types in the human body, a property called pluripotency. Products made from these "pluripotent" stem cells are being developed by us and our subsidiaries, for use in a variety of fields of medicine, including: neuroscience, oncology, orthopedics, and blood and vascular diseases.

“Regenerative medicine” refers to an emerging field of therapeutic product development that may allow all human cell and tissue types to be manufactured on an industrial scale. This new technology is made possible by the isolation of human embryonic stem (“hES”) cells, and by the development of “induced pluripotent stem (“iPS”) cells” which are created from regular cells of the human body using technology that allows adult cells to be “reprogrammed” into cells with pluripotency like young hES-like cells. These pluripotent hES and iPS cells have the unique property of being able to branch out into each and every kind of cell in the human body, including the cell types that make up the brain, the blood, the heart, the lungs, the liver, and other tissues. Unlike adult-derived stem cells that have limited potential to become different cell types, pluripotent stem cells may have vast potential to supply an array of new regenerative therapeutic products, especially those targeting the large and growing markets associated with age-related degenerative disease. Unlike pharmaceuticals that require a molecular target, therapeutic strategies in regenerative medicine are generally aimed at regenerating affected cells and tissues, and therefore may have broader applicability. Regenerative medicine represents a revolution in the field of biotechnology with the promise of providing therapies for diseases previously considered incurable.

On October 1, 2013, our subsidiary, Asterias Biotherapeutics, Inc. (“Asterias”) acquired the stem cell assets of Geron Corporation, including patents and other intellectual property, biological materials, reagents and equipment for the development of new therapeutic products for regenerative medicine. The assets were contributed to Asterias under the Asset Contribution Agreement described in Notes 9 and 12 to the condensed consolidated interim financial statements, and provide Asterias with four cell lines, each with animal proof of concept, from which multiple therapeutic product candidates may be selected for development as summarized below.


Neurology – An initial Phase 1 safety study in spinal cord injury has been completed with follow-on opportunities in larger indications in Multiple Sclerosis and stroke.


Oncology – A Phase 2/3 ready cancer vaccine (VAC1) with an opportunity to continue the development of a second approach using dendritic cells derived from hESCs (VAC2) .


Orthopedics – Opportunity to continue the development of hESC derived chondrocytes to regenerate articular cartilage to address osteoarthritis and degenerative disk disease.


Cardiovascular – Opportunity to continue the development of hESC-derived cardiomyocytes for heart failure and myocardial infarction.

Our commercial efforts in regenerative medicine include the development and sale of products designed for research applications in the near term as well as products designed for diagnostic and therapeutic applications in the medium and long term. Through our ESI BIO division, we offer advanced human stem cell products and technology that can be used by researchers at universities and at companies in the bioscience and biopharmaceutical industries. We have developed research and clinical grade hES cell lines that we market for both basic research and therapeutic product development. Our subsidiary, ES Cell International Pte Ltd (“ESI”), has developed six hES cell lines that are among the best characterized and documented cell lines available today. Developed in compliance with the principles of current Good Manufacturing Practices (“cGMP”) that facilitate transition into the clinic, these hES cell lines are extensively characterized and five of the six cell lines currently have documented and publicly-available genomic sequences. The ESI hES cell lines are now included in the Stem Cell Registry of the National Institutes of Health (“NIH”), making them eligible for use in federally funded research, and all are available for purchase through our ESI BIO division at http://bioreagents.lifemapsc.com. We are working with several collaborators to enable the use of these lines for production of cell therapy products for IND enabling studies. ESI BIO also markets human embryonic progenitor cell (“hEPCs”), which are called PureStem ™ progenitors and were developed using ACTCellerate ™ technology. These hEPCs are purified lineages of cells that are intermediate in the developmental process between embryonic stem cells and fully differentiated cells. We expect that hEPCs will simplify the scalable manufacture of highly purified and identified cell types and will possess the ability to become a wide array of cell types with potential applications in research, drug discovery, and human regenerative stem cell therapies. The PureStem ™ progenitors are also available for purchase through http://bioreagents.lifemapsc.com.

Research products can be marketed without regulatory or other governmental approval, and thus offer relatively near-term business opportunities, especially when compared to therapeutic products. Certain research products, such as ESI hES lines and HyStem ® hydrogels, have the advantage of being “translatable to the clinic” meaning that these products are available as economic research grade or clinical grade; allowing researchers more assurance that they will be acceptable for use in future clinical trials. The medical devices and diagnostics that we and our subsidiaries are developing will require regulatory approval for marketing, but the clinical trial and approval process for medical devices is often faster and less expensive than the process for the approval of new drugs and biological therapeutics. Our current and near-term product opportunities, combined with expected long-term revenues from the potentially very large revenue that could be derived from cell-based therapeutic products under development at our subsidiaries, provide us with a balanced commercial strategy. The value of this balance is apparent in the commercial field of regenerative medicine as competitors whose sole focus is on long-term therapeutic products have found it challenging to raise the requisite capital to fund clinical development.

Our HyStem ® hydrogel product line is one of the components in our near-term revenue strategy. HyStem ® is a patented biomaterial that mimics the human extracellular matrix, which is the network of molecules surrounding cells in organs and tissues that is essential to cellular function. Many tissue engineering and regenerative cell-based therapies will require the delivery of therapeutic cells in a matrix or scaffold to sustain cell survival after transplantation and to maintain proper cellular function. HyStem ® is a unique hydrogel that has been shown to support cellular attachment and proliferation in vivo.

Renevia ™ is a clinical grade formulation of our HyStem®-C , a biocompatible, implantable hyaluronan and collagen- based matrix for cell delivery in human clinical applications. As an injectable product, Renevia™ may address an immediate need in cosmetic and reconstructive surgeries and other procedures by improving the process of transplanting adipose derived cells, mesenchymal stem cells, or other adult stem cells. We will need to obtain approval by the FDA and comparable regulatory agencies in foreign countries in order to market Renevia ™ as a medical device. We recently conducted our first European clinical trial of Renevia ™ without cells to determine the safety, tolerability, and acceptance of Renevia ™ after subcutaneous injection. Examinations of the subjects after they received Renevia ™ injections have shown that Renevia ™ was well-tolerated by all subjects with no serious adverse events or subject withdrawals. A final check of the enrolled subjects for adverse events will be made four weeks after the injection. Subsequent clinical studies are planned to document the efficacy of Renevia ™ as a delivery matrix for adipose cells to restore normal skin contours in patients where the subcutaneous adipose tissue has been lost to lipoatrophy, beginning with HIV related facial lipoatrophy. Lipoatrophy is a localized loss of fat beneath the skin. Lipoatrophy is often a consequence of the normal aging process where the loss of fat in the cheeks or the back of the hands contributes to an aged appearance, but lipoatrophy can also be associated with trauma, surgery, and diseases, and is frequently suffered by HIV patients being treated with anti-viral drugs.

We have commenced development of two new products based on our HyStem ® technology platform. The new products are unique formulations utilizing some of the same cGMP components that we using in our clinical trials of Renevia ™. The first of these new products is ReGlyde ™, a cross-linked thiol-modified hyaluronan hydrogel for the management and protection of tendon injuries following surgical repair of the digital flexor or extensor tendons of the hand. The product is intended to be applied to the repaired tendon area via a syringe or similar device immediately prior to closing of the surgical area. Separation of the tendon from surrounding tissue has been shown to significantly reduce post-surgical adhesions that can lead to complications such as restricted finger mobility and flexibility. The second new product, Premvia ™, is a HyStem ® hydrogel formulation of cross-linked thiol-modified hyaluronan and thiol-modified gelatin for the management of wounds including partial and full-thickness wounds, ulcers, tunneled/undermined wounds, surgical wounds, and burns.

Our HyStem ® hydrogels may have other applications when combined with the diverse and scalable cell types our scientists have isolated from hES cells. Other HyStem ® products are also currently being used by researchers at a number of leading medical schools in pre-clinical studies of stem cell therapies, including research that we are funding at UCLA for the treatment of ischemic stroke. Other researchers are conducting work with HyStem ® in research to facilitate wound healing, to treat brain cancer, vocal fold scarring, and for myocardial infarct repair. Recent publications have highlighted the combined use of HyStem ® hydrogels with PureStem ™ progenitors resulting in a combined product that produces cartilage- producing cell masses known as chondrocytes. We call this experimental product HyStem ®-4D. In collaboration with William Marsh Rice University, we are also using HyStem ® technology to develop 3D cell culture platforms for improved methods of screening new anti-cancer drug candidates in a project funded by a $285,423 Small Business Innovation Research (SBIR) grant awarded by the National Institutes of Health on September 20, 2013.

On September 19, 2013, BioTime, Inc. entered into an Exclusive Sublicense Agreement with Jade Therapeutics, Inc., which supersedes prior sublicense and supply agreements and expanded the “field of use” to include uses of HyStem ® hydrogel technology as an ophthalmic sustained-release drug delivery platform for the delivery of all potential therapeutic molecules to the human eye. Excluded from the licensed field of use is the use of the HyStem ® technology for the delivery of cells with or without any molecules necessary for the therapeutic benefit of those cells, for use in making punctal plugs, for diagnostic and research reagents, and for non-human applications.

Our subsidiary, OncoCyte Corporation, is developing PanC-Dx ™ tests, novel non-invasive cancer diagnostics designed to detect the presence of various human cancers, including cancers of the breast, lung, bladder, uterus, stomach, and colon, during routine check -ups. OncoCyte intends to initially develop PanC-Dx ™ diagnostics for breast and bladder cancer and may initially seek regulatory approval to market PanC-Dx ™ in Europe for one or both of those cancers before seeking regulatory approvals required to market the product in the U.S. and other countries. OncoCyte is also evaluating markers that may be used in a PanC-Dx ™ screen for lung cancer.

Our subsidiary, LifeMap Sciences markets, sells and distributes GeneCards ®, the leading human gene database, as part of an integrated database suite that includes LifeMap Discovery ™, the database of embryonic development, stem cell research and regenerative medicine; and MalaCards , the human disease database. LifeMap Sciences also markets PanDaTox , a database that can be used to identify genes and intergenic regions that are unclonable in E. coli, to aid in the discovery of new antibiotics and biotechnologically beneficial functional genes.

Initially, we developed blood plasma volume expanders and related technology for use in surgery, emergency trauma treatment, and other applications. Our lead blood plasma expander product, Hextend ®, is a physiologically balanced intravenous solution used in the treatment of hypovolemia, a condition caused by low blood volume, often from blood loss during surgery or injury. Hextend ® maintains circulatory system fluid volume and blood pressure, and keeps vital organs perfused during surgery and trauma care. Hextend ® is manufactured and distributed in the U.S. by Hospira, Inc., and in South Korea by CJ CheilJedang (“CJ”), under license from us.

Additional Information

HySte m ® , Hexten d ® and PentaLyte ® are registered trademarks of BioTime, Inc., and Renevi a ™, Premvia ™, ReGlyde ™, PureSte m ™ , ESpa n ™, and ESp y ® are trademarks of BioTime, Inc. ACTCellerat e ™ is a trademark licensed to us by Advanced Cell Technology, Inc . ReCyt e ™ is a trademark of ReCyte Therapeutics, Inc. PanC-D x ™ is a trademark of OncoCyte Corporation. GeneCard s ® is a registered trademark of Yeda Research and Development Co. Ltd.

We were incorporated in 1990 in the state of California. Our principal executive offices are located at 1301 Harbor Bay Parkway, Alameda, California 94502. Our telephone number is (510) 521-3390.

Critical Accounting Policies

Revenue recognition – We comply with SEC Staff Accounting Bulletin guidance on revenue recognition. Royalty revenues consist of product royalty payments. License fee revenues consist of fees under license agreements and are recognized when earned and reasonably estimable and also include subscription and advertising revenue from our online databases based upon respective subscription or advertising periods. We recognize revenue in the quarter in which the royalty reports are received rather than the quarter in which the sales took place. When we are entitled to receive up-front nonrefundable licensing or similar fees pursuant to agreements under which we have no continuing performance obligations, the fees are recognized as revenues when collection is reasonably assured. When we receive up-front nonrefundable licensing or similar fees pursuant to agreements under which we do have continuing performance obligations, the fees are deferred and amortized ratably over the performance period. If the performance period cannot be reasonably estimated, we amortize nonrefundable fees over the life of the contract until such time that the performance period can be more reasonably estimated. Milestone payments, if any, related to scientific or technical achievements are recognized in income when the milestone is accomplished if (a) substantive effort was required to achieve the milestone, (b) the amount of the milestone payment appears reasonably commensurate with the effort expended, and (c) collection of the payment is reasonably assured. Grant income and the sale of research products are recognized as revenue when earned. Revenues from the sale of research products are primarily derived from the sale of hydrogels and stem cell products.

Patent costs – Costs associated with obtaining patents on products or technology are expensed as general and administrative expenses when incurred. This accounting is in compliance with guidance promulgated by the Financial Accounting Standards Board (“FASB”) regarding goodwill and other intangible assets.

Research and development – We comply with FASB requirements governing accounting for research and development costs. Research and development costs are expensed when incurred, and consist principally of salaries, payroll taxes, consulting fees, research and laboratory fees, and license fees paid to acquire patents or licenses to use patents and other technology from third parties.

Stock-based compensation – We have adopted accounting standards governing share-based payments, which require the measurement and recognition of compensation expense for all share-based payment awards made to directors and employees, including employee stock options, based on estimated fair values. We utilize the Black-Scholes Merton option pricing model. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. Although the fair value of employee stock options is determined in accordance with recent FASB guidance, changes in the subjective assumptions can materially affect the estimated value. In management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of employee stock options because the option- pricing model value may not be indicative of the fair value that would be established in a willing buyer/willing seller market transaction.

Treasury stock – We account for BioTime common shares issued to subsidiaries for future potential working capital needs as treasury stock on the consolidated balance sheet. We have the intent and ability to register any unregistered shares to support the marketability of the shares.

Impairment of long-lived assets – Our long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the estimated fair value of the assets.

Deferred license and consulting fees – Deferred license and consulting fees consist of the value of warrants issued to third parties for services and to the minority shareholder in BioTime Asia for its participation in the organization of that company, and deferred license fees paid to acquire rights to use the proprietary technologies of third parties. The value of the warrants is being amortized over the lives of the warrants, and deferred license fees over the estimated useful lives of the licensed technologies or licensed research products. The estimation of the useful life any technology or product involves a significant degree of inherent uncertainty, since the outcome of research and development or the commercial life of a new product cannot be known with certainty at the time that the right to use the technology or product is acquired. We will review its amortization schedules for impairments that might occur earlier than the original expected useful lives. See also Note 5 to the condensed consolidated interim financial statements.

Principles of consolidation – Our consolidated financial statements include the accounts of our wholly-owned subsidiaries, OrthoCyte, and ESI, the accounts of ReCyte Therapeutics, a subsidiary of which we owned approximately 94.8% of the outstanding shares of common stock as of September 30, 2013; the accounts of OncoCyte, a subsidiary of which we owned approximately 75.3% of the outstanding shares of common stock as of September 30, 2013; the accounts of BioTime Asia, a subsidiary of which we owned approximately 81.0% of the outstanding shares as of September 30, 2013, the accounts of Cell Cure Neurosciences, a subsidiary of which we owned approximately 62.5% of the outstanding shares as of September 30, 2013, the accounts of LifeMap Sciences, a subsidiary of which we owned approximately 73.2% of the outstanding shares as of September 30, 2013, and the accounts of Asterias Biotherapeutics, a subsidiary of which we owned 96.7% of the outstanding shares as of September 30, 2013. All material intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements are presented in accordance with accounting principles generally accepted in the U.S. and with the accounting and reporting requirements of Regulation S-X of the SEC.

Results of Operations

Our license fee revenues for the three and nine months ended September 30, 2013 amounted to $382,767 and $1,094,843, respectively. License fee revenues for the same periods in 2012 amounted to $337,633 and $549,521, respectively. License fee revenues for the nine months ended September 30, 2013 and 2012 include subscription and advertising revenues of $984,133 and $438,889, respectively, from LifeMap Sciences’ online database business primarily related to its GeneCard s ® database which LifeMap Sciences began marketing, selling and distributing after its acquisition of XenneX, Inc. during May 2012. The 124% increases in license fee revenue during the nine months ended September 30, 2013 is entirely attributed to subscription and advertising revenue.

License fee revenues also include amortization of license fees from Summit which we received during December 2004 and April and October of 2005. Full recognition of those license fees were deferred and is being recognized over the lives of the contracts, which have been estimated to last until approximately 2019 based on the current expected lives of the governing patents covering our products in Japan. Amortization of such license fees during the three and nine months ended September 30, 2013 and 2012 amounted to $36,468 and $109,405, respectively.

Under our license agreements with Hospira and CJ, our licensees report sales of Hexten d ® and pay us the royalties due on account of such sales within 90 days after the end of each calendar quarter. We recognize those revenues in the quarter in which the sales report is received, rather than the quarter in which the sales took place. For example, royalties on sales made during the second quarter of 2013 were not recognized until the third quarter of fiscal year 2013.

Our royalty revenues from product sales for the three months ended September 30, 2013 primarily consist of royalties on sales of Hexten d ® made by Hospira and CJ during the period beginning April 1, 2013 and ending June 30, 2013. Royalty revenues recognized in the third quarter of 2013 were $60,920 from Hospira and $19,672 from CJ. Total royalties of $80,592 for the quarter decreased by $53,354 or 40% from royalties of $133,946 received during the same period last year. Total royalties of $291,505 for the nine month period ended September 30, 2013 decreased by $116,298 or 29% from royalties of $407,803 during the same period last year.

The decrease in royalties is attributable to a decrease in Hexten d ® sales in the U.S. and in the Republic of Korea. The decrease in royalties received from Hospira is primarily due to the decline in the price of hetastarch-based products in the market. The blood volume expander market continues to contract as hospitals continue to shift their purchases to albumin products. Hospira has reported that they have seen a rapid decline in the price of hetastarch-based plasma expanders in the market that could continue to have a negative impact on revenues from the sale of Hexten d ® . Hospira has implemented price reductions for Hexten d ® in an attempt to maintain market share. We expect royalty revenues from product sales to continue to decline as a percentage of total revenue.

In addition to price competition, sales of Hexten d ® could be adversely affected if certain safety labeling changes proposed by the FDA go into effect. During June 2013, the FDA notified us that they believe that new safety labeling should be required for the entire class of hydroxyethyl starch products, including Hexten d ® . The proposed labeling change would include a boxed warning that would state that that the use of Hexten d ® increases the risk of mortality and renal injury requiring renal replacement therapy in critically ill adult patients, including patients with sepsis and those admitted to the ICU, and that Hexten d ® should not be used in critically ill adult patients, including patients with sepsis and those admitted to the ICU. New warning and precaution information would also be required along with new information about contraindications, adverse reactions, and information about certain recent studies. The warning and precautions would state that the use of Hexten d ® should be avoided in patients with pre-existing renal dysfunction and in patients undergoing open heart surgery in association with cardiopulmonary bypass due to the risk of excessive bleeding.

We submitted a rebuttal to the FDA requesting that their proposed labeling changes not apply to Hexten d ® because the data on which the FDA based its request studied the effects of hydroxyethyl starches in saline solutions and not Hexten d ® , while other studies that did evaluate the use of Hexten d ® suggest that Hexten d ® does not cause increased mortality and bleeding or severe renal injury, especially when used in volumes less than 1,500 ml. Moreover, FDA safety database information reveals that since the use of Hexten d ® began in 1999, based on approximately 5.7 million units of Hexten d ® distributed in the United States, there were only 10 reports of patients that experienced product related adverse events.

Based on our correspondence with the FDA, we have submitted an amendment containing the latest labeling proposed by the FDA that modifies certain warnings. Consistent with prior labeling, the proposed labeling would not warn against the use of Hextend ® in patients undergoing open heart surgery in association with cardiopulmonary bypass, but instead would caution that such patients should be monitored for signs of excess bleeding. The FDA has not yet approved the proposed labeling change. The resulting revised label may adversely affect Hextend ® sales since some users of plasma volume expanders might elect to abandon the use of all hydroxyethyl starch products, including Hextend ®.

Based on sales of Hexten d ® that occurred during the third quarter of 2013, we will receive royalties of $ 57,691 from Hospira and have received $17,578 from CJ during the fourth quarter of 2013. Total royalties of $75,269, which will be recognized during the fourth quarter, decreased 44% from royalties of $133,879 received during the same period last year.

Total grant revenue for the three months ended September 30, 2013 decreased by $281,199 or 64%, and by $576,860 or 38% for the nine months ended September 30, 2013, primarily due to the completion of a research grant from the California Institute of Regenerative Medicine (“CIRM”) on August 31, 2012, offset by an additional $406,682 of grant revenue recognized through Cell Cure Neurosciences in 2013 compared to the same period in 2012. We received no CIRM grant revenue in 2013. Grant revenue in the three and nine months ended September 30, 2013 also included nil and $3,995 recognized through ESI, and $3,239 and $38,535, respectively of a $335,900 grant awarded to us by the NIH that will expire on September 29, 2014.

Operating Expenses

Research and development expenses – Research and development expenses for the three and nine months ended September 30, 2013 increased to $6,441,462 and $17,389,409, respectively from $4,545,470 and $13,323,410 for the same periods in 2012. Research and development expenses during the three and nine months ended September 30, 2013 include $642,572 and $1,927,718, respectively, derived from the amortization of patent technology related to our acquisition of ESI and Cell Cure Neurosciences in May and October 2010, respectively, from our acquisition of assets from Cell Targeting, Inc., and the merger of Glycosan BioSystems, Inc. into OrthoCyte in January and March 2011, respectively, and the merger of XenneX, Inc. into LifeMap Sciences in May 2012. Those amortization expenses increased by $1,622 and $163,336 during the three and nine months ended September 30, 2013, respectively, compared to the same periods in 2012. Research and development expenses also include laboratory study expenses, patent and technology license fees, employee compensation, rent, insurance, and science-related consultants’ fees which are allocated to research and development expenses.

The increase in research and development expenses of $1,895,992 during three months ended September 30, 2013 compared to the same period in 2012 is also attributable to an increase of $731,257 in employee compensation and related costs allocated to research and development expenses, an increase of $171,235 in our HySte m ® program related research expenses, including the clinical development of Renevi a ™, an increase of $131,931 in rent and facilities maintenance related expenses allocated to research and development expenses primarily attributed to Asterias’ new facility effective January 2013, an increase of $101,416 in stock based compensation allocated to research and development expenses, and an increase of $923,706 in Cell Cure Neurosciences research and development expenses. These increases were offset in part by a decrease of $78,729 in patent related legal expenses and a decrease of $19,138 in ESI research and development expenses. Of the total increase in research and development expenses for the three months ended September 30, 2013, $1,149,059 is attributable to Asterias.

The increase in research and development expenses of $4,065,999 for the nine months ended September 30, 2013 compared to the same period in 2012, is also attributable to an increase of $1,412,012 in employee compensation and related costs allocated to research and development expenses, an increase of $484,403 in HySte m ® program expenses, an increase of $327,802 in rent and facilities maintenance related expenses allocated to research and development expenses primarily attributed to Asterias’ office and research facility, an increase of $147,092 in laboratory expenses and supplies, an increase of $163,337 in amortization of patent technology due to the merger of XenneX, Inc. into LifeMap Sciences in May 2012, an increase of $142,148 in stock based compensation allocated to research and development expenses, an increase of $80,056 in depreciation expenses allocated to research and development expenses, and an increase of $1,577,695 in Cell Cure Neurosciences research and development expenses. These increases were offset in part by a decrease of $236,900 in licenses, patent and trademark related fees and legal fees, and $117,212 in ESI research and development expenses. Of the total increase in research and development expenses for the nine months ended September 30, 2013, $1,931,048 is attributable to Asterias.

The increase in HySte m ® program related expenses for the three and nine month periods referenced above include expenses related solely to our HyStem ® program, including certain laboratory, clinical trial, and quality control costs.

General and administrative expenses – General and administrative expenses for the three and nine months ended September 30, 2013 increased to $4,267,875 and $11,273,948, respectively, from $2,234,905 and $7,037,807 for the same periods in 2012. General and administrative expenses include employee and director compensation allocated to general and administrative expenses, consulting fees other than those paid for science-related consulting, insurance costs allocated to general and administrative expenses, stock exchange-related costs, depreciation expense, shipping expenses, marketing costs, and other miscellaneous expenses which are allocated to general and administrative expenses.

The increase in general and administrative expenses of $2,032,970 for the three months ended September 30, 2013 compared to the same period in 2012 is primarily attributable to an increase of $342,438 in employee compensation and related costs allocated to general and administrative expenses, $250,000 accrual for year-end employee bonuses in 2013, an increase of $374,909 in legal fees, an increase of $351,552 in stock based comp to our employees, consultants and independent directors, an increase of $161,307 in accounting and tax related services, an increase of $145,521 in rent and facilities maintenance related expenses allocated to general and administrative expenses, an increase of $128,506 in investor and public relations expenses, transfer agent, stock listing and registration fees, an increase of $116,629 in general office supplies and expenses, an increase of $91,952 in travel, lodging and meals allocated to general and administrative expenses, and an increase of $50,250 in cash compensation paid to our independent directors. Of the total increase in general and administrative expenses for the three months ended September 30, 2013, $1,523,732 is attributable to Asterias.

The increase in general and administrative expenses of $4,236,141 for the nine months ended September 30, 2013 compared to the same period in 2012 is generally attributable to an increase of $902,458 in employee compensation and related costs allocated to general and administrative expenses, $250,000 accrual for year-end employee bonuses in 2013, an increase of $1,101,072 in legal fees, an increase of $486,049 in stock-based compensation to employees, consultants and independent directors, an increase of $328,585 in investor and public relations expenses, transfer agent, stock listing and registration fees, an increase of $316,350 in accounting and tax services, an increase of $261,344 in rent and facilities maintenance related expenses allocated to general and administrative expenses, an increase of $195,895 in general office supplies and expenses, an increase of $163,500 in cash compensation paid to our independent directors, an increase of $130,888 in marketing and advertisement related expenses, an increase of $122,459 in recruiting service expenses, and an increase of $95,409 in travel, lodging and meals allocated to general and administrative expenses. These increases are in part offset by a decrease of $70,761 in general outside services, and a decrease of $88,903 in ESI general and administrative expenses due to a reduction in ESI staffing.

The increase in legal and accounting expenses during both the three month and nine month periods ended September 30, 2013 are primarily due to the start-up and transaction related expenses and the fees incurred in connection with the preparation and filing of certain registration statements under the Securities Act of 1933, as amended, with the Securities and Exchange Commission related to the contribution of assets to Asterias by us and Geron under the Asset Contribution Agreement, and costs associated with the special meeting of our shareholders held during May 2013 to approve certain matters related that asset contribution transaction. Of the total increase in general and administrative expenses for the nine months ended September 30, 2013, $2,855,720 is attributable to Asterias.

Other expense/income – Other expense/income for the three and nine months ended September 30, 2013 consists primarily of $9,145 and $124,298, respectively of foreign currency transaction loss compared to $30,802 and $36,109, respectively of foreign currency transaction gain in the same periods in 2012.

Income Taxes

During the three and nine months ended September 30, 2013 and 2012, we had no Federal and state income tax obligations because we have substantial net operating loss carryovers and have provided a 100% valuation allowance for any deferred taxes.

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